SB375 Alabama 2012 Session

Under existing law, the Alabama Life and Disability Insurance Guaranty Association (ALDIGA) protects policyholders, insureds, beneficiaries, annuitants, payees, and the assignees of life insurance policies, disability insurance policies, annuity contracts, and supplemental contracts, subject to certain exceptions, against failure in the performance of contractual obligations due to the impairment or insolvency of the insurer that issued the policies or contracts

This bill would conform Alabama law to be substantially similar to the current model law developed by the National Association of Insurance Commissioners by specifying the persons covered by the act and the policies and contracts covered. In particular, this bill would specify that payees under a structured settlement annuity would be covered based on the residency of the payee and not of the owner of the annuity. This bill would also seek to avoid duplication of coverage by coordinating with applicable guaranty association coverage in other states

Under existing law, the limits of coverage provided by ALDIGA is $100,000 for cash benefits and $300,000 for all benefits

This bill would specify that for life insurance policies, the coverage would be limited to $300,000 in death benefits and $100,000 in cash surrender values; for disability insurance benefits, the coverage would be limited to $300,000 for disability income and long-term care insurance, $500,000 for basic hospital, medical, and surgical insurance or major medical insurance, and $100,000 for any coverage other than disability income, long-term care, basic hospital, medical, and surgical insurance or major medical insurance; and $250,000 in the present value of annuity benefits

Under existing law, the association has authority to make Class A assessments to cover the general expenses of operating the association, not to exceed $50 per year per member insurer

This bill would increase Class A assessments to a maximum of $300 per year per member insurer

Under existing law, a member insurer can appeal a decision of the association to the commissioner within 30 days

This bill would increase the time period to appeal a decision of the association to the commissioner to 60 days

Under existing law, all proceedings in which an insolvent insurer is a party are stayed for 60 days from the date of an order of liquidation, rehabilitation, or conservation to permit proper legal action by the association

