HB-5292, As Passed House, November 29, 2005

SUBSTITUTE FOR

HOUSE BILL NO. 5292

     A bill to amend 1956 PA 218, entitled

"The insurance code of 1956,"

by amending sections 3503, 7911, 7918, 7921, 7925, 7931, 7941,

7945, 8111, 8124, and 8134 (MCL 500.3503, 500.7911, 500.7918,

500.7921, 500.7925, 500.7931, 500.7941, 500.7945, 500.8111,

500.8124, and 500.8134), section 3503 as added by 2000 PA 252,

sections 7911 and 7921 as amended by 1993 PA 200, section 7918 as

amended by 2001 PA 182, sections 7925, 7931, and 7945 as amended by

1980 PA 41, section 7941 as amended by 1990 PA 137, section 8111 as

amended by 1992 PA 182, section 8124 as added by 1989 PA 302, and

section 8134 as amended by 1998 PA 279, and by adding sections

8124a and 8133a.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 3503. (1) All of the provisions of this act that apply to

a domestic insurer authorized to issue an expense-incurred

hospital, medical, or surgical policy or certificate, including,

but not limited to,  section 223  sections 223 and 7925 and

chapters 34 and 36, apply to a health maintenance organization

under this chapter unless specifically excluded, or otherwise

specifically provided for in this chapter.

     (2) Sections 408, 410, 411, 901, and 5208,  and chapters

chapter 77, and, except as otherwise provided in subsection (1),

chapter 79 do not apply to a health maintenance organization.

     Sec. 7911. (1) To implement this chapter, there shall be

maintained within this state, by all insurers authorized to

transact in this state insurance other than life or disability

insurance, except the Michigan basic property insurance association

created pursuant to section 2920, an association of those insurers

to be known as the property and casualty guaranty association,

hereafter referred to as the "association". Each insurer shall be a

member of the association as a condition of its authority to

continue to transact insurance in this state.

     (2) An insurer from which insurance has been or may be

procured in this state solely by virtue of  sections 1901 to 1955

chapter 19 shall not be considered to be an insurer authorized to

transact insurance in this state for the purposes of this chapter.

     (3) The association  shall be  is subject to the requirements

of this chapter  ,  and chapter 81  , and section 3172a, but

shall  is not  be subject to the other chapters of this act. The

association shall be subject to other laws of this state to the

extent that it would be subject to those laws if it were an insurer

organized and operating under chapter 50, to the extent that those

other laws are consistent with this chapter.

     Sec. 7918. (1) The association may borrow funds when necessary

to implement this act.

     (2) The association, either in its own name or through a

servicing facility, may sue or be sued, and may use the courts to

assert or defend any rights the association may have under this

chapter, to the extent necessary to fully exercise its rights and

perform its duties under, and to implement, this chapter.

     (3) The association may retain and employ legal counsel in its

discretion to represent the association in all respects.

     (4) The association may bring an action against any third

party administrator, agent, attorney, or other representative of

the insolvent insurer to obtain custody and control of all claims

information, including all files, records, and electronic data

related to an insolvent company that are appropriate or necessary

for the association, or a similar association in other states, to

carry out its duties under this act. The association shall have the

absolute right through emergency equitable relief to obtain custody

and control of all claims information in the custody or control of

the third party administrator, agent, attorney, or other

representative of the insolvent insurer, regardless of where the

information may be physically located. In bringing the action, the

association is not subject to any defense, lien, possessory or

otherwise, or other legal or equitable ground for refusal to

surrender claims information that might be asserted against the

liquidator of the insolvent insurers. If litigation is necessary

for the association to obtain custody of the claims information

requested and it results in the relinquishment of claims

information to the association after refusal to provide the

information in response to a written demand, the court shall award

the association its costs, expenses, and reasonable attorney fees

incurred in bringing the action. This section does not affect the

rights and remedies that the custodian of the claims information

may have against the insolvent insurers, so long as those rights

and remedies do not conflict with the rights of the association to

custody and control of the claims information under this act.

(5)  (4) Upon request of the commissioner, consent of the

association, and appointment by the court, the association may act

as deputy receiver in delinquency proceedings under chapter 81.

