Chapter 442

2007 -- S 0234

Enacted 07/07/07

A N A C T

RELATING TO INSURANCE -- THE RHODE ISLAND LIFE AND HEALTH INSURANCE GUARANTY ASSOCIATION ACT

Introduced By: Senator Kevin A. Breene

Date Introduced: February 07, 2007

It is enacted by the General Assembly as follows:

     SECTION 1. Chapter 27-34.1 of the General Laws entitled "Rhode Island Life and

Health Insurance Guaranty Association Act" is hereby repealed in its entirety.

CHAPTER 27-34.1

Rhode Island Life and Health Insurance Guaranty Association Act

27-34.1-1. Short title. -- This chapter shall be known and may be cited as the "Rhode

Island Life and Health Insurance Guaranty Association Act".

27-34.1-2. Association of insurers. -- To provide protection for policyholders, the

insured, beneficiaries, annuitants, payees, and assignees of life insurance policies, health

insurance policies, annuity contracts, and supplemental contracts, subject to certain limitations,

against failure in the performance of contractual obligations due to the impairment or insolvency

of the insurer issuing the policies or contracts, an association of insurers is created to enable the

guaranty of payment of benefits and of continuance of coverage. Members of the association are

subject to assessment to provide funds within a reasonable amount of time to carry out the

purpose of this chapter and the association is authorized to assist the commissioner, in the

prescribed manner, in the detection and prevention of insurer impairments or insolvencies.

27-34.1-3. Applicability. -- (a) This chapter shall provide coverage under the policies

and contracts specified in subsection (b) of this section to:

(1) Persons who, regardless of where they reside, except nonresident certificate holders

under group policies or contracts, are the beneficiaries, assignees, or payees of the persons

covered under subdivision (2) of this subsection; and

(2) Persons who are owners of the policies or contracts or are insureds or annuitants

under the policies or contracts and who are:

(i) Residents of this state; or

(ii) Are not residents but are covered if all of the following conditions are met:

(A) The states in which they reside have associations similar to the associations created

by this chapter;

(B) They are not eligible for coverage by that association;

(C) The insurers which issued the policies or contracts never held a license in those

states; and

(D) The insurers are domiciled in this state.

(b) This chapter shall apply to direct life insurance policies, health insurance policies,

annuity contracts, and supplemental to life and health insurance policies and annuity contracts

issued by persons licensed to transact insurance in this state at any time.

(c) This chapter shall not apply to:

(1) That portion or part of a variable life insurance or variable annuity contract not

guaranteed by an insurer;

(2) That portion or part of any policy or contract under which the risk is borne by the

policyholder;

(3) Any policy or contract or part of a policy or contract assumed by the insolvent

insurer under a contract of reinsurance, other than reinsurance for which assumption certificates

have been insured, or any policy or contract by a nonprofit hospital or medical service

corporation or health maintenance organization; or

(4) Any transaction or combination of transactions between a protected cell and the

general account or another protected cell of a protected cell company organized under the

Protected Cell Companies Act, chapter 64 of this title, as those terms are defined in that Act.

27-34.1-4. Liberal construction. -- This chapter shall be liberally construed to effect the

purpose under section 27-34.1-2 which shall constitute an aid and guide to interpretation.

27-34.1-5. Definitions. -- As used in this chapter:

(1) "Account" means any of the three (3) accounts created under section 27-34.1-6;

(2) "Association" means the Rhode Island life and health insurance guaranty association

created under section 27-34.1-6;

(3) "Commissioner" means the insurance commissioner within the department of

business regulation in this state;

(4) "Contractual obligation" means any obligation under covered policies;

(5) "Covered policy" means any policy or contract within the scope of chapters 4, 18, 30,

31, and 32 of this title and fixed annuity contracts;

(6) "Insolvent insurer" means a member insurer that becomes insolvent and is placed

under an order of liquidation, rehabilitation, or conservation by a court of competent jurisdiction;

(7) "Member insurer" means any person licensed in this state to transact any kind of

contracts or policies to which this chapter applies;

(8) "Person" means any individual, corporation, partnership, association, or voluntary

organization;

(9) "Premiums" means direct gross insurance premiums and annuity considerations

received on covered policies, less return premiums and considerations on the policies and

dividends paid or credited to policyholders on that direct business. Premiums do not include

premiums and considerations on contracts between insurers and reinsurers; and

(10) "Resident" means any person who resides in this state at the time a member insurer

is determined to be an insolvent insurer and to whom contractual obligations are owed.

