MISSISSIPPI LEGISLATURE
2005 Regular Session
To: Insurance
By: Senator(s) Kirby
AN ACT TO AMEND SECTION 83-23-105, MISSISSIPPI CODE OF 1972, TO PROVIDE THAT THE MISSISSIPPI INSURANCE GUARANTY ASSOCIATION LAW SHALL NOT APPLY TO SELF-INSURANCE COVERAGES; TO AMEND SECTION 83-23-109, MISSISSIPPI CODE OF 1972, TO REVISE THE DEFINITION OF THE TERM "COVERED CLAIM"; TO AMEND SECTION 83-23-115, MISSISSIPPI CODE OF 1972, TO REVISE THE POWERS AND DUTIES OF THE ASSOCIATION; TO AMEND SECTION 83-23-121, MISSISSIPPI CODE OF 1972, TO PROVIDE THAT ALL RECOVERIES BY THE ASSOCIATION SHALL NOT BE PROPERTY OF THE LIQUIDATOR OF THE INSOLVENT CARRIER'S ESTATE BUT THE PROPERTY OF THE ASSOCIATION FOR ITS USE IN PAYING ITS OBLIGATION ON BEHALF OF THE INSOLVENT INSURER; TO AMEND SECTION 83-23-123, MISSISSIPPI CODE OF 1972, TO REVISE THE PROVISION PROHIBITING NONDUPLICATION OF RECOVERY; TO AMEND SECTION 83-23-135, MISSISSIPPI CODE OF 1972, TO PROVIDE THAT THE STATE OF PROCEEDINGS IN WHICH THE INSOLVENT INSURER IS A PARTY IS AUTOMATIC AND MANDATORY AND MAY NOT BE WAIVED BY ANY PARTIES; TO AMEND SECTION 83-23-137, MISSISSIPPI CODE OF 1972, TO ALLOW THE COMMISSIONER OF INSURANCE TO INITIATE PROCEEDINGS TO REQUIRE THE FILING OF A PLAN FOR DISBURSAL OF ASSETS OF AN INSOLVENT INSURER WHENEVER THE RECEIVER, LIQUIDATOR OR SUCCESSOR FAILS TO FILE THE PLAN WITHIN 120 DAYS; TO CREATE A NEW SECTION 83-23-139, MISSISSIPPI CODE OF 1972, TO PROVIDE FOR POLICYHOLDER COLLATERAL, DEDUCTIBLE REIMBURSEMENTS AND OTHER POLICYHOLDER OBLIGATIONS; AND FOR RELATED PURPOSES.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MISSISSIPPI:
SECTION 1. Section 83-23-105, Mississippi Code of 1972, is amended as follows:
83-23-105. This article shall apply to all kinds of direct insurance except the following:
(a) Life, annuity, health or disability insurance;
(b) Mortgage guaranty, financial guaranty or other forms of insurance offering protection against insolvent risks;
(c) Fidelity or surety bonds, or any other bonding obligations;
(d) Credit insurance;
(e) Insurance of warranties or service contracts;
(f) Title insurance;
(g) Ocean marine insurance;
(h) Any transaction or combination of transactions between a person (including affiliates of such person) and an insurer (including affiliates of such insurer) which involves the transfer of investment or credit risk unaccompanied by transfer of insurance risk; * * *
(i) Any insurance provided by or guaranteed by government; and
(j) Self-insurance of any type, including any insurance coverages issued through risk retention groups, self-insurance pooling mechanisms or otherwise.
SECTION 2. Section 83-23-109, Mississippi Code of 1972, is amended as follows:
83-23-109. As used in this article:
(a) "Affiliate" means a person who directly, or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with an insolvent insurer on December 31 of the year next preceding the date the insurer becomes an insolvent insurer.
(b) "Association" means the Mississippi Insurance Guaranty Association created under Section 83-23-111.
(c) "Claimant" means any insured making a first-party claim or any person instituting a liability claim, provided that no person who is an affiliate of the insolvent insurer may be a claimant.
