2013 North Dakota Century Code
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INSURANCE COMPANY REHABILITATION AND LIQUIDATION
26.1-06.1-01. Construction and purpose.
1. This chapter may not be interpreted to limit the powers granted the commissioner by
other provisions of the law.
2. This chapter must be liberally construed to effect the purpose stated in subsection 3.
3. The purpose of this chapter is the protection of the interests of insureds, claimants,
creditors, and the public generally; with minimum interference with the normal
prerogatives of the owners and managers of insurers, through:
a. Early detection of any potentially dangerous condition in an insurer, and prompt
application of appropriate corrective measures;
b. Improved methods for rehabilitating insurers, involving the cooperation and
management expertise of the insurance industry;
c. Enhanced efficiency and economy of liquidation, through clarification of the law,
to minimize legal uncertainty and litigation;
d. Equitable apportionment of any unavoidable loss;
e. Lessening the problems of interstate rehabilitation and liquidation by facilitating
cooperation between states in the liquidation process, and by extending the
scope of personal jurisdiction over debtors of the insurer outside this state;
f. Regulation of the insurance business by the impact of the law relating to
delinquency procedures and substantive rules on the entire insurance business;
g. Providing for a comprehensive scheme for the rehabilitation and liquidation of
insurance companies and those subject to this chapter as part of the regulation of
the business of insurance, insurance industry, and insurers in this state.
Proceedings in cases of insurer insolvency and delinquency are deemed an
integral aspect of the business of insurance and are of vital public interest and
26.1-06.1-02. Persons covered.
The proceedings authorized by this chapter may be applied to:
1. All insurers who are doing, or have done, an insurance business in this state, and
against whom claims arising from that business may exist now or in the future.
2. All insurers who purport to do an insurance business in this state.
3. All insurers who have insureds residing in this state.
4. All persons subject to examination by the commissioner.
5. All other persons organized or in the process of organizing with the intent to do an
insurance business in this state.
6. All nonprofit health service corporations subject to chapter 26.1-17.
7. All fraternal benefit societies subject to chapter 26.1-15.1.
8. All title insurance companies subject to chapter 26.1-20.
9. All health maintenance organizations subject to chapter 26.1-18.1.
10. All prepaid legal service companies subject to chapter 26.1-19.
For the purposes of this chapter:
1. "Ancillary state" means any state other than a domiciliary state.
2. "Creditor" is a person having any claim, whether matured or unmatured, liquidated or
unliquidated, secured or unsecured, absolute, fixed, or contingent.
3. "Delinquency proceeding" means any proceeding instituted against an insurer for the
purpose of liquidating, rehabilitating, reorganizing, or conserving such insurer, and any
summary proceeding under section 26.1-06.1-09. "Formal delinquency proceeding"
means any liquidation or rehabilitation proceeding.
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"Doing business" includes any of the following acts, whether effected by mail or
a. The issuance or delivery of contracts of insurance to residents of this state;
b. The solicitation of applications for such contracts, or other negotiations
preliminary to the execution of such contracts;
c. The collection of premiums, membership fees, assessments, or other
consideration for such contracts;
d. The transaction of matters subsequent to execution of such contracts and arising
out of them;
e. Operating under a license or certificate of authority, as an insurer, issued by the
f. Any other act specified in section 26.1-02-06 as the transaction of an insurance
"Domiciliary state" means the state in which an insurer is incorporated or organized or,
in the case of an alien insurer, its state of entry.
"Fair consideration" is given for property or obligation:
a. When in exchange for property or obligation, as a fair equivalent therefor, and in
good faith, property is conveyed or services are rendered or an obligation is
incurred or an antecedent debt is satisfied; or
b. When property or obligation is received in good faith to secure a present advance
or antecedent debt in an amount not disproportionately small as compared to the
value of the property or obligation obtained.
"Foreign country" means any other jurisdiction not in any state.
"General assets" means all property, real, personal, or otherwise, not specifically
mortgaged, pledged, deposited, or otherwise encumbered for the security or benefit of
specified persons or classes of persons. As to specifically encumbered property,
"general assets" includes all property or its proceeds in excess of the amount
necessary to discharge the sum or sums secured thereby. Assets held in trust and on
deposit for the security or benefit of all policyholders or all policyholders and creditors,
in more than a single state, shall be treated as general assets.
"Guaranty association" means the North Dakota insurance guaranty association
created by chapter 26.1-42.1 or the North Dakota life and health insurance guaranty
association created by chapter 26.1-38.1, and any other similar entity now or hereafter
created by the legislative assembly for the payment of claims of insolvent insurers.
"Foreign guaranty association" means any similar entity now in existence in or
hereafter created by the legislature of any other state.
"Insolvency" or "insolvent" means:
a. For an insurer issuing only assessable fire insurance policies:
(1) The inability to pay any obligation within thirty days after it becomes
(2) If an assessment be made within thirty days after such date, the inability to
pay the obligation thirty days following the date specified in the first
assessment notice issued after the date of loss.
b. For any other insurer, that it is unable to pay its obligations when they are due, or
when its admitted assets do not exceed its liabilities plus the greater of:
(1) Any capital and surplus required by law for its organization; or
(2) The total par or stated value of its authorized and issued capital stock.
c. As to any insurer licensed to do business in this state as of July 7, 1991, which
does not meet the standard established under subdivision b, the term
"insolvency" or "insolvent" means, for a period not to exceed three years from
July 7, 1991, that it is unable to pay its obligations when they are due or that its
admitted assets do not exceed its liabilities plus any required capital contribution
ordered by the commissioner under provisions of the insurance law.
d. For purposes of this subsection, "liabilities" includes reserves required by statute,
by rule, or by specific requirements imposed by the commissioner upon a subject
company at the time of admission or a later time.
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"Insurer" means any person who has done, purports to do, is doing, or is licensed to
do an insurance business, and is or has been subject to the authority of, or to
liquidation, rehabilitation, reorganization, supervision, or conservation by any other
state. For purposes of this chapter, any other persons included under section
26.1-06.1-02 shall be deemed to be insurers.
"Policyholder" includes a certificate holder.
"Preferred claim" means any claim with respect to which the terms of this chapter
accord priority of payment from the general assets of the insurer.
"Receiver" means receiver, liquidator, rehabilitator, or conservator as the context
"Reciprocal state" means any state other than this state in which in substance and
effect subsection 1 of section 26.1-06.1-17 and sections 26.1-06.1-51, 26.1-06.1-52,
26.1-06.1-54, 26.1-06.1-55, and 26.1-06.1-56 are in force, and in which provisions are
in force requiring that the commissioner or equivalent official be the receiver of a
delinquent insurer, and in which some provision exists for the avoidance of fraudulent
conveyances and preferential transfers.
"Secured claim" means any claim secured by mortgage, trust deed, pledge, deposit as
security, escrow, or otherwise, but not including special deposit claims or claims
against general assets. The term also includes claims which have become liens upon
specific assets by reason of judicial process.
"Special deposit claim" means any claim secured by a deposit made pursuant to
statute for the security or benefit of a limited class or classes of persons, but not
including any claim secured by general assets.
"State" means any state, district, or territory of the United States and the Panama
"Transfer" includes the sale and every other and different mode, direct or indirect, of
disposing of or of parting with property or with an interest therein, or with the
possession thereof or of fixing a lien upon property or upon an interest therein,
absolutely or conditionally, voluntarily, by or without judicial proceedings. The retention
of a security title to property delivered to a debtor shall be deemed a transfer suffered
by the debtor.
26.1-06.1-04. Jurisdiction and venue.
1. No delinquency proceeding may be commenced under this chapter by anyone other
than the commissioner and no court has jurisdiction to entertain, hear, or determine
any proceeding commenced by any other person.
2. No court of this state has jurisdiction to entertain, hear, or determine any complaint
praying for the dissolution, liquidation, rehabilitation, sequestration, conservation, or
receivership of any insurer, or praying for an injunction or restraining order or other
relief preliminary to, incidental to, or relating to such proceedings other than in
accordance with this chapter.
3. In addition to other grounds for jurisdiction provided by the law of this state, a court of
this state having jurisdiction of the subject matter has jurisdiction over a person served
pursuant to the North Dakota Rules of Civil Procedure or other applicable provisions of
law in an action brought by the receiver of a domestic insurer or an alien insurer
domiciled in this state:
a. If the person served is an insurance producer or other person who has at any
time written policies of insurance for or has acted in any manner whatsoever on
behalf of an insurer against which a delinquency proceeding has been instituted,
in any action resulting from or incident to such a relationship with the insurer;
b. If the person served is a reinsurer who has at any time entered into a contract of
reinsurance with an insurer against which a delinquency proceeding has been
instituted, or is an insurance producer of or for the reinsurer, in any action on or
incident to the reinsurance contract;
c. If the person served is or has been an officer, director, manager, trustee,
organizer, promoter, or other person in a position of comparable authority or
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influence over an insurer against which a delinquency proceeding has been
instituted, in any action resulting from or incident to such a relationship with the
d. If the person served is or was at the time of the institution of the delinquency
proceeding against the insurer holding assets in which the receiver claims an
interest on behalf of the insurer, in any action concerning the assets; or
e. If the person served is obligated to the insurer in any way whatsoever in any
action on, or incident to, the obligation.
If the court on motion of any party finds that any action should as a matter of
substantial justice be tried in a forum outside this state, the court may enter an
appropriate order to stay further proceedings on the action in this state.
All action herein authorized must be brought in the district court in Burleigh County,
26.1-06.1-05. Injunctions and orders.
1. Any receiver appointed in a proceeding under this chapter may at any time apply for,
and any district court may grant, such restraining orders, preliminary and permanent
injunctions, and other orders as may be deemed necessary and proper to prevent:
a. The transaction of further business;
b. The transfer of property;
c. Interference with the receiver or with a proceeding under this chapter;
d. Waste of the insurer's assets;
e. Dissipation and transfer of bank accounts;
f. The institution or further prosecution of any actions or proceedings;
g. The obtaining of preferences, judgments, attachments, garnishments, or liens
against the insurer, its assets, or its policyholders;
h. The levying of execution against the insurer, its assets, or its policyholders;
i. The making of any sale or deed for nonpayment of taxes or assessments that
would lessen the value of the assets of the insurer;
j. The withholding from the receiver of books, accounts, documents, or other
records including all written, printed, computer-stored, visual, and audiovisual
materials relating to the business of the insurer; or
k. Any other threatened or contemplated action that might lessen the value of the
insurer's assets or prejudice the rights of policyholders, creditors, or
shareholders, or the administration of any proceeding under this chapter.
2. The receiver may apply to any court outside of the state for the relief described in
26.1-06.1-06. Cooperation of officers, owners, and employees - Penalty.
1. Any officer, manager, director, trustee, owner, employee, or agent of any insurer, or
any other persons with authority over or in charge of any segment of the insurer's
affairs, shall cooperate with the commissioner in any proceeding under this chapter, or
any investigation preliminary to the proceeding. The term "person" as used in this
section includes any person who exercises control directly or indirectly over activities
of the insurer through any holding company or other affiliate of the insurer. "To
cooperate" includes the following:
a. To reply promptly in writing to any inquiry from the commissioner requesting a
b. To make available to the commissioner any books, accounts, documents, or other
records or information or property of or pertaining to the insurer and in
possession, custody, or control of that person; and
c. To be available for oral statements and interviews by the commissioner if so
2. No person may obstruct or interfere with the commissioner in the conduct of any
delinquency proceeding or any investigation preliminary or incidental thereto.
