Chapter 158

2009 -- H 5771 SUBSTITUTE A

Enacted 07/16/09

 

A N A C T

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

 

     Introduced By: Representative Robert A. Watson

     Date Introduced: February 26, 2009

 

It is enacted by the General Assembly as follows:

 

     SECTION 1. Sections 27-34.3-3, 27-34.3-8, 27-34.3-9, 27-34.3-10, 27-34.3-11, 27-34.3-

14 and 27-34.3-18 of the General Laws in Chapter 27-34.3 entitled "Rhode Island Life and Health

Insurance Guaranty Association Act" are hereby amended to read as follows:

 

     27-34.3-3. Coverage and limitations. -- (a) This chapter shall provide coverage for the

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

      (1) To persons who, regardless of where they reside (except for nonresident certificate

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

persons covered under subsection (2); and

      (2) To persons who are owners of or certificate holders under the policies or contracts

(other than unallocated annuity contracts, and structured settlement annuities) and in each case

who:

      (i) Are residents; or

      (ii) Are not residents, but only under all of the following conditions:

      (A) The insurer that issued the policies or contracts is domiciled in this state;

      (B) The states in which the persons reside have associations similar to the association

created by this chapter; and

      (C) The persons are not eligible for coverage by an association in any other state due to

the fact that the insurer was not licensed in the state at the time specified in the state's guaranty

association law.

      (3) For unallocated annuity contracts set forth in subsection (b) of this section,

paragraphs (1) and (2) of this subsection shall not apply, and this chapter shall (except as

provided in paragraphs (5) and (a)(6) of this subsection) provide coverage to:

      (i) Persons who are owners of the unallocated annuity contracts if the contracts are

issued to or in connection with a specific benefit plan whose plan sponsor has its principal place

of business in this state; and

      (ii) Persons who are owners of unallocated annuity contracts issued to or in connection

with government lotteries if the owners are residents.

      (4) For structured settlement annuities specified in subsection (b)(1), paragraphs (1) and

(2) of this subsection shall not apply, and this chapter shall (except as provided in paragraphs (5)

and (6) of this subsection) provide coverage to a person who is a payee under a structured

settlement annuity (or beneficiary of a payee if the payee is deceased), if the payee:

      (i) Is a resident, regardless of where the contract owner resides; or

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

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

      (II) The contract owner of the structured settlement annuity is not a resident but the

insurer that issued the structured settlement annuity is domiciled in this state; and

      The state in which the contract owner resides has an association similar to the

association created by this chapter; and

      (B) Neither the payee or beneficiary, nor the contract owner is eligible for coverage by

the association of the state in which the payee or contract owner resides.

      (5) This chapter shall not provide coverage to:

      (i) A person who is a payee or beneficiary of a contract owner resident of this state, if the

payee or beneficiary is afforded any coverage by the association of another state; or

      (ii) A person covered under paragraph (3) of this subsection, if any coverage is provided

by the association of another state to the person.

      (6) This chapter is intended to provide coverage to a person who is a resident of this state

and, in special circumstances, to a nonresident. In order to avoid duplicate coverage, if a person

who would otherwise receive coverage under this chapter is provided coverage under the laws of

any other state, the person shall not be provided coverage under this chapter. In determining the

application of the provisions of this paragraph in situations where a person could be covered by

the association of more than one state, whether as an owner, payee, beneficiary, or assignee, this

chapter shall be construed in conjunction with other state laws to result in coverage by only one

association.

      (b) (1) This chapter shall provide coverage to the persons specified in subsection (a) of

this section for direct, non-group life, health, or annuity policies or contracts and supplemental

policies or contracts to any of these, for certificates under direct group policies and contracts, and

for unallocated annuity contracts issued by member insurers, except as limited by this chapter.

Annuity contracts and certificates under group annuity contracts include, but are not limited to,

guaranteed investment contracts, deposit administration contracts, unallocated funding

agreements, allocated funding agreements, structured settlement annuities, annuities issued to or

in connection with government lotteries and any immediate or deferred annuity contracts.

      (2) This chapter shall not provide coverage for:

      (i) A portion of a policy or contract not guaranteed by the insurer, or under which the

risk is borne by the policy or contract owner;

      (ii) A policy or contract of reinsurance, unless assumption certificates have been issued

pursuant to the reinsurance policy or contract;

      (iii) A portion of a policy or contract to the extent that the rate of interest on which it is

based, or the interest rate, crediting rate or similar factor determined by use of an index or other

external reference stated in the policy or contract employed in calculating returns or changes in

value:

      (A) Averaged over the period of four (4) years prior to the date on which the member

insurer becomes an impaired or insolvent insurer under this chapter, whichever is earlier, exceeds

the rate of interest determined by subtracting two (2) percentage points from Moody's corporate

bond yield average averaged for that same four-year (4) period or for such lesser period if the

policy or contract was issued less than four (4) years before the member insurer becomes an

impaired or insolvent insurer under this chapter, whichever is earlier; and

      (B) On and after the date on which the member insurer becomes an impaired or insolvent

insurer under this chapter, whichever is earlier, exceeds the rate of interest determined by

subtracting three (3) percentage points from Moody's corporate bond yield average as most

recently available;

      (iv) A portion of a policy or contract issued to a plan or program of an employer,

association or other person to provide life, health or annuity benefits to its employees, members

or others to the extent that the plan or program is self-funded or uninsured, including but not

limited to benefits payable by an employer, association or other person under:

      (A) A multiple employer welfare arrangement as defined in 29 U.S.C. section 1144;

      (B) A minimum premium group insurance plan;

      (C) A stop-loss group insurance plan; or

      (D) An administrative services only contract;

      (v) A portion of a policy or contract to the extent that it provides for:

      (A) Dividends or experience rating credits;

      (B) Voting rights; or

      (C) Payment of any fees or allowances to any person, including the policy or contract

owner, in connection with the service to or administration of the policy or contract.