     Sec. 7921. As used in this chapter:

     (a) "Insolvent insurer" means an insurer  for which a

domiciliary receiver has been appointed by a final order in this

state or in a reciprocal state, as defined in section 8103 for the

liquidation of the insurer and which has been a member insurer and

against whom a final order of liquidation has been entered with a

finding of insolvency by a court of competent jurisdiction in the

insurer's state of domicile. The date on which the order becomes

final shall be the date on which  the receiver is appointed for

purposes of this chapter  all appeals of the finding of insolvency

are exhausted. If the finding of insolvency in the order of

liquidation is not appealed, the order of liquidation shall be

considered final on the date the order was issued.

     (b) "Member insurer" means an insurer required to be a member

of the association pursuant to section 7911.

     Sec. 7925. (1) "Covered claims" means obligations of an

insolvent insurer  which  that meet all of the following

requirements:

     (a) Arise out of the insurance policy contracts of the

insolvent insurer issued to residents of this state or are payable

to residents of this state on behalf of insureds of the insolvent

insurer.

     (b) Were unpaid by the insolvent insurer.

     (c) Are presented as a claim to the receiver in this state or

the  asssociation  association on or before the last date fixed for

the filing of claims in the domiciliary delinquency proceedings.

     (d) Were incurred or existed before, at the time of, or within

30 days after the date the receiver was appointed.

     (e) Arise out of policy contracts of the insolvent insurer

issued for all kinds of insurance except life and disability

insurance.

     (f) Arise out of insurance policy contracts issued on or

before the last date on which the insolvent insurer was a member

insurer.

     (2) Covered claims shall not include any of the following:

     (a) Obligations to refund unearned premiums above the first

$500.00 of unearned premiums from each person from any 1 insolvent

insurer. The maximum amount of unearned premiums which shall

constitute a covered claim shall be adjusted annually to reflect

changes in the cost of living under rules prescribed by the

commissioner. A refund in an amount less than $50.00 shall not be

made for unearned premiums.

     (b) Obligations incurred after the expiration date of the

insurance policy, after the insurance policy has been replaced by

the insured, or after the insurance policy has been canceled by the

association as provided in this chapter.

     (c) Obligations  which arise  arising out of sections 2001 to

2050, or similar provisions of law in another jurisdiction.

     (3) Covered claims shall not include  obligations to an

insurer, insurance pool, underwriting association, or to a person

who has a net worth greater than 1/10 of 1% of the aggregate

premiums written by member insurers in this state in the preceding

calendar year.  any amount due any reinsurer, insurer, insurance

pool, underwriting association, health maintenance organization,

health care corporation, or self-insurer as subrogation recoveries,

contribution, indemnification, or other obligation. A claim for any

amount due any reinsurer, insurer, insurance pool, underwriting

association, health maintenance organization, health care

corporation, or self-insurer shall not be brought against a person

insured under a policy issued by the insolvent insurer unless the

claim exceeds the association's obligation limitations under

subsection (6).

     (4) Covered claims shall not include obligations for any first

party or third party claim by or against an insured whose net worth

exceeds $25,000,000.00 on December 31, or on the last date of the

insured's fiscal period if that is other than December 31, of the

year immediately preceding the date the insurer becomes an

insolvent insurer. In determining net worth on this date, an

insured's net worth shall include the aggregate net worth of the

insured and all of its subsidiaries and affiliates as calculated on

a consolidated basis. The $25,000,000.00 net worth limit shall be

adjusted annually to reflect the aggregate annual percentage change

in the consumer price index since the previous adjustment, rounded

to the nearest $10,000.00. The effective date of the adjustment

shall be January 1 of each year.

(5)  (4) Covered claims shall not include any portion of a

claim  which  that is in excess of an applicable limit provided in

the insurance policy.

