AN ACT Relating to insolvent insurers; amending RCW 48.32A.020, 48.32A.030, 48.32A.040, 48.32A.050, 48.32A.060, 48.32A.080, and 48.32A.090; and adding a new section to chapter 48.32A RCW.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

Sec. 1. Section 2, chapter 259, Laws of 1971 ex. sess. and RCW 48.32A.020 are each amended to read as follows:

This chapter shall ((apply as follows to life insurance policies, disability insurance policies, and annuity contracts of liquidating insurers, other than separate account variable policies and contracts authorized by chapter 48.18A RCW:

~~(1) To all such policies and contracts of a domestic insurer, without regard to the place of residence or domicile of the policy or contract owner, insured, annuitant, beneficiary, or payee.~~

(2) To all such policies and contracts of a foreign or alien insurer authorized to transact such insurance or annuity business in this state at the time such policies or contracts were issued or at the time of entry of the order of liquidation of the insolvent insurer, and of which the policy or contract owner, insured, annuitant, beneficiary, or payee is a resident of and domiciled within this state. With respect to group policies or group contracts of such foreign or alien insurers, this chapter shall apply only as to the insurance or annuities thereunder of individuals who are residents of and domiciled within this state. The place of residence or domicile shall be determined as of the date of entry of the order of liquidation against the insurer.

~~(3) To policies and contracts only of insolvent insurers with respect to which an order of liquidation is entered after May 21, 1971.~~

(4) The obligations of the association created under this chapter shall apply only as to contractual obligations of the insurer under insurance policies and annuity contracts, and shall be no greater than such obligations of the insolvent insurer at the time of entry of the order of liquidation; except, that the association shall have no liability with respect to any portions of such policies or contracts to the extent that the death benefit coverage on any one life exceeds an aggregate of three hundred thousand dollars.

(5) This chapter shall not apply to fraternal benefit societies, health care service contractors, or to insurance or liability assumed by the liquidating insurer under a contract of reinsurance other than of bulk reinsurance.)) provide coverage under the policies and contracts issued by a liquidating insurer and specified in subsection (2) of this section and payment of immediate needs under policies and contracts issued by an impaired insurer if the laws of the impaired insurer's state of domicile provide that all funds expended by the association must be repaid to the association prior to such impaired insurer writing new policies and contracts, acquiring a certificate of authority or returned to the control of its management or shareholders and specified in subsection (2) of this section.

(1) This chapter shall provide coverage, under the policies and contracts specified in subsection (2) of this section:

(a) To 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 (b) of this subsection; and

(b) To persons who are owners of such policies or contracts, or are insureds or annuitants under such policies or contracts, and who:

(i) Are residents; or

(ii) Are not residents, but only under all of the following conditions: (A) The states in which they reside have associations similar to the association created by this chapter, (B) they are not eligible for coverage by such associations, (C) the insurers which issued such policies or contracts never held a certificate of authority in such states, and (D) such insurers are domiciled in this state.

(2) (a) This chapter shall provide coverage to the persons specified in subsection (1) of this section under direct life insurance policies, disability insurance policies, annuity contracts, supplemental contracts, and certificates under group life policies, group disability policies, or annuity or supplemental contracts issued by member insurers.

(b) This chapter shall not provide coverage under:

(i) Any portion of a policy or contract not guaranteed by the insurer, or under which the risk is borne by the policy or contract holder;

(ii) Any policy or contract of reinsurance unless assumption certificates have been issued;

(iii) Any portion of a policy or contract to the extent that it is based:

(A) Over the period of four years prior to the date on which the association becomes obligated with respect to such policy or contract, on a rate of interest which, averaged for the same four-year period, exceeds the rate of interest calculated according to a short-term interest index reflecting the market of insurer crediting rates, averaged for the same four-year period; and

(B) On and after the date on which the association becomes obligated with respect to such policy or contract, on a rate of interest which exceeds the rate of interest calculated according to a short-term interest index reflecting the market of insurer crediting rates on the date on which the association becomes obligated with respect to such policy or contract, minus one percentage point;

