There is a newer version of the Kentucky Revised Statutes
2009 Kentucky Revised Statutes
Subtitle 42. Kentucky Life and Health Insurance Guaranty Association
304.42.080 Powers and duties of association.
Download pdfcontractual obligations of the impaired insurer and that are approved by the
commissioner:
(a) Guarantee, assume, or reinsure, or cause to be guaranteed, assumed, or reinsured, any or all of the policies or contracts of the impaired insurer; or (b) Provide such monies, pledges, loans, notes, guarantees, or other means as are proper to effectuate paragraph (a) of this subsection and assure payment of the
contractual obligations of the impaired insurer pending action under paragraph
(a) of this subsection. (2) If a member insurer is an insolvent insurer, the association shall, in its discretion, either:
(a) 1. Guarantee, assume, or reinsure, or cause to be guaranteed, assumed, or
reinsured, the policies or contracts of the insolvent insurer; or 2. Assure payment of the contractual obligations of the insolvent insurer;
and 3. Provide such monies, pledges, loans, notes, guarantees, or other means
as are reasonably necessary to discharge such duties; or (b) Provide benefits and coverages in accordance the following provisions: 1. With respect to life and health insurance policies and annuities, assure
payment of benefits for premiums identical to the premiums and benefits
(except for terms of conversion and renewability) that would have been
payable under policies or contracts of the insolvent insurer, for claims
incurred:
a. With respect to group policies and contracts, not later than the
earlier of the next renewal date under such policies or contracts or
forty-five (45) days, but in no event less than thirty (30) days, after
the date on which the association becomes obligated with respect
to such policies or contracts; b. With respect to nongroup policies, contracts, and annuities not
later than the earlier of the next renewal date (if any) under such
policies or contracts or one (1) year, but in no event less than thirty
(30) days, from the date on which the association becomes
obligated with respect to such policies or contracts; 2. Make diligent efforts to provide all known insureds or annuitants for
nongroup policies and contracts, or group policy owners with respect to
group policies and contracts thirty (30) days' notice of the termination
under subparagraph 1. of this paragraph of the benefits provided; 3. With respect to individual health and life insurance policies, and
annuities covered by the association, make available to each known
insured or annuitant, or owner if other than the insured or annuitant, and with respect to an individual formerly insured or formerly and annuitant
under a group policy who is not eligible for replacement group coverage,
make available substitute coverage on an individual basis in accordance
with the provisions of subparagraph 4. of this paragraph, if the insureds
or annuitants had a right under law or the terminated policy to convert
coverage to individual coverage or to continue an individual policy or
annuity in force until a specified age or for a specified time, during
which the insurer had no right unilaterally to make changes in any
provision of the policy or had a right only to make changes in premium
by class; 4. a. In providing substitute coverage required under subparagraph 3. of
this paragraph the association may offer either to reissue the
terminated coverage or to issue an alternative policy. b. Alternative or reissued policies shall be offered without requiring
evidence of insurability, and shall not provide for any waiting
period or exclusion that would not have applied under the
terminated policy. c. The association may reinsure any alternative or reissued policy; 5. a. Alternative policies adopted by the association shall be subject to
approval by the domiciliary insurance commissioner or
receivership court. The association may adopt alternative policies
of various types for future issuance without regard to any particular
impairment or insolvency. b. Alternative policies shall contain at least the minimum statutory
provisions required in this state and provide benefits that shall not
be unreasonable in relation to the premium charged. The
association shall set the premium in accordance with a table of
rates which it shall adopt. The premium shall reflect the amount of
insurance to be provided and the age and class of risk of each
insured, but shall not reflect any changes in the health of the
insured after the original policy was last underwritten. c. Any alternative policy issued by the association shall provide
coverage of a type similar to that of the policy issued by the
impaired or insolvent insurer, as determined by the association; 6. If the association elects to reissue terminated coverage at a premium rate
different from that charged under the terminated policy, the premium
shall be set by the association in accordance with the amount of
insurance provided and the age and class of risk, subject to approval by
the domiciliary insurance commissioner or by the receivership court; and 7. The association's obligations with respect to coverage under any policy
of the impaired or insolvent insurer or under any reissued or alternative
policy shall cease on the date such coverage or policy is replaced by
another similar policy by the policy owner, the insured, or the
association. (3) When proceeding under subsection (2)(b) of this section with respect to any policy or contract carrying guaranteed minimum interest rates, the association shall assure
the payment or crediting of a rate of interest consistent with KRS 304.42-
030(2)(b)3. (4) Nonpayment of premiums within thirty-one (31) days after the date required under the terms of any guaranteed, assumed, alternative, or reissued policy or contract for
substitute coverage shall terminate the association's obligations under such policy or
coverage under this subtitle with respect to such policy or coverage, except with