(6)  (5) Covered claims shall not include that portion of a

claim, other than a worker's compensation claim  , which is in

excess of 1/20 of 1% of the aggregate premiums written by member

insurers in this state in the preceding calendar year.  or a claim

for personal protection insurance benefits under section 3107, that

is in excess of $5,000,000.00. The $5,000,000.00 claim cap shall be

adjusted annually to reflect the aggregate annual percentage change

in the consumer price index since the previous adjustment, rounded

to the nearest $10,000.00. The effective date of the adjustment

shall be January 1 of each year and shall apply to claims made on

or after that date. The claim cap in effect at the time of payment

of a claim shall apply.

(7)  (6) Covered claims shall not include adjustment fees and

expenses, attorneys' fees and expenses, court costs, interest, or

bond premiums if the fees, expenses, costs, interest, or premiums

were incurred by the insolvent insurer before the receiver was

appointed.

     (8) As used in this section:

     (a) "Consumer price index" means the consumer price index for

all urban consumers in the US city average, as most recently

reported by the United States department of labor, bureau of labor

statistics, and as certified by the commissioner.

     (b) "Control" means that term as defined in section 115(b)(i).

     (c) "Health care corporation" means that term as defined in

section 105 of the nonprofit health care corporation reform act,

1980 PA 350, MCL 550.1105.

     (d) "Self-insurer" means a person that covers its liability

through a qualified individual or group self-insurance program or

any other formal program created for the specific purpose of

covering liabilities typically covered by insurance.

     Sec. 7931. (1)  The association shall pay and discharge

covered claims for the amount by which each covered claim exceeds

$10.00. The association may pay or discharge  the  covered claims

directly, through a servicing facility, or through a contract for

reinsurance or transfer of liabilities with a member insurer, in

accordance with the plan of operation.

     (2) The association shall be a party in interest in all

proceedings involving a covered claim and shall have the same

rights as the insolvent insurer would have had if not in

receivership, including the right to appear, defend, and appeal a

claim in a court of competent jurisdiction; to receive notice of,

investigate, adjust, compromise, settle, and pay a covered claim;

and to investigate, handle, and deny a noncovered claim. The

association shall not have a cause of action against the insureds

of the insolvent insurer for any sums it has paid out, except those

causes of action  which  that the insolvent insurer would have had

if the sums had been paid by the insolvent insurer, or except as

otherwise provided by this chapter.

     (3) If damages or benefits are recoverable by a claimant or

insured under an insurance policy other than a policy of the

insolvent insurer, or  from the motor vehicle accident claims fund,

or a similar fund  under a worker's compensation self-insured

program of a self-insured entity, the damages or benefits

recoverable shall be a credit against a covered claim payable under

this chapter. The claimant, insured, or self-insured entity shall

first exhaust all coverage provided by any policy or self-insured

program. If damages against an insured who is not a resident of

this state are recoverable by a claimant who is a resident of this

state, in whole or in part, from any  insolvency  insurance

guaranty association or fund or its equivalent in the state where

the insured is a resident, the damages recoverable shall be a

credit against a covered claim payable under this chapter. To the

extent that the association's obligation is reduced by this

section, the liability of the person insured by the insolvent

insurer's policy shall be reduced in the same amount. An insurer,

or a fund may  self-insured entity, or any other person shall not

maintain an action against an insured of the insolvent insurer to

recover an amount  which  that constitutes a credit against a

covered claim under this section. An amount paid to a claimant in

excess of the amount authorized by this section may be recovered by

an action brought by the association.

     (4) The association shall continue coverage for covered claims

under each insurance policy of the insolvent insurer that was in

force on the date the receiver was appointed until the insurance

policy has expired in accordance with its terms, has been replaced

by the insured, or has been canceled by the association as provided

in this chapter, but in no event for more than 30 days after the

date the receiver was appointed.

     (5) The association may cancel insurance policies of the

insolvent insurer by mailing or delivering to the insured at the

last known address within this state a 10 days' written notice of

cancellation, notwithstanding a statute or policy provision to the

contrary.

     Sec. 7941. (1) To the extent necessary to secure funds for the

association for payment of covered claims and for payment of

reasonable costs of administering the association, including the

cost of indemnifying members of the board of governors, other

member insurers, officers, employees, and other persons acting on

behalf of the association to the extent permitted by law and the

plan of  the operation, the association shall levy assessments

upon all member insurers. The association shall allocate its claim

payments and costs to the following 5 categories:

     (a) Worker's compensation insurance.

