PRIOR PRINTER'S NO. 746 PRINTER'S NO. 1302
No. 668 Session of 1977
INTRODUCED BY MESSRS. SCHMITT, SCHWEDER, GIAMMARCO, MRS. HARPER,
MESSRS. LIVENGOOD, ZEARFOSS, MACKOWSKI, MADIGAN, MOWERY AND
VROON, MARCH 22, 1977
AS REPORTED FROM COMMITTEE ON INSURANCE, HOUSE OF
REPRESENTATIVES, AS AMENDED, MAY 5, 1977
AN ACT
1 Establishing the Pennsylvania Life and Health Insurance Guaranty
2 Association; providing for the payment of covered claims
3 under certain life, health and accident insurance, and
4 annuity policies, the avoidance of excessive delay and the
5 avoidance of financial loss to claimants or policyholders in
6 the payment thereof as a result of the insolvency of
7 insurers; assisting in the detection and prevention of
8 insurer impairments and insolvencies; providing for the
9 formulation and administration of a plan of operation; and
10 conferring powers and imposing duties upon the Insurance
11 Commissioner, the Pennsylvania Life and Health Insurance
12 Guaranty Association and certain insurers.
13 TABLE OF CONTENTS
14 Section 1. Short title.
15 Section 2. Purpose.
16 Section 3. Scope.
17 Section 4. Definitions.
18 Section 5. Creation of the association.
19 Section 6. Board of directors.
20 Section 7. Powers and duties of the association.
1 Section 8. Assessments.
2 Section 9. Plan of operation.
3 Section 10. Powers and duties of the commissioner.
4 Section 11. Prevention of insolvencies.
5 SECTION 12. CREDITS FOR ASSESSMENTS PAID. <--
6 Section 12. 13. Miscellaneous provisions. <--
7 Section 13. 14. Examination of the association; annual report. <--
8 Section 14. 15. Tax exemptions. <--
9 Section 15. 16. Immunity. <--
10 Section 16. 17. Stay of proceedings; reopening default <--
11 judgments.
12 Section 17. 18. Prohibited advertisement of this act in sale of <-
13 insurance.
14 Section 18. 19 Timely filing of claims. <--
15 Section 19. 20. Nonduplication of recovery. <--
16 Section 20. 21. Assessments not burdens or prohibitions. <--
17 Section 21. 22. Membership in the Pennsylvania Insurance <--
18 Guaranty Association and exemption from
19 assessments.
20 Section 22. 23. Powers and duties of commissioner not limited. <--
21 Section 23. 24. Constitutionality. <--
22 Section 24. 25. Effective date. <--
23 The General Assembly of the Commonwealth of Pennsylvania
24 hereby enacts as follows:
25 Section 1. Short title.
26 This act shall be known and may be cited as the "Life and
27 Health Insurance Guaranty Association Act."
28 Section 2. Purpose.
29 The purpose of this act is to protect policyowners, insureds,
30 beneficiaries, annuitants, payees, and assignees of life
19770H0668B1302 - 2 -
1 insurance policies, health and accident insurance policies,
2 annuity contracts, endorsements, riders and contracts
3 supplemental thereto, including but not limited to settlement
4 options, subject to certain limitations, against failure in the
5 performance of contractual obligations due to the impairment or
6 insolvency of the insurer issuing such policies or contracts. To
7 provide this protection an association of insurers is created to
8 enable the guaranty of payment of benefits and of continuation
9 of coverages, the members of the association are subject to
10 assessment to provide funds to carry out the purpose of this
11 act, and the association is authorized to assist the
12 commissioner in the detection and prevention of insurer
13 impairments or insolvencies.
14 Section 3. Scope.
15 (a) This act shall apply to direct written individual and
16 group life insurance policies, health and accident insurance
17 policies, annuity contracts, endorsements, riders and contracts
18 supplemental thereto, including but not limited to settlement
19 options, issued by member insurers chartered or licensed to
20 transact such insurance in this Commonwealth.
21 (b) This act shall not apply to:
22 (1) The part of a variable life insurance or variable
23 annuity contract not guaranteed by an insurer.
24 (2) The part of any policy or contract under which the
25 risk is borne by the policyholder.
26 (3) A policy or contract or part thereof assumed by the
27 impaired or insolvent insurer under a contract of
28 reinsurance, other than reinsurance for which assumption
29 certificates have been issued.
30 (4) A certificate, contract, or subscriber agreement
19770H0668B1302 - 3 -
1 issued by a hospital plan corporation or a nonprofit hospital
2 plan as defined in 40 Pa.C.S. § 6301 (relating to application
3 of chapter).
4 (5) A certificate, contract, or subscriber agreement
5 issued by a professional health service corporation, a
6 nonprofit dental service plan, a nonprofit optometric service
7 plan, or a nonprofit professional health service plan, as
8 defined in 40 Pa.C.S. § 6302 (relating to definitions).
9 (6) A certificate or contract issued by a fraternal
10 benefit society pursuant to its underwriting powers as set
11 forth in 40 Pa.C.S. § 6526 (relating to power to write
12 insurance).