Page No. 4
Any person included within subsection 1 who fails to cooperate with the commissioner,
or any person who obstructs or interferes with the commissioner in the conduct of any
delinquency proceeding or any investigation preliminary or incidental thereto, or who
violates any valid order issued by the commissioner under this chapter is guilty of a
class A misdemeanor and, after a hearing, may be subject to the imposition by the
commissioner of a civil penalty not to exceed ten thousand dollars and may be subject
further to the revocation or suspension of any insurance licenses issued by the
26.1-06.1-07. Continuation of delinquency proceedings.
Every proceeding heretofore commenced under the laws in effect before the enactment of
this chapter must be deemed to have commenced under this chapter for the purpose of
conducting the proceeding henceforth, except that in the discretion of the commissioner the
proceeding may be continued, in whole or in part, as it would have been continued had this
chapter not been enacted.
26.1-06.1-08. Condition on release from delinquency proceedings.
No insurer subject to any delinquency proceedings, whether administrative or judicial, may,
until all payments of or on account of the insurer's contractual obligations by all guaranty
associations, along with all expenses thereof and interest on all such payments and expenses,
have been repaid to the guaranty associations, or until a plan of repayment by the insurer has
been approved by the guaranty associations:
1. Be released from the proceeding, unless the proceeding is converted into a judicial
rehabilitation or liquidation proceeding;
2. Be permitted to solicit or accept new business or request or accept the restoration of
any suspended or revoked license or certificate of authority;
3. Be returned to the control of its shareholders or private management; or
4. Have any of its assets returned to the control of its shareholders or private
26.1-06.1-09. Court's seizure order.
1. The commissioner may file in the district court of this state a petition alleging, with
respect to a domestic insurer:
a. That grounds exist which justify a court order for a formal delinquency proceeding
against an insurer under this chapter;
b. That the interests of policyholders, creditors, or the public will be endangered by
c. The contents of an order deemed necessary by the commissioner.
2. Upon a filing under subsection 1, the court may issue forthwith, ex parte, and without a
hearing the requested order which shall direct the commissioner to take possession
and control of all or a part of the property, books, accounts, documents, and other
records of an insurer, and of the premises occupied by it for transaction of its business;
and, until further order of the court, enjoin the insurer and its officers, managers,
agents, and employees from disposition of its property and from the transaction of its
business except with the written consent of the commissioner.
3. The court shall specify in the order the duration of the order which shall be such time
as the court deems necessary for the commissioner to ascertain the condition of the
insurer. On motion of either party or on its own motion, the court may from time to time
hold such hearings as it deems necessary after such notice as it deems appropriate,
and may modify the terms or duration of the seizure order. The court shall vacate the
seizure order if the commissioner fails to commence a formal proceeding under this
chapter after having had a reasonable opportunity to do so. An order of the court
pursuant to a formal proceeding under this chapter shall ipso facto vacate the seizure
Page No. 5
Entry of a seizure order under this section does not constitute an anticipatory breach
of any contract of the insurer.
An insurer subject to an ex parte order under this section may petition the court at any
time after the issuance of the order for a hearing and review of the order. The court
shall hold a hearing and review not more than fifteen days after the request. A hearing
under this subsection may be held privately in chambers and it must be so held if the
insurer proceeded against so requests.
If, at any time after the issuance of a seizure order under this section, it appears to the
court that any person whose interest is or will be substantially affected by the order did
not appear at the hearing and has not been served, the court may order that notice be
given. An order that notice be given does not stay the effect of any order previously
issued by the court.
26.1-06.1-10. Confidentiality of hearings.
In all proceedings and judicial reviews thereof under section 26.1-06.1-09, all records of the
insurer, other documents, and all insurance department files and court records and papers, so
far as they pertain to or are a part of the record of the proceedings, must be and remain
confidential except as is necessary to obtain compliance therewith, unless and until the district
court, after hearing arguments from the parties in chambers, orders otherwise or unless the
insurer requests that the matter be made public. Until such court order, all papers filed with the
clerk of the district court must be held by the clerk in a confidential file.
26.1-06.1-11. Grounds for rehabilitation.
The commissioner may apply by petition to the district court for an order authorizing the
rehabilitation of a domestic insurer or an alien insurer domiciled in this state on any one or more
of the following grounds:
1. The insurer is in such condition that the further transaction of business would be
hazardous financially to its policyholders, creditors, or the public.
2. There is reasonable cause to believe that there has been embezzlement from the
insurer, wrongful sequestration, or diversion of the insurer's assets, forgery, or fraud
affecting the insurer, or other illegal conduct in, by, or with respect to the insurer that if
established would endanger assets in an amount threatening the solvency of the
3. The insurer has failed to remove any person who in fact has executive authority in the
insurer, whether an officer, manager, general agent, employee, or other person, if the
person has been found after notice and hearing by the commissioner to be dishonest
or untrustworthy in a way affecting the insurer's business.
4. Control of the insurer, whether by stock ownership or otherwise, and whether direct or
indirect, is in a person or persons found after notice and hearing to be untrustworthy.
5. Any person, whether an officer, manager, general agent, director, trustee, employee,
or other person, who in fact has executive authority in the insurer, has refused to be
examined under oath by the commissioner concerning its affairs, whether in this state
6. After demand by the commissioner pursuant to sections 26.1-03-19.1 through
26.1-03-19.7, or pursuant to this chapter, the insurer has failed to promptly make
available for examination any of its own property, books, accounts, documents, or
other records, or those of any subsidiary or related company within the control of the
insurer, or those of any person having executive authority in the insurer so far as they
pertain to the insurer.
7. Without first obtaining the written consent of the commissioner, the insurer has
transferred, or attempted to transfer, in a manner contrary to chapter 26.1-10 or
26.1-07, substantially its entire property or business, or has entered into any other
transaction the effect of which is to merge, consolidate, or reinsure substantially its
entire property or business in or with the property or business of any other person.
8. The insurer or its property has been or is the subject of an application for the
appointment of a receiver, trustee, custodian, conservator, or sequestrator or similar
Page No. 6
fiduciary of the insurer or its property otherwise than as authorized under the
insurance laws of this state, and the appointment has been made or is imminent, and
the appointment might remove the insurer or its property from the jurisdiction of this
state, or might prejudice orderly delinquency proceedings under this chapter.
Within the previous four years the insurer has willfully violated its charter or articles of
incorporation, its bylaws, any insurance law of this state, or any valid order of the
The insurer has failed to pay within sixty days after due date any obligation to any
state or any subdivision thereof or any judgment entered in any state, if the court in
which the judgment was entered had jurisdiction over the subject matter except that
the nonpayment is not a ground until sixty days after any good-faith effort by the
insurer to contest the obligation has been terminated, whether it is before the
commissioner or in the courts, or the insurer has systematically attempted to
compromise or renegotiate previously agreed settlements with its creditors on the
ground that it is financially unable to pay its obligations in full.
The insurer has failed to file its annual report or other financial report required by
statute within the time allowed by law and, after written demand by the commissioner,
has failed to immediately respond with an adequate explanation.
The board of directors or the holders of a majority of the shares entitled to vote, or a
majority of those individuals entitled to the control of those entities, request or consent
to rehabilitation under this chapter.
Has been found after examination that, in the case of a stock insurance company, its
minimum basic paid-in capital required by section 26.1-05-04 is impaired, or that, in
the case of a domestic mutual insurance company, its surplus required by sections
26.1-12-08 and 26.1-12-10 is impaired.
26.1-06.1-12. Rehabilitation orders.
1. An order to rehabilitate the business of a domestic insurer, or an alien insurer
domiciled in this state, shall appoint the commissioner and successor commissioners
in office the rehabilitator, and shall direct the rehabilitator forthwith to take possession
of the assets of the insurer and to administer them under the general supervision of
the court. The filing or recording of the order with the recorder, unless the board of
county commissioners designates a different official, of the county in which the
principal business of the company is conducted, or the county in which its principal
office or place of business is located, imparts the same notice as a deed, bill of sale, or
other evidence of title duly filed or recorded with that recorder or designated official.
The order to rehabilitate the insurer shall by operation of law vest title to all assets of
the insurer in the rehabilitator.
2. Any order issued under this section must require accounting to the court by the
rehabilitator. Accounting must be at such intervals as the court specifies in its order,
but no less frequently than semiannually. Each accounting must include a report
concerning the rehabilitator's opinion as to the likelihood that a plan under
subsection 4 of section 26.1-06.1-13 will be prepared by the rehabilitator and the
timetable for doing so.
3. Entry of an order of rehabilitation does not constitute an anticipatory breach of any
contracts of the insurer nor is it grounds for retroactive revocation or retroactive
cancellation of any contracts of the insurer, unless such revocation or cancellation is
done by the rehabilitator pursuant to section 26.1-06.1-13.
26.1-06.1-13. Powers and duties of the rehabilitator.
1. The commissioner as rehabilitator may appoint one or more special deputies, who
shall have all the powers and responsibilities of the rehabilitator granted under this
section, and the commissioner may employ such counsel, clerks, and assistants as
deemed necessary. The compensation of the special deputy, counsel, clerks, and
assistants and all expenses of taking possession of the insurer and of conducting the
proceedings must be fixed by the commissioner, with the approval of the court and
Page No. 7
must be paid out of the funds or assets of the insurer. The commissioner, as
rehabilitator, may, with the approval of the court, appoint an advisory committee of
policyholders, claimants, or other creditors, including guaranty associations, should
such a committee be deemed necessary. The committee shall serve at the pleasure of
the commissioner and shall serve without compensation other than reimbursement for
reasonable travel and per diem living expenses. No other committee of any nature
may be appointed by the commissioner or the court in rehabilitation proceedings
conducted under this chapter.
In the event that the property of the insurer does not contain sufficient cash or liquid
assets to defray the costs incurred, the commissioner may advance the costs so
incurred out of any appropriation for the maintenance of the insurance department.
Any amounts so advanced for expenses of administration must be repaid to the
commissioner for the use of the insurance department out of the first available money
of the insurer.
The rehabilitator may take such action deemed necessary or appropriate to reform and
revitalize the insurer. The rehabilitator shall have all the powers of the directors,
officers, and managers, whose authority must be suspended, except as they are
redelegated by the rehabilitator. The rehabilitator shall have full power to direct and
manage, to hire, and discharge employees subject to any contract rights they may
have, and to deal with the property and business of the insurer.
If it appears to the rehabilitator that there has been criminal or tortious conduct, or
breach of any contractual or fiduciary obligation detrimental to the insurer by any
officer, manager, insurance producer, employee, or other person, the rehabilitator may
pursue all appropriate legal remedies on behalf of the insurer.
If it is determined that reorganization, consolidation, conversion, reinsurance, merger,
or other transformation of the insurer is appropriate, the rehabilitator shall prepare a
plan to effect such changes. Upon application of the rehabilitator for approval of the
plan, and after such notice and hearings as the court may prescribe, the court may
either approve or disapprove the plan proposed, or may modify it and approve it as
modified. Any plan approved under this section must be, in the judgment of the court,
fair and equitable to all parties concerned. If the plan is approved, the rehabilitator
shall carry out the plan. In the case of a life insurer, the plan proposed may include the
imposition of liens upon the policies of the company, if all rights of shareholders are
first relinquished. A plan for a life insurer may also propose imposition of a moratorium
upon loan and cash surrender rights under policies, for such period, and to such an
extent as may be necessary.
The rehabilitator shall have the power under sections 26.1-06.1-25 and 26.1-06.1-26
to avoid fraudulent transfers.
26.1-06.1-14. Actions by and against rehabilitator.
