Minnesota LegislatureOffice of the Revisor of Statutes
Minnesota Session Laws - 1993, Regular Session
Key: (1) language to be deleted (2) new language
Laws of Minnesota 1993
CHAPTER 319-H.F.No. 1523
An act relating to insurance; regulating life
insurance and annuity contracts; establishing and
regulating the life and health guaranty association;
providing for its powers and duties; amending
Minnesota Statutes 1992, section 61A.02, subdivisions
2 and 3; proposing coding for new law in Minnesota
Statutes, chapter 61B; repealing Minnesota Statutes
1992, sections 61B.01; 61B.02; 61B.03; 61B.04; 61B.05;
61B.06; 61B.07; 61B.08; 61B.09; 61B.10; 61B.11;
61B.12; 61B.13; 61B.14; 61B.15; and 61B.16.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:
Section 1. Minnesota Statutes 1992, section 61A.02,
subdivision 2, is amended to read:
Subd. 2. [APPROVAL REQUIRED.] No policy of life
insurance or annuity contract nor any rider of any kind or
description which is made a part thereof shall be issued or
delivered in this state, or be issued by a life insurance
company organized under the laws of this state, until the form
of the same has been approved by the commissioner. In making a
determination under this section, the commissioner may require
the insurer to provide rates and advertising materials related
to policies or contracts issued or delivered in this state.
Sec. 2. Minnesota Statutes 1992, section 61A.02,
subdivision 3, is amended to read:
Subd. 3. [DISAPPROVAL.] The commissioner shall, within 60
days after the filing of any form, disapprove the form:
(1) if the benefits provided are unreasonable in relation
to the premium charged;
(2) if the safety and soundness of the company would be
threatened by the offering of an excess rate of interest on the
policy or contract;
(3) if it contains a provision or provisions which are
unlawful, unfair, inequitable, misleading, or encourages
misrepresentation of the policy; or
(3) (4) if the form, or its provisions, is otherwise not in
the public interest. It shall be unlawful for the company to
issue any policy in the form so disapproved. If the
commissioner does not within 60 days after the filing of any
form, disapprove or otherwise object, the form shall be deemed
approved.
For purposes of clause (2), an excess rate of interest is a
rate of interest exceeding the rate of interest determined by
subtracting three percentage points from Moody's corporate bond
yield average as most recently available.
Sec. 3. [61B.18] [CITATION.]
Sections 61B.18 to 61B.32 may be cited as the Minnesota
life and health insurance guaranty association act.
Sec. 4. [61B.19] [PURPOSE; SCOPE; LIMITATION OF COVERAGE;
LIMITATION OF BENEFITS; CONSTRUCTION.]
Subdivision 1. [PURPOSE.] (a) The purpose of sections
61B.18 to 61B.32 is to protect, subject to certain limitations,
the persons specified in subdivision 2 against failure in the
performance of contractual obligations, under life insurance
policies, health insurance policies, annuity contracts, and
supplemental contracts specified in subdivision 2, because of
the impairment or insolvency of the member insurer that issued
the policies or contracts.
(b) To provide this protection, an association of insurers
has been created and exists to pay benefits and to continue
coverages, as limited in sections 61B.18 to 61B.32. Members of
the association are subject to assessment to provide funds to
carry out the purpose of sections 61B.18 to 61B.32.
Subd. 2. [SCOPE.] (a) Sections 61B.18 to 61B.32 provide
coverage for the policies and contracts specified in paragraph
(b) to:
(1) persons who are owners of or certificate holders under
these policies or contracts, or, in the case of unallocated
annuity contracts, to the persons who are the contract holders
or participants in a covered retirement plan, and who:
(i) are residents; or
(ii) are not residents, but only under all of the following
conditions: the insurers that issued the policies or contracts
are domiciled in the state of Minnesota; those insurers never
held a license or certificate of authority in the states in
which those persons reside; those states have associations
similar to the association created by sections 61B.18 to 61B.32;
and those persons are not eligible for coverage by those
associations; and
(2) persons who, regardless of where they reside, except
for nonresident certificate holders under group policies or
contracts, are the beneficiaries, assignees, or payees of the
persons covered under clause (1).
(b) Sections 61B.18 to 61B.32 provide coverage to the
persons specified in paragraph (a) for direct, nongroup life,
health, annuity, and supplemental policies or contracts, for
subscriber contracts issued by a nonprofit health service plan
corporation operating under chapter 62C, for certificates under
direct group policies and contracts, and for unallocated annuity
contracts issued by member insurers, except as limited by
sections 61B.18 to 61B.32. Except as expressly excluded under
subdivision 3, annuity contracts and certificates under group
annuity contracts include, but are not limited to, guaranteed
investment contracts, deposit administration contracts,
unallocated funding agreements, allocated funding agreements,
structured settlement agreements, lottery contracts, and any
immediate or deferred annuity contracts. Covered unallocated
annuity contracts include those that fund a qualified defined
contribution retirement plan under sections 401, 403(b), and 457
of the Internal Revenue Code of 1986, as amended through
December 31, 1992.
Subd. 3. [LIMITATION OF COVERAGE.] Sections 61B.18 to
61B.32 do not provide coverage for:
(1) a portion of a policy or contract under which the
investment risk is borne by the policy or contract holder;
(2) a policy or contract of reinsurance, unless assumption
certificates have been issued and the insured has consented to
the assumption as provided under section 60A.09, subdivision 4a;
(3) a policy or contract issued by an assessment benefit
association operating under section 61A.39, or a fraternal
benefit society operating under chapter 64B;
(4) a health insurance policy issued by a person other than
a person authorized to write life insurance in this state or
other than a person whose corporate charter would permit the
writing of life insurance but who is authorized to write only
health insurance in this state;
(5) any obligation to nonresident participants of a covered
retirement plan or to the plan sponsor, employer, trustee, or
other party who owns the contract; in these cases, the
association is obligated under this chapter only to participants
in a covered plan who are residents of the state of Minnesota on
the date of impairment or insolvency;
(6) an annuity contract issued in connection with and for
the purpose of funding a structured settlement of a liability
claim, where the liability insurer remains liable;
(7) a portion of an unallocated annuity contract which is
not issued to or in connection with a specific employee, union,
or association of natural persons benefit plan or a governmental
lottery, including but not limited to, a contract issued to, or
purchased at the direction of, any governmental bonding
authority, such as a municipal guaranteed investment contract;
(8) a plan or program of an employer, association, or
similar entity to provide life, health, or annuity benefits to
its employees or members to the extent that the plan or program
is self-funded or uninsured, including benefits payable by an
employer, association, or similar entity under:
(i) a multiple employer welfare arrangement as defined in
the Employee Retirement Income Security Act of 1974, United
States Code, title 29, section 1002(40)(A), as amended;
(ii) a minimum premium group insurance plan;
(iii) a stop-loss group insurance plan; or
(iv) an administrative services only contract;
(9) any policy or contract issued by an insurer at a time
when it was not licensed or did not have a certificate of
authority to issue the policy or contract in this state;
(10) an unallocated annuity contract issued to an employee
benefit plan protected under the federal Pension Benefit
Guaranty Corporation; and
(11) a portion of a policy or contract to the extent that
it provides dividends or experience rating credits except to the
extent the dividends or experience rating credits have actually
become due and payable or have been credited to the policy or
contract before the date of impairment or insolvency, or
provides that a fee or allowance be paid to a person, including
the policy or contract holder, in connection with the service
to, or administration of, the policy or contract.