(d) "Commissioner" means the Commissioner of Insurance.
(e) "Control" means the possession, direct or indirect, of the power to direct or cause direction of the management and policies of a person, whether through the ownership of voting securities, by contract other than a commercial contract for goods or nonmanagement services, or otherwise, unless the power is the result of an official position with or corporate office held by the person. Control shall be presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing ten percent (10%) or more of the voting securities of any other person. This presumption may be rebutted by a showing that control does not exist in fact.
(f) "Covered claim" means an unpaid claim, including one of unearned premiums, which arises out of and is within the coverage and not in excess of the applicable limits of an insurance policy to which this article applies issued by an insurer, if such insurer becomes an insolvent insurer and (i) the claimant or insured is a resident of this state at the time of the insured event, provided that for entities other than an individual, the residence of a claimant or insured is the state in which its principal place of business is located at the time of the insured event; or (ii) the property from which the claim arises is permanently located in this state. "Covered claim" shall not include any amount 1. awarded as punitive or exemplary damages; or 2. interest on judgments, awards of penalties or any other extra-contractual damages unless the policy of the insolvent insurer specifically includes coverage for such damages; however, interest on judgments, awards of penalties, or any other extra-contractual damages resulting from the delay in payment due to unresolved issues regarding the liability of the association, shall not be payable; or 3. sought as a return of premium under any retrospective rating plan; or 4. due any reinsurer, insurer, insurance pool, * * * underwriting association, any other insurance guaranty association or similar law in any other state which is applicable to the same claim as subrogation recoveries or otherwise. Recovery under this article shall preclude recovery * * * from the insured of any insolvent carrier to the extent of the policy limits or above. A covered claim shall include a claim for unearned premium only if such claim derives from the payment of a stated premium and shall not include those which derive from an unstated premium such as one calculated from audit, dividend, deposit or retrospective rating plan. However, if any other insurance guaranty association or similar law in any other state which is applicable to the same claim includes a provision which limits a recovery to a claimant because of a net worth or other similar provision of that state's law which is applicable to the claimant or third party, then a covered claim shall not include any first party, third party or any other type claim where the third party claimant's or the insured's net worth exceeds Twenty-five Million Dollars ($25,000,000.00) on December 31 of the year immediately preceding the date the insurer became an insolvent insurer. The net worth provision will be the total gross net worth of all entities, their subsidiaries or affiliates of the third party claimant or the insolvent carrier's insured. The insured's or third party's net worth on such date shall be deemed to include the aggregate net worth of the insured or third party and all of its subsidiaries and affiliates as calculated on a consolidated basis. An affiliate of the insured or of the third party claimant includes any person or entity who directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with the insured or third party claimant. "Control" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of the controlled person or entity, whether through the ownership of voting securities, by contract, or otherwise. The consolidated net worth of the insured and all of its subsidiaries and affiliates shall be calculated on the basis of their fair market values. The failure or refusal of a person or entity to return a net worth affidavit to the association after two (2) requests therefore shall create a rebuttable presumption that the noncompliant person or entity had a net worth in excess of Twenty-five Million Dollars ($25,000,000.00) on December 31 of the year immediately preceding the date of the determination of the insolvency of the insurer. An insured for the purposes of this paragraph shall not include any state or local governmental agency or subdivision thereof.
(g) "Insolvent insurer" means an insurer licensed to transact insurance in this state either at the time the policy was issued or when the insured event occurred and against whom an order of liquidation with a finding of insolvency has been entered by a court of competent jurisdiction, in the insurer's state of domicile or of this state and the order of liquidation has not been stayed or been the subject of a writ of supersedeas or other comparable order.
(h) "Member insurer" means any person who (i) writes any kind of insurance to which this article applies under Section 83-23-105, including the exchange of reciprocal or interinsurance contracts, and (ii) is licensed to transact insurance in this state.