1. Whenever any action or proceeding in which the insurer is a party, or is obligated to
defend a party, is pending at the time a rehabilitation order against the insurer is
entered, the court before which the action or proceeding is pending shall stay the
action or proceeding for ninety days and such additional time as is necessary for the
rehabilitator to obtain proper representation and prepare for further proceedings. The
rehabilitator shall take such action respecting the pending litigation as deemed
necessary in the interests of justice and for the protection of creditors, policyholders,
and the public. The rehabilitator shall immediately consider all litigation pending
outside this state and shall petition the courts having jurisdiction over that litigation for
stays whenever necessary to protect the estate of the insurer.
2. No statute of limitations or defense of laches runs with respect to any action by or
against an insurer between the filing of a petition for appointment of a rehabilitator for
that insurer and the order granting or denying that petition. Any action against the
insurer that might have been commenced when the petition was filed may be
commenced for at least sixty days after the order of rehabilitation is entered or the
petition is denied. The rehabilitator may, upon an order for rehabilitation, within one
Page No. 8
year or such other longer time as applicable law may permit, institute an action or
proceeding on behalf of the insurer upon any cause of action against which the period
of limitation fixed by applicable law has not expired at the time of the filing of the
petition upon which such order is entered.
Any guaranty association or foreign guaranty association covering life or health
insurance or annuities shall have standing to appear in any court proceeding
concerning the rehabilitation of a life or health insurer if such association is or may
become liable to act as a result of the rehabilitation.
26.1-06.1-15. Termination of rehabilitation.
1. Whenever the commissioner believes further attempts to rehabilitate an insurer would
substantially increase the risk of loss to creditors, policyholders, or the public, or would
be futile, the commissioner may petition the district court for an order of liquidation. A
petition under this subsection has the same effect as a petition under section
26.1-06.1-16. The district court shall permit the directors of the insurer to take such
actions as are reasonably necessary to defend against the petition and may order
payment from the estate of the insurer of such costs and other expenses of defense as
justice may require.
2. The protection of the interests of insureds, claimants, and the public requires the
timely performance of all insurance policy obligations. If the payment of policy
obligations is suspended in substantial part for a period of six months at any time after
the appointment of the rehabilitator and the rehabilitator has not filed an application for
approval of a plan under subsection 4 of section 26.1-06.1-13, the rehabilitator shall
petition the court for an order of liquidation on grounds of insolvency.
3. The rehabilitator may at any time petition the district court for an order terminating
rehabilitation of an insurer. The court shall also permit the directors of the insurer to
petition the court for an order terminating rehabilitation of the insurer and may order
payment from the estate of the insurer of such costs and other expenses of such
petition as justice may require. If the district court finds that rehabilitation has been
accomplished and that grounds for rehabilitation under section 26.1-06.1-11 no longer
exist, it shall order that the insurer be restored to possession of its property and the
control of the business. The district court may also make that finding and issue that
order at any time upon its own motion.
26.1-06.1-16. Grounds for liquidation.
The commissioner may petition the district court for an order directing the liquidation of a
domestic insurer or an alien insurer domiciled in this state on the basis:
1. Of any ground for an order of rehabilitation as specified in section 26.1-06.1-11,
whether or not there has been a prior order directing the rehabilitation of the insurer;
2. That the insurer is insolvent; or
3. That the insurer is in such condition that the further transaction of business would be
hazardous, financially or otherwise, to its policyholders, its creditors, or the public.
26.1-06.1-17. Liquidation orders.
1. An order to liquidate the business of a domestic insurer must appoint the
commissioner and successor commissioners in office as liquidator and must direct the
liquidator forthwith to take possession of the assets of the insurer and to administer
them under the general supervision of the court. The liquidator must be vested by
operation of law with the title to all of the property, contracts, and rights of action, and
all of the books and records of the insurer, wherever located, as of the entry of the final
order of liquidation. The filing or recording of the order with the recorder, unless the
board of county commissioners designates a different official, of the county in which its
principal office or place of business is located or, in the case of real estate, with the
recorder of the county where the property is located, imparts the same notice as a
Page No. 9
deed, bill of sale, or other evidence of title duly filed or recorded with that recorder or
Upon issuance of the order, the rights and liabilities of any such insurer and of its
creditors, policyholders, shareholders, members, and all other persons interested in its
estate become fixed as of the date of entry of the order of liquidation, except as
provided in sections 26.1-06.1-18 and 26.1-06.1-36.
An order to liquidate the business of an alien insurer domiciled in this state must be in
the same terms and have the same legal effect as an order to liquidate a domestic
insurer, except that the assets and the business in the United States must be the only
assets and business included therein.
At the time of petitioning for an order of liquidation, or at any time thereafter, the
commissioner, after making appropriate findings of an insurer's insolvency, may
petition the court for a judicial declaration of such insolvency. After providing such
notice and hearing as it deems proper, the court may make the declaration.
Any order issued under this section must require financial reports to the court by the
liquidator. Financial reports must include the assets and liabilities of the insurer and all
funds received or disbursed by the liquidator during the current period. Financial
reports must be filed within one year of the liquidation order and at least annually
a. Within five days of July 7, 1991, or, if later, within five days after the initiation of an
appeal of an order of liquidation, which order has not been stayed, the
commissioner shall present for the court's approval a plan for the continued
performance of the defendant company's policy claims obligations, including the
duty to defend insureds under liability insurance policies, during the pendency of
an appeal. Such plan must provide for the continued performance and payment
of policy claims obligations in the normal course of events, notwithstanding the
grounds alleged in support of the order of liquidation, including the ground of
insolvency. In the event the defendant company's financial condition will not, in
the judgment of the commissioner, support the full performance of all policy
claims obligations during the appeal pendency period, the plan may prefer the
claims of certain policyholders and claimants over creditors and interested parties
as well as other policyholders and claimants, as the commissioner finds to be fair
and equitable considering the relative circumstances of such policyholders and
claimants. The court shall examine the plan submitted by the commissioner and if
it finds the plan to be in the best interests of the parties, the court shall approve
the plan. No action may lie against the commissioner, or any deputies, agents,
clerks, assistants, or attorneys employed or appointed by the commissioner by
any party based on preference in an appeal pendency plan approved by the
b. The appeal pendency plan does not supersede or affect the obligations of any
insurance guaranty association.
c. Any such plans must provide for equitable adjustments to be made by the
liquidator to any distributions of assets to guaranty associations, in the event that
the liquidator pays claims from assets of the estate, which would otherwise be the
obligations of any particular guaranty association but for the appeal of the order
of liquidation, such that all guaranty associations equally benefit on a pro rata
basis from the assets of the estate. Further, in the event an order of liquidation is
set aside upon any appeal, the company may not be released from delinquency
proceedings unless and until all funds advanced by any guaranty association,
including reasonable administrative expenses in connection therewith relating to
obligations of the company, are repaid in full, together with interest at the
judgment rate of interest or unless an arrangement for repayment thereof has
been made with the consent of all applicable guaranty associations.
Page No. 10
26.1-06.1-18. Continuance of coverage.
1. All policies, including bonds and other noncancelable business, other than life or
health insurance or annuities, in effect at the time of issuance of an order of liquidation
continue in force only until the earlier of:
a. Thirty days from the date of entry of the liquidation orders;
b. The expiration of the policy coverage;
c. The date when the insured has replaced the insurance coverage with equivalent
insurance in another insurer or otherwise terminated the policy;
d. The liquidator has effected a transfer of the policy obligation pursuant to
subdivision i of subsection 1 of section 26.1-06.1-20; or
e. The date proposed by the liquidator and approved by the court to cancel
2. An order of liquidation under section 26.1-06.1-17 terminates coverages at the time
specified in subsection 1 for purposes of any other statute.
3. Policies of life or health insurance or annuities continue in force for such period and
under such terms as provided for by any applicable guaranty association or foreign
4. Policies of life or health insurance or annuities, or any period or coverage of such
policies, not covered by a guaranty association or foreign guaranty association
terminate under subsections 1 and 2.
26.1-06.1-19. Dissolution of insurer.
The commissioner may petition for an order dissolving the corporate existence of a
domestic insurer or the United States branch of an alien insurer domiciled in this state at the
time of application for a liquidation order. The court shall order dissolution of the corporation
upon petition by the commissioner upon or after the granting of a liquidation order. If the
dissolution has not previously been ordered, it shall be effected by operation of law upon the
discharge of the liquidator if the insurer is insolvent but may be ordered by the court upon the
discharge of the liquidator if the insurer is under a liquidation order for some other reason.
26.1-06.1-20. Powers of liquidator.
1. The liquidator shall have the power:
a. To appoint a special deputy or deputies and to determine their reasonable
compensation. The special deputy shall have all powers of the liquidator granted
by this section.
b. To employ employees and agents, legal counsel, actuaries, accountants,
appraisers, consultants, and such other personnel as the liquidator may deem
necessary to assist in the liquidation.
c. To appoint, with the approval of the court, an advisory committee of policyholders,
claimants, or other creditors including guaranty associations should such a
committee be deemed necessary. The committee shall serve without
compensation other than reimbursement for reasonable travel and per diem living
expenses. No other committee of any nature may be appointed by the
commissioner or the court in liquidation proceedings conducted under this
d. To fix the reasonable compensation of employees and agents, legal counsel,
actuaries, accountants, appraisers, and consultants with the approval of the
e. To pay reasonable compensation to persons appointed and to defray from the
funds or assets of the insurer all expenses of taking possession of, conserving,
conducting, liquidating, disposing of, or otherwise dealing with the business and
property of the insurer. In the event that the property of the insurer does not
contain sufficient cash or liquid assets to defray the costs incurred, the
commissioner may advance the costs so incurred out of any appropriation for the
maintenance of the insurance department. Any amounts so advanced for
Page No. 11
expenses of administration must be repaid to the commissioner for the use of the
insurance department out of the first available moneys of the insurer.
To hold hearings, to subpoena witnesses to compel their attendance, to
administer oaths, to examine any person under oath, and to compel any person
to subscribe to their testimony after it has been correctly reduced to writing; and
in connection therewith to require the production of any books, papers, records,
or other documents the liquidator deems relevant to the inquiry.
To audit the books and records of all agents of the insurer insofar as those
records relate to the business activities of the insurer.
To collect all debts and moneys due and claims belonging to the insurer,
wherever located, and for the following purposes:
(1) To institute timely action in other jurisdictions, in order to forestall
garnishment and attachment proceedings against such debts;
(2) To do such other acts as are necessary or expedient to collect, conserve, or
protect its assets or property, including the power to sell, compound,
compromise, or assign debts for purposes of collection upon such terms and
conditions as deemed best; and
(3) To pursue any creditor's remedies available to enforce the liquidator's
To conduct public and private sales of the property of the insurer.
To use assets of the estate of an insurer under a liquidation order to transfer
policy obligations to a solvent assuming insurer, if the transfer can be arranged
without prejudice to applicable priorities under section 26.1-06.1-41.
To acquire, hypothecate, encumber, lease, improve, sell, transfer, abandon, or
otherwise dispose of or deal with, any property of the insurer at its market value
or upon such terms and conditions as are fair and reasonable. The liquidator shall
also have power to execute, acknowledge, and deliver any and all deeds,
assignments, releases, and other instruments necessary or proper to effectuate
any sale of property or other transaction in connection with the liquidation.
To borrow money on the security of the insurer's assets or without security and to
execute and deliver all documents necessary to that transaction for the purpose
of facilitating the liquidation. Any such funds borrowed may be repaid as an
administrative expense and have priority over any other claims in class one under
the priority of distribution.