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 (4), with respect
to any one life, regardless of the number of policies or
contracts:
(i) $300,000 in life insurance death benefits, but not more
than $100,000 in net cash surrender and net cash withdrawal
values for life insurance;
(ii) $300,000 in health insurance benefits, including any
net cash surrender and net cash withdrawal values;
(iii) $100,000 in annuity net cash surrender and net cash
withdrawal values;
(iv) $300,000 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
(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, $100,000 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 $300,000
in present value;
(5) in no event shall the association be liable to expend
more than $300,000 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 $7,500,000 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 $7,500,000, the $7,500,000 shall be prorated
among the claimants;
(7) for purposes of applying clause (2)(ii), 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
Guaranty
Estate Association
0% recovery $ 0 $ 50,000
from estate
25% recovery $ 12,500 $ 37,500
from estate
50% recovery $ 25,000 $ 25,000
from estate
75% recovery $ 37,500 $ 12,500
from estate
$100,000
Guaranty
Estate Association
0% recovery $ 0 $100,000
from estate
25% recovery $ 25,000 $ 75,000
from estate
50% recovery $ 50,000 $ 50,000
from estate
75% recovery $ 75,000 $ 25,000
from estate
$200,000
Guaranty
Estate Association
0% recovery $ 0 $100,000
from estate
25% recovery $ 50,000 $ 75,000
from estate
50% recovery $100,000 $ 50,000
from estate
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.
Subd. 5. [LIMITED LIABILITY.] The liability of the
association is strictly limited by the express terms of the
covered policies and contracts and by the provisions of sections
61B.18 to 61B.32 and is not affected by the contents of any
brochures, illustrations, advertisements, or oral statements by
agents, brokers, or others used or made in connection with their
sale. This limitation on liability does not prevent an insured
from proving liability that is greater than the express terms of
the covered policy or contract. The insured must bring an
action to claim the greater liability no later than one year
after entry of an order of rehabilitation, conservation, or
liquidation. The association is not liable for any
extra-contractual, exemplary, or punitive damages. The
association is not liable for attorney fees or interest other
than as provided for by the terms of the policies or contracts,
subject to the other limits of sections 61B.18 to 61B.32.
Subd. 6. [ADJUSTMENT OF LIABILITY LIMITS.] The dollar
amounts stated in subdivision 4 shall be adjusted for inflation
based upon the implicit price deflator for the gross domestic
product compiled by the United States Department of Commerce and
hereafter referred to as the index. The dollar amounts stated
in subdivision 4 are based upon the value of the index for the
fourth quarter of 1992, which is the reference base index for
purposes of this subdivision. The dollar amounts in subdivision
4 shall change on October 1 of each year after 1993 based upon
the percentage difference between the index for the fourth
quarter of the preceding year and the reference base index,
calculated to the nearest whole percentage point. The
commissioner shall announce and publish, on or before April 30
of each year, the changes in the dollar amounts required by this
clause to take effect on October 1 of that year. The
commissioner shall use the most recent revision of the relevant
gross domestic product implicit price deflators available as of
April 1. If the United States Department of Commerce changes
the base year for the gross domestic product implicit price
deflator, the commissioner shall make the calculations necessary
to convert from the old to the new base year. Changes must be
in increments of $10,000. No adjustment may be made until the
change in the index results in at least a $10,000 increase.
Subd. 7. [CONSTRUCTION.] (a) Sections 61B.18 to 61B.32
shall be liberally construed to effect the purpose of sections
61B.18 to 61B.32. Subdivision 1 is an aid and guide to
interpretation.
(b) Participants in an employer-sponsored plan, which is
funded in whole or in part by a covered policy, as specified in
subdivision 4, clause (3), shall only be required to verify
their status as residents and the amount of money in the
unallocated annuity that represents their funds. Both these
matters may be verified by the employer sponsoring the plan from
plan records. Payments made to a plan shall be deemed to be
made on behalf of the resident participant and are not the funds
of the plan, the plan trustee, or any nonresident plan
participant, and to the extent of such payments, discharge the
association's obligation.
Sec. 5. [61B.20] [DEFINITIONS.]
Subdivision 1. [APPLICATION.] The definitions in this
section apply to sections 61B.19 to 61B.32.
Subd. 2. [ACCOUNT.] "Account" means either of the two
accounts created under section 61B.21, subdivision 1.
Subd. 3. [ANNUITY CONTRACTS.] "Annuity contracts" means
annuity contracts as described in section 60A.06, subdivision 1,
clause (4).
Subd. 4. [ASSOCIATION.] "Association" means the Minnesota
life and health insurance guaranty association.
Subd. 5. [COMMISSIONER.] "Commissioner" means the
commissioner of commerce.
Subd. 6. [CONTRACTUAL OBLIGATION.] "Contractual obligation"
means an obligation under a policy or contract or certificate
under a group policy or contract, or portion of the policy or
contract or certificate, for which coverage is provided under
section 61B.19, subdivision 2.
Subd. 7. [COVERED POLICY.] "Covered policy" means a policy
or contract to which sections 61B.18 to 61B.32 apply, as
provided in section 61B.19, subdivision 2.
Subd. 8. [CURRENT CONTRACTUAL OBLIGATION.] "Current
contractual obligation" means a contractual obligation which has
become due and owing for: (1) death benefits; (2) health
insurance benefits; (3) periodic annuity benefit or supplemental
contract payments, provided the annuitant or payee elected the
commencement of the periodic annuity benefit or supplemental
contract payments before the date of impairment or insolvency,
or if the annuitant or payee elected the commencement of the
periodic annuity benefit or supplemental contract payments after
the date of impairment or insolvency, (i) the election was made
pursuant to a written plan, such as a retirement plan, which
existed before the impairment or insolvency, or (ii)
commencement of the periodic annuity benefit or supplemental
contract payments was elected at or after the annuitant's
attainment of age 65 and, in either case, was for a payment
period of not less than the annuitant's lifetime or a period
certain of not less than ten years; or (4) cash surrender or
loan values or endowment proceeds or any portion thereof, but
only if, and to the extent that, an emergency or hardship such
as, but not limited to, the funds being reasonably necessary to
pay education, medical, home purchase, or essential living
expenses, is established in accordance with standards proposed
by the association and approved by the commissioner. The
hardship standards must also provide for an individual appeal to
the board of directors in those circumstances which, while not
meeting the standards approved by the commissioner, may truly be
a hardship.
Subd. 9. [DIRECT LIFE INSURANCE.] "Direct life insurance"
means life insurance as described in section 60A.06, subdivision
1, clause (4), and does not include credit life insurance
regulated under chapter 62B.
Subd. 10. [HEALTH INSURANCE.] "Health insurance" means
accident and health insurance as described in section 60A.06,
subdivision 1, clause (5)(a), credit accident and health
insurance regulated under chapter 62B, and subscriber contracts
issued by a nonprofit health service plan corporation operating
under chapter 62C.
Subd. 11. [IMPAIRED INSURER.] "Impaired insurer" means a
member insurer that is not an insolvent insurer, and:
(1) is placed under an order of rehabilitation or
conservation by a court of competent jurisdiction. The order of
rehabilitation or conservation referred to in this subdivision
is the initial order granting a petition, application, or other
request to begin a rehabilitation or conservatorship; or
(2) is determined by the commissioner to be potentially
unable to fulfill its contractual obligations and the
commissioner has notified the association of the determination.
Subd. 12. [INSOLVENT INSURER.] "Insolvent insurer" means a
member insurer that is placed under an order of liquidation by a
court of competent jurisdiction with a finding of insolvency.
The order of liquidation referred to in this subdivision is the
initial order granting a petition, application, or other request
to begin a liquidation.
Subd. 13. [MEMBER INSURER.] "Member insurer" means an
insurer licensed or holding a certificate of authority to
transact in this state any kind of insurance for which coverage
is provided under section 61B.19, subdivision 2, and includes an
insurer whose license or certificate of authority in this state
may have been suspended, revoked, not renewed, or voluntarily
withdrawn. The term does not include:
(1) a nonprofit hospital or medical service organization,
other than a nonprofit health service plan corporation that
operates under chapter 62C;
(2) a health maintenance organization;
(3) a fraternal benefit society;
(4) a mandatory state pooling plan;
(5) a mutual assessment company or an entity that operates
on an assessment basis;
(6) an insurance exchange; or
(7) an entity similar to those listed in clauses (1) to (6).
Subd. 14. [PERSON.] "Person" means an individual,
corporation, partnership, unincorporated association, limited
liability company, or voluntary organization.