27-34.1-6. Creation of association -- Accounts -- Supervision. -- (a) There is created a

nonprofit legal entity to be known as the Rhode Island life and health insurance guaranty

association. All member insurers shall be and remain members of the association as a condition of

their authority to transact insurance in this state. The association shall perform its functions under

the plan of operation established and approved under section 27-34.1-11 and shall exercise its

powers through a board of directors established under section 27-34.1-8. For the purposes of

administration and assessment, the association shall maintain three (3) accounts:

(1) The accident and health insurance account;

(2) The life insurance account; and

(3) The annuity account.

(b) The association shall come under the immediate supervision of the commissioner and

shall be subject to the applicable provisions of the insurance laws of this state.

27-34.1-7. Determination and notice of insolvency. -- Upon the determination of the

state of domicile of an insurer that the insurer is insolvent, the commissioner shall require the

association to give prompt written notice of the insolvency by first class mail, at the insured's last

known address, to each insured of the insolvent insurer.

27-34.1-8. Board of directors. -- (a) The board of directors of the association shall

consist of not less than five (5) nor more than nine (9) members serving terms as established in

the plan of operation. The members of the board shall be selected by member insurers subject to

the approval of the commissioner. Vacancies on the board shall be filled for the remaining period

of the term by a majority vote of the remaining board members, subject to the approval of the

commissioner. To select the initial board of directors, and initially organize the association, the

commissioner shall give notice to all member insurers of the time and place of the organizational

meeting. In determining voting rights at the organizational meeting each member insurer shall be

entitled to one vote in person or by proxy. If the board of directors is not selected within sixty

(60) days after notice of the organizational meeting, the commissioner may appoint the initial

members.

(b) In approving selections or in appointing members to the board, the commissioner

shall consider, among other things, whether all member insurers are fairly represented.

(c) Members of the board may be reimbursed from the assets of the association for

expenses incurred by them as members of the board of directors but members of the board shall

not otherwise be compensated by the association for their services.

27-34.1-9. Powers. -- (a) In addition to the powers and duties enumerated in other

sections of this chapter:

(1) If a domestic insurer is an insolvent insurer, the association shall, subject to the

approval of the commissioner:

(i) Guarantee, assume, or reinsure or cause to be guaranteed, assumed, or reinsured the

covered policies of the insolvent insurer;

(ii) Assure payment of the contractual obligations of the insolvent insurer; and

(iii) Provide those monies, pledges, notes, guarantees, or other means reasonably

necessary to discharge those duties; and

(2) (i) If a foreign or alien insurer is an insolvent insurer, the association shall, subject to

the approval of the commissioner:

(A) Guarantee, assume, or reinsure or cause to be guaranteed, assumed, or reinsured the

covered policies of residents;

(B) Assure payment of the contractual obligations of the insolvent insurer to the

residents;

(C) Provide those monies, pledges, notes, guarantees, or other means reasonably

necessary to discharge those duties; and

(D) Loan money to the impaired insurer;

(ii) This subsection shall not apply where the commissioner has determined that the

foreign or alien insurer's domiciliary jurisdiction or state of entry provides, by statute, protection

substantially similar to that provided by this chapter for residents of this state.

(b) (1) In carrying out its duties under subsection (a) of this section, permanent policy

liens or contract liens may be imposed in connection with any guarantee, assumption, or

reinsurance if the court:

(i) Finds that the amounts which can be assessed under this chapter are less than the

amounts needed to assure full and prompt performance of the insolvent insurer's contractual

obligations, or that the economic or financial conditions as they affect member insurers are

sufficiently adverse to render the imposition of policy or contract liens, to be in the public

interest; and

(ii) Approves the specific policy liens or contract liens to be used;

(2) Before being obligated under subsection (a) of this section the association may

request that there be imposed temporary moratoriums or liens on payments of cash values and

policy loans in addition to any contractual provisions for deferral of cash or policy loan values,

and those temporary moratoriums and liens may be imposed if they are approved by the court.

