BILL REQ. #:  S-0182.1 

Read first time 01/14/13.   Referred to Committee on Financial Institutions, Housing & Insurance.

     AN ACT Relating to the settling of certain insurer transactions; amending RCW 48.31.020; and adding a new section to chapter 48.31 RCW.

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

Sec. 1   RCW 48.31.020 and 2005 c 432 s 1 are each amended to read as follows:
     (1) For the purposes of this chapter, other than as to RCW 48.31.010, and in addition to persons included under RCW 48.99.010, the term "insurer" shall be deemed to include an insurer authorized under chapter 48.05 RCW, an insurer or institution holding a certificate of exemption under RCW 48.38.010, a health care service contractor registered under chapter 48.44 RCW, and a health maintenance organization registered under chapter 48.46 RCW, as well as all persons engaged as, or purporting to be engaged as insurers, institutions issuing charitable gift annuities, health care service contractors, or health maintenance organizations in this state, and to persons in process of organization to become insurers, institutions issuing charitable gift annuities, health care service contractors, or health maintenance organizations.
     (2) The definitions in this subsection apply throughout this chapter unless the context clearly requires otherwise.
     (a) "Exceeded its powers" means the following conditions:
     (i) The insurer has refused to permit examination of its books, papers, accounts, records, or affairs by the commissioner, his or her deputies, employees, or duly commissioned examiners as required by this title or any rules adopted by the commissioner;
     (ii) A domestic insurer has unlawfully removed from this state books, papers, accounts, or records necessary for an examination of the insurer;
     (iii) The insurer has failed to promptly comply with the filing of any applicable financial reports as required by this title or any rules adopted by the commissioner;
     (iv) The insurer has neglected or refused to observe a lawful order of the commissioner to comply, within the time prescribed by law, with any prohibited deficiency in its applicable capital, capital stock, or surplus;
     (v) The insurer is continuing to transact insurance or write business after its license has been revoked or suspended by the commissioner;
     (vi) The insurer, by contract or otherwise, has unlawfully or has in violation of an order of the commissioner or with respect to a transaction to which the insurer has without first having obtained written approval of the commissioner if approval is required by law:
     (A) Totally reinsured its entire outstanding business; or
     (B) Merged or consolidated substantially its entire property or business with another insurer; or
     (vii) The insurer engaged in any transaction in which it is not authorized to engage under this title or any rules adopted by the commissioner.
     (b) "Consent" means agreement to administrative supervision by the insurer.
     (c) "CEA" means the commodity exchange act (7 U.S.C. Sec. 1 et seq.)
     (d) "Delinquency proceeding" means any proceeding instituted against an insurer for the purpose of liquidating, rehabilitating or conserving the insurer, and any summary proceeding under a receivership court's rehabilitation order under RCW 48.31.040.
     (e) "FDICIA" means the federal deposit insurance corporation improvement act of 1991, P.L. 102-242.
     (f) "Formal delinquency proceeding" means any conservation, rehabilitation, or liquidation proceeding.
     (g) "Insolvency" or "insolvent" means the insurer is unable to pay its obligations when they are due or does not have admitted assets at least equal to all its liabilities or has a total adjusted capital that is less than its mandatory control level RBC as defined in RCW 48.05.430 or 48.43.300, whichever is applicable to that insurer. For purposes of this chapter, "assets" and "liabilities" have the meanings and must be treated in the same manner as "assets" and "liabilities" in chapter 48.12 RCW.
     (h) "Netting agreement" means:
     (i) A contract or agreement (including any terms and conditions incorporated by reference), including a master agreement (which master agreement, together with all schedules, confirmations, definitions, and addenda thereto and transactions under any thereof, is treated as one netting agreement), that documents one or more transactions between the parties to the agreement for or involving one or more qualified financial contracts and that provides for the netting, liquidation, setoff, termination, acceleration, or close out under or in connection with one or more qualified financial contracts or present or future payment or delivery obligations or payment or delivery entitlements thereunder (including liquidation or close-out values relating to such obligations or entitlements) among the parties to the netting agreement;
     (ii) Any master agreement or bridge agreement for one or more master agreements described in (h)(i) of this subsection; or
     (iii) Any security agreement or arrangement or other credit enhancement or guarantee or reimbursement obligation related to any contract or agreement described in (h)(i) or (ii) of this subsection. However, any contract or agreement described in (h)(i) or (ii) of this subsection relating to agreements or transactions that are not qualified financial contracts is a netting agreement only with respect to those agreements or transactions that are qualified financial contracts.
     (i) "Qualified financial contract" means any commodity contract, forward contract, repurchase agreement, securities contract, swap agreement, and any similar agreement that the commissioner determines by regulation, resolution, or order to be a qualified financial contract for the purposes of this chapter.
     (i) "Commodity contract" means:
     (A) A contract for the purchase or sale of a commodity for future delivery on, or subject to the rules of, a board of trade or contract market under the CEA or a board of trade outside the United States;
     (B) An agreement that is subject to regulation under section 19 of the CEA and that is commonly known to the commodities trade as a margin account, margin contract, leverage account, or leverage contract;
     (C) An agreement or transaction that is subject to regulation under section 4c(b) of the CEA and that is commonly known to the commodities trade as a commodity option;
     (D) Any combination of the agreements or transactions referred to in this subsection; or
     (E) Any option to enter into an agreement or transaction referred to in this subsection.
     (ii) "Forward contract," "repurchase agreement," "securities contract," and "swap agreement" have the same meanings as in the FDICIA (12 U.S.C. Sec. 1821(e)(8)(D)).
     (j) "Receiver" means liquidator, rehabilitator, conservator, or ancillary receiver, as the context requires.
     (k) "Receivership" means any liquidation, rehabilitation, conservation, or ancillary receivership, as the context requires.
     (l) "Transfer" includes the sale and every other and different mode, direct or indirect, of disposing of or of parting with property or with an interest in property, including a setoff, or with the possession thereof or of fixing a lien upon property or upon an interest in property, absolutely or conditionally, voluntarily or involuntarily, by or without judicial proceedings. The retention of a security title in property delivered to an insurer and foreclosure of the insurer's equity of redemption is a transfer suffered by the insurer.