To enter into such contracts as are necessary to carry out the order to liquidate,
and to affirm or disavow any contracts to which the insurer is a party.
To continue to prosecute and to institute in the name of the insurer or in the name
of the liquidator, any and all suits and other legal proceedings, in this state or
elsewhere, and to abandon the prosecution of claims the liquidator deems
unprofitable to pursue further. If the insurer is dissolved under section
26.1-06.1-19, the liquidator shall have the power to apply to any court in this state
or elsewhere for leave to substitute the liquidator for the insurer as plaintiff.
To prosecute any action which may exist in behalf of the creditors, members,
policyholders, or shareholders of the insurer against any officer of the insurer, or
any other person.
To remove any or all records and property of the insurer to the offices of the
commissioner or to another place as may be convenient for the purposes of
efficient and orderly execution of the liquidation. Guaranty associations and
foreign guaranty associations shall have such reasonable access to the records
of the insurer as is necessary for them to carry out their statutory obligations.
To deposit in one or more banks in this state any amounts of money required for
meeting current administration expenses and dividend distributions.
To invest all moneys not currently needed, unless the court orders otherwise.
To file any necessary documents for record in the office of any recorder or record
office in this state or elsewhere where property of the insurer is located.
Page No. 12
To assert all defenses available to the insurer as against third persons, including
statutes of limitation, statutes of fraud, and the defense of usury. A waiver of any
defense by the insurer after a petition in liquidation has been filed shall not bind
the liquidator. Whenever a guaranty association or foreign guaranty association
has an obligation to defend any suit, the liquidator shall give precedence to such
obligation and may defend only in the absence of a defense by such guaranty
u. To exercise and enforce all the rights, remedies, and powers of any creditor,
shareholder, policyholder, or member, including any power to avoid any transfer
or lien that may be given by the general law and that is not included in section
26.1-06.1-25, 26.1-06.1-26, or 26.1-06.1-27.
v. To intervene in any proceeding, wherever instituted, that might lead to the
appointment of a receiver or trustee, and to act as the receiver or trustee
whenever the appointment is offered.
w. To enter into agreements with any receiver or commissioner of any other state
relating to the rehabilitation, liquidation, conservation, or dissolution of an insurer
doing business in both states.
x. To exercise all powers now held or hereafter conferred upon receivers by the
laws of this state not inconsistent with the provisions of this chapter.
a. If a company placed in liquidation issued liability policies on a claims-made basis,
which provided an option to purchase an extended period to report claims, then
the liquidator may make available to holders of such policies, for a charge, an
extended period to report claims as stated herein. The extended reporting period
may be made available only to those insureds who have not secured substitute
coverage. The extended period made available by the liquidator begins upon
termination of any extended period to report claims in the basic policy and ends
at the earlier of the final date for filing of claims in the liquidation proceeding or
eighteen months from the order of liquidation.
b. The extended period to report claims made available by the liquidator is subject
to the terms of the policy to which it relates. The liquidator shall make available
such extended period within sixty days after the order of liquidation at a charge to
be determined by the liquidator subject to approval of the court. The offer must be
deemed rejected unless the offer is accepted in writing and the charge is paid
within ninety days after the order of liquidation. No commissions, premium taxes,
assessments, or other fees may be due on the charge pertaining to the extended
period to report claims.
The enumeration of the powers and authority of the liquidator in this section may not
be construed as a limitation upon the liquidator, nor does it exclude in any manner the
liquidator's right to do such other acts not herein specifically enumerated or otherwise
provided for, as may be necessary or appropriate for the accomplishment of or in aid
of the purpose of liquidation.
Notwithstanding the powers of the liquidator as stated in subsections 1 and 2, the
liquidator shall have no obligation to defend claims or to continue to defend claims
subsequent to the entry of a liquidation order.
26.1-06.1-21. Notice to creditors and others.
1. Unless the court otherwise directs, the liquidator shall give or cause to be given notice
of the liquidation order as soon as possible:
a. By first-class mail and either by telegram or telephone to the insurance
commissioner of each jurisdiction in which the insurer is doing business;
b. By first-class mail to any guaranty association or foreign guaranty association
which is or may become obligated as a result of the liquidation;
c. By first-class mail to all insurance producers of the insurer;
d. By first-class mail to all persons known or reasonably expected to have claims
against the insurer including all policyholders, at their last-known address as
indicated by the records of the insurer; and
Page No. 13
By publication in a newspaper of general circulation in the county in which the
insurer has its principal place of business and in such other locations as the
liquidator deems appropriate.
Except as otherwise established by the liquidator with approval of the court, notice to
potential claimants under subsection 1 shall require claimants to file with the liquidator
their claims together with proper proofs thereof under section 26.1-06.1-35, on or
before a date the liquidator shall specify in the notice. The liquidator need not require
persons claiming cash surrender values or other investment values in life insurance
and annuities to file a claim. All claimants shall have a duty to keep the liquidator
informed of any changes of address.
a. Notice under subsection 1 to insurance producers of the insurer and to potential
claimants who are policyholders must include, when applicable, notice that
coverage by state guaranty associations may be available for all or part of policy
benefits in accordance with applicable state guaranty laws.
b. The liquidator shall promptly provide to the guaranty associations any information
concerning the identities and addresses of the policyholders and their policy
coverages in the liquidator's possession or control, and otherwise cooperate with
guaranty associations to assist them in providing to the policyholders timely
notice of the guaranty associations' coverage of policy benefits, including, as
applicable, coverage of claims and continuation or termination of coverages.
If notice is given in accordance with this section, the distribution of assets of the
insurer under this chapter shall be conclusive with respect to all claimants, whether or
not they received notice.
26.1-06.1-22. Duties of agents.
1. Every agent who receives notice in the form prescribed in section 26.1-06.1-21 that an
insurer represented by that agent is the subject of a liquidation order, within thirty days
of such notice, shall provide to the liquidator, in addition to the information the agent
may be required to provide pursuant to section 26.1-06.1-06, the information in the
agent's records related to any policy issued by the insurer through the agent, and, if
the agent is a general agent, the information in the general agent's records related to
any policy issued by the insurer through a subagent under contract with the agent,
including the name and address of the subagent. A policy must be deemed issued
through an agent if the agent has a property interest in the expiration of the policy, or if
the agent has had possession of a copy of the declarations of the policy at any time
during the life of the policy, except when the ownership of the expiration of the policy
has been transferred to another.
2. Any agent failing to provide information to the liquidator as required in subsection 1,
following a hearing held by the commissioner, may be subject to license suspension
and payment of a penalty of not more than one thousand dollars.
26.1-06.1-23. Actions by and against liquidator.
1. Upon issuance of an order appointing a liquidator of a domestic insurer or of an alien
insurer domiciled in this state, no action at law or equity or in arbitration may be
brought against the insurer or liquidator, whether in this state or elsewhere, nor may
any existing actions be maintained or further presented after issuance of the order.
The courts of this state shall give full faith and credit to injunctions against the
liquidator or the company or the continuation of existing actions against the liquidator
or the company, when the injunctions are included in an order to liquidate an insurer
issued pursuant to corresponding provisions in other states. Whenever, in the
liquidator's judgment, protection of the estate of the insurer necessitates intervention in
an action against the insurer that is pending outside this state, the liquidator may
intervene in the action. In any action in which the liquidator intervenes under this
section, the liquidator may defend the action at the expense of the estate of the
Page No. 14
The liquidator may, upon or after an order for liquidation, within two years or such other
longer time as applicable law may permit, institute an action or proceeding on behalf of
the estate of the insurer upon any cause of action against which the period of limitation
fixed by applicable law has not expired at the time of the filing of the petition upon
which such order is entered. If, by any agreement, a period of limitation is fixed for
instituting a suit or proceeding upon any claim, or for filing any claim, proof of claim,
proof of loss, demand, notice, or the like, or if in any proceeding, judicial or otherwise,
a period of limitation is fixed, either in the proceeding or by applicable law, for taking
any action, filing any claim or pleading, or doing any act, and if in any such case the
period had not expired at the date of the filing of the petition, the liquidator may, for the
benefit of the estate, take any action or do any act, required of or permitted to the
insurer, within a period of one hundred eighty days subsequent to the entry of an order
for liquidation, or within such further period as is shown to the satisfaction of the court
not to be unfairly prejudicial to the other party.
No statute of limitation or defense of laches runs with respect to any action against an
insurer between the filing of a petition for liquidation against an insurer and the denial
of the petition. Any action against the insurer that might have been commenced when
the petition was filed may be commenced for at least sixty days after the petition is
Any guaranty association or foreign guaranty association shall have standing to
appear in any court proceeding concerning the liquidation of an insurer if the
association is or may become liable to act as a result of the liquidation.
26.1-06.1-24. Collection and list of assets.
1. As soon as practicable after the liquidation order, but not later than one hundred
twenty days thereafter, unless extended by order of the court, the liquidator shall
prepare in duplicate a list of the insurer's assets. The list must be amended or
supplemented from time to time as the liquidator may determine. One copy must be
filed in the office of the recorder, unless the board of county commissioners designates
a different official, and one copy must be retained for the liquidator's files. All
amendments and supplements must be similarly filed.
2. The liquidator shall reduce the assets to a degree of liquidity that is consistent with the
effective execution of the liquidation.
3. A submission to the court for disbursement of assets in accordance with section
26.1-06.1-33 fulfills the requirements of subsection 1 of this section.
26.1-06.1-25. Fraudulent transfers prior to petition.
1. Every transfer made or suffered and every obligation incurred by an insurer within one
year prior to the filing of a successful petition for rehabilitation or liquidation under this
chapter is fraudulent as to then existing and future creditors if made or incurred without
fair consideration, or with actual intent to hinder, delay, or defraud either existing or
future creditors. A transfer made or an obligation incurred by an insurer ordered to be
rehabilitated or liquidated under this chapter, which is fraudulent under this section,
may be avoided by the receiver, except as to a person who in good faith is a
purchaser, lienor, or obligee for a present fair equivalent value, and except that any
purchaser, lienor, or obligee, who in good faith has given a consideration less than fair
for such transfer, lien, or obligation, may retain the property, lien, or obligation as
security for repayment. The court may, on due notice, order any such transfer or
obligation to be preserved for the benefit of the estate, and in that event, the receiver
shall succeed to and may enforce the rights of the purchaser, lienor, or obligee.
2. a. A transfer of property other than real property must be deemed to be made or
suffered when it becomes so far perfected that no subsequent lien obtainable by
legal or equitable proceedings on a simple contract could become superior to the
rights of the transferee under subsection 3 of section 26.1-06.1-27.
Page No. 15
A transfer of real property must be deemed to be made or suffered when it
becomes so far perfected that no subsequent bona fide purchaser from the
insurer could obtain rights superior to the rights of the transferee.
c. A transfer which creates an equitable lien may not be deemed to be perfected if
there are available means by which a legal lien could be created.
d. Any transfer not perfected prior to the filing of a petition for liquidation must be
deemed to be made immediately before the filing of the successful petition.
e. The provisions of this subsection apply whether or not there are or were creditors
who might have obtained any liens or persons who might have become bona fide
Any transaction of the insurer with a reinsurer must be deemed fraudulent and may be
avoided by the receiver under subsection 1 if:
a. The transaction consists of the termination, adjustment, or settlement of a
reinsurance contract in which the reinsurer is released from any part of its duty to
pay the originally specified share of losses that had occurred prior to the time of
the transactions, unless the reinsurer gives a present fair equivalent value for the
b. Any part of the transaction took place within one year prior to the date of filing of
the petition through which the receivership was commenced.