Subd. 15. [PREMIUMS.] "Premiums" means amounts received on
covered policies or contracts less premiums, considerations, and
deposits returned, and less dividends and experience credits on
those covered policies or contracts to the extent not guaranteed
in advance. The term does not include amounts received for
policies or contracts or for the portions of policies or
contracts for which coverage is not provided under section
61B.19, subdivision 3, except that assessable premium shall not
be reduced on account of section 61B.19, subdivision 4, relating
to limitations with respect to any one life, any one individual,
and any one contract holder, provided that "premiums" shall not
include any premiums in excess of the liability limit on any
unallocated annuity contract specified in section 61B.19,
subdivision 4.
Subd. 16. [RESIDENT.] "Resident" means a person who
resides in Minnesota at the time a member insurer is initially
determined by the commissioner or a court to be an impaired or
insolvent insurer and to whom a contractual obligation is owed.
A person may be a resident of only one state, which in the case
of a person other than a natural person is its principal place
of business, and which, in the case of a trust, is the principal
place of business of the settlor or entity which established the
trust.
Subd. 17. [SUPPLEMENTAL CONTRACT.] "Supplemental contract"
means an agreement entered into for the distribution of policy
or contract proceeds.
Subd. 18. [UNALLOCATED ANNUITY CONTRACT.] "Unallocated
annuity contract" means an annuity contract or group annuity
certificate that is not issued to and owned by an individual,
except to the extent of annuity benefits guaranteed to an
individual by an insurer under the contract or certificate.
Sec. 6. [61B.21] [MINNESOTA LIFE AND HEALTH INSURANCE
GUARANTY ASSOCIATION.]
Subdivision 1. [FUNCTIONS.] The Minnesota life and health
insurance guaranty association shall perform its functions under
the plan of operation established and approved under section
61B.25, and shall exercise its powers through a board of
directors. The association is not a state agency for purposes
of chapter 14, 16A, 16B, or 43A. For purposes of administration
and assessment, the association shall establish and maintain two
accounts:
(1) the life insurance and annuity account which includes
the following subaccounts:
(i) the life insurance account;
(ii) the annuity account; and
(iii) the unallocated annuity account; and
(2) the health insurance account.
Subd. 2. [SUPERVISION BY COMMISSIONER OF COMMERCE.] The
association is under the immediate supervision of the
commissioner and is subject to the applicable provisions of the
insurance laws of this state.
Sec. 7. [61B.22] [BOARD OF DIRECTORS.]
Subdivision 1. [MEMBERS.] The board of directors of the
association consists of nine members serving terms as
established in the plan of operation under section 61B.25.
Members of the board must be elected by member insurers, subject
to the approval of the commissioner, for the terms of office
specified in their nominations. Vacancies on the board shall be
filled for the remaining period of the term by a majority vote
of the remaining board members, subject to approval of the
commissioner. In approving selections or in appointing members
to the board, the commissioner shall consider whether all member
insurers are fairly represented.
Subd. 2. [EXPENSES.] Members of the board may be
reimbursed from the assets of the association for reasonable and
necessary expenses incurred by them as members of the board, but
shall not otherwise be compensated by the association for their
services.
Subd. 3. [COMMITTEES AND MEETINGS.] Except as otherwise
required under the plan of operation:
(a) The board of directors may, by unanimous affirmative
action of the entire board, designate three or more directors as
an executive committee, which, to the extent determined by
unanimous affirmative action of the entire board, has and shall
exercise the authority of the board in the management of the
business of the association. This executive committee shall act
only in the interval between meetings of the board, and is
subject at all times to the control and direction of the board.
(b) The board of directors may, by unanimous affirmative
action of the entire board, create additional committees, which
have and shall exercise the specific authority and
responsibility as determined by the unanimous affirmative action
of the entire board.
(c) Any action that may be taken at a meeting of the board
of directors or of a lawfully constituted executive committee
may be taken without a meeting if authorized by a writing or
writings signed by all the directors or by all of the members of
the committee, as the case may be. This action is effective on
the date on which the last signature is placed on the writing or
writings, or on an earlier effective date established in the
writing or writings.
(d) Members of the board of directors or of a lawfully
constituted executive committee may participate in a meeting of
the board or committee by means of conference telephone or
similar communications equipment through which all persons
participating in the meeting can hear each other. Participation
in a meeting as provided in this paragraph constitutes presence
in person at the meeting.
Subd. 4. [OPEN MEETINGS.] Board meetings are not subject
to section 471.705.
Sec. 8. [61B.23] [POWERS AND DUTIES OF THE ASSOCIATION.]
Subdivision 1. [IMPAIRED DOMESTIC INSURER.] If a member
insurer is an impaired domestic insurer, the association may, in
its discretion, and subject to any conditions imposed by the
association that do not impair the contractual obligations of
the impaired insurer and that are approved by the commissioner,
and that are, except in cases of court ordered conservation or
rehabilitation, also approved by the impaired insurer:
(1) guarantee, assume, or reinsure, or cause to be
guaranteed, assumed, or reinsured, any or all of the policies or
contracts of the impaired insurer;
(2) provide money, pledges, notes, guarantees, or other
means as are proper to exercise the power granted in clause (1)
and assure payment of the contractual obligations of the
impaired insurer pending action under clause (1); or
(3) loan money to the impaired insurer.
Subd. 2. [IMPAIRED INSURER NOT PAYING CLAIMS.] (a) If a
member insurer is an impaired insurer, whether domestic,
foreign, or alien, and the insurer is not paying claims in a
timely manner as required under section 72A.201, based in whole
or in part on the insurer's financial inability to pay claims
then subject to the preconditions specified in paragraph (b),
the association shall, in its discretion, either:
(1) take any of the actions specified in subdivision 1,
subject to the conditions in that subdivision; or
(2) provide for prompt payment of current contractual
obligations.
(b) The association is subject to the requirements of
paragraph (a) only if the commissioner has begun a formal
administrative or judicial proceeding which seeks to suspend the
authority of the impaired insurer to write new business in this
state and to require the impaired insurer to cooperate with the
association in the administration of claims. The suspension of
the impaired insurer's authority to write new business in this
state shall continue until all payments of or on account of the
impaired insurer's contractual obligations paid by the
association, along with all expenses thereof and interest on
these payments and expenses, shall have been repaid to the
association or a plan of repayment of the payments, expenses,
and interest by the impaired insurer shall have been approved by
the association. If the commissioner ceases to seek an
administrative or judicial order suspending the impaired
insurer's authority to write new business in this state within
90 days, or is denied the order, the association shall not be
required to proceed under this subdivision unless:
(1) the impaired insurer has been placed under an order of
rehabilitation or conservation by a court of competent
jurisdiction; and
(2) the court has approved and entered an order providing
that the rehabilitation or conservation proceedings shall not be
dismissed, and neither the impaired insurer nor its assets shall
be returned to the control of its shareholders or private
management, and the impaired insurer is prohibited from
soliciting or accepting new business or having a suspended or
revoked license restored until at least one of the following
events has occurred:
(i) all payments of or on account of the impaired insurer's
contractual obligations paid by all the affected guaranty
associations, along with expenses thereof and interest on all of
those payments and expenses incurred by those guaranty
associations, have been repaid to them; or
(ii) a plan of repayment by the impaired insurer has been
approved by all the affected guaranty associations.
(c) The association shall endeavor to obtain access to
those records of the impaired insured as are needed for the
association to discharge its obligations and, if requested by
the association, the commissioner will assist the association in
obtaining access to those records. If the association is not
given access to the necessary records, the association shall be
relieved of its responsibility to make benefit payments until
the time it is given access to those records.
(d) If the impaired insurer is subsequently determined to
be insolvent by a court of competent jurisdiction in its state
of domicile and is placed in liquidation, the association shall
then proceed as provided in subdivision 3.
