Texas 2015 - 84th Regular

Texas House Bill HB3238 Compare Versions

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1	1	84R11360 LED-F
2	2	By: Frullo H.B. No. 3238
3	3
4	4
5	5	A BILL TO BE ENTITLED
6	6	AN ACT
7	7	relating to the regulation of funding agreements, guaranteed
8	8	investment contracts, and synthetic guaranteed investment
9	9	contracts issued by a life insurer.
10	10	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
11	11	SECTION 1. Section 443.301, Insurance Code, is amended to
12	12	read as follows:
13	13	Sec. 443.301. PRIORITY OF DISTRIBUTION. The priority of
14	14	payment of distributions on unsecured claims must be in accordance
15	15	with the order in which each class of claims is set forth in this
16	16	section. Every claim in each class shall be paid in full, or
17	17	adequate funds retained for their payment, before the members of
18	18	the next class receive payment, and all claims within a class must
19	19	be paid substantially the same percentage of the amount of the
20	20	claim. Except as provided by Subsections (a)(2), (a)(3), (i), and
21	21	(k), subclasses may not be established within a class. No claim by a
22	22	shareholder, policyholder, or other creditor shall be permitted to
23	23	circumvent the priority classes through the use of equitable
24	24	remedies. The order of distribution of claims shall be:
25	25	(a) Class 1. (1) The costs and expenses of administration
26	26	expressly approved or ratified by the liquidator, including the
27	27	following:
28	28	(A) the actual and necessary costs of preserving
29	29	or recovering the property of the insurer;
30	30	(B) reasonable compensation for all services
31	31	rendered on behalf of the administrative supervisor or receiver;
32	32	(C) any necessary filing fees;
33	33	(D) the fees and mileage payable to witnesses;
34	34	(E) unsecured loans obtained by the receiver; and
35	35	(F) expenses, if any, approved by the
36	36	rehabilitator of the insurer and incurred in the course of the
37	37	rehabilitation that are unpaid at the time of the entry of the order
38	38	of liquidation.
39	39	(2) The reasonable expenses of a guaranty association,
40	40	including overhead, salaries and other general administrative
41	41	expenses allocable to the receivership to include administrative
42	42	and claims handling expenses and expenses in connection with
43	43	arrangements for ongoing coverage, other than expenses incurred in
44	44	the performance of duties under Section 462.002(3), 463.108,
45	45	463.111, 463.113, 463.353, or 2602.113 or similar duties under the
46	46	statute governing a similar organization in another state. In the
47	47	case of the Texas Property and Casualty Insurance Guaranty
48	48	Association and other property and casualty guaranty associations,
49	49	the expenses shall include loss adjustment expenses, including
50	50	adjusting and other expenses and defense and cost containment
51	51	expenses. In the event that there are insufficient assets to pay
52	52	all of the costs and expenses of administration under Subsection
53	53	(a)(1) and the expenses of a guaranty association, the costs and
54	54	expenses under Subsection (a)(1) shall have priority over the
55	55	expenses of a guaranty association. In this event, the expenses of
56	56	a guaranty association shall be paid on a pro rata basis after the
57	57	payment of costs and expenses under Subsection (a)(1) in full.
58	58	(3) For purposes of Subsection (a)(1)(E), any
59	59	unsecured loan obtained by the receiver, unless by its terms it
60	60	otherwise provides, has priority over all other costs of
61	61	administration. Absent agreement to the contrary, all claims in
62	62	this subclass share pro rata.
63	63	(4) Except as expressly approved by the receiver, any
64	64	expenses arising from a duty to indemnify the directors, officers,
65	65	or employees of the insurer are excluded from this class and, if
66	66	allowed, are Class 5 claims.
67	67	(b) Class 2. (1) All claims under policies of insurance
68	68	and annuity contracts, including funding agreements, guaranteed
69	69	investment contracts, synthetic guaranteed investment contracts,
70	70	third-party claims, claims under nonassessable policies for
71	71	unearned premium, claims of obligees and, subject to the discretion
72	72	of the receiver, completion contractors under surety bonds and
73	73	surety undertakings other than bail bonds, mortgage or financial
74	74	guaranties, or other forms of insurance offering protection against
75	75	investment risk, claims by principals under surety bonds and surety
76	76	undertakings for wrongful dissipation of collateral by the insurer
77	77	or its agents, and claims incurred during the extension of coverage
78	78	provided for in Section 443.152. For purposes of this subdivision,
79	79	"annuity contract," "funding agreement," "guaranteed investment
80	80	contract," and "synthetic guaranteed investment contract" have the
81	81	meanings assigned by Section 1154.003.
82	82	(2) All other claims incurred in fulfilling the
83	83	statutory obligations of a guaranty association not included in
84	84	Class 1, including indemnity payments on covered claims and, in the
85	85	case of the Life, Accident, Health, and Hospital Service Insurance
86	86	Guaranty Association or another life and health guaranty
87	87	association, all claims as a creditor of the impaired or insolvent
88	88	insurer for all payments of and liabilities incurred on behalf of
89	89	covered claims or covered obligations of the insurer and for the
90	90	funds needed to reinsure those obligations with a solvent insurer.