(c) The association may render assistance and advice to the commissioner, upon his or

her request, concerning rehabilitation, payment of claims, continuance of coverage, or the

performance of other contractual obligations of any impaired or insolvent insurer.

(d) The association shall have standing to appear before any court in this state with

jurisdiction over an impaired or insolvent insurer concerning which the association is or may

become obligated under this chapter. That standing shall extend to all matters germane to the

powers and duties of the association, including, but not limited to, proposals for reinsuring or

guaranteeing the covered policies of the impaired or insolvent insurer and the determination of

the covered policies and contractual obligations.

(e) (1) Any person receiving benefits under this chapter shall be deemed to have

assigned the rights under the covered policy to the association to the extent of the benefits

received because of this chapter whether the benefits are payments of contractual obligations or

the continuation of coverage. The association may require an assignment to it of these rights by

any payee, policy or contract owner, beneficiary, insured, or annuitant as a condition precedent to

the receipt of any rights or benefits covered by this chapter upon that person. The association

shall be subrogated to these rights against the assets of any insolvent insurer;

(2) The subrogation rights of the association under this subsection shall have the same

priority against the assets of the insolvent insurer as that possessed by the person entitled to

receive benefits under this chapter.

(f) The contractual obligations of the insolvent insurer for which the association becomes

or may become liable shall be as great as but not greater than the contractual obligations of the

insolvent insurer would have been in the absence of an insolvency unless those obligations are

reduced as permitted by subsection (c) of this section, but the aggregate liability of the association

shall not exceed with respect to any one life:

(1) Three hundred thousand dollars ($300,000) in life insurance death benefits, but not

more than one hundred thousand dollars ($100,000) in net cash surrender and net cash withdrawal

for life insurance;

(2) One hundred thousand dollars ($100,000) in health insurance benefits, including any

net cash surrender and net cash withdrawal values;

(3) One hundred thousand dollars ($100,000) in the present value of annuity benefits,

including net cash surrender and net cash withdrawal values; and

(4) Three hundred thousand dollars ($300,000) for all life insurance, health insurance,

and annuity benefits, including net cash surrender and net cash withdrawal values.

(g) The association may:

(1) Enter into any contracts that are necessary or proper to carry out the provisions and

purposes of this chapter;

(2) Sue or be sued, including taking any legal actions necessary or proper for the

recovery of any unpaid assessments under section 27-34.1-10;

(3) Borrow money to effect the purposes of this chapter. Any notes or other evidence of

indebtedness of the association not in default shall be legal investments for domestic insurers and

may be carried as admitted assets;

(4) Employ or retain those persons necessary to handle the financial transactions of the

association, and to perform the other functions that become necessary or proper under this

chapter;

(5) Negotiate and contract with any liquidator, rehabilitator, conservator, or ancillary

receiver to carry out the powers and duties of the association;

(6) Take the legal action that may be necessary to avoid payment of improper claims;

and

(7) Exercise, for the purposes of this chapter and to the extent approved by the

commissioner, the powers of a domestic life or health insurer, but in no case may the association

issue insurance policies or annuity contracts other than those issued to perform the contractual

obligations of the impaired or insolvent insurer.

(h) If the association fails to act within a reasonable period of time as provided in

subsections (a)(2) and (b) of this section, the commissioner shall have the powers and duties of

the association under this chapter with respect to insolvent insurers.

27-34.1-10. Assessments. -- (a) For the purpose of providing the funds necessary to carry

out the powers and duties of the association, the board of directors shall assess the member

insurers, separately for each account, at the time and for the amounts that the board finds

necessary. Assessments shall be due not less than thirty (30) days after prior written notice to the

member insurers and shall accrue interest at nine percent (9%) per annum on and after the due

date.

(b) There shall be three (3) classes of assessments, as follows:

(1) Class A assessments shall be made for the purpose of meeting administrative costs

and other general expenses and examinations conducted under the authority of section 27-34.1-12

not related to a particular insolvent insurer;

(2) Class B assessments shall be made to the extent necessary to carry out the powers

and duties of the association under section 27-34.1-9 with regard to an insolvent domestic

insurers; and

(3) Class C assessments shall be made to the extent necessary to carry out the powers

and duties of the association under section 27-34.1-9 with regard to an insolvent foreign or alien

insurer.