Subd. 3. [INSOLVENT INSURER.] If a member insurer is an
insolvent insurer then, subject to any conditions imposed by the
association and approved by the commissioner, the association
shall, in its discretion:
(1) guaranty, assume, or reinsure, or cause to be
guaranteed, assumed, or reinsured, the policies or contracts of
the insolvent insurer;
(2) assure payment of the contractual obligations of the
insolvent insurer which are due and owing;
(3) provide money, pledges, guarantees, or other means as
are reasonably necessary to discharge its duties; or
(4) with respect only to life and health insurance
policies, provide benefits and coverages in accordance with
subdivision 4.
Subd. 4. [PAYMENTS; ALTERNATIVE POLICIES.] When proceeding
under subdivision 2, paragraph (a), clause (2), or subdivision
3, clause (4), the association shall, with respect to only life
and health insurance policies:
(a) Assure payment of benefits for premiums identical to
the premiums and benefits, except for terms of conversion and
renewability, that would have been payable under the policies of
the impaired or insolvent insurer, for claims incurred:
(1) with respect to group policies, not later than the
earlier of the next renewal date under those policies or
contracts or 45 days, but in no event less than 30 days, after
the date on which the association becomes obligated with respect
to those policies; or
(2) with respect to individual policies, not later than the
earlier of the next renewal date, if any, under those policies
or one year, but in no event less than 30 days, from the date on
which the association becomes obligated with respect to those
policies.
(b) Make diligent efforts to provide all known insureds or
group policyholders with respect to group policies 30 days'
notice of the termination of the benefits provided.
(c) With respect to individual policies, make available to
each known insured, or owner if other than the insured, and with
respect to an individual formerly insured under a group policy
who is not eligible for replacement group coverage, make
available substitute coverage on an individual basis in
accordance with paragraph (d), if the insureds had a right under
law or the terminated policy to convert coverage to individual
coverage or to continue an individual policy in force until a
specified age or for a specified time, during which the insurer
had no right unilaterally to make changes in any provision of
the policy or had a right only to make changes in premium by
class.
(d)(1) In providing the substitute coverage required under
paragraph (c), the association may offer either to reissue the
terminated coverage or to issue an alternative policy.
(2) Alternative or reissued policies must be offered
without requiring evidence of insurability, and must not provide
for any waiting period or exclusion that would not have applied
under the terminated policy.
(3) The association may reinsure any alternative or
reissued policy.
(e)(1) Alternative policies adopted by the association are
subject to the approval of the commissioner. The association
may adopt alternative policies of various types for future
issuance without regard to any particular impairment or
insolvency.
(2) Alternative policies must contain at least the minimum
statutory provisions required in this state and provide benefits
that are not unreasonable in relation to the premium charged.
The association shall set the premium in accordance with a table
of rates which it shall adopt. The premium must reflect the
amount of insurance to be provided and the age and class of risk
of each insured, but must not reflect any changes in the health
of the insured after the original policy was last underwritten.
(3) Any alternative policy issued by the association must
provide coverage of a type similar to that of the policy issued
by the impaired or insolvent insurer, as determined by the
association.
(f) If the association elects to reissue terminated
coverage at a premium rate different from that charged under the
terminated policy, the premium must be set by the association in
accordance with the amount of insurance provided and the age and
class of risk, subject to approval of the commissioner or by a
court of competent jurisdiction.
(g) The association's obligations with respect to coverage
under any policy of the impaired or insolvent insurer or under
any reissued or alternative policy ceases on the date the
coverage or policy is replaced by another similar policy by the
policyholder, the insurer, or the association and the
preexisting condition limitations have been satisfied.
Subd. 5. [OBLIGATIONS TERMINATED.] Nonpayment of all
unpaid premiums within 31 days after the date required under the
terms of a guaranteed, assumed, alternative, or reissued policy
or contract or substitute coverage terminates the association's
obligations under the policy, contract, or coverage under
sections 61B.18 to 61B.32 with respect to the policy, contract,
or coverage, except with respect to claims incurred or net cash
surrender value that may be due in accordance with sections
61B.18 to 61B.32. The association will not terminate the policy
or contract for nonpayment of premium until 31 days after the
association sends a written cancellation notice by first class
mail to the insured's last known address.
Subd. 6. [POSTLIQUIDATION PREMIUMS.] Premiums due for
coverage after entry of any order of liquidation of an insolvent
insurer belong to and are payable at the direction of the
association, and the association is liable for unearned premiums
due policy or contract owners arising after the entry of the
order.
Subd. 7. [COVERAGE BY ANOTHER STATE.] The association has
no liability under this section for a covered policy of a
foreign or alien insurer whose domiciliary jurisdiction or state
of entry provides protection, by statutes or rule, for residents
of this state, which protection is substantially similar to that
provided by sections 61B.18 to 61B.32, for residents of other
states. Recovery provided for under sections 61B.18 to 61B.32
is reduced by the amount of recovery under the coverage provided
by another state or jurisdiction. If another state or
jurisdiction providing substantially similar coverage as
provided by sections 61B.18 to 61B.32 denies coverage, the
association shall provide coverage if the policyholder or
contract holder is otherwise eligible, and the association is
then subrogated to the rights of the person receiving benefits
with respect to the other state or jurisdiction. If a person
receiving benefits from the association has a claim remaining
against another state or jurisdiction, whether or not such state
or jurisdiction provides substantially similar protection within
the meaning of this section, then such person's remaining claim
has priority over any subrogation rights of the association with
respect to that other state or jurisdiction.
Subd. 8. [LIENS.] (a) In carrying out its duties under
subdivision 2 or 3, the association may request that there be
imposed policy liens, contract liens, moratoriums on payments,
or other similar means. The liens, moratoriums, or similar
means may be imposed if the commissioner:
(1) finds: (i) that the amounts that can be assessed under
sections 61B.18 to 61B.32 are less than the amounts necessary to
assure full and prompt performance of the impaired insurer's
contractual obligations; (ii) that economic or financial
conditions as they affect member insurers are sufficiently
adverse to cause the imposition of policy or contract liens,
moratoriums, or similar means to be in the public interest;
(iii) that there is a reasonable likelihood that a plan of
rehabilitation will be developed or other appropriate
arrangements made for the orderly provision for covered
contractual obligations of the impaired or insolvent insurer,
and that the imposition of policy or contract liens,
moratoriums, or similar means is necessary and appropriate to
support the development of the plan of rehabilitation or other
appropriate arrangements; (iv) that the imposition of policy or
contract liens, moratoriums, or similar means is necessary and
appropriate to ensure the equitable treatment of all
policyholders of impaired or insolvent insurers protected by the
guaranty association; (v) that the imposition of policy or
contract liens, moratoriums, or similar means is necessary and
appropriate to encourage recovery of the maximum possible amount
from the remaining assets of the impaired or insolvent insurer's
estate; or (vi) that the imposition of policy or contract liens,
moratoriums, or similar means is necessary and appropriate in
order for the association to participate in any multistate plan
of rehabilitation, conservation, or liquidation of the impaired
or insolvent insurer, and the commissioner considers the plan to
be in the best interests of the impaired or insolvent insurer's
policyholders or the association's member insurers;
(2) finds, in the case of a moratorium, that current
contractual obligations are being, and will continue to be,
promptly paid; and
(3) approves the specific policy liens, contract liens,
moratoriums, or similar means to be used.
(b) Before being obligated under subdivision 2 or 3, the
association may request that there be imposed temporary
moratoriums or liens on payments of cash values and policy
loans. The temporary moratoriums and liens may be imposed if
approved by the commissioner.
(c) A moratorium, lien, or other means imposed pursuant to
this subdivision may be for: (i) a specific term; or (ii) an
indefinite term which shall continue in effect until the
commissioner, at the request of the association or, on the
commissioner's own motion after notice to the association, finds
that the reason or reasons for the moratorium, lien, or other
means no longer exists.
Subd. 9. [FAILURE TO ACT.] If the association fails to act
within a reasonable period of time as provided in subdivision 2,
paragraph (a), clause (2); subdivision 3; or subdivision 4, the
commissioner has the powers and duties of the association with
respect to impaired or insolvent insurers including, but not
limited to, the power to make assessments.