Every person receiving any property from the insurer or any benefit thereof which is a
fraudulent transfer under subsection 1 is personally liable therefor and is bound to
account to the liquidator.
26.1-06.1-26. Fraudulent transfer after petition.
1. After a petition for rehabilitation or liquidation has been filed, a transfer of any of the
real property of the insurer made to a person acting in good faith is valid against the
receiver if made for a present fair equivalent value. If the transfer is not made for a
present fair equivalent value, then the transfer is valid to the extent of the present
consideration actually paid therefor, for which amount the transferee shall have a lien
on the property so transferred. The commencement of a proceeding in rehabilitation or
liquidation is constructive notice upon the recording of a copy of the petition for or
order of rehabilitation or liquidation with the recorder in the county where any real
property in question is located. The exercise by a court of the United States or any
state or jurisdiction to authorize or effect a judicial sale of real property of the insurer
within any county in any state may not be impaired by the pendency of such a
proceeding unless the copy is recorded in the county prior to the consummation of the
2. After a petition for rehabilitation or liquidation has been filed and before either the
receiver takes possession of the property of the insurer or an order of rehabilitation or
liquidation is granted:
a. A transfer of any of the property of the insurer, other than real property, made to a
person acting in good faith is valid against the receiver if made for a present fair
equivalent value. If the transfer is not made for a present fair equivalent value,
then the transfer is valid to the extent of the present consideration actually paid
therefor, for which amount the transferee shall have a lien on the property so
b. A person indebted to the insurer or holding property of the insurer may, if acting in
good faith, pay the indebtedness or deliver the property, or any part thereof, to
the insurer or upon the insurer's order, with the same effect as if the petition were
c. A person having actual knowledge of the pending rehabilitation or liquidation must
be deemed not to act in good faith.
d. A person asserting the validity of a transfer under this section shall have the
burden of proof. Except as elsewhere provided in this section, no transfer by or
on behalf of the insurer after the date of the petition for liquidation by any person
other than the liquidator is valid against the liquidator.
Page No. 16
Every person receiving any property from the insurer or any benefit thereof which is a
fraudulent transfer under subsection 1 is personally liable therefor and is bound to
account to the liquidator.
Nothing in this chapter impairs the negotiability of currency or negotiable instruments.
26.1-06.1-27. Voidable preferences and liens.
1. a. A preference is a transfer of any of the property of an insurer to or for the benefit
of a creditor, for or on account of an antecedent debt, made or suffered by the
insurer within one year before the filing of a successful petition for liquidation
under this chapter, the effect of which transfer may be to enable the creditor to
obtain a greater percentage of this debt than another creditor of the same class
would receive. If a liquidation order is entered while the insurer is already subject
to a rehabilitation order, then such transfers must be deemed preferences if made
or suffered within one year before the filing of the successful petition for
rehabilitation, or within two years before the filing of the successful petition for
liquidation, whichever time is shorter.
b. Any preference may be avoided by the liquidator if:
(1) The insurer was insolvent at the time of the transfer;
(2) The transfer was made within four months before the filing of the petition;
(3) The creditor receiving it or to be benefited thereby or the creditor's agent
acting with reference thereto had, at the time when the transfer was made,
reasonable cause to believe that the insurer was insolvent or was about to
become insolvent; or
(4) The creditor receiving it was an officer, or any employee or attorney or other
person who was in fact in a position of comparable influence in the insurer
to an officer, whether or not that person held such position, or any
shareholder holding directly or indirectly more than five percent of any class
of any equity security issued by the insurer, or any other person, firm,
corporation, limited liability company, association, or aggregation of persons
with whom the insurer did not deal at arm's length.
c. When the preference is voidable, the liquidator may recover the property or, if it
has been converted, the liquidator may recover its value from any person who
has received or converted the property; except when a bona fide purchaser or
lienor has given less than fair equivalent value, the bona fide purchaser or lienor
shall have a lien upon the property to the extent of the consideration actually
given by the bona fide purchaser or lienor. If a preference by way of lien or
security title is voidable, the court may on due notice order the lien or title to be
preserved for the benefit of the estate, in which event the lien or title shall pass to
2. a. A transfer of property other than real property must be deemed to be made or
suffered when it becomes so far perfected that no subsequent lien obtainable by
legal or equitable proceedings on a simple contract could become superior to the
rights of the transferee.
b. A transfer of real property must be deemed to be made or suffered when it
becomes so far perfected that no subsequent bona fide purchaser from the
insurer could obtain rights superior to the rights of the transferee.
c. A transfer which creates an equitable lien may not be deemed to be perfected if
there are available means by which a legal lien could be created.
d. A transfer not perfected prior to the filing of a petition for liquidation must be
deemed to be made immediately before the filing of the successful petition.
e. The provisions of this subsection apply whether or not there are or were creditors
who might have obtained liens or persons who might have become bona fide
3. a. A lien obtainable by legal or equitable proceedings upon a simple contract is one
arising in the ordinary course of such proceedings upon the entry or docketing of
a judgment or decree, or upon attachment, garnishment, execution, or like
Page No. 17
process, whether before, upon, or after judgment or decree and whether before
or upon levy. It does not include liens which under applicable law are given a
special priority over other liens which are prior in time.
b. A lien obtainable by legal or equitable proceedings could become superior to the
rights of a transferee, or a purchaser could obtain rights superior to the rights of a
transferee within the meaning of subsection 2, if such consequences would follow
only from the lien or purchase itself, or from the lien or purchase followed by any
step wholly within the control of the respective lienholder or purchaser, with or
without the aid of ministerial action by public officials. Such a lien could not,
however, become superior and such a purchase could not create superior rights
for the purpose of subsection 2 through any acts subsequent to the obtaining of
such a lien or subsequent to such a purchase which require the agreement or
concurrence of any third party or which require any further judicial action or ruling.
A transfer of property for or on account of a new and contemporaneous consideration,
which is deemed under subsection 2 to be made or suffered after the transfer because
of delay in perfecting it, does not thereby become a transfer for or on account of an
antecedent debt if any acts required by the applicable law to be performed in order to
perfect the transfer as against liens or bona fide purchasers' rights are performed
within twenty-one days or any period expressly allowed by the law, whichever is less. A
transfer to secure a future loan, if such a loan is actually made, or a transfer which
becomes security for a future loan, has the same effect as a transfer for or on account
of a new and contemporaneous consideration.
If any lien deemed voidable under subdivision b of subsection 1 has been dissolved by
the furnishing of a bond or other obligation, the surety on which has been indemnified
directly or indirectly by the transfer of or the creation of a lien upon any property of an
insurer before the filing of a petition under this chapter which results in a liquidation
order, the indemnifying transfer or lien must also be deemed voidable.
The property affected by any lien deemed voidable under subsections 1 and 5 must be
discharged from the lien, and that property and any of the indemnifying property
transferred to or for the benefit of a surety passes to the liquidator, except that the
court may on due notice order any such lien to be preserved for the benefit of the
estate and the court may direct that such conveyance be executed as may be proper
or adequate to evidence the title of the liquidator.
The district court shall have summary jurisdiction of any proceeding by the liquidator to
hear and determine the rights of any parties under this section. Reasonable notice of
any hearing in the proceeding must be given to all parties in interest, including the
obligee of a releasing bond or other like obligation. When an order is entered for the
recovery of indemnifying property in kind or for the avoidance of an indemnifying lien,
the court, upon application of any party in interest, shall in the same proceeding
ascertain the value of the property or lien, and if the value is less than the amount for
which the property is indemnity or less than the amount of the lien, the transferee or
lienholder may elect to retain the property or lien upon payment to the liquidator of its
value, as ascertained by the court, within such reasonable times as the court shall fix.
The liability of the surety under a releasing bond or other like obligation must be
discharged to the extent of the value of the indemnifying property recovered or the
indemnifying lien nullified and avoided by the liquidator, or, when the property is
retained under subsection 7, to the extent of the amount paid to the liquidator.
If a creditor has been preferred, and afterward in good faith gives the insurer further
credit, without security of any kind, for property which becomes a part of the insurer's
estate, the amount of the new credit remaining unpaid at the time of the petition may
be set off against the preference which would otherwise be recoverable from the
If an insurer, directly or indirectly, within four months before the filing of a successful
petition for liquidation under this chapter, or at any time in contemplation of a
proceeding to liquidate it, pays money or transfers property to an attorney at law for
services rendered or to be rendered, the transactions may be examined by the court
Page No. 18
on its own motion or must be examined by the court on petition of the liquidator and
must be held valid only to the extent of the reasonable amount to be determined by the
court, and the excess may be recovered by the liquidator for the benefits of the estate
provided that when the attorney is in a position of influence in the insurer or an affiliate
thereof, payment of any money or the transfer of any property to the attorney at law for
services rendered or to be rendered must be governed by the provision of paragraph 4
of subdivision b of subsection 1.
a. Every officer, manager, employee, shareholder, member, subscriber, attorney, or
any other person acting on behalf of the insurer who knowingly participates in
giving any preference when that person has reasonable cause to believe the
insurer is insolvent or is about to become insolvent at the time of the preference
is personally liable to the liquidator for the amount of the preference. It is
permissible to infer that there is a reasonable cause to believe the insurer is
insolvent or is about to become insolvent if the transfer was made within four
months prior to the date of filing of the successful petition for liquidation.
b. Every person receiving any property from the insurer or the benefit thereof as a
preference voidable under subsection 1 is personally liable therefor and is bound
to account to the liquidator.
c. Nothing in this subsection prejudices any other claim by the liquidator against any
26.1-06.1-28. Claims of holders of void or voidable rights.
1. No claims of a creditor who has received or acquired a preference, lien, conveyance,
transfer, assignment, or encumbrance voidable under this chapter may be allowed
unless the creditor surrenders the preference, lien, conveyance, transfer, assignment,
or encumbrance. If the avoidance is effected by a proceeding in which a final judgment
has been entered, the claim may not be allowed unless the money is paid or the
property is delivered to the liquidator within thirty days from the date of the entering of
the final judgment, except that the court having jurisdiction over the liquidation may
allow further time if there is an appeal or other continuation of the proceeding.
2. A claim allowable under subsection 1 by reason of the avoidance, whether voluntary or
involuntary, or a preference, lien, conveyance, transfer, assignment, or encumbrance,
may be filed as an excused last filing under section 26.1-06.1-34 if filed within thirty
days from the date of the avoidance, or within the further time allowed by the court
under subsection 1.
1. Mutual debts or mutual credits, whether arising out of one or more contracts between
the insurer and another person in connection with any action or proceeding under this
chapter, must be set off and the balance only may be allowed or paid, except as
provided in subsection 2 and section 26.1-06.1-32.
2. No setoff may be allowed in favor of any person when:
a. The obligation of the insurer to the person would not at the date of filing of a
petition for receivership entitle the person to share as a claimant in the assets of
b. The obligation of the insurer to the person was purchased by or transferred to the
person with a view to its being used as a setoff;
c. The obligation of the insurer is owed to an affiliate of the person, or any other
entity or association other than the person;
d. The obligation of the person is owed to an affiliate of the insurer, or any other
entity or association other than the insurer;
e. The obligation of the person is to pay an assessment levied against the members
or subscribers of the insurer, or is to pay a balance upon a subscription to the
capital stock of the insurer, or is in any other way in the nature of a capital
Page No. 19
The obligations between the person and the insurer arise from business when
either the person or the insurer has assumed risks and obligations from the other
party and has ceded back to that party substantially the same risks and
These amendments become effective from the date of enactment and apply to all
contracts entered into, renewed, extended, or amended on or after that date, and to
debts or credits arising from any business written or transactions occurring after the
effective date pursuant to any such contract. For purposes of this section, any change
in the terms of, or consideration for, any such contract is deemed an amendment.