(i) "Net direct written premiums" means direct gross premiums written in this state on insurance policies to which this article applies, less return premiums thereon and dividends paid or credited to policyholders on such direct business. "Net direct written premiums" does not include premiums on contracts between insurers or reinsurers.
(j) "Person" means any individual, corporation, partnership, association or voluntary organization.
SECTION 3. Section 83-23-115, Mississippi Code of 1972, is amended as follows:
83-23-115. (1) The association shall:
(a) Be obligated to the extent of the covered claims existing prior to the determination of insolvency and arising within thirty (30) days after the determination of insolvency, or before the policy expiration date if less than thirty (30) days after the determination, or before the insured replaces the policy or causes its cancellation if he does so within thirty (30) days of the determination. In no event shall the association be obligated to pay a claimant an amount in excess of the obligation of the insolvent insurer under the policy or coverage from which the claim arises. Notwithstanding any other provisions of this article, a covered claim shall not include a claim filed with the association after the earlier of: (i) eighteen (18) months after the date of the order of liquidation; or (ii) the final date set by the court for the filing of claims against the liquidator or receiver of an insolvent insurer; or (iii) the earliest date set by any other insurance guaranty association or similar law in any other state which is applicable to the same claim. Such obligation shall be satisfied by paying the claimant an amount as follows:
1. The full amount of a covered claim for benefits under a workers' compensation insurance coverage;
2. An amount in excess of Fifty Dollars ($50.00) but not exceeding Twenty-five Thousand Dollars ($25,000.00) per policy for a covered claim for the return of unearned premium;
3. An amount in excess of Fifty Dollars ($50.00) but not exceeding Three Hundred Thousand Dollars ($300,000.00) per claimant for all other covered claims.
In no event shall the association be obligated to a policyholder or claimant in an amount in excess of the obligation of the insolvent insurer under the policy from which the claim arises or in excess of the applicable limits of the Mississippi Tort Claims Act.
(b) Be deemed the insurer to the extent of its obligation on the covered claims and to such extent shall have all rights, duties and obligations of the insolvent insurer as if the insurer had not become insolvent.
(c) Assess insurers amounts necessary to pay the obligations of the association under paragraph (a) subsequent to an insolvency, the expenses of handling covered claims subsequent to an insolvency, and the cost of examinations under Section 83-23-125 and other expenses authorized by this article. The assessments of each member insurer shall be in the proportion that the net direct written premiums of the member insurer for the preceding calendar year bears to the net direct written premiums of all member insurers for the preceding calendar year. Each member insurer shall be notified of the assessment not later than thirty (30) days before it is due. No member insurer may be assessed in any year an amount greater than one percent (1%) of that member insurer's net direct written premiums for the preceding calendar year. If the maximum assessment, together with the other assets of the association, does not provide in any one year an amount sufficient to make all necessary payments, the funds available shall be prorated and the unpaid portion shall be paid as soon thereafter as funds become available. The association may exempt or defer, in whole or in part, the assessment of any member insurer, if the assessment would cause the member insurer's financial statement to reflect amounts of capital or surplus less than the minimum amounts required for a certificate of authority by any jurisdiction in which the member insurer is authorized to transact insurance. Each member insurer may set off, against any assessment, authorized payments made on covered claims and expenses incurred in the payment of such claims by the member insurer.
(d) Investigate claims brought against the association; adjust, compromise, settle and pay covered claims to the extent of the association's obligation; deny all other claims; and may review settlements, releases and judgments to which the insolvent insurer or its insureds were parties, to determine the extent to which such settlements, releases and judgments may be properly contested.
(e) Notify such persons as the commissioner directs under Section 83-23-119(2)(a).
(f) Handle claims through its employees or through one or more insurers or other persons designated as servicing facilities. Designation of a servicing facility is subject to the approval of the commissioner, but such designation may be declined by a member insurer.
(g) Reimburse each servicing facility for obligations of the association paid by the facility and for expenses incurred by the facility while handling claims on behalf of the association, and shall pay the other expenses of the association authorized by this article.
