1Amending the act of May 17, 1921 (P.L.682, No.284), entitled "An
2act relating to insurance; amending, revising, and
3consolidating the law providing for the incorporation of
4insurance companies, and the regulation, supervision, and
5protection of home and foreign insurance companies, Lloyds
6associations, reciprocal and inter-insurance exchanges, and
7fire insurance rating bureaus, and the regulation and
8supervision of insurance carried by such companies,
9associations, and exchanges, including insurance carried by
10the State Workmen's Insurance Fund; providing penalties; and
11repealing existing laws," extensively revising provisions on
12life and health insurance guaranty associations; and making
13editorial changes.

14The General Assembly of the Commonwealth of Pennsylvania
15hereby enacts as follows:

16Section 1. Sections 1701 and 1702 of the act of May 17, 1921
17(P.L.682, No.284), known as The Insurance Company Law of 1921,
18added December 18, 1992 (P.L.1519, No.178), are amended to read:

19Section 1701. Purpose.--(a) The purpose of this article is
20to protect, subject to certain limitations, the persons
21specified in section 1703(a) against failure in the performance
22of contractual obligations, under life and health insurance
23policies and annuity contracts specified in section 1703(b),
24because of the impairment or insolvency of the member insurer

1that issued the policies or contracts.

2(b) To provide this protection, an association of insurers
3is created to pay benefits and to continue coverages as limited
4herein, and members of the association are subject to assessment
5to provide funds to carry out the purpose of this article.

6(c) This article shall be construed to effect the purpose
7set forth in subsection (a).

8Section 1702. Definitions.--As used in this article the
9following words and phrases shall have the meanings given to
10them in this section:

11"Account." [Any] Either of the two accounts created under
12section 1704.

13"Association." The Pennsylvania Life and Health Insurance
14Guaranty Association created under section 1704.

15"Authorized." In the context of assessments, an assessment
16is authorized when a resolution is passed by a board of
17directors.

18"Authorized assessment." A resolution by a board of
19directors that has been passed whereby an assessment will be
20called immediately or in the future from member insurers for a
21specified amount.

22"Benefit plan." A specific employe, union or association of
23natural persons benefit plan.

24"Called." In the context of assessments, an authorized
25assessment becomes a called assessment when notice is mailed by
26the association to member insurers.

27"Called assessment." A notice issued by an association to
28member insurers requiring that an authorized assessment be paid
29within the time frame set forth within the notice. An authorized
30assessment becomes a called assessment when notice is mailed by

1the association to member insurers.

2"Commissioner." The Insurance Commissioner of the
3Commonwealth.

4"Contractual obligation." Any obligation under a policy or
5contract or certificate under a group policy or contract or
6portion thereof for which coverage is provided under section
71703.

8"Covered policy." Any policy or contract [within the scope
9of this article] or portion of a policy or contract for which 
10coverage is provided under section 1703.

11"Department." The Insurance Department of the Commonwealth.

12"Employee Retirement Income Security Act of 1974" or "ERISA."
13The Employee Retirement Income Security Act of 1974 (Public Law
1493-406, 29 U.S.C. § 1001 et seq.).

15"Extra-contractual claims." Include, for example, claims
16relating to bad faith in the payment of claims, punitive or
17exemplary damages or attorney fees and costs.

18"Impaired insurer." A member insurer which, after the
19effective date of this article, is not an insolvent insurer
20and[:

21(1) is deemed by the Insurance Commissioner to be
22potentially unable to fulfill its contractual obligations; or

23(2)] is placed under an order of rehabilitation or
24conservation by a court of competent jurisdiction.

25"Insolvent insurer." A member insurer which, after the
26effective date of this article, is placed under an order of
27liquidation by a court of competent jurisdiction with a finding
28of insolvency.

29"Internal Revenue Code of 1986." The Internal Revenue Code
30of 1986 (Public Law 99-514, 26 U.S.C. § 1 et seq.).

1"Member insurer." [Any] An insurer licensed or which holds a
2certificate of authority to transact in this Commonwealth any
3kind of insurance for which coverage is provided under section
41703 and includes [any] an insurer whose license or certificate
5of authority in this Commonwealth may have been suspended,
6revoked, not renewed or voluntarily withdrawn. The term does not
7include any of the following:

8(1) A [nonprofit] hospital or medical service organization, 
9whether profit or nonprofit.

10(2) A health maintenance organization.

11(3) A fraternal benefit society.

12(4) A mandatory State pooling plan.

13(5) A mutual assessment company or any entity that operates
14on an assessment basis.

15(6) An insurance exchange.

16(6.1) An organization that issues only charitable gift
17annuities under the act of October 16, 1996 (P.L.712, No.127),
18known as the "Charitable Gift Annuity Exemption Act."

19(7) Any entity similar to any of the above.

20"Moody's Corporate Bond Yield Average." The Monthly Average
21Corporates as published by Moody's Investors Service, Inc., or
22any successor thereto.

23"Owner." A person who is identified as the legal owner under
24the terms of the policy or contract or who is otherwise vested
25with legal title to the policy or contract through a valid
26assignment completed in accordance with the terms of the policy
27or contract and properly recorded as the owner on the books of
28the insurer. The term does not include a person with a mere
29beneficial interest in a policy or contract.

30"Person." Any individual, corporation, limited liability
 

1company, partnership, association, governmental body or entity
2or voluntary organization.

3"Plan sponsor." Any of the following:

4(1) The employer in the case of a benefit plan established
5or maintained by a single employer.

6(2) The employe organization in the case of a benefit plan
7established or maintained by an employe organization.

8(3) In the case of a benefit plan established or maintained
9by two or more employers or jointly by one or more employers and
10one or more employe organizations, the association, committee,
11joint board of trustees or other similar group of
12representatives of the parties who establish or maintain the
13benefit plan.

14"Premiums." The amounts or considerations, by whatever name 
15called, received on covered policies or contracts less premiums,
16considerations and deposits returned thereon and less dividends
17and experience credits thereon. The term does not include any
18amounts or considerations received for any policies or contracts
19or for the portions of any policies or contracts for which
20coverage is not provided under section 1703(b) except that
21assessable premium shall not be reduced on account of sections
221703(b)(2)(iii) relating to interest limitations and [1703(c)(1)
23(ii)] 1703(c)(2) relating to limitations with respect to any one
24individual, any one participant and any one contract holder.
25[The term does not include any premiums in excess of five
26million ($5,000,000) dollars on any unallocated annuity contract
27not issued under a governmental retirement plan established
28under section 401, 403(b) or 457 of the Internal Revenue Code of
291986 (Public Law 99-514, 26 U.S.C. § 1 et seq.).] The term shall 
30not include:

1(1) Premiums in excess of five million ($5,000,000) dollars
2on an unallocated annuity contract not issued under a government
3retirement plan, or its trustee, established under section 401,
4403(b) or 457 of the Internal Revenue Code of 1986; or

5(2) With respect to multiple nongroup policies of life
6insurance owned by one owner, whether the policy owner is an
7individual, firm, corporation or other person, and whether the
8persons insured are officers, managers, employes or other
9persons, premiums in excess of five million ($5,000,000) dollars
10with respect to these policies or contracts, regardless of the
11number of policies or contracts held by the owner.

12"Principal place of business." Means the following:

13(1) Except as provided in paragraph (2), for a plan sponsor
14or a person other than a natural person, the single state in
15which the natural persons who establish policy for the
16direction, control and coordination of the operations of the
17entity as a whole primarily exercise that function, determined
18by the association in its reasonable judgment by considering the
19following factors:

20(i) the state in which the primary executive and
21administrative headquarters of the entity is located;

22(ii) the state in which the principal office of the chief
23executive officer of the entity is located;

24(iii) the state in which the board of directors, or similar
25governing person or persons of the entity, conducts the majority
26of its meetings;

27(iv) the state in which the executive or management
28committee of the board of directors, or similar governing person
29or persons of the entity, conducts the majority of its meetings;

30(v) the state from which the management of the overall

1operations of the entity is directed; and

2(vi) in the case of a benefit plan sponsored by affiliated
3companies comprising a consolidated corporation, the state in
4which the holding company or controlling affiliate has its
5principal place of business as determined using the factors in
6this paragraph.

7(2) In the case of a plan sponsor with more than 50% of the
8participants in the benefit plan employed in a single state,
9that state shall be deemed to be the principal place of business
10of the plan sponsor.

11(3) The principal place of business of a plan sponsor of a
12benefit plan described in paragraph (3) of the definition of
13"plan sponsor" shall be deemed to be the principal place of
14business of the association, committee, joint board of trustees
15or other similar group of representatives of the parties who
16establish or maintain the benefit plan, which, in lieu of a
17specific or clear designation of that principal place of
18business, shall then be deemed to be the principal place of
19business of the employer or employe organization that has the
20largest investment in the benefit plan in question.

21"Receivership court." The court in the insolvent or impaired
22insurer's state having jurisdiction over the conservation,
23rehabilitation or liquidation of the insurer.

24"Resident." Any person who resides in this Commonwealth [at
25the time a member insurer is determined to be an impaired or
26insolvent insurer and to whom a contractual obligation is owed.]
27and to whom a contractual obligation is owed on the date of 
28entry of a court order that determines a member insurer to be an 
29impaired insurer or a court order that determines a member 
30insurer to be an insolvent insurer. A person may be a resident

1of only one state, which, in the case of a person other than a
2natural person, shall be its principal place of business. A 
3citizen of the United States shall be deemed a resident of the 
4state of domicile of the insurer that issued the policies or 
5contracts if the citizen is either of the following:

6(1) a resident of a foreign country; or

7(2) a resident of a United States possession, territory or
8protectorate that does not have an association similar to the
9association created by this act.

10"State." A state, the District of Columbia, Puerto Rico and
11a United States possession, territory or protectorate.

12"Structured settlement annuity." An annuity purchased in
13order to fund periodic payments for a plaintiff or other
14claimant in payment for or with respect to personal injury
15suffered by the plaintiff or other claimant.

16"Supplemental contract." [Any] A written agreement entered
17into for the distribution of proceeds under a life, health or 
18annuity policy or contract [proceeds].