(iv) Any 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 such plan or program is self-funded or uninsured, including but not limited to benefits payable by an employer, association, or similar entity under: (A) A multiple employer welfare arrangement as defined in section 514 of the employee retirement income security act of 1974, as amended; (B) a minimum premium group insurance plan; (C) a stop-loss group insurance plan; or (D) an administrative services only contract;

(v) Any portion of a policy or contract to the extent that it provides dividends or experience rating credits, or provides fees or allowances to be paid to any person, including the policy or contract holder, in connection with the service to or administration of such policy or contract;

(vi) Policies or contracts issued by a fraternal benefit society, health care service contractor, or health maintenance organization; and

(vii) Policies or contracts issued by a member insurer when it did not possess a valid certificate of authority to transact life and disability insurance in this state.

(i) The contractual obligations for which the insurer is liable or would have been liable if it were not an impaired or liquidated insurer; or

(ii) With respect to any one life, five hundred thousand dollars total for all policies and contracts covered under this chapter.

Policies or contracts issued to provide coverage for a structured settlement of a personal injury action in the state of Washington shall be fully covered if the settlement was reached prior to the effective date of this 1985 act.

Sec. 2. Section 3, chapter 259, Laws of 1971 ex. sess. and RCW 48.32A.030 are each amended to read as follows:

Within the meaning of this chapter:

(1) "Association" means "the Washington life and disability insurance guaranty association".

(2) "Board" means the board of directors of the Washington life and disability insurance guaranty association.

(3) "Commissioner" means the insurance commissioner of this state.

(4) "Policies" means life or disability insurance policies; "contracts" means annuity contracts and contracts supplemental to such insurance policies and annuity contracts.

(5) "Liquidating insurer" means an insurer with respect to which an order of liquidation has been entered by a court of competent jurisdiction.

(6) "Fund" means a guaranty fund provided for in RCW 48.32A.080.

(7) "Account" means any one of the four guaranty fund accounts created under RCW 48.32A.080(1).

(8) "Assessment" means a charge made upon an insurer by the board under this chapter for payment into a guaranty fund. The charge shall constitute a legal liability of the insurer so assessed.

(9) "Contributor" means an insurer which has paid an assessment.

(10) "Certificate" means a certificate of contribution provided for in RCW 48.32A.090.

(11) "Impaired insurer" means a foreign or alien insurer placed under an order of rehabilitation or conservation by a court of competent jurisdiction.

(12) "Payment of immediate needs" means the payment of health claims, death benefits, periodic annuity benefit payments, supplemental benefits, and cash withdrawals for hardships and emergencies.

Sec. 3. Section 4, chapter 259, Laws of 1971 ex. sess. and RCW 48.32A.040 are each amended to read as follows:

(1) There is hereby created a nonprofit unincorporated legal entity to be known as the Washington life and disability insurance guaranty association, which shall be composed of the commissioner, ex officio, and of each insurer authorized to transact life insurance, or disability insurance, or annuity business in this state. All such insurers shall be and remain members of the association during the continuance of, and as a condition to, their authority to transact such business in this state.

(2) The association shall be managed by a board of directors composed of the commissioner, ex officio, and of not less than five nor more than nine member insurers, each of whom shall initially be appointed by the commissioner to serve for terms of one, two, or three years. After the initial board is appointed, the board shall provide in its bylaws for selection of board members by member insurers subject to the commissioner's approval; members so selected shall serve for three year terms, acceding to office upon expiration of the terms of the respective initial board members; and board members shall thereafter serve for three year terms and shall continue in office until their respective successors be selected, approved, and have qualified. At least a majority of the members of the board shall be domestic insurers. In case of a vacancy for any reason on the initial board appointed, the commissioner shall appoint a member insurer to fill the unexpired term; vacancies on the board thereafter shall be filled in the same manner as in the original selection and approval. Board members may be reimbursed for reasonable and necessary expenses incurred in connection with the performance of their duties.

(3) A director, officer, employee, agent or other representative of the association or of a member insurer, or the commissioner or his representative shall in no event be individually liable to any person, including the association, for any act or omission to act, or for any liability incurred or assumed, on behalf of the association or by virtue thereof, any such liability so incurred or assumed to be collectible only out of a fund; nor shall any insurer member of the association be subject to any liability except for assessment as in this chapter provided.

