Minnesota Legislature
Office of the Revisor of Statutes
Minnesota Session Laws - 2001, Regular Session
Key: (1) language to be deleted (2) new language
CHAPTER 142-S.F.No. 1964
An act relating to insurance; regulating the life and
health guaranty association; modifying coverages;
assessments; rights and duties; amending Minnesota
Statutes 2000, sections 61B.19, subdivisions 2, 3, 4,
5; 61B.20, subdivisions 1, 14, 15, 16, 17, 18, by
adding subdivisions; 61B.22, subdivision 3; 61B.23,
subdivisions 3, 4, 11, 12, 13, by adding subdivisions;
61B.24, subdivisions 4, 5, by adding subdivisions;
61B.26; 61B.27; 61B.28, subdivisions 1, 3, by adding a
subdivision; 61B.29.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:
Section 1. Minnesota Statutes 2000, section 61B.19,
subdivision 2, is amended to read:
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, (i) in the case of unallocated
annuity contracts, to the persons who are the contract holders
or participants in a covered retirement plan, or (ii) in the
case of structured settlement annuities, to persons who are
payees in respect of their liability claims (or beneficiaries of
such payees who are deceased) and who:
(i) (A) are residents; or
(ii) (B) 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, annuities,
annuities issued to or in connection with government lotteries,
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.
Sec. 2. Minnesota Statutes 2000, section 61B.19,
subdivision 3, is amended to read:
Subd. 3. [LIMITATION OF COVERAGE.] Sections 61B.18 to
61B.32 do not provide coverage for:
(1) a portion of a policy or contract not guaranteed by the
insurer, or 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) 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;
(5) an annuity contract issued in connection with and for
the purpose of funding a structured settlement of a liability
claim, a structured settlement annuity in situations where the a
liability insurer remains liable to the payee;
(6) 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;
(7) a portion of a policy or contract issued to 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;
(8) 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;
(9) an unallocated annuity contract issued to an employee
or in connection with a benefit plan protected under the federal
Pension Benefit Guaranty Corporation, regardless of whether the
federal Pension Benefit Guaranty Corporation has yet become
liable to make any payments with respect to the benefit plan;
(10) a portion of a policy or contract to the extent that
it provides for (i) 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, (ii) voting rights, or provides that a fee or
allowance be paid to a (iii) payment of any fees or allowances
to any person, including the policy or contract holder, in
connection with the service to, or administration of, the policy
or contract; and
(11) a contractual agreement that establishes the member
insurer's obligations to provide a book value accounting
guaranty for defined contribution benefit plan participants by
reference to a portfolio of assets that is owned by the benefit
plan or its trustee, which in each case is not an affiliate of
the member insurer.;
(12) a portion of a policy or contract to the extent that
the rate of interest on which it is based, or the interest rate,
crediting rate, or similar factor determined by use of an index
or other external reference stated in the policy or contract,
employed in calculating returns or changes in value:
(i) averaged over the period of four years prior to the
date on which the member insurer becomes an impaired or
insolvent insurer under sections 61B.18 to 61B.32, whichever is
earlier, exceeds the rate of interest determined by subtracting
two percentage points from Moody's Corporate Bond Yield Average
averaged for that same four-year period or for the lesser period
if the policy or contract was issued less than four years before
the member insurer becomes an impaired or insolvent insurer
under sections 61B.18 to 61B.32, whichever is earlier; and
(ii) on and after the date on which the member insurer
becomes an impaired or insolvent insurer under this chapter,
whichever is earlier, exceeds the rate of interest determined by
subtracting three percentage points from Moody's Corporate Bond
Yield Average as most recently available;
(13) a portion of a policy or contract to the extent it
provides for interest or other changes in value to be determined
by the use of an index or other external reference stated in the
policy or contract, but which have not been credited to the
policy or contract, or as to which the policy or contract
owner's rights are subject to forfeiture, as of the date the
member insurer becomes an impaired or insolvent insurer under
sections 61B.18 to 61B.32, whichever is earlier. If a policy's
or contract's interest or changes in value are credited less
frequently than annually, then for purposes of determining the
values that have been credited and not subject to forfeiture
under this clause, the interest or changes in value determined
by using the procedures defined in the policy or contract will
be credited as if the contractual date of crediting interest or
changing values was the date of impairment or insolvency,
whichever is earlier, and will not be subject to forfeiture; and
(14) a portion of a policy or contract to the extent that
the assessments required by section 61B.24 with respect to the
policy or contract are preempted by federal or state law.
