Sec. 38a-944a. Additional rights. Netting agreements. Qualified financial contracts. Security arrangements.
Sec. 38a-944a. Additional rights. Netting agreements. Qualified financial contracts. Security arrangements. (a) Notwithstanding any provision of sections 38a-903
to 38a-961, inclusive, including any provision permitting the modification of contracts,
or other law of a state, no person shall be stayed or prohibited from exercising: (1) A
contractual right to terminate, liquidate or close out any netting agreement or qualified
financial contract with an insurer because of: (A) The insolvency, financial condition
or default of the insurer at any time, provided that the right is enforceable under applicable law other than sections 38a-903 to 38a-961, inclusive, or (B) the commencement
of a formal delinquency proceeding under sections 38a-903 to 38a-961, inclusive. (2)
Any right under a pledge, security, collateral or guarantee agreement or any other similar
security arrangement or credit support document relating to a netting agreement or qualified financial contract. (3) Subject to any provision of subsection (b) of section 38a-932, any right to set off or net out any termination value, payment amount, or other
transfer obligation arising under or in connection with a netting agreement or qualified
financial contract where the counterparty or its guarantor is organized under the laws
of the United States or a state or foreign jurisdiction approved by the Securities Valuation
Office of the National Association of Insurance Commissioners as eligible for netting.
(b) Upon termination of a netting agreement, the net or settlement amount, if any,
owed by a nondefaulting party to an insurer against which an application or petition has
been filed under sections 38a-903 to 38a-961, inclusive, shall be transferred to or on
the order of the receiver for the insurer, even if the insurer is the defaulting party, notwithstanding any provision in the netting agreement that may provide that the nondefaulting
party is not required to pay any net or settlement amount due to the defaulting party
upon termination. Any limited two-way payment provision in a netting agreement with
an insurer that has defaulted shall be deemed to be a full two-way payment provision
as against the defaulting insurer. Any such property or amount shall, except to the extent
it is subject to one or more secondary liens or encumbrances, be a general asset of the
insurer.
(c) In making any transfer of a netting agreement or qualified financial contract of
an insurer subject to a delinquency proceeding, the receiver shall either: (1) Transfer to
one party, other than an insurer subject to a delinquency proceeding, all netting
agreements and qualified financial contracts between a counterparty or any affiliate of
the counterparty and the insurer that is the subject of the proceeding, including: (A) All
rights and obligations of each party under each such netting agreement and qualified
financial contract; and (B) all property, including any guarantees or credit support documents, securing any claims of each party under such netting agreement and qualified
financial contract; or (2) transfer none of the netting agreements, qualified financial
contracts, rights, obligations or property referred to in subdivision (1) of this subsection,
with respect to such counterparty and any affiliate of such counterparty.
(d) If a receiver for an insurer makes a transfer of one or more netting agreements
or qualified financial contracts, then the receiver shall use its best efforts to notify any
person who is a party to the netting agreements or qualified financial contracts of the
transfer by twelve o'clock noon, the receiver's local time, on the business day following
the transfer. For purposes of this subsection, "business day" means a day other than a
Saturday, Sunday or any day on which either the New York Stock Exchange or the
Federal Reserve Bank of New York is closed.
(e) Notwithstanding any other provision of sections 38a-903 to 38a-961, inclusive,
a receiver may not avoid a transfer of money or other property arising under or in connection with a netting agreement or qualified financial contract, or any pledge, security,
collateral or guarantee agreement or any other similar security arrangement or credit
support document relating to a netting agreement or qualified financial contract, that is
made before the commencement of a formal delinquency proceeding under sections
38a-903 to 38a-961, inclusive, except that a transfer may be avoided under subsection
(a) of section 38a-928 if the transfer was made with actual intent to hinder, delay or
defraud the insurer, a receiver appointed for the insurer or existing or future creditors.
(f) Notwithstanding any other provision of sections 38a-903 to 38a-961, inclusive,
any claim of a counterparty against the estate arising from the receiver's disaffirmance
or repudiation of a netting agreement or qualified financial contract that has not been
previously affirmed in the liquidation or immediately preceding rehabilitation case shall
be determined and shall be allowed or disallowed as if the claim has arisen before the date
of the filing of the petition for liquidation or, if a rehabilitation proceeding is converted to
a liquidation proceeding, as if the claim had arisen before the date of the filing of the
petition for rehabilitation. The amount of the claim shall be the actual direct compensatory damages determined as of the date of the disaffirmance or repudiation of the netting
agreement or qualified financial contract. "Actual direct compensatory damages" does
not include punitive or exemplary damages, damages for lost profit or lost opportunity
or damages for pain and suffering, but does include normal and reasonable costs of
cover or other reasonable measures of damages utilized in the derivatives market for
the contract and agreement claims.
(g) As used in this section, "contractual right" includes any right, whether or not
evidenced in writing, arising under statutory or common law, a rule or bylaw of a national
securities exchange, national securities clearing organization or securities clearing
agency, a rule or bylaw, or a resolution of the governing body, of a contract market or
its clearing organization, or under law merchant.
(h) The provisions of this section shall not apply to persons who are affiliates of
the insurer that is the subject of the proceeding.
(i) All rights of counterparties under sections 38a-903 to 38a-961, inclusive, shall
apply to netting agreements entered into on behalf of the general account or separate
accounts if the assets of each separate account are available only to counterparties to
netting agreements entered into on behalf of that separate account.
(P.A. 98-214, S. 22.)