(c) (1) The amount of any Class A assessment shall be determined by the board and may

be made on a non pro rata basis;

(2) A Class A assessment shall be credited against future insolvency assessments and

shall not exceed one hundred fifty dollars ($150) per company in any one calendar year. The

amount of any Class B or C assessment shall be allocated for assessment purposes among the

accounts in the proportion that the premiums received by the insolvent insurer on the policies

covered by each account for the last calendar year preceding the assessment in which the

insolvent insurer received premiums bears to the premiums received by the insolvent insurer for

the last calendar year on all covered policies;

(3) Class C assessments against member insurers for each account shall be the proportion

that the premiums received on business in this state by each assessed member insurer on policies

covered by each account for the calendar year preceding the assessment bears to those premiums

received on business in this state for the calendar year preceding the assessment by all assessed

member insurers;

(4) Class B assessments for each account shall be made separately for each state in

which the insolvent domestic insurer was authorized to transact insurance at any time, in the

proportion that the premiums received on business in that state by the insolvent insurer on

policies covered by each account for the last calendar year preceding the assessment in which the

insolvent insurer received premiums bears to those premiums received in all states for that

calendar year by the insolvent insurer. The assessments against member insurers shall be in the

proportion that the premiums received on business in each state by each assessed member insurer

on policies covered by each account for the calendar year preceding the assessment bears to those

premiums received on business in each state for the calendar year preceding the assessment by all

assessed member insurers;

(5) Assessments for funds to meet the requirements of the association with respect to an

insolvent insurer shall not be made until necessary to implement the purposes of this chapter.

Classification of assessments under subsection (b) of this section and computation of assessments

under this subsection shall be made with a reasonable degree of accuracy, recognizing that exact

determinations may not always be possible.

(d) The association may abate or defer, in whole or in part, the assessment of a member

insurer if, in the opinion of the board, payment of the assessment would endanger the ability of

the member insurer to fulfill its contractual obligations.

(e) In the event an assessment against a member insurer is abated or deferred, in whole

or in part, because of the limitations set forth in subsection (d) of this section, the amount by

which that assessment is abated or deferred shall be assessed against the other member insurers in

a manner consistent with the basis for assessments set forth in this section.

(f) The total of all assessments upon a member insurer for each account shall not in any

one calendar year exceed three percent (3%) of that insurer's premiums received in this state

during the calendar year preceding the assessment on the policies covered by the account. If the

maximum assessment, together with the other assets of the association in any of the accounts,

does not provide in any one year in any of the accounts an amount sufficient to carry out the

responsibilities of the association, the necessary additional funds shall be assessed as soon

thereafter as permitted by this chapter.

(g) It shall be proper for any member insurer, in determining its premium rates and

policy owner dividends as to any kind of insurance within the scope of this chapter, to consider

the amount reasonably necessary to meet its assessment obligations under this chapter.

(h) The association shall issue to each insurer paying an assessment under this chapter

other than a Class A assessment a certificate of contribution, in a form prescribed by the

commissioner, for the amount of the assessment so paid. All outstanding certificates shall be of

equal dignity and priority without reference to amounts or dates of issue. A certificate of

contribution may be shown by the insurer in its financial statement as an asset in the form and for

the amount, if any, and for the period of time that the commissioner may approve.

(i) The board may, by an equitable method as established in the plan of operation, refund

to member insurers, in proportion to the contribution of each insurer to that account, the amount

by which the assets of the account exceed the amount the board finds is necessary to carry out

during the coming year the obligations of the association with regard to that account, including

assets accruing from net realized gains and income from investments. A reasonable amount may

be retained in any account to provide funds for the continuing expenses of the association and for

future losses if refunds are impractical.

27-34.1-11. Plan of operation. -- (a) The association shall submit to the commissioner a

plan of operation and any amendments to the plan necessary or suitable to assure the fair,

reasonable, and equitable administration of the association. The plan of operation and any

amendments to it shall become effective upon approval in writing by the commissioner.