19"Unallocated annuity contract." [Any] An annuity contract or
20group annuity certificate which is not issued to and owned by an
21individual, except to the extent of any annuity benefits
22guaranteed to an individual by an insurer under such contract or
23certificate.

24Section 2. Section 1703 of the act, amended July 17, 2007
25(P.L.134, No.40), is amended to read:

26Section 1703. Coverage and Limitations.--(a) This article
27shall provide coverage [to the following persons] for the
28policies and contracts specified in subsection (b):

29(1) To persons who, regardless of where they reside, except
30for nonresident certificate holders under group policies or

1contracts, are the beneficiaries, assignees or payees of the
2persons covered under paragraph (2).

3(2) To persons who are owners of or certificate holders
4under these policies or contracts [or, in the case of], other 
5than unallocated annuity contracts, [to the persons who are the
6contract holders and who] and structured settlement annuities, 
7and in each case who:

8(i) are residents; or

9(ii) are not residents, but only under all of the following
10conditions:

11(A) the [insurers which] insurer that issued such policies
12or contracts [are] is domiciled in this Commonwealth;

13(B) [such insurers never held a license or certificate of
14authority in] the states in which [such] the persons reside[;

15(C) these states] have associations similar to the
16association created by this article; and

17[(D)] (C) [these] the persons are not eligible for coverage
18by [those associations.] an association in any other state due 
19to the fact that the insurer was not licensed in the state at 
20the time specified in the state's guaranty association law.

21(3) For unallocated annuity contracts specified in
22subsection (b), paragraphs (1) and (2) shall not apply, and this
23article shall, except as provided in paragraphs (5) and (6),
24provide coverage to:

25(i) persons who are the owners of the unallocated annuity
26contracts if the contracts are issued to or in connection with a
27specific benefit plan whose plan sponsor has its principal place
28of business in this State; and

29(ii) persons who are owners of unallocated annuity contracts
30issued to or in connection with government lotteries if the

1owners are residents.

2(4) For structured settlement annuities specified in
3subsection (b), paragraphs (1) and (2) shall not apply, and this
4article shall, except as provided in paragraphs (5) and (6),
5provide coverage to a person who is a payee under a structured
6settlement annuity, or beneficiary of a payee if the payee is
7deceased, if the payee:

8(i) is a resident, regardless of where the contract owner
9resides; or

10(ii) is not a resident, but only under both of the following
11conditions:

12(A) (I) the contract owner of the structured settlement
13annuity is a resident; or

14(II) the contract owner of the structured settlement annuity
15is not a resident, but:

16(aa) the insurer that issued the structured settlement
17annuity is domiciled in this Commonwealth; and

18(bb) the state in which the contract owner resides has an
19association similar to the association created by this article;

20(B) neither the payee, or beneficiary, nor the contract
21owner is eligible for coverage by the association of the state
22in which the payee or contract owner resides.

23(5) This article shall not provide coverage to:

24(i) a person who is a payee or beneficiary of a contract
25owner who is a resident of this Commonwealth, if the payee or
26beneficiary is afforded any coverage by the association of
27another state; or

28(ii) a person covered under paragraph (3), if any coverage
29is provided by the association of another state to the person.

30(6) This article is intended to provide coverage to a person

1who is a resident of this Commonwealth and, in special
2circumstances, to a nonresident. In order to avoid duplicate
3coverage, if a person who would otherwise receive coverage under
4this article is provided coverage under the laws of any other
5state the person shall not be provided coverage under this
6article. In determining the application of the provisions of
7this paragraph in situations where a person could be covered by
8the association of more than one state, whether as an owner,
9payee, beneficiary or assignee, this article shall be construed
10in conjunction with other state laws to result in coverage by
11only one association.

12(b) (1) This article shall provide coverage to the persons
13specified in subsection (a) for direct, nongroup life, health[,]
14or annuity [and supplemental] policies or contracts, for
15certificates under direct group policies and contracts and for 
16supplemental contracts to any of the policies or contracts 
17referenced in this sentence and for unallocated annuity
18contracts issued by member insurers, except as limited by this
19article. Annuity contracts and certificates under group annuity
20contracts include, but are not limited to, guaranteed investment
21contracts, deposit administration contracts, unallocated funding
22agreements, allocated funding agreements, structured settlement
23agreements, [lottery contracts] annuities issued to or in 
24connection with government lotteries and any immediate or
25deferred annuity contracts.

26(2) This article shall not provide coverage for any of the
27following:

28(i) [Any] A portion of a policy or contract not guaranteed
29by the insurer or under which the risk is borne by the policy or
30contract holder.

1(ii) [Any] A policy or contract of reinsurance, unless
2assumption certificates have been issued under the reinsurance 
3policy or contract.

4(iii) [Any] A portion of a policy or contract to the extent
5that the rate of interest on which it is based or the interest 
6rate, crediting rate or similar factor determined by use of an 
7index or other external reference stated in the policy or 
8contract employed in calculating returns or changes in value:

9(A) averaged over the period of four (4) years prior to the
10date on which the [association becomes obligated with respect to
11such policy or contract, exceeds a] member insurer becomes an 
12impaired or insolvent insurer under this article, whichever is 
13earlier, exceeds the rate of interest determined by subtracting
14two (2) percentage points from Moody's Corporate Bond Yield
15Average averaged for the same four-year period or for such
16lesser period if the policy or contract was issued less than
17four (4) years before the [association became obligated] member 
18insurer becomes an impaired or insolvent insurer under this 
19article, whichever is earlier; and

20(B) on and after the date on which the [association becomes
21obligated with respect to such policy or contract] member 
22insurer becomes an impaired or insolvent insurer under this 
23article, whichever is earlier, exceeds the rate of interest
24determined by subtracting three (3) percentage points from
25Moody's Corporate Bond Yield Average as most recently available.

26(iv) [Any] A portion of a policy or contract issued to a
27plan or program of an employer, association or [similar entity]
28other person to provide life, health or annuity benefits to its
29employes [or members], members or others to the extent that such
30plan or program is self-funded or uninsured, including, but not

1limited to, benefits payable by an employer, association or
2[similar entity] other person under:

3(A) a Multiple Employer Welfare Arrangement as defined in
4section [514] 3(40) of the Employee Retirement Income Security
5Act of 1974;

6(B) a minimum premium group insurance plan;

7(C) a stop-loss group insurance plan; or

8(D) an administrative services only contract.

9(v) [Any] A portion of a policy or contract to the extent
10that it provides [dividends] for:

11(A) dividends or experience rating credits [or provides
12that];

13(B) voting rights; or

14(C) payment of any fees or allowances to [be paid to] any
15person, including the [policyholder or contract holder] policy 
16owner or contract owner, in connection with the service to or
17administration of such policy or contract.

18(vi) [Any] A policy or contract issued in this Commonwealth
19by a member insurer at a time when it was not licensed or did
20not have a certificate of authority to issue such policy or
21contract in this Commonwealth.

22(vii) [Any] An unallocated annuity contract issued to [an]
23or in connection with an employe benefit plan protected under
24the Federal Pension Benefit Guaranty Corporation regardless of 
25whether the Federal Pension Benefit Guaranty Corporation has yet 
26become liable to make any payments with respect to the benefit 
27plan.

28(viii) [Any] A portion of [any] an unallocated annuity
29contract which is not issued to or in connection with a specific
30employe, union or association of natural persons benefit plan or

1a government lottery.

2(ix) A portion of a policy or contract to the extent that
3the assessments required under section 1707 with respect to the
4policy or contract are preempted by Federal or State law.

5(x) An obligation that does not arise under the express
6written terms of the policy or contract issued by the insurer to
7the contract owner or policy owner, including without
8limitation:

9(A) a claim based on marketing materials;

10(B) a claim based on a side letter, rider or other document
11that was issued by the insurer without meeting applicable policy
12form filing or approval requirements;

13(C) a misrepresentation of or regarding policy benefits;

14(D) an extra-contractual claim; or

15(E) a claim for penalties or consequential or incidental
16damages.

17(xi) A contractual agreement that establishes the member
18insurer's obligations to provide a book value accounting
19guaranty for defined contribution benefit plan participants by
20reference to a portfolio of assets that is owned by the benefit
21plan or its trustee, which in each case is not an affiliate of
22the member insurer.

23(xii) A portion of a policy or contract to the extent it
24provides for interest or other changes in value to be determined
25by the use of an index or other external reference stated in the
26policy or contract, but which have not been credited to the
27policy or contract, or as to which the policy or contract
28owner's rights are subject to forfeiture, as of the date the
29member insurer becomes an unpaired or insolvent insurer under
30this article, whichever is earlier. If a policy's or contract's

1interest or changes in value are credited less frequently than
2annually, then for purposes of determining the values that have
3been credited and are not subject to forfeiture under this
4subparagraph, the interest or change in value determined by
5using the procedures defined in the policy or contract will be
6credited as if the contractual date of crediting interest or
7changing values was the date of impairment or insolvency,
8whichever is earlier, and will not be subject to forfeiture.

9(xiii) A policy or contract providing any hospital, medical,
10prescription drug or other health care benefits under Part C of
11Title XVIII of the Social Security Act (49 Stat. 620, 42 U.S.C.
12§ 1395w-21 et seq.) or Part D of Title XVIII of the Social
13Security Act (49 Stat. 620, 42 U.S.C. § 1395w-101 et seq.)
14commonly known as Medicare Parts C and D or any regulations
15issued pursuant thereto.

16(c) [(1)] The benefits for which the association may become
17liable shall in no event exceed the lesser of:

18[(i)] (1) the contractual obligations for which the insurer
19is liable or would have been liable if it were not an impaired
20or insolvent insurer; or

21[(ii) (A)] (2) (i) With respect to [any] one life,
22regardless of the number of policies or contracts, the following
23shall apply:

24[(I)] (A) Three hundred thousand ($300,000) dollars in life
25insurance death benefits, but not more than one hundred thousand
26($100,000) dollars in net cash surrender and net cash withdrawal
27values for life insurance.

28[(II) Three hundred thousand ($300,000) dollars in] (B) In
29health insurance benefits[, including any net cash surrender and
30net cash withdrawal values.]:

1(I) Three hundred thousand ($300,000) dollars for disability
2insurance, long-term care insurance and health insurance other
3than basic hospital, medical and surgical insurance, or major
4medical insurance.

