PRIOR PRINTER'S NOS. 1002, 1170, 1361, PRINTER'S NO. 1688
1389, 1543
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
SENATE AMENDMENTS TO HOUSE AMENDMENTS, JUNE 14, 2004
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)
22 Collateral shall not be considered an asset of the estate and
23 shall be maintained and administered by the receiver as provided
1 in this section, notwithstanding any other provision of law or
2 contract to the contrary.
3 (b) Subject to the provisions of this section, the
4 collateral shall be used to secure the policyholder's obligation
5 to fund or reimburse claims payment within the agreed deductible
6 amount.
7 (c) If a claim that is subject to a deductible agreement and
8 secured by collateral is not covered by any guaranty association
9 and the policyholder is unwilling or unable to take over the
10 handling and payment of the non-covered claims, the receiver
11 shall adjust and pay the non-covered claims utilizing the
12 collateral but only to the extent the available collateral,
13 after allocation under subsection (d), is sufficient to pay all
14 outstanding and anticipated claims. A claim against the
15 collateral by a third-party claimant is not a claim against the
16 insolvent insurer's estate for the purposes of releasing the
17 policyholder to the extent of applicable policy coverage. If the
18 collateral is exhausted and the insured is not able to provide
19 funds to pay the remaining claims within the deductible after
20 all collection means against the insured have been exhausted,
21 the receiver's obligation to pay such claims from the collateral
22 terminates and the remaining claims shall be claims against the
23 insurer's estate subject to complying with other provisions of
24 this article for the filing and allowance of claims. When the
25 liquidator determines the collateral provided by the insured is
26 insufficient to pay all additional and anticipated claims
27 against the insured, the liquidator may file a plan for
28 equitably allocating the collateral among claimants of the
29 insured which provided the collateral, subject to court
30 approval.
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1 (d) To the extent that the receiver is holding collateral
2 that secures other obligations of the policyholder to pay the
3 insurer directly or indirectly amounts that will become assets
4 of the estate, such as reinsurance obligations under a captive
5 reinsurance program or premium obligations under a
6 retrospectively rated insurance policy where the premium due is
7 subject to adjustment based upon actual loss experience, the
8 receiver shall equitably allocate the collateral among such
9 obligations and administer the collateral allocated to the
10 deductible agreement pursuant to this section. With respect to
11 the collateral allocated to obligations under the deductible
12 agreement, if the collateral secured reimbursement obligations
13 are under more than one line of insurance, then the collateral
14 shall be equitably allocated among the various lines based upon
15 the estimated ultimate exposure within the deductible amount for
16 each line. The receiver shall inform the guaranty associations
17 of the method and details of all the foregoing allocations.
18 (e) Regardless of whether there is collateral, if the
19 insurer has contractually agreed to allow the policyholder to
20 fund its own claims within the deductible amount pursuant to a
21 deductible agreement, either through the policyholder's own
22 administration of its claims or through the policyholder
23 providing funds directly to a third party administrator who
24 administers the claims, the receiver shall allow such funding
25 arrangement to continue and, where applicable, will enforce such
26 arrangements to the fullest extent possible. The funding of such
27 claims by the policyholder within the deductible amount will act
28 as a bar to a claim for such amount in the liquidation
29 proceeding including, but not limited to, a claim by the
30 policyholder or the third party claimant. The funding will
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1 extinguish both the obligation, if any, of any guaranty
2 association to pay such claims within the deductible amount, as
3 well as the obligation, if any, of the policyholder or the
4 third-party administrator to reimburse the guaranty association.
5 No charge of any kind shall be made against a guaranty
6 association on the basis of the policyholder funding of claims
7 payment made pursuant to the mechanism set forth in this
8 subsection.
9 (f) (1) If the insurer has not contractually agreed to allow
10 the policyholder to fund its own claims within the deductible
11 amount, to the extent a guaranty association is required by
12 applicable State law to pay any claims for which the insurer
13 would have been entitled to reimbursement from the policyholder
14 under the terms of the deductible agreement and to the extent
15 the claims have not been paid by the policyholder or by a third
16 party, the receiver shall promptly bill the policyholder for
17 such reimbursement and the policyholder will be obligated to pay
18 such amount to the receiver for the benefit of the guaranty
19 associations who paid such claims. Neither the insolvency of the
20 insurer, nor its inability to perform any of its obligations
21 under the deductible agreement, shall be a defense to the
22 policyholder's reimbursements obligation under the deductible
23 agreement. When the policyholder reimbursements are collected,
24 the receiver shall promptly reimburse such guaranty association
25 for claims paid that were subject to the deductible. If the
26 policyholder fails to pay the amounts due within sixty days
27 after such bill for such reimbursements is due, the receiver
28 shall use the collateral to the extent necessary to reimburse
29 the guaranty association, and, at the same time, may pursue
30 other collections efforts against the policyholder. If the
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1 policyholder reimbursements are not collected due to the
2 reduction in such reimbursements as provided in paragraph (2),
3 the receiver shall nonetheless reimburse such guaranty
4 association as if such reimbursements had been collected. The
5 receiver will obtain funds to reimburse a guaranty association
6 claim affected by paragraph (2) by subtracting from funds
7 collected by the receiver for other policyholder claim
8 reimbursements under this paragraph amounts sufficient to
9 reimburse the guaranty association affected by the application
10 of paragraph (2). Subtraction of funds shall be made against all
11 guaranty associations, including the guaranty association
12 affected by paragraph (2) on the basis of the ratio stated in
13 paragraph (3). If more than one guaranty association has a claim
14 against the same collateral and the available collateral, after
15 allocation under subsection (d), along with billing and
16 collection efforts, are together insufficient to pay each
17 guaranty association in full, then the receiver will prorate
18 payments to each guaranty association based upon the proportion
19 of the amount of claims each guaranty association has paid bears
20 to the total of all claims paid by such guaranty associations.