13 (7) A certificate, contract or subscriber agreement
14 issued by an organization subject to the provisions of the
15 act of December 29, 1972 (P.L.1701, No.364), known as the
16 "Voluntary Nonprofit Health Service Act of 1972."
17 Section 4. Definitions.
18 The following words and phrases when used in this act shall
19 have, unless the context clearly indicates otherwise, the
20 meanings given to them in this section:
21 "Account." Any of the three accounts created by section 5.
22 "Association." The Pennsylvania Life and Health Insurance
23 Guaranty Association.
24 "Commissioner." The Insurance Commissioner of the
25 Commonwealth of Pennsylvania.
26 "Contractual obligation." Any obligation under covered
27 policies or contracts.
28 "Covered policy." Any policy or contract within the scope of
29 this act.
30 "Impaired insurer." A member insurer deemed by the
19770H0668B1302 - 4 -
1 commissioner to be potentially unable to fulfill its contractual
2 obligations but not an insolvent insurer.
3 "Insolvent insurer." A member insurer which becomes
4 insolvent and is placed under a final order of liquidation,
5 rehabilitation or conservation by a court of competent
6 jurisdiction of the insurer's domiciliary state.
7 "Member insurer." Any person licensed to transact in this
8 Commonwealth any kind of insurance to which this act applies.
9 "Person." Any individual, corporation, partnership,
10 association or voluntary organization.
11 "Premiums." Direct written gross insurance premiums and
12 annuity considerations received on covered policies, less return
13 premiums and considerations thereon and dividends paid or
14 credited to policyholders on such business, and experience rated
15 refunds or credits paid or credited to policyholders on such
16 business. Premiums do not include premiums and considerations on
17 contracts between insurers and reinsurers.
18 "Resident." Any person who resides in this Commonwealth at
19 the time a member insurer is determined to be an impaired or
20 insolvent insurer and to whom contractual obligations are owed.
21 Section 5. Creation of the association.
22 (a) There is created a nonprofit, unincorporated association
23 to be known as the Pennsylvania Life and Health Insurance
24 Guaranty Association. All member insurers shall be and remain
25 members of the association as a condition of their authority to
26 transact insurance in this Commonwealth. The association shall
27 perform its functions under a plan of operation as provided
28 herein and shall exercise its powers through a board of
29 directors. For purposes of administration and assessment, the
30 association shall maintain three accounts:
19770H0668B1302 - 5 -
1 (1) The life insurance account.
2 (2) The health and accident insurance account.
3 (3) The annuity account.
4 (b) Supplementary contracts shall be covered under the
5 account in which the basic policy is covered for purposes of
6 assessment.
7 (c) The association shall come under the immediate
8 supervision of the commissioner and shall be subject to the
9 applicable provisions of the insurance laws of this
10 Commonwealth.
11 Section 6. Board of directors.
12 (a) The board of directors of the association shall consist
13 of not less than five nor more than nine member insurers serving
14 terms as established in the plan of operation. The members of
15 the board shall be selected by member insurers subject to the
16 approval of the commissioner. Vacancies on the board shall be
17 filled for the remaining period of the term by a majority vote
18 of the remaining board members, subject to the approval of the
19 commissioner. To select the initial board of directors and
20 initially organize the association the commissioner shall give
21 notice to all member insurers of the time and place of the
22 organizational meeting. In determining voting rights at the
23 organizational meeting, each member insurer shall be entitled to
24 one vote in person or by proxy. If the board of directors is not
25 selected within 60 days after notice of the organizational
26 meeting, the commissioner may appoint the initial members.
27 (b) In approving selections or in appointing members to the
28 board, the commissioner shall consider, among other things,
29 whether all member insurers are fairly represented.
30 (c) Members of the board may be reimbursed from the assets
19770H0668B1302 - 6 -
1 of the association for reasonable expenses incurred by them as
2 members of the board of directors. They shall not otherwise be
3 compensated by the association for their services.
4 Section 7. Powers and duties of the association.
5 (a) Whenever a domestic insurer is an impaired insurer, the
6 association may, subject to any conditions imposed by the
7 association and approved in writing by the impaired insurer and
8 the commissioner, other than those conditions which impair the
9 contractual obligations of the impaired insurer:
10 (1) guarantee or reinsure, or cause to be guaranteed,
11 assumed, or reinsured, any or all of the covered policies of
12 the impaired insurer;
13 (2) provide such moneys, pledges, notes, guarantees, or
14 other means as are proper to effectuate paragraph (1) and
15 assure payment of the contractual obligations of the impaired
16 insurer pending action thereunder; or
17 (3) lend money to the impaired insurer.
18 (b) Whenever a domestic insurer is an insolvent insurer, the
19 association shall, subject to the written approval of the
20 commissioner:
21 (1) guarantee, assume, or reinsure, or cause to be
22 guaranteed, assumed, or reinsured the covered policies of the
23 insolvent insurer;
24 (2) assure payment of the contractual obligations of the
25 insolvent insurer; or
26 (3) provide such moneys, pledges, notes, guarantees, or
27 other means as are reasonably necessary to discharge such
28 duties.