1. As soon as practicable but not more than two years from the date of an order of
liquidation under section 26.1-06.1-17 of an insurer issuing assessable policies, the
liquidator shall make a report to the court setting forth:
a. The reasonable value of the assets of the insurer;
b. The insurer's probable total liabilities;
c. The probable aggregate amount of the assessment necessary to pay all claims of
creditors and expenses in full, including expenses of administration and costs of
collecting the assessment; and
d. A recommendation as to whether or not an assessment should be made and in
2. a. Upon the basis of the report provided in subsection 1, including any supplements
and amendments thereto, the district court may levy one or more assessments
against all members of the insurer who are subject to assessment.
b. Subject to any applicable legal limits on assessability, the aggregate assessment
must be for the amount that the sum of the probable liabilities, the expenses of
administration, and the estimated cost of collection of the assessment, exceeds
the value of existing assets, with due regard being given to assessments that
cannot be collected economically.
3. After levy of assessment under subsection 2, the liquidator shall issue an order
directing each member who has not paid the assessment pursuant to the order, to
show cause why the liquidator should not pursue a judgment therefor.
4. The liquidator shall give notice of the order to show cause by publication and by
first-class mail to each member liable thereunder mailed to the member's last-known
address as it appears on the insurer's records, at least twenty days before the return
day of the order to show cause.
5. a. If a member does not appear and serve duly verified objections upon the
liquidator on or before the return day of the order to show cause under
subsection 3, the court shall make an order adjudging the member liable for the
amount of the assessment against the member pursuant to subsection 3,
together with costs, and the liquidator shall have a judgment against the member
b. If, on or before the return day, the member appears and serves duly verified
objections upon the liquidator, the commissioner may hear and determine the
matter or may appoint a referee to hear it and make such order as the facts
warrant. In the event that the commissioner determines that such objections do
not warrant relief from assessment, the member may request the court to review
the matter and vacate the order to show cause.
6. The liquidator may enforce any order or collect any judgment under subsection 5 by
any lawful means.
26.1-06.1-31. Reinsurer's liability.
1. The amount recoverable by the liquidator from reinsurers may not be reduced as a
result of the delinquency proceedings unless the reinsurance contract provides, in
substance, that in the event of the insolvency of the ceding insurer, the reinsurance
must be payable under one or more contracts reinsured by the assuming insurer on
Page No. 20
the basis of reported claims allowed by the liquidation court or proof of payment of the
claim by a guaranty association without diminution because of the insolvency of the
ceding insurer. The payments must be made directly to the ceding insurer or to the
ceding insurer's domiciliary liquidator except if:
a. The contract or other written agreement specifically provides another payee of
such reinsurance in the event of the insolvency of the ceding insurer; or
b. The assuming insurer, with the consent of the direct insured, has assumed such
policy obligations of the ceding insurer as direct obligations of the assuming
insurer to the payees under the policies and in substitution for the obligations of
the ceding insurer to such payees.
Notwithstanding subsection 1, if a life and health insurance guaranty association has
elected to succeed to the rights and obligations of the insolvent insurer under the
contract of reinsurance, the reinsurer's liability to pay covered reinsured claims
continues under the contract of reinsurance, subject to the payment to the reinsurer of
the reinsurance premiums for such coverage. Payment for such reinsured claims may
only be made by the reinsurer pursuant to the direction of the guaranty association or
the guaranty association's designated successor. Any payment made at the direction
of the guaranty association or the guaranty association's designated successor by the
reinsurer will discharge the reinsurer of all further liability to any other party for the
26.1-06.1-32. Recovery of premiums owed.
1. a. An insurance producer, premium finance company, or any other person, other
than the insured, responsible for the payment of a premium is obligated to pay
any unpaid premium for the full policy term due the insurer at the time of the
declaration of insolvency, whether earned or unearned, as shown on the records
of the insurer. The liquidator shall also have the right to recover from such person
any part of an unearned premium that represents commission of such person.
Credits or setoffs, or both, may not be allowed to an insurance producer or
premium finance company for any amounts advanced to the insurer by the
insurance producer or premium finance company on behalf of, but in the absence
of a payment by, the insured.
b. An insured is obligated to pay any unpaid earned premium due the insurer at the
time of the declaration of insolvency, as shown on the records of the insurer.
2. Upon satisfactory evidence of a violation of this section, the commissioner may pursue
either one or both of the following courses of action:
a. Suspend or revoke or refuse to renew the licenses of such offending party or
b. Impose a penalty of not more than one thousand dollars for each and every act in
violation of this section by said party or parties.
3. Before taking any action as set forth in subsection 2, the commissioner shall give
written notice to the person, company, association, or exchange accused of violating
the law, stating specifically the nature of the alleged violation and fixing a time and
place, at least ten days thereafter, when a hearing on the matter must be held. After
the hearing, or upon failure of the accused to appear at the hearing, if a violation is
found to have been made, the commissioner shall impose any of the penalties under
subsection 2 as deemed advisable.
4. When the commissioner takes action in any or all of the ways set out in subsection 2,
the party aggrieved may appeal from said action to the district court.
26.1-06.1-33. Domiciliary liquidator's proposal to distribute assets.
1. Within one hundred twenty days of a final determination of insolvency of an insurer by
the district court, the liquidator shall make application to the court for approval of a
proposal to disburse assets out of marshalled assets, from time to time as the assets
become available, to a guaranty association or foreign guaranty association having
obligations because of the insolvency. If the liquidator determines that there are
Page No. 21
insufficient assets to disburse, the application required by this section must be
considered satisfied by a filing by the liquidator stating the reasons for this
The proposal to disburse assets referred to in subsection 1 must at least include
a. Reserving amounts for the payment of expenses of administration and the
payment of claims of secured creditors, to the extent of the value of the security
held, and the payment of claims falling within the priorities established in section
26.1-06.1-41, classes one and two;
b. Disbursement of the assets marshalled to date and subsequent disbursement of
assets as they become available;
c. Equitable allocation of disbursements to each of the guaranty associations and
foreign guaranty associations entitled thereto;
d. The securing by the liquidator from each of the associations entitled to
disbursements pursuant to this section of an agreement to return to the liquidator
such assets, together with income earned on assets previously disbursed, as
may be required to pay claims of secured creditors and claims falling within the
priorities established in section 26.1-06.1-41 in accordance with such priorities.
No bond may be required of any such association; and
e. A full report to be made by each association to the liquidator accounting for all
assets so disbursed to the association, all disbursements made therefrom, any
interest earned by the association on such assets, and any other matter as the
court may direct.
The liquidator's proposal shall provide for disbursements to the associations in
amounts estimated at least equal to the claim payments made or to be made thereby
for which such associations could assert a claim against the liquidator, and shall
further provide that if the assets available for disbursement from time to time do not
equal or exceed the amount of such claim payments made or to be made by the
association, then disbursements must be in the amount of available assets.
The liquidator's proposal shall, with respect to an insolvent insurer writing life or health
insurance or annuities, provide for disbursements of assets to any guaranty
association or any foreign guaranty association covering life or health insurance or
annuities or to any other entity or organization reinsuring, assuming, or guaranteeing
policies or contracts of insurance under the acts creating such associations.
Notice of such application must be given to the association in and to the
commissioners of insurance of each of the states. Any such notice must be deemed to
have been given when deposited in the United States certified mail, first-class postage
prepaid, at least thirty days prior to submission of the application to the court. Action
on the application may be taken by the court provided the above-required notice has
been given and provided further that the liquidator's proposal complies with
subdivisions a and b of subsection 2.
26.1-06.1-34. Filing of claims.
1. Proof of all claims must be filed with the liquidator in the form required by section
26.1-06.1-35 on or before the last day for filing specified in the notice required under
section 26.1-06.1-21, except that proof of claims for cash surrender values or other
investment values in life insurance and annuities need not be filed unless the liquidator
expressly so requires.
2. The liquidator may permit a claimant making a late filing to share in distributions,
whether past or future, as if the claimant did not file late, to the extent that any such
payment will not prejudice the orderly administration of the liquidation, under any of the
a. The existence of the claim was not known to the claimant and the claim was filed
promptly once the claim became known to the claimant.
Page No. 22
A transfer to a creditor was avoided under sections 26.1-06.1-25, 26.1-06.1-26,
and 26.1-06.1-27, or was voluntarily surrendered under section 26.1-06.1-28, and
the filing satisfies the conditions of section 26.1-06.1-28.
c. The valuation under section 26.1-06.1-40, of security held by a secured creditor
shows a deficiency, which is filed within thirty days after the valuation.
The liquidator shall permit late filing claims to share in distribution, whether past or
future, as if the claims were not filed late, if the claims are claims of a guaranty
association or foreign guaranty association for reimbursement of covered claims paid
or expenses incurred, or both, subsequent to the last day for filing when such
payments were made and expenses incurred as provided by law.
The liquidator may consider any claim filed late which is not covered by subsection 2,
and permit it to receive distributions which are subsequently declared on any claims of
the same or lower priority if the payment does not prejudice the orderly administration
of the liquidation. The late filing claimant shall receive, at each distribution, the same
percentage of the amount allowed on the late filed claim as is then being paid to
claimants of any lower priority. This must continue until the late filed claim has been
paid in full.
26.1-06.1-35. Proof of claim.
1. Proof of claim must consist of a statement signed by the claimant that includes all of
the following that are applicable:
a. The particulars of the claim including the consideration given for it;
b. The identity and amount of the security on the claim;
c. The payments made on the debt, if any;
d. That the sum claimed is justly owing and that there is no setoff, counterclaim, or
defense to the claim;
e. Any right of priority of payment or other specific right asserted by the claimants;
f. A copy of the written instrument which is the foundation of the claim; and
g. The name and address of the claimant and the attorney who represents the
claimant, if any.
2. No claim need be considered or allowed if it does not contain all the information in
subsection 1 which may be applicable. The liquidator may require that a prescribed
form be used, and may require that other information and documents be included.
3. At any time the liquidator may request the claimant to present information or evidence
supplementary to that required under subsection 1 and may take testimony under
oath, require production of affidavits or depositions, or otherwise obtain additional
information or evidence.
4. No judgment or order against an insured or the insurer entered after the date of filing
of a successful petition for liquidation, and no judgment or order against an insured or
the insurer entered at any time by default or by collusion need be considered as
evidence of liability or of the amount of damages. No judgment or order against an
insured or the insurer entered within four months before the filing of the petition need
be considered as evidence of liability or of the amount of damages.
5. All claims of a guaranty association or foreign guaranty association must be in such
form and contain such substantiation as may be agreed to by the association and the
26.1-06.1-36. Special claims.
1. The claim of a third party which is contingent only on first obtaining a judgment against
the insured must be considered and allowed as if there were no such contingency.
2. A claim may be allowed even if contingent, if it is filed in accordance with section
26.1-06.1-34. It may be allowed and may participate in all distributions declared after it
is filed to the extent that it does not prejudice the orderly administration of the
3. Claims that are due except for the passage of time must be treated as absolute claims
are treated, except that such claims may be discounted at the legal rate of interest.
Page No. 23
Claims made under employment contracts by directors, principal officers, or persons in
fact performing similar functions or having similar powers are limited to payment for
services rendered prior to the issuance of any order of rehabilitation or liquidation
under section 26.1-06.1-12 or 26.1-06.1-17.