(h) Establish procedures for requesting financial information from insureds and claimants on a confidential basis for purposes of applying Section 83-23-109(f) concerning the net worth of claimants, subject to such information being shared with any other association organized under any other state law similar to the association and the liquidator for the insolvent company on the same confidential basis. If the insured or claimant refuses to provide the requested financial information and an auditor's certification of the same where requested and available, the association may deem the net worth of the insured or claimant to be in excess of the amount specified in Section 83-23-109(f) at the relevant time.
(i) Obtain from any third party administrator, managing general underwriter or agent, attorney or other representative of an insolvent insurer or its liquidator all files, records and electronic data related to an insolvent insurer, whether located in this state or elsewhere, that are necessary for the association to carry out its duties under this act. The association shall be entitled to recover its costs and expenses, including reasonable attorney’s fees, for any unreasonable refusal to release the required information.
(j) Respond to requests for information in the possession or control of the association, and share such information in its possession pertaining to an insolvent insurer, with other state, federal and international regulatory agencies, with the National Association of Insurance Commissioners and its affiliates and subsidiaries, and with state, federal and international law enforcement authorities. For purposes of this section, any confidentiality obligations to the conservator or rehabilitator of an insolvent insurer shall end upon the entry of an order of liquidation with a finding of insolvency against the insurer by any court of competent jurisdiction. The disclosure of information as required herein shall not be deemed a waiver of any applicable privilege or claim of confidentiality that the association might otherwise have.
(2) The association may:
(a) Employ or retain such persons as are necessary to handle claims and perform other duties of the association.
(b) Borrow funds necessary to effect the purposes of this article in accord with the plan of operation.
(c) Sue or be sued.
(d) Negotiate and become a party to such contracts as are necessary to carry out the purpose of this article.
(e) Perform such other acts as are necessary or proper to effectuate the purpose of this article.
(f) Refund to the member insurers in proportion to the contribution of each member insurer to the association that amount by which the assets of the association exceed the liabilities if, at the end of any calendar year, the board of directors finds that the assets of the association exceed the liabilities of the association as estimated by the board of directors for the coming year.
(g) In any lawsuit contesting the applicability of Section 83-23-109(f) or 83-23-115(1)(h) where the insured or claimant has declined to provide financial information under the procedure provided by this article, the insured or claimant shall bear the burden of proving that its net worth at the relevant time was less than the applicable amount, and if the insured or claimant shall fail in sustaining its proof of such, the court shall award the association its full costs, expenses and reasonable attorney's fees in contesting such claim.
SECTION 4. Section 83-23-121, Mississippi Code of 1972, is amended as follows:
83-23-121. (1) Any person recovering under this article shall be deemed to have assigned his rights under the policy to the association to the extent of his recovery from the association. Every insured or claimant seeking the protection of this article shall cooperate with the association to the same extent as such person would have been required to cooperate with the insolvent insurer. The association shall have no cause of action against the insured of the insolvent insurer for any sums it has paid out except such causes of action as the insolvent insurer would have had if such sums had been paid by the insolvent insurer, and except as provided in subsection (2). In the case of an insolvent insurer operating on a plan with assessment liability, payments of claims of the association shall not operate to reduce the liability of insureds to the receiver, liquidator or statutory successor for unpaid assessments.
(2) (a) The association shall have the right to recover from the following persons the amount of any "covered claim" paid on behalf of such person pursuant to this article; and
(b) Any person who is an affiliate of the insolvent insurer and whose liability obligations to other persons are satisfied in whole or in part by payments made under this article.
(3) The receiver, liquidator or statutory successor of an insolvent insurer shall be bound by settlements of covered claims by the association or a similar organization in another state. The court having jurisdiction shall grant such claims priority equal to that which the claimant would have been entitled in the absence of this article against the assets of the insolvent insurer. The expenses of the association or similar organization in handling claims shall be accorded the same priority as the liquidator's expenses.