Sec. 3. Minnesota Statutes 2000, 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 (4) (5), 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
structured settlement 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) 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
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 $150,000 $ 25,000
from estate
For purposes of this subdivision, the commissioner shall
determine the discount rate to be used in determining the
present value of annuity benefits.
Sec. 4. Minnesota Statutes 2000, section 61B.19,
subdivision 5, is amended to read:
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 claims, such as claims relating to bad faith
in payment of claims and claims relating to marketing practices,
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.
Sec. 5. Minnesota Statutes 2000, section 61B.20,
subdivision 1, is amended to read:
Subdivision 1. [APPLICATION.] The definitions in this
section apply to sections 61B.19 61B.18 to 61B.32.
Sec. 6. Minnesota Statutes 2000, section 61B.20, is
amended by adding a subdivision to read:
Subd. 13a. [MOODY'S CORPORATE BOND YIELD
AVERAGE.] "Moody's Corporate Bond Yield Average" means the
Monthly Average Corporates as published by Moody's Investors
Service, Inc., or any successor thereto.
Sec. 7. Minnesota Statutes 2000, section 61B.20,
subdivision 14, is amended to read:
Subd. 14. [PERSON.] "Person" means an individual,
corporation, partnership, unincorporated association, limited
liability company, governmental body or entity, or voluntary
organization.
Sec. 8. Minnesota Statutes 2000, section 61B.20,
subdivision 15, is amended to read:
Subd. 15. [PREMIUMS.] "Premiums" means amounts or
considerations by whatever name called 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. Premiums subject to assessment
under section 61B.24, include all amounts received on any
unallocated annuity contract issued to a contract holder
resident in this state if the contract is not otherwise excluded
from coverage under section 61B.19, subdivision 3; 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.
Sec. 9. Minnesota Statutes 2000, section 61B.20,
subdivision 16, is amended to read:
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. Citizens of the United States who are either (i)
residents of foreign countries, or (ii) residents of United
States possessions, territories, or protectorates that do not
have an association similar to the association created by
sections 61B.19 to 61B.32, are considered residents of this
state if the insurer that issued the covered policies or
contracts was domiciled in this state.
Sec. 10. Minnesota Statutes 2000, section 61B.20, is
amended by adding a subdivision to read:
Subd. 16a. [STATE.] "State" means a state, the District of
Columbia, Puerto Rico, and a United States possession,
territory, or protectorate.
Sec. 11. Minnesota Statutes 2000, section 61B.20, is
amended by adding a subdivision to read:
Subd. 16b. [STRUCTURED SETTLEMENT ANNUITY.] "Structured
settlement annuity" means an annuity purchased in order to fund
periodic payments for a plaintiff or other claimant in payment
for or with respect to personal injury suffered by the plaintiff
or other claimant.
Sec. 12. Minnesota Statutes 2000, section 61B.20,
subdivision 17, is amended to read:
Subd. 17. [SUPPLEMENTAL CONTRACT.] "Supplemental contract"
means an a written agreement entered into for the distribution
of policy or contract proceeds.
Sec. 13. Minnesota Statutes 2000, section 61B.20,
subdivision 18, is amended to read:
Subd. 18. [UNALLOCATED ANNUITY CONTRACT.] "Unallocated
annuity contract" means an annuity contract, funding agreement,
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. 14. Minnesota Statutes 2000, section 61B.22,
subdivision 3, is amended to read:
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.
Sec. 15. Minnesota Statutes 2000, section 61B.23,
subdivision 3, is amended to read:
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.