5(II) Three hundred thousand ($300,000) dollars for basic
6hospital, medical and surgical insurance, or major medical
7insurance.

8[(III) Three hundred thousand ($300,000)] (C) Two hundred 
9fifty thousand ($250,000) dollars in the present value of
10annuity benefits, including [one hundred thousand ($100,000)
11dollars in] net cash surrender and net cash withdrawal
12values[.]; or

13[(IV) Three hundred thousand ($300,000) dollars in long-term
14care insurance benefits, as defined under section 1103,
15including any cash surrender and net cash withdrawal values.]

16[(B)] (ii) With respect to each individual participating in
17a governmental retirement benefit plan established under section
18401, 403(b) or 457 of the Internal Revenue Code of 1986 covered
19by an unallocated annuity contract or the beneficiaries of each
20such individual if deceased, in the aggregate, [three hundred
21thousand ($300,000)] two hundred fifty thousand ($250,000)
22dollars in present value annuity benefits, including [one
23hundred thousand ($100,000) dollars in] net cash surrender and
24net cash withdrawal values.

25(iii) With respect to each payee of a structured settlement
26annuity, or beneficiary or beneficiaries of the payee if
27deceased, two hundred fifty thousand ($250,000) dollars in
28present value annuity benefits, in the aggregate, including net
29cash surrender and net cash withdrawal values, if any.

30(iv) The association shall not, however, be obligated to

1cover more than:

2(A) an aggregate of three hundred thousand ($300,000)
3dollars in benefits with respect to any one life under
4subparagraphs (i), (ii) and (iii); or

5(B) with respect to one owner of multiple nongroup policies
6of life insurance, whether the policy owner is an individual,
7firm, corporation or other person and whether the persons
8insured are officers, managers, employes or other persons, more
9than five million ($5,000,000) dollars in benefits, regardless
10of the number of policies and contracts held by the owner.

11(v) With respect to either:

12(A) one contract owner provided coverage under subsection
13(a)(3)(ii); or

14(B) one plan sponsor whose plans own directly or in trust
15one or more unallocated annuity contracts not included in
16paragraph (2)(ii), five million ($5,000,000) dollars in
17benefits, irrespective of the number of contracts with respect
18to the contract owner or plan sponsor. However, in the case
19where one or more unallocated annuity contracts are covered
20contracts under this article and are owned by a trust or other
21entity for the benefit of two (2) or more plan sponsors,
22coverage shall be afforded by the association if the largest
23interest in the trust or entity owning the contracts is held by
24a plan sponsor whose principal place of business is in this
25Commonwealth. The association shall not be obligated to cover
26more than five million ($5,000,000) dollars in benefits with
27respect to all of these unallocated contracts.

28(vi) The limitations set forth in this subsection are
29limitations on the benefits for which the association is
30obligated before taking into account either its subrogation and

1assignment rights or the extent to which those benefits could be
2provided out of the assets of the impaired or insolvent insurer
3attributable to covered policies. The costs of the association's
4obligations under this article may be met by the use of assets
5attributable to covered policies or reimbursed to the
6association pursuant to its subrogation and assignment rights.

7[(C) With respect to any one contract holder covered by any
8unallocated annuity contract not included in clause (B), five
9million ($5,000,000) dollars in benefits, irrespective of the
10number of such contracts held by that contract holder.

11(2) The association shall not, however, be liable to expend
12more than three hundred thousand ($300,000) dollars in the
13aggregate with respect to any one individual under subparagraph
14(ii)(A) and (B) of paragraph (1).]

15(d) In performing its obligations to provide coverage under
16section 1706.1, the association shall not be required to
17guarantee, assume, reinsure or perform, or cause to be
18guaranteed, assumed, reinsured or performed, the contractual
19obligations of the insolvent or impaired insurer under a covered
20policy or contract that do not materially affect the economic
21values or economic benefits of the covered policy or contract.

22Section 3. Section 1704 of the act, added December 18, 1992
23(P.L.1519, No.178), is amended to read:

24Section 1704. Creation of Association.--(a) There is hereby
25created a nonprofit, unincorporated association to be known as
26the Pennsylvania Life and Health Insurance Guaranty Association.
27All member insurers shall be and remain members of the
28association as a condition of their authority to transact
29insurance in this Commonwealth. The association shall perform
30its functions under the plan of operation established and

1approved under section 1708 and shall exercise its powers
2through a board of directors established under section 1705. For
3purposes of administration and assessment the association shall
4maintain two accounts:

5(1) The life insurance and annuity account which includes
6the following subaccounts:

7[(i) Life insurance account.

8(ii) Annuity account.

9(iii) Unallocated annuity account which shall include
10contracts qualified under section 403(b) of the Internal Revenue
11Code of 1986.]

12(i) life insurance account;

13(ii) annuity account that shall include annuity contracts
14owned by a governmental retirement plan, or its trustee,
15established under section 401, 403(b) or 457 of the Internal
16Revenue Code of 1986, but shall otherwise exclude unallocated
17annuities; and

18(iii) unallocated annuity account, which shall exclude
19contracts owned by a governmental retirement benefit plan, or
20its trustee, established under section 401, 403(b) or 457 of the
21Internal Revenue Code of 1986.

22(2) The health insurance account.

23(b) The association shall come under the immediate
24supervision of the commissioner and shall be subject to the
25applicable provisions of the insurance laws of this
26Commonwealth. Meetings or records of the association may be
27opened to the public upon majority vote of the board of
28directors of the association.

29Section 4. Section 1706 of the act, added December 18, 1992
30(P.L.1519, No.178), is repealed:

1[Section 1706. Powers and Duties of Association.--(a) If a
2member insurer is an impaired domestic insurer, the association
3may, in its discretion and subject to any conditions imposed by
4the association that do not impair the contractual obligations
5of the impaired insurer that are approved by the commissioner
6and that are, except in cases of court-ordered conservation or
7rehabilitation, also approved by the impaired insurer:

8(1) guarantee, assume or reinsure or cause to be guaranteed,
9assumed or reinsured any or all of the policies or contracts of
10the impaired insurer;

11(2) provide such moneys, pledges, notes, guarantees or other
12means as are proper to effectuate paragraph (1) and assure
13payment of the contractual obligations of the impaired insurer
14pending action under paragraph (1); or

15(3) loan money to the impaired insurer.

16(b) (1) If a member insurer is an impaired insurer, whether
17domestic, foreign or alien, and the insurer is not paying claims
18timely, then subject to the preconditions specified in paragraph
19(2), the association shall, in its discretion, either:

20(i) take any of the actions specified in subsection (a),
21subject to the conditions therein; or

22(ii) provide substitute benefits in lieu of the contractual
23obligations of the impaired insurer solely for health claims,
24periodic annuity benefit payments, death benefits, supplemental
25benefits and cash withdrawals for policy or contract owners who
26petition therefor under claims of emergency or hardship in
27accordance with standards proposed by the association and
28approved by the commissioner.

29(2) The association shall be subject to the requirements of
30paragraph (1) only if:

1(i) the laws of its state of domicile provide that until all
2payments of or on account of the impaired insurer's contractual
3obligations by all guaranty associations, along with all
4expenses thereof and interest on all such payments and expenses,
5shall have been repaid to the guaranty associations or a plan of
6repayment by the impaired insurer shall have been approved by
7the guaranty associations:

8(A) the delinquency proceeding shall not be dismissed;

9(B) neither the impaired insurer nor its assets shall be
10returned to the control of its shareholders or private
11management;

12(C) it shall not be permitted to solicit or accept new
13business or have any suspended or revoked license restored;

14(ii) in the case where the impaired insurer is a domestic
15insurer, it has been placed under an order of rehabilitation by
16a court of competent jurisdiction in this Commonwealth; or

17(iii) in the case where the impaired insurer is a foreign or
18alien insurer, it has been prohibited from soliciting or
19accepting new business in this Commonwealth, its certificate of
20authority has been suspended or revoked in this Commonwealth,
21and a petition for rehabilitation or liquidation has been filed
22in a court of competent jurisdiction in its state of domicile by
23the commissioner of the state.

24(c) If a member insurer is an insolvent insurer, the
25association shall, in its discretion, either:

26(1) guarantee, assume or reinsure or cause to be guaranteed,
27assumed or reinsured the policies or contracts of the insolvent
28insurer;

29(2) assure payment of the contractual obligations of the
30insolvent insurer and provide such moneys, pledges, guarantees

1or other means as are reasonably necessary to discharge such
2duties; or

3(3) with respect only to life and health insurance policies,
4provide benefits and coverages in accordance with subsection
5(d).

6(d) (1) When proceeding under subsection (b)(1)(ii) or (c)
7(3), the association shall, with respect to only life and health
8insurance policies, do all of the following:

9(i) Assure payment of benefits for premiums identical to the
10premiums and benefits (except for terms of conversion and
11renewability) that would have been payable under the policies of
12the insolvent insurer, for claims incurred as follows:

13(A) With respect to group policies, not later than the
14earlier of the next renewal date under such policies or
15contracts or forty-five (45) days, but in no event less than
16thirty (30) days, after the date on which the association
17becomes obligated with respect to such policies.

18(B) With respect to individual policies, not later than the
19earlier of the next renewal date (if any) under such policies or
20one year, but in no event less than thirty (30) days, from the
21date on which the association becomes obligated with respect to
22such policies.

23(ii) Make diligent efforts to provide all known insureds or
24group policyholders with respect to group policies thirty (30)
25days notice of the termination of the benefits provided.

26(iii) With respect to individual policies, make available to
27each known insured or owner if other than the insured, and with
28respect to an individual formerly insured under a group policy
29who is not eligible for replacement group coverage, make
30available substitute coverage on an individual basis in

1accordance with the provisions of paragraph (2), if the insureds
2had a right under law or the terminated policy to convert
3coverage to individual coverage or to continue an individual
4policy in force until a specified age or for a specified time,
5during which the insurer had no right unilaterally to make
6changes in any provision of the policy or had a right only to
7make changes in premium by class.

8(2) (i) In providing the substitute coverage required under
9paragraph (1)(iii), the association may offer either to reissue
10the terminated coverage or to issue an alternative policy.