91	91	(3) Claims for benefits under a health care plan
92	92	issued by a health maintenance organization.
93	93	(4) Claims under insurance policies or contracts for
94	94	benefits issued by an unauthorized insurer.
95	95	(5) Notwithstanding any provision of this chapter, the
96	96	following claims are excluded from Class 2 priority:
97	97	(A) obligations of the insolvent insurer arising
98	98	out of reinsurance contracts;
99	99	(B) obligations, excluding unearned premium
100	100	claims on policies other than reinsurance agreements, incurred
101	101	after:
102	102	(i) the expiration date of the insurance
103	103	policy;
104	104	(ii) the policy has been replaced by the
105	105	insured or canceled at the insured's request; or
106	106	(iii) the policy has been canceled as
107	107	provided by this chapter;
108	108	(C) obligations to insurers, insurance pools, or
109	109	underwriting associations and their claims for contribution,
110	110	indemnity, or subrogation, equitable or otherwise;
111	111	(D) any claim that is in excess of any applicable
112	112	limits provided in the insurance policy issued by the insurer;
113	113	(E) any amount accrued as punitive or exemplary
114	114	damages unless expressly covered under the terms of the policy;
115	115	(F) tort claims of any kind against the insurer
116	116	and claims against the insurer for bad faith or wrongful settlement
117	117	practices; and
118	118	(G) claims of the guaranty associations for
119	119	assessments not paid by the insurer, which must be paid as claims in
120	120	Class 5.
121	121	(c) Class 3. Claims of the federal government not included
122	122	in Class 2.
123	123	(d) Class 4. Debts due employees for services or benefits
124	124	to the extent that the debts do not exceed $5,000 or two months
125	125	salary, whichever is the lesser, and represent payment for services
126	126	performed within one year before the entry of the initial order of
127	127	receivership. This priority is in lieu of any other similar
128	128	priority that may be authorized by law as to wages or compensation
129	129	of employees.
130	130	(e) Class 5. Claims of other unsecured creditors not
131	131	included in Classes 1 through 4, including claims under reinsurance
132	132	contracts, claims of guaranty associations for assessments not paid
133	133	by the insurer, and other claims excluded from Class 2.
134	134	(f) Class 6. Claims of any state or local governments,
135	135	except those specifically classified elsewhere in this section.
136	136	Claims of attorneys for fees and expenses owed them by an insurer
137	137	for services rendered in opposing a formal delinquency proceeding.
138	138	In order to prove the claim, the claimant must show that the insurer
139	139	that is the subject of the delinquency proceeding incurred the fees
140	140	and expenses based on its best knowledge, information, and belief,
141	141	formed after reasonable inquiry, indicating opposition was in the
142	142	best interests of the insurer, was well grounded in fact, and was
143	143	warranted by existing law or a good faith argument for the
144	144	extension, modification, or reversal of existing law, and that
145	145	opposition was not pursued for any improper purpose, such as to
146	146	harass or to cause unnecessary delay or needless increase in the
147	147	cost of the litigation.
148	148	(g) Class 7. Claims of any state or local government for a
149	149	penalty or forfeiture, but only to the extent of the pecuniary loss
150	150	sustained from the act, transaction, or proceeding out of which the
151	151	penalty or forfeiture arose, with reasonable and actual costs
152	152	occasioned thereby. The balance of the claims must be treated as
153	153	Class 9 claims under Subsection (i).
154	154	(h) Class 8. Except as provided in Sections 443.251(b) and
155	155	(d), late filed claims that would otherwise be classified in
156	156	Classes 2 through 7.
157	157	(i) Class 9. Surplus notes, capital notes or contribution
158	158	notes or similar obligations, premium refunds on assessable
159	159	policies, and any other claims specifically assigned to this class.
160	160	Claims in this class are subject to any subordination agreements
161	161	related to other claims in this class that existed before the entry
162	162	of the liquidation order.
163	163	(j) Class 10. Interest on allowed claims of Classes 1
164	164	through 9, according to the terms of a plan proposed by the
165	165	liquidator and approved by the receivership court.
166	166	(k) Class 11. Claims of shareholders or other owners
167	167	arising out of their capacity as shareholders or other owners, or
168	168	any other capacity, except as they may be qualified in Class 2, 5,
169	169	or 10. Claims in this class are subject to any subordination
170	170	agreements related to other claims in this class that existed
171	171	before the entry of the liquidation order.
172	172	SECTION 2. Subtitle C, Title 7, Insurance Code, is amended
173	173	by adding Chapter 1154 to read as follows:
174	174	CHAPTER 1154. FUNDING AGREEMENTS, GUARANTEED INVESTMENT CONTRACTS,
175	175	AND SYNTHETIC GUARANTEED INVESTMENT CONTRACTS
176	176	SUBCHAPTER A. GENERAL PROVISIONS
177	177	Sec. 1154.001. SHORT TITLE. This chapter may be cited as
178	178	the Act for the Regulation of Funding Agreements, Guaranteed
179	179	Investment Contracts, and Synthetic Guaranteed Investment
180	180	Contracts.