     (b) Automobile insurance.

     (c) Title insurance.

     (d) Fire, allied lines, farm owner's multiple peril,

homeowner's multiple peril, inland marine, earthquake, and credit

insurance.

     (e) All other kinds of insurance except life and disability

insurance.

     (2) Separate assessments shall be made for each category

prescribed in subsection (1). The assessment for each category

shall be used to pay the claim payments and costs allocated to that

category. The assessment for each category shall be in proportion

to the net direct premiums written, after deducting dividends paid

or credited to policyholders, by each member insurer in this state

for kinds of insurance included within each category, as reported

in the most recent annual statement available at the time of

assessment. The rate of assessment shall be a uniform percentage of

the premiums for all member insurers. The assessments shall be

remitted to and administered by the association in accordance with

the plan of operation. Each member insurer assessed shall have not

less than 30 days' advance written notice of the date the

assessment is due and payable.

     (3) A member insurer shall not be assessed during a calendar

year for more than 1% of its net direct premiums written in this

state during the previous calendar year. The commissioner may

exempt a member insurer from all or part of an assessment or may

defer, in whole or in part, the assessment of a member insurer, if

the assessment would cause the member insurer's financial statement

to reflect amounts of capital or surplus less than the minimum

amounts required for a certificate of authority by any jurisdiction

in which the member insurer is authorized to transact insurance.

However, during the period of exemption or deferment, dividends

shall not be declared or paid to shareholders or policyholders. If

a member insurer is exempted from all or part of an assessment, or

if an assessment against a member insurer is deferred in whole or

in part, the amount of the exemption or deferred assessment may be

assessed against the other member insurers in a manner consistent

with the basis for assessments prescribed in this section. The

commissioner may impose conditions on an exemption or deferral

which he or she considers reasonable and necessary. The state

accident fund  shall not be  is not liable for any assessment based

on premiums written after  the effective date of this 1990

amendatory act  June 29, 1990 including any assessment for an

insolvency occurring before the date of termination of its

membership in the association.

     (4) The assessments shall be recognized in the rate-making

procedures for insurance rates in the same manner that expenses and

premium taxes are recognized. Unused assessments and reimbursements

from the receiver remaining in a category in excess of covered

claims and expenses allocated to that category shall be refunded by

the association to each member insurer who paid the assessments for

that category in proportion to its assessments paid. An insurer

which  that ceases to be a member of the association shall not have

a right to a refund of an assessment previously remitted to the

association. The commissioner may revoke the certificate of

authority to transact business in this state of a member insurer

which  that fails to pay an assessment when due as provided in this

act and after a demand has been made.

     Sec. 7945. All proceedings in any court of law  of this state

or administrative tribunal, including worker's compensation

proceedings, to which the insolvent insurer is a party, or in which

the insolvent insurer is obligated to defend or has assumed the

defense of a party, shall be stayed for 6 months after the date a

receiver is appointed, and for any additional time as determined by

the court  which  or administrative tribunal that has jurisdiction

over those proceedings, to permit proper defense of all pending

causes of action.

     Sec. 8111. (1) Except as provided in subsection (2), in all

proceedings and judicial review of these proceedings under sections

8109 and 8110, all records of the insurer, other documents,

insurance bureau  office of financial and insurance services files,

and court records and papers, so far as they pertain to or are a

part of the record of the proceedings, are confidential and shall

be held by the clerk of the court in a confidential file except as

is necessary to obtain compliance therewith, unless the court,

after hearing arguments from the parties in chambers, orders

otherwise or the insurer requests that the matter be made public.

     (2) Without compromising the confidentiality of the records of

the commissioner,  insurance bureau  office of financial and

insurance services, or supervisor, the commissioner or his or her

supervisor may advise third parties of the existence of a

supervision order and of the supervisor's authority if considered

by either of them necessary to further the insurer's compliance

with the supervision order. The commissioner may advise third

parties of the existence of a supervision order and of facts

pertaining to the supervision order if considered necessary by the

commissioner with regard to other regulatory matters affecting the

insurer or a person or entity related to the insurer. Third parties

advised under this subsection are required to keep the existence of

a supervision confidential. As used in this subsection, "third

parties" means the following persons:

     (a) Debtors and creditors of the insurer and its affiliates.