11(ii) Alternative or reissued policies shall be offered
12without requiring evidence of insurability and shall not provide
13for any waiting period or exclusion that would not have applied
14under the terminated policy.

15(iii) The association may reinsure any alternative or
16reissued policy.

17(3) (i) Alternative policies adopted by the association
18shall be subject to the approval of the commissioner. The
19association may adopt alternative policies of various types for
20future issuance without regard to any particular impairment or
21insolvency.

22(ii) Alternative policies shall contain at least the minimum
23statutory provisions required in this Commonwealth and provide
24benefits that shall not be unreasonable in relation to the
25premium charged. The association shall set the premium in
26accordance with a table of rates which it shall adopt. The
27premium shall reflect the amount of insurance to be provided and
28the age and class of risk of each insured, but shall not reflect
29any changes in the health of the insured after the original
30policy was last underwritten.

1(iii) Any alternative policy issued by the association shall
2provide coverage of a type similar to that of the policy issued
3by the impaired or insolvent insurer, as determined by the
4association.

5(4) If the association elects to reissue terminated coverage
6at a premium rate different from that charged under the
7terminated policy, the premium shall be set by the association
8in accordance with the amount of insurance provided and the age
9and class of risk, subject to approval of the commissioner or by
10a court of competent jurisdiction.

11(5) The association's obligations with respect to coverage
12under any policy of the impaired or insolvent insurer or under
13any reissued or alternative policy shall cease on the date such
14coverage or policy is replaced by another similar policy by the
15policyholder, the insured or the association.

16(e) When proceeding under subsection (b)(1)(ii) or (c) with
17respect to any policy or contract carrying guaranteed minimum
18interest rates, the association shall assure the payment or
19crediting of a rate of interest consistent with section 1703(b)
20(2)(iii).

21(f) Nonpayment of premiums within thirty-one (31) days after
22the date required under the terms of any guaranteed, assumed,
23alternative or reissued policy or contract or substitute
24coverage shall terminate the association's obligations under
25such policy or coverage under this article with respect to such
26policy or coverage, except with respect to any claims incurred
27or any net cash surrender value which may be due in accordance
28with the provisions of this article.

29(g) Premiums due for coverage after entry of an order of
30liquidation of an insolvent insurer shall belong to and be

1payable at the direction of the association, and the association
2shall be liable for unearned premiums due to policy or contract
3owners arising after the entry of such order.

4(h) The protection provided by this article shall not apply
5where any guaranty protection is provided to residents of this
6Commonwealth by the laws of the domiciliary state or
7jurisdiction of the impaired or insolvent insurer other than
8this Commonwealth.

9(i) In carrying out its duties under subsections (b) and (c)
10and subject to approval by the court, the association may do the
11following:

12(1) Impose permanent policy or contract liens in connection
13with any guarantee, assumption or reinsurance agreement if the
14association finds that the amounts which can be assessed under
15this article are less than the amounts needed to assure full and
16prompt performance of the association's duties under this act or
17that the economic or financial conditions as they affect member
18insurers are sufficiently adverse to render the imposition of
19such permanent policy or contract liens to be in the public
20interest.

21(2) Impose temporary moratoriums or liens on payments of
22cash values and policy loans, or any other right to withdraw
23funds held in conjunction with policies or contracts, in
24addition to any contractual provisions for deferral of cash or
25policy loan value.

26(j) If the association fails to act within a reasonable
27period of time as provided in subsections (b)(1)(ii), (c) and
28(d), the commissioner shall have the powers and duties of the
29association under this article with respect to impaired or
30insolvent insurers.

1(k) The association may render assistance and advice to the
2commissioner, upon his request, concerning rehabilitation,
3payment of claims, continuance of coverage or the performance of
4other contractual obligations of any impaired or insolvent
5insurer.

6(l) The association shall have standing to appear before any
7court in this Commonwealth with jurisdiction over an impaired or
8insolvent insurer concerning which the association is or may
9become obligated under this article. Such standing shall extend
10to all matters germane to the powers and duties of the
11association, including, but not limited to, proposals for
12reinsuring, modifying or guaranteeing the policies or contracts
13of the impaired or insolvent insurer and the determination of
14the policies or contracts and contractual obligations. The
15association shall also have the right to appear or intervene
16before a court in another state with jurisdiction over an
17impaired or insolvent insurer for which the association is or
18may become obligated or with jurisdiction over a third party
19against whom the association may have rights through subrogation
20of the insurer's policyholders.

21(m) (1) Any person receiving benefits under this article
22shall be deemed to have assigned the rights under and any causes
23of action relating to the covered policy or contract to the
24association to the extent of the benefits received because of
25this article, whether the benefits are payments of or on account
26of contractual obligations, continuation of coverage or
27provision of substitute or alternative coverages. The
28association may require an assignment to it of such rights and
29cause of action by any payee, policy or contract owner,
30beneficiary, insured or annuitant as a condition precedent to

1the receipt of any rights or benefits conferred by this article
2upon such person.

3(2) The subrogation rights of the association under this
4subsection shall have the same priority against the assets of
5the impaired or insolvent insurer as that possessed by the
6person entitled to receive benefits under this article.

7(3) In addition to paragraphs (1) and (2), the association
8shall have all common law rights of subrogation and any other
9equitable or legal remedy which would have been available to the
10impaired or insolvent insurer or holder of a policy or contract
11with respect to such policy or contracts.

12(n) The association may do the following:

13(1) Enter into such contracts as are necessary or proper to
14carry out the provisions and purposes of this article.

15(2) Sue or be sued, including taking any legal actions
16necessary or proper to recover any unpaid assessments under
17section 1707 and to settle claims or potential claims against
18it.

19(3) Borrow money to effect the purposes of this article; any
20notes or other evidence of indebtedness of the association not
21in default shall be legal investments for domestic insurers and
22may be carried as admitted assets.

23(4) Employ or retain such persons as are necessary to handle
24the financial transactions of the association and perform such
25other functions as become necessary or proper under this
26article.

27(5) Take such legal action as may be necessary to avoid
28payment of improper claims.

29(6) Exercise, for the purposes of this article and to the
30extent approved by the commissioner, the powers of a domestic

1life or health insurer, but in no case may the association issue
2insurance policies or annuity contracts other than those issued
3to perform its obligations under this article.

4(o) The association may join an organization of one or more
5other state associations of similar purposes, to further the
6purposes and administer the powers and duties of the
7association.]

8Section 5. The act is amended by adding a section to read:

9Section 1706.1. Powers and Duties of Association.--(a) If a
10member insurer is an impaired insurer, the association may, in
11its discretion and subject to any conditions imposed by the
12association that do not impair the contractual obligations of
13the impaired insurer that are approved by the commissioner:

14(1) guarantee, assume or reinsure or cause to be guaranteed,
15assumed or reinsured any or all of the policies or contracts of
16the impaired insurer; and

17(2) provide such moneys, pledges, loans, notes, guarantees
18or other means as are proper to effectuate paragraph (1) and
19assure payment of the contractual obligations of the impaired
20insurer pending action under paragraph (1).

21(b) If a member insurer is an insolvent insurer, the
22association shall, in its discretion, either:

23(1) (i) guarantee, assume or reinsure or cause to be
24guaranteed, assumed or reinsured the policies or contracts of
25the insolvent insurer or assure payment of the contractual
26obligations of the insolvent insurer; and

27(ii) provide such moneys, pledges, loans, notes or
28guarantees, or other means as are reasonably necessary to
29discharge such duties; or

30(2) provide benefits and coverages in accordance with the

1following provisions:

2(i) With respect to life and health insurance policies and
3annuities, the association shall assure payment of benefits for
4premiums identical to the premiums and benefits, except for
5terms of conversion and renewability, that would have been
6payable under the policies or contracts of the insolvent
7insurer, for claims incurred as follows:

8(A) With respect to group policies and contracts, not later
9than the earlier of the next renewal date under such policies or
10contracts or forty-five (45) days, but in no event less than
11thirty (30) days, after the date on which the association
12becomes obligated with respect to the policies or contracts.

13(B) With respect to nongroup policies, contracts and
14annuities, not later than the earlier of the next renewal date,
15if any, under such policies or contracts or one year, but in no
16event less than thirty (30) days, from the date on which the
17association becomes obligated with respect to such policies or
18contracts.

19(ii) Make diligent efforts to provide all known insureds or
20annuitants for nongroup policies and contracts, or group policy
21owners with respect to group policies and contracts, thirty (30)
22days' notice of the termination under paragraph (2)(i) of the
23benefits provided.

24(iii) With respect to nongroup life and health insurance
25policies and annuities covered by the association, make
26available to each known insured or annuitant, or owner if other
27than the insured or annuitant, and with respect to an individual
28formerly insured or formerly an annuitant under a group policy
29who is not eligible for replacement group coverage, make
30available substitute coverage on an individual basis in

1accordance with the provisions of subparagraph (iv), if the
2insureds or annuitants had a right under law or the terminated
3policy or annuity to convert coverage to individual coverage or
4to continue an individual policy or annuity in force until a
5specified age or for a specified time, during which the insurer
6had no right unilaterally to make changes in any provision of
7the policy or annuity or had a right only to make changes in
8premium by class.

9(iv) (A) In providing the substitute coverage required
10under subparagraph (iii), the association may offer either to
11reissue the terminated coverage or to issue an alternative
12policy.

13(B) Alternative or reissued policies shall be offered
14without requiring evidence of insurability and shall not provide
15for any waiting period or exclusion that would not have applied
16under the terminated policy.

17(C) The association may reinsure any alternative or reissued
18policy.

19(v) (A) Alternative policies adopted by the association
20shall be subject to the approval of the domiciliary commissioner
21and the receivership court. The association may adopt
22alternative policies of various types for future issuance
23without regard to any particular impairment or insolvency.

24(B) Alternative policies shall contain at least the minimum
25statutory provisions required in this Commonwealth and provide
26benefits that shall not be unreasonable in relation to the
27premium charged. The association shall set the premium in
28accordance with a table of rates which it shall adopt. The
29premium shall reflect the amount of insurance to be provided and
30the age and class of risk of each insured, but shall not reflect

1any changes in the health of the insured after the original
2policy was last underwritten.

