MISSISSIPPI LEGISLATURE

1999 Regular Session

To: Insurance

By: Representative Stevens

AN ACT TO AMEND SECTION 83-24-83, MISSISSIPPI CODE OF 1972, TO REVISE THE PROVISION ESTABLISHING PRIORITY AND ORDER OF DISTRIBUTIONS OF CLAIMS UNDER THE INSURERS REHABILITATION AND LIQUIDATION ACT; TO CREATE A NEW SECTION TO BE CODIFIED AS SECTION 83-24-18, MISSISSIPPI CODE OF 1972, TO PROVIDE FOR CERTAIN PROTECTIONS REGARDING RECEIVERS; AND FOR RELATED PURPOSES.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MISSISSIPPI:

SECTION 1. Section 83-24-83, Mississippi Code of 1972, is amended as follows:

83-24-83. The priority of distribution of claims from the insurer's estate shall be in accordance with the order in which each class of claims is * * * set forth in this section. Every claim in each class shall be paid in full or adequate funds retained for such payment before the members of the next class receive any payment. Once such funds are retained by the liquidator and approved by the court, the insurer's estate shall have no further liability to members of that class except to the extent of the retained funds and any other undistributed funds. No subclasses shall be established within any class except as provided in Section 83-24-41(1). No claim by a shareholder, policyholder or other creditor shall be permitted to circumvent the priority classes through the use of equitable remedies. The order of distribution of claims shall be:

(1) Class 1. The costs and expenses of administration expressly approved by the receiver, including but not limited to the following:

(a) The actual and necessary costs of preserving or recovering the assets of the insurer;

(b) Compensation for all authorized services rendered in the conservation, rehabilitation or liquidation;

(c) Any necessary filing fees;

(d) The fees and mileage payable to witnesses; and

(e) Authorized reasonable attorney's fees and other professional services rendered in the conservation, rehabilitation or liquidation.

(2) Class 2. The administrative expenses of guaranty associations. For purposes of this section these expenses shall be the reasonable expenses incurred by guaranty associations where the expenses are not payments or expenses which are required to be incurred as direct policy benefits in fulfillment of the terms of the insurance contract or policy, and that are of the type and nature that, but for the activities of the guaranty association otherwise would have been incurred by the receiver, including, but not limited to, evaluations of policy coverage, activities involved in the adjustment and settlement of claims under policies, including those of in-house or outside adjusters, and the reasonable expenses incurred in connection with the arrangements for ongoing coverage through transfer to other insurers, policy exchanges or maintaining policies in force. The receiver may, in his or her sole discretion, approve as an administrative expense under this section any other reasonable expenses of the guaranty association if the receiver finds:

(a) The expenses are not expenses required to be paid or incurred as direct policy benefits by the terms of the policy, and

(b) The expenses were incurred in furtherance of activities that provided a material economic benefit to the estate as a whole, irrespective of whether the activities resulted in additional benefits to covered claimants. The court shall approve such expenses unless it finds the receiver abused his or her discretion in approving the expenses.

If the receiver determines that the assets of the estate will be sufficient to pay all Class 1 claims in full, Class 2 claims shall be paid currently, provided that the liquidator shall secure from each of the associations receiving disbursements pursuant to this section an agreement to return to the liquidator such disbursements, together with investment income actually earned on such disbursements, as may be required to pay Class 1 claims. No bond shall be required of any such association.

(3) Class 3. All claims under policies including * * * claims of the federal or any state or local government for losses incurred, ("loss claims") including third party claims, claims for unearned premiums, and all claims of a guaranty association * * *, for payment of covered claims or covered obligations of the insurer. All claims of a guaranty association for reasonable expenses other than those included in Class 2. All claims under life and health insurance and annuity policies, whether for death proceeds, health benefits, annuity proceeds, or investment values shall be treated as loss claims. That portion of any loss, indemnification for which is provided by other benefits or advantages recovered by the claimant, shall not be included in this class, other than benefits or advantages recovered or recoverable in discharge of familial obligation of support or by way of succession at death or as proceeds of life insurance, or as gratuities. No payment by an employer to his employee shall be treated as a gratuity.