This bill would increase the number of days of the stay to 180

Relating to insurance; to provide the scope and purpose of the Alabama Life and Disability Insurance Guaranty Association; to provide that payees under a structured settlement annuity would be covered based on the residency of the payee and not the residency of the owner of the contract; to avoid duplication of coverage by coordinating with applicable guaranty associations in other states; to specify the limits of coverage for life insurance policies to be $300,000 in death benefits and $100,000 in cash surrender values; to specify the limits of coverage for disability insurance benefits to be $300,000 for disability income and long-term care insurance, $500,000 for basic hospital, medical, and surgical insurance or major medical insurance, and $100,000 for any coverage other than disability income, long-term care, basic hospital, medical, and surgical insurance or major medical insurance; to specify the limits of coverage of annuity contracts to be $250,000 of the present value of annuity benefits; to provide a maximum Class A assessment of $300 per year per member insurer; to permit a member insurer to appeal a decision of the association to the commissioner within 60 days; to provide a stay of 180 days on all proceedings in which an insolvent insurer is a party; and thus conform Alabama law to be substantially similar to the current model law developed by the National Association of Insurance Commissioners, and for those purposes to amend Sections 27-44-2, 27-44-3, 27-44-5, 27-44-8, 27-44-9, 27-44-11, and 27-44-18, Code of Alabama 1975. BE IT ENACTED BY THE LEGISLATURE OF ALABAMA: Section 1. Sections 27-44-2, 27-44-3, 27-44-5, 27-44-8, 27-44-9, 27-44-11, and 27-44-18, Code of Alabama 1975, are amended to read as follows: "§27-44-2. "(a) The purpose of this chapter is to protect policyowners, insureds, beneficiaries, annuitants, payees, and the assignees of life insurance policies, disability insurance policies, annuity contracts, and supplemental contracts, subject to certain limitations, the persons specified in Section 27-44-3(a) against failure in the performance of contractual obligations due to, under life and disability insurance policies and annuity contracts specified in Section 27-44-3(b), because of the impairment or insolvency of the member insurer issuing such that issued the policies or contracts. "(b) To provide this protection, (1) an association of insurers is created to enable the guaranty of payment of pay benefits and of continuation of to continue coverages, (2) as limited by this chapter, and members of the association are subject to assessment to provide funds to carry out the purpose of this chapter, and (3) the association is authorized to assist the commissioner, in the prescribed manner, in the detection and prevention of insurer impairments or insolvencies. "§27-44-3. "(a) This chapter shall apply to direct life insurance policies, disability insurance policies, annuity contracts, and contracts supplemental to life and disability insurance policies, and annuity contracts issued by persons licensed to transact insurance in this state at any time, except as limited by this section. "(b) This chapter shall not apply to: "(1) That portion or part of a variable life insurance or variable annuity contract not guaranteed by an insurer. "(2) That portion or part of any policy or contract under which the risk is borne by the policyholder. "(3) Any policy or contract or part thereof assumed by the impaired or insolvent insurer under a contract of reinsurance, other than reinsurance for which assumption certificates have been issued. "(4) Any policy or contract issued by non-profit hospital and medical service plans, fraternal benefit societies, cooperative hospital associations, or health maintenance organizations. "(5) A policy or contract providing coverage to persons not specified in subsection (c). "(c)(a) This chapter shall provide coverage for the policies and contracts specified in subsection (a) (b) as follows: "(1) To persons who, regardless of where they reside (except for non-resident certificate holders under group policies or contracts), are the beneficiaries, assignees, or payees of the persons covered under subdivision (2). "(2) To persons who are owners of, or certificate holders under, covered the policies or contracts, other than structured settlement annuities, and in each case who are residents, or are not either of the following: "a. Residents "b. Not residents, but only under all of the following conditions: "a.1. The insurers which insurer that issued the policies or contracts are is domiciled in this state. "b.2. The insurers at the time of issuance of the policies or contracts did not hold licenses or certificates of authority in the state in which such persons reside states in which the persons reside have associations similar to the association created by this chapter. "c.3. The persons are not eligible for coverage by a guaranty an association of another in any other state providing protection substantially similar to that provided by this chapter for residents of this state due to the fact the insurer was not licensed in the state at the time specified in the state's guaranty association law. "(d) Any member insurer that has been declared insolvent and is placed under a final order of liquidation, rehabilitation, or conservation by a court of competent jurisdiction prior to May 17, 1993 shall be subject to this chapter as it existed prior to May 17, 1993. "(3) For structured settlement annuities specified in subsection (b), subdivision (1) and (2) of this subsection shall not apply, and this chapter, except as provided in subdivisions (4) and (5) of this subsection, shall provide coverage to a person who is a payee under a structured settlement annuity (or beneficiary of a payee if the payee is deceased), if the payee is either of the following: "a. A resident, regardless of where the contract owner resides. "b. Not a resident, but only under both of the following conditions: "1. The contract owner of the structured settlement annuity is either of the following: "(i) A resident. "(ii) Not a resident, but only under both of the following conditions: "(I) The insurer that issued the structured settlement annuity is domiciled in this state. "(II) The state in which the contract owner resides has an association similar to the association created by this chapter. "2. Neither the payee (or beneficiary) nor the contract owner is eligible for coverage by the association of the state in which the payee or contract owner resides. "(4) The chapter shall not provide coverage to a person who is a payee (or beneficiary) of a contract owner resident of this state, if the payee (or beneficiary) is afforded any coverage by the association of another state. "(5) This chapter is intended to provide coverage to a person who is a resident of this state and, in special circumstances, to a nonresident. In order to avoid duplicate coverage, if a person who