29 (c) Whenever a foreign or alien insurer is an insolvent
30 insurer, the association shall, subject to the written approval
19770H0668B1302 - 7 -
1 of the commissioner:
2 (1) guarantee, assume, or reinsure, or cause to be
3 guaranteed, assumed, or reinsured the covered policies of
4 residents;
5 (2) assure payment of the contractual obligations of the
6 insolvent insurer to residents; or
7 (3) provide such moneys, pledges, notes, guarantees, or
8 other means as are reasonably necessary to discharge such
9 duties.
10 This subsection shall not apply where the commissioner has
11 determined that a foreign or alien member insurer's domiciliary
12 jurisdiction or state of entry provides, by statute or
13 regulation, protection for residents of this Commonwealth
14 substantially similar to that provided by this act.
15 (d) In carrying out subsections (b) and (c), permanent
16 policy liens, or contract liens may be imposed in connection
17 with any guarantee, assumption or reinsurance agreement if the
18 court:
19 (1) Finds that the amounts which can be assessed under
20 this act are less than the amounts needed to assure full and
21 prompt performance of the insolvent insurer's contractual
22 obligations, or that the economic or financial conditions as
23 they affect member insurers are sufficiently adverse to
24 render the imposition of policy or contract liens, to be in
25 the public interest.
26 (2) Approves the specific policy liens or contract liens
27 to be used.
28 Before being obligated under subsections (b) and (c), the
29 association may request that there be imposed temporary
30 moratoriums or liens on payments of cash values and policy loans
19770H0668B1302 - 8 -
1 in addition to any contractual provisions for deferral of cash
2 or policy loan values, and such temporary moratoriums and liens
3 may be imposed if they are approved by the court.
4 (e) If the association fails to act within a reasonable
5 period of time, as provided in section 5(b) and (c), the
6 commissioner shall have the powers and duties of the association
7 under this act with respect to insolvent insurers.
8 (f) The association may render assistance and advice to the
9 commissioner, upon his request, concerning rehabilitation,
10 payment of claims, continuance of coverage, or the performance
11 of other contractual obligations of any impaired or insolvent
12 insurer.
13 (g) The association shall have standing to appear before any
14 court in this Commonwealth with jurisdiction over an impaired or
15 insolvent insurer concerning which the association is or may
16 become obligated under this act. Such standing shall extend to
17 all matters germane to the powers and duties of this
18 association, including, but not limited to, proposals for
19 reinsuring or guaranteeing the covered policies of the impaired
20 or insolvent insurer and the determination of the covered
21 policies and contractual obligations.
22 (h) A person receiving benefits under this act shall be
23 deemed to have assigned the rights under the covered policy to
24 the association to the extent of the benefits received because
25 of this act whether the benefits are payments of contractual
26 obligations or continuation of coverage. The association may
27 require an assignment to it of such rights by any payee, policy
28 or contract owner, beneficiary, insured or annuitant as a
29 condition precedent to the receipt of any rights or benefits
30 conferred by this act upon such person. The association shall be
19770H0668B1302 - 9 -
1 subrogated to these rights against the assets of any insolvent
2 insurer. The subrogation rights of the association under this
3 subsection shall have the same priority against the assets of
4 the insolvent insurer as that possessed by the person entitled
5 to receive benefits under this act.
6 (i) The association shall not be liable for any contractual
7 obligations of insolvent insurers which are $100 or less with
8 respect to the total contractual obligations owing to any one
9 person.
10 (j) The contractual obligations of the insolvent insurer for
11 which the association becomes or may become liable shall be in
12 excess of $100 and shall be as great as but no greater than the
13 contractual obligations of the insolvent insurer would have been
14 in the absence of an insolvency unless such obligations are
15 reduced as permitted by subsection (d), but the aggregate
16 liability of the association on any one life shall not exceed
17 $100,000 with respect to the payment of cash values, or $300,000
18 for all benefits. This dollar limitation shall include all
19 benefits which become payable after the date of insolvency and
20 all benefits that may be accrued and unpaid on the date of the
21 insolvency.
22 (k) The association may:
23 (1) Enter into such contracts as are necessary or proper
24 to carry out the provisions and purposes of this act.
25 (2) Sue or be sued, including taking any legal action
26 necessary or proper for recovery of unpaid assessments under
27 section 8.
28 (3) Borrow money to effect the purposes of this act.
29 Notes or other evidence of indebtedness of the association
30 not in default shall be legal investments for domestic
19770H0668B1302 - 10 -
1 insurers and may be carried as admitted assets.
2 (4) Employ or retain such persons as are necessary to
3 handle the financial transactions of the association, and to
4 perform such other functions as become necessary or proper
5 under this act.
6 (5) Negotiate and contract with any liquidator,
7 rehabilitator, conservator or ancillary receiver to carry out
8 the powers and duties of the association.