3(C) Any alternative policy issued by the association shall
4provide coverage of a type similar to that of the policy issued
5by the impaired or insolvent insurer, as determined by the
6association.

7(vi) If the association elects to reissue terminated
8coverage at a premium rate different from that charged under the
9terminated policy, the premium shall be set by the association
10in accordance with the amount of insurance provided and the age
11and class of risk, subject to approval of the domiciliary
12commissioner and the receivership court.

13(vii) The association's obligations with respect to coverage
14under any policy of the impaired or insolvent insurer or under
15any reissued or alternative policy shall cease on the date such
16coverage or policy is replaced by another similar policy by the
17policyowner, the insured or the association.

18(viii) When proceeding under subsection (b)(2) with respect
19to any policy or contract carrying guaranteed minimum interest
20rates, the association shall assure the payment or crediting of
21a rate of interest consistent with section 1703(b)(2)(iii).

22(c) Nonpayment of premiums within thirty-one (31) days after
23the date required under the terms of any guaranteed, assumed,
24alternative or reissued policy or contract or substitute
25coverage shall terminate the association's obligations under
26such policy or coverage under this article with respect to such
27policy or coverage, except with respect to any claims incurred
28or any net cash surrender value which may be due in accordance
29with the provisions of this article.

30(d) Premiums due for coverage after entry of an order of

1liquidation of an insolvent insurer shall belong to and be
2payable at the direction of the association, and the association
3shall be liable for unearned premiums due to policy or contract
4owners arising after the entry of such order.

5(e) The protection provided by this article shall not apply
6where any guaranty protection is provided to residents of this
7Commonwealth by the laws of the domiciliary state or
8jurisdiction of the impaired or insolvent insurer other than
9this Commonwealth.

10(f) In carrying out its duties under subsection (b) and
11subject to approval by a court of this Commonwealth, the
12association may do the following:

13(1) Impose permanent policy or contract liens in connection
14with any guarantee, assumption or reinsurance agreement if the
15association finds that the amounts which can be assessed under
16this article are less than the amounts needed to assure full and
17prompt performance of the association's duties under this
18article or that the economic or financial conditions as they
19affect member insurers are sufficiently adverse to render the
20imposition of such permanent policy or contract liens to be in
21the public interest.

22(2) Impose temporary moratoriums or liens on payments of
23cash values and policy loans, or any other right to withdraw
24funds held in conjunction with policies or contracts, in
25addition to any contractual provisions for deferral of cash or
26policy loan value. In addition, in the event of a temporary
27moratorium or moratorium charge imposed by the receivership
28court on payment of cash values or policy loans, or on any other
29right to withdraw funds held in conjunction with policies or
30contracts, out of the assets of the impaired or insolvent

1insurer, the association may defer the payment of cash values,
2policy loans or other rights by the association for the period
3of the moratorium or moratorium charge imposed by the
4receivership court, except for claims covered by the association
5to be paid in accordance with a hardship procedure established
6by the liquidator or rehabilitator and approved by the
7receivership court.

8(g) If the association fails to act within a reasonable
9period of time as provided in subsection (b), the commissioner
10shall have the powers and duties of the association under this
11article with respect to the insolvent insurer.

12(h) The association may render assistance and advice to the
13commissioner, upon his request, concerning rehabilitation,
14payment of claims, continuance of coverage or the performance of
15other contractual obligations of any impaired or insolvent
16insurer.

17(i) The association shall have standing to appear or
18intervene before a court or agency in this Commonwealth with
19jurisdiction over an impaired or insolvent insurer concerning
20whether the association is or may become obligated under this
21article or with jurisdiction over a person or property against
22which the association may have rights through subrogation or
23otherwise. Standing shall extend to all matters germane to the
24powers and duties of the association, including, but not limited
25to, proposals for reinsuring, modifying or guaranteeing the
26policies or contracts of the impaired or insolvent insurer and
27the determination of the policies or contracts and contractual
28obligations. The association shall also have the right to appear
29or intervene before a court or agency in another state with
30jurisdiction over an impaired or insolvent insurer for which the

1association is or may become obligated or with jurisdiction over
2a person against whom or any property against which the
3association may have rights through subrogation or otherwise.

4(j) (1) A person receiving benefits under this article
5shall be deemed to have assigned the rights under and any causes
6of action against any person for losses arising under, resulting
7from or otherwise relating to, the covered policy or contract to
8the association to the extent of the benefits received because
9of this article, whether the benefits are payments of or on
10account of contractual obligations, continuation of coverage or
11provision of substitute or alternative coverages. The
12association may require an assignment to it of such rights and
13causes of action by any payee, policy or contract owner,
14beneficiary, insured or annuitant as a condition precedent to
15the receipt of any rights or benefits conferred by this article
16upon such person.

17(2) The subrogation rights of the association under this
18subsection shall have the same priority against the assets of
19the impaired or insolvent insurer as that possessed by the
20person entitled to receive benefits under this article.

21(3) In addition to paragraphs (1) and (2), the association
22shall have all common law rights of subrogation and any other
23equitable or legal remedy which would have been available to the
24impaired or insolvent insurer or owner, beneficiary or payee of
25a policy or contract with respect to the policy or contracts,
26including without limitation, in the case of a structured
27settlement annuity, any rights of the owner, beneficiary or
28payee of the annuity to the extent of benefits received under
29this article, against a person originally or by succession
30responsible for the losses arising from the personal injury

1relating to the annuity or payment therefor, except a person
2responsible solely by reason of serving as an assignee in
3respect of a qualified assignment under section 130 of the
4Internal Revenue Code of 1986.

5(4) If the provisions of this subsection are invalid or
6ineffective with respect to a person or claim for any reason,
7the amount payable by the association with respect to the
8related covered obligations shall be reduced by the amount
9realized by any other person with respect to the person or claim
10that is attributable to the policies, or portion of policies,
11covered by the association.

12(5) If the association has provided benefits with respect to
13a covered obligation and a person recovers amounts as to which
14the association has rights as described in the preceding
15paragraphs of this subsection, the person shall pay to the
16association the portion of the recovery attributable to the
17policies, or portion of policies, covered by the association.

18(k) In addition to the rights and powers elsewhere in this
19article, the association may:

20(1) Enter into such contracts as are necessary or proper to
21carry out the provisions and purposes of this article.

22(2) Sue or be sued, including taking any legal actions
23necessary or proper to recover any unpaid assessments under
24section 1707 and to settle claims or potential claims against
25it.

26(3) Borrow money to effect the purposes of this article, and
27any notes or other evidence of indebtedness of the association
28not in default shall be legal investments for domestic insurers
29and may be carried as admitted assets.

30(4) Employ or retain such persons as are necessary to handle

1the financial transactions of the association and perform such
2other functions as become necessary or proper under this
3article.

4(5) Take such legal action as may be necessary or
5appropriate to avoid or recover payment of improper claims.

6(6) Exercise, for the purposes of this article and to the
7extent approved by the commissioner, the powers of a domestic
8life or health insurer, but in no case may the association issue
9insurance policies or annuity contracts other than those issued
10to perform its obligations under this article.

11(7) Organize itself as a corporation or in other legal form
12permitted by the laws of this Commonwealth.

13(8) Request information from a person seeking coverage from
14the association in order to aid the association in determining
15its obligations under this article with respect to the person,
16and the person shall promptly comply with the request.

17(9) Take other necessary or appropriate action to discharge
18its duties and obligations under this article or to exercise its
19powers under this article.

20(l) The association may join an organization of one or more
21other state associations of similar purposes, to further the
22purposes and administer the powers and duties of the
23association.

24(m) The following provisions shall apply to the association:

25(1) ????(i) At any time within one hundred eighty (180)
26days of the date of the order of liquidation, the association
27may elect to succeed to the rights and obligations of the ceding
28member insurer that relate to policies or annuities covered, in
29whole or in part, by the association, in each case under any one
30or more reinsurance contracts entered into by the insolvent

1insurer and its reinsurers and selected by the association. The
2assumption shall be effective as of the date of the order of
3liquidation. The election shall be effected by the association
4or the National Organization of Life and Health Insurance
5Guaranty Associations (NOLHGA) on its behalf sending written
6notice, return receipt requested, to the affected reinsurers.

7(ii) To facilitate the earliest practicable decision about
8whether to assume any of the contracts of reinsurance, and in
9order to protect the financial position of the estate, the
10receiver and each reinsurer of the ceding member insurer shall
11make available upon request to the association or to NOLHGA on
12its behalf as soon as possible after commencement of formal
13delinquency proceedings:

14(A) copies of in-force contracts of reinsurance and all
15related files and records relevant to the determination of
16whether the contracts should be assumed; and

17(B) notices of any defaults under the reinsurance contracts
18or any known event or condition with which the passage of time
19could become a default under the reinsurance contracts.

20(iii) The following shall apply to reinsurance contracts so
21assumed by the association:

22(A) The association shall be responsible for all unpaid
23premiums due under the reinsurance contracts for periods both
24before and after the date of the order of liquidation, and shall
25be responsible for the performance of all other obligations to
26be performed after the date of the order of liquidation, in each
27case which relate to policies of annuities covered, in whole or
28in part, by the association. The association may charge policies
29or annuities covered in part by the association, through
30reasonable allocation methods, the costs for reinsurance in

1excess of the obligations of the association and shall provide
2notice and an accounting of these charges to the liquidator.

3(B) The association shall be entitled to any amounts payable
4by the reinsurer under the reinsurance contracts with respect to
5losses or events that occur in periods after the date of the
6order of liquidation and that relate to policies or annuities
7covered, in whole or in part, by the association, provided that,
8upon receipt of the amounts, the association shall pay to the
9beneficiary under the policy or annuity on account of which the
10amounts were paid a portion of the amount equal to the lesser
11of:

12(I) the amount received by the association; or

13(II) the excess of the amount received by the association
14over the amount equal to the benefits paid by the association on
15account of the policy or annuity less the retention of the
16insurer applicable to the loss or event.