Sec. 16. Minnesota Statutes 2000, section 61B.23,
subdivision 4, is amended to read:
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 and annuities:
(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
annuitants for individual policies or group policyholders
policyowners with respect to group policies 30 days' notice of
the termination pursuant to paragraph (a) of the benefits
provided.
(c) With respect to individual policies, make available to
each known insured or annuitant, or owner if other than the
insured or annuitant, and with respect to an individual formerly
insured or formerly an annuitant 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 or annuitants had a right under
law or the terminated policy or annuity to convert coverage to
individual coverage or to continue an individual policy or
annuity 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 annuity 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.
(h) When proceeding under this subdivision with respect to
any policy carrying guaranteed minimum interest rates, the
association shall assure the payment or crediting of a rate of
interest consistent with section 61B.19, subdivision 3, clause
(12).
Sec. 17. Minnesota Statutes 2000, section 61B.23, is
amended by adding a subdivision to read:
Subd. 4a. [BOARD DISCRETION.] The board of directors of
the association has discretion and may exercise reasonable
business judgment to determine the means by which the
association is to provide the benefits of sections 61B.18 to
61B.32 in an economical and efficient manner.
Sec. 18. Minnesota Statutes 2000, section 61B.23, is
amended by adding a subdivision to read:
Subd. 4b. [BENEFITS PROVIDED UNDER A PLAN.] Where the
association has arranged or offered to provide the benefits of
sections 61B.18 to 61B.32 to a covered person under a plan or
arrangement that fulfills the association's obligations under
sections 61B.18 to 61B.32, the person is not entitled to
benefits from the association in addition to or other than those
provided under the plan or arrangement.
Sec. 19. Minnesota Statutes 2000, section 61B.23, is
amended by adding a subdivision to read:
Subd. 4c. [COVERAGE OF POLICIES WITH INDEXED INTEREST OR
SIMILAR PROVISIONS.] In carrying out its duties in connection
with guaranteeing, assuming, or reinsuring policies or contracts
under sections 61B.18 to 61B.32, the association may, subject to
approval of the receivership court, issue substitute coverage
for a policy or contract that provides an interest rate,
crediting rate, or similar factor determined by use of an index,
or other external reference stated in the policy or contract
employed in calculating returns or changes in value by issuing
an alternative policy or contract in accordance with the
following provisions:
(1) in lieu of the index or other external reference
provided for in the original policy or contract, the alternative
policy or contract provides for (i) a fixed interest rate or
(ii) payment of dividends with minimum guarantees or (iii) a
different method for calculating interest or changes in value;
(2) there is no requirement for evidence of insurability,
waiting period or other exclusion that would not have applied
under the replaced policy or contract; and
(3) the alternative policy or contract is substantially
similar to the replaced policy or contract in all other material
terms.
Sec. 20. Minnesota Statutes 2000, section 61B.23, is
amended by adding a subdivision to read:
Subd. 8a. [DEPOSITS IN THIS STATE FOR INSOLVENT OR
IMPAIRED INSURER.] A deposit in this state, held pursuant to law
or required by the commissioner for the benefit of creditors,
including policy owners, not turned over to the domiciliary
liquidator upon the entry of a final order of liquidation or
order approving a rehabilitation plan of an insurer domiciled in
this state or in a reciprocal state, pursuant to section 60B.54,
shall be promptly paid to the association. The association is
entitled to retain a portion of any amount so paid to it equal
to the percentage determined by dividing the aggregate amount of
policy owners claims related to that insolvency for which the
association has provided statutory benefits by the aggregate
amount of all policy owners' claims in this state related to
that insolvency. The association shall remit to the domiciliary
receiver the amount so paid to the association and not retained
pursuant to this subdivision. Any amount retained by the
association shall be treated as a distribution of estate assets
pursuant to section 60B.46 or similar provision of the state of
domicile of the impaired or insolvent insurer.