9 (6) Take such legal action as may be necessary to avoid
10 payment of improper claims.
11 (7) Exercise, for the purposes of this act and to the
12 extent approved by the commissioner, the powers of a domestic
13 life or health and accident insurer, but in no case may the
14 association issue insurance policies or annuity contracts
15 other than those issued to perform the contractual
16 obligations of the impaired or insolvent insurer.
17 Section 8. Assessments.
18 (a) For the purpose of providing the funds necessary to
19 carry out the powers and duties of the association, the board of
20 directors shall assess the member insurers, separately for each
21 account, at such time and for such amounts as the board finds
22 necessary. Assessments shall be due not less than 30 days after
23 written notice to the member insurers and shall accrue interest
24 at 8% per annum after the due date.
25 (b) There shall be three classes of assessments:
26 (1) Class A assessments shall be made for the purpose of
27 meeting administrative costs and other general expenses not
28 related to a particular impaired or insolvent insurer and
29 examinations conducted under the authority of section 11(e).
30 (2) Class B assessments shall be made to the extent
19770H0668B1302 - 11 -
1 necessary to carry out the powers and duties of the
2 association under section 7, with regard to an impaired or
3 insolvent domestic insurer.
4 (3) Class C assessments shall be made to the extent
5 necessary to carry out the powers and duties of the
6 association under section 7 with regard to an insolvent
7 foreign or alien insurer.
8 (c) (1) The amount of any class A assessment shall be
9 determined by the board and may be made on a non-pro rata
10 basis. Such assessment for costs and expenses other than for
11 examinations shall not exceed $50 per company in any one
12 calendar year. The amount of any class B or C assessment
13 shall be allocated for assessment purposes among the accounts
14 in section 5(a) in the proportion that the premiums received
15 by the impaired or insolvent insurer on the covered policies
16 under each account for the last calendar year preceding the
17 assessment in which the impaired or insolvent insurer
18 received premiums bear to the premiums received by such
19 insurer for such calendar year on all covered policies.
20 (2) Class B assessments for each account shall be made
21 separately for each state in which the impaired or insolvent
22 domestic insurer was authorized to transact insurance at any
23 time, in the proportion that the premiums received on
24 business in such state by the impaired or insolvent insurer
25 on covered policies under each account for the last calendar
26 year preceding the assessment in which the impaired or
27 insolvent insurer received premiums bear to such premiums
28 received in all such states for such calendar year by the
29 impaired or insolvent insurer. The assessments against member
30 insurers shall be in the proportion that the premiums
19770H0668B1302 - 12 -
1 received on business in each such state by each assessed
2 member insurer on covered policies under each account for the
3 last calendar year preceding the assessment bear to such
4 premiums received on business in each state for such calendar
5 year preceding assessment by all assessed member insurers.
6 (3) Class C assessments against member insurers for each
7 account shall be in the proportion that the premiums received
8 on business in this Commonwealth by each assessed member
9 insurer on covered policies under each account for the last
10 calendar year preceding the assessment bear to such premiums
11 received on business in this Commonwealth for such calendar
12 year preceding the assessment by all assessed member
13 insurers.
14 (4) Assessments for funds to meet the requirements of
15 the association with respect to an impaired or insolvent
16 insurer shall not be made until necessary to implement the
17 purposes of this act. Classification of assessments under
18 subsection (b) and computation of assessments under this
19 paragraph shall be made with a reasonable degree of accuracy,
20 recognizing that exact determinations may not always be
21 possible.
22 (d) The association may abate or defer, in whole or in part,
23 the assessment of a member insurer if, in the opinion of the
24 board, payment of the assessment would endanger the ability of
25 the member insurer to fulfill its contractual obligations, or
26 would cause the member insurer's financial statement to reflect
27 amounts of capital or surplus less than the minimum amounts
28 required for a certificate of authority by any jurisdiction in
29 which the member insurer is authorized to transact insurance. In
30 the event an assessment against a member insurer is abated, or
19770H0668B1302 - 13 -
1 deferred in whole or in part, the amount by which such
2 assessment is abated or deferred may be assessed against the
3 other member insurers in a manner consistent with the basis for
4 assessments set forth in this section.
5 (e) The total of all assessments upon a member insurer for
6 each account shall not in any one calendar year exceed 2% of
7 such insurer's premiums on its policies covered by each account
8 received in this Commonwealth during the calendar year preceding
9 the assessment. If the maximum assessment, together with the
10 other assets of the association in any account, does not provide
11 in any one year in such account an amount sufficient to carry
12 out the responsibilities of the association, the necessary
13 additional funds shall be assessed as soon thereafter as
14 permitted by this act.
15 (f) The board may, by an equitable method established in the
16 plan of operation, refund to member insurers, in proportion to
17 the contribution of each insurer to that account, the amount by
18 which the assets of the account exceed the amount the board
19 finds is necessary to carry out during the coming year the
20 obligations of the association with regard to that account,
21 including assets accruing from net realized gains and income
22 from investments. A reasonable amount may be retained in any
23 account to provide funds for the continuing expenses of the
24 association and for future losses if refunds are impractical.