respect to any claims incurred or any net cash surrender value which may be due in
accordance with the provisions of this subtitle. (5) Premiums due for coverage after entry of an order of liquidation of an insolvent insurer shall belong to and be payable at the direction of the association, and the
association shall be liable for unearned premiums due to policy or contract owners
arising after the entry of such order. (6) The protection provided by this subtitle shall not apply where any guaranteed protection is provided to residents of this state by the laws of the domiciliary state
or jurisdiction of the impaired or insolvent insurer other than this state. (7) In carrying out its duties under subsection (2) of this section, the association may: (a) Subject to approval by a court in this state, impose permanent policy or contract liens in connection with any guarantee, assumption, or reinsurance
agreement, if the association finds that the amounts which can be assessed
under this subtitle are less than the amounts needed to assure full and prompt
performance of the association's duties under this subtitle, or that the
economic or financial conditions as they affect member insurers are
sufficiently adverse to render the imposition of such permanent policy or
contract liens to be in the public interest; and (b) Subject to approval by a court in this state, impose temporary moratoriums or liens on payments of cash values and policy loans, or any other right to
withdraw funds held in conjunction with policies or contracts, in addition to
any contractual provisions for deferral of cash or policy loan value. In
addition, in the event of a temporary moratorium or moratorium charge
imposed by the receivership court on payment of cash values or policy loans,
or on any other right to withdraw funds held in conjunction with policies or
contracts, out of the assets of the impaired or insolvent insurer, the association
may defer the payment of cash values, policy loans, or other rights by the
association for the period of the moratorium or moratorium charge imposed by
the receivership court, except for claims covered by the association to be paid
in accordance with a hardship procedure established by the liquidator or
rehabilitator and approved by the receivership court. (8) A deposit in this state, held under law or required by the commissioner for the benefit of creditors, including policy owners, not turned over to the domiciliary
liquidator upon the entry of a final order of liquidation or order approving a
rehabilitation plan of an insurer domiciled in this state or in a reciprocal state, shall
be promptly paid to the association. The association: (a) Shall be entitled to retain a portion of any amount so paid to it equal to the percentage determined by dividing the aggregate amount of policy owners'
claims related to that insolvency for which the association has provided
statutory benefits by the aggregate amount of all policy owners' claims in this
state related to that insolvency; and (b) Shall remit to the domiciliary receiver the amount so paid to the association and retained in accordance with paragraph (a) of this subsection. Any amount
so paid to the association less the amount retained by it in accordance with
paragraph (a) of this subsection shall be treated as a distribution of estate
assets under KRS 304.33-440 or similar provision of the state of domicile of
the impaired or insolvent insurer. (9) If the association fails to act within a reasonable period of time with respect to an insolvent insurer as provided in subsection (2) of this section, the commissioner
shall have the powers and duties of the association under this subtitle with respect
to the insolvent insurer. (10) The association may render assistance and advice to the commissioner, upon his or her request, concerning rehabilitation, payment of claims, continuance of coverage,
or the performance of other contractual obligations of any impaired or insolvent
insurer. (11) The association shall have standing to appear or intervene before any court or agency in this state with jurisdiction over an impaired or insolvent insurer
concerning which the association is or may become obligated under this subtitle or
with jurisdiction over any person or property against whom the association may
have rights through subrogation or otherwise. Such standing shall extend to all
matters germane to the powers and duties of the association, including, but not
limited to, proposals for reinsuring, modifying, or guaranteeing the policies or
contracts of the impaired or insolvent insurer and the determination of the policies
or contracts and contractual obligations. The association shall also have the right to
appear or intervene before a court or agency in another state with jurisdiction over
an impaired or insolvent insurer for which the association is or may become
obligated or with jurisdiction over any person or property against whom the
association may have rights through subrogation or otherwise. (12) (a) Any person receiving benefits under this subtitle shall be deemed to have assigned the rights under, and any causes of action against any person for
losses arising under, resulting from, or otherwise relating to, the covered
policy or contract to the association to the extent the benefits received because
of this subtitle, whether benefits are payments of or on account of contractual
obligations, continuation of coverage, or provision of substitute or alternative
coverages. The association may require an assignment to it of such rights and
cause of action by any payee, policy or contract owner, beneficiary, insured, or
annuitant as a condition precedent to the receipt of any right or benefits
conferred by this subtitle upon such person. (b) The subrogation rights of the association under this subsection shall have the same priority against the assets of the impaired or insolvent insurer as that