Subd. 10. [ASSISTANCE TO COMMISSIONER.] The association
may give assistance and advice to the commissioner, upon
request, concerning rehabilitation, payment of claims,
continuance of coverage, or the performance of other contractual
obligations of an impaired or insolvent insurer.
Subd. 11. [STANDING IN COURT.] The association has
standing to appear before any court in this state with
jurisdiction over an impaired or insolvent insurer concerning
which the association is or may become obligated under sections
61B.18 to 61B.32. This standing extends to all matters germane
to the powers and duties of the association, including proposals
for reinsuring, modifying, or guaranteeing the policies or
contracts of the impaired or insolvent insurer and the
determination of the policies or contracts and contractual
obligations. The association may appear or intervene before a
court in another state with jurisdiction over an impaired or
insolvent insurer for which the association is or may become
obligated or with jurisdiction over a third party against whom
the association may have rights through subrogation of the
insurer's policyholders or of any other person, provided,
however, in the case of any such appearance or intervention, the
association shall not submit for adjudication its obligations to
provide coverage under the Minnesota life and health insurance
guaranty association act without the prior approval of the
commissioner.
Subd. 12. [ASSIGNMENTS; SUBROGATION RIGHTS.] (a) A person
receiving benefits under sections 61B.18 to 61B.32 shall be
considered to have assigned the rights under, and any causes of
action relating to, the covered policy or contract to the
association to the extent of the benefits received because of
sections 61B.18 to 61B.32, whether the benefits are payments of
or on account of contractual obligations, continuation of
coverage, or provision of substitute or alternative coverages.
The association may require an assignment to it of those rights
and causes of action by a payee, policy or contract owner,
beneficiary, insured, or annuitant as a condition precedent to
the receipt of rights or benefits conferred by sections 61B.18
to 61B.32 upon that person. The subrogation rights of the
association include any rights that a person may have as a
beneficiary of a plan covered under the Employee Retirement
Income Security Act of 1974, United States Code, title 29,
section 1003, as amended.
(b) The subrogation rights of the association under this
subdivision against the assets of the impaired or insolvent
insurer have the same priority as those of a person entitled to
receive benefits under sections 61B.18 to 61B.32.
(c) In addition to paragraphs (a) and (b), the association
has all common law rights of subrogation and other equitable or
legal remedies that would have been available to the impaired or
insolvent insurer or person receiving benefits under sections
61B.18 to 61B.32.
Subd. 13. [PERMISSIVE POWERS.] The association may:
(1) enter into contracts as are necessary or proper to
carry out the provisions and purposes of sections 61B.18 to
61B.32;
(2) sue or be sued, including taking any legal actions
necessary or proper to recover any unpaid assessments under
section 61B.26 to settle claims or potential claims against it;
(3) borrow money to effect the purposes of sections 61B.18
to 61B.32 and any notes or other evidence of indebtedness of the
association not in default are legal investments for domestic
insurers and may be carried as admitted assets;
(4) employ or retain persons as are necessary to handle the
financial transactions of the association, and to perform other
functions as the association considers necessary or proper under
sections 61B.18 to 61B.32;
(5) enter into arbitration or take legal action as may be
necessary to avoid payment of improper claims;
(6) exercise, for the purposes of sections 61B.18 to 61B.32
and to the extent approved by the commissioner, the powers of a
domestic life or health insurer, but in no case may the
association issue insurance policies or annuity contracts other
than those issued to perform its obligations under sections
61B.18 to 61B.32;
(7) join an organization of one or more other state
associations of similar purposes, to further the purposes and
administer the powers and duties of the association;
(8) negotiate and contract with any liquidator,
rehabilitator, conservator, or ancillary receiver to carry out
the powers and duties of the association; and
(9) participate in the organization of and/or own stock in
an entity which exists or was formed for the purpose of assuming
liability for contracts or policies issued by impaired or
insolvent insurers.
Sec. 9. [61B.24] [ASSESSMENTS.]
Subdivision 1. [PURPOSE.] For the purpose of providing the
funds necessary to carry out the powers and duties of the
association, the board of directors shall assess the member
insurers, separately for each account or subaccount, at the
times and for the amounts as the board finds necessary.
Assessments are due not less than 30 days after prior written
notice to the member insurers and accrue interest on and after
the due date at the then applicable rate determined under
section 549.09, subdivision 1, paragraph (c).
Subd. 2. [CLASSES OF ASSESSMENTS.] There are two classes
of assessments, as follows:
(1) class A assessments must be made for the purpose of
meeting administrative and legal costs and other expenses and
examinations conducted under the authority of section 61B.27.
Class A assessments may be made whether or not related to a
particular impaired or insolvent insurer; and
(2) class B assessments must be made to the extent
necessary to carry out the powers and duties of the association
under section 61B.23 with regard to an impaired or an insolvent
insurer.
Subd. 3. [FORMULA FOR DETERMINATION.] (a) The amount of a
class A assessment shall be determined by the board and may be
made on a pro rata or nonpro rata basis. If pro rata, the board
may provide that it be credited against future class B
assessments. A nonpro rata assessment shall not exceed $500 per
member insurer in any one calendar year.
(b) The amount of any class B assessment must be allocated
for assessment purposes among the accounts or subaccounts
pursuant to an allocation formula which may be based on the
premiums or reserves of the impaired or insolvent insurer or any
other standard considered by the board in its sole discretion as
being fair and reasonable under the circumstances.
(c) Class B assessments against member insurers for each
subaccount or account must be in the proportion that the average
annual premiums received on business in this state by each
assessed member insurer on policies or contracts covered by each
subaccount or account for the three most recent calendar years
for which information is available preceding the calendar year
in which the insurer became impaired or insolvent, as the case
may be, bears to the average annual premiums received on
business in this state by all assessed member insurers on
policies or contracts covered by that subaccount or account for
those same calendar years. If the impaired insurer becomes
insolvent, the date of impairment must be used to determine the
assessment. Premiums for purposes of calculating average annual
premium for calendar years prior to 1993 shall be determined in
accordance with Minnesota Statutes 1992, sections 61B.01 to
61B.16.
(d) Assessments for funds to meet the requirements of the
association with respect to an impaired or insolvent insurer
must not be made until necessary to implement the purposes of
sections 61B.18 to 61B.32. Classification of assessments under
subdivision 2 and computation of assessments under this
subdivision must be made with a reasonable degree of accuracy,
recognizing that exact determinations may not always be possible.
Subd. 4. [ABATEMENT OR DEFERMENT.] The association may
abate or defer, in whole or in part, the assessment of a member
insurer if, in the opinion of the board, payment of the
assessment would endanger the ability of the member insurer to
fulfill its contractual obligations. In the event an assessment
against a member insurer is abated, or deferred in whole or in
part, the amount by which the assessment is abated or deferred
may be assessed against the other member insurers in a manner
consistent with the basis for assessments as provided in this
section.
Subd. 5. [MAXIMUM ASSESSMENT.] (a) The total of all
assessments upon a member insurer for the life and annuity
account and for each subaccount of the life and annuity account
shall not in any one calendar year exceed two percent of that
member insurer's average annual premiums as calculated in
subdivision 3, paragraph (c), on policies or contracts covered
by that account or subaccount. If two or more assessments are
made with respect to insurers that become impaired or insolvent
in different calendar years, average annual premiums for
purposes of the assessment percentage limitation are based upon
the higher of the three-year averages calculated under
subdivision 3, paragraph (c). If an impaired insurer becomes
insolvent, the date of impairment must be used to determine the
assessment. In addition, if the board of directors determines
that a one percent assessment for any subaccount of the life and
annuity account in any one calendar year will not provide an
amount sufficient to carry out the responsibilities of the
association, then pursuant to subdivision 3, the board of
directors shall make a one percent assessment for the affected
subaccount or subaccounts and assess the remaining necessary
amount against all three subaccounts on a pro rata basis;
provided that if the maximum annual two percent assessment limit
would be exceeded in a subaccount by the assessment, then the
other subaccounts will be assessed for the balance of any
remaining necessary amount up to the maximum annual two percent
limit in those other subaccounts.
