June 20, 2006, Introduced by Rep. Mortimer and referred to the Committee on Insurance.
A bill to amend 1956 PA 218, entitled
"The insurance code of 1956,"
(MCL 500.100 to 500.8302) by adding section 8133a.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
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. If a policyholder has entered into an
agreement to which this subsection applies and is prevented from
funding its own claims due to any proceeding under 11 USC 101 to
1330 and 1501 to 1532, then the guaranty funds that would otherwise
be obligated to pay the claims shall pay the claims to the extent
required by applicable state law and, in addition to any other
rights of recovery arising from payment of the claims, shall have
the full benefit of all collateral and other rights of
reimbursement and recovery under this section from the bankruptcy
court, liquidator, or receiver. 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.
Enacting section 1. This amendatory act does not take effect
unless all of the following bills of the 93rd Legislature are
enacted into law:
(a) Senate Bill No.____ or House Bill No. 6235(request no.
07127'06).
(b) Senate Bill No.____ or House Bill No. 6234(request no.
07128'06).
(c) Senate Bill No.____ or House Bill No. 6233(request no.
07129'06).
(d) Senate Bill No.____ or House Bill No. 6232(request no.
07130'06).
(e) Senate Bill No.____ or House Bill No. 6231(request no.
07131'06).
(f) Senate Bill No.____ or House Bill No. 6230(request no.
07132'06).
(g) Senate Bill No.____ or House Bill No. 6229(request no.
07133'06).
(h) Senate Bill No.____ or House Bill No. 6228(request no.
07134'06).
(i) Senate Bill No.____ or House Bill No. 6227(request no.
07135'06).
(j) Senate Bill No.____ or House Bill No. 6226(request no.
07136'06).
(k) Senate Bill No.____ or House Bill No. 6225(request no.
07137'06).
(l) Senate Bill No.____ or House Bill No. 6223(request no.
07139'06).