would otherwise receive coverage under this chapter is provided coverage under the laws of any other state, the person shall not be provided coverage under this chapter. In determining the application of the provisions of this subdivision in situations where a person could be covered by the association of more than one state, whether as an owner, payee, beneficiary or assignee, this chapter shall be construed in conjunction with other state laws to result in coverage by only one association. "(b)(1) This chapter shall provide coverage to the persons specified in subsection (a) for direct, non-group life, disability, or annuity policies or contracts, and for certificates under direct group policies and contracts, and for supplemental contracts to any of these, in each case issued by member insurers, except as limited by this chapter. Annuity contracts and certificates under group annuity contracts include allocated funding agreements, structured settlement annuities, and any immediate or deferred annuity contracts. "(2) This chapter shall not provide coverage for any of the following: "a. A portion of a policy or contract not guaranteed by the insurer, or under which the risk is borne by the policy or contract owner. "b. A policy or contract of reinsurance, unless assumption certificates have been issued pursuant to the reinsurance policy or contract. "c. 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: "1. Averaged over the period of four years prior to 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 two percentage points from Moody's Corporate Bond Yield Average averaged for that same four-year period or for such lesser period if the policy or contract was issued less than four years before the member insurer becomes an impaired or insolvent insurer under this chapter, whichever is earlier. "2. 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. "d. A portion of a policy or contract issued to a plan or program of an employer, association or other person to provide life, disability, or annuity benefits to its employees, members or others, to the extent that the plan or program is self-funded or uninsured, including, but not limited to, benefits payable by an employer, association, or other person under any of the following: "1. A multiple employer welfare arrangement as defined in Section 3(40) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. Section 1002(40)). "2. A minimum premium group insurance plan. "3. A stop-loss group insurance plan. "4. An administrative services only contract. "e. A portion of a policy or contract to the extent that it provides for any of the following: "1. Dividends or experience rating credits. "2. Voting rights. "3. Payment of any fees or allowances to any person, including the policy or contract owner, in connection with the service to or administration of the policy or contract. "f. A policy or contract issued in this state by a member 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. "g. A portion of a policy or contract to the extent that the assessments required by Section 27-44-9 with respect to the policy or contract are preempted by federal or state law. "h. An obligation that does not arise under the express written terms of the policy or contract issued by the insurer to the contract owner or policy owner, including without limitation: "1. Claims based on marketing materials. "2. Claims based on side letters, riders, or other documents that were issued by the insurer without meeting applicable policy form filing or approval requirements. "3. Misrepresentations of or regarding policy benefits. "4. Extra-contractual claims, including, without limitation, claims relating to bad faith in the payment of claims, punitive or exemplary damages or attorneys' fees and costs. "5. A claim for penalties or consequential or incidental damages. "i. 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. "j. An unallocated annuity contract. "k. 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 this chapter, 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 are not subject to forfeiture under this subsection, the interest or change 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. "l. A policy or contract providing any hospital, medical, prescription drug, or other health care benefits pursuant to Part C or Part D of Subchapter XVIII, Chapter 7 of Title 42 of the United States Code (commonly known as Medicare Part C and D) or any regulations issued pursuant thereto. "(c) The benefits that the association may become obligated to cover 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. "(2)a. With respect to one life, regardless of the number of policies or contracts: "1. Three hundred thousand dollars ($300,000) in life insurance death benefits, but not more than one hundred thousand dollars ($100,000) in net cash surrender and net cash withdrawal values for life insurance. "2. In disability insurance benefits: "(i) One hundred thousand dollars ($100,000) for coverages not defined as disability income insurance or basic hospital, medical, and surgical insurance or major medical insurance or long-term care insurance including any net cash surrender and net cash withdrawal values. "(ii) Three hundred thousand dollars ($300,000) for disability income insurance and three hundred thousand dollars ($300,000) for long-term care insurance. "(iii) Five hundred thousand dollars ($500,000) for basic hospital, medical, and surgical insurance or major medical insurance. "3. Two hundred fifty thousand dollars ($250,000) in the present value of annuity benefits, including net cash surrender and net cash withdrawal values. "b. With respect to each payee of a structured settlement annuity (or beneficiary or beneficiaries if the payee is deceased), two hundred fifty thousand dollars ($250,000) in present value annuity benefits, in the aggregate, including net cash surrender and net cash withdrawal values, if any. "c. However, in no event shall the association be obligated to cover more than either of the following: "1. An aggregate of three hundred thousand dollars ($300,000) in benefits with respect to any one life under paragraphs a. and b. except with respect to benefits for basic hospital, medical, and surgical insurance and major medical insurance under paragraph a.2., in which case the aggregate liability of the association shall not exceed five hundred thousand dollars ($500,000) with respect to any one individual. "2. With respect to one owner of multiple non-group policies of life insurance, whether the policy owner is an individual, firm, corporation, or other person, and whether the persons insured are officers, managers, employees, or other persons, more than five million dollars ($5,000,000) in benefits, regardless of the number of policies and contracts held by the owner. "d. The limitations set forth in this subsection are limitations on the benefits for which the association is obligated before taking into account either its subrogation and assignment rights or the extent to which those