      (vi) A policy or contract issued in this state by a member insurer at a time when it was

not licensed or did not have a certificate of authority to issue the policy or contract in this state;

      (vii) An unallocated annuity contract issued to or in connection with a benefit plan

protected under the federal pension benefit guaranty corporation, regardless of whether the

federal pension benefit guaranty corporation has yet become liable to make any payments with

respect to the benefit plan;

      (viii) A portion of unallocated annuity contract that is not issued to or in connection with

a specific employee, union or association of natural persons benefit plan or a government lottery;

      (ix) A portion of a policy or contract to the extent that the assessments required by

section 27-34.3-9 with respect to the policy or contract are preempted by federal or state law; and

      (x) An obligation that does not arise under the express written terms of the policy or

contract issued by the insurer to the contract owner or policy owner, including, without limitation:

      (A) Claims based on marketing materials;

      (B) Claims based on side letters, riders or other documents that were issued by the

insurer without meeting applicable policy form filing or approval requirements;

      (C) Misrepresentations of or regarding policy benefits;

      (D) Extracontractual claims; or

      (E) A claim for penalties or consequential or incidental damages;

      (xi) A contractual agreement that establishes the member insurer's obligations to provide

a book value accounting guaranty for defined contribution benefit plan participants by reference

to a portfolio of assets that is owned by the benefit plan or its trustee, which in each case is not an

affiliate of the member insurer;

      (xii) A portion of a policy or contract to the extent it provides for interest or other

changes in value to be determined by the use of an index or other external reference stated in the

policy or contract, but which have not been credited to the policy or contract, or as to which the

policy or contract owner's rights are subject to forfeiture, as of the date the member insurer

becomes an impaired or insolvent insurer under this chapter, whichever is earlier. If a policy's or

contract's interest or changes in value are credited less frequently than annually, then, for

purposes of determining the values that have been credited and are not subject to forfeiture under

this paragraph, the interest or change in value determined by using the procedures defined in the

policy or contract will be credited as if the contractual date of crediting interest or changing

values was the date of impairment or insolvency, whichever is earlier, and will not be subject to

forfeiture; and

      (xiii) 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 chapter 64

of this title.; or

     (xiv) A policy or contract providing any hospital, medical, prescription drug or other

health care benefits pursuant to Part C or Part D of subchapter XVIII, chapter 7 of title 42 of the

United States Code (commonly known as Medicare part C & D) or any regulations issued

pursuant thereto.

      (c) The benefits that the association may become obligated to cover shall in no event

exceed the lesser of:

      (1) The contractual obligations for which the insurer is liable or would have been liable

if it were not an impaired or insolvent insurer; or

      (2) (i) With respect to any one life, regardless of the number of policies or contracts:

      (A) 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

values for life insurance;

      (B) In health insurance benefits:

      (I) One hundred thousand dollars ($100,000) for coverages not considered as disability

insurance or basic hospital, medical and surgical insurance or major medical insurance or long-

term care insurance, including any net cash surrender and net cash withdrawal values;

      (II) Three hundred thousand dollars ($300,000) for disability insurance and three

hundred thousand dollars ($300,000) for long-term care insurance;

      (III) Five hundred thousand dollars ($500,000) for basic hospital, medical and surgical

insurance; or

      (C) One hundred thousand dollars ($100,000) Two hundred fifty thousand dollars

($250,000) in the present value of annuity benefits, including net cash surrender and net cash

withdrawal values;

      (ii) With respect to each individual participating in a governmental retirement plan

established under section 401, 403(b) or 457 of the U.S. Internal Revenue Code, 26 U.S.C.

section 401, 403(b) or 457, covered by an unallocated annuity contract or the beneficiaries of

each such individual if deceased, in the aggregate, one hundred thousand dollars ($100,000) Two

hundred fifty thousand dollars ($250,000) in present value annuity benefits, including net cash

surrender and net cash withdrawal values;

      (iii) With respect to each payee of a structured settlement annuity or beneficiary or

beneficiaries, of the payee if deceased, one hundred thousand dollars ($100,000) two hundred

fifty thousand dollars ($250,000) in present value annuity benefits, in the aggregate, including net

cash surrender and net cash withdrawal values if any;

      (iv) However in no event shall the association be obligated to cover more than: (A) an

aggregate of three hundred thousand dollars ($300,000) in benefits with respect to any one life

under this paragraph and paragraphs (i), (ii) and (iii) of this subdivision except with respect to

benefits for basic hospital, medical and surgical insurance and major medical insurance under

subparagraph 2(i)(B) of this subsection, in which case the aggregate liability of the association

shall not exceed five hundred thousand dollars ($500,000) with respect to any one individual; or

