HF 811

2nd Engrossment - 86th Legislature (2009 - 2010) Posted on 02/09/2010 01:42am

A bill for an act
relating to insurance; increasing certain maximum dollar amounts on protection
for policyholders of insolvent life and health insurance companies to provide
greater comparability with limits of federal deposit insurance of bank accounts;
updating certain other dollar amounts to reflect inflation adjustments already
made by law; modifying prohibited sales practices; amending Minnesota Statutes
2008, sections 61B.19, subdivision 4; 61B.28, subdivisions 4, 8; repealing
Minnesota Statutes 2008, section 61B.19, subdivision 6.

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

Section 1.

Minnesota Statutes 2008, section 61B.19, subdivision 4, is amended to read:

Subd. 4.

Limitation of benefits.

The benefits for which the association may become
liable 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) subject to the limitation in clause (5), with respect to any one life, regardless of
the number of policies or contracts:

(i) deleted text begin $300,000 deleted text end new text begin $500,000 new text end in life insurance death benefits, but not more than deleted text begin $100,000 deleted text end new text begin
$130,000 new text end in net cash surrender and net cash withdrawal values for life insurance;

(ii) deleted text begin $300,000 deleted text end new text begin $500,000 new text end in health insurance benefits, including any net cash surrender
and net cash withdrawal values;

(iii) deleted text begin $100,000 deleted text end new text begin $250,000 new text end in annuity net cash surrender and net cash withdrawal values;

(iv) deleted text begin $300,000 deleted text end new text begin $410,000 new text end in present value of annuity benefits for structured settlement
annuities or for annuities in regard to which periodic annuity benefits, for a period of not
less than the annuitant's lifetime or for a period certain of not less than ten years, have
begun to be paid, on or before the date of impairment or insolvency; or

(3) subject to the limitations in clauses (5) and (6), with respect to each individual
resident participating in a retirement plan, except a defined benefit plan, established under
section 401, 403(b), or 457 of the Internal Revenue Code of 1986, as amended through
December 31, 1992, covered by an unallocated annuity contract, or the beneficiaries
of each such individual if deceased, in the aggregate, deleted text begin $100,000 deleted text end new text begin $250,000 new text end in net cash
surrender and net cash withdrawal values;

(4) where no coverage limit has been specified for a covered policy or benefit, the
coverage limit shall be deleted text begin $300,000 deleted text end new text begin $500,000 new text end in present value;

(5) in no event shall the association be liable to expend more than deleted text begin $300,000 deleted text end new text begin
$500,000 new text end in the aggregate with respect to any one life under clause (2), items (i), (ii), (iii),
(iv), and clause (4), and any one individual under clause (3);

(6) in no event shall the association be liable to expend more than deleted text begin $7,500,000 deleted text end new text begin
$10,000,000 new text end with respect to all unallocated annuities of a retirement plan, except a defined
benefit plan, established under section 401, 403(b), or 457 of the Internal Revenue Code
of 1986, as amended through December 31, 1992. If total claims from a plan exceed
deleted text begin $7,500,000 deleted text end new text begin $10,000,000 new text end , the deleted text begin $7,500,000 deleted text end new text begin $10,000,000 new text end shall be prorated among the
claimants;

(7) for purposes of applying clause (2)(ii) and clause (5), with respect only to
health insurance benefits, the term "any one life" applies to each individual covered by a
health insurance policy;

(8) where covered contractual obligations are equal to or less than the limits stated in
this subdivision, the association will pay the difference between the covered contractual
obligations and the amount credited by the estate of the insolvent or impaired insurer, if
that amount has been determined or, if it has not, the covered contractual limit, subject
to the association's right of subrogation;

(9) where covered contractual obligations exceed the limits stated in this subdivision,
the amount payable by the association will be determined as though the covered
contractual obligations were equal to those limits. In making the determination, the estate
shall be deemed to have credited the covered person the same amount as the estate would
credit a covered person with contractual obligations equal to those limits; or

(10) the following illustrates how the principles stated in clauses (8) and (9) apply.
The example illustrated concerns hypothetical claims subject to the limit stated in clause
(2)(iii). The principles stated in clauses (8) and (9), and illustrated in this clause, apply
to claims subject to any limits stated in this subdivision.

