38.2-1704 - Powers and duties of Association.
§ 38.2-1704. Powers and duties of Association.
In addition to the powers and duties enumerated in other sections of thischapter:
A. If the member insurer is an impaired insurer, the Association may, in itsdiscretion and subject to any conditions imposed by the Association that donot impair the contractual obligations of the impaired insurer and that areapproved by the Commission:
1. Guarantee, assume, or reinsure, or cause to be guaranteed, assumed, orreinsured, any or all of the policies or contracts of the impaired insurer;and
2. Provide moneys, pledges, loans, notes, guarantees or other means as areproper to effectuate subdivision 1 and assure payment of the contractualobligations of the impaired insurer pending action under that subdivision.
B. If the member insurer is an insolvent insurer, the Association shall, inits discretion and subject to the approval of the Commission, either:
1. a. Guarantee, assume, or reinsure or cause to be guaranteed, assumed, orreinsured the covered policies of the insolvent insurer or assure payment ofthe contractual obligations of the insolvent insurer; and
b. Provide moneys, pledges, notes, guarantees, or other means reasonablynecessary to discharge its duties; or
2. Provide benefits and coverages in accordance with the following provisions:
a. With respect to life and health insurance policies and annuities, assurepayment of benefits for premiums identical to the premiums and benefits,except for terms of conversion and renewability, that would have been payableunder the policies or contracts of the insolvent insurer, for claims incurred:
(1) With respect to group policies and contracts, not later than the earlierof the next renewal date under those policies or contracts or 45 days, but inno event less than 30 days, after the date on which the Association becomesobligated with respect to the policies and contracts;
(2) With respect to nongroup policies, contracts, and annuities, not laterthan the earlier of the next renewal date, if any, under the policies orcontracts or one year, but in no event less than 30 days, from the date onwhich the Association becomes obligated with respect to the policies orcontracts;
b. Make diligent efforts to provide all known insureds or annuitants (fornongroup policies and contracts), or group policy owners with respect togroup policies and contracts, 30 days' notice of the termination, pursuant tosubdivision 2 a, of the benefits provided;
c. With respect to nongroup life and health insurance policies and annuitiescovered by the Association, make available to each known insured orannuitant, or owner if other than the insured or annuitant, and with respectto an individual formerly insured or formerly an annuitant under a grouppolicy who is not eligible for replacement group coverage, make availablesubstitute coverage on an individual basis in accordance with the provisionsof subdivision 2 d, if the insureds or annuitants had a right under law orthe terminated policy or annuity to convert coverage to individual coverageor to continue an individual policy or annuity in force until a specified ageor for a specified time, during which the insurer had no right unilaterallyto make changes in any provision of the policy or annuity or had a right onlyto make changes in premium by class;
d. In providing the substitute coverage required under subdivision 2 c, theAssociation may offer either to reissue the terminated coverage or to issuean alternative policy. Alternative or reissued policies shall be offeredwithout requiring evidence of insurability, and shall not provide for anywaiting period or exclusion that would not have applied under the terminatedpolicy. The Association may reinsure any alternative or reissued policy;
e. Alternative policies adopted by the Association shall be subject to theapproval of the domiciliary insurance commissioner and the receivershipcourt. The Association may adopt alternative policies of various types forfuture issuance without regard to any particular impairment or insolvency.Alternative policies shall contain at least the minimum statutory provisionsrequired in this Commonwealth and provide benefits that shall not beunreasonable in relation to the premium charged. The Association shall setthe premium in accordance with a table of rates that it shall adopt. Thepremium shall reflect the amount of insurance to be provided and the age andclass of risk of each insured, but shall not reflect any changes in thehealth of the insured after the original policy was last underwritten. Anyalternative policy issued by the Association shall provide coverage of a typesimilar to that of the policy issued by the impaired or insolvent insurer, asdetermined by the Association;
f. If the Association elects to reissue terminated coverage at a premium ratedifferent from that charged under the terminated policy, the premium shall beset by the Association in accordance with the amount of insurance providedand the age and class of risk, subject to approval of the domiciliaryinsurance commissioner and the receivership court;
g. The Association's obligations with respect to coverage under any policy ofthe impaired or insolvent insurer or under any reissued or alternative policyshall cease on the date the coverage or policy is replaced by another similarpolicy by the policy owner, the insured or the Association; and
h. When proceeding under subdivision B 2 with respect to a policy or contractcarrying guaranteed minimum interest rates, the Association shall assure thepayment or crediting of a rate of interest consistent with subdivision C 2 cof § 38.2-1700.