possessed by the person entitled to receive benefits under this subtitle. (c) In addition to paragraphs (a) and (b) of this subsection, the association shall have all common law rights of subrogation and any other equitable or legal
remedy that would have been available to the impaired or insolvent insurer or
owner, beneficiary, or payee of a policy or contract with respect to such policy
or contract, including without limitation, in the case of a structured settlement
annuity, any rights of the owner, beneficiary, or payee of the annuity, to the
extent of benefits received under this subtitle against a person originally or by
succession responsible for the losses arising from the personal injury relating
to the annuity or payment therefor. (d) If the preceding provisions of this subsection are invalid or ineffective with respect to any person or claim for any reason, the amount payable by the
association with respect to the related covered obligations shall be reduced by
the amount realized by any other person with respect to the person or claim
that is attributable to the policies or portion thereof covered by the association. (e) If the association has provided benefits with respect to a covered obligation and a person recovers amounts as to which the association has rights as
described in the preceding paragraphs of this subsection, the person shall pay
to the association the portion of the recovery attributable to the policies or
portion thereof covered by the association. (13) In addition to the rights and powers elsewhere in this subtitle, the association may: (a) Enter into such contracts as are necessary or proper to carry out the provisions and purposes of this subtitle; (b) Sue or be sued, including taking any legal actions necessary or proper to recover any unpaid assessments under KRS 304.42-090 and to settle claims or
potential claims against it; (c) Borrow money to effect the purposes of this subtitle; any notes or other evidence of indebtedness of the association not in default shall be legal
investments for domestic insurers and may be carried as admitted assets; (d) Employ or retain such persons as are necessary or appropriate to handle the financial transactions of the association, and to perform such other functions
as may become necessary or proper under this subtitle; (e) Take such legal action as may be necessary or appropriate to avoid or recover payment of improper claims; (f) Exercise, for the purposes of this subtitle and to the extent approved by the commissioner, the powers of a domestic life or health insurer, but in no case
may the association issue insurance policies or annuity contracts other than
those issued to perform its obligations under this subtitle; (g) Organize itself as a corporation or in other legal form permitted by the laws of the state; (h) Request information from a person seeking coverage from the association in order to aid the association in determining its obligations under this subtitle
with respect to the person, and the person shall promptly comply with the
request; and (i) Take other necessary or appropriate action to discharge its duties and obligations under this subtitle or to exercise its powers under this subtitle. (14) The association may join an organization of one (1) or more other state associations of similar purposes, to further the purposes and administer the powers and duties of
the association. (15) (a) At any time within one (1) year after the date on which the association becomes responsible for the obligations of a member insurer, the association
may elect to succeed to the rights and obligations of the member insurer that
accrue on or after that date and that relate to contracts covered in whole or in
part by the association, under any one (1) or more indemnity reinsurance
agreements entered into by the member insurer as a ceding insurer and
selected by the association. The association may not exercise any such
election with respect to a reinsurance agreement if the receiver, rehabilitator,
or liquidator of the member insurer has previously and expressly disaffirmed
the reinsurance agreement. The election shall be effected by a notice to the
receiver, rehabilitator, or liquidator and to the affected reinsurer. If the
association makes an election, subparagraphs 1. to 4. of this paragraph shall
apply with respect to the agreements selected by the association:
1. The association shall be responsible for all unpaid premiums due under
the agreements for periods both before and after the date, and shall be
responsible for the performance of all other obligations to be performed
after the coverage date, in each case which relate to contracts covered, in
whole or in part, by the association. The association may charge
contracts covered in part by the association, through reasonable
allocation methods, the costs for reinsurance in excess of the obligations
of the association; 2. The association shall be entitled to any amounts payable by the reinsurer
under the agreements with respect to losses or events that occur in
periods after the coverage date and that relate to contracts covered by the
association, in whole or in part. Upon receipt of any such amounts the
association shall be obliged to pay to the beneficiary under the policy or
contract on account of which the amounts were paid a portion of the
amount equal to the excess of:
a. The amount received by the association, over b. The benefits paid by the association on account of the policy or
contract less the retention of the impaired or insolvent member
insurer applicable to the loss or event; 3. Within thirty (30) days following the association's election, the
association and each indemnity reinsurer shall calculate the net balance
due to or from the association under each such reinsurance agreement as of the date of the association's election, which calculation shall give full
credit to all items paid by either the member insurer or its receiver,
rehabilitator, or liquidator, or the indemnity reinsurer during the period
between the coverage date and the date of the association's election.
