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2005 Texas Insurance Code CHAPTER 442. LIQUIDATION, REHABILITATION, REORGANIZATION, OR CONSERVATION OF INSURERS
INSURANCE CODE CHAPTER 442. LIQUIDATION, REHABILITATION, REORGANIZATION, OR CONSERVATION OF INSURERS SUBCHAPTER A. GENERAL PROVISIONS § 442.001. DEFINITIONS. (a) In this chapter: (1) "Assets" means all property, whether specifically mortgaged, pledged, deposited, or otherwise encumbered for the security or benefit of specified persons or a limited class or classes of persons. The term includes all deposits and funds of a special or trust nature. (2) "Delinquency proceeding" means a proceeding initiated in a court of this state against an insurer to liquidate, rehabilitate, reorganize, or conserve the insurer. (3) "Insurer" means any organization, corporation, or person that engages in the business of insurance, other than an organization, corporation, or person that is specifically made exempt from the application of this chapter by another statute that references this chapter. The term includes: (A) a capital stock company; (B) a reciprocal or interinsurance exchange; (C) a Lloyd's plan; (D) a fraternal benefit society; (E) a mutual or mutual assessment company of any kind, including: (i) a statewide mutual assessment company; (ii) a local mutual aid association; (iii) a burial association; (iv) a county mutual insurance company; and (v) a farm mutual insurance company; and (F) a fidelity, guaranty, or surety company. (4) "Person" means an individual, association, corporation, partnership, or other private legal entity. (5) "Receiver" means a person appointed to act as receiver under Section 442.051. The term includes the commissioner or a person appointed by the commissioner to act as special deputy receiver. (b) For purposes of this chapter, "court" means the court in which a delinquency proceeding is pending, unless the context clearly indicates otherwise. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.002. LIQUIDATION OVERSIGHT DIVISION EMPLOYEES. The employees of the commissioner acting as receiver are employees of the department for the purposes of: (1) reporting payroll information to the uniform statewide accounting system; and (2) submitting vouchers to the comptroller for the payment of the employees' salaries. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.003. OVERSIGHT OF SPECIAL DEPUTY RECEIVERS AND GUARANTY ASSOCIATIONS. The commissioner shall oversee special deputy receivers and guaranty associations. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.004. CONFLICT WITH OTHER LAW. If this chapter conflicts with any other law, this chapter prevails. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007.SUBCHAPTER B. GENERAL PROVISIONS REGARDING RECEIVER § 442.051. RECEIVER. If, under a law of this state, a court of competent jurisdiction finds that a receiver should take charge of the assets of an insurer domiciled in this state, the commissioner or a person appointed as a special deputy receiver by the commissioner under a contract shall act as receiver. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.052. APPOINTMENT OF SPECIAL DEPUTY RECEIVER. (a) The commissioner may appoint, set the compensation of, and contract with one or more qualified special deputy receivers to act for the commissioner under this code. (b) The commissioner shall: (1) specify requirements for the position of special deputy receiver; and (2) use a competitive bidding process to select special deputy receivers. (c) In making an appointment under this section, the commissioner shall attempt to reflect the ethnic, racial, and geographic diversity of the state. (d) A special deputy receiver serves at the pleasure of the commissioner. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.053. PERFORMANCE BOND REQUIRED. A special deputy receiver must file with the commissioner a bond that is: (1) in an amount established by the commissioner; (2) payable to the commissioner for the benefit of injured parties; and (3) conditioned on: (A) the faithful performance of the special deputy receiver's duties; and (B) the proper accounting for all money and property received or administered by the special deputy receiver. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.054. POWERS OF SPECIAL DEPUTY RECEIVER. (a) Unless restricted by the commissioner, a special deputy receiver has all the powers of a receiver granted under this code and may perform any act on behalf of the commissioner as receiver. (b) If expressly authorized by the commissioner, a special deputy receiver may employ employees and agents, legal counsel, actuaries, accountants, appraisers, consultants, and other personnel the special deputy receiver considers necessary to assist in the performance of the receiver's duties. The expenses of employing those persons are expenses of the receivership payable out of money or other assets of the insurer. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.055. RECEIVER CONSIDERED TO ACT ON BEHALF OF RECEIVERSHIP ESTATE. (a) In performing the duties of receiver under this chapter, the commissioner, a special deputy receiver, or an agent or employee of the commissioner or special deputy receiver is considered to act on behalf of the receivership estate. (b) Chapter 105, Civil Practice and Remedies Code, does not apply to an action taken under this chapter. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.056. IMMUNITY. (a) The following persons are not liable, and a cause of action does not arise against any of the following persons, for a good faith action or failure to act in exercising powers and performing duties under this chapter: (1) the commissioner or an agent or employee of the commissioner; or (2) a special deputy receiver or an agent or employee of the special deputy receiver. (b) The attorney general shall defend an action to which Subsection (a) applies that is brought against a person described by that subsection, including an action brought after the defendant's service with the commissioner, a special deputy receiver, or the department has terminated, or after the close of the receivership out of which the action arises. This subsection does not require the attorney general to defend a person with respect to an issue other than the applicability or effect of the immunity provided by Subsection (a). Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007.SUBCHAPTER C. CONDUCT OF DELINQUENCY PROCEEDINGS: GENERAL PROVISIONS § 442.101. VENUE. Exclusive venue of delinquency proceedings is in Travis County. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.102. RIGHTS AND LIABILITIES ESTABLISHED AS OF DATE DELINQUENCY PROCEEDING BEGINS. Except as otherwise directed by the court or expressly provided by this chapter, the rights and liabilities of an insurer that is the subject of a delinquency proceeding and of all other persons interested in the insurer's estate, including the insurer's creditors, policyholders, members, officers, directors, shareholders, and agents, are fixed as of the date of the commencement of the delinquency proceeding, subject to the provisions of Subchapter E relating to the rights of claimants holding unliquidated or undetermined claims or demands. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.103. TITLE TO ASSETS; PRIORITY OF RECEIVER'S RIGHTS. (a) The assets of an insurer that is the subject of a delinquency proceeding are in the custody of the court as of the date of the commencement of the proceeding. (b) The receiver is vested by operation of law with the title to all of the insurer's property, contracts, and rights of action, wherever located, as of the date a court order is entered directing possession to be taken. The title of the receiver relates back to the date of the commencement of the delinquency proceeding unless the court provides otherwise. (c) A contractual lien or statutory landlord's lien under Chapter 54, Property Code, that arises after the date of the commencement of the delinquency proceeding is secondary and inferior to the rights of the receiver. (d) The filing or recording of an order described by Subsection (b) in any record office of the state provides the same notice as would be provided by a deed, bill of sale, or other evidence of title filed or recorded by the insurer. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.104. DUTY OF RECEIVER TO TAKE POSSESSION OF ASSETS; INVENTORY. (a) The receiver shall promptly take possession of the assets of an insurer that is the subject of a delinquency proceeding and, as the court directs, manage those assets in the person's own name as receiver or in the name of the insurer. (b) The receiver is responsible for all assets coming into the receiver's possession. (c) The receiver shall promptly prepare, in duplicate, an inventory of the insurer's assets. The receiver shall file one copy of the inventory with the department and one copy in the office of the clerk of the court. The copies of the inventory are open for inspection. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.105. AUTHORITY TO REQUIRE BOND TO PROTECT ASSETS. The court may require: (1) the receiver to provide one or more bonds; and (2) if considered desirable by the court for the protection of the assets, a special deputy receiver or other assistant or employee appointed under this chapter to provide one or more bonds. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.106. DELIVERY OF PROPERTY AND RECORDS TO RECEIVER. (a) The officers, directors, shareholders, members, trustees, managing general agents, agents, administrators, claims adjusters, managers, attorneys-in-fact, and associate, deputy, or substitute attorneys-in-fact of a delinquent insurer shall immediately deliver to the receiver, without cost to the receiver, all property, books, records, accounts, documents, and other writings of the delinquent insurer or that relate to the business of the delinquent insurer. (b) If by contract or otherwise any property, book, record, account, document, or other writing is owned by a person described by Subsection (a), the owner shall copy the item and deliver the copy to the receiver. The owner shall retain the original until notification that the item is no longer required in the administration of the insurer's estate or until another time as the court, after notice and hearing, directs. A copy is considered to be a record of the delinquent insurer under Subchapter I. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.107. DUTY OF RECEIVER TO CONDUCT INSURER'S BUSINESS. (a) On taking possession of the assets of a delinquent insurer, the receiver shall, subject to the direction of the court, immediately begin conducting the insurer's business or taking any steps necessary to conserve the assets and protect the rights of policyholders and claimants for the purpose of liquidating, rehabilitating, reinsuring, reorganizing, or conserving the affairs of the insurer. (b) Notwithstanding the requirements of Subsection (a) or the terms of any insurance contract issued by a delinquent insurer, the receiver is not required to defend any action against an insured of a delinquent insurer. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.108. DISPOSAL OF PROPERTY; SETTLING OF CLAIMS. (a) Except as provided by Subsection (b), the receiver may, subject to the approval of the court: (1) sell or otherwise dispose of all or part of the property of an insurer against whom a delinquency proceeding has been brought; and (2) sell or compound all doubtful or uncollectible debts, or claims owed by or to the insurer, including claims based on an assessment levied against a member of a mutual insurer, a reciprocal or interinsurance exchange, or a Lloyd's plan. (b) Without obtaining the approval of the court, the receiver may compromise or compound a debt or claim described by Subsection (a)(2) or sell an item of the insurer's property on terms the receiver considers to be in the best interest of the insurer if the amount of the debt or claim or the value of the item of property does not exceed $10,000, excluding interest. (c) The receiver may, subject to the approval of the court, sell, agree to sell, or offer to sell any assets of the insurer to creditors of the insurer who seek to participate in the purchase of the assets, to be paid for wholly or partly out of dividends payable to those creditors. On application of the receiver, the court may designate representatives to act for those creditors in purchasing, holding, or otherwise managing those assets, and the receiver may, subject to the approval of the court, advance the expenses of those representatives against the security of the claims of those creditors. (d) The receiver may, subject to the approval of the court and the commissioner, as required by this code, sell or otherwise dispose of the charter or certificate of authority of the insurer separately from the outstanding liabilities of the insurer. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.109. BORROWING ON PLEDGE OF ASSETS. (a) To facilitate the rehabilitation, liquidation, conservation, or dissolution of an insurer under this chapter, the receiver may, subject to the approval of the court: (1) borrow money; (2) execute, acknowledge, and deliver a note or other evidence of indebtedness for the loan; (3) secure the repayment of the loan by the mortgage, pledge, assignment, or transfer in trust of any or all of the insurer's property; and (4) take any other action necessary and proper to obtain and provide for the repayment of the loan. (b) The receiver is not under any obligation in the person's personal capacity or official capacity as receiver to repay any loan made under this section. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.110. DEPOSITORIES; ACCOUNTING. (a) Except as otherwise provided by this section, the receiver shall promptly deposit all money collected into the Texas Treasury Safekeeping Trust Company in accordance with procedures established by the comptroller. (b) If determined advantageous by the receiver in the receiver's sound financial judgment, the receiver may deposit the money in one or more banks or savings and loan associations in this state insured by a federal agency that provides for deposit insurance. If the amount deposited exceeds the maximum amount insured by the appropriate federal agency, the receiver shall, without the need for court approval, enter into any contracts and require any security the receiver considers proper to safeguard the deposit. (c) The receiver shall account for all money collected or realized from the assets of each insurer for which the receiver has been appointed separately from all other money. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.111. REPORTS ON STATUS OF PROCEEDING. The receiver shall: (1) file with the department on the department's request reports showing the operation, receipts, expenditures, and general condition of any insurer of which the receiver is in charge at that time; (2) on request, file a copy of a report described by Subdivision (1) with the court in which the receivership proceeding is pending; and (3) file a final report regarding each insurer that has been liquidated or handled that: (A) shows and fully explains all receipts and expenditures; and (B) accurately states the disposition of all of the insurer's assets. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.112. BUSINESS PLAN REPORTS; OTHER PERIODIC REPORTS. (a) A special deputy receiver shall submit a monthly written report to the court and the commissioner that states the special deputy receiver's business plan for the receivership, including: (1) the expenses incurred in administering the receivership during the preceding month and an estimate of those expenses for the succeeding month; (2) a cost-benefit analysis of the expenditure of money other than money spent to pay claims; (3) a budget of monthly expenses that explains any variation from the original projection; and (4) a list of any lawyers or law firms that offered to represent or represented the special deputy receiver in relation to the special deputy receiver's duties under this chapter, and any hours billed or fees paid to a lawyer or law firm that represented the special deputy receiver. (b) The special deputy receiver shall submit the business plan report to the attorney general quarterly, and the attorney general may make recommendations to the commissioner based on the report. (c) In addition to the business plan report, the special deputy receiver shall submit to the commissioner a monthly report relating to the special deputy receiver's activities in administering the receivership. (d) On written application by the special deputy receiver and with the approval of the commissioner, the court may suspend the requirement for monthly reports, or require less frequent reports, on a showing that the costs of the monthly reports exceed the benefit derived from those reports. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.113. REPORT TO INSURANCE FRAUD UNIT. A special deputy receiver shall report to the insurance fraud unit any information discovered in the administration of a receivership relating to possible fraudulent, deceptive, or unlawful conduct by an insurer. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.114. PAYMENT OF LIQUIDATION EXPENSES; OBJECTION. (a) The commissioner or special deputy receiver shall pay the compensation of the special deputy receiver and all other expenses of a liquidation out of the money or other assets of the insurer. (b) Each month, the receiver shall present to the court an itemized accounting, sworn to by the receiver, of the expenses. The court shall approve the accounting unless a party at interest files an objection on or before the 10th day after the date the accounting is presented. The objection must specify each item to which the party objects and the ground for that objection. (c) The court shall set a hearing on an objection filed under Subsection (b) and shall notify the parties of the hearing. The objecting party has the burden of proof to show that an item to which the party objected is improper, unnecessary, or excessive. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.115. INJUNCTIONS AND OTHER ORDERS. (a) On application by the receiver, the receivership court, with or without notice, may issue: (1) an injunction restraining the insurer named in the order, the insurer's officers, directors, shareholders, members, trustees, agents, employees, policyholders, attorneys, managers, attorneys-in-fact, including associate, deputy, and substitute attorneys-in-fact, and all other persons from: (A) engaging in the insurer's business; or (B) wasting or disposing of the insurer's property; or (2) an order requiring the delivery of the insurer's assets to the receiver. (b) At any time during a delinquency proceeding, the receivership court may issue an injunction or order considered necessary to prevent: (1) interference with the receiver or the proceeding; (2) waste of the insurer's assets; (3) the initiation or prosecution of an action; (4) the obtaining of a preference, judgment, attachment, garnishment, or other lien; or (5) the making of a levy against the insurer or against all or part of the insurer's assets. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.116. EFFECT OF INJUNCTION OR ORDER: DENIAL OF CLAIMS AND OTHER DEMANDS. The receiver for an insurer may deny a claim, judgment, lien, preference, or demand made or obtained against the insurer or the receiver after the date of receivership in derogation of the terms of an injunction or order under Section 442.115 until: (1) proof of the justness of the claim, judgment, lien, preference, or demand is made before the receivership court; and (2) the court approves the claim, judgment, lien, preference, or demand. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.117. OTHER PENDING ACTIONS; IMMUNITY. (a) A judgment or order of a court of this state or of another jurisdiction in an action pending by or against a delinquent insurer that is rendered after the commencement of the delinquency proceeding is not binding on the receiver unless the receiver was made a party to the action. (b) A receiver and the receiver's agents and employees are not liable for, and a cause of action does not arise against the receiver or the receiver's agents or employees for, an act or failure to act by the person that relates to the adjustment, negotiation, or settlement of a claim. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.118. EXTENSION OF TIME FOR PLEADING; INAPPLICABILITY OF CERTAIN LAWS. (a) The receiver is not required to plead to any action in which the receiver is a proper plaintiff or defendant in any court in this state until the first anniversary of the date the receiver is appointed. (b) Sections 64.033, 64.052, 64.053, and 64.056, Civil Practice and Remedies Code, do not apply to an insolvent insurer being administered under this chapter. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.119. EXCLUSIVE JURISDICTION OF OTHER ACTIONS. The court of competent jurisdiction of the county in which the delinquency proceeding is pending has exclusive venue to hear and determine all actions or proceedings instituted by or against the insurer or receiver after the commencement of the delinquency proceeding. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007.SUBCHAPTER D. GENERAL SUBPOENA POWERS; WITNESSES AND PRODUCTION OF RECORDS § 442.151. SUBPOENA AUTHORITY. The receiver may request the court to issue ex parte a subpoena to compel the attendance and testimony of a witness before the receiver and the production of any book, account, paper, correspondence, or other record relating to a matter that pertains to the receivership estate. For that purpose: (1) the court has statewide subpoena power and may compel attendance of witnesses and production of records before the receiver at the receiver's offices in Austin; and (2) the receiver or the receiver's designated representative may administer oaths, examine witnesses, and receive evidence. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.152. SERVICE OF SUBPOENA. A subpoena issued under this subchapter may be served, at the receiver's discretion, by the receiver, the receiver's authorized agent, a sheriff, or a constable. The sheriff's or constable's fee for serving the subpoena is the same as the fee paid the sheriff or constable for similar services. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.153. ENFORCEMENT OF SUBPOENA. (a) On application of the receiver in the case of disobedience of a subpoena or the contumacy of a witness appearing before the receiver or the receiver's designated representative, the court may issue an order requiring the person subpoenaed to obey the subpoena, give evidence, or produce any book, account, paper, correspondence, or other record relating to the matter in question. (b) The court may punish as contempt the failure to obey an order under this section. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.154. COMPENSATION FOR ATTENDANCE. (a) A witness who is not a party and who is required to appear before the receiver is entitled to receive: (1) reimbursement for mileage for traveling to or from the place where the witness's presence is required, if the place is more than 25 miles from the witness's place of residence, in the same amount for each mile as the mileage travel allowance for a state employee; and (2) a fee for each day or part of a day the witness is required to be present as a witness that is equal to the greater of: (A) $10; or (B) the per diem travel allowance of a state employee. (b) Each disbursement made to pay a fee under Subsection (a) shall be included and paid in the manner provided for the payment of other expenses under Sections 442.054, 442.111, and 442.114 and Subchapter J. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.155. USE AS EVIDENCE. (a) On certification by the receiver or commissioner under official seal, any book, account, paper, correspondence, document, or other record produced or testimony taken under this chapter and held by the receiver is admissible in evidence in a case without: (1) prior proof of correctness; or (2) other proof except the certificate of the receiver or commissioner that the book, account, paper, correspondence, document, or other record or the testimony was received from the person producing the material or testifying. (b) The certified book, account, paper, correspondence, document, or other record, or a certified copy of the book, account, paper, correspondence, document, or other record, is prima facie evidence of the facts disclosed by that item. (c) This section does not limit any other provision of this chapter or any law that provides for the admission or evidentiary value of evidence. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.156. PROTECTIVE ORDERS. A person served with a subpoena under this subchapter may file a motion with the court for a protective order as provided by Rule 192.6, Texas Rules of Civil Procedure. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007.SUBCHAPTER E. CLAIMS AGAINST RECEIVERSHIP ESTATE § 442.201. PROOF OF CLAIM REQUIRED; DEADLINE. (a) If a liquidation, rehabilitation, or conservation order has been entered in a delinquency proceeding, each person who may have a claim against the insurer as provided by Section 442.551, including a claimant with a secured claim or a claim based on trust or escrow funds, must present a proof of claim to the receiver: (1) at a place specified by the receiver; and (2) not later than the date specified by the court, which may not be before the 90th day after the date the order specifying the date is entered. (b) The receiver shall notify all persons who may have a claim against the insurer, as disclosed by the insurer's books and records, regarding the requirement to present a proof of claim to the receiver. The notice must: (1) specify the last day for presenting a proof of claim; and (2) be given in a manner determined by the court. (c) The receiver must receive the required proof of claim before paying a claim. (d) If a proof of claim is not presented on or before the date specified by the court as required by Subsection (a), the claim may not share in any distribution of the insurer's assets by the receiver, except that, subject to court approval, the receiver may accept a claim presented not later than the 90th day after the date notice is mailed to the person under Subsection (b). Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.202. FORM AND CONTENT OF PROOF OF CLAIM. (a) A proof of claim must be in writing and signed by the claimant and must include: (1) a statement of the claim; (2) a description of the consideration for the claim; (3) a statement of whether securities are held as consideration for the claim and, if so, a description of the securities; (4) a statement of any right of priority of payment for the claim or other specific right asserted by the claimant; (5) a statement of whether a payment has been made on the claim and, if so, a description of the payment made and the source of the payment; (6) a statement that the amount claimed is justly owed by the insurer to the claimant; and (7) any other matter that is required by the court in which the receivership is pending. (b) A proof of claim must be in a form prescribed by the receiver, except that the receiver may accept a proof of claim on a form: (1) used for proof of claim by the insurer before the receivership; or (2) prepared or accepted by a receiver or a guaranty fund in another state, if the receiver in this state is an ancillary receiver. (c) A proof of claim must be made under oath, unless the receiver waives the oath. (d) A written instrument on which a claim is based must be presented with a proof of claim unless lost or destroyed. After the instrument is presented and until final disposition of the claim, the receiver may permit the claimant to substitute a copy of the instrument. If the instrument is lost or destroyed, a statement of that fact and of the circumstances of the loss or destruction must be made under oath and presented with the claim. (e) The receiver may accept from each authorized guaranty association a single proof of claim combining all claims and related administrative expenses assigned to that association. A proof of claim presented by a guaranty association must contain any other information the receiver requires. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.203. UNLIQUIDATED OR UNDETERMINED CLAIM OR DEMAND. (a) A claim based on an unliquidated or undetermined demand must be presented within the time limit provided by this chapter for presenting a claim. The claim may not share in any distribution to claimants until the claim is definitely liquidated, determined, and allowed. After the claim is liquidated, determined, and allowed, the claim shares ratably with the claims of the same class in all subsequent distributions. (b) For the purposes of this chapter, a claim or demand is considered unliquidated or undetermined if: (1) a right of action on the claim or demand accrued as of the date: (A) the delinquency proceeding was commenced; or (B) the insurance policy was canceled, if applicable; and (2) the liability on the claim or demand has not been determined or the amount of the claim or demand has not been liquidated. (c) If the receiver is otherwise able to close the receivership proceeding, the proposed closing is a sufficient ground to reject any remaining unliquidated or undetermined claim or demand. The receiver shall notify the claimant of the receiver's intention to close the proceeding and shall allow liquidation or determination of those claims during the 60 days after the date of the notice. If a remaining claim is not liquidated or determined on or before the 60th day after the date of the notice, the receiver may reject the claim. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.204. THIRD-PARTY CLAIMS AND DEMANDS. (a) If a court has entered a liquidation, rehabilitation, or conservation order in a delinquency proceeding, a person who has a cause of action against an insured of the insurer under a liability insurance policy issued by the insurer is entitled to file a claim with the receiver, regardless of whether the claim is unliquidated or undetermined. (b) A claim described by Subsection (a) may be approved if: (1) it may be reasonably inferred from the proof presented on the claim that the person would be able to obtain a judgment on the cause of action against the insured; (2) the person provides suitable proof that, other than those already presented, no additional valid claims against the insurer arising out of the person's cause of action may be made; and (3) the total liability of the insurer to all claimants arising out of the same act of the insured is not greater than the total liability of the insurer would be if the insurer were not in liquidation, rehabilitation, or conservation. (c) A judgment entered against an insured or insurer before the date of the commencement of the delinquency proceeding may not be given a priority higher than Class 3 under Section 442.551 unless the judgment creditor proves to the receiver's satisfaction the allegations supporting the judgment. (d) A judgment against an insured taken after the date of the commencement of a delinquency proceeding with respect to the insurer may not be considered in the proceeding as evidence of liability or of the amount of damages. A judgment against an insured taken by default or by collusion before the commencement of the delinquency proceeding may not be considered in the proceeding as conclusive evidence of the liability of the insured on the cause of action or of the amount of damages to which the person is entitled. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.205. OFFSETS. (a) Except as provided by Subsection (b), the receiver shall set off mutual debts and mutual credits arising out of one or more contracts between the insurer and another person in connection with a claim or delinquency proceeding, and the receiver may allow or pay only the balance. (b) The receiver may not allow an offset in favor of a person if: (1) the obligation of the insurer to the person would not, on the date of the commencement of the delinquency proceeding or as otherwise provided by Section 442.102, entitle the person to share as a claimant in the assets of the insurer; (2) the obligation of the insurer to the person was purchased by or transferred to the person after the commencement of the delinquency proceeding or for the purpose of increasing offset rights; (3) the obligation of the person is to pay: (A) an assessment levied against the members of a mutual insurer, a reciprocal or interinsurance exchange, or a Lloyd's plan; or (B) a balance on a subscription to the capital stock of a stock insurance corporation; (4) the obligation of the person is as a trustee or fiduciary; or (5) the obligation between the person and the insurer arises from a reinsurance transaction in which the person or the insurer assumed risks and obligations from the other party and then ceded to that party substantially the same risks and obligations. (c) The receiver shall provide a person with an accounting statement identifying each debt that is due and payable. A person shall promptly pay to the receiver any amount due and payable to the insurer against which the person asserts an offset of mutual credits that may become due and payable from the insurer in the future. Notwithstanding Subchapter L or any other provision of this chapter, the receiver shall promptly and fully refund, to the extent of the person's prior payment, any mutual credits that become due and payable to the person by the insurer. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.206. APPROVAL OR REJECTION OF CLAIM. (a) The receiver may approve or reject a claim filed against the insurer. (b) On a rejection of a claim in whole or in part, the receiver shall notify the claimant in writing of the rejection. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.207. APPEAL OF RECEIVER'S REJECTION OF CLAIM. (a) The receiver's rejection of a claim may be appealed in the court. The appeal must be brought within three months after the date of service of notice of the rejection. (b) If the receiver's action is appealed within the time prescribed by Subsection (a), review is de novo as if originally filed in the court and is subject to the rules of procedure and appeal applicable to civil cases. The appeal is separate from the delinquency proceeding, and an attempt to appeal the receiver's action by intervening in the delinquency proceeding does not comply with this subsection. (c) If the receiver's action is not appealed within the time prescribed by Subsection (a), the action is final and not subject to judicial review. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.208. OBJECTION TO CLAIM BY INTERESTED PARTY. (a) An interested party may object to a claim not rejected by the receiver by filing an objection with the receiver. (b) The receiver shall promptly present the objection to the court for a determination after notice and hearing. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.209. REFERRAL OF CLAIM TO GUARANTY ASSOCIATION. Notwithstanding any other provision of this chapter, the receiver shall refer a claim covered by a guaranty fund created under Chapter 462, 463, or 2602 to the appropriate guaranty association for processing. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.210. WORKERS' COMPENSATION CLAIMS. (a) The receiver shall notify the Texas Workers' Compensation Commission immediately on a finding of insolvency or impairment with regard to an insurance company that has in force any workers' compensation coverage in this state. (b) On receipt of the notice under Subsection (a), the Texas Workers' Compensation Commission shall submit to the receiver a list of active cases pending before the commission in which: (1) the insurance company has accepted liability; (2) it appears that a bona fide dispute does not exist; (3) payments were begun before the finding of insolvency or impairment; and (4) payment of future or past workers' compensation benefits is due. (c) Notwithstanding the other provisions of this subchapter, the receiver may begin or continue the payment of claims on cases included in the list submitted under Subsection (b). (d) Files and other information delivered by the Texas Workers' Compensation Commission to the receiver may be delivered to the Texas Property and Casualty Insurance Guaranty Association. (e) The Texas Workers' Compensation Commission shall report to the department any act of a workers' compensation insurance company that may indicate that the company is financially impaired, delinquent, or insolvent. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007.SUBCHAPTER F. VOIDABLE TRANSFERS OR LIENS § 442.251. CERTAIN TRANSFERS OR LIENS VOIDABLE. A transfer of or lien on the assets of an insurer is voidable if the transfer or lien was: (1) made or created: (A) within four months before the date of the commencement of the delinquency proceeding; and (B) with the intent of giving to a creditor or enabling the creditor to obtain a greater percentage of the creditor's debt than is to be given to or obtained by another creditor of the same class; and (2) accepted by the creditor having reasonable cause to believe that a preference described by Subdivision (1)(B) would occur. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.252. PERSONAL LIABILITY FOR VOIDABLE TRANSFER OR LIEN. (a) The following persons are personally liable for the property of the insurer or the benefit of that property received as a result of a transfer or lien described by Section 442.251: (1) each director, officer, agent, employee, shareholder, member, attorney-in-fact, including an associate, substitute, or deputy attorney-in-fact, underwriter, subscriber, or other person acting on behalf of the insurer who is concerned in the transfer or lien; and (2) each person who, as a result of the transfer or lien, receives the property of the insurer or the benefit of that property. (b) A person who is personally liable under Subsection (a) shall account to the receiver for the benefit of the creditors of the insurer. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.253. AVOIDANCE OF TRANSFER OR LIEN; RECOVERY OF PROPERTY. The receiver may: (1) avoid a transfer of or lien on the assets of an insurer that a creditor, shareholder, or member of the insurer might have avoided; and (2) recover the transferred property or the value of that property from the person to whom the property was transferred or from a person who received the property, unless the transferee or recipient was a bona fide holder for value before the date of the commencement of the proceeding. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007.SUBCHAPTER G. ASSESSMENTS § 442.301. APPLICATION FOR ASSESSMENT. (a) Not later than the fourth anniversary of the date of an order of rehabilitation or liquidation of a domestic insurer, the receiver may apply to the court to levy an assessment against the members of a mutual insurance company, the members of a reciprocal or interinsurance exchange, or the insureds of a Lloyd's plan who have been issued an insurance policy that expressly provides that the policy is subject to assessment. (b) The application must state: (1) the reasonable value of the insurer's assets; (2) the insurer's probable liabilities; and (3) the probable assessment, if any, necessary to pay all possible claims and expenses in full, including expenses of administration and collection. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.302. LEVY. (a) After giving notice in the manner designated by the court to each member or insured described by Section 442.301, the court shall consider the application made under that section and may levy one or more assessments, subject to Subsection (c). (b) The assessment or assessments must cover the excess of the insurer's probable liabilities over the reasonable value of the insurer's assets, together with the estimated cost of collection and percentage of uncollectibility of the assessments. (c) The court may not levy an assessment against a member or insured with regard to an insurance policy that does not expressly provide that the policy is subject to assessment. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.303. COLLECTION. After the court enters an order of assessment under Section 442.302 and after the time for appeal expires, the receiver shall collect the assessments. The receiver may bring an action in a court of competent jurisdiction in the county in which the delinquency proceeding is pending to collect an assessment. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.304. SUBCHAPTER NOT EXCLUSIVE. The provisions of this subchapter are in addition to any other remedies for the levy and collection of assessments. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007.SUBCHAPTER H. REINSURANCE § 442.351. REINSURER'S LIABILITY. (a) If the receiver has a claim under an insurance policy covered by reinsurance, the liability of the reinsurer to the receiver under the reinsured contract may not be reduced because of the delinquency proceeding against the delinquent insurer, regardless of any contrary provision in the reinsurance contract, unless: (1) the reinsurance contract or other written agreement was entered into before the delinquency proceeding, is otherwise permitted by law, and specifically provides another payee of the reinsurance if the ceding insurer becomes insolvent; or (2) the assuming insurer, with the consent of the direct insured, has assumed in accordance with an assumption reinsurance agreement the policy obligations of the ceding insurer: (A) as direct obligations of the assuming insurer to the payees under the policy; and (B) in substitution for the obligations of the ceding insurer to the payees. (b) Except as provided by Subsection (a), any reinsurance is payable to the receiver under a reinsured contract by the assuming insurer on the basis of: (1) an approved claim under Section 442.206; and (2) a claim paid by a guaranty association under Chapter 462, 463, or 2602 or by the guaranty association of another state. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.352. NOTICE OF CLAIM TO REINSURER; INTERPOSITION OF DEFENSE. (a) Within a reasonable time after a claim against the receiver under an insurance policy covered by reinsurance is filed in the delinquency proceeding, the receiver shall give written notice of the pendency of the claim to each affected reinsurer. (b) While the claim is pending, an affected reinsurer may, at the reinsurer's expense, investigate the claim and interpose in the proceeding in which the claim is to be adjusted any defense the reinsurer considers available to the delinquent insurer or the receiver. (c) Subject to court approval, the expense incurred by an assuming insurer under Subsection (b) is chargeable against the delinquent insurer as part of the expense of liquidation to the extent of a proportionate share of any benefit that may accrue to the delinquent insurer solely as a result of the defense undertaken by the assuming insurer. If two or more assuming insurers are involved in the same claim and a majority in interest elect to interpose a defense to the claim, the expense shall be apportioned in accordance with the terms of the reinsurance agreement as if the expense had been incurred by the ceding insurer. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007.SUBCHAPTER I. RECORDS AND OTHER INFORMATION § 442.401. USE OF RECORDS AND OTHER INFORMATION AS EVIDENCE. (a) A book, paper, document, or record of a delinquent insurer received by the receiver and held in the course of the delinquency proceeding or a certified copy of the book, paper, document, or record signed and under the official seal of the commissioner or receiver is admissible in evidence in a case without proof of correctness or other proof except the certificate of the commissioner or receiver that the book, paper, document, or record was received from the custody of the delinquent insurer or found among the insurer's effects. (b) The certified original or a certified copy of a book, paper, document, or record described by this section or Section 442.402 is prima facie evidence of the facts disclosed by the book, paper, document, or record. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.402. CERTIFICATES BY RECEIVER. (a) The receiver may: (1) certify to the correctness of a book, paper, document, or record of the receiver's office, including a book, paper, document, or record described by Section 442.401; and (2) certify under seal of the commissioner to a fact contained in a book, paper, document, or record of the department. (b) A book, paper, document, or record certified as described by Subsection (a) is admissible in evidence in any case in which the original would be evidence. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.403. MAINTENANCE OF RECORDS. (a) The receiver may devise a method for the effective, efficient, and economical maintenance of the records of the delinquent insurer and of the receiver's office. The method may include maintaining those records on any medium approved by the records management division of the Texas State Library. (b) A copy of an original record or another record that is maintained within the scope of this subchapter on a medium approved by the records management division of the Texas State Library and that is produced by the receiver or the receiver's authorized representative under this chapter: (1) has the same effect as the original record; and (2) may be used in the same manner as the original record in a judicial or administrative proceeding in this state. (c) The receiver may reserve the estate assets for deposit in an account to be used for the specific purpose of maintenance, storage, and disposal of records in closed receivership estates. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.404. DISPOSAL OF RECORDS. On approval by the court, the receiver may dispose of any records of the delinquent insurer that are obsolete and unnecessary to the continued administration of the receivership proceeding. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.405. INAPPLICABILITY OF PUBLIC INFORMATION LAW. Chapter 552, Government Code, does not apply to any record of a receivership estate, or to any record of an insurer before the insurer's receivership, held by the receiver under this chapter. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007.SUBCHAPTER J. AUDITS § 442.451. AUDITS OR INVESTIGATIONS OF RECEIVER, SPECIAL DEPUTY RECEIVER, OR GUARANTY ASSOCIATION. (a) The commissioner shall adopt rules, after submitting the rules to the state auditor for review and comment, prescribing the audits required for the receiver each special deputy receiver, and each guaranty association established under Chapter 462, 463, or 2602. The rules must include provisions relating to the scope, frequency, reporting requirements, and cost of audits. (b) As determined necessary by the commissioner or the state auditor to supplement audits conducted under rules adopted under Subsection (a), the state auditor may conduct audits or investigations, as defined by Sections 321.0131-321.0136, Government Code, of the receiver, each special deputy receiver, and each guaranty association described by Subsection (a). The audited or investigated entity shall reimburse the state auditor for costs associated with the audit or investigation. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.452. PLAN AND REPORT REGARDING AUDIT OF RECEIVER. (a) The state auditor may conduct an audit of the receiver in accordance with the audit plan under Chapter 321, Government Code. The state auditor shall conduct the audit in the manner provided by that chapter. (b) The state auditor's report of an audit under this section may include: (1) an analysis of: (A) the overall performance of the receiver; (B) the receiver's financial operations and condition; (C) the receipts and expenditures made in connection with each audited receivership; (D) the adequacy of the receiver's bond in relation to assets, receipts, and expenditures; and (E) the feasibility of using attorneys employed by the receiver in all litigation; (2) the amount of money made available to the receiver by a guaranty association in connection with each audited receivership and a detail of the purpose and manner of expenditure of the money; (3) the ratio of the total amount of paid claims to the total costs incurred in connection with each audited receivership; and (4) the ratio of the receiver's administrative expenses to the total costs incurred in connection with each audited receivership. (c) The state auditor shall file: (1) copies of the auditor's report in the manner required by Section 321. 014, Government Code; and (2) an additional copy of the report with the department. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.453. COURT-ORDERED AUDIT. (a) A court in which a receivership action is pending may order an audit of the books and records of the receiver relating to the receivership. The receiver shall make the books and records available to the auditor as required by the court order. (b) A report of an audit conducted under this section shall be filed with the department and the appropriate guaranty association. (c) The receiver shall pay the expenses of an audit conducted under this section. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007.SUBCHAPTER K. DISTRIBUTION OF ASSETS: EARLY ACCESS § 442.501. APPLICATION FOR APPROVAL OF PROPOSAL TO DISTRIBUTE ASSETS. (a) Not later than the 120th day after the date of the commencement of an insolvency proceeding against an impaired insurer, the receiver may apply to the court for approval of a proposal to distribute assets out of marshalled assets as they become available to a guaranty association or foreign guaranty association with a Class 1 or Class 2 claim under this chapter. (b) If the receiver fails to apply for approval within the period prescribed by Subsection (a), a guaranty association may apply to the court and request that the receiver submit a proposal to distribute assets. (c) If the receiver determines that there are insufficient assets to distribute, the receiver may file a statement of the reasons for that determination instead of filing an application under this section. A statement under this subsection is considered to be an application by the receiver for purposes of this section. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.502. CONTENTS OF PROPOSAL TO DISTRIBUTE ASSETS. (a) A proposal to distribute assets under Section 442.501 must include provisions for: (1) reserving amounts sufficient to allow the payment of Class 1 claims; (2) to the extent the assets of the insolvent insurer allow any payment of Class 2 claims, reserving amounts sufficient to provide equal pro rata distributions to the Class 2 claimants other than the guaranty associations; (3) distributing the assets marshalled as of the date of the proposal and distributing other assets as they become available; (4) equitably allocating distributions among guaranty associations and foreign guaranty associations entitled to distributions, including providing for: (A) distributions to the associations in amounts estimated to be at least equal to the claim payments made or to be made by the associations for which the associations could assert a claim against the receiver; and (B) distributions for the pro rata amount of the associations' Class 2 claims if the assets, as they become available for distribution, do not equal or exceed the amount of the claim payments made or to be made by the associations; and (5) with regard to an insolvent insurer writing life or health insurance or annuities, distributing the assets to: (A) a guaranty association or foreign guaranty association covering life or health insurance or annuities; or (B) any other entity or organization reinsuring, assuming, or guaranteeing insurance policies or contracts under the laws creating an association described by Paragraph (A). (b) The proposal to distribute assets must also include provisions that require: (1) the receiver to obtain from each guaranty association described by Subsection (a)(4) an agreement to return to the receiver on request and on approval by the court any previously distributed assets, together with income on the assets, required to pay Class 1 claimants and any federal claimants asserting priority claims; and (2) each guaranty association or foreign guaranty association to make a full report to the receiver, as requested by the receiver but not more frequently than quarterly, accounting for: (A) the assets distributed to the association; (B) all distributions made from those assets; (C) any interest earned by the association on those assets; and (D) any other matter as the court directs. (c) A guaranty association or foreign guaranty association is not required to provide a bond under Subsection (b)(1). Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.503. NOTICE OF APPLICATION. (a) The receiver shall give notice of an application for approval of a proposal to distribute assets to a guaranty association or foreign guaranty association in, and to the commissioner of insurance of, each of the states. Notice under this subsection must be deposited in the United States certified mail, first class postage prepaid, at least 30 days before the date the application is submitted to the court. (b) The receiver shall also give notice of the application to reasonably identifiable Class 1 and Class 2 claimants. Notice under this subsection must be given in a manner the court considers appropriate, including notice by publication. (c) The court may act on the application if: (1) notice has been given as provided by this section; and (2) the receiver's proposal to distribute assets complies with this subchapter. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007.SUBCHAPTER L. DISTRIBUTION OF ASSETS § 442.551. PRIORITY OF CLAIMS FOR DISTRIBUTION OF ASSETS. (a) The priorities provided by this section are established to: (1) provide for the orderly liquidation of a receivership estate; and (2) further the protection of policyholders and persons making claims under insurance policies. (b) The priority of distribution of assets from the insurer's estate must be in accordance with: (1) the distribution plan approved by the court under Subchapter K; and (2) the order of each class as provided by this section. (c) Each claim in each class must be paid in full, or an adequate amount of money must be retained for that payment, before a payment is made for a claim in the next class. (d) Subclasses may not be established within a class. (e) The classes of claims are as follows: (1) Class 1: (A) all of the receiver's, conservator's, and supervisor's costs and expenses of administration, including repayment of any money spent by the receiver under Section 442.607; (B) all of a guaranty association's or foreign guaranty association's costs and expenses of administration related to a receivership estate and all of the expenses of that association in handling claims; and (C) claims of secured creditors to the extent of the value of the security as provided by Section 442.554; (2) Class 2: (A) all claims by policyholders, beneficiaries, and insureds, and liability claims against insureds covered under insurance policies and contracts issued by the insurer; and (B) all claims by a guaranty association or a foreign guaranty association that are payments of proper policyholder claims; (3) Class 3: claims of the federal government that are not included in Class 2; (4) Class 4: all other claims of general creditors not falling within a higher priority under this subchapter, including claims for taxes and debts due a state or local government that are unsecured; and (5) Class 5: claims of surplus or contribution note holders, debenture holders, or holders of similar obligations and proprietary claims of shareholders, members, or other owners according to the terms of the instruments. (f) For the purpose of Subsection (e)(1)(B), attorney's fees incurred by a guaranty association or foreign guaranty association in the defense of an insured under an insurance policy issued by an impaired insurer are an expense incurred in handling a claim. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.552. PAYMENT OF WAGES OF EMPLOYEES OF INSURER SUBJECT TO TEMPORARY RESTRAINING ORDER. (a) The receiver shall pay as a Class 1 claim under Section 442.551 wages owed to employees of an insurer against which a temporary restraining order has been issued under this chapter for services rendered during the period covered by the order. (b) The receiver shall pay for services under Subsection (a) at the rate and in the same manner as if paid by the insurer. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.553. PAYMENT OF WAGES OF EMPLOYEES OF INSURER SUBJECT TO TEMPORARY INJUNCTION. (a) The receiver may pay wages owed to employees of an insurer against which a temporary injunction has been issued under this chapter for services rendered after the issuance of the injunction. (b) Payment for services under Subsection (a) is an expense of administration. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.554. SECURED CREDITOR. (a) The owner of a secured claim against an insurer for which a receiver has been appointed in any state may surrender the owner's security and file a claim as a general creditor, or the claim may be discharged by resort to the security. (b) If a claim described by Subsection (a) is discharged by resort to the security, any deficiency shall be treated as a claim against the general assets of the insurer on the same basis as a claim of an unsecured creditor. If the amount of the deficiency was adjudicated in an ancillary delinquency proceeding as provided by Subchapter P or by a court of competent jurisdiction in a proceeding in which the domiciliary receiver was provided with notice and an opportunity for hearing, the amount is conclusive. If the amount was not adjudicated as provided by this subsection, the amount shall be determined in the delinquency proceeding in the domiciliary state. (c) The value of any security held by a secured creditor shall be determined under supervision of the court by: (1) conversion of the security into money according to the terms of the agreement under which the security was delivered to the creditor; or (2) agreement, arbitration, compromise, or litigation between the creditor and the receiver. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.555. DIVIDEND PAYMENTS. (a) On the direction and approval of the court and in accordance with the priorities provided by this subchapter, the receiver may make periodic dividend payments, including payments of policyholder claims, to facilitate the rehabilitation, liquidation, conservation, or dissolution of an insurer. (b) The receiver at all times shall reserve sufficient assets to pay the expenses of administration. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.556. CLAIMANTS OF OTHER STATES OR FOREIGN COUNTRIES. (a) If a claimant of another state or of a foreign country is entitled to or receives a dividend on the claim out of a statutory deposit or the proceeds of a bond or other asset located in that state or foreign country, the claimant is not entitled to share in the distribution of any additional dividend from the receiver until all other claimants of the same class receive an equal dividend on their claims, regardless of their residence or the location of the acts or contracts on which the claims are based. (b) After the other claimants of the same class receive an equal dividend on their claims, the claimant of the other state or of the foreign country is entitled to share in the distribution of additional dividends by the receiver, along with and in the same manner as all other creditors of the same class, regardless of their residence. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.557. SETOFF OF DIVIDEND AMOUNT. On the declaration of a dividend, the receiver shall apply the amount of the dividend against any debt owed to the insurer by the person entitled to the dividend. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.558. CLAIMS UNDER SEPARATE ACCOUNTS ESTABLISHED BY DOMESTIC LIFE INSURANCE COMPANIES. (a) Each claim under a separate account established under Chapter 1152 shall be satisfied out of the portion of the assets in the separate account that is equal to the reserves maintained in the account for the applicable contracts. (b) To the extent reserves maintained in a separate account exceed the amounts needed to satisfy claims under the applicable contracts, the excess shall be treated as general assets of the domestic life insurance company. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.559. INTEREST. Interest does not accrue on a claim after the date of the commencement of a delinquency proceeding. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007.SUBCHAPTER M. UNCLAIMED ASSETS § 442.601. DELIVERY OF UNCLAIMED MONEY TO DEPARTMENT. (a) Except as provided by Subsection (b), any unclaimed dividend on an approved claim, unclaimed returned assessment, or other unclaimed money that is subject to distribution to a claimant, policyholder, or other person and that remains in the possession of the receiver after payment of the final dividend shall be delivered to the department at the time the receivership is closed. (b) If a final dividend is paid less than 90 days before the date the receivership is closed, the receiver may continue, for a period not to exceed 90 days from the date the receivership is closed, any bank account of the receivership from which any unclaimed dividend might be paid, before the receiver delivers the unclaimed dividend to the department. (c) The department shall deposit the money in trust in an account to be maintained with the comptroller. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.602. RECOVERY OF UNCLAIMED MONEY BY OWNER. (a) On receipt of satisfactory written and verified proof of ownership not later than the second anniversary of the date money is deposited with the comptroller under Section 442.601, the department shall certify that fact to the comptroller. (b) On certification under Subsection (a), the comptroller shall issue a warrant drawn on the state treasury for the money in favor of each person entitled to the money. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.603. APPLICATION FOR DECLARATION OF ABANDONMENT OF MONEY; NOTICE. (a) After money deposited with the comptroller under Section 442.601 has remained unclaimed for two years, the receiver may initiate an action to declare the money abandoned and that the money is the property of the department by filing in the court of competent jurisdiction in the county in which the delinquency proceeding is or was pending a notice that the receiver intends to declare the money abandoned and claim the money as the property of the department. The action may be for all or part of the money accumulated in any particular receivership. (b) The notice must state: (1) the name of each person entitled to the money; (2) the person's last known address; and (3) the nature or source and amount of the money. (c) On the filing of the notice by the receiver, the court shall set a date for the hearing on the application that is at least 20 days after the date the notice was filed and shall make a notation of the date of the hearing on the notice. (d) A copy of the notice with the judge's notation of the date of the hearing must be posted on the courthouse door for at least 20 days before the date a hearing is held on the application. At least 10 days before the date set for the hearing, notice of the filing of the application must be published in a newspaper of general circulation in the county in which the application is pending. The notice must be addressed to the owners of unclaimed money in the particular receivership involved in the application and must state generally that a hearing will be held on the specified date to declare the money abandoned and that the money is the property of the department. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.604. HEARING ON APPLICATION FOR DECLARATION OF ABANDONMENT OF MONEY; JUDGMENT. (a) At a hearing on an application filed under Section 442.603, proof to the satisfaction of the court of the following is prima facie evidence that each person entitled to money deposited with the comptroller under Section 442.601 intends to abandon the money and that the department is the owner of the money: (1) the money, or a check for the money, was sent by the receiver to the last known address of each person entitled to the money; (2) the money, or a check for the money, was returned unclaimed or the check for the money was not cashed; (3) the money was delivered to the department as required by Section 442.601; (4) the money has remained unclaimed for two years; and (5) notice of the filing of the application was published as required by Section 442.603. (b) On a finding by the court under Subsection (a), the court may render judgment accordingly. On receipt of the judgment, the department shall certify that fact to the comptroller. (c) On certification under Subsection (b), the comptroller shall issue a warrant for the money in favor of the department. The department shall promptly deposit the money in accordance with Section 442.110, except that the money derived from one insurer is not required to be kept separate from money derived from another insurer. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.605. USE OF CERTAIN UNLIQUIDATED ASSETS; DEPOSIT OF PROCEEDS IN TRUST. (a) Any assets other than cash that remain in the possession of the receiver after payment of the final dividend in a receivership estate may be conveyed, transferred, or assigned to the commissioner to be handled as a trust. (b) The commissioner may convey, transfer, and assign any assets, including causes of action, judgments, and claims, and settle or release causes of action, judgments, claims, and liens on terms and for amounts the commissioner considers to be in the best interest of the trust, regardless of whether the assets have previously or may subsequently come into the commissioner's possession. (c) From proceeds derived from any assets described by Subsection (b), the commissioner or the special deputy receiver shall defray the costs incident to the sale, settlement, release, or other transaction by which the proceeds are obtained and deliver the remainder to the department. The department shall deposit the money in trust in an account to be maintained with the comptroller and to be handled, disposed of, and used as provided by Sections 442.606 and 442.607. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.606. APPLICATION FOR DECLARATION OF ABANDONMENT OF PROCEEDS IN TRUST; NOTICE AND HEARING. (a) On application by the commissioner and after notice and hearing, a court of competent jurisdiction of Travis County may make an order directing disposition of money deposited in a trust account under Section 442.605(c). (b) The notice must be addressed to all persons having an interest, as claimants or otherwise, in the assets of the particular receivership involved in the application and must state: (1) the amount of the money and the receivership from which the money was derived; and (2) generally that a hearing will be held on the specified date to determine the disposition of the money, including a declaration that the money is abandoned and is the property of the department. (c) The notice required by Subsection (a) must be: (1) posted on the courthouse door for at least 20 days before the date the hearing is held; and (2) published at least 10 days before the date set for the hearing in a newspaper of general circulation in Travis County. (d) If the court finds that money derived from a receivership is sufficient to justify the reopening of the receivership and the payment of a dividend, the court may enter an order to that effect. If the money is insufficient for that purpose, the court may declare the money abandoned. (e) A certified copy of a judgment declaring the money abandoned is sufficient authority for the comptroller to issue a warrant for the money in favor of the department. On issuance of the warrant, the department shall promptly deposit the money in accordance with Section 442.110, except that money derived from one insurer is not required to be kept separate from money derived from another insurer. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.607. USE OF ABANDONED MONEY. (a) The receiver, with the consent of the department, may spend money deposited by the department under Sections 442.604 and 442.606 to: (1) pay expenses of the office of the receiver that are not properly chargeable to any one receivership or conservatorship estate; and (2) continue the administration of a receivership or conservatorship by the receiver as receiver or conservator, if the department considers the continuation to be in the best interest of the receivership or conservatorship estate. (b) Any money applied under Subsection (a)(2) to a receivership estate must be repaid from the assets of that estate before the payment of any additional dividends in that receivership, including policyholder claims and other claims. (c) Any money applied under Subsection (a)(2) to a conservatorship estate must be repaid from the assets of that estate before the release of that conservatorship for continued operation. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007.SUBCHAPTER N. TRANSFER OR DISPOSAL OF EXCESS ASSETS § 442.651. TRANSFER OF REMAINING ASSETS OF STOCK INSURANCE COMPANY TO AGENT. (a) After the receiver has provided for unclaimed dividends and all of the liabilities of a stock insurance company, the receiver shall call a meeting of the shareholders of the insurer by: (1) publishing notice of the meeting in one or more newspapers in the county in which the principal office of the insurer was located; and (2) giving written notice of the meeting to each shareholder of record at the shareholder's last known address. (b) At the meeting, the shareholders shall appoint one or more agents to take over the liquidation of the insurer for the benefit of the shareholders. Voting privileges are governed by the insurer's bylaws. A majority of the shares must be represented at the agent's appointment. The agent or agents shall execute and file with the court one or more bonds as approved by the court, conditioned on the faithful performance of all the duties of the trust. (c) Under order of the court, the receiver shall transfer and deliver to the agent or agents for continued liquidation under the court's supervision all assets of the insurer remaining in the possession of the receiver. After the transfer and delivery, the receiver and the department, and each employee of the receiver or the department, are discharged from any further liability to the insurer and the creditors and shareholders of the insurer. (d) This section does not permit the insurer to continue engaging in the business of insurance. The charter of the insurer and each certificate of authority or other permit issued under or in connection with the charter are ipso facto revoked by the order of the court directing the receiver to transfer and deliver the remaining assets of the insurer to the agent or agents. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.652. DISPOSAL OF REMAINING ASSETS OF INSURER OTHER THAN STOCK INSURANCE COMPANY. After the receiver has provided for unclaimed dividends and all of the liabilities of an insurer other than a stock insurance company, the receiver shall dispose of any remaining assets as directed by the receivership court. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.653. TRANSFER OF REMAINING ASSETS OF INSURER TO GUARANTY ASSOCIATION. (a) Notwithstanding any other provision of this chapter, in closing a receivership estate, a special deputy receiver, on approval of the court, may transfer any remaining asset, cause of action asserted on behalf of the impaired insurer, judgment, claim, or lien to the appropriate guaranty association. (b) A transfer under Subsection (a): (1) is not a preference or voidable transfer; and (2) is considered a distribution under Sections 442.551(a)-(d). (c) If the amount realized by the guaranty association is materially greater than the amount loaned by the guaranty association to the receivership estate, the court may order the reopening of the receivership to distribute the excess money. (d) This subchapter does not transfer any liability of an impaired insurer to the guaranty association that would not constitute a claim payable under Chapter 462, 463, or 2602. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007.SUBCHAPTER O. DURATION AND REOPENING OF RECEIVERSHIP § 442.701. LIMITATION ON DURATION OF RECEIVERSHIP. (a) Except as otherwise provided by this section, each receivership or other delinquency proceeding prescribed by this chapter shall be administered in accordance with Section 64.072, Civil Practice and Remedies Code. (b) To the extent the proceeding applies to claims against a workers' compensation insurance policy or a title insurance policy, a receivership or other delinquency proceeding shall be administered continuously for any period necessary to effect the receivership's or proceeding's purposes, and any arbitrary limitation on that period provided by another law of this state with regard to the administration of receiverships or of corporate affairs generally does not apply to the proceeding. (c) Instead of the winding up and distribution of a receivership estate of an insurer without capital stock, the court shall order revival and reinstatement of the charter, certificates of authority or other permits, franchises, and management contracts or other control instruments of the insurer if the insurer's remaining cash on hand and on deposit, less any outstanding enforceable liabilities, exceeds the minimum amount of capital and surplus prescribed for that insurer under Section 822.054, 822.202, 822.210, or 841.054. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.702. REOPENING OF RECEIVERSHIP. (a) If after the receivership has been closed by final order of the court the receiver discovers assets not known to the receiver during the receivership, the receiver shall report the receiver's findings to the court. (b) The court may reopen the receivership for continued liquidation if the court finds that the value of the discovered assets justifies the reopening. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007.SUBCHAPTER P. ANCILLARY DELINQUENCY PROCEEDINGS § 442.751. APPOINTMENT OF ANCILLARY RECEIVER. (a) On the petition of the department, a court of competent jurisdiction in this state shall appoint the commissioner as ancillary receiver in this state for an insurer domiciled in another jurisdiction if a receiver should be appointed for that insurer under the laws of this state. (b) The department: (1) may file the petition on the department's own initiative; and (2) shall file the petition if at least 10 residents of this state who have claims against the insurer file one or more petitions in writing with the department requesting the appointment of an ancillary receiver. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.752. POWERS AND DUTIES OF ANCILLARY RECEIVER. (a) The ancillary receiver is entitled to sue for and possess the assets of the insurer in this state and has the same powers and duties with regard to those assets as a receiver of an insurer domiciled in this state. (b) On commencement of the delinquency proceeding in this state, the ancillary receiver is immediately entitled to possession and control of any special or statutory deposits of the insurer that are located in this state. The ancillary receiver may use those deposits: (1) to pay expenses of the administration of the receivership proceeding; and (2) after paying the expenses under Subdivision (1), to pay approved claims against the deposits. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.753. COORDINATION WITH RECEIVER IN OTHER STATE. If a receiver of a delinquent insurer has been appointed both in this state and in another state, the receiver in this state may, under supervision of the receivership court in this state and regardless of whether the receiver in this state is an ancillary receiver, contract with the receiver in the other state to coordinate the administration of the receiverships in the interest of efficiency and economy in any manner consistent with this chapter. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.754. APPLICABILITY OF CHAPTER TO ANCILLARY DELINQUENCY PROCEEDINGS. The conduct of ancillary delinquency proceedings under this subchapter is subject to the other provisions of this chapter. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007.SUBCHAPTER Q. AGENCY CONTRACTS WITH CERTAIN INSURERS § 442.801. REQUIRED CONTRACT PROVISION. An agency contract entered into on or after August 27, 1973, by an insurer writing fire and casualty insurance in this state must contain, or shall be construed to contain, the following provision: Notwithstanding any other provision of this contract, the obligation of the agent to remit written premiums to the insurer shall be changed on the commencement of a delinquency proceeding as defined by Chapter 442, Insurance Code, as amended. After the commencement of the delinquency proceeding, the obligation of the agent to remit premiums is limited to premiums earned before the cancellation date of insurance policies stated in the order of a court of competent jurisdiction under Chapter 442, Insurance Code, canceling the policies. The agent does not owe and may not be required to remit to the insurer or to the receiver any premiums that are unearned as of the cancellation date stated in the order. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.802. DISPOSITION OF PREMIUMS. (a) On or after the cancellation date of insurance policies as stated in the court's order canceling the policies, the agent shall promptly account to the receiver for: (1) all unearned premiums to be returned to the insured or the replacement coverage to be obtained for the insured; and (2) the earned premiums to be paid to the receiver. (b) The agent shall: (1) promptly return to an insured who paid the premiums any unearned premiums in the possession of the agent on the cancellation date of the policy; or (2) with the approval of the insured, use the unearned premiums to purchase new coverage for the insured with a different insurer. (c) The agent shall promptly remit to the receiver any earned premiums in the possession of the agent. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.803. EFFECT OF SUBCHAPTER ON ACTION BY RECEIVER AGAINST AGENT. This subchapter does not prejudice a cause of action by the receiver against an agent to recover: (1) unearned premiums that were not returned to policyholders; or (2) earned premiums that were not promptly remitted to the receiver. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007. § 442.804. AGENT NOT RECEIVER'S AGENT. This subchapter does not render the agent an agent of the receiver for earned or unearned premiums. Added by Acts 2005, 79th Leg., ch. 727, § 1, eff. April 1, 2007.
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