25 (g) It shall be proper for any member insurer, in
26 determining its premium rates and policyowner dividends as to
27 any kind of insurance within the scope of this act, to consider
28 the amount reasonably necessary to meet its assessment
29 obligations under this act.
30 (h) The association shall issue to each insurer paying any
19770H0668B1302 - 14 -
1 assessment under this act a certificate of contribution, in a
2 form prescribed by the commissioner, for the amount of the
3 assessment so paid. All outstanding certificates shall be of
4 equal dignity and priority without reference to amounts or dates
5 of issue. A certificate of contribution may be shown by the
6 insurer in its financial statement as an asset, but in no event
7 may it be shown as an asset on the insurer's financial statement
8 to the extent that the insurer has offset an assessment against
9 its premium tax liability to this Commonwealth.
10 Section 9. Plan of operation.
11 (a) (1) The association shall submit to the commissioner a
12 plan of operation and any amendments thereto necessary or
13 suitable to assure the fair, reasonable, and equitable
14 administration of the association. The plan of operation and
15 any amendments thereto shall become effective upon approval
16 in writing by the commissioner.
17 (2) If the association fails to submit a suitable plan
18 of operation within 180 days of the effective date of this
19 act or if at any time thereafter the association fails to
20 submit suitable amendments to the plan, the commissioner
21 shall, after notice and hearing, adopt and promulgate such
22 reasonable rules as are necessary or advisable to effectuate
23 the provisions of this act. Such rules shall continue in
24 force until modified by the commissioner or superseded by a
25 plan submitted by the association and approved by the
26 commissioner.
27 (b) All member insurers shall comply with the plan of
28 operation.
29 (c) The plan of operation shall:
30 (1) Establish procedures for handling the assets of the
19770H0668B1302 - 15 -
1 association.
2 (2) Establish the amount and method of reimbursing
3 members of the board of directors.
4 (3) Establish regular places and times for meetings of
5 the board of directors.
6 (4) Establish procedures for records to be kept of all
7 financial transactions of the association, its agents, and
8 the board of directors.
9 (5) Establish the procedures whereby selections for the
10 board of directors will be made and submitted to the
11 commissioner.
12 (6) Establish additional procedures for assessments.
13 (7) Contain additional provisions necessary and proper
14 for the execution of the powers and duties of the
15 association.
16 (d) The plan of operation may provide that any or all powers
17 and duties of the association, except those under section
18 7,(k),(3) and section 8, are delegated to a corporation,
19 association, or other organization which performs or will
20 perform functions similar to those of this association, or its
21 equivalent, in two or more states. Such a corporation,
22 association, or organization shall be reimbursed for any
23 payments made on behalf of the association and shall be paid for
24 its performance of any function of the association. A delegation
25 under this subsection shall take effect only with the approval
26 of both the board of directors and the commissioner, and may be
27 made only to a corporation, association, or organization which
28 extends protection not substantially less favorable and
29 effective than that provided by this act.
30 Section 10. Powers and duties of the commissioner.
19770H0668B1302 - 16 -
1 (a) The commissioner shall:
2 (1) Provide the association with a statement of the
3 premiums in the appropriate states for each member insurer
4 when requested by the board of directors.
5 (2) When an impairment is declared and the amount of the
6 impairment is determined, serve a demand upon the impaired
7 insurer to make good the impairment within a reasonable time.
8 Notice to the impaired insurer shall constitute notice to its
9 shareholders, if any. The failure of the insurer to comply
10 promptly with such demand shall not excuse the association
11 from the performance of its powers and duties under this act.
12 (3) In any liquidation or rehabilitation proceeding
13 involving a domestic insurer, be appointed as the liquidator
14 or rehabilitator. If a foreign or alien member insurer is
15 subject to a liquidation proceeding in its domiciliary
16 jurisdiction or state of entry, the commissioner shall be
17 appointed conservator.
18 (b) The commissioner may suspend or revoke after notice and
19 hearing, the certificate of authority to transact insurance in
20 this Commonwealth of any member insurer which fails to pay an
21 assessment when due or fails to comply with the plan of
22 operation. As an alternative the commissioner may levy a penalty
23 on any member insurer which fails to pay an assessment when due.
24 Such penalty shall not exceed 5% of the unpaid assessment per
25 month, but no penalty shall be less than $100 per month.
26 (c) An action of the board of directors or the association
27 may be appealed to the commissioner by any member insurer if
28 such appeal is taken within 30 days of the action being
29 appealed. A final action or order of the commissioner shall be
30 subject to judicial review in a court of competent jurisdiction.
19770H0668B1302 - 17 -
1 Section 11. Prevention of insolvencies.
2 (a) It shall be the duty of the commissioner:
3 (1) To notify the commissioners of all of the other
4 states, territories of the United States and the District of
5 Columbia when he takes any of the following actions against a
6 member insurer based specifically in consideration of the
7 financial solvency of the insured:
8 (i) revocation of license;
9 (ii) suspension of license; or
10 (iii) makes any formal order that such company
11 restrict its premium writing, obtain additional
12 contributions to surplus, withdraw from the State,
13 reinsure all or any part of its business, or an increase
14 in capital, surplus, or any other account for the
15 security of policyholders or creditors.