(4) The association shall periodically file with the receiver or liquidator of the insolvent insurer statements of the covered claims paid by the association and estimates of anticipated claims on the association, which shall preserve the rights of the association against the assets of the insolvent insurer.
(5) All such recoveries by the association, including, but not limited to, recovery of sums through subrogation and for large deductible reimbursements and self-insured retentions shall not be property of the liquidator of the insolvent carrier's estate but shall be the property of the association for its use in paying its obligations on behalf of the insolvent insurer.
SECTION 5. Section 83-23-123, Mississippi Code of 1972, is amended as follows:
83-23-123. (1) Any person having a claim against an insurer under any provision in an insurance policy other than a policy of an insolvent insurer, which is also a covered claim, shall be required to exhaust first his right under such policy regardless of the nature of the insurance coverage and regardless of whether the coverage is written as first party or third party coverage, including, but not limited to, coverages available to co-defendants or joint tortfeasors in any claim or action, uninsured and underinsured motorists coverages, hospitalization coverages, coverages under self-insured programs or self-insurance guaranty funds, coverages under health maintenance programs or plans, medical payments coverages, worker's compensation insurance, and governmental indemnity plans or programs. Any amount payable on a covered claim under this article shall be reduced by the amount of any recovery under such insurance policy.
(2) Any person having a claim which may be recovered under more than one (1) insurance guaranty association or its equivalent, including any self-insurance guaranty fund or its equivalent, shall seek recovery first from the association of the place of residence of the insured, except that if it is a first party claim for damage to property with a permanent location, he shall seek recovery first from the association of the location of the property, and if it is a workers' compensation claim, he shall seek recovery first from the association of the residence of the claimant. If a claimant is found to be a dual resident for more than one (1) state, then coverage under this article shall be prorated between or among the associations according to the proportion of coverage which was available to claimant in this state as compared to the proportion of coverage which was available to claimant in the other state or states.
SECTION 6. Section 83-23-135, Mississippi Code of 1972, is amended as follows:
83-23-135. All proceedings in which the insolvent insurer is a party or is obligated to defend a party in any court in this state shall be stayed for six (6) months and for such additional time thereafter as may be determined by the court from the date the insolvency is determined or an ancillary proceeding is instituted in the state, whichever is later, to permit proper defense by the association of all pending causes of action as to any covered claims arising from a judgment under any decision, verdict or finding based on the default of the insolvent insurer or its failure to defend an insured. The association, either on its own behalf or on behalf of such insured, may apply to have such judgment, order, decision, verdict or finding set aside by the same court or administrator that made such judgment, order, decision, verdict or finding, and shall be permitted to defend against such claim on the merits. This stay of six (6) months is automatic and mandatory and may not be waived by any parties so as to enable the association sufficient time to review, investigate, evaluate and respond to matters effectively and efficiently.
The liquidator, receiver or statutory successor of an insolvent insurer covered by this article shall permit access by the board or its authorized representative to the insolvent insurer's records which are necessary for the board in carrying out its functions under this article with regard to covered claims. In addition, the liquidator, receiver or statutory successor shall provide the board or its representative with copies of such records upon the request by the board and at the expense of the board.
SECTION 7. Section 83-23-137, Mississippi Code of 1972, is amended as follows:
83-23-137. (1) Within one hundred twenty (120) days of a final determination of insolvency of an insurer by a court of competent jurisdiction, the receiver, liquidator or statutory successor shall make application to the court for approval of a proposal to disburse assets out of such insurer's marshaled assets, from time to time as such assets become available to each association entitled thereto. For the purposes of this section, the term "association" includes the Mississippi Insurance Guaranty Association and any entity or person performing a function in another state similar to that performed in this state by the Mississippi Insurance Guaranty Association, provided the Mississippi Insurance Guaranty Association is entitled to like payment under the laws of the other's state of domicile with respect to insolvent companies doing business in that state. If the receiver, liquidator or statutory successor of an insolvent insurer fails to file such a plan within the 120-day period, the association may request that the commissioner initiate such proceedings as are appropriate to require the filing of such a plan or to seek approval of the association's plan to disburse assets out of such insurer's marshaled assets residing in this state. In the event the commissioner initiates the filing of the association's plan, such action shall subject the receiver, liquidator or statutory successor of an insolvent insurer to the jurisdiction of this state for those purposes.