(b) If the association fails to submit a suitable plan of operation or if the association fails

to submit suitable amendments to the plan, the commissioner shall, after notice and hearing,

adopt and promulgate the reasonable rules that are necessary or advisable to effectuate the

provisions of this chapter. Those rules shall continue in force until modified by the commissioner

or superseded by a plan submitted by the association and approved by the commissioner.

(c) All member insurers shall comply with the plan of operation.

(d) The plan of operation shall, in addition to requirements enumerated in this chapter:

(1) Establish procedures for handling the assets of the association;

(2) Establish the amount and method of reimbursing members of the board of directors

under section 27-34.1-8;

(3) Establish regular places and times for meetings of the board of directors;

(4) Establish procedures for records to be kept of all financial transactions of the

association and its agents and board of directors;

(5) Establish the procedures by which selections for the board of directors will be made

and submitted to the commissioner;

(6) Establish any additional procedures for assessments under section 27-34.1-10; and

(7) Contain additional provisions necessary or proper for the execution of the powers and

duties of the association.

(e) The plan of operation may provide that any or all powers and duties of the

association, except those under section 27-34.1-10, are delegated to a corporation, association, or

other organization which performs or will perform functions similar to those of the association, or

its equivalent, in two (2) or more states. That a corporation, association, or organization shall be

reimbursed for any payments made on behalf of the association and shall be paid for its

performance of any function of the association. A delegation under this subsection shall take

effect only with the approval of both the board of directors and the commissioner, and may be

made only to a corporation, association, or organization which extends protection not

substantially less favorable and effective than that provided by this chapter.

27-34.1-12. Duties of commissioner. -- (a) In addition to the duties and powers

enumerated in this chapter, the commissioner shall:

(1) Notify the board of directors of the existence of an insolvent insurer not later than

three (3) days after a determination of insolvency is made or the commissioner receives notice of

insolvency;

(2) Upon request of the board of directors, provide the association with a statement of

the premiums in the appropriate states for each member insurer; and

(3) In any liquidation or rehabilitation proceeding involving a domestic insurer, be

appointed as the liquidator or rehabilitator. If a foreign or alien member insurer is subject to an

insolvency proceeding in its domiciliary jurisdiction or state of entry, the commissioner shall be

appointed ancillary receiver.

(b) The commissioner may suspend or revoke, after notice and hearing, the certificate of

authority to transact insurance business in this state of any member insurer which fails to pay an

assessment when due or fails to comply with the plan of operation. As an alternative, the

commissioner may levy a forfeiture on any member insurer which fails to pay an assessment

when due. That forfeiture shall not exceed five percent (5%) of the unpaid assessment per month,

but no forfeiture shall be less than one hundred dollars ($100) per month.

(c) Any action of the board of directors or the association may be appealed to the

commissioner by any member insurer if that appeal is taken within thirty (30) days of the action

being appealed. Any final action or order of the commissioner shall be subject to judicial review

in the superior court of Providence county.

(d) The liquidator, rehabilitator, conservator, or receiver of any insolvent insurer may

notify all interested persons of the effect of this chapter.

27-34.1-13. Prevention of insolvencies. -- (a) To aid in the detection and prevention of

insurer insolvencies, the commissioner may, at his or her discretion:

(1) (i) Notify the commissioners of all the other states, territories of the United States,

and the District of Columbia when the commissioner takes any of the following actions against a

member insurer:

(A) Revocation of license;

(B) Suspension of license; or

(C) Making any formal order that any company restrict its premium writing, obtain

additional contributions to surplus, withdraw from the state, reinsure all or any part of its

business, or increase capital, surplus, or any other account for the security of policyholders or

creditors;

(ii) The notice shall be mailed to all commissioners within thirty (30) days following the

action taken or the date on which the action occurs;

(2) Report to the board of directors when the commissioner has taken any of the actions

set forth in subdivision (1) of this subsection or has received a report from any other

commissioner indicating that these actions have been taken in another state. The report to the

board of directors shall contain all significant details of the action taken or the report received

from another commissioner;

(3) Report to the board of directors when he or she has reasonable cause to believe from

any examination, whether completed or in process, of any member company that that company

may be an insolvent insurer; and

(4) Furnish to the board of directors the NAIC early warning tests developed by the

National Association of Insurance Commissioners, and the board may use the information

contained in the tests in carrying out its duties and responsibilities under this section. The report

and the information contained in it shall be kept confidential by the board of directors until the

time it is made public by the commissioner or other lawful authority.