Notwithstanding the foregoing, the following claims shall be excluded from Class 3 priority:

(a) Obligations of the insolvent insurer arising out of reinsurance contracts;

(b) Obligations incurred after the expiration date of the insurance policy or after the policy has been replaced by the insured or canceled at the insured's request or after the policy has been cancelled as provided in this chapter;

(c) Obligations to insurers, insurance pools or underwriting associations and their claims for contribution, indemnity or subrogation, equitable or otherwise;

(d) Any claim which is in excess of any applicable limits provided in the insurance policy issued by the insolvent insurer;

(e) Any amount accrued as punitive or exemplary damages unless expressly covered under the terms of the policy; and

(f) Tort claims of any kind against the insurer, and claims against the insurer for bad faith or wrongful settlement practices.

(4) Class 4. * * * Claims of the federal government other than those claims included in Class 3.

(5) Class 5. Debts due employees for services, benefits, contractual or otherwise due arising out of such reasonable

compensation to employees for services performed to the extent that they do not exceed two (2) months of monetary compensation and represent payment for services performed within six (6) months before the filing of the petition for liquidation or, if rehabilitation preceded liquidation, within one (1) year before the filing of the petition for rehabilitation. Principal officers and directors shall not be entitled to the benefit of this priority except as otherwise approved by the liquidator and the court. This priority shall be in lieu of any other similar priority which may be authorized by law as to wages or compensation of employees.

(6) Class 6. Claims of any person, including claims of state or local governments, except those specifically classified elsewhere in this section. Claims of attorneys for fees and expenses owed them by a person for services rendered in opposing a formal delinquency proceeding. In order to prove the claim, the claimant must show that the insurer which is the subject of the delinquency proceeding incurred such fees and expenses based on its best knowledge, information and belief, formed after reasonable inquiry indicating opposition was in the best interests of the person, was well grounded in fact and was warranted by existing law or a good faith argument for the extension, modification or reversal of existing law, and that opposition was not pursued for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of the litigation.

(7) Class 7. Claims, of * * * any state or local government * * * for a penalty or forfeiture but only to the extent of the pecuniary loss sustained from the act, transaction, or proceeding out of which the penalty or forfeiture arose, with reasonable and actual costs occasioned thereby. The remainder of such claims shall be postponed to the class of claims under subsection (8) of this section.

(8) Class 8. Surplus or contribution notes, or similar obligations, * * * premium refunds on assessable policies, interest on claims of Classes 1 through 7 and any other claims specifically subordinated to this class.

(9) Class 9. * * * Claims of shareholders or other owners arising out of their capacity as shareholders or other owners, or any other capacity except as they may be qualified in Class 3 or 6 above.

If any claimant of this state, another state or foreign country shall be entitled to or shall receive a dividend upon his or her claim out of a statutory deposit or the proceeds of any bond or other asset located in another state or foreign country, unless such deposit or proceeds shall have been delivered to the domiciliary liquidator pursuant to Section 83-24-104, then the claimants shall not be entitled to any further dividend from the receiver until and unless all other claimants of the same class, irrespective of residence or place of the acts or contracts upon which their claims are based, shall have received an equal dividend upon their claims, and after such equalization, such claimants shall be entitled to share in the distribution of further dividends by the receiver, along with and like all other creditors of the same class, wheresoever residing.

Upon the declaration of a dividend, the receiver shall apply the amount of the dividend against any indebtedness owed to the insurer by the person entitled to the dividend. There shall be no claim allowed for any deductible charged by a guaranty association or entity performing a similar function.

SECTION 2. This section shall be codified as Section 83-24-18, Mississippi Code of 1972:

83-24-18. (1) For the purposes of this section, the persons entitled to protection under this section are:

(a) All receivers responsible for the conduct of a delinquency proceeding under this chapter including present and former receivers; and

(b) Their employees meaning all present and former special deputies and assistant special deputies appointed by the commissioner and all persons whom the commissioner, special deputies, or assistant special deputies have employed to assist in a delinquency proceeding under this chapter. Attorneys, accountants, auditors and other professional persons or firms, who are retained by the receiver as independent contractors and their employees, shall not be considered employees of the receiver for purposes of this section.