16 (2) To mail such notice to all commissioners within 30
17 days of the date on which the action was taken.
18 (3) To report to the board of directors when he has
19 taken any of the actions set forth in paragraph (1) or has
20 received a report from any other commissioner indicating that
21 any such action has been taken in another state. The report
22 shall contain all significant details of the action taken or
23 the report received from another commissioner.
24 (4) To report to the board of directors when he has
25 reasonable cause to believe from any examination, whether
26 completed or in process, a member company, which may be an
27 impaired or insolvent insurer, notwithstanding the provisions
28 of section 213 of the act of May 17, 1921 (P.L.789, No.285),
29 known as "The Insurance Department Act of one thousand nine
30 hundred and twenty one."
19770H0668B1302 - 18 -
1 (5) To furnish to the board of directors the early
2 warning tests developed by the National Association of
3 Insurance Commissioners. The board may use the information
4 contained therein in carrying out its duties and
5 responsibilities under this section. The report and the
6 information contained therein shall be kept confidential by
7 the board of directors until it is made public by the
8 commissioner or other lawful authority.
9 (b) The commissioner may seek the advice and recommendations
10 of the board of directors concerning any matter affecting his
11 duties and responsibilities regarding the financial condition of
12 member companies and companies seeking to transact insurance
13 business in this Commonwealth.
14 (c) The board of directors may, upon majority vote, make
15 reports and recommendations to the commissioner upon any matter
16 germane to the solvency, liquidation, rehabilitation or
17 conservation of any member insurer or germane to the solvency of
18 any insurance company seeking to do business in this
19 Commonwealth. Such reports and recommendations shall not be
20 considered public documents.
21 (d) It shall be the duty of the board of directors, upon
22 majority vote, to notify the commissioner of any information it
23 has indicating a member insurer may be impaired or insolvent.
24 (e) The board of directors may, upon majority vote, request
25 the commissioner to order an examination of any member insurer
26 which the board in good faith believes may be impaired. The
27 commissioner shall begin such examination within 30 days of the
28 receipt of the request. The examination may be conducted as a
29 national association of insurance commissioners' examination or
30 by such persons as the commissioner designates. The cost of such
19770H0668B1302 - 19 -
1 examination shall be paid by the association and the examination
2 report shall be treated the same as are other examination
3 reports. In no event shall such examination report be released
4 to the board of directors prior to its release to the public.
5 This shall not preclude the commissioner from complying with
6 subsection (a). The commissioner shall notify the board of
7 directors when the examination is completed. The request for an
8 examination shall be kept on file by the commissioner. It shall
9 not be open to public inspection prior to the release of the
10 examination report to the public.
11 (f) The board of directors may, upon majority vote, make
12 recommendations to the commissioner for the detection and
13 prevention of insurer insolvencies.
14 (g) The board of directors shall, at the conclusion of any
15 insurer insolvency in which the association was obligated to pay
16 covered claims, prepare a report to the commissioner containing
17 such information as it may have in its possession bearing on the
18 history and causes of such insolvency. The board shall cooperate
19 with the board of directors of guaranty associations in other
20 states in preparing a report on the history and causes for
21 insolvency of a particular insurer. It may adopt, by reference,
22 a report prepared by other associations.
23 SECTION 12. CREDITS FOR ASSESSMENTS PAID. <--
24 (A) A MEMBER INSURER MAY OFFSET AGAINST ITS PREMIUM TAX
25 LIABILITY TO THIS COMMONWEALTH AN ASSESSMENT DESCRIBED IN
26 SECTION 8 TO THE EXTENT OF 20% OF THE AMOUNT OF SUCH ASSESSMENT
27 FOR EACH OF THE FIVE CALENDAR YEARS FOLLOWING THE YEAR IN WHICH
28 SUCH ASSESSMENT WAS PAID. IN THE EVENT A MEMBER INSURER SHOULD
29 CEASE DOING BUSINESS, ALL UNCREDITED ASSESSMENTS MAY BE OFFSET
30 AGAINST ITS PREMIUM TAX LIABILITY FOR THE YEAR IT CEASES DOING
19770H0668B1302 - 20 -
1 BUSINESS.
2 (B) ANY SUMS ACQUIRED BY REFUND, PURSUANT TO SECTION 8(F)
3 FROM THE ASSOCIATION WHICH HAVE THERETOFORE BEEN WRITTEN OFF BY
4 CONTRIBUTING INSURERS AND OFFSET AGAINST PREMIUM TAXES AS
5 PROVIDED IN THIS SECTION AND ARE NOT THEN NEEDED FOR PURPOSES OF
6 THIS ACT, SHALL BE PAID BY THE ASSOCIATION TO THE COMMISSIONER
7 AND DEPOSITED BY HIM WITH THE STATE TREASURER FOR CREDIT TO THE
8 GENERAL FUND OF THIS COMMONWEALTH.
9 Section 12. 13. Miscellaneous provisions. <--
10 (a) Nothing in this act shall be construed to reduce the
11 liability for unpaid assessments of the insureds of an impaired
12 or insolvent insurer operating under a plan with assessment
13 liability.