17(C) Within thirty (30) days following the association's
18election, the association and each reinsurer under contracts
19assumed by the association shall calculate the net balance due
20to or from the association under each reinsurance contract as of
21the election date with respect to policies or annuities covered,
22in whole or in part, by the association, which calculation shall
23give full credit to all items paid by either the insurer or its
24receiver or the reinsurer prior to the election date. The
25reinsurer shall pay the receiver any amounts due for losses or
26events prior to the date of the order of liquidation, subject to
27any set-off for premiums unpaid for periods prior to the date,
28and the association or reinsurer shall pay any remaining balance
29due the other, in each case within five (5) days of the
30completion of the calculation. A dispute over the amounts due to

1either the association or the reinsurer shall be resolved by
2arbitration pursuant to the terms of the affected reinsurance
3contracts or, if the contract contains no arbitration clause, as
4otherwise provided by law. If the receiver has received any
5amounts due the association under clause (B), the receiver shall
6remit the amounts to the association as promptly as practicable.

7(D) If the association or receiver, on the association's
8behalf within sixty (60) days of the election date, pays the
9unpaid premiums due for periods both before and after the
10election date that relate to policies or annuities covered, in
11whole or in part, by the association, the reinsurer shall not be
12entitled to terminate the reinsurance contracts for failure to
13pay premiums insofar as the reinsurance contracts relate to
14policies or annuities covered, in whole or in part, by the
15association, and shall not be entitled to set off any unpaid
16amounts due under other contracts, or unpaid amounts due from
17parties other than the association, against amounts due the
18association.

19(2) ???? During the period from the date of the order of
20liquidation until the election date, or, if the election date
21does not occur, until one hundred eighty (180) days after the
22date of the order of liquidation:

23(i) (A) The association and the reinsurer shall not have
24any rights or obligations under reinsurance contracts that the
25association has the right to assume under subsection (l),
26whether for periods prior to or after the date of the order of
27liquidation; and

28(B) the reinsurer, the receiver and the association shall to
29the extent practicable, provide each other data and records
30reasonably requested.

1(ii) Provided that the association has elected to assume a
2reinsurance contract, the parties' rights and obligations shall
3be governed by subsection (l).

4(3) If the association does not elect to assume a
5reinsurance contract by the election date under subsection (l),
6the association shall have no rights or obligations, in each
7case for periods both before and after the date of the order of
8liquidation, with respect to the reinsurance contract.

9(4) When policies or annuities, or covered obligations with
10respect to policies and annuities, are transferred to an
11assuming insurer, reinsurance on the policies or annuities may
12also be transferred by the association, in the case of contracts
13assumed under subsection (l), subject to the following:

14(i) unless the reinsurer and the assuming insurer agree
15otherwise, the reinsurance contract transferred shall not cover
16any new policies of insurance or annuities in addition to those
17transferred;

18(ii) the obligations described in subsection (l) shall no
19longer apply with respect to matters arising after the effective
20date of the transfer; and

21(iii) notice shall be given in writing, return receipt
22requested, by the transferring party to the affected reinsurer
23not less than thirty (30) days prior to the effective date of
24the transfer.

25(5) The provisions of this subsection shall supersede the
26provisions of any law or of any affected reinsurance contract
27that provides for or requires any payment of reinsurance
28proceeds, on account of losses or events that occur in periods
29after the date of the order of liquidation, to the receiver of
30the insolvent insurer or any other person. The receiver shall

1remain entitled to any amounts payable by the reinsurer under
2the reinsurance contracts with respect to losses or events that
3occur in periods prior to the date of the order of liquidation,
4subject to applicable setoff provisions.

5(6) Except as otherwise provided in this section, nothing in
6this subsection may:

7(i) alter or modify the terms and conditions of any
8reinsurance contract;

9(ii) abrogate or limit any rights of any reinsurer to claim
10that it is entitled to rescind a reinsurance contract and
11renumber remaining subsections;

12(iii) give a policyholder or beneficiary an independent
13cause of action against a reinsurer that is not otherwise set
14forth in the reinsurance contract;

15(iv) limit or affect the association's rights as a creditor
16of the estate against the assets of the estate; or

17(v) apply to reinsurance agreements covering property or
18casualty risks.

19(n) The board of directors of the association shall have
20discretion and may exercise reasonable business judgment to
21determine the means by which the association is to provide the
22benefits of this article in an economical and efficient manner.

23(o) Where the association has arranged or offered to provide
24the benefits of this article to a covered person under a plan or
25arrangement that fulfills the association's obligations under
26this article, the person shall not be entitled to benefits from
27the association in addition to or other than those provided
28under the plan or arrangement.

29(p) Venue in a suit against the association arising under
30this article shall be in Philadelphia County. The association

1shall not be required to give an appeal bond in an appeal that
2relates to a cause of action arising under this article.

3(q) In carrying out its duties in connection with
4guaranteeing, assuming or reinsuring policies or contracts under
5subsection (a) or (b), the association may, subject to approval
6of the receivership court, issue substitute coverage for a
7policy or contract that provides an interest rate, crediting
8rate or similar factor determined by use of an index or other
9external reference stated in the policy or contract employed in
10calculating returns or changes in value by issuing an
11alternative policy or contract in accordance with the following
12provisions:

13(1) in lieu of the index or other external reference
14provided for in the original policy or contract, the alternative
15policy or contract provides for the following:

16(i) a fixed interest rate;

17(ii) payment of dividends with minimum guarantees; or

18(iii) a different method for calculating interest or changes
19in value;

20(2) there is no requirement for evidence of insurability,
21waiting period or other exclusion that would not have applied
22under the replaced policy or contract; and

23(3) the alternative policy or contract is substantially
24similar to the replaced policy or contract in all other material
25terms.

26Section 6. Sections 1707, 1708, 1709, 1710, 1711, 1712, 1716
27and 1717 of the act, added December 18, 1992 (P.L.1519, No.178),
28are amended to read:

29Section 1707. Assessments.--(a) For the purpose of
30providing the funds necessary to carry out the powers and duties

1of the association, the board of directors shall assess the
2member insurers, separately for each account, at such time and
3for such amounts as the board finds necessary. Assessments shall
4be due not less than thirty (30) days after prior written notice
5to the member insurers and shall accrue interest at eight per
6centum (8%) per annum on and after the due date.

7(b) There shall be two assessments, as follows:

8(1) Class A assessments shall be [made] authorized and 
9called for the purpose of meeting administrative and legal costs
10and other expenses [and examinations conducted under the
11authority of section 1710(e)]. Class A assessments may be [made]
12authorized or called whether or not related to a particular
13impaired or insolvent insurer.

14(2) Class B assessments shall be [made] authorized or called
15to the extent necessary to carry out the powers and duties of
16the association under section [1706] 1706.1 with regard to an
17impaired or an insolvent insurer.

18(c) (1) The amount of [any] a Class A assessment shall be
19determined by the board and may be [made] authorized and called
20on a pro rata or non-pro rata basis. If pro rata, the board may
21provide that it be credited against future Class B assessments.
22[A non-pro rata assessment] The total of all pro rata 
23assessments shall not exceed [two hundred ($200)] three hundred 
24($300) dollars per member insurer in any one calendar year. The
25amount of any Class B assessment shall be allocated for
26assessment purposes among the accounts pursuant to an allocation
27formula which may be based on the premiums or reserves of the
28impaired or insolvent insurer or any other standard deemed by
29the board in its sole discretion as being fair and reasonable
30under the circumstances.

1(2) Class B assessments against member insurers for each
2account and subaccount shall be in the proportion that the
3premiums received on business in this Commonwealth by each
4assessed member insurer [for] on policies or contracts covered
5by each account for the three (3) most recent calendar years for
6which information is available preceding the year in which the
7insurer became [impaired or insolvent, as the case may be]
8insolvent or, in the case of an assessment with respect to an 
9impaired insurer, the three (3) most recent calendar years for 
10which information is available preceding the year in which the 
11insured became impaired, bears to such premiums received on
12business in this Commonwealth for such calendar years by all
13assessed member insurers.

14(3) Assessments for funds to meet the requirements of the
15association with respect to an impaired or insolvent insurer
16shall not be [made] authorized or called until necessary to
17implement the purposes of this article. Classification of
18assessments under subsection (b) and computation of assessments
19under this subsection shall be made with a reasonable degree of
20accuracy, recognizing that exact determinations may not always
21be possible.

22(d) The association may abate or defer, in whole or in part,
23the assessment of a member insurer if, in the opinion of the
24board, payment of the assessment would endanger the ability of
25the member insurer to fulfill its contractual obligations. In
26the event an assessment against a member insurer is abated, or
27deferred in whole or in part, the amount by which such
28assessment is abated or deferred may be assessed against the
29other member insurers in a manner consistent with the basis for
30assessments set forth in this section. Once the conditions that
 

1caused a deferral have been removed or rectified, the member 
2insurer shall pay all assessments that were deferred pursuant to 
3a repayment plan approved by the association.

4(e) (1) [The] (i) Subject to the provisions of 
5subparagraph (ii), the total of all assessments [upon a member
6insurer for the life] authorized by the association with respect 
7to a member insurer for each subaccount of the life insurance
8and annuity account and for [each subaccount thereunder shall
9not in any one (1) calendar year exceed two per centum (2%) and
10for] the health account shall not in [any] one (1) calendar year
11exceed two per centum (2%) of [such] that member insurer's
12average premiums received in this Commonwealth on the policies
13and contracts covered by the subaccount or account during the
14three (3) calendar years preceding the year in which the insurer
15became an impaired or insolvent insurer.

16(ii) If two (2) or more assessments are authorized in one
17calendar year with respect to insurers that become impaired or
18insolvent in different calendar years, the average annual
19premiums for purposes of the aggregate assessment percentage
20limitation referenced in subparagraph (i) shall be equal and
21limited to the higher of the three-year average annual premiums
22for the applicable subaccount or account as calculated pursuant
23to this section.

24(iii)  If the maximum assessment, together with the other
25assets of the association in any account, does not provide in
26any one (1) year in either account an amount sufficient to carry
27out the responsibilities of the association, the necessary
28additional funds shall be assessed as soon thereafter as
29permitted by this article.

30(2) The board may provide in the plan of operation a method

1of allocating funds among claims, whether relating to one or
2more impaired or insolvent insurers, when the maximum assessment
3will be insufficient to cover anticipated claims.