Sec. 21. Minnesota Statutes 2000, section 61B.23,
subdivision 11, is amended to read:
Subd. 11. [STANDING IN COURT.] The association has
standing to appear or intervene before any court or agency 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 or with jurisdiction
over any person or property against whom the association may
have rights through subrogation or otherwise. 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 or agency 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 any person or property against
whom the association may have rights through subrogation of the
insurer's policyholders or of any other person, or otherwise,
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.
Sec. 22. Minnesota Statutes 2000, section 61B.23,
subdivision 12, is amended to read:
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 against any person for losses arising under, resulting
from or otherwise 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 assignment and 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. including without limitation, in the case of a
structured settlement annuity, any rights of the owner,
beneficiary or payee of the annuity, to the extent of benefits
received pursuant to sections 61B.18 to 61B.32, against a person
originally or by succession responsible for the losses arising
from the personal injury relating to the annuity or payment
thereof, excepting any such person responsible solely by reason
of serving as an assignee in respect of a qualified assignment
under section 130 of the Internal Revenue Code of 1986, as
amended.
(d) If the preceding provisions of this subdivision are
invalid or ineffective with respect to any person or claim for
any reason, the amount payable by the association with respect
to the related covered obligations shall be reduced by the
amount realized by any other person with respect to the person
or claim that is attributable to the policies or portion thereof
covered by the association.
(e) If the association has provided benefits with respect
to a covered obligation and a person recovers amounts as to
which the association has rights as described in the preceding
paragraphs of this subdivision, the person shall pay to the
association the portion of the recovery attributable to the
policies or portion thereof covered by the association.
Sec. 23. Minnesota Statutes 2000, section 61B.23,
subdivision 13, is amended to read:
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 or
appropriate 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 or appropriate to avoid or recover 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; and
(10) request information from a person seeking coverage
from the association in order to aid the association in
determining its obligations under sections 61B.18 to 61B.32 with
respect to the person, and the person shall promptly comply with
the request.
Sec. 24. Minnesota Statutes 2000, section 61B.23, is
amended by adding a subdivision to read:
Subd. 14. [ASSOCIATION ELECTION TO SUCCEED TO RIGHTS OF
INSOLVENT OR IMPAIRED INSURER UNDER INDEMNITY REINSURANCE
CONTRACTS.] (a) At any time within one year after the date on
which the association becomes responsible for the obligations of
a member insurer the coverage date, the association may elect to
succeed to the rights and obligations of the member insurer,
that accrue on or after the coverage date and that relate to
contracts covered in whole or in part by the association, under
any one or more indemnity reinsurance agreements entered into by
the member insurer as a ceding insurer and selected by the
association. However, the association may not exercise an
election with respect to a reinsurance agreement if the
receiver, rehabilitator, or liquidator of the member insurer has
previously and expressly disaffirmed the reinsurance agreement.
The election shall be effected by a notice to the receiver,
rehabilitator, or liquidator, and to the affected reinsurers.
If the association makes an election, clauses (1) through (4)
apply with respect to the agreements selected by the association:
(1) the association is responsible for all unpaid premiums
due under the agreements for periods both before and after the
coverage date, and is responsible for the performance of all
other obligations to be performed after the coverage date, in
each case that relates to contracts covered in whole or in part
by the association and the association may charge contracts
covered in part by the association, through reasonable
allocation methods, the costs for reinsurance in excess of the
obligations of the association;
(2) the association is entitled to any amounts payable by
the reinsurer under the agreements with respect to losses or
events that occur in periods after the coverage date and that
relate to contracts covered by the association in whole or in
part, provided that, upon receipt of any such amounts, the
association is obliged to pay to the beneficiary under the
policy or contract on account of which the amounts were paid a
portion of the amount equal to the excess of:
(i) the amount received by the association, over
(ii) the benefits paid by the association on account of the
policy or contract less the retention of the impaired or
insolvent member insurer applicable to the loss or event;
(3) within 30 days following the association's election,
the association and each indemnity reinsurer shall calculate the
net balance due to or from the association under each
reinsurance agreement as of the date of the association's
election, giving full credit to all items paid by either the
member insurer or its receiver, rehabilitator, or liquidator or
the indemnity reinsurer during the period between the coverage
date and the date of the association's election and (i) either
the association or indemnity reinsurer shall pay the net balance
due the other within five days of the completion of the
aforementioned calculation and (ii) if the receiver,
rehabilitator, or liquidator has received any amounts due the
association pursuant to paragraph (a), the receiver,
rehabilitator, or liquidator shall remit the same to the
association as promptly as practicable; and
(4) if the association, within 60 days of the election,
pays the premiums due for periods both before and after the
coverage date that relate to contracts covered by the
association in whole or in part, the reinsurer shall not be
entitled to terminate the reinsurance agreements insofar as the
agreements relate to contracts covered by the association in
whole or in part and shall not be entitled to set off any unpaid
premium due for periods prior to the coverage date against
amounts due the association.