(2) The receiver and his employees shall have official immunity and shall be immune from suit and liability, both personally and in their official capacities, for any claim for damage to or loss of property or personal injury or other civil liability caused by or resulting from any alleged act, error or omission of the receiver or any employee arising out of or by reason of their duties or employment; provided that nothing in this provision shall be construed to hold the receiver or any employee immune from suit and/or liability for any damage, loss, injury or liability caused by the intentional or willful and wanton misconduct of the receiver or any employee.

(3) If any legal action is commenced against the receiver or any employee, whether against him personally or in his official capacity, alleging property damage, property loss, personal injury or other civil liability caused by or resulting from any alleged act, error or omission of the receiver or any employee arising out of or by reason of their duties or employment, the receiver and any employee shall be indemnified from the assets of the insurer for all expenses, attorneys' fees, judgments, settlements, decrees or amounts due and owing or paid in satisfaction of or incurred in the defense of such legal action unless it is determined upon a final adjudication on the merits that the alleged act, error or omission of the receiver or employee giving rise to the claim did not arise out of or by reason of his duties or employment, or was caused by intentional or willful and wanton misconduct.

(a) Attorneys' fees and any and all related expenses incurred in defending a legal action for which immunity or indemnity is available under this section shall be paid from the assets of the insurer, as they are incurred, in advance of the final disposition of such action upon receipt of an undertaking by or on behalf of the receiver or employee to repay the attorneys' fees and expenses if it shall ultimately be determined upon a final adjudication on the merits that the receiver or employee is not entitled to immunity or indemnity under this section.

(b) Any indemnification for expense payments, judgments, settlements, decrees, attorneys' fees, surety bond premiums or other amounts paid or to be paid from the insurer's assets pursuant to this section shall be an administrative expense of the insurer.

(c) In the event of any actual or threatened litigation against a receiver or any employee for which immunity or indemnity may be available under this section, a reasonable amount of funds which in the judgment of the commissioner may be needed to provide immunity or indemnity shall be segregated and reserved from the assets of the insurer as security for the payment of indemnity until such time as all applicable statutes of limitation shall have run and all actual or threatened actions against the receiver or any employee have been completely and finally resolved, and all obligations of the insurer and the commissioner under this section shall have been satisfied.

(d) In lieu of segregation and reserving of funds, the commissioner may, in his discretion, obtain a surety bond or make other arrangements which will enable the commissioner to fully secure the payment of all obligations under this section.

(4) If any legal action against an employee for which indemnity may be available under this section is settled prior to final adjudication on the merits, the insurer must pay the settlement amount on behalf of the employee, or indemnify the employee for the settlement amount, unless the commissioner determines:

(a) That the claim did not arise out of or by reason of the employee's duties or employment; or

(b) That the claim was caused by the intentional or willful and wanton misconduct of the employee.

(5) In any legal action in which the receiver is a defendant, that portion of any settlement relating to the alleged act, error or omission of the receiver shall be subject to the approval of the court before which the delinquency proceeding is pending. The court shall not approve that portion of the settlement if it determines:

(a) That the claim did not arise out of or by reason of the receiver's duties or employment; or

(b) That the claim was caused by the intentional or willful and wanton misconduct of the receiver.

(6) Nothing contained or implied in this section shall operate, or be construed or applied to deprive the receiver or any employee of any immunity, indemnity, benefits of law, rights or any defense otherwise available.

(7) (a) Subsection (2) of this section shall apply to any suite based in whole or in part on any alleged act, error or omission which takes place on or after the effective date of this chapter.

(b) No legal action shall lie against the receiver or any employee based in whole or in part on any alleged act, error or omission which took place prior to the effective date of this chapter, unless suit is filed and valid service of process if obtained within twelve (12) months after the effective date of this chapter.

(c) Subsections (3), (4) and (5) of this section shall apply to any suit which is pending on or filed after the effective date of this chapter without regard to when the alleged act, error or omission took place.

SECTION 3. This act shall take effect and be in force from and after its passage.