(4) The association shall be under the immediate supervision of the commissioner and shall be subject to such provisions of the insurance code of the state of Washington as may be applicable and not inconsistent with the provisions of this chapter.

(5) The board may, upon majority vote, make recommendations to the commissioner for the detection and prevention of insurer insolvencies.

(6) The association may join and participate in the national association of life and health insurance guaranty associations and any immunity set forth in subsection (3) of this section shall apply to actions in connection with such national association.

Sec. 4. Section 5, chapter 259, Laws of 1971 ex. sess. and RCW 48.32A.050 are each amended to read as follows:

The association shall have the power:

(1) To use a seal, to contract, to sue and be sued and, in addition, possess and exercise all powers necessary or convenient for the purposes of this chapter.

(2) With the approval of the commissioner and as provided in RCW 48.32A.060, to assume, reinsure or guarantee or cause to be assumed, reinsured, or guaranteed, partially or wholly, any or all of the policies or contracts ((~~of any liquidating domestic life or disability insurer or any policy or contract~~)) to which this chapter applies, and to make available from a fund, the creation of which is hereinafter in RCW 48.32A.080 provided, such sum or sums as may be necessary for such purpose.

(3) To carry out the provisions of this section, the association shall have, and may exercise, all necessary rights, powers, privileges, and franchises of a domestic insurer, except that it shall not be authorized to issue contracts or policies unless such contracts or policies are pursuant to contracts and policies representing obligations in whole or in part of the liquidating insurer or of the association.

(4) To borrow money for the purposes of the fund, either with or without security, and pledge such assets in a fund as security for such loans, and in connection therewith, rehypothecate any securities or collateral pledged to it by an insurer. Any notes or other evidence of indebtedness of the association shall be legal investments for domestic insurers and may be carried as admitted assets.

(5) To collect or enforce by legal proceedings, if necessary, the payment of all assessments for which any insurer may be liable under this chapter; and to collect any other debt or obligation due to the association or a fund created in this chapter.

(6) To make bylaws and regulations for the conduct of the affairs of the association, not inconsistent with this chapter.

Sec. 5. Section 6, chapter 259, Laws of 1971 ex. sess. as amended by section 2, chapter 133, Laws of 1975 1st ex. sess. and RCW 48.32A.060 are each amended to read as follows:

(1) The association shall, subject to such terms and conditions as it may impose with the approval of the commissioner, assume, reinsure, or guarantee the performance of the policies and contracts of any ((~~domestic life or disability~~)) liquidating insurer ((~~with respect to which an order of liquidation has been entered by any court of general jurisdiction in the state of Washington~~)) in accordance with the provisions of RCW 48.32A.020, and shall have power to receive, own, and administer any assets acquired in connection with such assumption, reinsurance, or guaranty. The association, as to any such policy or contract under which there is no default in payment of premiums subsequent to such assumption, reinsurance, or guaranty, shall make or cause to be made prompt payment of the benefits due under the terms of the policy or contract.

(2) ((The association shall make or cause to be made payment of the death, endowment, or disability insurance or annuity benefits due under the terms of each policy or contract insuring the life or health of, or providing annuity or other benefits for, a resident of this state which was issued or assumed by a foreign or alien insurer with respect to which an order of liquidation has been entered by a court of competent jurisdiction in the state or country of its domicile.)) The association shall make or cause to be made the payment of immediate needs under policies and contracts of an impaired insurer in accordance with the provisions of RCW 48.32A.020 and the approval of the commissioner.

(3) In determining benefits to be paid with respect to the policies and contracts of a particular liquidating insurer the board may give due consideration to amounts reasonably recoverable or deductible because of the contingent liability, if any, of policyholders of the insurer (if a mutual insurer) or recoverable because of the assessment liability, if any, of the insurer's stockholders (if a stock insurer).

(4) With respect to ((~~an insolvent~~)) a liquidating domestic insurer, the board shall have power to petition the court in which the delinquency proceedings are pending for, and the court shall have authority to order and effectuate, such modifications in the terms, benefits, values, and premiums thereafter to be in effect of policies and contracts of the insurer as may reasonably be necessary to effect a bulk reinsurance of such policies and contract in a solvent insurer.

