PRIOR PRINTER'S NO. 1002 PRINTER'S NO. 1170
No. 815 Session of 2003
INTRODUCED BY D. WHITE, KUKOVICH, STACK, STOUT, MOWERY, MADIGAN,
WENGER, ROBBINS, ORIE, ERICKSON, CORMAN, RAFFERTY,
C. WILLIAMS AND THOMPSON, JUNE 18, 2003
SENATOR ARMSTRONG, BANKING AND INSURANCE, AS AMENDED, SEPTEMBER
22, 2003
AN ACT
1 Amending the act of May 17, 1921 (P.L.789, No.285), entitled, as
2 amended, "An act relating to insurance; establishing an
3 insurance department; and amending, revising, and
4 consolidating the law relating to the licensing,
5 qualification, regulation, examination, suspension, and
6 dissolution of insurance companies, Lloyds associations,
7 reciprocal and inter-insurance exchanges, and certain
8 societies and orders, the examination and regulation of fire
9 insurance rating bureaus, and the licensing and regulation of
10 insurance agents and brokers; the service of legal process
11 upon foreign insurance companies, associations or exchanges;
12 providing penalties, and repealing existing laws," providing
13 for policyholder collateral, for deductible reimbursements
14 and for other policyholder obligations.
15 The General Assembly of the Commonwealth of Pennsylvania
16 hereby enacts as follows:
17 Section 1. The act of May 17, 1921 (P.L.789, No.285), known
18 as The Insurance Department Act of 1921, is amended by adding a
19 section to read:
20 Section 523.1. Policyholder Collateral, Deductible
21 Reimbursements and Other Policyholder Obligations.--(a) Any
22 collateral held by, for the benefit of or assigned to the
23 insurer or subsequently to the receiver in order to secure the
1 obligations of a policyholder under a deductible agreement shall
2 not be considered an asset of the estate and shall be maintained
3 and administered by the receiver as provided in this section,
4 notwithstanding any other provision of law OR CONTRACT to the <--
5 contrary.
6 (b) If the collateral is being held by, for the benefit of
7 or assigned to the insurer or subsequently to the receiver to
8 secure obligations under a deductible agreement with a
9 policyholder, subject to the provisions of this section, the
10 collateral shall be used to secure the policyholder's obligation
11 to fund or reimburse claims payment within the agreed deductible
12 amount.
13 (c) If a claim that is subject to a deductible agreement and
14 secured by collateral is not covered by any GUARANTY association <--
15 and the policyholder is unwilling or unable to take over the
16 handling and payment of the non-covered claims, the receiver
17 shall adjust and pay the non-covered claims utilizing the
18 collateral but only to the extent the available collateral,
19 after allocation under subsection (d), is sufficient to pay all
20 outstanding and anticipated claims. A CLAIM AGAINST THE <--
21 COLLATERAL BY A THIRD-PARTY CLAIMANT IS NOT A CLAIM AGAINST THE
22 INSOLVENT INSURER'S ESTATE FOR THE PURPOSES OF RELEASING THE
23 POLICYHOLDER TO THE EXTENT OF APPLICABLE POLICY COVERAGE. If the
24 collateral is exhausted and the insured is not able to provide
25 funds to pay the remaining claims within the deductible after
26 all collection means against the insured have been exhausted,
27 the receiver's obligation to pay such claims from the collateral
28 terminates and the remaining claims shall be claims against the
29 insurer's estate subject to complying with other provisions of
30 this article for the filing and allowance of claims. WHEN THE <--
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1 LIQUIDATOR DETERMINES THE COLLATERAL IS INSUFFICIENT TO PAY ALL
2 ADDITIONAL AND ANTICIPATED CLAIMS, THE LIQUIDATOR MAY FILE A
3 PLAN FOR EQUITABLY ALLOCATING THE COLLATERAL AMONG CLAIMANTS,
4 SUBJECT TO COURT APPROVAL.
5 (d) To the extent that the receiver is holding collateral
6 provided by a policyholder that was obtained to secure a
7 deductible agreement and also TO SECURE other obligations of the <--
8 policyholder to pay the insurer directly or indirectly amounts
9 that will become assets of the estate, such as reinsurance
10 obligations under a captive reinsurance program or premium
11 obligations under a retrospectively rated insurance policy where
12 the premium due is subject to adjustment based upon actual loss
13 experience, the receiver shall equitably allocate the collateral
14 among such obligations and administer the collateral allocated
15 to the deductible agreement pursuant to this section. With
16 respect to the collateral allocated to obligations under the
17 deductible agreement, if the collateral secured reimbursement
18 obligations are under more than one line of insurance, then the
19 collateral shall be equitably allocated among the various lines
20 based upon the estimated ultimate exposure within the deductible
21 amount for each line. The receiver shall inform the guaranty
22 associations of the method and details of all the foregoing
23 allocations.
24 (e) Regardless of whether there is collateral, if the
25 insurer has contractually agreed to allow the policyholder to
26 fund its own claims within the deductible amount pursuant to a
27 deductible agreement, either through the policyholder's own
28 administration of its claims or through the policyholder
29 providing funds directly to a third party administrator who
30 administers the claims, the receiver shall allow such funding
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1 arrangement to continue and, where applicable, will enforce such
2 arrangements to the fullest extent possible. The funding of such
3 claims by the policyholder within the deductible amount will act
4 as a bar to a claim for such amount in the liquidation
5 proceeding including, but not limited to, a claim by the
6 policyholder or the third party claimant. The funding will
7 extinguish both the obligation, if any, of any guaranty
8 association to pay such claims within the deductible amount, as
9 well as the obligation, if any, of the policyholder or the
10 third-party administrator to reimburse the guaranty association.