(B) with respect to one owner of multiple non-group policies of life insurance, whether the policy

owner is an individual, firm, corporation or other person, and whether the persons insured are

officers, managers, employees or other persons, more than five million dollars ($5,000,000) in

benefits, regardless of the number of policies and contracts held by the owner;

      (v) With respect to either: (A) one contract owner provided coverage under subsection

(a)(3)(i); or (B) one plan sponsor whose plans own directly or in trust any one or more

unallocated annuity contracts not included in paragraph (ii) of this subdivision, five million

dollars ($5,000,000) in benefits, irrespective of the number of contracts with respect to the

contract owner or plan sponsor. Provided, however, in the case where one or more unallocated

annuity contracts that are covered contracts under this chapter and are owned by a trust or other

entity for the benefit of two (2) or more plan sponsors, coverage shall be afforded by the

association if the largest interest in the trust or entity owning the contract or contracts is held by a

plan sponsor whose principal place of business is in this state and in no event shall the association

be obligated to cover more than five million dollars ($5,000,000) in benefits with respect to all

such unallocated contracts;

      (vi) The limitations set forth in this subsection are limitations on the benefits for which

the association is obligated before taking into account either its subrogation and assignment rights

or the extent to which those benefits could be provided out of the assets of the impaired or

insolvent insurer attributable to covered policies. The costs of the association's obligations under

this chapter may be met by the use of assets attributable to covered policies or reimbursed to the

association pursuant to its subrogation and assignment rights.

      (d) In performing its obligations to provide coverage under section 27-34.3-8, the

association shall not be required to guarantee, assume, reinsure or perform, or cause to be

guaranteed, assumed, reinsured or performed, contractual obligations of the insolvent or impaired

insurer under a covered policy or contract that do not materially affect the economic values or

economic benefits of the covered policy or contract.

 

     27-34.3-8. Powers and duties of the association. -- (a) If a member insurer is an

impaired insurer, the association may, in its discretion, and subject to any conditions imposed by

the association that do not impair the contractual obligations of the impaired insurer, and that are

approved by the commissioner:

      (1) Guarantee, assume or reinsure, or cause to be guaranteed, assumed, or reinsured, any

or all of the policies or contracts of the impaired insurer;

      (2) Provide the monies, pledges, loans, notes, guarantees or other means that are proper

to effectuate subdivision (1) of this subsection and assure payment of the contractual obligations

of the impaired insurer pending action under subdivision (1) of this subsection.

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

either:

      (1) (i) (A) Guaranty, assume or reinsure, or cause to be guaranteed, assumed or

reinsured, the policies or contracts of the insolvent insurer; or

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

      (ii) Provide monies, pledges, loans, notes, guarantees, or other means that are reasonably

necessary to discharge the association's duties; or

      (2) Provide benefits and coverages in accordance with the following provisions:

      (i) With respect to life and health insurance policies and annuities, assure payment of

benefits for premiums identical to the premiums and benefits (except for terms of conversion and

renewability) that would have been payable under the policies or contracts of the insolvent

insurer, for claims incurred:

      (A) With respect to group policies and contracts, not later than the earlier of the next

renewal date under such policies or contracts or forty-five (45) days, but in no event less than

thirty (30) days after the date on which the association becomes obligated with respect to the

policies or contracts;

      (B) With respect to nongroup policies, contracts and annuities not later than the earlier of

the next renewal date (if any) under the policies or contracts or one year, but in no event less than

thirty (30) days from the date on which the association becomes obligated with respect to the

policies and contracts;

      (ii) Make diligent efforts to provide all known insured or annuitants (for non-group

policies and contracts) or group policy owners with respect to group policies or contracts thirty

(30) days notice of the termination (pursuant to subparagraph (i) of this paragraph) of the benefits

provided;

      (iii) With respect to nongroup life and health insurance policies and annuities covered by

the association, make available to each known insured or annuitant, or owner if other than the

insured, or annuitant and with respect to an individual formerly insured or formerly an annuitant

under a group policy who is not eligible for replacement group coverage, make available

substitute coverage on an individual basis in accordance with the provisions of subdivision (iv) of

this subsection, if the insureds or annuitants had a right under law or the terminated policy to

convert coverage to individual coverage or to continue an individual policy or annuity in force

until a specified age or for a specified time, during which the insurer had no right unilaterally to

make changes in any provision of the policy or annuity or had a right only to make changes in

premium by class;

      (iv) (A) In providing the substitute coverage required under subdivision (iii) of this

subsection, the association may offer either to reissue the terminated coverage or to issue an

alternative policy.

      (B) Alternative or reissued policies shall be offered without requiring evidence of

insurability, and shall not provide for any waiting period or exclusion that would not have applied

under the terminated policy.

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

      (v) (A) Alternative policies adopted by the association shall be subject to the approval of

the domiciliary insurance commissioner and the receivership court. The association may adopt

alternative policies of various types for future issuance without regard to any particular

impairment or insolvency.