14 (b) Records shall be kept of all negotiations and meetings
15 in which the association or its representatives are involved to
16 discuss the activities of the association in carrying out its
17 powers and duties under section 7. Records of such negotiations
18 or meetings shall be made public only upon the termination of a
19 liquidation, rehabilitation, or conservation proceeding
20 involving the impaired or insolvent insurer, upon the
21 termination of the impairment or insolvency of the insurer, or
22 upon the order of a court of competent jurisdiction. Nothing in
23 this subsection shall limit the duty of the association to
24 render a report of its activities under section 13 14. <--
25 (c) For the purpose of carrying out its obligations under
26 this act, the association shall be deemed to be a creditor of
27 the impaired or insolvent insurer to the extent of assets
28 attributable to covered policies reduced by any amounts to which
29 the association is entitled as subrogee pursuant to section
30 7(h). All assets of the impaired or insolvent insurer
19770H0668B1302 - 21 -
1 attributable to covered policies shall be used by the
2 association to continue all covered policies and pay all
3 contractual obligations of the impaired or insolvent insurer as
4 required by this act. Assets FOR PURPOSES OF THIS SUBSECTION, <--
5 ASSETS attributable to covered policies under any account, as
6 used in this subsection shall be determined as being that
7 proportion of the total assets of the impaired or insolvent
8 insurer which the reserves that should have been established for
9 policies under such account bear to the reserves that should
10 have been established for all policies of insurance written by
11 the impaired or insolvent insurer.
12 (d) (1) Prior to the termination of any liquidation,
13 rehabilitation, or conservation proceeding, the court may
14 take into consideration the contributions of the respective
15 parties, including the association, the shareholders and
16 policyowners of the insolvent insurer, and any other party
17 with a bona fide interest, in making an equitable
18 distribution of the ownership rights of such insolvent
19 insurer. In such a determination, consideration shall be
20 given to the welfare of the policyholders of the continuing
21 or successor insurer.
22 (2) No distribution to stockholders, if any, of an
23 impaired or insolvent insurer shall be made until and unless
24 the total amount of valid claims of the association for funds
25 expended in carrying out its powers and duties under section
26 7, with respect to such insurer, have been fully recovered by
27 the association.
28 (e) (1) If an order for liquidation or rehabilitation of an
29 insurer domiciled in this State has been entered, the
30 receiver appointed under such order shall have a right to
19770H0668B1302 - 22 -
1 recover on behalf of the insurer, from any affiliate that
2 controlled it, the amount of distributions, other than stock
3 dividends paid by the insurer on its capital stock, made at
4 any time during the five years preceding the petition for
5 liquidation or rehabilitation subject to the limitations of
6 paragraphs (2), (3) and (4).
7 (2) No such distribution shall be recoverable if the
8 insurer shows that when paid the distribution was lawful and
9 reasonable, in accordance with the standards of Article III
10 of the act of May 17, 1921 (P.L.682, No.284), known as "The
11 Insurance Company Law of 1921."
12 (3) A person who was an affiliate controlling the
13 insurer at the time the distributions were paid shall be
14 liable to the extent of the distributions received by him.
15 Whenever two persons are liable with respect to the same
16 distributions, they shall be jointly and severally liable.
17 (4) The maximum amount recoverable under this subsection
18 shall be the amount needed in excess of all other available
19 assets of the insolvent insurer to pay the contractual
20 obligations of the insolvent insurer.
21 (5) If any person liable under paragraph (3) is
22 insolvent, all the affiliates that controlled it at the time
23 the distribution was paid, shall be jointly and severally
24 liable for any resulting deficiency in the amount recovered
25 from the insolvent affiliate.
26 Section 13. 14. Examination of the association; annual report. <--
27 The association shall be subject to examination and
28 regulation by the commissioner. The board of directors shall
29 submit to the commissioner, not later than May 1 of each year, a
30 financial report for the preceding calendar year in a form
19770H0668B1302 - 23 -
1 approved by the commissioner and a report of its activities
2 during the preceding calendar year.
3 Section 14. 15. Tax exemptions. <--
4 The association shall be exempt from the payment of all fees
5 and taxes levied by this Commonwealth or any of its
6 subdivisions, except taxes levied on real property.
7 Section 15. 16. Immunity. <--
8 There shall be no liability on the part of and no cause of
9 action of any nature shall arise against any member insurer or
10 its agents or employees, the association or its agents or
11 employees, members of the board of directors, or the
12 commissioner or his representatives, for any action taken by
13 them in the performance of their powers and duties under this
14 act.