11 No charge of any kind shall be made against a guaranty
12 association on the basis of the policyholder funding of claims
13 payment made pursuant to the mechanism set forth in this
14 subsection.
15 (f) If the insurer has not contractually agreed to allow the
16 policyholder to fund its own claims within the deductible
17 amount, to the extent a guaranty association is required by
18 applicable State law to pay any claims for which the insurer
19 would have been entitled to reimbursement from the policyholder
20 under the terms of the deductible agreement and to the extent
21 the claims have not been paid by the policyholder or by a third
22 party, the receiver shall promptly bill the policyholder for
23 such reimbursement and the policyholder will be obligated to pay
24 such amount to the receiver for the benefit of the guaranty
25 associations who paid such claims. Neither the insolvency of the
26 insurer, nor its inability to perform any of its obligations
27 under the deductible agreement, shall be a defense to the
28 policyholder's reimbursements obligation under the deductible
29 agreement. When the policyholder reimbursements are collected,
30 the receiver shall promptly reimburse such guaranty association
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1 for claims paid that were subject to the deductible. If the
2 policyholder fails to pay the amounts due within thirty SIXTY <--
3 days after such bill for such reimbursements is due, the
4 receiver shall use the collateral to the extent necessary to
5 reimburse the guaranty association, and, at the same time, may
6 pursue other collections efforts against the policyholder. If
7 more than one guaranty association has a claim against the same
8 collateral and the available collateral, after allocation under
9 subsection (d), along with billing and collection efforts, are
10 together insufficient to pay each guaranty association in full,
11 then the receiver will prorate payments to each guaranty
12 association based upon THE PROPORTION OF the amount of claims <--
13 each guaranty association has paid bears to the total of all
14 claims paid by such guaranty associations.
15 (g) Receiver's duties and powers:
16 (1) The receiver is entitled to deduct from reimbursements
17 owed to guaranty associations or collateral to be returned to a
18 policyholder reasonable actual expenses incurred in fulfilling
19 the responsibilities under this provision, not to exceed three
20 per centum of the collateral or the total deductible
21 reimbursements actually collected by the receiver.
22 (2) With respect to claim payments made by any guaranty
23 associations, the receiver shall promptly provide the guaranty
24 associations with a complete accounting of the receiver's
25 deductible billing and collection activities, including, BUT NOT <--
26 LIMITED TO, copies of the policyholder billings when rendered,
27 the reimbursements collected, the available amounts and use of
28 collateral for each account, and any proration of payments when
29 it occurs. THE RECEIVER'S COSTS OF ACCOUNTING SHALL BE INCLUDED <--
30 WITH EXPENSES REFERRED TO UNDER THIS SUBSECTION AND, TOGETHER
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1 WITH OTHER REASONABLE ACTUAL EXPENSES, BE SUBJECT TO THE OVERALL
2 LIMIT CALLED FOR BY THIS SUBSECTION. If the receiver fails to
3 make a good faith effort within one hundred twenty days of
4 receipt of claims payment reports to collect reimbursements due
5 from a policyholder under a deductible agreement based on claim
6 payments made by one or more guaranty associations, then after
7 such one hundred twenty day period such guaranty associations
8 may pursue collection from the policyholders based on whatever <--
9 legal remedies they believe they may have, DIRECTLY ON THE SAME <--
10 BASIS AS THE RECEIVER, AND WITH THE SAME RIGHTS AND REMEDIES,
11 and will report any amounts so collected from each policyholder
12 to the receiver. To the extent that guaranty associations pay
13 claims within the deductible amount, but are not reimbursed by
14 either the receiver under this section or by policyholder
15 payments from the guaranty association's own collection efforts,
16 the guaranty association shall have a claim in the insolvent
17 insurer's estate for such unreimbursed claims payments.
18 (3) The receiver shall periodically adjust the collateral
19 being held while the claims subject to the deductible agreement
20 are run off, provided that adequate collateral is maintained to
21 secure the entire estimated ultimate obligation of the
22 policyholder plus a reasonable safety factor, and the receiver
23 shall not be required to adjust the collateral more than once a
24 year. The guaranty associations and the policyholder shall be
25 informed of all such collateral reviews, including, but not
26 limited to, the basis for the adjustment. Once all claims
27 covered by the collateral have been paid and the receiver is
28 satisfied that no new claims can be presented, the receiver will
29 release any remaining collateral to the policyholder.
30 (h) The Commonwealth Court shall have jurisdiction to
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1 resolve disputes arising under this section.
2 (i) Nothing in this section is intended to limit or
3 adversely affect any right the guaranty associations may have
4 under applicable State law to obtain reimbursement from certain
5 classes of policyholders for claims payments made by such
6 guaranty associations under policies of the insolvent insurer,
7 or for related expenses the guaranty associations incur.
8 (j) This provision will apply to all delinquency proceedings
9 which are open and pending as of the effective date of this
10 provision.
11 (k) For purposes of this section, the term "deductible
12 agreement" shall include any combination of one or more
13 policies, endorsements, contracts or security agreements which
14 provide for the policyholder to bear the risk of loss within a
15 specified amount per each claim OR OCCURRENCE covered under a <--
16 policy of insurance and may be subject to aggregate limit of
17 policyholder reimbursement obligations. THIS SECTION SHALL NOT <--
18 APPLY TO FIRST PARTY CLAIMS, OR TO CLAIMS FUNDED BY A GUARANTY
19 ASSOCIATION NET OF THE DEDUCTIBLE UNLESS SUBSECTION (E) APPLIES.
20 The term "non-covered claims" shall mean a claim that is subject
21 to a deductible agreement, MAY BE secured by collateral and IS <--
22 not covered by a guaranty association.
23 Section 2. This act shall take effect immediately.
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