      (B) Alternative policies shall contain at least the minimum statutory provisions required

in this state and provide benefits that shall not be unreasonable in relation to the premium

charged. The association shall set the premium in accordance with a table of rates which it shall

adopt. The premium shall reflect the amount of insurance to be provided and the age and class of

risk of each insured, but shall not reflect any changes in the health of the insured after the original

policy was last underwritten.

      (C) Any alternative policy issued by the association shall provide coverage of a type

similar to that of the policy issued by the impaired or insolvent insurer, as determined by the

association.

      (vi) If the association elects to reissue terminated coverage at a premium rate different

from that charged under the terminated policy, the premium shall be set by the association in

accordance with the amount of insurance provided and the age and class of risk, subject to

approval of the domiciliary insurance commissioner and the receivership court.

      (vii) The association's obligations with respect to coverage under any policy of the

impaired or insolvent insurer or under any reissued or alternative policy shall cease on the date

such coverage or policy is replaced by another similar policy by the policy owner, the insured, or

the association.

      (viii) When proceeding under paragraph (b)(2) of this section with respect to any policy

or contract carrying guaranteed minimum interest rates, the association shall assure the payment

or crediting of a rate of interest consistent with section 27-34.3-3(b)(2)(iii).

      (c) Nonpayment of premiums within thirty-one (31) days after the date required under

the terms of any guaranteed, assumed, alternative or reissued policy or contract or substitute

coverage shall terminate the association's obligations under the policy or coverage under this

chapter with respect to the policy or coverage, except with respect to any claims incurred or any

net cash surrender value which may be due in accordance with the provisions of this chapter.

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

insurer shall belong to and be payable at the direction of the association., and If the liquidator of

an insolvent insurer requests, the association shall provide a report to the liquidator regarding

such premium collected by the association. the The association shall be liable for unearned

premiums due to policy or contract owners arising after the entry of the order.

      (e) The protection provided by this chapter shall not apply where any guaranty protection

is provided to residents of this state by laws of the domiciliary state or jurisdiction of the impaired

or insolvent insurer other then this state.

      (f) In carrying out its duties under subsection (b), the association may:

      (1) Subject to approval by a court of competent jurisdiction in this state, impose

permanent policy or contract liens in connection with any guarantee, assumption or reinsurance

agreement, if the association 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 association's duties

under this chapter, or that the economic or financial conditions as they affect member insurers are

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

the public interest;

      (2) Subject to approval by a court of competent jurisdiction in this state, impose

temporary moratoriums or liens on payments of cash values and policy loans, or any other right to

withdraw funds held in conjunction with policies or contracts, in addition to any contractual

provisions for deferral of cash or policy loan value. In addition, in the event of a temporary

moratorium or moratorium charge imposed by the receivership court on payment of cash values

or policy loans, or on any other right to withdraw funds held in conjunction with policies or

contracts, out of the assets of the impaired or insolvent insurer, the association may defer the

payment of such cash values, policy loans or other rights by the association for the period of the

moratorium or moratorium charge imposed by the receivership court, except for claims covered

by the association to be paid in accordance with a hardship procedure established by the

liquidator or rehabilitator and approved by the receivership court.

      (g) A deposit in this state, held pursuant to law or required by the commissioner for the

benefit of creditors, including policy owners, not turned over to the domiciliary liquidator upon

the entry of a final order of liquidation or order approving a rehabilitation plan of an insurer

domiciled in this state or in a reciprocal state, pursuant to section 27-14.3-56, shall be promptly

paid to the association. The association shall be entitled to retain a portion of any amounts so paid

to it equal to the percentage determined by dividing the aggregate amount of policy owners'

claims related to that insolvency for which the association has provided statutory benefits by the

aggregate amount of all policy owners' claims in this state related to that insolvency and shall

remit to the domiciliary receiver the amount so paid to the association and less the amount

retained pursuant to this subsection. Any amount so paid to the association less the amount and

retained by it shall be treated as a distribution of estate assets pursuant to section 27-14.3-38 or

similar provision of the state of domicile of the impaired or insolvent insurer applicable state

insurance law dealing with early access disbursements.

      (h) If the association fails to act within a reasonable period of time with respect to an

insolvent insurer, as provided in subsection (b) of this section, the commissioner shall have the

powers and duties of the association under this chapter with respect to the insolvent insurers.

      (i) The association may render assistance and advice to the commissioner, upon the

commissioner's request, concerning rehabilitation, payment of claims, continuance of coverage,

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

      (j) The association shall have standing to appear or intervene before any court or agency

in this state with jurisdiction over an impaired or insolvent insurer concerning which the

association is or may become obligated under this chapter or with jurisdiction over any person or

property against whom the association may have rights through subrogation or otherwise.

Standing shall extend to all matters germane to the powers and duties of the association,

including, but not limited to, proposals for reinsuring, modifying or guaranteeing the policies or

contracts of the impaired or insolvent insurer and the determination of the polices or contracts and

contractual obligations. The association shall also have the right to appear or intervene before a

court or agency in another state with jurisdiction over an impaired or insolvent insurer for which

the association is or may become obligated or with jurisdiction over any person or property

against whom the association may have rights through subrogation or otherwise.