benefits could be provided out of the assets of the impaired or insolvent insurer attributable to covered policies. The costs of the association's obligations under this chapter may be met by the use of assets attributable to covered policies or reimbursed to the association pursuant to its subrogation and assignment rights. "(d) In performing its obligations to provide coverage under Section 27-44-8, the association shall not be required to guarantee, assume, reinsure or perform, or cause to be guaranteed, assumed, reinsured or performed, the contractual obligations of the insolvent or impaired insurer under a covered policy or contract that do not materially affect the economic values or economic benefits of the covered policy or contract. "§27-44-5. "As used in this chapter, the following terms shall have the following meanings, respectively, unless the context clearly indicates otherwise: "(1) ACCOUNT. Either of the three accounts created under Section 27-44-6. "(2) ASSOCIATION. The Alabama Life and Disability Insurance Guaranty Association created under Section 27-44-6. "(3) AUTHORIZED ASSESSMENT or the term AUTHORIZED when used in the context of assessments. A resolution by the board of directors has been passed whereby an assessment will be called immediately or in the future from member insurers for a specified amount. An assessment is authorized when the resolution is passed. "(4) BENEFIT PLAN. A specific employee, union or association of natural persons benefit plan. "(5) CALLED ASSESSMENT or the term CALLED when used in the context of assessments. A notice that has been issued by the association to member insurers requiring that an authorized assessment be paid within the time frame set forth within the notice. An authorized assessment becomes a called assessment when notice is mailed by the association to member insurers. "(3)(6) COMMISSIONER. The Commissioner of Insurance of this state. "(4)(7) CONTRACTUAL OBLIGATION. Any An obligation under covered policies a policy or contract, or certificate under a group policy or contract, or portion thereof for which coverage is provided under Section 27-44-3. "(5)(8) COVERED POLICY. Any A policy or contract within the scope of this chapter or portion of a policy or contract for which coverage is provided under Section 27-44-3. "(6)(9) IMPAIRED INSURER. A member insurer deemed by the commissioner which, after January 1, 1983 to be potentially unable to fulfill its contractual obligations and the effective date of this act, is not an insolvent insurer and is placed under an order of rehabilitation or conservation by a court of competent jurisdiction. "(7)(10) INSOLVENT INSURER. A member insurer which, after January 1, 1983, becomes insolvent and the effective date of this act, is placed under a final an order of liquidation, rehabilitation or conservation by a court of competent jurisdiction with a finding of insolvency. "(8)(11) MEMBER INSURER. Any An insurer licensed or that holds a certificate of authority to transact in this state any kind of insurance to for which this chapter applies coverage is provided under Section 27-44-3., and includes an insurer whose license or certificate of authority in this state may have been suspended, revoked, not renewed, or voluntarily withdrawn, but does not include any of the following: "a. A hospital or medical service organization, whether profit or non-profit. "b. A health care services plan. "c. A cooperative hospital association. "d. A health maintenance organization. "e. A fraternal benefit society. "f. A mandatory state pooling plan. "g. A mutual assessment company or other person that operates on an assessment basis. "h. An insurance exchange. "i. An organization that has a certificate or license limited to the issuance of charitable gift annuities. "j. An entity substantially similar to any of the above. "(12) MOODY'S CORPORATE BOND YIELD AVERAGE. The Monthly Average Corporates as published by Moody's Investors Service, Inc., or any successor thereto. "(13) OWNER of a policy or contract and POLICY OWNER and CONTRACT OWNER. The person who is identified as the legal owner under the terms of the policy or contract or who is otherwise vested with legal title to the policy or contract through a valid assignment completed in accordance with the terms of the policy or contract and properly recorded as the owner on the books of the insurer. For policies or contracts which do not contractually provide for the designation of an owner, the owner shall be deemed to be the person who has the right to exercise the traditional incidents of ownership of a policy or contract. The terms owner, contract owner, and policy owner do not include person with a mere beneficial interest in a policy or contract. "(14) PERSON. An individual, corporation, limited liability company, partnership, association, governmental body or entity, or voluntary organization. "(9)(15) PREMIUMS. Direct gross insurance premiums and annuity considerations received on covered policies or contracts, less return returned premiums and considerations thereon and dividends paid or credited to policyholders on such direct business. "Premiums" do not include premiums and considerations on contracts between insurers and reinsurers. "(10) PERSON. Any individual, corporation, partnership, association or voluntary organization. "(16) PRINCIPAL PLACE OF BUSINESS. When referring to a person other than a natural person, the single state in which the natural persons who establish policy for the direction, control, and coordination of the operations of the entity as a whole primarily exercise that function, determined by the association in its reasonable judgment by considering the following factors: "a. The state in which the primary executive and administrative headquarters of the entity is located. "b. The state in which the principal office of the chief executive officer of the entity is located. "c. The state in which the board of directors (or similar governing person or persons) of the entity conducts the majority of its meetings. "d. The state in which the executive or management committee of the board of directors (or similar governing person or persons) of the entity conducts the majority of its meetings. "e. The state from which the management of the overall operations of the entity is directed. "f. In the case of a benefit plan sponsored by affiliated companies comprising a consolidated corporation, the state in which the holding company or controlling affiliate has its principal place of business as determined using the above factors. "(17) RECEIVERSHIP COURT. The court in the insolvent or impaired insurer's state having jurisdiction over the conservation, rehabilitation or liquidation of the insurer. "(11)(18) RESIDENT. Any A person who resides in this state at the time on the date of entry of a court order that determines a member insurer is determined to be an impaired or insolvent insurer and to whom a contractual obligations are 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 shall