21 (2) The obligation of a policyholder arising solely from a
22 deductible agreement to reimburse the receiver for the benefit
23 of one or more guaranty associations under paragraph (1) for
24 losses paid by one or more guaranty associations shall be
25 reduced by the amount of premium paid by or on behalf of the
26 policyholder for one or more policies issued by a wholly owned
27 affiliate or subsidiary of the insurer, which affiliate or
28 subsidiary was either licensed to do business in this
29 Commonwealth or was an eligible surplus lines insurer under
30 Article XVI of the act of May 17, 1921 (P.L.682, No.284), known
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1 as "The Insurance Company Law of 1921," at the time of the
2 issuance of such policies, where such policies were purchased to
3 fund the policyholder's obligation to reimburse the insurer for
4 deductibles under the deductible agreement, but in no event
5 shall the reduction in liability be less than ninety per centum
6 of the total premiums paid to the insurer and such affiliate or
7 subsidiary for such policies and coverage provided under the
8 related deductible agreement, provided that the policyholder's
9 reimbursement obligation shall be reduced only if: (i) the
10 wholly owned affiliate or subsidiary was merged into the insurer
11 that was a party to the deductible agreement before the entry of
12 a liquidation order against the insurer; (ii) the merger was
13 approved by the commissioner; and (iii) the merger took place
14 before the enactment of this section.
15 (3) The reduction as a result of paragraph (2) in the amount
16 of deductible reimbursements that one or more guaranty
17 associations would have been entitled to claim from a
18 policyholder of the insurer under paragraph (1) shall be
19 allocated by the receiver pursuant to this paragraph prorata
20 among all guaranty associations receiving deductible
21 reimbursements under paragraph (1). The pro rata allocation
22 among guaranty associations shall be based upon the ratio of:
23 (i) claims paid and to be paid as estimated by each guaranty
24 association that are referred to in paragraph (1) to (ii) the
25 total amount of claims paid and to be paid estimated by all the
26 guaranty associations that are referred to in paragraph (1).
27 Amounts used for the pro rata allocation shall be determined
28 after giving effect to the provisions referred to in subsection
29 (k) relating to insured net worth.
30 (4) Any claim of the policyholder under one or more policies
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1 issued by the affiliate or subsidiary as described in paragraph
2 (2) is hereby waived except for those claims under policies that
3 are not paid by a guaranty association as a covered claim or
4 amounts the policyholder has reimbursed a guaranty association
5 under Article XVIII of "The Insurance Company Law of 1921" or
6 similar laws in other states.
7 (g) If the insurer has not contractually agreed to allow the
8 policyholder to fund its own claims within the deductible amount
9 and a deductible reimbursement policy is present, to the extent
10 a guaranty association is required by applicable State law to
11 pay any claims for which the insurer would have been entitled to
12 reimbursement under the deductible reimbursement policy and to
13 the extent the claims have not been paid by the policyholder or
14 by a third party, the receiver shall first make a good faith
15 attempt to recover reimbursements or collateral under the
16 deductible reimbursement policy. Any resulting recoveries under
17 the deductible reimbursement policy shall by payable to the
18 guaranty associations to the extent of claims paid within the
19 deductible. To the extent the receiver is unable in whole or in
20 part to recover first under the deductible reimbursement policy
21 for claims paid by the guaranty associations, the receiver shall
22 promptly bill the policyholder for the reimbursement and the
23 policyholder will be obligated to pay the amount to the receiver
24 for the benefit of the guaranty associations who paid the
25 claims. The policyholder shall retain any and all defenses that
26 may be asserted in connection with the receiver's efforts to
27 collect reimbursements from the policyholder.