      (k) (1) A person receiving benefits under this chapter shall be deemed to have assigned

the rights under, and any causes of action against any person for losses arising under, resulting

from or otherwise relating to, the covered policy or contract to the association to the extent of the

benefits received because of this chapter, whether the benefits are payments of or on account of

contractual obligations, continuation of coverage or provision of substitute or alternative

coverage. The association may require an assignment to it of these rights and causes of action by

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

the receipt of any right or benefits conferred by this chapter upon the person.

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

priority against the assets of the impaired or insolvent insurer as that possessed by the person

entitled to receive benefits under this chapter.

      (3) In addition to subdivisions (1) and (2) of this subsection, the association shall have

all common law rights of subrogation and any other equitable or legal remedy that would have

been available to the impaired or insolvent insurer or owner, beneficiary or payee, of a policy or

contract with respect to the policy or contracts including without limitation, in the case of a

structured settlement annuity, any rights of the owner, beneficiary or payee of the annuity, to the

extent of benefits received pursuant to this chapter, against a person originally or by succession

responsible for the losses arising from the personal injury relating to the annuity or payment

therefore, excepting any such person responsible solely by reason of serving as an assignee in

respect of a qualified assignment under section 130 of the United States Internal Revenue Code,

26 U.S.C. section 130.

      (4) If the preceding provisions of this subsection are invalid or ineffective with respect to

any person or claim for any reason, the amount payable by the association with respect to the

related covered obligations shall be reduced by the amount realized by any other person with

respect to the person or claim that is attributable to the policies, or portion thereof, covered by the

association.

      (5) If the association has provided benefits with respect to a covered obligation and a

person recovers amounts to which the association has rights as described in the preceding

paragraphs of this subsection, the person shall pay to the association the portion of the recovery

attributable to the policies, or portions thereof, covered by the association.

      (l) In addition to the rights and powers provided in this chapter, the association may:

      (1) Enter into any contracts as 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 to recover any

unpaid assessments under section 27-34.3-9 and to settle claims or potential claims against it;

      (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 persons as are necessary or appropriate to handle the financial

transactions of the association, and to perform any other functions as become necessary or proper

under this chapter;

      (5) Take such legal action that may be necessary or appropriate to avoid or recover

payment of improper claims;

      (6) 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 its obligations

under this chapter;

      (7) Organize itself as a corporation or another legal form permitted by the laws of this

state;

      (8) Request information from a person seeking coverage from the association in order to

aid the association in determining its obligations under this chapter with respect to the person, and

the person shall promptly comply with the request; and

      (9) Take other necessary or appropriate action to discharge its duties and obligations

under this chapter or to exercise its powers under this chapter.

      (m) The association may join an organization of one or more other state associations of

similar purposes, to further the purposes and administer the powers and duties of the association.

      (n) (1) (a) At any time within one hundred eighty (180) days of the date of the order of

liquidation, one year after the date on which the association becomes responsible for the

obligations of a member insurer (the coverage date), the association may elect to succeed to the

rights and obligations of the ceding member insurer, that accrue on or after the coverage date and

that relate to contracts policies or annuities covered, in whole or in part, by the association, in

each case under any one or more indemnity reinsurance agreements contracts entered into by the

member insolvent insurer as a ceding insurer and its reinsurers and selected by the association.

However, the association may not exercise an election with respect to a reinsurance agreement if

the receiver, rehabilitator or liquidator of the member insurer has previously and expressly

disaffirmed the reinsurance agreement. Any such assumption shall be effective as of the date of

the order of liquidation. The election shall be effected by a notice to the receiver, rehabilitator or

liquidator and the association or the national organization of life and health insurance guaranty

associations (NOLHGA) on its behalf sending written notice, return receipt requested to the

affected reinsurers.

     (b) To facilitate the earliest practicable decision about whether to assume any of the

contracts of reinsurance, and in order to protect the financial position of the estate, the receiver

and each reinsurer of the ceding member insurer shall make available upon request to the

association or to NOLHGA on its behalf as soon as possible after commencement of formal

delinquency proceedings: (i) Copies of in-force contracts of reinsurance and all related files and

records relevant to the determination of whether such contracts should be assumed, and (ii)

Notices of any defaults under the reinsurance contracts or any known event or condition which

with the passage of time could become a default under the reinsurance contracts.

     (c) The following subparagraphs (i) through (iv) shall apply to reinsurance contracts so

assumed by the association.

     If the association makes an election, subparagraphs (i) through (iv) below shall apply

with respect to the agreements selected by the association:

      (i) The association shall be responsible for all unpaid premiums due under the

agreements reinsurance contracts (for periods both before and after the coverage date), of the

order of liquidation, and shall be responsible for the performance of all other obligations to be

performed after the coverage date of the order of liquidation, in each case which relate to

contracts policies and annuities covered, in whole or in part, by the association. The association

may charge contracts policies or annuities covered in part by the association, through reasonable

allocation methods, the costs for reinsurance in excess of the obligations of the association and

shall provide notice and an accounting of these charges to the liquidator;

      (ii) The association shall be entitled to any amounts payable by the reinsurer under the

agreements reinsurance contracts with respect to losses or events that occur in periods after the

coverage date of the order of liquidation and that relate to contracts policies or annuities covered

by the association, in whole or in part, by the association provided, that, upon receipt of any such

amounts, the association shall be obliged to pay to the beneficiary under the policy or contract

annuity on account of which the amounts were paid a portion of the amount equal to the excess

lesser of:

      (A) The amount received by the association; over or

      (B) The benefits paid by the association on account of the policy or contract less the

retention of the impaired or insolvent member insurer applicable to the loss or event;

     (B) The excess of the amount received by the association; over the amount equal to the

benefits paid by the association on account of the policy or annuity less the retention of the

insurer applicable to the loss or event;

     (iii) Within thirty (30) days following the association's election, the association and each

indemnity reinsurer shall calculate the net balance due to or from the association under each such

reinsurance agreement as of the date of the association's election, giving full credit to all items

paid by either the member insurer (or its receiver, rehabilitator or liquidator) or the indemnity

reinsurer during the period between the coverage date and the date of the association's election.

Either the association or indemnity reinsurer shall pay the net balance due the other within five

(5) days of the completion of the aforementioned calculation. If the receiver, rehabilitator or

liquidator has received any amounts due the association pursuant to subparagraph (ii), the

receiver, rehabilitator or liquidator shall remit the same to the association as promptly as

practicable.

     Within thirty (30) days following the association's election (the "election date"), the

association and each reinsurer under contracts assumed by the association shall calculate the net

balance due to or from the association under each such reinsurance contract as of the election date

with respect to policies or annuities covered, in whole or in part, by the association which

calculation shall give, full credit to all items paid by either the insurer or its receiver or the

reinsurer prior to the election date. The reinsurer shall pay the receiver any amounts due for

losses or events prior to the date of the order of liquidation, subject to any set-off for premiums

unpaid for periods prior to the date, and the association or reinsurer shall pay any remaining

premiums in each case within five (5) days of the completion of the aforementioned calculation.

Any disputes over the amounts due to either the association or the reinsurer shall be resolved by

arbitration pursuant to the terms of the affected reinsurance contracts or, if the contract contains

no arbitration clause, as otherwise provided by law. If the receiver has received any amounts due

the association pursuant to paragraph (ii), the receiver, shall remit the same to the association as

promptly as practicable.

      (iv) If the association, within sixty (60) days of the election, pays the premiums due for

periods both before and after the coverage date, that relate to contracts covered by the association,

(in whole or in part), the reinsurer shall not be entitled to terminate the reinsurance agreements

insofar as the agreements relate to contracts covered by the association, (in whole or in part) and

shall not be entitled to set off any unpaid premium due for periods prior to the coverage date

against amounts due to the association. If the association or receiver, on the association’s behalf,

within sixty (60) days of the election date, pays the unpaid premiums due for periods both before

and after the election date, that relate to policies or annuities covered in whole or in part by the

association the reinsurer shall not be entitled to terminate the reinsurance contracts for failure to

pay premium insofar as the reinsurance contracts relate to policies or annuities covered in whole

or in part by the association and shall not be entitled to set off any unpaid amounts due under

other contracts, or unpaid amounts due from parties other than the association against amounts

due to the association.

     (2) During the period from the date of the order of liquidation until the election date (or,

if the election date does not occur, until one hundred eighty (180) days after the date of the order

of liquidation).

     (a)(i) Neither the association nor the reinsurer shall have any rights or obligations under

reinsurance contracts that the association has the right to assume under subdivision (n)(1),

whether for periods prior to or after the date of the order of liquation; and

     (ii) The reinsurer, the receiver and the association shall, to the extent practicable, provide

each other data and records reasonably requested;

     (b) Provided that once the association has elected to assume a reinsurance contract, the

parties' rights and obligations shall be governed by subdivision (n)(1).

     (3) If the association does not elect to assume a reinsurance contract by the election date

pursuant to subdivision (n)(1), the association shall have no rights or obligations, in each case for

periods both before and after the date of the order of liquidation, with respect to the reinsurance

contract.

     (4) When policies or annuities, or covered obligations with respect thereto, are transferred

to an assuming insurer, reinsurance on the policies or annuities may also be transferred by the

association, in the case of contracts assumed under subdivision (n)(1), subject to the following:

      (2) In the event the association transfers its obligations to another insurer, and if the

association and the other insurer agree, the other insurer shall succeed to the rights and

obligations of the association under paragraph (1) effective as of the date agreed upon by the

association and the other insurer and regardless of whether the association has made an election

referred to above in paragraph (1) provided that:

      (i) The indemnity reinsurance agreements shall automatically terminate for new

reinsurance unless the indemnity reinsurer and the other insurer agree to the contrary;

     (a) Unless the reinsurer and the assuming insurer agree otherwise, the reinsurance

contract transferred shall not cover any new policies of insurance or annuities in addition to those

transferred;

      (ii) (b) The obligations described in paragraph (n)(1)(ii) of this subsection section shall

not apply on and after the date the indemnity reinsurance agreement is transferred to the third-

party insurer; with respect to matters arising after the effective date of the transfer;

      (iii) (c) This paragraph (2) shall not apply if the association has previously expressly

determined in writing that it will not exercise the election referred to in paragraph (1); Notice

shall be given in writing, return receipt requested, by the transferring party to the affected

reinsurer not less than thirty (30) days prior to the effective date of the transfer.