(b) The commissioner may seek the advice and recommendations of the board of

directors concerning any matter affecting the commissioner's duties and responsibilities regarding

the financial condition of member companies and companies seeking admission to transact

insurance business in this state.

(c) The board of directors may, upon a majority vote, make reports and

recommendations to the commissioner upon any matter germane to the solvency, liquidation,

rehabilitation, or conservation of any member insurer or germane to the solvency of any company

seeking to do an insurance business in this state. Those reports and recommendations shall not be

considered public documents.

(d) It shall be the duty of the board of directors, upon a majority vote, to notify the

commissioner of any information indicating that any member insurer may be an insolvent insurer.

Within thirty (30) days of the receipt of that request, the commissioner shall begin an

examination. The examination may be conducted as a National Association of Insurance

Commissioners examination or may be conducted by the persons that the commissioner

designates. The cost of the examination shall be paid by the association and the examination

report shall be treated as are other examination reports. The commissioner shall notify the board

of directors when the examination is completed. The request for an examination shall be kept on

file by the commissioner, but it shall not be open to the public.

(e) The board of directors may, upon a majority vote, make recommendations to the

commissioner for the detection and prevention of insurer insolvencies.

(f) The board of directors shall, at the conclusion of any insurer insolvency in which the

association was obligated to pay covered claims, prepare a report to the commissioner containing

any information it may have in its possession bearing on the history and causes of that

insolvency. The board shall cooperate with the boards of directors of guaranty associations in

other states in preparing a report on the history and causes for insolvency of a particular insurer,

and may adopt by reference any report prepared by those other associations.

27-34.1-14. Credits for assessments paid. -- (a) A member insurer may offset against its

premium, franchise, or income tax liability or liabilities to this state an assessment described in

section 27-34.1-10(h) to the extent of ten percent (10%) of the amount of that assessment for each

of the five (5) calendar years following the year in which that assessment was paid. In the event a

member insurer should cease doing business, all uncredited assessments may be credited against

its premium, franchise, or income tax liability or liabilities for the year it ceases doing business.

(b) Any sums acquired by refund, pursuant to section 27-34.1-10(i) from the association,

which have previously been written off by contributing insurers and offset against premium,

franchise, or income taxes as provided in subsection (a) of this section, and which are not then

needed for the purposes of this chapter, shall be paid by the association to the commissioner and

by him or her deposited with the state treasurer for credit to the general fund of this state.

27-34.1-15. Special deputy to supervise liquidation, rehabilitation, or conservation. -

- The association may recommend a natural person to serve as a special deputy to act for the

commissioner and under the commissioner's supervision in the liquidation, rehabilitation, or

conservation of any member insurer consistent with the provisions of chapter 14.3 of this title.

27-34.1-16. Liability for unpaid assessments -- Records -- Use of assets of insolvent

insurer -- Distributions. -- (a) Nothing in this chapter shall be construed to reduce the liability

for the unpaid assessments of the insured of an insolvent insurer operating under a plan with

assessment liability.

(b) Records shall be kept of all negotiations and meetings in which the association or its

representatives are involved to discuss the activities of the association in carrying out its powers

and duties under section 27-34.1-9. Records of those negotiations or meetings shall be made

public only upon the termination of a liquidation, rehabilitation, or conservation proceeding

involving the insolvent insurer, upon the termination of the insolvency of the insurer, or upon the

order of a court of competent jurisdiction. Nothing in this subsection shall limit the duty of the

association to render a report of its activities under the provisions of this chapter.