CONTRACTUAL OBLIGATIONS OF:

				$50,000
			Estate		Guaranty Association
0% recovery from estate			$ 0			$ 50,000
25% recovery from estate			$ 12,500			$ 37,500
50% recovery from estate			$ 25,000			$ 25,000
75% recovery from estate			$ 37,500			$ 12,500
				$100,000
			Estate		Guaranty Association
0% recovery from estate			$ 0			$ 100,000
25% recovery from estate			$ 25,000			$ 75,000
50% recovery from estate			$ 50,000			$ 50,000
75% recovery from estate			$ 75,000			$ 25,000
				$200,000
			Estate		Guaranty Association
0% recovery from estate			$ 0			$ 100,000
25% recovery from estate			$ 50,000			$ 75,000
50% recovery from estate			$ 100,000			$ 50,000
75% recovery from estate			$ 150,000			$ 25,000

For purposes of this subdivision, the commissioner shall determine the discount rate
to be used in determining the present value of annuity benefits.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment
and applies to member insurers who are first determined to be impaired or insolvent on or
after this effective date. Member insurers who are subject to an order of impairment in
effect on the effective date but are not declared insolvent until after the effective date shall
continue to be governed by the law in effect prior to the effective date.
new text end

Sec. 2.

Minnesota Statutes 2008, section 61B.28, subdivision 4, is amended to read:

Subd. 4.

Prohibited sales practice.

No person, including an insurer, agent, or
affiliate of an insurer, shall make, publish, disseminate, circulate, or place before the
public, or cause directly or indirectly, to be made, published, disseminated, circulated,
or placed before the public, in any newspaper, magazine, or other publication, or in the
form of a notice, circular, pamphlet, letter, or poster, or over any radio station or television
station, or in any other way, an advertisement, announcement, or statement, written or
oral, which uses the existence of the Minnesota Life and Health Insurance Guaranty
Association for the purpose of sales, solicitation, or inducement to purchase any form of
insurance covered by sections 61B.18 to 61B.32. The notice required by subdivision 8
is not a violation of this subdivision new text begin nor is it a violation of this subdivision to explain
verbally to an applicant or potential applicant the coverage provided by the Minnesota
Life and Health Insurance Guaranty Association at any time during the application process
or thereafter new text end . This subdivision does not apply to the Minnesota Life and Health Insurance
Guaranty Association or an entity that does not sell or solicit insurance. deleted text begin A person violating
this section is guilty of a misdemeanor. deleted text end

Sec. 3.

Minnesota Statutes 2008, section 61B.28, subdivision 8, is amended to read:

Subd. 8.

Form.

The form of notice referred to in subdivision 7, paragraph (a),
is as follows:

"....................

....................

....................

(insert name, current address, and

telephone number of insurer)

NOTICE CONCERNING POLICYHOLDER RIGHTS IN AN

INSOLVENCY UNDER THE MINNESOTA LIFE AND HEALTH

INSURANCE GUARANTY ASSOCIATION LAW

If the insurer that issued your life, annuity, or health insurance policy becomes
impaired or insolvent, you are entitled to compensation for your policy from the assets of
that insurer. The amount you recover will depend on the financial condition of the insurer.

In addition, residents of Minnesota who purchase life insurance, annuities, or health
insurance from insurance companies authorized to do business in Minnesota are protected,
SUBJECT TO LIMITS AND EXCLUSIONS, in the event the insurer becomes financially
impaired or insolvent. This protection is provided by the Minnesota Life and Health
Insurance Guaranty Association.

