2006 Utah Code - 31A-27-335 — Priority of distribution.

     31A-27-335.   Priority of distribution.
     (1) (a) Every claim in each class of claims from the insurer's estate shall be paid in full or adequate funds retained for the payment before the members of the next class receive any payment.
     (b) Once the funds are retained by the liquidator and approved by the court, the insurer's estate shall have no further liability to members of that class except to the extent of the retained funds and any other undistributed funds.
     (c) Subclasses may not be established within any class.
     (d) A claim by a shareholder, policyholder, or other creditor may not be permitted to circumvent the priority classes through the use of equitable remedies.
     (2) The classes and order of distribution are as described in Subsections (2)(a) through (i).
     (a) Class one is the costs and expenses of administration expressly approved by the liquidator, including:
     (i) the actual and necessary costs of preserving or recovering the assets of the insurer;
     (ii) compensation for all authorized services rendered in the supervision, rehabilitation, or liquidation;
     (iii) any necessary filing fees;
     (iv) the fees and mileage payable to witnesses; and
     (v) reasonable attorney's fees and other professional services rendered in the supervision, rehabilitation, or liquidation.
     (b) (i) Class two is the administrative expenses of guaranty associations.
     (ii) For purposes of this section, "administrative expenses of a guaranty association" means the reasonable expenses incurred by a guaranty association:
     (A) when the expenses are not payments or expenses that are required to be incurred as direct policy benefits in fulfillment of the terms of the insurance contract or policy; and
     (B) that are of the type and nature that, but for the activities of the guaranty association, otherwise would have been incurred by the liquidator, including:
     (I) evaluations of policy coverage;
     (II) activities involved in the adjustment and settlement of claims under policies, including those of in-house or outside adjusters; and
     (III) the reasonable expenses incurred in connection with the arrangements for ongoing coverage through transfer to other insurers, policy exchanges, or maintaining policies in force.
     (iii) The liquidator may in the liquidator's sole discretion approve as an administrative expense of a guaranty association any other reasonable expenses of the guaranty association if the liquidator finds:
     (A) the expenses are not expenses required to be paid or incurred as direct policy benefits by the terms of the policy; and
     (B) the expenses were incurred in furtherance of activities that provided material economic benefit to the estate as a whole, irrespective of whether the activities resulted in additional benefits to covered claimants.
     (iv) The court shall approve the expenses approved by the liquidator under Subsection (2)(b)(iii) unless the court finds the liquidator abused the liquidator's discretion in approving the expenses.
     (c) (i) Class three is all claims under policies for losses incurred including:
     (A) claims of the federal, state, or local government;

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     (B) third party claims;
     (C) claims for unearned premiums; and
     (D) claims of a guaranty association, other than those included in class two, including claims for payment of covered claims or covered obligations of the insurer.
     (ii) All claims under life and health insurance and annuity policies shall be treated as loss claims.
     (iii) That portion of any loss for which indemnification is provided by other benefits or advantages recovered or recoverable by the claimant are not included in this class, other than benefits or advantages recovered or recoverable in discharge of familial obligations of support, by way of succession at death, as proceeds of life insurance, or as gratuities. A payment made by an employer to the employer's employee may not be treated as a gratuity.
     (iv) Notwithstanding Subsections (2)(c)(i), (ii), and (iii), the following claims shall be excluded from class three priority:
     (A) obligations of the insolvent insurer arising out of reinsurance contracts;
     (B) obligations incurred after:
     (I) the expiration date of the insurance policy;
     (II) the policy has been replaced by the insured;
     (III) the policy has been canceled at the insured's request; or
     (IV) the policy has been canceled as provided in the chapter;
     (C) obligations to insurers, insurance pools, or underwriting associations and their claims for contribution, indemnity, or subrogation, equitable or otherwise;
     (D) any claim that is in excess of any applicable limits provided in the insurance policy issued by the insolvent insurer;
     (E) any amount accrued as punitive or exemplary damages unless expressly covered under the terms of the policy; and
     (F) tort claims of any kind against the insurer, and claims against the insurer for bad faith or wrongful settlement practices.
     (v) Notwithstanding Subsection (2)(c)(iv)(B), unearned premium claims on policies, other than reinsurance agreements, may not be excluded.
     (d) Class four is claims of the federal government other than those claims included under class three.
     (e) (i) Class five is debts due employees for services, benefits, contractual or otherwise due, arising out of reasonable compensation to employees for services performed:
     (A) to the extent that they:
     (I) do not exceed two months of monetary compensation; and
     (II) represent payment for services performed within six months before the filing of the petition for liquidation; or
     (B) if rehabilitation preceded liquidation, within one year before the filing of the petition for rehabilitation.
     (ii) Principal officers and directors are not entitled to the benefit of class five priority except as otherwise approved by the liquidator and the court.
     (iii) Class five priority shall be in lieu of any other similar priority that may be authorized by law as to wages or compensation of employees.
     (f) (i) Class six is claims of:
     (A) any person, including claims of state or local governments, except those specifically

