2014 Kentucky Revised Statutes CHAPTER 304 - INSURANCE CODE Subtitle 42 - Kentucky Life and Health Insurance Guaranty Association 42.42-080 Powers and duties of association.
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304.42-080 Powers and duties of association.
(1)
(2)
If a member insurer is an impaired insurer, the association may, in its
discretion, and subject to any conditions imposed by the association that do not
impair the contractual 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.
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
4.
5.
6.
7.
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;
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;
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;
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
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)
(4)
(5)
(6)
(7)
(8)
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.
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.
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.
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.
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.
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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