Minnesota Life and Health Insurance Guaranty Association

(insert current

address and telephone number)

The maximum amount the guaranty association will pay for all policies issued on
one life by the same insurer is limited to deleted text begin $300,000 deleted text end new text begin $500,000 new text end . Subject to this deleted text begin $300,000 deleted text end new text begin
$500,000 new text end limit, the guaranty association will pay up to deleted text begin $300,000 deleted text end new text begin $500,000 new text end in life
insurance death benefits, deleted text begin $100,000 deleted text end new text begin $130,000 new text end in net cash surrender and net cash withdrawal
values for life insurance, deleted text begin $300,000 deleted text end new text begin $500,000 new text end in health insurance benefits, including any
net cash surrender and net cash withdrawal values, deleted text begin $100,000 deleted text end new text begin $250,000 new text end in annuity net
cash surrender and net cash withdrawal values, deleted text begin $300,000 deleted text end new text begin $410,000 new text end in present value of
annuity benefits for annuities which are part of a structured settlement or for annuities
in regard to which periodic annuity benefits, for a period of not less than the annuitant's
lifetime or for a period certain of not less than ten years, have begun to be paid on or
before the date of impairment or insolvency, or if no coverage limit has been specified
for a covered policy or benefit, the coverage limit shall be deleted text begin $300,000 deleted text end new text begin $500,000 new text end in present
value. Unallocated annuity contracts issued to retirement plans, other than defined benefit
plans, established under section 401, 403(b), or 457 of the Internal Revenue Code of
1986, as amended through December 31, 1992, are covered up to deleted text begin $100,000 deleted text end new text begin $250,000 new text end in
net cash surrender and net cash withdrawal values, for Minnesota residents covered by
the plan provided, however, that the association shall not be responsible for more than
deleted text begin $7,500,000 deleted text end new text begin $10,000,000 new text end in claims from all Minnesota residents covered by the plan. If
total claims exceed deleted text begin $7,500,000 deleted text end new text begin $10,000,000 new text end , the deleted text begin $7,500,000 deleted text end new text begin $10,000,000 new text end shall be prorated
among all claimants. These are the maximum claim amounts. Coverage by the guaranty
association is also subject to other substantial limitations and exclusions and requires
continued residency in Minnesota. If your claim exceeds the guaranty association's limits,
you may still recover a part or all of that amount from the proceeds of the liquidation of
the insolvent insurer, if any exist. Funds to pay claims may not be immediately available.
The guaranty association assesses insurers licensed to sell life and health insurance in
Minnesota after the insolvency occurs. Claims are paid from this assessment.

THE COVERAGE PROVIDED BY THE GUARANTY ASSOCIATION IS NOT
A SUBSTITUTE FOR USING CARE IN SELECTING INSURANCE COMPANIES
THAT ARE WELL MANAGED AND FINANCIALLY STABLE. IN SELECTING AN
INSURANCE COMPANY OR POLICY, YOU SHOULD NOT RELY ON COVERAGE
BY THE GUARANTY ASSOCIATION.

THIS NOTICE IS REQUIRED BY MINNESOTA STATE LAW TO ADVISE
POLICYHOLDERS OF LIFE, ANNUITY, OR HEALTH INSURANCE POLICIES
OF THEIR RIGHTS IN THE EVENT THEIR INSURANCE CARRIER BECOMES
FINANCIALLY INSOLVENT. THIS NOTICE IN NO WAY IMPLIES THAT THE
COMPANY CURRENTLY HAS ANY TYPE OF FINANCIAL PROBLEMS. ALL LIFE,
ANNUITY, AND HEALTH INSURANCE POLICIES ARE REQUIRED TO PROVIDE
THIS NOTICE."

Additional language may be added to the notice if approved by the commissioner
prior to its use in the form. This section does not apply to fraternal benefit societies
regulated under chapter 64B.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective 30 days following final enactment.
new text end

Sec. 4. new text begin REPEALER; ADJUSTMENT OF LIABILITY LIMITS.
new text end

new text begin Minnesota Statutes 2008, section 61B.19, subdivision 6, new text end new text begin is repealed.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment.
new text end