In the event, after the entry of an order of liquidation, an assessment on the members is necessary to increase the assets of the insolvent company to an extent that a bulk reinsurance of such policies may be effected, the court shall have authority to order such assessment.

(5) In addition to any other rights of the association acquired by assignment or otherwise, the association shall be subrogated to the rights of any person entitled to receive benefits under this chapter against the liquidating insurer, impaired insurer, or the receiver, rehabilitator, liquidator, or conservator, as the case may be, under the policy or contract with respect to which a payment is made or guaranteed, or obligation assumed by the association pursuant to this section, and the association may require an assignment to it of such rights by any such persons as a condition precedent to the receipt by such person of payment of any benefits under this chapter.

(6) For the purpose of carrying out its obligations under this chapter, the association shall be deemed to be a creditor of the liquidating insurer or impaired insurer to the extent of assets attributable to covered policies and contracts reduced by any amounts to which the association is entitled as a subrogee. All assets of the liquidating insurer or impaired insurer attributable to covered policies and contracts shall be used to continue all covered policies and contracts and pay all contractual obligations of the liquidating insurer or impaired insurer as required by this chapter. Assets attributable to covered policies and contracts, as used in this subsection, are those in that proportion of the assets which the reserves that should have been established for such policies and contracts bear to the reserves that should have been established for all insurances written by the liquidating insurer or impaired insurer.

(7) The association shall have the power to petition the superior court for an order appointing the commissioner as receiver of a domestic insurer upon any of the grounds set forth in RCW 48.31.030.

Sec. 6. Section 8, chapter 259, Laws of 1971 ex. sess. as amended by section 5, chapter 119, Laws of 1975-'76 2nd ex. sess. and RCW 48.32A.080 are each amended to read as follows:

(1) For purposes of administration and assessment, the association shall establish and maintain four guaranty fund accounts: (a) the life insurance account; (b) the disability insurance account; (c) the annuity account; and (d) the general account.

(2) For the purpose of providing the funds necessary to carry out the powers and duties of the association, the board shall assess the member insurers, separately for each account, at such times and for such amounts as the board finds necessary. The board shall collect the assessment after thirty days written notice to the member insurers before payment is due.

(3) (a) The amount of any assessment for each account shall be determined by the board, and shall be divided among the accounts in the proportion that the premiums received by the liquidating insurer or impaired insurer on the policies or contracts covered by each account bears to the premiums received by such insurer on all covered policies and contracts.

(b) Assessments against member insurers for each account shall be in the proportion that the premiums received on business in this state by each assessed member insurer on policies or contracts covered by each account bears to such premiums received on business in this state by all assessed member insurers.

(c) Assessments for funds to meet the requirements of the association with respect to a particular liquidating insurer shall not be made until necessary, in the board's opinion, to implement the purposes of this chapter; and in no event shall such an assessment be made with respect to such insurer until an order of liquidation has been entered against the insurer by a court of competent jurisdiction of the insurer's state or country of domicile or a foreign or alien insurer has been placed under an order of rehabilitation or conservation by a court of competent jurisdiction if the insurer's state or country of domicile and determined to be an impaired insurer by the commissioner. Computation of assessments under this subsection shall be made with a reasonable degree of accuracy, recognizing that exact determination may not always be possible.

(d) The board may make an assessment of up to fifty dollars for each member insurer to be deposited in the general account and used for administrative and general expenses in carrying out the provisions of this chapter.

(4) 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 insurer to fulfill its contractual obligations. The total of all assessments upon a member insurer for each account shall not in any one calendar year exceed two percent of such insurer's premiums in this state on the policies or contracts covered by the account.

(5) In the event an assessment against a member insurer is abated or deferred, in whole or in part, because of the limitations set forth in subsection (4) of this section, the amount by which such assessment is abated or deferred may be assessed against the other member insurers in a manner consistent with the basis for assessments set forth in this section. If the maximum assessment, together with the other assets of the association in an account, does not provide in any one year an amount sufficient to carry out the responsibilities of the association with respect to such account, the necessary additional funds shall be assessed as soon thereafter as permitted by this chapter.