15 Section 16. 17. Stay of proceedings: reopening default judgments. <--
16 All proceedings in which the insolvent insurer is a party in
17 any court in this Commonwealth shall be stayed 90 days from the
18 date the insolvency is determined by the Commonwealth Court to
19 permit proper legal action by the association on any matters
20 germane to its powers or duties. As to any judgment against an
21 insolvent insurer in relation to a contractual obligation under
22 any decision, order, verdict, or finding based on default, the
23 association may apply to have such judgment set aside by the
24 same court that made such judgment and shall be permitted to
25 defend against such suit on the merits.
26 Section 17. 18. Prohibited advertisement of this act in sale of <--
27 insurance.
28 (a) No person, including an insurer, agent or affiliate of
29 an insurer shall make, publish, disseminate, circulate, or place
30 before the public, or cause directly or indirectly, to be made,
19770H0668B1302 - 24 -
1 published, disseminated, circulated or placed before the public,
2 in any newspaper, magazine or other publication, or in the form
3 of a notice, circular, pamphlet, letter or poster, or over any
4 radio station or television station, or in any other way, any
5 advertisement, announcement or statement which uses the
6 existence of the association for the purpose of sales,
7 solicitation, or inducement to purchase any form of insurance
8 covered by this act. This section shall not apply to the
9 Pennsylvania Life and Health Insurance Guaranty Association.
10 (b) Any person who violates the above prohibition may, after
11 notice and hearing and upon order of the commissioner, be
12 subject, at the discretion of the commissioner, to one or more
13 of the following:
14 (1) a monetary penalty of not more than $1,000 for each
15 act or violation but not to exceed an aggregate penalty of
16 $10,000; or
17 (2) suspension or revocation of his license or
18 certificate of authority.
19 Section 18. 19. Timely filing of claims. <--
20 Notwithstanding any other provision of this act, contractual
21 obligation shall not include a claim filed after the final date
22 set by the court for the filing of claims against the liquidator
23 of an insolvent insurer.
24 Section 19. 20. Nonduplication of recovery. <--
25 A person having a claim or benefit payment which may be
26 recovered under more than one insurance guaranty association or
27 its equivalent shall seek recovery first from the association of
28 the place of residence of the insured. A recovery under this act
29 shall be reduced by the amount of recovery from any other
30 insurance guaranty association or its equivalent.
19770H0668B1302 - 25 -
1 Section 20. 21. Assessments not burdens or prohibitions. <--
2 Assessments made by insurance guaranty associations or
3 similar entities pursuant to the laws of any other state shall
4 not be considered burdens or prohibitions under section 212 of
5 the act of May 17, 1921 (P.L.789, No.285), known as "The
6 Insurance Department Act of one thousand nine hundred and twenty
7 one."
8 Section 21. 22. Membership in the Pennsylvania Insurance Guaranty <--
9 Association and exemption from assessments.
10 (a) Insurers shall participate in and remain a member
11 insurer of the association as a condition of authority to write
12 life insurance policies, health and accident insurance policies,
13 or annuity contracts in this Commonwealth.
14 (b) A member insurer of the Pennsylvania Insurance Guaranty
15 Association shall no longer be subject to assessment by the
16 Pennsylvania Insurance Guaranty Association for covered claims,
17 as defined in section 103 of the act of November 25, 1970
18 (P.L.716, No.232), known as "The Pennsylvania Insurance Guaranty
19 Association Act," arising under health and accident policies,
20 endorsements, riders, and contracts supplemental thereto written
21 in this Commonwealth BY ANY MEMBER INSURER ADJUDICATED INSOLVENT <--
22 ON OR AFTER THE EFFECTIVE DATE OF THIS ACT BY A COURT OF
23 COMPETENT JURISDICTION OF THE INSOLVENT INSURER'S DOMICILIARY
24 STATE.
25 (c) A member of the Pennsylvania Life and Health Insurance
26 Guaranty Association who is also a member of the Pennsylvania
27 Insurance Guaranty Association under the act of November 25,
28 1970 (P.L.716, No. 232), known as "The Pennsylvania Insurance
29 Guaranty Association Act," solely because of health and accident
30 policies written within this Commonwealth may, by written notice
19770H0668B1302 - 26 -
1 to the Pennsylvania Insurance Guaranty Association, withdraw as
2 a member thereof and shall not be subject to any other
3 assessments by the Pennsylvania Insurance Guaranty Association.
4 Section 22. 23. Powers and duties of commissioner not limited. <--
5 The duties and powers of the commissioner as set forth in
6 this act are in addition to and not in limitation of any other
7 powers and duties of the commissioner prescribed by law.
8 Section 23. 24. Constitutionality. <--
9 If any provision or clause of this act or the application
10 thereof to any person or situation is held invalid, such
11 invalidity shall not affect other provisions or applications of
12 the act which can be given effect without the invalid provision
13 or application, and to this end the provisions of this act are
14 declared to be severable.
15 Section 24. 25. Effective date. <--
16 This act shall take effect immediately. IN 60 DAYS. <--
A27L37JS/19770H0668B1302 - 27 -