26.1-06.1-37. Special provisions for third-party claims.
1. Whenever any third party asserts a cause of action against an insured of an insurer in
liquidation, the third party may file a claim with the liquidator.
2. Whether or not the third party files a claim, the insured may file a claim in the
liquidation. If the insured fails to file a claim by the date for filing claims specified in the
order of liquidation or within sixty days after mailing of the notice required by section
26.1-06.1-21, whichever is later, the insured is an unexcused late filer.
3. The liquidator shall make recommendations to the court under section 26.1-06.1-41,
for the allowance of an insured's claim under subsection 2 after consideration of the
probable outcome of any pending action against the insured on which the claim is
based, the probable damages recoverable in the action, and the probable costs and
expenses of defense. After allowance by the court, the liquidator shall withhold any
dividends payable on the claim, pending the outcome of litigation and negotiation with
the insured. Whenever it seems appropriate, the liquidator shall reconsider the claim
on the basis of additional information and amend recommendations made to the court.
The insured must be afforded the same notice and opportunity to be heard on all
changes in the recommendation as in its initial determination. The court may amend its
allowance as it deems appropriate. As claims against the insured are settled or barred,
the insured must be paid from the amount withheld the same percentage dividend as
was paid on other claims of like property, based on the lesser of:
a. The amount actually recovered from the insured by action or paid by agreement
plus the reasonable costs and expenses of defense; or
b. The amount allowed on the claims by the court.
After all claims are settled or barred, any sum remaining from the amount withheld
must revert to the undistributed assets of the insurer. Delay in final payment under this
subsection is not a reason for unreasonable delay of final distribution and discharge of
4. If several claims founded upon one policy are filed, whether by third parties or as
claims by the insured under this section, and the aggregate allowed amount of the
claims to which the same limit of liability in the policy is applicable exceeds that limit,
each claim as allowed must be reduced in the same proportion so that the total equals
the policy limit. Claims by the insured must be evaluated as in subsection 3. If any
insured's claim is subsequently reduced under subsection 3, the amount thus freed
must be apportioned ratably among the claims which have been reduced under this
5. No claim may be presented under this section if it is or may be covered by any
guaranty association or foreign guaranty association.
26.1-06.1-38. Disputed claims.
1. When a claim is denied in whole or in part by the liquidator, written notice of the
determination must be given to the claimant or the claimant's attorney by first-class
mail at the address shown in the proof of claim. Within sixty days from the mailing of
the notice, the claimant may file objections to the determination with the liquidator. If
no such filing is made, the claimant may not further object to the determination.
2. Whenever objections are filed with the liquidator and the liquidator does not alter the
denial of the claim as a result of the objections, the liquidator shall ask the court for a
hearing as soon as practicable and give notice of the hearing by first-class mail to the
claimant or the claimant's attorney and to any other persons directly affected, not less
than ten nor more than thirty days before the date of the hearing. The matter may be
heard by the court or by a court-appointed referee who shall submit findings of fact
along with a recommendation.
Page No. 24
26.1-06.1-39. Claims of surety.
Whenever a creditor whose claim against an insurer is secured, in whole or in part, by the
undertaking of another person, fails to prove and file that claim, the other person may do so in
the creditor's name, and must be subrogated to the rights of the creditor, whether the claim has
been filed by the creditor or by the other person in the creditor's name, to the extent that the
other person discharges the undertaking. In the absence of an agreement with the creditor to
the contrary, the other person is not entitled to any distribution; however, until the amount paid
to the creditor on the undertaking plus the distributions paid on the claim from the insurer's
estate to the creditor equals the amount of the entire claim of the creditor. Any excess received
by the creditor must be held by the creditor in trust for such other person. The term "other
person" as used in this section is not intended to apply to a guaranty association or foreign
26.1-06.1-40. Secured creditor's claims.
1. The value of any security held by a secured creditor must be determined in one of the
following ways, as the court may direct:
a. By converting the same into money according to the terms of the agreement
pursuant to which the security was delivered to such creditors; or
b. By agreement, arbitration, compromise, or litigation between the creditor and the
2. The determination must be under the supervision and control of the court with due
regard for the recommendation of the liquidator. The amount so determined must be
credited upon the secured claim, and any deficiency must be treated as an unsecured
claim. If the claimant surrenders the security to the liquidator, the entire claim must be
allowed as if unsecured.
26.1-06.1-41. Priority of distribution.
The priority of distribution of claims from the insurer's estate must be in accordance with the
order in which each class of claims is herein set forth. Every claim in each class must be paid in
full or adequate funds retained for such payment before the members of the next class receive
any payment. No subclasses may be established within any class. The order of distribution of
claims must be:
1. Class 1. The costs and expenses of administration during rehabilitation and liquidation,
including the following:
a. The actual and necessary costs of preserving or recovering the assets of the
b. Compensation for all authorized services rendered in the rehabilitation and
c. Any necessary filing fees;
d. The fees and mileage payable to witnesses;
e. Authorized reasonable attorney's fees and other professional services rendered
in the rehabilitation and liquidation; and
f. The reasonable expenses of a guaranty association or foreign guaranty
association for unallocated loss adjustment expenses.
2. Class 2. All claims under policies including such claims of the federal or any state or
local government for losses incurred, ("loss claims") including third-party claims and all
claims of a guaranty association or foreign guaranty association. All claims under life
insurance and annuity policies, whether for death proceeds, annuity proceeds, or
investment values must be treated as loss claims. That portion of any loss,
indemnification for which is provided by other benefits, or advantages recovered by the
claimant, may not be included in this class, other than benefits or advantages
recovered or recoverable in discharge of familial obligation of support or by way of
succession at death or as proceeds of life insurance, or as gratuities. No payment by
an employer to employees may be treated as a gratuity.
3. Class 3. Claims of the federal government not included in class 2.
Page No. 25
Class 4. Reasonable compensation to employees for services performed to the extent
that they do not exceed two months of monetary compensation and represent
payment for services performed within one year before the filing of the petition for
liquidation or if rehabilitation preceded liquidation, within one year before the filing of
the petition for rehabilitation. Principal officers and directors are not entitled to the
benefit of this priority except as otherwise approved by the liquidator and the court.
Such priority must be in lieu of any other similar priority which may be authorized by
law as to wages or compensation of employees.
5. Class 5. Claims under nonassessable policies for unearned premium or other premium
refunds and claims of general creditors, including claims of ceding and assuming
companies in their capacity as such.
6. Class 6. Claims of any state or local government except those paid under class 2.
Claims, including those of any state or local governmental body for a penalty or
forfeiture, may be allowed in this class only to the extent of the pecuniary loss
sustained from the act, transaction, or proceeding out of which the penalty or forfeiture
arose, with reasonable and actual costs occasioned thereby. The remainder of the
claims must be postponed to the class of claims under subsection 9.
7. Class 7. Claims filed late or any other claims other than claims under subsections 8
8. Class 8. Surplus or contribution notes, or similar obligations, and premium funds on
assessable policies. Payment to members of domestic mutual insurance companies
must be limited in accordance with law.
9. Class 9. The claims of shareholders or other owners in their capacity as shareholders.
If any provision of this section or the application of any provision of this section to any person or
circumstance is held invalid, the invalidity does not affect other provisions or applications of this
section, and to this end the provisions are severable.
26.1-06.1-42. Liquidator's recommendations to the court.
1. The liquidator shall review all claims duly filed in the liquidation and shall make such
further investigation as deemed necessary. The liquidator may compound,
compromise, or in any other manner negotiate the amount for which claims will be
recommended to the court except when the liquidator is required by law to accept
claims as settled by any person or organization, including any guaranty association or
foreign guaranty association. Unresolved disputes must be determined under section
26.1-06.1-38. As soon as practicable, the liquidator shall present to the court a report
of the claims against the insurer along with the recommendations of the liquidator. The
report must include the name and address of each claimant and the amount of the
claim finally recommended, if any. If the insurer has issued annuities or life insurance
policies, the liquidator shall report the persons to whom, according to the records of
the insurer, amounts are owed as cash surrender values or other investment value and
the amounts owed.
2. The court may approve, disapprove, or modify the report on claims by the liquidator.
The reports which are not modified by the court within a period of sixty days following
submission by the liquidator must be treated by the liquidator as allowed claims,
subject thereafter to later modification or to rulings made by the court pursuant to
section 26.1-06.1-38. No claim under a policy of insurance may be allowed for an
amount in excess of the applicable policy limits.
26.1-06.1-43. Distribution of assets.
Under the direction of the court, the liquidator shall pay distributions in a manner that will
assure the proper recognition of priorities and a reasonable balance between the expeditious
completion of the liquidation and the protection of unliquidated and undetermined claims,
including third-party claims. Distribution of assets in kind may be made at valuations set by
agreement between the liquidator and the creditor and approved by the court.
Page No. 26
26.1-06.1-44. Unclaimed and withheld funds.
1. All unclaimed funds subject to distribution remaining under the liquidator's control
when the liquidator is ready to apply to the court for discharge, including the amount
distributable to any creditor, shareholder, member, or other person who is unknown or
cannot be found, must be deposited with the state treasurer, and must be paid without
interest except in accordance with section 26.1-06.1-41 to the person entitled thereto
or the person's legal representative upon proof satisfactory to the state treasurer of the
person's right thereto. Any amount on deposit not claimed within six years from the
discharge of the liquidator must be deemed to have been abandoned and must be
escheated without formal escheat proceedings and be deposited with the general
2. All funds withheld under section 26.1-06.1-36 and not distributed must, upon discharge
of the liquidator, be deposited with the state treasurer and paid out in accordance with
section 26.1-06.1-41. Any sums remaining which under section 26.1-06.1-41 would
revert to the undistributed assets of the insurer must be transferred to the state
treasurer and become the property of the state under subsection 1, unless the
commissioner petitions the court to reopen the liquidation under section 26.1-06.1-46.
26.1-06.1-45. Termination of proceedings.
1. When all assets justifying the expense of collection and distribution have been
collected and distributed under this chapter, the liquidator shall apply to the court for
discharge. The court may grant the discharge and make any other orders, including an
order to transfer any remaining funds that are uneconomic to distribute, as may be
2. Any other person may apply to the court at any time for an order under subsection 1. If
the application is denied, the applicant shall pay the costs and expenses of the
liquidator in resisting the application, including a reasonable attorney's fee.
26.1-06.1-46. Reopening liquidation.
After the liquidation proceeding has been terminated and the liquidator discharged, the
commissioner or other interested party may at any time petition the district court to reopen the
proceedings for good cause, including the discovery of additional assets. If the court is satisfied
that there is justification for reopening, it shall so order.
26.1-06.1-47. Disposition of records during and after termination of liquidation.
Whenever it appears to the commissioner that the records of any liquidated insurer or any
insurer in the process of liquidation are no longer useful, the commissioner may recommend to
the court and the court direct which records should be retained for future reference and which
records should be destroyed.
26.1-06.1-48. External audit of the receiver's books.
The district court may, as it deems necessary, cause audits to be made of the books of the
commissioner relating to any receivership established under this chapter, and a report of each
audit must be filed with the commissioner and with the court. The books, records, and other
documents of the receivership must be made available to the auditor at any time without notice.
The expense of each audit must be considered a cost of administration of the receivership.
26.1-06.1-49. Conservation of property of foreign or alien insurers found in this state.