(b) The total of all assessments upon a member insurer for
the health account shall not in any one calendar year exceed two
percent of that member insurer's average annual premiums as
calculated under subdivision 3, paragraph (c), on policies or
contracts covered by that account. If two or more assessments
are made with respect to insurers that become impaired or
insolvent in different calendar years, average annual premiums
for purposes of the assessment percentage limitation is based
upon the higher of the three-year averages calculated under
subdivision 3, paragraph (c).
(c) If the maximum assessment for an account, together with
the other assets of the association in that account, does not
provide in any one calendar year in that account an amount
sufficient to carry out the responsibilities of the association,
the necessary additional funds must be assessed as soon as
permitted by sections 61B.18 to 61B.32.
(d) The board may adopt general principles in the plan of
operation for allocating funds among claims, whether relating to
one or more impaired or insolvent insurers, when the maximum
assessment will be insufficient to cover anticipated claims.
(e) If assessments under this section are inadequate to pay
all obligations of the impaired insurer that are or become due
and owing, then the association shall prepare a plan approved by
the commissioner for prioritization of payments. If the
association adopts general principles in the plan of operations,
the association shall use the general principles in preparing
the plan required under this paragraph. No formerly impaired or
insolvent insurer may be reinstated until all payments of or on
account of the insurer's contractual obligations by the guaranty
association, along with all expenses thereof and interest on all
such payments and expenses, shall have been repaid to the
guaranty association or a plan of repayment by the insurer shall
have been approved by the commissioner.
Subd. 6. [REFUND.] The board may, by an equitable method
as established in the plan of operation, refund to member
insurers, in proportion to the contribution of each insurer to
that account or subaccount, the amount by which the assets of
the account or subaccount exceed the amount the board finds is
necessary to carry out during the coming year the obligations of
the association with regard to that account or subaccount,
including assets accruing from assignment, subrogation, net
realized gains, and income from investments. A reasonable
amount may be retained in any account or subaccount to provide
funds for the continuing expenses of the association and for
future losses.
Subd. 7. [PREMIUM RATES AND DIVIDENDS.] A member insurer
may, in determining its premium rates and policyowner dividends
as to any kind of insurance within the scope of sections 61B.18
to 61B.32, consider the amount reasonably necessary to meet its
assessment obligations under sections 61B.18 to 61B.32.
Subd. 8. [CERTIFICATE OF CONTRIBUTION.] The association
shall issue to each insurer paying an assessment under sections
61B.18 to 61B.32, other than a class A assessment, a certificate
of contribution, in a form prescribed by the commissioner, for
the amount of the assessment so paid. All outstanding
certificates must be of equal dignity and priority without
reference to amounts or dates of issue. A certificate of
contribution may be shown by the insurer in its financial
statement as an asset in the form and for the amount, if any,
and period of time as the commissioner may approve.
Subd. 9. [SURVIVAL OF OBLIGATION.] In the event a member
insurer engages in any reorganization, including any merger,
consolidation, restructuring, incorporation, or reincorporation,
the member's obligations under this chapter shall survive the
reorganization with respect to assessments for impairments or
insolvencies occurring before the date of the reorganization.
Sec. 10. [61B.25] [PLAN OF OPERATION.]
Subdivision 1. [ADOPTION AND AMENDMENT.] The purpose of
the plan of operation is to assure the fair, reasonable, and
equitable administration of the association under sections
61B.18 to 61B.32. Amendments to the plan of operation must be
submitted to the commissioner and become effective upon the
commissioner's written approval or 30 days after submission if
the commissioner has not disapproved. If the association fails
to submit suitable amendments to the plan, the commissioner
shall, after notice and hearing, adopt reasonable rules
necessary or advisable to implement sections 61B.18 to 61B.32.
The rules shall continue in force until modified by the
commissioner or superseded by amendments submitted by the
association and approved by the commissioner.
Subd. 2. [COMPLIANCE.] All member insurers shall comply
with the plan of operation.
Subd. 3. [CONTENTS.] The plan of operation must, in
addition to requirements specified in sections 61B.18 to 61B.32:
(1) establish procedures for handling the assets of the
association;
(2) establish the amount and method of reimbursing members
of the board of directors under section 61B.22;
(3) establish regular places and times for meetings
including telephone conference calls of the board of directors
or of the executive committee;
(4) establish procedures for records to be kept of all
financial transactions of the association, its agents, and the
board of directors;
(5) establish procedures for selecting the board of
directors;
(6) establish any additional procedures for assessments
under section 61B.24; and
(7) contain additional provisions necessary or proper for
the execution of the powers and duties of the association.
Subd. 4. [DELEGATION OF POWERS AND DUTIES.] The plan of
operation may provide that any or all powers and duties of the
association, except those under sections 61B.23, subdivision 13,
clause (3), and 61B.24, are delegated to a corporation,
association, or other organization which performs or will
perform functions similar to those of this association, or its
equivalent, in two or more states. The corporation,
association, or organization shall be reimbursed for any
payments made on behalf of the association and shall be paid for
its performance of any function of the association. A
delegation under this subdivision shall take effect only with
the approval of both the board of directors and the
commissioner, and may be made only to a corporation,
association, or organization which extends protection not
substantially less favorable and effective than that provided by
sections 61B.18 to 61B.32.
Sec. 11. [61B.26] [DUTIES AND POWERS OF THE COMMISSIONER.]
(a) In addition to other duties and powers in sections
61B.18 to 61B.32, the commissioner shall:
(1) notify the board of directors of the existence of an
impaired or insolvent insurer within three days after a
determination of impairment or insolvency is made or the
commissioner receives notice of impairment or insolvency;
(2) upon request of the board of directors, provide the
association with a statement of the premiums in this and any
other appropriate states for each member insurer;
(3) when an impairment is declared and the amount of the
impairment is determined, serve a demand upon the impaired
insurer to make good the impairment within a reasonable time;
notice to the impaired insurer shall constitute notice to its
shareholders, if any; the failure of the insurer to promptly
comply with the commissioner's demand shall not excuse the
association from the performance of its powers and duties under
sections 61B.18 to 61B.32; and
(4) in a liquidation, conservation, or rehabilitation
proceeding involving a domestic insurer, be appointed as the
liquidator, conservator, or rehabilitator.
(b) The commissioner may suspend or revoke, after notice
and hearing, the certificate of authority to transact insurance
in this state of any member insurer which fails to pay an
assessment when due or fails to comply with the plan of
operation. As an alternative, the commissioner may levy a
forfeiture on any member insurer which fails to pay an
assessment when due. A forfeiture shall not exceed five percent
of the unpaid assessment per month, but no forfeiture shall be
less than $100 per month.
(c) An action of the board of directors or the association
may be appealed to the commissioner if the appeal is taken
within 30 days of the notice of the action being appealed. If a
member company is appealing an assessment, the amount assessed
must be paid to the association and be available to meet
association obligations during the pendency of an appeal. If
the appeal on the assessment is upheld, the amount paid in error
or excess must be returned to the member company. Any final
action or order of the commissioner is subject to judicial
review in a court of competent jurisdiction, in the manner
provided by chapter 14. A determination or decision by the
commissioner under sections 61B.18 to 61B.32 is not subject to
the contested case or rulemaking provisions of chapter 14.
(d) The liquidator, rehabilitator, or conservator of an
impaired insurer may notify all interested persons of the effect
of sections 61B.18 to 61B.32.
(e) For the purposes of sections 61B.18 to 61B.32, the
commissioner may delegate any of the powers conferred by law.
(f) Nonperformance of any of the acts specified in this
section or failure to meet the specific time limits does not
affect the association, its members, or any other person as to
the person's duties and obligations.
Sec. 12. [61B.27] [PREVENTION OF INSOLVENCIES.]
(a) To aid in the detection and prevention of insurer
insolvencies or impairments the commissioner shall notify the
commissioners of insurance of all the other states, territories
of the United States, and the District of Columbia when the
commissioner takes one of the following actions against a member
insurer:
(i) revocation of license; or
(ii) suspension of license.