4(3) If [a one per centum (1%) assessment for any] the 
5maximum assessment for a subaccount of the life and annuity
6account in any one (1) year does not provide an amount
7sufficient to carry out the responsibilities of the association,
8then pursuant to subsection (c)(2), the board shall [access]
9assess all subaccounts of the life and annuity account for the
10necessary additional amount, subject to the maximum stated in
11subsection (e)(1).

12(f) The board may, by an equitable method as established in
13the plan of operation, refund to member insurers, in proportion
14to the contribution of each insurer to that account, the amount
15by which the assets of the account exceed the amount the board
16finds is necessary to carry out during the coming year the
17obligations of the association with regard to that account,
18including assets accruing from assignment, subrogation, net
19realized gains and income from investments. A reasonable amount
20may be retained in any account to provide funds for the
21continuing expenses of the association and for future [losses]
22claims.

23(g) It shall be proper for any member insurer, in
24determining its premium rates and [policyowner] policy owner
25dividends as to any kind of insurance within the scope of this
26article, to consider the amount reasonably necessary to meet its
27assessment obligations under this article, provided that such
28insurer has not elected to take tax credits as provided in
29section 1711(a).

30(h) The association shall issue to each insurer paying an

1assessment under this article, other than a class A assessment,
2a certificate of contribution, in a form prescribed by the
3commissioner, for the amount of the assessment so paid. All
4outstanding certificates shall be of equal dignity and priority
5without reference to amounts or dates of issue. A certificate of
6contribution may be shown by the insurer in its financial
7statement as an asset in such form and for such amount, if any,
8and period of time as the commissioner may approve.

9(i) (1) A member insurer that wishes to protest all or part
10of an assessment shall pay, when due, the full amount of the
11assessment as set forth in the notice provided by the
12association. The payment shall be available to meet association
13obligations during the pendency of the protest or any subsequent
14appeal. Payment shall be accompanied by a statement in writing
15that the payment is made under protest and setting forth a brief
16statement of the grounds for the protest.

17(2) Within sixty (60) days following the payment of an
18assessment under protest by a member insurer, the association
19shall notify the member insurer in writing of its determination
20with respect to the protest unless the association notifies the
21member insurer that additional time is required to resolve the
22issues raised by the protest.

23(3) Within thirty (30) days after a final decision has been
24made, the association shall notify the protesting member insurer
25in writing of that final decision. Within sixty (60) days of
26receipt of notice of the final decision, the protesting member
27insurer may appeal that final action to the commissioner.

28(4) In the alternative to rendering a final decision with
29respect to a protest based on a question regarding the
30assessment base, the association may refer protests to the

1commissioner for a final decision, with or without a
2recommendation from the association.

3(5) If the protest or appeal on the assessment is upheld,
4the amount paid in error or excess shall be returned to the
5member company. Interest on a refund due to ???? a protesting
6member shall be paid at the rate actually earned by the
7association.

8(j) The association may request information of member
9insurers in order to aid in the exercise of its power under this
10section and member insurers shall promptly comply with a
11request.

12Section 1708. Plan of Operation.--(a) (1) The association
13shall submit to the commissioner a plan of operation and any
14amendments thereto necessary or suitable to assure the fair,
15reasonable and equitable administration of the association. The
16plan of operation and any amendments thereto shall become
17effective upon the commissioner's written approval or unless he
18has not disapproved it within thirty (30) days.

19(2) If the association fails to submit a suitable plan of
20operation within one hundred twenty (120) days following the
21effective date of this article or if at any time thereafter the
22association fails to submit suitable amendments to the plan, the
23commissioner shall, after notice and hearing, adopt and
24promulgate such reasonable rules as are necessary or advisable
25to effectuate the provisions of this article. Such rules shall
26continue in force until modified by the commissioner or
27superseded by a plan submitted by the association and approved
28by the commissioner.

29(b) All member insurers shall comply with the plan of
30operation.

1(c) The plan of operation shall, in addition to requirements
2enumerated elsewhere in this article, contain the following:

3(1) Establish procedures for handling the assets of the
4association.

5(2) Establish the amount and method of reimbursing members
6of the board of directors under section 1705.

7(3) Establish regular places and times for meetings,
8including telephone conference calls of the board of directors.

9(4) Establish procedures for records to be kept of all
10financial transactions of the association, its agents and the
11board of directors.

12(5) Establish the procedures whereby selections for the
13board of directors will be made and submitted to the
14commissioner.

15(6) Establish any additional procedures for assessments
16under section 1707.

17(7) Contain additional provisions necessary or proper for
18the execution of the powers and duties of the association.

19(8) Establish procedures whereby a director may be removed
20for cause, including in the case where a member insurer director
21becomes an impaired or insolvent insurer.

22(9) Require the board of directors to establish policy and
23procedure for addressing conflicts of interests.

24(d) The plan of operation may provide that any or all powers
25and duties of the association, except those under sections
26[1706(n)(3)] 1706.1(k)(3) and 1707, are delegated to a
27corporation, association or other organization which performs or
28will perform functions similar to those of this association or
29its equivalent in two or more states. Such a corporation,
30association or organization shall be reimbursed for any payments

1made on behalf of the association and shall be paid for its
2performance of any function of the association. A delegation
3under this subsection shall take effect only with the approval
4of both the board of directors and the commissioner and may be
5made only to a corporation, association or organization which
6extends protection not substantially less favorable and
7effective than that provided by this article.

8Section 1709. Powers and Duties of the Commissioner.--(a)
9In addition to the powers and duties enumerated elsewhere in
10this article, the commissioner shall:

11(1) Upon request of the board of directors, provide the
12association with a statement of the premiums in this and any
13other appropriate states for each member insurer.

14(2) When an impairment is declared and the amount of the
15impairment is determined, serve a demand upon the impaired
16insurer to make good the impairment within a reasonable time;
17notice to the impaired insurer shall constitute notice to its
18shareholders, if any; the failure of the insurer to promptly
19comply with such demand shall not excuse the association from
20the performance of its powers and duties under this article.

21(3) In any liquidation or rehabilitation proceeding
22involving a domestic insurer, be appointed as the liquidator or
23rehabilitator.

24(b) The commissioner may suspend or revoke, after notice and
25hearing, the certificate of authority to transact insurance in
26this Commonwealth of any member insurer which fails to pay an
27assessment when due or fails to comply with the plan of
28operation. As an alternative, the commissioner may levy a
29forfeiture on any member insurer which fails to pay an
30assessment when due. Such forfeiture shall not exceed five per

1centum (5%) of the unpaid assessment per month, but no
2forfeiture shall be less than one hundred ($100) dollars per
3month.

4(c) [Any] A final action of the board of directors or the
5association may be appealed to the commissioner by [any] a
6member insurer if such appeal is taken within sixty (60) days of
7its receipt of the final action being appealed. [If a member
8company is appealing an assessment, the amount assessed shall be
9paid to the association and available to meet association
10obligations during the pendency of an appeal. If the appeal on
11the assessment is upheld, the amount paid in error or excess
12shall be returned to the member company. Any] A final action or
13order of the commissioner shall be subject to judicial review in
14a court of competent jurisdiction in accordance with the laws of 
15this Commonwealth that apply to the actions or orders of the 
16commissioner.

17(d) The liquidator, rehabilitator or conservator of any
18impaired or insolvent insurer may notify all interested persons
19of the effect of this article.

20Section 1710. Prevention of Insolvencies.--(a) To aid in
21the detection and prevention of insurer insolvencies or
22impairments, it shall be the duty of the commissioner:

23(1) To notify the commissioners of all the other states,
24territories of the United States and the District of Columbia
25when he takes any of the following actions against a member
26insurer:

27(i) revocation of license;

28(ii) suspension of license; or

29(iii) makes any formal order that such company restrict its
30premium writing, obtain additional contributions to surplus,

1withdraw from the Commonwealth, reinsure all or any part of its
2business or increase capital, surplus or any other account for
3the security of policyholders or creditors.

4This notice shall be mailed to all commissioners within thirty
5(30) days following the action taken or the date on which such
6action occurs.

7(2) To report to the board of directors when he has taken
8any of the actions set forth in paragraph (1) or has received a
9report from any other commissioner indicating that any such
10action has been taken in another state. Such report to the board
11of directors shall contain all significant details of the action
12taken or the report received from another commissioner.

13(3) To report to the board of directors when he has
14reasonable cause to believe from any examination, whether
15completed or in process, of any member company that such company
16may be an impaired or insolvent insurer.

17(4) To furnish to the board of directors the National
18Association of Insurance Commissioners' (NAIC) Insurance
19Regulatory Information System (IRIS) ratios and listing of
20companies not included in the ratios developed by the National
21Association of Insurance Commissioners, and the board may use
22the information contained therein in carrying out its duties and
23responsibilities under this section. Such report and the
24information contained therein shall be kept confidential by the
25board of directors until such time as made public by the
26commissioner or other lawful authority.

27(b) The commissioner may seek the advice and recommendations
28of the board of directors concerning any matter affecting his
29duties and responsibilities regarding the financial condition of
30member insurers and companies seeking admission to transact

1insurance business in this Commonwealth.

2(c) The board of directors may, upon majority vote, make
3reports and recommendations to the commissioner upon any matter
4germane to the solvency, liquidation, rehabilitation or
5conservation of any member insurer or germane to the solvency of
6any company seeking to do an insurance business in this
7Commonwealth. Such reports and recommendations shall not be
8considered public documents.

9(d) [It shall be the duty of the] The board of directors,
10may, upon majority vote, to notify the commissioner of any
11information indicating any member insurer may be an impaired or
12insolvent insurer.

13(e) (1) The board of directors may, upon majority vote,
14request that the commissioner order an examination of any member
15insurer which the board in good faith believes may be an
16impaired or insolvent insurer. Within thirty (30) days of the
17receipt of such request, the commissioner shall begin such
18examination. The examination may be conducted as a National
19Association of Insurance Commissioners examination or may be
20conducted by such persons as the commissioner designates. The
21cost of such examination shall be paid by the association, and
22the examination report shall be treated as are other examination
23reports. In no event shall such examination report be released
24to the board of directors prior to its release to the public,
25but this shall not preclude the commissioner from complying with
26subsection (a).