      (3) (5) The provisions of subsection (n) shall supercede supersede the provisions of any

law of this state or of any affected reinsurance agreement contract that provides for or requires

any payment of reinsurance proceeds, on account of losses or events that occur in periods after

the coverage date of the order of liquidation, to the receiver, liquidator or rehabilitator of the

insolvent member insurer or any other person. The receiver, rehabilitator or liquidator shall

remain entitled to any amounts payable by the reinsurer under the reinsurance agreement

contracts with respect to losses or events that occur in periods prior to the coverage date of the

order of liquidation (subject to applicable setoff provisions); and.

      (4) (6) Except as otherwise expressly provided in this chapter section, nothing in this

section (n) herein shall:

      (i) Alter Shall alter or modify the terms and conditions of the indemnity any reinsurance

contract. agreements of the insolvent member insurer; or

     (ii) Abrogate Nothing in this section shall abrogate or limit any rights of any reinsurer to

claim that it is entitled to rescind a reinsurance contract. agreement; or

      (iii) Shall Nothing in this section shall give a policy owner holder or beneficiary an

independent cause of action against an indemnity reinsurer that is not otherwise set forth in the

indemnity reinsurance agreement contract. Nothing in this section shall limit or affect the

association's rights as a creditor of the estate against the assets of the estate. Nothing in this

section shall apply to reinsurance agreements covering property or casualty risks.

      (o) The board of directors of the association shall have discretion and shall exercise

reasonable business judgment to determine the means by which the association is to provide the

benefits of this chapter in an economical and efficient manner.

      (p) Where the association has arranged or offered to provide the benefits of this chapter

to a covered person under a plan or arrangement that fulfills the association's obligations under

this chapter, the person shall not be entitled to benefits from the association in addition to or other

than those provided under the plan or arrangement.

      (q) In carrying out its duties in connection with guaranteeing, assuming or reinsuring

policies or contracts under subsection (a) or (b) of this section, the association may, subject to

approval of the receivership court, issue substitute coverage for a policy or contract that provides

an interest rate, crediting rate or similar factor determined by use of an index or other external

reference stated in the policy or contract employed in calculating returns or changes in value by

issuing an alternative policy or contract in accordance with the following provisions:

     (r) Venue in a suit against the association arising under this chapter shall be in

Providence County. The association shall not be required to give an appeal bond in an appeal that

relates to a cause of action arising under this chapter.

      (1) In lieu of the index or other external reference provided for in the original policy or

contract, the alternative policy or contract provides for:

      (i) A fixed interest rate; or

      (ii) Payment of dividends with minimum guarantees; or

      (iii) A different method of calculating interest or changes in value.

      (2) There is no requirement for evidence of insurability, waiting period or other

exclusion that would not have applied under the replaced policy or contract; and

      (3) The alternative policy or contract is substantially similar to the replaced policy or

contract in all other material terms.

 

     27-34.3-9. 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 such time and for such amounts as 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 two (2) classes of assessments, as follows:

      (1) Class A assessments shall be authorized and called for the purpose of meeting

administrative and legal costs and other expenses. Class A assessments may be authorized and

called whether or not related to a particular impaired or insolvent insurer.

      (2) Class B assessments shall be authorized and called to the extent necessary to carry

out the powers and duties of the association under section 27-34.3-8 with regard to an impaired or

an insolvent insurer.

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

be authorized and called on a pro rata or non-pro rata basis. If pro rata, the board may provide

that it be credited against future Class B assessments. The total of all non-pro rata assessment

shall not exceed one hundred fifty dollars ($150) three hundred dollars ($300) per member insurer

in any one calendar year. The amount of any Class B assessment shall be allocated for assessment

purposes among the accounts pursuant to an allocation formula that may be based on the

premiums or reserves of the impaired or insolvent insurer or any other standard deemed by the

board in its sole discretion as being fair and reasonable under the circumstances.

      (2) Class B assessments against member insurers for each account and subaccount shall

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

insurer or policies or contracts covered by each account for the three (3) most recent calendar

years for which information is available preceding the year in which the insurer became

insolvent, (or, in the case of an assessment with respect to an impaired insurer, the three (3) most

recent calendar years for which information is available preceding the year in which the insurer

became impaired) bears to premiums received on business in this state for such calendar years by

all assessed member insurers.

      (3) Assessments for funds to meet the requirements of the Association with respect to an

impaired or insolvent insurer shall not be authorized or called 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. The association shall

notify each member insurer of its anticipated pro rata share of an authorized assessment not yet

called within one hundred eighty (180) days after the assessment is authorized.

      (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. In the event an assessment against a

member insurer is abated, or deferred in whole or in part, the amount by which the assessment is

abated or deferred may be assessed against the other member insurers in a manner consistent with

the basis for assessments set forth in this section. Once the conditions which have caused a

deferral have been removed or rectified, the member insurer shall pay all assessments that were

deferred pursuant to a repayment plan approved by the association.

      (e) (1) (i) Subject to the provisions of subparagraph (ii) of this paragraph, the total of all

assessments authorized by the association with respect to a member insurer for each subaccount

of the life insurance and annuity account and for the health account shall not in any one calendar

year exceed three percent (3%) of that member insurer's average annual premiums received in

this state on the policies and contracts covered by the subaccount or account during the three (3)

calendar years preceding the year in which the insurer became an impaired or insolvent insurer.