(c) For the purposes of carrying out its obligations under this chapter, the association

shall be deemed to be a creditor of the insolvent insurer to the extent of the assets attributable to

covered policies reduced by any amounts to which the association is entitled as subrogee pursuant

to the provisions of this chapter. Assets of the insolvent insurer attributable to covered policies

shall be used to continue all covered policies and pay all contractual obligations of the insolvent

insurer as required by this chapter. Assets attributable to covered policies, as used in this

subsection, are deemed to be that proportion of the assets which the reserves that should have

been established for covered policies bear to the reserves that should have been established for all

policies of insurance written by the insolvent insurer.

(d) (1) Prior to the termination of any liquidation, rehabilitation, or conservation

proceeding, the court may take into consideration the contributions of the respective parties,

including the association, the shareholders, and policy owners of the insolvent insurer, and any

other party with a bona fide interest, in making an equitable distribution of the ownership rights

of the insolvent insurer. In that determination, consideration shall be given to the welfare of the

policyholders of the continuing or successor insurer;

(2) No distribution to stockholders, if any, of an insolvent insurer shall be made until and

unless the total amount of valid claims of the association with respect to that insurer has been

fully recovered by the association.

(e) It shall be a prohibited unfair trade practice for any person to make use in any manner

of the protection afforded by this chapter in the sale of insurance.

(f) (1) If an order for liquidation or rehabilitation of an insurer domiciled in this state has

been entered, the receiver appointed under that order shall have a right to recover on behalf of the

insurer, from any affiliate that controlled it, the amount of distributions, other than stock

dividends paid by the insurer on its capital stock, made at any time during the five (5) years

preceding the petition for liquidation or rehabilitation subject to the limitations of subdivisions (2)

-- (4) of this subsection;

(2) No dividend shall be recoverable if the insurer shows that when paid the distribution

was lawful and reasonable, and that the insurer did not know and could not reasonably have

known that the distribution might adversely affect the ability of the insurer to fulfill its

contractual obligations;

(3) Any person who was an affiliate that controlled the insurer at the time the

distributions were paid shall be liable up to the amount of distributions that person received. Any

person who was an affiliate that controlled the insurer at the time the distributions were declared

shall be liable up to the amount of distributions that person would have received if they had been

paid immediately. If two (2) persons are liable with respect to the same distributions, they shall be

jointly and severally liable;

(4) The maximum amount recoverable under this subsection shall be the amount needed

in excess of all other reasonable assets of the insolvent insurer to pay the contractual obligations

of the insolvent insurer;

(5) If any person under subdivision (3) of this subsection is insolvent, all of its affiliates

that controlled it at the time the dividend was paid shall be jointly and severally liable for any

resulting deficiency in the amount recovered from the insolvent affiliates.

27-34.1-17. Examination and regulation of association -- Reports. -- The association

shall be subject to examination and regulation by the commissioner. Not later than May first of

each year, the association shall submit a financial report for the preceding calendar year in a form

approved by the commissioner and a report of its activities during the preceding calendar year.

27-34.1-18. Exemption from fees and taxes. -- The association shall be exempt from the

payment of all fees and all taxes levied by this state or any of its subdivisions, except taxes levied

on real property.

27-34.1-19. Immunity. -- There shall be no liability on the part of, and no cause of action

of any nature shall arise against, any member insurer or its agents or employees, the association

or its agents or employees, the members of the board of directors, or the commissioner or his or

her representatives, for any action taken by them in the performance of their powers and duties

under this chapter.

27-34.1-20. Stay of proceedings in which insolvent insurer a party -- Default

judgments. -- (a) All proceedings in which the insolvent insurer is a party in any court in this

state shall be stayed sixty (60) days from the date an order of liquidation, rehabilitation, or

conservation is final to permit proper legal action by the association on any matters germane to its

powers or duties.

(b) As to a judgment under any decision, order, verdict, or finding based on default, the

association may apply to have the default judgment set aside by the same court that made the

default judgment and shall be permitted to defend against the suit on the merits.

     SECTION 2. Section 27-34.3-14 of the General Laws in Chapter 27-34.3 entitled "Rhode

Island Life and Health Insurance Guaranty Association Act" is hereby amended to read as

follows:

27-34.3-14. Miscellaneous provisions. -- (a) This chapter shall be construed to reduce

the liability for unpaid assessments of the insureds of an impaired or insolvent insurer operating

under a plan with assessment liability; provided, however, this chapter shall not be construed to

reduce the liability for unpaid assessments of the insureds of an impaired or insolvent insurer

operating under a plan with assessment liability prior to January 1, 1996.