(6) The amount in a fund shall be kept at such a sum as in the opinion of the board will enable the association to meet the immediate obligations and liabilities of such fund. Whenever in the opinion of the board the amount in a fund is in excess of such immediate obligations and liabilities, with the approval of the commissioner the association may distribute such excess by retirement of certificates previously issued against the fund. Such distribution shall be made pro rata upon the basis of outstanding certificates, except that by unanimous consent of all directors and with the approval of the commissioner any other reasonable method of retirement of such certificates may be adopted.

(7) As used in this section, "premiums" are those for the calendar year preceding the entry of the order of liquidation or a determination of impaired insurer as to a particular liquidating insurer, and shall be direct gross insurance premiums and annuity considerations received on policies and contracts to which this chapter applies, less return premiums and considerations and less dividends paid or credited to policyholders.

(8) Upon dissolution of a fund by the repeal of this chapter or otherwise, the fund shall be distributed in the same manner as is provided for the repayment or retirement of certificates. If the amount in the fund at the time of dissolution is in excess of outstanding certificates issued against the fund, such excess shall be distributed among contributing member insurers in such equitable manner as is approved by the commissioner.

Sec. 7. Section 9, chapter 259, Laws of 1971 ex. sess. as last amended by section 2, chapter 183, Laws of 1977 ex. sess. and RCW 48.32A.090 are each amended to read as follows:

(1) The association shall issue to each insurer paying an assessment under this chapter certificates of contribution, in appropriate form and terms as prescribed or approved by the commissioner, for the amounts so paid into the respective funds. All outstanding certificates against a particular fund shall be of equal dignity and priority without reference to amounts or dates of issue.

(2) An outstanding certificate of contribution shall be shown by the insurer in its financial statements as an admitted asset for such amount and period of time as the commissioner may approve: PROVIDED, That unless a longer period has been allowed by the commissioner the insurer shall in any event at its option have the right to so show a certificate of contribution as an admitted asset at percentages of original face amount for calendar years as follows:

100% for the calendar year of issuance;

((~~90%~~)) 80% for the first calendar year after the year of issuance;

((~~80%~~)) 60% for the second calendar year after the year of issuance;

((~~70%~~)) 40% for the third calendar year after the year of issuance;

((~~60%~~)) 20% for the fourth calendar year after the year of issuance;

((~~50%~~)) 0% for the fifth ((~~calendar year after the year of issuance;~~

~~40% for the sixth calendar year after the year of issuance;~~

~~30% for the seventh calendar year after the year of issuance;~~

~~20% for the eighth calendar year after the year of issuance;~~

~~10% for the ninth calendar year after the year of issuance; and~~

~~0% for the tenth~~)) and subsequent calendar years after the year of issuance.

Notwithstanding the foregoing, if the value of a certificate of contribution is or becomes less than one thousand dollars, the entire amount may be written off by the insurer in that year.

(3) The insurer shall offset the amount written off by it in a calendar year under subsection (2) of this section against its premium tax liability to this state accrued with respect to business transacted in such year.

(4) Any sums recovered by the association representing sums which have theretofore been written off by contributing insurers and offset against premium taxes as provided in subsection (3) of this section, shall be paid by the association to the commissioner and by him deposited with the state treasurer for credit to the general fund of the state of Washington.

(5) No distribution to stockholders, if any, of a liquidating insurer shall be made unless and until the total amount of assessments levied by the association with respect to such insurer have been fully recovered by the association.

NEW SECTION. Sec. 8. A new section is added to chapter 48.32A RCW to read as follows:

Within one hundred eighty days of the effective date of this act, the association shall prepare a summary document describing the general purposes and current limitations of this chapter. This document shall be submitted to the commissioner for approval. The document shall be provided by member companies to all new policy or contract holders not later than the time of delivery of any new policy or contract. The document should also be available upon request by a policyholder. However, the distribution or delivery of this document shall not mean that either the policy or the contract or the holder thereof would be covered in the event of the impairment or insolvency of a member insurer. The description document shall be revised by the association as amendments to this chapter may require.