     (b) Persons who hold or control assets of the insurer and its

affiliates.

     (c) Reinsurers of the insurer and its affiliates.

     (d) Insurance regulatory officials.

     (e) Law enforcement agencies.

     (f) Representatives of a guaranty association or foreign

guaranty association that may become obligated as a result of the

insolvency of the insurer. Confidentiality obligations of a

guaranty association or foreign guaranty association to the

receiver end upon the entry of an order of liquidation with a

finding of insolvency against the insurer.

     Sec. 8124. (1) Upon issuance of an order appointing a

liquidator of a domestic insurer or of an alien insurer domiciled

in this state, an action at law or equity shall not be brought

against the insurer or liquidator, whether in this state or

elsewhere, and any such existing action shall not be maintained or

further presented after issuance of such order. The courts of this

state shall give full faith and credit to injunctions against the

liquidator or the company or the continuation of existing actions

against the liquidator or the company, if such injunctions are

included in an order to liquidate an insurer issued pursuant to

corresponding provisions in other states. If, in the liquidator's

judgment, protection of the estate of the insurer necessitates

intervention in an action against the insurer that is pending

outside this state, he or she may intervene in the action. The

liquidator may defend an action in which he or she intervenes under

this section at the expense of the estate of the insurer.

     (2) The liquidator may, upon or after an order for

liquidation, within 2 years or such time in addition to 2 years as

applicable law may permit, institute an action or proceeding on

behalf of the estate of the insurer upon any cause of action

against which the period of limitation fixed by applicable law has

not expired at the time of the filing of the petition upon which

the order is entered. If, by agreement, a period of limitation is

fixed for instituting a suit or proceeding upon a claim, or for

filing a claim, proof of claim, proof of loss, demand, notice, or

the like, or if in a proceeding, judicial or otherwise, a period of

limitation is fixed, either in the proceeding or by applicable law,

for taking action, filing a claim or pleading, or doing any act,

and the period had not expired at the date of the filing of the

petition, the liquidator may, for the benefit of the estate, take

action or do an act required of or permitted to the insurer within

a period of 180 days subsequent to the entry of an order for

liquidation, or within such further period as is shown to the

satisfaction of the court not to be unfairly prejudicial to the

other party.

     (3) A statute of limitation or defense of laches shall not run

with respect to an action against an insurer between the filing of

a petition for liquidation against an insurer and the denial of the

petition. An action against the insurer that might have been

commenced when the petition was filed may be commenced at least

within 60 days after the petition is denied.

     (4) A guaranty association or foreign guaranty association

shall have standing to appear in a court proceeding concerning the

liquidation of an insurer if the association is or may become

liable to act as a result of the liquidation.

     Sec. 8124a. Any guaranty association or foreign guaranty

association has standing to appear and may intervene as a party as

a matter of right or otherwise appear and participate in any court

proceeding concerning the rehabilitation or liquidation of an

insurer if the association is or may become liable to act as a

result of the liquidation. Exercise by any guaranty association or

its designated representative of the right to intervene conferred

under this subsection does not constitute grounds to establish

general personal jurisdiction by the courts of this state. The

intervening guaranty association or foreign guaranty association is

subject to the court's jurisdiction only for the limited purpose

for which it intervenes.

     Sec. 8133a. (1) Notwithstanding any other law or contract to

the contrary, any collateral held by or for the benefit of or

assigned to the insurer or subsequently the receiver in order to

secure the obligations of a policyholder under a deductible

agreement shall not be considered an asset of the estate and shall

be maintained and administered by the receiver as provided in this

section.

     (2) If collateral is being held by or for the benefit of or

assigned to the insurer or subsequently the receiver to secure

obligations under a deductible agreement with a policyholder, the

collateral shall be used to secure the policyholder's obligation to

fund or reimburse claims payment within the agreed deductible

amount as provided in this section.