      (b) Records shall be kept of all meetings of the board of directors to discuss the activities

of the association in carrying out its powers and duties under section 27-34.3-8. The records of

the association with respect to an impaired or insolvent insurer shall not be disclosed prior to the

termination of a liquidation, rehabilitation or conservation proceeding involving the impaired or

insolvent insurer, upon the termination of the impairment or insolvency of the insurer, or upon the

order of a court of competent jurisdiction. Nothing in this subsection shall limit the duty of the

association to render a report of its activities under section 27-34.3-15.

      (c) For the purpose of carrying out its obligations under this chapter, the association shall

be deemed to be a creditor of the impaired or insolvent insurer to the extent of assets attributable

to covered policies reduced by any amounts to which the association is entitled as subrogee

pursuant to section 27-34.3-8(k). Assets of the impaired or insolvent insurer attributable to

covered policies shall be used to continue all covered policies and pay all contractual obligations

of the impaired or insolvent insurer as required by this chapter. Assets attributable to covered

policies, as used in this subsection, are that proportion of the assets which the reserves that should

have been established for covered policies bear to the reserves that should have been established

for all policies of insurance written by the impaired or insolvent insurer.

      (d) As a creditor of the impaired or insolvent insurer as established in subsection (c) of

this section and consistent with section 27-14.3-38, the association and other similar associations

shall be entitled to receive a disbursement of assets out of the marshalled assets, from time to time

as the assets become available to reimburse it, as a credit against contractual obligations under

this chapter. If the liquidator has not, within one hundred twenty (120) days of a final

determination of insolvency of an insurer by the receivership court, made an application to the

court for the approval of a proposal to disperse assets out of marshalled assets to guaranty

associations having obligations because of the insolvency, then the association shall be entitled to

make application to the receivership court for approval of its own proposal to disburse these

assets.

      (e) (1) Prior to the termination of any liquidation, rehabilitation or conservation

proceeding, the court may take into consideration the contributions of the respective parties,

including the association, the shareholders, and policy owners of the insolvent insurer, and any

other party with a bona fide interest, in making an equitable distribution of the ownership rights

of the insolvent insurer. In that determination, consideration shall be given to the welfare of the

policy owners of the continuing or successor insurer.

      (2) No distribution to stockholders, if any, of an impaired or insolvent insurer shall be

made until and unless the total amount of valid claims of the association with interest on the

claims for funds expended in carrying out its powers and duties under section 27-34.3-8 with

respect to the insurer have been fully recovered by the association.

      (f) (1) If an order for liquidation or rehabilitation of an insurer domiciled in this state has

been entered, the receiver appointed under the order shall have a right to recover on behalf of the

insurer, from any affiliate that controlled it, the amount of distributions, other than stock

dividends paid by the insurer on its capital stock, made at any time during the five (5) years

preceding the petition for liquidation or rehabilitation subject to the limitations of subdivisions (2)

-- (4) of this subsection.

      (2) No distribution shall be recoverable if the insurer shows that when paid the

distribution was lawful and reasonable, and that the insurer did not know and could not

reasonably have known that the distribution might adversely affect the ability of the insurer to

fulfill its contractual obligations.

      (3) Any person who was an affiliate that controlled the insurer at the time the

distributions were paid shall be liable up to the amount of distributions received. Any person who

was an affiliate who controlled the insurer at the time the distributions were declared, shall be

liable up to the amount of distributions which would have been received if they had been paid

immediately. If two (2) or more persons are liable with respect to the same distributions, they

shall be jointly and severally liable.

      (4) The maximum amount recoverable under this subsection shall be the amount needed

in excess of all other available assets of the insolvent insurer to pay the contractual obligations of

the insolvent insurer.

      (5) If any person liable under subdivision (3) of this subsection is insolvent, all its

affiliates that controlled it at the time the distribution was paid, shall be jointly and severally

liable for any resulting deficiency in the amount recovered from the insolvent affiliate.

     SECTION 3. This act shall take effect upon passage.

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LC01125

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