(2) Such proposal shall at least include provisions for:
(a) Reserving amounts for the payment of expenses of administration, the payment of claims of secured creditors to the extent of the value of the security held, and the payment of claims falling within the priorities established in this article.
(b) Disbursement of the other assets marshaled to date and subsequent disbursements of assets as they become available.
(c) Equitable allocation of disbursements to each association entitled thereto.
(d) The securing by the receiver, liquidator or statutory successor, from each association entitled to disbursements pursuant to this section, of an agreement to return to it such assets previously disbursed as may be required to pay claims of secured creditors and claims falling within the priorities established in this article, in accordance with such priorities; however, no bond shall be required of any such association.
(e) A full report to be made by each association to the receiver, liquidator or statutory successor, which report shall account for all assets so disbursed to the association, all disbursements made therefrom, any interest earned by the association on such assets, and any other matter as the court may direct.
(3) The proposal of the receiver, liquidator or statutory successor shall provide for disbursements to each association in amounts at least equal to the claim payments made, and estimated to be made, by such association for which such association could assert a claim against the receiver, and shall provide that if the assets available for disbursement from time to time do not equal or exceed the amount of such claim payments made, or to be made, by each such association, then disbursements shall be in the amount of available assets.
(4) Notice of such application shall be given by the receiver, liquidator or statutory successor to the associations in, and to the commissioners of insurance of, each of the states to which disbursement may be made. Such notice shall be made by certified mail, first-class postage prepaid, at least thirty (30) days prior to submission of such application to the court. Such notice shall be deemed to have been made when deposited in the mail.
(5) Action on the application may be taken by the court if notice has been given pursuant to subsection (4) of this section and the proposal of the receiver, liquidator or statutory successor complies with subsection (2) of this section.
SECTION 8. The following provision shall be codified as Section 83-23-139, Mississippi Code of 1972:
83-23-139. Policyholder Collateral, Deductible Reimbursements, and other Policyholder Obligations. (1) Any collateral held by, for the benefit of, or assigned to the insurer or the receiver of an insolvent insurer to secure the obligations of a policyholder under a deductible insurance agreement shall not be considered an asset of the estate of the insolvent insurer and shall be maintained and administered by the receiver as provided in this section, notwithstanding any other provision of law or contract to the contrary.
(2) If the collateral is being held by, for the benefit of, or assigned to the insurer or the receiver of an insolvent insurer to secure obligations under a deductible agreement with a policyholder, subject to the provisions of this section, the collateral shall be used to secure the policyholder's obligation to fund or reimburse claims payment within the agreed deductible amount.
(3) Nothing in this section is intended to limit or adversely affect any right the guaranty associations may have under applicable state law to obtain reimbursement from certain classes of policyholders for claims payments made by such guaranty associations under policies of the insolvent insurer, or for related expenses the guaranty associations incur.
(4) This section shall apply to all delinquency proceedings which are open and pending as of July 1, 2005.
(5) For purposes of this section, a deductible agreement is any combination of one or more policies, endorsements, contracts or security agreements, which provide for the policyholder to bear the risk of loss within a specified amount per claim or occurrence covered under a policy of insurance, and may be subject to an aggregate limit of policyholder reimbursement obligations. This section shall not apply to first party claims, or to claims funded by a guaranty association net of the deductible. The term "noncovered claim" shall mean a claim that is subject to a deductible agreement, may be secured by collateral, and is not covered by a guaranty association.
SECTION 9. This act shall take effect and be in force from and after July 1, 2005.