C. Nonpayment of premiums within 31 days after the date required under theterms of any guaranteed, assumed, alternative, or reissued policy or contractor substitute coverage shall terminate the Association's obligations underthe policy or coverage under this chapter with respect to the policy orcoverage, except with respect to any claims incurred or any net cashsurrender value that may be due in accordance with the provisions of thischapter.
D. Premiums due for coverage after entry of an order of liquidation of aninsolvent insurer shall belong to and be payable at the direction of theAssociation. If the liquidator of an insolvent insurer requests, theAssociation shall provide a report to the liquidator regarding such premiumcollected by the Association. The Association shall be liable for unearnedpremiums due to policy or contract owners arising after the entry of theorder.
E. The protection provided by this chapter shall not apply where theCommission has determined that the foreign or alien insurer's domiciliaryjurisdiction or state of entry provides substantially similar protection bystatute or regulation for residents of this Commonwealth.
F. In carrying out its duties under subsection B, the Association may:
1. Subject to approval by the Commission, impose permanent policy contractliens in connection with a guarantee, assumption, or reinsurance agreement,if the Association finds that the amounts that can be assessed under thischapter are less than the amounts needed to assure full and promptperformance of the Association's duties under this chapter, or that economicor financial conditions as they affect member insurers are sufficientlyadverse to render the imposition of such permanent policy or contract liensto be in the public interest; and
2. Subject to approval by the Commission, impose temporary moratoriums orliens on payments of cash values and policy loans or any other right towithdraw funds held in conjunction with policies or contracts, in addition toany contractual provisions for deferral of cash or policy loan values. Inaddition, in the event of a temporary moratorium or moratorium charge imposedby the receivership court on payment of cash values or policy loans, or onany other right to withdraw funds held in conjunction with policies orcontracts, out of the assets of the impaired or insolvent insurer, theAssociation may defer the payment of cash values, policy loans, or otherrights by the Association for the period of the moratorium or moratoriumcharge imposed by the receivership court, except for claims covered by theAssociation to be paid in accordance with a hardship procedure established bythe liquidator or rehabilitator and approved by the receivership court.
G. A deposit in this Commonwealth, held pursuant to law or required by theCommission for the benefit of creditors, including policy owners, not turnedover to the domiciliary liquidator upon the entry of a final order ofliquidation or order approving a rehabilitation plan of an insurer domiciledin this Commonwealth or in a reciprocal state, pursuant to Article 7 (§38.2-1045 et seq.) of Chapter 10 shall be promptly paid to the Association.The Association shall be entitled to retain a portion of any amount so paidto it equal to the percentage determined by dividing the aggregate amount ofpolicy owners' claims related to that insolvency for which the Associationhas provided statutory benefits by the aggregate amount of all policy owners'claims in this Commonwealth related to that insolvency and shall remit to thedomiciliary receiver the amount so paid to the Association less the amountretained pursuant to this subsection. Any amount so paid to the Associationand retained by it shall be treated as a distribution of estate assetspursuant to applicable state receivership law dealing with early accessdisbursements.
H. If the Association fails to act within a reasonable period of time withrespect to an insolvent insurer, as provided in subsection B, the Commissionshall have the powers and duties of the Association under this chapter withrespect to the insolvent insurer.
I. The Association may render assistance and advice to the Commission, uponthe Commission's request, concerning rehabilitation, payment of claims,continuation of coverage, or the performance of other contractual obligationsof an impaired or insolvent insurer.