      (ii) If two (2) or more assessments are authorized in one calendar year with respect to

insurers that become impaired or insolvent in different calendar years, the average annual

premiums for purposes of the aggregate assessment percentage limitation referenced in

subparagraph (i) of this paragraph shall be equal and limited to the higher of the three (3) year

average annual premiums for the applicable subaccount or account as calculated pursuant to this

section.

      (iii) If the maximum assessment, together with the other assets of the association in any

account, does not provide in any one year in either account an amount sufficient to carry out the

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

this as permitted by this chapter.

      (2) The board may provide in the plan of operation a method of allocating funds among

claims, whether relating to one or more impaired or insolvent insurers, when the maximum

assessment will be insufficient to cover anticipated claims.

      (3) If the maximum assessment for a subaccount of the life and annuity account in any

one year does not provide an amount sufficient to carry out the responsibilities of the association,

then pursuant to subdivision (c)(2) of this section, the board shall assess the other subaccounts of

the life and annuity account for the necessary additional amount, subject to the maximum stated

in subdivision (1) of this subsection.

      (f) 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 assignment, subrogation, 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 claims.

      (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 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 such form and

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

      (i) (1) A member insurer that wishes to protest all or part of an assessment shall pay

when due the full amount of the assessment as set forth in the notice provided by the association.

The payment shall be available to meet association obligations during the pendency of the protest

or any subsequent appeal. Payment shall be accompanied by a statement in writing that the

payment is made under protest and setting forth a brief statement of the grounds for the protest.

      (2) Within sixty (60) days following the payment of an assessment under protest by a

member insurer, the association shall notify the member insurer in writing of its determination

with respect to the protest unless the association notifies the member insurer that additional time

is required to resolve the issues raised by the protest.

      (3) Within thirty (30) days after a final decision has been made, the association shall

notify the protesting member insurer in writing of that final decision. Within sixty (60) days of

receipt of notice of the final decision, the protesting member insurer may appeal that final action

to the commissioner.

      (4) In the alternative to rendering a final decision with respect to a protest based on a

question regarding the assessment base, the association may refer the protest to the commissioner

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

      (5) If the protest or appeal on the assessment is upheld, the amount paid in error or

excess shall be returned to the member company. Interest on a refund due a protesting member

shall be paid at the rate actually earned by the association.

      (j) The association may request information of member insurers in order to aid in the

exercise of its power under this section and member insurers shall promptly comply with a

request.

 

     27-34.3-10. Plan of operation. -- (a) (1) The plan of operation as previously established

and approved under this section shall continue to be effective. The association may amend the

plan of operation when necessary or suitable to assure the fair, reasonable and equitable

administration of the association. Amendments shall become effective upon the commissioner's

written approval.

      (2) If at any time the association fails to submit suitable amendments to the plan, the

commissioner shall, after notice and hearing, adopt and promulgate any reasonable rules

necessary or advisable to effectuate the provisions of this chapter. The rules shall continue in

force until modified by the commissioner or superseded by amendments to the plan submitted by

the association and approved by the commissioner.

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

      (c) 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 27-34.3-7;

      (3) Establish regular places and times for meetings including telephone conference calls

of the board of directors;

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

association, its agents, and the 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 27-34.3-9;

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

duties of the association.

     (8) Establish procedures whereby a director may be removed for cause, including in the

case where a member insurer director becomes an impaired or insolvent insurer; and

     (9) Require the board of directors to establish a policy and procedures for addressing

conflicts of interests.

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

association, except those under section 27-34.3-8( l )(3) and section 27-34.3-9, are delegated to a

corporation, association, or other organization which performs or will perform functions similar

to those of this association, or its equivalent, in two (2) or more states. This 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.

 

     27-34.3-11. Duties and powers of the commissioner. -- In addition to the duties and

powers enumerated in this chapter,

      (a) The commissioner shall:

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

the premiums in this and any other appropriate states for each member insurer;

      (2) When an impairment is declared and the amount of the impairment is determined,

serve a demand upon the impaired insurer to make good the impairment within a reasonable time;

notice to the impaired insurer shall constitute notice to its shareholders, if any; the failure of the

insurer to promptly comply with a demand shall not excuse the association from the performance

of its powers and duties under this chapter;.

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

appointed as the liquidator or rehabilitator.

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

authority to transact insurance 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. The 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) A final action of the board of directors or the association may be appealed to the

commissioner by any member insurer if the appeal is taken within sixty (60) days of its receipt of

notice of the final action being appealed. A final action or order of the commissioner shall be

subject to judicial review.

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

notify all interested persons of the effect of this chapter.

 

     27-34.3-14. Miscellaneous provisions. -- (a) 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; 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.

 

     27-34.3-18. Stay of proceedings -- Reopening default judgments. -- All proceedings in

which the insolvent insurer is a party in any court in this state shall be stayed sixty (60) one

hundred eighty (180) 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. As to judgment under any decision, order, verdict or finding based on default the

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

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

 

     SECTION 2. This act shall take effect with respect to impairments and insolvencies

occurring on or after January 1, 2010.

     

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LC01674/SUB A

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