     (3) If a claim that is subject to a deductible agreement and

secured by collateral is not covered by any guaranty association or

foreign guaranty association and the policyholder is unwilling or

unable to take over the handling and payment of the noncovered

claims, the receiver shall adjust and pay the noncovered claims

using the collateral but only to the extent the available

collateral after allocation under subsection (4) is sufficient to

pay all outstanding and anticipated claims. If the collateral is

exhausted and the insured is not able to provide funds to pay the

remaining claims within the deductible after all reasonable means

of collection against the insured have been exhausted, the

receiver's obligation to pay the claims from the collateral

terminates and the remaining claims shall be claims against the

insurer's estate subject to complying with other provisions in this

chapter for the filing and allowance of those claims. If the

liquidator determines that the collateral is insufficient to pay

all additional and anticipated claims, the liquidator may file a

plan, subject to court approval, for equitably allocating the

collateral among claimants.

     (4) To the extent that the receiver is holding collateral

provided by a policyholder that was obtained to secure a deductible

agreement and to secure other obligations of the policyholder to

pay the insurer directly or indirectly amounts that become assets

of the estate, such as reinsurance obligations under a captive

reinsurance program or adjustable premium obligations under a

retrospectively rated insurance policy where the premium due is

subject to adjustment based upon actual loss experience, the

receiver shall equitably allocate the collateral among those

obligations and administer the collateral allocated to the

deductible agreement as provided in this section. For collateral

allocated to obligations under the deductible agreement, if the

collateral secured reimbursement obligation under more than 1 line

of insurance, then the collateral shall be equitably allocated

among the various lines based upon the estimated ultimate exposure

within the deductible amount for each line. The receiver shall

inform the guaranty associations and foreign guaranty associations

of the method and details of all the foregoing allocations.

     (5) Regardless of whether there is collateral, if the insurer

has contractually agreed to allow the policyholder to fund its own

claims within the deductible amount pursuant to a deductible

agreement, either through the policyholder's own administration of

its claims or through the policyholder providing funds directly to

a third party administrator who administers the claims, the

receiver shall allow this funding arrangement to continue and,

where applicable, will enforce the arrangement to the fullest

extent possible. The funding of these claims by the policyholder

within the deductible amount will act as a bar to any claim for

such amount in the liquidation proceeding, including, but not

limited to, any claim by the policyholder or the third party

claimant. This funding arrangement extinguishes both the

obligation, if any, of any guaranty association to pay those claims

within the deductible amount, as well as the obligations, if any,

of the policyholder or third party administrator to reimburse the

guaranty association. No charge of any kind shall be made against

any guaranty association on the basis of the policyholder funding

of claim payments made pursuant to an arrangement described in this

subsection.

     (6) If the insurer has not contractually agreed to allow the

policyholder to fund its own claims within the deductible amount,

to the extent a guaranty association or foreign guaranty

association is required by applicable state law to pay any claims

for which the insurer would have been entitled to reimbursement

from the policyholder under the terms of the deductible agreement

and to the extent the claims have not been paid by a policyholder

or third party, the receiver shall promptly bill the policyholder

for reimbursement and the policyholder is obligated to pay the

reimbursement amount to the receiver for the benefit of the

guaranty association or foreign guaranty associations who paid the

claims. Neither the insolvency of the insurer, nor its inability to

perform any of its obligations under the deductible agreement, is a

defense to the policyholder's reimbursement obligation under the

deductible agreement. The receiver shall promptly reimburse the

guaranty association or foreign guaranty association for claims

paid that were subject to the deductible when the policyholder

reimbursements are collected. If the policyholder fails to pay the

amounts due within 60 days after the bill for the reimbursement is

due, the receiver shall use the collateral to the extent necessary

to reimburse the guaranty association or foreign guaranty

associations, and, at the same time, may pursue other collections

efforts against the policyholder. If more than 1 guaranty

association or foreign guaranty association has a claim against the

same collateral and the available collateral, after allocation

under subsection (4), along with billing and collection efforts,

are together insufficient to pay each guaranty association and

foreign guaranty association in full, then the receiver will

prorate payments to each guaranty association and foreign guaranty

association based upon the relationship the amount of claims each

guaranty association and foreign guaranty association has paid

bears to the total of all claims paid by the guaranty association

and foreign guaranty associations.