(b) In the event the association transfers its obligations
to another insurer, and if the association and the other insurer
agree, the other insurer shall succeed to the rights and
obligations of the association under paragraph (a) effective as
of the date agreed upon by the association and the other insurer
and regardless of whether the association has made the election
referred to in paragraph (a) provided that:
(1) the indemnity reinsurance agreements shall
automatically terminate for new reinsurance unless the indemnity
reinsurer and the other insurer agree to the contrary;
(2) the obligations described in the proviso to paragraph
(a), clause (2) shall no longer apply on and after the date the
indemnity reinsurance agreement is transferred to the third
party insurer; and
(3) paragraph (b) does not apply if the association has
previously expressly determined in writing that it will not
exercise the election referred to in paragraph (a).
(c) The provisions of this subdivision shall supersede the
provisions of any law of this state or of any affected
reinsurance agreement that provides for or requires any payment
of reinsurance proceeds, on account of losses or events that
occur in periods after the coverage date, to the receiver,
liquidator, or rehabilitator of the insolvent member insurer.
The receiver, rehabilitator, or liquidator shall remain entitled
to any amounts payable by the reinsurer under the reinsurance
agreement with respect to losses or events that occur in periods
prior to the coverage date subject to applicable setoff
provisions.
(d) Except as otherwise expressly provided in this
subdivision, nothing in this subdivision alters or modifies the
terms and conditions of the indemnity reinsurance agreements of
the insolvent member insurer. Nothing in this subdivision
abrogates or limits any rights of any reinsurer to claim that it
is entitled to rescind a reinsurance agreement. Nothing in this
subdivision gives a policyowner or beneficiary an independent
cause of action against an indemnity reinsurer that is not
otherwise set forth in the indemnity reinsurance agreement.
Sec. 25. Minnesota Statutes 2000, section 61B.23, is
amended by adding a subdivision to read:
Subd. 15. [VENUE; APPEAL BOND.] Except as otherwise
provided in section 61B.24, subdivision 10, or 61B.26, paragraph
(c), venue in a suit against the association arising under
sections 62B.18 to 62B.32 shall be in Ramsey county. The
association shall not be required to give an appeal bond in an
appeal that relates to a cause of action arising under sections
61B.18 to 61B.32.
Sec. 26. Minnesota Statutes 2000, section 61B.24,
subdivision 4, is amended to read:
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. Once the conditions which caused a deferral have been
removed or rectified, the member insurer shall pay all
assessments that were deferred pursuant to a repayment plan
approved by the association.
Sec. 27. Minnesota Statutes 2000, section 61B.24,
subdivision 5, is amended to read:
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
and for the health 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 If the maximum 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 assess based on the other
subaccounts of the life and annuity account for the necessary
additional amount, subject to the maximum of two percent stated
above for each subaccount.
(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) (b) 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) (c) 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) (d) 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.