181	181	Sec. 1154.002. PURPOSE; LEGISLATIVE INTENT; CONSTRUCTION.
182	182	(a) The purpose of this chapter is to:
183	183	(1) promote the public welfare by regulating funding
184	184	agreements, guaranteed investment contracts, and synthetic
185	185	guaranteed investment contracts; and
186	186	(2) clarify and codify the existing law pertaining to
187	187	funding agreements, guaranteed investment contracts, and synthetic
188	188	guaranteed investment contracts.
189	189	(b) This chapter shall be liberally construed.
190	190	Sec. 1154.003. DEFINITIONS. In this chapter:
191	191	(1) "Allocated group annuity contract" means a group
192	192	annuity contract or group annuity certificate under which the life
193	193	insurer establishes and maintains individual account records and
194	194	investment account balances for the group participants to allocate
195	195	and guarantee a specific payment amount to each group member.
196	196	(2) "Annuity contract" means a contract, including a
197	197	funding agreement, guaranteed investment contract, and synthetic
198	198	guaranteed investment contract, issued by a life insurer, with or
199	199	without a mortality or morbidity contingency, under which:
200	200	(A) the owner deposits cash or assets in one or
201	201	more installments with the life insurer; and
202	202	(B) the owner or a beneficiary designated by the
203	203	owner has a right to receive periodic payments for a specified
204	204	future term.
205	205	(3) "Funding agreement" means a type of annuity
206	206	contract under which a life insurer:
207	207	(A) accepts and accumulates funds, including
208	208	noncash assets; and
209	209	(B) makes one or more payments at a future date in
210	210	amounts that are not based on mortality or morbidity contingencies.
211	211	(4) "Governmental body" means a federal, state,
212	212	municipal, local, or foreign court, tribunal, governmental
213	213	department, commission, board, bureau, agency, authority,
214	214	instrumentality, regulatory body, or quasi-regulatory body.
215	215	(5) "Group" means a group to which a group life
216	216	insurance policy may be issued under Subchapter B, Chapter 1131.
217	217	(6) "Group annuity certificate" means a certificate
218	218	issued to a group member in connection with the group member's group
219	219	annuity contract.
220	220	(7) "Group annuity contract" means an annuity contract
221	221	issued to a group and not an individual.
222	222	(8) "Guaranteed investment contract" means a type of
223	223	annuity contract issued by a life insurer:
224	224	(A) that is a funding vehicle typically issued to
225	225	a retirement plan; and
226	226	(B) under which the life insurer accepts a
227	227	deposit or series of deposits from the purchaser and guarantees to
228	228	pay a specified interest rate of return on the funds deposited
229	229	during a specified period.
230	230	(9) "Life insurer" means an insurance company
231	231	authorized to engage in the business of life insurance, including
232	232	issuing annuity contracts, in this state.
233	233	(10) "Synthetic guaranteed investment contract" means
234	234	a group annuity contract or other agreement issued by a life insurer
235	235	that, wholly or partly, establishes the life insurer's obligations
236	236	by reference to a segregated portfolio of assets that the life
237	237	insurer does not own.
238	238	(11) "Unallocated group annuity contract" means a
239	239	group annuity contract or group annuity certificate that is not
240	240	issued to and owned by an individual, except to the extent of any
241	241	annuity benefits guaranteed to an individual by an insurer under
242	242	the contract or certificate.
243	243	Sec. 1154.004. APPLICABILITY OF CERTAIN OTHER LAW.
244	244	Chapters 521, 1107, 1115, and 1131 do not apply to funding
245	245	agreements or guaranteed investment contracts without mortality or
246	246	morbidity contingencies.
247	247	Sec. 1154.005. RULES. The commissioner may adopt rules to
248	248	implement or clarify this chapter.
249	249	SUBCHAPTER B. FUNDING AGREEMENTS
250	250	Sec. 1154.051. ESTABLISHMENT OF FUNDING AGREEMENTS. (a) A
251	251	life insurer may issue a funding agreement to generate an income
252	252	stream for the purchaser of the agreement or fund a future liability
253	253	of the purchaser or the purchaser's designee. A life insurer may
254	254	issue a funding agreement to:
255	255	(1) an accredited investor, as defined by 17 C.F.R.
256	256	Section 230.501; or
257	257	(2) a governmental body.
258	258	(b) A life insurer that issues a funding agreement in this
259	259	state engages in the business of insurance for the purpose of
260	260	regulation.
261	261	SUBCHAPTER C. GUARANTEED INVESTMENT CONTRACTS
262	262	Sec. 1154.101. ESTABLISHMENT OF GUARANTEED INVESTMENT
263	263	CONTRACTS. A life insurer may issue a guaranteed investment
264	264	contract to provide a benefit in a fixed amount or a variable amount
265	265	or a fixed amount and a variable amount. A life insurer may issue a
266	266	guaranteed investment contract to a group as an allocated or
267	267	unallocated group annuity contract.
268	268	SECTION 3. This Act takes effect September 1, 2015.