     (7) The receiver is entitled to deduct from reimbursements

owed to a guaranty association or foreign guaranty association or

collateral to be returned to a policyholder reasonable actual

expenses incurred in fulfilling the responsibilities under this

section, not to exceed 3% of the collateral or the total deductible

reimbursements actually collected by the receiver. For claim

payments made by a guaranty association or foreign guaranty

association, the receiver shall promptly provide the guaranty

association or foreign guaranty association with a complete

accounting of the receiver's deductible billing and collection

activities, including copies of the policyholder billings when

rendered, the reimbursements collected, the available amounts and

use of collateral for each account, and any proration of payments

when it occurs. If the receiver fails to make a good faith effort

within 120 days of receipt of claims payment reports to collect

reimbursements due from a policyholder under a deductible agreement

based on claim payments made by the guaranty association or foreign

guaranty association, the guaranty association or foreign guaranty

association may pursue collection from the policyholders directly

on the same basis as the receiver, and with the same rights and

remedies, and shall report any amounts collected from each

policyholder to the receiver. To the extent that a guaranty

association or foreign guaranty association pays claims within the

deductible amount, but is not reimbursed by either the receiver

under this section or by policyholder payments from the guaranty

association's or foreign guaranty association's own collection

efforts, the guaranty association or foreign guaranty association

shall have a claim in the insolvent insurer's estate for

unreimbursed claims payments.

     (8) The receiver shall adjust the collateral being held as the

claims subject to the deductible agreement are run off, so long as

adequate collateral is maintained to secure the entire estimated

ultimate obligation of the policyholder plus a reasonable safety

factor. The receiver shall make these adjustments periodically, but

is not required to adjust the collateral more than once a year. The

guaranty association and any foreign guaranty association shall be

informed of all such collateral reviews, including, but not limited

to, the basis for the adjustment. Once all claims covered by the

collateral have been paid and the receiver is satisfied that no new

claims can be presented, the receiver will release any remaining

collateral to the policyholder.

     (9) The Ingham county circuit court having jurisdiction over

the liquidation proceedings shall have jurisdiction to resolve

disputes arising under this section.

     (10) This section does not limit or adversely affect any right

a guaranty association or foreign guaranty association may have

under applicable state law to obtain reimbursement from certain

classes of policyholders for claims payments made by the guaranty

association or foreign guaranty association under policies of the

insolvent insurer or for related expenses the guaranty association

or foreign guaranty association incurs.

     (11) This section applies to all delinquency proceedings that

are open and pending on the effective date of this section.

     (12) This section does not apply to first party claims or to

claims funded by a guaranty association or foreign guaranty

association net of the deductible unless subsection (5) applies.

     (13) As used in this section:

     (a) "Deductible agreement" means any combination of 1 or more

policies, endorsements, contracts, or security agreements that

provide for the policyholder to bear the risk of loss within a

specified amount per claim or occurrence covered under a policy of

insurance and may be subject to aggregate limit of policyholder

reimbursement obligations.

     (b) "Noncovered claim" means a claim that is subject to a

deductible agreement, may be secured by collateral, and is not

covered by a guaranty association or foreign guaranty association.

     Sec. 8134. (1) Within 120 days of a final determination of

insolvency of an insurer by a court of competent jurisdiction of

this state, the liquidator shall make application to the court for

approval of a proposal  to disburse assets out of marshalled

assets, from time to time as those assets become available, to a

guaranty association or foreign guaranty association having

obligations because of the insolvency. If the liquidator determines

that there are insufficient assets to disburse, the application

required by this section shall be considered satisfied by a filing

by the liquidator stating the reasons for this determination. to

make early access disbursements out of marshaled assets, to any

guaranty association or foreign guaranty association having

obligations because of the insolvency. If the liquidator determines

that the estate will not have sufficient assets to make any early

access disbursements to a guaranty association or foreign guaranty

association under this section, the liquidator shall file a report

with the court supporting this determination. Notice to the state

insurance commissioners, guaranty associations, and foreign

guaranty associations and court review of the report shall be

provided under subsection (5). This report may be given instead of

an application for a proposal to make early access disbursements.