Sec. 28. Minnesota Statutes 2000, section 61B.24, is
amended by adding a subdivision to read:
Subd. 10. [PROCEDURE FOR PROTESTS REGARDING
ASSESSMENTS.] (a) A member insurer that wishes to protest all or
part of an assessment shall pay when due the full amount of the
assessment as set forth in the notice provided by the
association. The payment is available to meet association
obligations during the pendency of the protest or any subsequent
appeal. Payment must be accompanied by a statement in writing
that the payment is made under protest and setting forth a brief
statement of the grounds for the protest.
(b) Within 60 days following the payment of an assessment
under protest by a member insurer, the association shall notify
the member insurer in writing of its determination with respect
to the protest unless the association notifies the member
insurer that additional time is required to resolve the issues
raised by the protest.
(c) Within 30 days after a final decision has been made,
the association shall notify the protesting member insurer in
writing of that final decision. Within 60 days of receipt of
notice of the final decision, the protesting member insurer may
appeal that final action to the commissioner.
(d) In the alternative to rendering a final decision with
respect to a protest based on a question regarding the
assessment base, the association may refer the protest to the
commissioner for a final decision, with or without a
recommendation from the association.
(e) If the protest or appeal on the assessment is upheld,
the amount paid in error or excess shall be returned to the
member company. Interest on a refund due a protesting member
shall be paid at the rate actually earned by the association.
Sec. 29. Minnesota Statutes 2000, section 61B.24, is
amended by adding a subdivision to read:
Subd. 11. [MEMBER INSURERS' DUTY TO PROVIDE INFORMATION TO
ASSOCIATION.] The association may request information of member
insurers in order to aid in the exercise of its power under this
section and member insurers shall promptly comply with a request.
Sec. 30. Minnesota Statutes 2000, section 61B.26, is
amended to read:
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 A final action of the board of directors or the
association may be appealed to the commissioner if the appeal is
taken within 30 60 days of the aggrieved party's receipt of
notice of the final 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. 31. Minnesota Statutes 2000, section 61B.27, is
amended to read:
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 may
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) (f) The board of directors may, upon majority vote,
make recommendations to the commissioner for the detection and
prevention of insurer insolvencies.
(h) (g) 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) (h) 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. 32. Minnesota Statutes 2000, section 61B.28,
subdivision 1, is amended to read:
Subdivision 1. [RECORDS.] Records must be kept of all
negotiations and meetings in which the association or its
representatives are involved of the board of directors to
discuss the activities of the association in carrying out its
powers and duties under section 61B.23. Records of negotiations
or meetings the association with respect to an impaired or
insolvent insurer 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.
Sec. 33. Minnesota Statutes 2000, section 61B.28,
subdivision 3, is amended to read:
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 recovers from the assets of the impaired or insolvent
insurer as subrogee under section 61B.23, subdivision
12. Recoveries by the association as subrogee under section
61B.23, subdivision 12, from assets other than from assets of
the impaired or insolvent insurer shall not reduce or act as an
offset to the association's claim as creditor of the impaired or
insolvent insurer. 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.
Sec. 34. Minnesota Statutes 2000, section 61B.28, is
amended by adding a subdivision to read:
Subd. 3a. [ASSOCIATION ACCESS TO INSOLVENT INSURER'S
ASSETS.] As a creditor of the impaired or insolvent insurer as
established in subdivision 3 of this section and consistent with
section 60B.46, the association and other similar associations
is entitled to receive a disbursement of assets out of the
marshalled assets, from time to time as the assets become
available to reimburse it, as a credit against contractual
obligations under sections 61B.18 to 61B.32. If the liquidator
has not, within 120 days of a final determination of insolvency
of an insurer by the receivership court, made an application to
the court for the approval of a proposal to disburse assets out
of marshalled assets to guaranty associations having obligations
because of the insolvency, then the association shall be
entitled to make application to the receivership court for
approval of its own proposal to disburse these assets.
Sec. 35. Minnesota Statutes 2000, section 61B.29, is
amended to read:
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. Upon request of
a member insurer, the association must provide the member
insurer with a copy of the report.
Presented to the governor May 17, 2001
Signed by the governor May 21, 2001, 10:35 a.m.
Official Publication of the State of Minnesota
Revisor of Statutes