Either the association or indemnity reinsurer shall pay the net balance
due the other within five (5) days of the completion of the calculation. If
the receiver, rehabilitator, or liquidator has received any amounts due
the association under subparagraph 2. of this paragraph, the receiver,
rehabilitator, or liquidator shall remit those amounts to the association as
promptly as practicable; and 4. If the association, within sixty (60) days of the election, pays the
premiums due for periods both before and after the coverage date that
relate to contracts covered by the association in whole or in part, the
insurer shall not be entitled to terminate the reinsurance agreements
insofar as the agreements relate to contracts covered by the association
in whole or in part and shall not be entitled to set off any unpaid
premium due for periods prior to the coverage date against amounts due
the association. (b) If the association transfers its obligations to another insurer, and if the association and the other insurer agree, the other insurer shall succeed to the
rights and obligations of the association under paragraph (a) of this subsection
effective as of the date agreed upon by the association and the other insurer
and regardless of whether the association has made the election referred to in
paragraph (a) of this subsection if:
1. The indemnity reinsurance agreements automatically terminate for new
reinsurance unless the indemnity reinsurer and the other insurer agree to
the contrary; 2. The obligations described in subparagraph 2. of paragraph (a) of this
subsection no longer apply on and after the date the indemnity
reinsurance agreement is transferred to the third party insurer; and 3. The association has not previously expressly determined in writing that
it will not exercise the election referred to in paragraph (a) of this
subsection. (c) The provisions of this subsection shall supersede the provisions of any law of this state or of any affected reinsurance agreements that provide for or require
any payment of reinsurance proceeds, on account of losses or events that occur
in periods after the coverage date, to the receiver, liquidator, or rehabilitator of
the insolvent member insurer. The receiver, rehabilitator, or liquidator shall
remain entitled to any amounts payable by the reinsurer under the reinsurance
agreements with respect to losses or events that occur in periods prior to the
coverage date, subject to applicable setoff provisions. (d) Except as otherwise expressly provided in this subsection, nothing in this subsection shall alter or modify the terms and conditions of the indemnity
reinsurance agreements of the insolvent member insurer. Nothing in this subsection shall abrogate or limit any rights of any reinsurer to claim that it is
entitled to rescind a reinsurance agreement. Nothing in this subsection shall
give a policy owner or beneficiary an independent cause of action against an
indemnity reinsurer that is not otherwise set forth in the indemnity reinsurance
agreement. (16) The board of directors of the association shall have discretion and may exercise reasonable business judgment to determine the means by which the association is to
provide the benefits of this subtitle in an economical and efficient manner. (17) If the association has arranged or offered to provide the benefits of this subtitle to a covered person under a plan or arrangement that fulfills the association's obligations
under this subtitle, the person shall not be entitled to benefits from the association
in addition to or other than those provided under the plan or arrangement. (18) Venue in a suit against the association under this subtitle shall be in Franklin County. The association shall not be required to give an appeal bond in an appeal
that relates to a cause of action arising under this subtitle. Effective: July 15, 2010
History: Amended 2010 Ky. Acts ch. 24, sec. 1562, effective July 15, 2010. -- Amended 1998 Ky. Acts ch. 537, sec. 5, effective July 15, 1998. -- Amended 1988
Ky. Acts ch. 282, sec. 3, effective July 15, 1988. -- Created 1978 Ky. Acts ch. 282,
sec. 8, effective June 17, 1978.
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