However, if at any time the estate obtains sufficient assets to

support an early access disbursement under this section, the

liquidator shall file an application for a proposal to make early

access disbursements within 60 days of the estate obtaining those

assets. If, within 120 days of a final determination of insolvency,

the liquidator fails to file an application with the court for

approval of a proposal to make early access disbursements or,

alternatively, fails to file a report with the court supporting the

determination that the estate will not have sufficient assets to

make early access disbursements, any guaranty association or

foreign guaranty association that may become obligated to pay

claims as a result of the insolvency may file this application. An

application filed by an association shall be reviewed by the court

and, if the proposal submitted by the association meets the

requirements set out in this section, the application shall be

approved by the court. Upon court approval of the guaranty

association or foreign guaranty association proposal, the

liquidator shall begin making early access disbursements in

accordance with the proposal.

     (2) A proposal under subsection (1) shall at least include

provisions for all of the following:

     (a) Reserving amounts for the payment of expenses of

administration and the payment of claims of secured creditors, to

the extent of the value of the security held, and claims falling

within the priorities established in section 8142(1)(a) and (b) and

(2). When a reserve for uncovered claims under section 8142(2) is

appropriate, the amount of estate assets to be reserved for those

claims shall be a percentage of the uncovered claims under section

8142(2), equal in proportion to the percentage of assets

distributed, or proposed for distribution, to the guaranty

association or foreign guaranty association with respect to covered

obligations at the time the reserve for uncovered claims is

calculated. Reserves shall be established based on the best

available information at the time the distribution is calculated

and modified from time to time as more refined information becomes

available.

     (b) Disbursement of the assets  marshalled  marshaled to date

and subsequent disbursement of assets as they become available.

     (c) Equitable allocation of disbursements to each of the

guaranty associations and foreign guaranty associations entitled to

disbursements.

     (d) The securing by the liquidator from each of the

associations entitled to disbursements pursuant to this section of

an agreement to return to the liquidator such assets, together with

income earned on assets previously disbursed, as may be required to

pay claims of secured creditors and claims falling within the

priorities established in section 8142 in accordance with those

priorities. A bond shall not be required of any such association.

     (e) A full report to be made by each association to the

liquidator accounting for assets disbursed to the association, all

disbursements made from the assets, interest earned by the

association on the assets, and any other matter as the court

directs.

     (3) The liquidator's proposal shall provide for disbursements

to the associations in amounts estimated at least equal to the

claim payments made or to be made thereby for which the

associations could assert a claim against the liquidator, and shall

further provide that if the assets available for disbursement from

time to time do not equal or exceed the amount of claim payments

made or to be made by the association, then disbursements shall be

in the amount of available assets.

     (4) The liquidator's proposal shall, with respect to an

insolvent insurer writing life or health insurance or annuities,

provide for disbursements of assets to any guaranty association or

any foreign guaranty association covering life or health insurance

or annuities or to any other entity or organization reinsuring,

assuming, or guaranteeing policies or contracts of insurance under

the acts creating the associations.

     (5) Notice of application shall be given to the association in

each state and to the commissioners of insurance of each state.

Notice shall be considered to have been given when deposited in the

United States certified mails, first-class postage prepaid, at

least 30 days before submission of the application to the court.

Action on the application may be taken by the court if the notice

under this subsection has been given and if the liquidator's

proposal complies with subsection (2)(a) and (b).

     (6) The liquidator shall not offset the amount to be disbursed

to any guaranty association or foreign guaranty association by any

special or statutory deposit or any other asset of the insolvent

insurer except to the extent the deposit or asset has been paid to

the association for the purpose of satisfying the association's

claims. If a guaranty association or foreign guaranty association

has received an early access distribution and thereafter also

receives a special or statutory deposit or any other asset of the

insolvent insurer, the liquidator may request the return of the

early access funds up to the amount of the special or statutory

deposit or other asset of the insolvent insurer.