1. If a domiciliary liquidator has not been appointed, the commissioner may apply to the
district court by verified petition for an order directing the commissioner to act as
conservator to conserve the property of an alien insurer not domiciled in this state or a
foreign insurer on any one or more of the following grounds:
a. Any of the grounds in section 26.1-06.1-11;
b. That any of its property has been sequestered by official action in its domiciliary
state, or in any other state;
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That enough of its property has been sequestered in a foreign country to give
reasonable cause to fear that the insurer is or may become insolvent; and
d. (1) That its certificate of authority to do business in this state has been revoked
or that none was ever issued; and
(2) That there are residents of this state with outstanding claims or outstanding
When an order is sought under subsection 1, the court shall cause the insurer to be
given such notice and time to respond thereto as is reasonable under the
The court may issue the order in whatever terms it deems appropriate. The filing or
recording of the order with the recorder, unless the board of county commissioners
designates a different official, of the county in which the principal business of the
company is located, imparts the same notice as a deed, bill of sale, or other evidence
of title duly filed or recorded with that recorder, or designated official.
The conservator may at any time petition for and the court may grant an order under
section 26.1-06.1-50 to liquidate assets of a foreign or alien insurer under
conservation, or, if appropriate, an order to be appointed ancillary receiver under
The conservator may at any time petition the court for an order terminating
conservation of an insurer. If the court finds that the conservation is no longer
necessary, it shall order that the insurer be restored to possession of its property and
the control of its business. The court may also make such finding and issue such order
at any time upon motion of any interested party, but if the motion is denied, all costs
must be assessed against the moving party.
26.1-06.1-50. Liquidation of property of foreign or alien insurers found in this state.
1. If no domiciliary receiver has been appointed, the commissioner may apply to the
district court by verified petition for an order directing the commissioner to liquidate the
assets found in this state of a foreign insurer or an alien insurer not domiciled in this
state, on any of the following grounds:
a. Any of the grounds in section 26.1-06.1-11 or 26.1-06.1-16; or
b. Any of the grounds specified in subdivisions b, c, and d of subsection 1 of section
2. When an order is sought under subsection 1, the court shall cause the insurer to be
given such notice and time to respond thereto as is reasonable under the
3. If it appears to the court that the best interests of creditors, policyholders, and the
public require, the court may issue an order to liquidate in whatever terms it deems
appropriate. The filing or recording of the order with the recorder, unless the board of
county commissioners designates a different official, of the county in which the
principal business of the company is located or the county in which its principal office
or place of business is located, imparts the same notice as a deed, bill of sale, or other
evidence of title duly filed or recorded with that recorder, or designated official.
4. If a domiciliary liquidator is appointed in a reciprocal state while a liquidation is
proceeding under this section, the liquidator under this section shall thereafter act as
ancillary receiver under section 26.1-06.1-52. If a domiciliary liquidator is appointed in
a nonreciprocal state while a liquidation is proceeding under this section, the liquidator
under this section may petition the court for permission to act as ancillary receiver
under section 26.1-06.1-52.
5. On the same grounds as are specified in subsection 1, the commissioner may petition
any appropriate federal district court to be appointed receiver to liquidate that portion
of the insurer's assets and business over which the court will exercise jurisdiction, or
any lesser part thereof that the commissioner deems desirable for the protection of the
policyholders and creditors in this state.
6. Once the assets of a foreign or alien insurer have been liquidated by the commissioner
under this section, the court may order the commissioner to pay claims of residents of
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this state against the insurer under such rules as to the liquidation of insurers under
this chapter as are otherwise compatible with the provisions of this section.
26.1-06.1-51. Domiciliary liquidators in other states.
1. The domiciliary liquidator of an insurer domiciled in a reciprocal state, except as to
special deposits and security on secured claims under subsection 3 of section
26.1-06.1-52, is vested by operation of law with the title to all of the assets, property,
contracts and rights of action, insurance producers' balances, and all of the books,
accounts, and other records of the insurer located in this state. The date of vesting
must be the date of the filing of the petition, if that date is specified by the domiciliary
law for the vesting of property in the domiciliary state. Otherwise, the date of vesting
must be the date of entry of the order directing possession to be taken. The domiciliary
liquidator shall have the immediate right to recover balances due from insurance
producers and to obtain possession of the books, accounts, and other records of the
insurer located in this state. The domiciliary liquidator shall also have the right to
recover all other assets of the insurer located in this state, subject to section
2. If a domiciliary liquidator is appointed for an insurer not domiciled in a reciprocal state,
the commissioner of this state is vested by operation of law with the title to all of the
property, contracts and right of action, and all of the books, accounts, and other
records of the insurer located in this state, at the same time that the domiciliary
liquidator is vested with title in the domicile. The commissioner of this state may
petition for a conservation or liquidation order under section 26.1-06.1-49 or
26.1-06.1-50, or for an ancillary receivership under section 26.1-06.1-52, or after
approval by the district court may transfer title to the domiciliary liquidator, as the
interests of justice and the equitable distribution of the assets require.
3. Claimants residing in this state may file claims with the liquidator or ancillary receiver,
if any, in this state or with the domiciliary liquidator, if the domiciliary law permits. The
claims must be filed on or before the last date fixed for the filing of claims in the
domiciliary liquidation proceedings.
26.1-06.1-52. Ancillary formal proceedings.
1. If a domiciliary liquidator has been appointed for an insurer not domiciled in this state,
the commissioner may file a petition with the district court requesting appointment as
ancillary receiver in this state:
a. If the commissioner finds that there are sufficient assets of the insurer located in
this state to justify the appointment of an ancillary receiver; or
b. If the protection of creditors or policyholders in this state so requires.
2. The court may issue an order appointing an ancillary receiver in whatever terms it shall
deem appropriate. The filing or recording of the order with the recorder in this state
imparts that same notice as a deed, bill of sale, or other evidence of title duly filed or
recorded with that recorder.
3. When a domiciliary liquidator has been appointed in a reciprocal state, the ancillary
receiver appointed in this state may, whenever necessary, aid and assist the
domiciliary liquidator in recovering assets of the insurer located in this state. The
ancillary receiver shall, as soon as practicable, liquidate from their respective
securities those special deposit claims and secured claims which are proved and
allowed in the ancillary proceedings in this state, and shall pay the necessary
expenses of the proceedings. The ancillary receiver shall promptly transfer all
remaining assets, books, accounts, and records to the domiciliary liquidator. Subject to
this section, the ancillary receiver and deputies of the ancillary receiver shall have the
same powers and be subject to the same duties with respect to the administration of
assets as a liquidator of an insurer domiciled in this state.
4. When a domiciliary liquidator has been appointed in this state, ancillary receivers
appointed in reciprocal states shall have, as to assets and books, accounts, and other
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records in their respective states, corresponding rights, duties, and powers to those
provided in subsection 3 for ancillary receivers appointed in this state.
26.1-06.1-53. Ancillary summary proceedings.
The commissioner has sole discretion to institute proceedings under sections 26.1-06.1-09
and 26.1-06.1-10 at the request of the commissioner or other appropriate insurance official of
the domiciliary state of any foreign or alien insurer having property located in this state.
26.1-06.1-54. Claims of nonresidents against insurers domiciled in this state.
1. In a liquidation proceeding begun in this state against an insurer domiciled in this
state, claimants residing in foreign countries or in states not reciprocal states must file
claims in this state, and claimants residing in reciprocal states may file claims either
with the ancillary receivers, if any, in their respective states, or with the domiciliary
liquidator. Claims must be filed on or before the last date fixed for the filing of claims in
the domiciliary liquidation proceeding.
2. Claims belonging to claimants residing in reciprocal states may be proved either in the
liquidation proceeding in this state as provided in this chapter, or in ancillary
proceedings, if any, in the reciprocal states. If notice of the claims and opportunity to
appear and be heard is afforded the domiciliary liquidator of this state as provided in
subsection 2 of section 26.1-06.1-55 with respect to ancillary proceedings, the final
allowance of claims by the courts in ancillary proceedings in reciprocal states is
conclusive as to amount and as to priority against special deposits or other security
located in such ancillary states, but is not conclusive with respect to priorities against
general assets under section 26.1-06.1-41.
26.1-06.1-55. Claims of residents against insurers domiciled in reciprocal states.
1. In a liquidation proceeding in a reciprocal state against an insurer domiciled in that
state, claimants against the insurer who reside within this state may file claims either
with the ancillary receiver, if any, in this state, or with the domiciliary liquidator. Claims
must be filed on or before the last dates fixed for the filing of claims in the domiciliary
2. Claims belonging to claimants residing in this state may be proved either in the
domiciliary state under the law of that state, or in ancillary proceedings, if any, in this
state. If a claimant elects to prove a claim in this state, the claimant shall file the claim
with the liquidator in the manner provided in sections 26.1-06.1-34 and 26.1-06.1-35.
The ancillary receiver shall make a recommendation to the court as under section
26.1-06.1-42. The ancillary receiver shall also arrange a date for hearing if necessary
under section 26.1-06.1-38 and shall give notice to the liquidator in the domiciliary
state, either by certified mail or by personal service at least forty days prior to the date
set for hearing. If the domiciliary liquidator, within thirty days after the giving of such
notice, gives notice in writing to the ancillary receiver and to the claimant, either by
certified mail or by personal service, of intention to contest the claim, the domiciliary
liquidator is entitled to appear or to be represented in any proceeding in this state
involving the adjudication of the claim.
3. The final allowance of the claim by the courts of this state must be accepted as
conclusive as to amount and as to priority against special deposits or other security
located in this state.
26.1-06.1-56. Attachment, garnishment, and levy of execution.
During the pendency of a liquidation proceeding in this or any other state, whether the
liquidation proceeding is identified as such or not, no action or proceeding in the nature of an
attachment, garnishment, or levy of execution may be commenced or maintained in this state
against the delinquent insurer or its assets.
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26.1-06.1-57. Interstate priorities.
1. In a liquidation proceeding in this state involving one or more reciprocal states, the
order of distribution of the domiciliary state shall control as to all claims of residents of
this and reciprocal states. All claims of residents of reciprocal states must be given
equal priority of payment from general assets regardless of where such assets are
2. The owners of special deposit claims against an insurer for which a liquidator is
appointed in this or any other state must be given priority against the special deposits
in accordance with the statutes governing the creation and maintenance of the
deposits. If there is a deficiency in any deposit, so that the claims secured by it are not
fully discharged from it, the claimants may share in the general assets, but the sharing
must be deferred until general creditors, and claimants against other special deposits
who have received smaller percentages from their respective special deposits, have
been paid percentages of their claims equal to the percentage paid from the special
3. The owner of a secured claim against an insurer for which a liquidator has been
appointed in this or any other state may surrender the security and file a claim as a
general creditor, or the claim may be discharged by resort to the security in
accordance with section 26.1-06.1-40, in which case the deficiency, if any, must be
treated as a claim against the general assets of the insurer on the same basis as
claims of unsecured creditors.
26.1-06.1-58. Subordination of claims for noncooperation.
If an ancillary receiver in another state or foreign country, whether called by that name or
not, fails to transfer to the domiciliary liquidator in this state any assets within the control of the
ancillary receiver, other than special deposits, diminished only by the expenses of the ancillary
receivership, if any, the claims filed in the ancillary receivership, other than special deposit
claims or secured claims, must be placed in the class of claims under subsection 7 of section
If any provision of this chapter or the application thereof to any person or circumstance is for
any reason held to be invalid, the remainder of the chapter and the application of such provision
to other persons or circumstances may not be affected thereby.
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Title 26.1 Insurance
Chapter 26.1-06.1 Insurance Company Rehabilitation and Liquidation
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