J. The Association shall have standing to appear or intervene before theCommission or any court or agency in the Commonwealth with jurisdiction overan impaired or insolvent insurer concerning which the Association is or maybecome obligated under this chapter or with jurisdiction over any person orproperty against which the Association may have rights through subrogation orotherwise. Standing shall extend to all matters germane to the powers andduties of the Association, including proposals for reinsuring, modifying, orguaranteeing the policies or contracts of the impaired or insolvent insurerand the determination of the policies or contracts and contractualobligations. The Association shall also have the right to appear or intervenebefore a court or agency in another state with jurisdiction over an impairedor insolvent insurer for which the Association is or may become obligated orwith jurisdiction over any person or property against whom the Associationmay have rights through subrogation or otherwise.
K. 1. Any person receiving benefits under this chapter shall be deemed tohave assigned the rights under, and any causes of action against any personfor losses arising under, resulting from, or otherwise relating to, thecovered policy or contract to the Association to the extent of the benefitsreceived because of this chapter, whether the benefits are payments of or onaccount of contractual obligations, continuation of coverage, or provision ofsubstitute or alternative coverages. The Association may require anassignment to it of such rights and causes of action by any payee, policy orcontract owner, beneficiary, insured, or annuitant as a condition precedentto the receipt of any right or benefits conferred by this chapter upon theperson.
2. The subrogation rights of the Association under this subsection shall havethe same priority against the assets of the insolvent insurer as thatpossessed by the person entitled to receive benefits under this chapter.
3. In addition to the rights provided by subdivisions K 1 and K 2, theAssociation shall have all common law rights of subrogation and any otherequitable or legal remedy that would have been available to the impaired orinsolvent insurer or owner, beneficiary, or payee of a policy or contractwith respect to the policy or contract, including, in the case of astructured settlement annuity, any rights of the owner, beneficiary, or payeeof the annuity, to the extent of benefits received pursuant to this chapter,against a person originally or by succession responsible for the lossesarising from the personal injury relating to the annuity or payment therefor,excepting any such person responsible solely by reason of serving as anassignee in respect of a qualified assignment under § 130 of the InternalRevenue Code.
4. If subdivision K 1 through K 3 are invalid or ineffective with respect toany person or claim for any reason, the amount payable by the Associationwith respect to the related covered obligations shall be reduced by theamount realized by any other person with respect to the person or claim thatis attributable to the policies, or portion thereof, covered by theAssociation.
5. If the Association has provided benefits with respect to a coveredobligation and a person recovers amounts to which the Association has rightsas described in subdivisions K 1 through K 4, the person shall pay to theAssociation the portion of the recovery attributable to the policies, orportion thereof, covered by the Association.
L. In addition to the rights and powers granted to it elsewhere in thischapter, the Association may:
1. Enter into such contracts as are necessary or proper to carry out theprovisions and purposes of this chapter;
2. Sue or be sued, including taking any legal actions necessary or proper torecover any unpaid assessments under § 38.2-1705 and to settle any claims orpotential claims against it;
3. Borrow money to effect the purposes of this chapter. Any notes or otherevidence of indebtedness of the Association not in default shall be Category1 investments, as defined in § 38.2-1401, for domestic insurers;
4. Employ or retain such persons as are necessary or appropriate to handlethe financial transactions of the Association, and to perform other functionsas become necessary or proper under this chapter;
5. Negotiate and contract with any liquidator, rehabilitator, conservator, orancillary receiver to carry out the powers and duties of the Association;
6. Take such legal action as may be necessary or appropriate to avoid orrecover payment of improper claims;
7. Exercise, for the purposes of this chapter and to the extent approved bythe Commission, the powers of a domestic life or accident and sicknessinsurer, but in no case may the Association issue insurance policies orannuity contracts other than those issued to perform its obligations underthis chapter;
8. Organize itself as a corporation or in other legal form permitted by thelaws of the Commonwealth;
9. Request information from a person seeking coverage from the Association inorder to aid the Association in determining its obligations under thischapter with respect to the person, and the person shall promptly comply withthe request; and
10. Take other necessary or appropriate action to discharge its duties andobligations under this chapter or to exercise its powers under this chapter.