classified elsewhere in this section; or
     (B) attorneys for fees and expenses owed them by a person for services rendered in opposing a formal delinquency proceeding.
     (ii) To prove the claim for attorneys' fees and expenses, the claimant shall show that:
     (A) the insurer that is the subject of the delinquency proceeding incurred the fees and expenses based on its best knowledge, information, and belief, formed after reasonable inquiry indicating opposition was:
     (I) in the best interests of the person;
     (II) well grounded in fact; and
     (III) warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law; and
     (B) opposition was not pursued for any improper purpose, such as to:
     (I) harass;
     (II) cause unnecessary delay; or
     (III) cause needless increase in the cost of litigation.
     (g) (i) Class seven is claims of any state or local government for a penalty or forfeiture, but only to the extent of the pecuniary loss sustained from the act, transaction, or proceeding out of which the penalty or forfeiture arose, including the reasonable and actual costs incurred from the act, transaction, or proceeding.
     (ii) The remainder of the claims shall be postponed to class eight claims.
     (h) Class eight is:
     (i) surplus or contribution notes or similar obligations;
     (ii) premium refunds on assessable policies;
     (iii) interest on claims of classes one through seven; and
     (iv) any other claims specifically subordinated to this class.
     (i) Class nine is claims of shareholders or other owners, including policyholders of a mutual insurance corporation within the limits of Subsection 31A-27-337(4)(b) except as they may be qualified in class three or four.
     (3) (a) If the liquidator determines that the assets of the estate will be sufficient to pay all class one claims in full, class two claims shall be paid currently, only after the liquidator secures from each of the guaranty associations receiving disbursements under this section an agreement to return to the liquidator the disbursements, together with investment income actually earned on the disbursements, as may be required to pay class one claims.
     (b) A guaranty association entering into an agreement under Subsection (3)(a) may not be required to post a bond.
     (4) As to a nonprofit corporation organized and operating under Chapter 7 with assets not fully liquidated under Subsections (1) and (2), the remaining assets shall be distributed under Subsections 16-6a-1405(1)(b) and (c) and Subsection 16-6a-1405(2).
     (5) (a) If any claimant of this state, another state, or foreign country is entitled to or receives a distribution upon the claimant's claim out of a statutory deposit or the proceeds of any bond or other asset located in another state or foreign country, unless the deposit or proceeds shall have been delivered to the domiciliary liquidator, the claimant is not entitled to any further distribution from the liquidator until and unless all other claimants of the same class, irrespective of residence or place of the acts or contracts upon which their claims are based, shall have received an equal distribution upon their claims.

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     (b) After the equalization under Subsection (5)(a), the claimants of the same class are entitled to share in the further distributions by the liquidator, along with and like all other creditors of the same class, wherever the claimants reside.
     (6) Upon the declaration of a distribution, the liquidator shall apply the amount of the distribution against any indebtedness owed to the insurer by the person entitled to the distribution. There shall be no claim allowed for and deductible charged by a guaranty association or entity performing a similar function.
     (7) This section applies retrospectively to any proceeding under this chapter initiated after January 1, 1992.

Amended by Chapter 300, 2000 General Session