28 (h) If the insurer has not contractually agreed to allow the
29 policyholder to fund its own claims within the deductible amount
30 and a deductible reimbursement policy is present and if a
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1 guaranty association is not paying claims for any reason for
2 which the insurer would have been entitled to reimbursement
3 under the deductible reimbursement policy, to the extent claims
4 covered under a deductible reimbursement policy have been paid
5 by the policyholder and sufficient information on the payments
6 has been provided by the policyholder to the receiver for
7 purposes of billing under the deductible reimbursement policy,
8 the receiver shall make a good faith attempt to recover
9 reimbursements or collateral under the deductible reimbursement
10 policy from the insurer of the deductible reimbursement policy.
11 Any resulting recoveries under the deductible reimbursement
12 policy shall be payable to the policyholder.
13 (i) Receiver's duties and powers:
14 (1) The receiver is entitled to deduct from reimbursements
15 owed to guaranty associations and/or policyholders under this
16 section or collateral to be returned to a policyholder
17 reasonable actual expenses incurred in fulfilling the
18 responsibilities under this provision, not to exceed three per
19 centum of the collateral or the total deductible reimbursements
20 actually collected by the receiver.
21 (2) With respect to claim payments made by any guaranty
22 associations, the receiver shall promptly provide the guaranty
23 associations with a complete accounting of the receiver's
24 deductible billing and collection activities, including, but not
25 limited to, copies of the policyholder billings when rendered,
26 the reimbursements collected, the available amounts and use of
27 collateral for each account, and any proration of payments when
28 it occurs. The receiver's costs of accounting shall be included
29 with expenses referred to under this subsection and, together
30 with other reasonable actual expenses, be subject to the overall
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1 limit called for by this subsection. If the receiver fails to
2 make a good faith effort within one hundred twenty days of
3 receipt of claims payment reports to collect reimbursements due
4 from a policyholder under a deductible agreement based on claim
5 payments made by one or more guaranty associations, then after
6 such one hundred twenty day period such guaranty associations
7 may pursue collection from the policyholders directly on the
8 same basis as the receiver, and with the same rights and
9 remedies, and will report any amounts so collected from each
10 policyholder to the receiver. To the extent that guaranty
11 associations pay claims within the deductible amount, but are
12 not reimbursed by either the receiver under this section or by
13 policyholder payments from the guaranty association's own
14 collection efforts, the guaranty association shall have a claim
15 in the insolvent insurer's estate for such unreimbursed claims
16 payments.
17 (3) The receiver shall periodically adjust the collateral
18 being held while the claims subject to the deductible agreement
19 are run off, provided that adequate collateral is maintained to
20 secure the entire estimated ultimate obligation of the
21 policyholder plus a reasonable safety factor, and the receiver
22 shall not be required to adjust the collateral more than once a
23 year. The guaranty associations and the policyholder shall be
24 informed of all such collateral reviews, including, but not
25 limited to, the basis for the adjustment. Once all claims
26 covered by the collateral have been paid and the receiver is
27 satisfied that no new claims can be presented, the receiver will
28 release any remaining collateral to the policyholder.
29 (j) The Commonwealth Court shall have jurisdiction to
30 resolve disputes arising under this section.
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1 (k) Nothing in this section is intended to limit or
2 adversely affect any right the guaranty associations may have
3 under applicable State law to obtain reimbursement from certain
4 classes of policyholders for claims payments made by such
5 guaranty associations under policies of the insolvent insurer,
6 or for related expenses the guaranty associations incur.
7 (l) This provision will apply to all delinquency proceedings
8 which are open and pending as of the effective date of this
9 provision.
10 (M) THIS SECTION SHALL NOT APPLY TO FIRST PARTY CLAIMS, OR <--
11 TO CLAIMS FUNDED BY A GUARANTY ASSOCIATION NET OF THE DEDUCTIBLE
12 UNLESS SUBSECTION (E) APPLIES.
13 (m) (1) (N) For purposes of this section, the following <--
14 terms shall have the meanings given to them in this subsection:
15 "Collateral" shall mean collateral held by, for the benefit
16 of or assigned to the insurer or subsequently to the receiver in
17 order to secure the obligations of a policyholder under a
18 deductible agreement and also any collateral recovered or held
19 by the receiver that secured the obligations of a policyholder
20 under a deductible reimbursement policy.
21 "Deductible agreement" shall include any combination of one
22 or more policies, endorsements, contracts or security agreements
23 which provide for the policyholder to bear the risk of loss
24 within a specified amount per each claim or occurrence covered
25 under a policy of insurance and may be subject to aggregate
26 limit of policyholder reimbursement obligations as set forth in
27 an endorsement to a policy or in a program agreement.
28 "Deductible reimbursement policy" shall mean a policy other
29 than one referred to in subsection (f)(2), purchased by the
30 policyholder to secure the policyholder's obligation to
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1 reimburse the insurer for deductibles under the deductible
2 agreement.
3 "Non-covered claims" shall mean a claim that is subject to a
4 deductible agreement, may be secured by collateral and is not
5 covered by a guaranty association.
6 (2) This subsection shall not apply to first party claims, <--
7 or to claims funded by a guaranty association net of the
8 deductible unless subsection (e) applies.
9 Section 2. This act shall take effect immediately.
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