M. The Association may join an organization of one or more other stateassociations of similar purposes, to further the purposes and administer thepowers and duties of the Association.
N. 1. a. At any time within 180 days of the date of the order of liquidation,the Association may elect to succeed to the rights and obligations of theceding member insurer that relate to policies or annuities covered, in wholeor in part, by the Association, in each case under any one or morereinsurance contracts entered into by the insolvent insurer and itsreinsurers and selected by the Association. Any such assumption shall beeffective as of the date of the order of liquidation. The election shall beeffected by the Association or any agent of the Association on theAssociation's behalf sending written notice, return receipt requested, to theaffected reinsurers.
b. To facilitate the earliest practicable decision about whether to assumeany of the contracts of reinsurance, and in order to protect the financialposition of the estate, the receiver and each reinsurer of the ceding memberinsurer shall make available upon request to the Association or to any agentof the Association on the Association's behalf as soon as possible aftercommencement of formal delinquency proceedings (i) copies of in-forcecontracts of reinsurance and all related files and records relevant to thedetermination of whether such contracts should be assumed and (ii) notices ofany defaults under the reinsurance contracts or any known event or conditionwhich with the passage of time could become a default under the reinsurancecontracts.
c. The following shall apply to reinsurance contracts so assumed by theAssociation:
(1) The Association shall be responsible for all unpaid premiums due underthe reinsurance contracts for periods both before and after the date of theorder of liquidation, and shall be responsible for the performance of allother obligations to be performed after the date of the order of liquidation,in each case which relate to policies or annuities covered, in whole or inpart, by the Association. The Association may charge policies or annuitiescovered in part by the Association, through reasonable allocation methods,the costs for reinsurance in excess of the obligations of the Association andshall provide notice and an accounting of these charges to the liquidator;
(2) The Association shall be entitled to any amounts payable by the reinsurerunder the reinsurance contracts with respect to losses or events that occurin periods after the date of the order of liquidation and that relate topolicies or annuities covered, in whole or in part, by the Association,provided that, upon receipt of any such amounts, the Association shall beobliged to pay to the beneficiary, under the policy or annuity on account ofwhich the amounts were paid, a portion of the amount equal to the lesser of(i) the amount received by the Association and (ii) the excess of the amountreceived by the Association over the amount equal to the benefits paid by theAssociation on account of the policy or annuity less the retention of theinsurer applicable to the loss or event;
(3) Within 30 days following the Association's election (the election date),the Association and each reinsurer under contracts assumed by the Associationshall calculate the net balance due to or from the Association under eachreinsurance contract as of the election date with respect to policies orannuities covered, in whole or in part, by the Association, which calculationshall give full credit to all items paid by either the insurer or itsreceiver or the reinsurer prior to the election date. The reinsurer shall paythe receiver any amounts due for losses or events prior to the date of theorder of liquidation, subject to any set-off for premiums unpaid for periodsprior to the date, and the Association or reinsurer shall pay any remainingbalance due the other, in each case within five days of the completion of theaforementioned calculation. Any disputes over the amounts due to either theAssociation or the reinsurer shall be resolved by arbitration pursuant to theterms of the affected reinsurance contract or, if the contract contains noarbitration clause, as otherwise provided by law. If the receiver hasreceived any amounts due the Association pursuant to subdivision N 1 c (2),the receiver shall remit the same to the Association as promptly aspracticable; and
(4) If the Association or receiver, on the Association's behalf, within 60days of the election date, pays the unpaid premiums due for periods bothbefore and after the election date that relate to policies or annuitiescovered, in whole or in part, by the Association, the reinsurer shall not beentitled to terminate the reinsurance contracts for failure to pay premiuminsofar as the reinsurance contracts related to policies or annuitiescovered, in whole or in part, by the Association, and shall not be entitledto set off any unpaid amounts due under other contracts, or unpaid amountsdue from parties other than the Association, against amounts due theAssociation.