The notice must be mailed to all commissioners within 30
days following the action.
(b) If the commissioner deems it appropriate, the
commissioner may:
(1) Report to the board of directors when the commissioner
has taken any of the actions specified in paragraph (a) or has
received a report from another commissioner indicating that an
action specified in paragraph (a) has been taken in another
state. The report to the board of directors must contain all
significant details of the action taken or the report received
from another commissioner.
(2) Report to the board of directors when the commissioner
has reasonable cause to believe from an examination, whether
completed or in process, of a member company that the company
may be an impaired or insolvent insurer.
(3) Furnish to the board of directors the national
association of insurance commissioners insurance regulatory
information system ratios and listings of companies not included
in the ratios developed by the national association of insurance
commissioners, and the board may use the information in carrying
out its duties and responsibilities under this section. The
report and the information contained in it must be kept
confidential by the board of directors until it has been made
public by the commissioner or other lawful authority. Nothing
in this provision supersedes other requirements of law.
(4) Notify the board if the commissioner makes a formal
order requiring the company to restrict its premium writing,
obtain additional contributions to surplus, withdraw from this
state, reinsure all or any part of its business, or increase
capital, surplus, or any other account for the security of
policyholders or creditors.
(c) The commissioner may seek the advice and
recommendations of the board of directors concerning any matter
affecting the commissioner's duties and responsibilities
regarding the financial condition of member insurers and of
companies seeking admission to transact insurance business in
this state.
(d) The board of directors may, upon majority vote, make
reports and recommendations to the commissioner upon matters
germane to the solvency, liquidation, rehabilitation, or
conservation of any member insurer or germane to the solvency of
a company seeking to do an insurance business in this state.
Those reports and recommendations shall not be considered public
documents.
(e) The board of directors, upon majority vote, shall
notify the commissioner of information indicating that a member
insurer may be an impaired or insolvent insurer.
(f) The board of directors may, upon majority vote, request
that the commissioner order an examination of a member insurer
which the board in good faith believes may be an impaired or
insolvent insurer. Within 30 days of the receipt of the
request, the commissioner shall begin the examination. The
examination may be conducted as a national association of
insurance commissioners examination or may be conducted by those
persons designated by the commissioner. The cost of the
examination must be paid by the association and the examination
report must be treated as are other examination reports. In no
event shall an examination report be released to the board of
directors prior to its release to the public, but this shall not
preclude the commissioner from complying with paragraph (a).
The commissioner shall notify the board of directors when
the examination is completed. The request for an examination
must be kept on file by the commissioner, but it shall not be
open to public inspection prior to the release of the
examination report to the public.
(g) The board of directors may, upon majority vote, make
recommendations to the commissioner for the detection and
prevention of insurer insolvencies.
(h) The board of directors may, at the conclusion of an
insurer insolvency in which the association was obligated to pay
covered claims, prepare a report to the commissioner containing
the information it may have in its possession bearing on the
history and causes of the insolvency. The board shall cooperate
with the boards of directors of guaranty associations in other
states in preparing a report on the history and causes of
insolvency of a particular insurer, and may adopt by reference
any report prepared by those other associations.
(i) Nonperformance by the commissioner of any of the acts
specified in this section or failure to meet the specified time
limits does not affect the association, its members, or any
other person as to the person's duties and obligations.
Nothing in this section supersedes other requirements of
law.
Sec. 13. [61B.28] [MISCELLANEOUS PROVISIONS.]
Subdivision 1. [RECORDS.] Records must be kept of all
negotiations and meetings in which the association or its
representatives are involved to discuss the activities of the
association in carrying out its powers and duties under section
61B.23. Records of negotiations or meetings shall be made
public only upon the termination of a liquidation,
rehabilitation, or conservation proceeding involving the
impaired or insolvent insurer, upon the termination of the
impairment or insolvency of the insurer, or upon the order of a
court of competent jurisdiction. Nothing in this subdivision
limits the duty of the association to report its activities
under section 61B.27.
Subd. 2. [REPORTS.] (a) A report, recommendation, or
notification by the association, its board of directors, or
officers to the commissioner concerning a member insurer,
together with statements or documents furnished to the
commissioner with, or subsequent to, a report, recommendation,
or notification, is confidential and a privileged communication.
Reports, recommendations, notifications, statements, and
documents furnished to the commissioner are not admissible in
whole or in part for any purpose in an action or proceeding
against:
(1) the association or its member insurers, officers,
employees, or representatives submitting or providing the
report, recommendation, notification, statement, or document; or
(2) a person, firm, or entity who in good faith furnishes
to the association the information or document upon which the
association has relied in making its report, recommendation, or
notification to the commissioner.
(b) Notwithstanding the provisions of section 13.71, the
commissioner may release to the association's board of directors
any or all nonpublic data collected and maintained by the
commissioner on a member insurer or a potential member insurer.
Information furnished to the board of directors is private.
Subd. 3. [ASSOCIATION AS CREDITOR.] For the purpose of
carrying out its obligations under sections 61B.18 to 61B.32,
the association is considered to be a creditor of the impaired
or insolvent insurer to the extent of assets attributable to
covered policies, reduced by amounts to which the association is
entitled as subrogee under section 61B.23, subdivision 12.
Assets of the impaired or insolvent insurer attributable to
covered policies must be used to continue all covered policies
and pay all contractual obligations of the impaired or insolvent
insurer as required by sections 61B.18 to 61B.32. Assets
attributable to covered policies, as used in this subdivision,
are that proportion of the assets which the reserves that should
have been established for those policies bear to the reserves
that should have been established for all policies of insurance
written by the impaired or insolvent insurer.
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. This
subdivision does not apply to the Minnesota life and health
insurance guaranty association or an entity that does not sell
or solicit insurance. A person violating this section is guilty
of a misdemeanor.
Subd. 5. [DISTRIBUTION TO STOCKHOLDERS.] No distribution
to stockholders of an impaired domiciliary insurer shall be made
until the total amount of assessments levied by the association
with respect to the insurer have been fully recovered by the
association.
Subd. 6. [REINSTATEMENT.] No insurer may be reinstated to
do business in this state until all payments of or on account of
the impaired insurer's contractual obligations by the guaranty
association, along with all expenses thereof and interest on all
such payments and expenses, shall have been repaid to the
guaranty association or a plan of repayment by the impaired
insurer shall have been approved by the association.
Subd. 7. [NOTICE CONCERNING LIMITATIONS AND
EXCLUSIONS.] (a) No person, including an insurer, agent, or
affiliate of an insurer or agent, shall offer for sale in this
state a covered life insurance, annuity, or health insurance
policy or contract without delivering at the time of application
for that policy or contract a notice in the form specified in
subdivision 8, or in a form approved by the commissioner under
paragraph (b), relating to coverage provided by the Minnesota
Life and Health Insurance Guaranty Association. The notice may
be part of the application. A copy of the notice must be given
to the applicant. The notice must be delivered to the applicant
at the time of application for the policy or contract, except
that if the application is not taken from the applicant in
person, the notice must be sent to the applicant within 72 hours
after the application is taken. The person offering the policy
or contract shall document the fact that the notice was given at
the time of application or was sent within the specified time.
This does not require that the receipt of the notice be
acknowledged by the applicant.
(b) The association may prepare, and file with the
commissioner for approval, a form of notice as an alternative to
the form of notice specified in subdivision 8 describing the
general purposes and limitations of this chapter. The form of
notice shall:
(1) state the name, address, and telephone number of the
Minnesota life and health insurance guaranty association;
(2) prominently warn the policy or contract holder that the
Minnesota life and health insurance guaranty association may not
cover the policy or, if coverage is available, it will be
subject to substantial limitations and exclusions and
conditioned on continued residence in the state;
(3) state that the insurer and its agents are prohibited by
law from using 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;
(4) emphasize that the policy or contract holder should not
rely on coverage under the Minnesota life and health insurance
guaranty association when selecting an insurer;
(5) provide other information as directed by the
commissioner. The commissioner may approve any form of notice
proposed by the association and, as to the approved form of
notice, the association may notify all member insurers by mail
that the form of notice is available as an alternative to the
notice specified in subdivision 8.