27(2) The commissioner shall notify the board of directors
28when the examination is completed. The request for an
29examination shall be kept on file by the commissioner, but it
30shall not be open to public inspection prior to the release of

1the examination report to the public.

2(f) The board of directors may, upon majority vote, make
3recommendations to the commissioner for the detection and
4prevention of insurer insolvencies.

5(g) The board of directors shall, at the conclusion of any
6insurer insolvency in which the association was obligated to pay
7covered claims, prepare a report to the commissioner containing
8such information as it may have in its possession bearing on the
9history and causes of such insolvency. The board shall cooperate
10with the boards of directors of guaranty associations in other
11states in preparing a report on the history and causes of
12insolvency of a particular insurer, and may adopt by reference
13any report prepared by such other associations.

14Section 1711. Credits for Assessments Paid.--(a) A member
15insurer may offset against its premium tax liability to this
16Commonwealth a proportionate part of the assessments described
17in section 1707 to the extent of twenty per centum (20%) of the
18amount of such assessment for each of the five (5) calendar
19years following the year in which such assessment was paid. In
20the event a member insurer should cease doing business, all
21uncredited assessments may be credited against its premium tax
22liability for the year it ceases doing business.

23(b) The proportionate part of an assessment which may be
24offset against a member company's premium tax liability to the
25Commonwealth shall be determined according to a fraction of
26which the denominator is the total premiums received by the
27company during the calendar year immediately preceding the year
28in which the assessment is paid and the numerator is that
29portion of the premiums received during such year on account of
30policies of life or health and accident insurance in which the

1premium rates are guaranteed during the continuance of the
2respective policies without a right exercisable by the company
3to increase said premium rates.

4(c) Any sums which are acquired by refund, pursuant to
5section 1707(f), from the association by member insurers, and
6which have theretofore been offset against premium taxes as
7provided in this section and are not then needed for the
8purposes of this act, shall be paid by such insurers to this
9Commonwealth in such manner as the tax authorities may require.
10The association shall notify the commissioner that such refunds
11have been made.

12(d) No offset against premium tax liability shall be
13permitted to the extent that a member insurer's rates or
14policyholder dividends have been adjusted as permitted in
15section 1707.

16Section 1712. Miscellaneous Provisions.--(a) Nothing in
17this article shall be construed to reduce the liability for
18unpaid assessments of the insureds of an impaired or insolvent
19insurer operating under a plan with assessment liability.

20(b) Records shall be kept of all [negotiations and meetings
21in which the association or its representatives are involved]
22meetings of the board of directors to discuss the activities of
23the association in carrying out its powers and duties under
24section [1706] 1706.1. [Records of such negotiations or meetings
25shall be made public only upon] The records of the association 
26with respect to an impaired or insolvent insurer shall not be 
27disclosed prior to the termination of a liquidation,
28rehabilitation or conservation proceeding involving the impaired
29or insolvent insurer, upon the termination of the impairment or
30insolvency of the insurer, [or] except upon the termination of
 

1the impairment or insolvency of the insurer, or upon the order
2of a court of competent jurisdiction. Nothing in this subsection
3shall limit the duty of the association to render a report of
4its activities under section 1713.

5(c) For the purpose of carrying out its obligations under
6this article, the association shall be deemed to be a creditor
7of the impaired or insolvent insurer to the extent of assets
8attributable to covered policies reduced by any amounts to which
9the association is entitled as subrogee pursuant to section
10[1706] 1706.1. Assets of the impaired or insolvent insurer
11attributable to covered policies shall be used to continue all
12covered policies and pay all contractual obligations of the
13impaired or insolvent insurer as required by this article.
14Assets attributable to covered policies, as used in this
15subsection, are that proportion of the assets which the reserves
16that should have been established for such policies bear to the
17reserves that should have been established for all policies of
18insurance written by the impaired or insolvent insurer.

19(d) As a creditor of the impaired or insolvent insurer as 
20established in subsection (c) and consistent with section 536 of 
21the act of May 17, 1921 (P.L.789, No.285), known as The 
22Insurance Department Act of 1921, the association and other 
23similar associations shall be entitled to receive a disbursement 
24of assets out of the marshaled assets, from time to time as the 
25assets become available to reimburse it, as a credit against 
26contractual obligations under this article. If the liquidator 
27has not, within one hundred twenty (120) days of a final 
28determination of insolvency of an insurer by the receivership 
29court, made an application to the court for the approval of a 
30proposal to disburse assets out of marshaled assets to guaranty
 

1associations having obligations because of the insolvency, then 
2the association shall be entitled to make application to the 
3receivership court for approval of its own proposal to disburse 
4these assets.

5(d.1) (1) Prior to the termination of any liquidation,
6rehabilitation or conservation proceeding, the court may take
7into consideration the contributions of the respective parties,
8including the association, the shareholders and [policyowners]
9policy owners of the insolvent insurer, and any other party with
10a bona fide interest, in making an equitable distribution of the
11ownership rights of such insolvent insurer. In such a
12determination, consideration shall be given to the welfare of
13the policyholders of the continuing or successor insurer.

14(2) No distribution to stockholders, if any, of an impaired
15or insolvent insurer shall be made until and unless the total
16amount of valid claims of the association with interest thereon
17for funds expended in carrying out its powers and duties under
18section [1706] 1706.1 with respect to such insurer have been
19fully recovered by the association.

20(e) (1) If an order for liquidation or rehabilitation of an
21insurer domiciled in this Commonwealth has been entered, the
22receiver appointed under such order shall have a right to
23recover on behalf of the insurer, from any affiliate that
24controlled it, the amount of distributions, other than stock
25dividends paid by the insurer on its capital stock, made at any
26time during the five (5) years preceding the petition for
27liquidation or rehabilitation subject to the limitations of
28paragraphs (2) to (4).

29(2) No such distribution shall be recoverable if the insurer
30shows that when paid the distribution was lawful and reasonable

1and that the insurer did not know and could not reasonably have
2known that the distribution might adversely affect the ability
3of the insurer to fulfill its contractual obligations.

4(3) Any person who was an affiliate that controlled the
5insurer at the time the distributions were paid shall be liable
6up to the amount of distributions he received. Any person who
7was an affiliate that controlled the insurer at the time the
8distributions were declared shall be liable up to the amount of
9distributions he would have received if they had been paid
10immediately. If two or more persons are liable with respect to
11the same distributions, they shall be jointly and severally
12liable.

13(4) The maximum amount recoverable under this subsection
14shall be the amount needed in excess of all other available
15assets of the insolvent insurer to pay the contractual
16obligations of the insolvent insurer.

17(5) If any person liable under paragraph (3) is insolvent,
18all its affiliates that controlled it at the time distribution
19was paid shall be jointly and severally liable for any resulting
20deficiency in the amount recovered from the insolvent affiliate.

21Section 1716. Stay of Proceedings and Reopening Default
22Judgments.--All proceedings in which the insolvent insurer is a
23party in any court in this Commonwealth shall be stayed [sixty
24(60)] one hundred eighty (180) days from the date an order of
25liquidation, rehabilitation or conservation is final to permit
26proper legal action by the association on any matters germane to
27its powers or duties. As to judgment under any decision, order,
28verdict or finding based on default, the association may apply
29to have such judgment set aside by the same court that made such
30judgment and shall be permitted to defend against such suit on

1the merits.

2Section 1717. Prohibited Advertisement [or] of Insurance
3Guaranty Association Act in Insurance Sales.--(a) No person,
4including an insurer, agent or affiliate of an insurer, shall
5make, publish, disseminate, circulate or place before the
6public, or cause, directly or indirectly, to be made, published,
7disseminated, circulated or placed before the public, in any
8newspaper, magazine or other publication, or in the form of a
9notice, circular, pamphlet, letter or poster, or over any radio
10station or television station, or in any other way, any
11advertisement, announcement or statement, written or oral, which
12uses the existence of the association for the purpose of sales,
13solicitation or inducement to purchase any form of insurance
14covered by this article, provided, however, that this section
15shall not apply to the association or any other entity which
16does not sell or solicit insurance.

17(b) Within one hundred eighty (180) days of the effective
18date of this article, the association shall prepare a summary
19document describing the general purposes and current limitations
20of the article and complying with subsection (c). This document
21should be submitted to the commissioner for approval. Sixty (60)
22days after receiving such approval, no insurer may deliver a
23policy or contract described in section 1703(b)(1) to a
24policyholder or contract holder, unless the document is
25delivered to the policyholder or contract holder prior to or at
26the time of delivery of the policy or contract except if
27subsection (d) applies. The document should also be available
28upon request by a policyholder. The distribution, delivery or
29contents or interpretation of this document shall not mean that
30either the policy or the contract or the holder thereof would be

1covered in the event of the impairment or insolvency of a member
2insurer. The description document shall be revised by the
3association as amendments to the article may require. Failure to
4receive this document does not give the policyholder, contract
5holder, certificate holder or insured any greater rights than
6those stated in this article.

7(c) The document prepared under subsection (b) shall contain
8a clear and conspicuous disclaimer on its face. The commissioner
9shall promulgate a regulation establishing the form and content
10of the disclaimer. The disclaimer shall:

11(1) State the name and address of the association and
12department.

13(2) Prominently warn the policyholder or contract holder
14that the association may not cover the policy or, if coverage is
15available, it will be subject to substantial limitations and
16exclusions and conditioned on continued residence in this
17Commonwealth.

18(3) State that the insurer and its agents are prohibited by
19law from using the existence of the association for the purpose
20of sales, solicitation or inducement to purchase any form of
21insurance.

22(4) Emphasize that the policyholder or contract holder
23should not rely on coverage under the association when selecting
24an insurer.

25(5) Provide other information as directed by the
26commissioner.

27(d) No insurer or agent may deliver a policy or contract
28described in section 1703(b)(1) and excluded under section
291703(b)(2) from coverage under this article unless the insurer
30or agent, prior to or at the time of delivery, gives the

1policyholder or contract holder a separate written notice which
2clearly and conspicuously discloses that the policy or contract
3is not covered by the association. The commissioner shall by
4regulation specify the form and content of the notice.

5Section 7. This act shall take effect immediately.