2. During the period from the date of the order of liquidation until theelection date (or, if the election date does not occur, until 180 days afterthe date of the order of liquidation),
a. Neither the Association nor the reinsurer shall have any rights orobligations under reinsurance contracts that the Association has the right toassume under subdivision N 1, whether for periods prior to or after the dateof the order of liquidation; and the reinsurer, the receiver, and theAssociation shall, to the extent practicable, provide each other data andrecords reasonably requested;
b. Provided that once the Association has elected to assume a reinsurancecontract, the parties' rights and obligations shall be governed bysubdivision N 1.
3. If the Association does not elect to assume a reinsurance contract by theelection date pursuant to subdivision N 1, the Association shall have norights or obligations, in each case for periods both before and after thedate 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 orannuities may also be transferred by the Association, in the case ofcontracts assumed under subdivision N 1, subject to the following:
a. Unless the reinsurer and the assuming insurer agree otherwise, thereinsurance contract transferred shall not cover any new policies ofinsurance or annuities in addition to those transferred;
b. The obligations described in subdivision N 1 shall no longer apply withrespect to matters arising after the effective date of the transfer; and
c. Notice shall be given in writing, return receipt requested, by thetransferring party to the affected reinsurer not less than 30 days prior tothe effective date of the transfer.
5. The provisions of this subsection shall supersede the provisions of anylaw or of any affected reinsurance contract that provides for or requires anypayment of reinsurance proceeds, on account of losses or events that occur inperiods after the date of the order of liquidation, to the receiver of theinsolvent insurer or any other person. The receiver shall remain entitled toany amounts payable by the reinsurer under the reinsurance contracts withrespect to losses or events that occur in periods prior to the date of theorder of liquidation, subject to applicable setoff provisions.
6. Except as otherwise provided in this section, nothing in this subsectionshall alter or modify the terms and conditions of any reinsurance contract.Nothing in this section shall abrogate or limit any rights of any reinsurerto claim that it is entitled to rescind a reinsurance contract. Nothing inthis section shall give a policy holder or beneficiary an independent causeof action against a reinsurer that is not otherwise set forth in thereinsurance contract. Nothing in this section shall limit or affect theAssociation's rights as a creditor of the estate against the assets of theestate. Nothing in this section shall apply to reinsurance agreementscovering property or casualty risks.
O. The board of directors of the Association shall have discretion and mayexercise good faith business judgment to determine the means by which theAssociation is to provide the benefits of this chapter in an economical andefficient manner.
P. Where the Association has arranged or offered to provide the benefits ofthis chapter to a covered person under a plan or arrangement that fulfillsthe Association's obligations under this chapter, the person shall not beentitled to benefits from the Association in addition to or other than thoseprovided under the plan or arrangement.
Q. Venue in a suit against the Association arising under this chapter shallbe in the circuit court of the city or county in which the Association hasits principal place of business except that any suit to which the Commissionis a party shall be brought before the Commission. The Association shall notbe required to give an appeal bond in an appeal that relates to a cause ofaction arising under this chapter.
R. In carrying out its duties in connection with guaranteeing, assuming, orreinsuring policies or contracts under subsection A or B, the Associationmay, subject to approval of the receivership court, issue substitute coveragefor a policy or contract that provides an interest rate, crediting rate orsimilar factor determined by use of an index or other external referencestated in the policy or contract employed in calculating returns or changesin value by issuing an alternative policy or contract in accordance with thefollowing provisions:
1. In lieu of the index or other external reference provided for in theoriginal policy or contract, the alternative policy or contract provides for(i) a fixed interest rate, (ii) payment of dividends with minimum guarantees,or (iii) a different method for calculating interest or changes in value;
2. There is no requirement for evidence of insurability, waiting period, orother exclusion that would not have applied under the replaced policy orcontract; and
3. The alternative policy or contract is similar to the replaced policy orcontract in all other material terms.
(1976, c. 330, § 38.1-482.22; 1986, c. 562; 1991, c. 340; 1993, c. 142; 2007,c. 482; 2010, c. 510.)