(c) A policy or contract not covered by the Minnesota Life
and Health Insurance Guaranty Association or the Minnesota
Insurance Guaranty Association must contain the following notice
in ten-point type, stamped in red ink on the policy or contract
and the application:
"THIS POLICY OR CONTRACT IS NOT PROTECTED BY THE MINNESOTA
LIFE AND HEALTH INSURANCE GUARANTY ASSOCIATION OR THE
MINNESOTA INSURANCE GUARANTY ASSOCIATION. IN THE CASE OF
INSOLVENCY, PAYMENT OF CLAIMS IS NOT GUARANTEED. ONLY THE
ASSETS OF THIS INSURER WILL BE AVAILABLE TO PAY YOUR CLAIM."
This section does not apply to fraternal benefit societies
regulated under chapter 64B.
Subd. 8. [FORM.] The form of notice referred to in
subdivision 7, paragraph (a), is as follows:
"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 $300,000. Subject to this $300,000 limit, the guaranty
association will pay up to $300,000 in life insurance death
benefits, $100,000 in net cash surrender and net cash withdrawal
values for life insurance, $300,000 in health insurance
benefits, including any net cash surrender and net cash
withdrawal values, $100,000 in annuity net cash surrender and
net cash withdrawal values, $300,000 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 $300,000 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 $100,000 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 $7,500,000 in
claims from all Minnesota residents covered by the plan. If
total claims exceed $7,500,000, the $7,500,000 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.
Subd. 9. [COMBINATION FIXED-VARIABLE POLICY.] The notice
required in subdivision 8 must clearly describe what portions of
a combination fixed-variable policy are not covered by the
Minnesota life and health insurance guaranty association. The
notice requirements specified in subdivision 8 do not apply to a
combination fixed-variable policy.
Subd. 10. [EFFECT OF NOTICES.] The distribution, delivery,
contents, or interpretation of the notices described in
subdivision 7, 8, or 9 shall not mean that either the policy or
contract, or the owner or holder thereof, would be covered in
the event of the impairment or insolvency of a member insurer if
coverage is not otherwise provided by sections 61B.18 to 61B.32.
Failure to receive the notice does not give the policyholder,
contract holder, certificate holder, insured, owner,
beneficiaries, assignees, or payees any greater rights than
those provided by sections 61B.18 to 61B.32.
Sec. 14. [61B.29] [EXAMINATION OF THE ASSOCIATION; ANNUAL
REPORT.]
The association is subject to examination and regulation by
the commissioner. The board of directors shall submit to the
commissioner before May 1 each year, a financial report in a
form approved by the commissioner and a report of its activities
during the association's preceding fiscal year.
Sec. 15. [61B.30] [TAX EXEMPTIONS.]
Subdivision 1. [STATE FEES AND TAXES.] The association is
exempt from payment of all fees and all taxes levied by this
state or its subdivisions, except taxes levied on real property.
Subd. 2. [FEDERAL AND FOREIGN STATE TAXES.] The
association may seek exemption from payment of all fees and
taxes levied by the federal or any other state government or its
subdivision.
Sec. 16. [61B.31] [INDEMNIFICATION.]
The association has authority to indemnify certain persons
against certain expenses and liabilities as provided in section
300.083, including the power to purchase and maintain insurance
on behalf of these persons as provided by section 300.083,
subdivision 7. In applying section 300.083 for this purpose,
the term "member insurers" shall be substituted for the terms
"shareholders" and "stockholders" and the term "association"
shall be substituted for the term "corporation."
Sec. 17. [61B.32] [STAY OF PROCEEDINGS; REOPENING DEFAULT
JUDGMENTS.]
All proceedings in which the insolvent insurer is a party
in a court in this state must be stayed 60 days from the date an
order of liquidation, rehabilitation, or conservation is final
to permit proper legal action by the association on matters
germane to its powers or duties. As to judgment under a
decision, order, verdict, or finding based on default, the
association may apply to have the judgment set aside by the same
court that made the judgment and may defend against the suit on
the merits.
Sec. 18. [CONTINUATION OF ASSOCIATION.]
Subdivision 1. [ASSOCIATION.] The nonprofit legal entity
known as the Minnesota life and health insurance guaranty
association established under Minnesota Statutes 1992, section
61B.04, subdivision 1, shall continue to exist under sections
61B.19 to 61B.32. All member insurers shall be and remain
members of the association as a condition of their authority to
transact insurance in this state.
Subd. 2. [BOARD OF DIRECTORS.] Those persons who, as of
the effective date of sections 61B.19 to 61B.32, are serving on
the board of directors of the association pursuant to Minnesota
Statutes 1992, section 61B.05, may continue to serve on the
board established by this section for their remaining terms of
office. As those terms expire, members of the board shall be
elected by member insurers, subject to the approval of the
commissioner of commerce, for the terms of office specified in
their nominations.
Subd. 3. [PLAN OF OPERATION.] The association's existing
plan of operation established under Minnesota Statutes 1992,
section 61B.08, shall continue in existence under sections
61B.19 to 61B.32, subject to amendments and modifications, until
a new plan of operation is submitted to and approved by the
commissioner of commerce. If the association fails to submit a
plan of operation within 120 days following the effective date
of sections 61B.19 to 61B.32, the commissioner shall, after
notice and hearing, adopt reasonable rules necessary or
advisable to implement sections 61B.19 to 61B.32. The rules are
effective until modified by the commissioner or superseded by a
plan submitted by the association and approved by the
commissioner.
Sec. 19. [APPLICATION.]
The rehabilitations of mutual benefit life insurance
company and executive life and insurance company (California)
and any insolvencies, rehabilitations, or impairments which
occur prior to the effective date of this act, are subject to
Minnesota Statutes 1992, sections 61B.01 to 61B.16. Any
policies or other contracts of insurance which are reformed,
reissued, or which are replaced through administrative or
judicial action as a result of any insolvency, rehabilitation,
or impairment occurring prior to the effective date of this act,
shall be subject to Minnesota Statutes 1992, sections 61B.01 to
61B.16. Participants in a covered plan shall only be required
to verify their status as residents and what the amount of money
is in the unallocated annuity that represents their funds. Both
these matters may be verified by the employer sponsoring the
plan from plan records.
Payments made to a plan shall be deemed to be made on
behalf of the resident participant and are not the funds of the
plan, the plan trustee, or any nonresident plan participant and
to the extent of such payments, discharge the association's
obligation.
All rulings and interpretations of the commissioner of
commerce relative to the obligation and duties of or coverage by
the life and health guaranty association are hereby affirmed and
shall apply to all covered contracts issued on or before the
effective date of this act.
Sec. 20. [REPEALER.]
Minnesota Statutes 1992, sections 61B.01; 61B.02; 61B.03;
61B.04; 61B.05; 61B.06; 61B.07; 61B.08; 61B.09; 61B.10; 61B.11;
61B.12; 61B.13; 61B.14; 61B.15; and 61B.16, are repealed.
Sec. 21. [EFFECTIVE DATE.]
(a) This act is effective the day following final enactment
and applies with respect to an insurer which becomes impaired or
insolvent as defined under section 61B.20 on or after that date,
provided that the coverage and limits applicable to unallocated
annuity contracts issued before the effective date of this act,
continue to be those provided under Minnesota Statutes 1992,
sections 61B.01 to 61B.16, with respect to any insurer or any
successor to that insurer that becomes impaired or insolvent
before or on the earliest of any maturity, renewal, extension,
or withdrawal date of the contract.
(b) Minnesota Statutes 1992, sections 61B.01 to 61B.16,
apply with respect to an insurer which is placed under an order
of liquidation, conservation, or rehabilitation, or becomes
impaired as defined under section 61B.03, subdivision 9, before
the effective date of sections 61B.18 to 61B.32.
Presented to the governor May 17, 1993
Signed by the governor May 20, 1993, 2:25 p.m.
Official Publication of the State of Minnesota
Revisor of Statutes