NEW SECTION.  Sec. 2   A new section is added to chapter 48.31 RCW to read as follows:
     (1) Notwithstanding any other provision of this chapter, including any other provision of this chapter permitting the modification of contracts, or other law of a state, a person is not prohibited from exercising:
     (a) A contractual right to cause the termination, liquidation, acceleration, or close out of obligations under or in connection with any netting agreement or qualified financial contract with an insurer because of:
     (i) The insolvency, financial condition, or default of the insurer at any time, when the right is enforceable under applicable law other than this chapter; or
     (ii) The commencement of a formal delinquency proceeding under this chapter;
     (b) Any right under a pledge, security, collateral, reimbursement, or guarantee agreement or arrangement or any other similar security agreement or arrangement or other credit enhancement relating to one or more netting agreements or qualified financial contracts; or
     (c) Subject to RCW 48.31.290, any right to set off or net out any termination value, payment amount, or other transfer obligation arising under or in connection with one or more qualified financial contracts where the counterparty or its guarantor is organized under the laws of the United States or a state or a foreign jurisdiction approved by the securities valuation office of the national association of insurance commissioners as eligible for netting.
     (2) If a counterparty to a master netting agreement or a qualified financial contract with an insurer subject to a proceeding under this chapter terminates, liquidates, closes out, or accelerates the agreement or contract, damages are measured as of the date or dates of termination, liquidation, close out or acceleration. The amount of a claim for damages must be actual direct compensatory damages calculated in accordance with subsection (7) of this section.
     (3) Upon termination of a netting agreement or qualified financial contract, the net or settlement amount, if any, owed by a nondefaulting party to an insurer against which an application or petition has been filed under this chapter must be transferred to or on the order of the receiver for the insurer, even if the insurer is the defaulting party, notwithstanding any walkaway clause in the netting agreement or qualified financial contract. For purposes of this subsection, "walkaway clause" means a provision in a netting agreement or a qualified financial contract that, after calculation of a value of a party's position or an amount due to or from one of the parties in accordance with its terms upon termination, liquidation, or acceleration of the netting agreement or qualified financial contract, either does not create a payment obligation of a party or extinguishes a payment obligation of a party in whole or in part solely because of the party's status as a nondefaulting party. Any limited two-way payment or first method provision in a netting agreement or qualified financial contract with an insurer that has defaulted is a full two-way payment or second method provision as against the defaulting insurer. Any such property or amount is a general asset of the insurer, except to the extent it is subject to one or more secondary liens or encumbrances or rights of netting or setoff.
     (4) In making any transfer of a netting agreement or qualified financial contract of an insurer subject to a proceeding under this chapter, the receiver shall either:
     (a) Transfer to one party (other than an insurer subject to a proceeding under this chapter) all netting agreements and qualified financial contracts between a counterparty or any affiliate of the counterparty and the insurer that is the subject of the proceeding, including:
     (i) All rights and obligations of each party under each netting agreement and qualified financial contract; and
     (ii) All property, including any guarantees or other credit enhancement, securing any claims of each party under each netting agreement and qualified financial contract; or
     (b) Transfer none of the netting agreements, qualified financial contracts, rights, obligations, or property referred to in subsection (1) of this section (with respect to the counterparty and any affiliate of the counterparty).
     (5) If a receiver for an insurer makes a transfer of one or more netting agreements or qualified financial contracts, then the receiver shall use its best efforts to notify any person who is party to the netting agreements or qualified financial contracts of the transfer by twelve o'clock noon (the receiver's local time) on the business day following the transfer. For purposes of this subsection, "business day" means a day other than a Saturday, Sunday, or any day on which either the New York stock exchange or the federal reserve bank of New York is closed.
     (6) Notwithstanding any other provision of this chapter, a receiver may not avoid a transfer of money or other property arising under or in connection with a netting agreement or qualified financial contract (or any pledge, security, collateral, or guarantee agreement or any other similar security arrangement or credit support document relating to a netting agreement or qualified financial contract) that is made before the commencement of a formal delinquency proceeding under this chapter. However, a transfer may be avoided under RCW 48.31.270(3) if the transfer was made with actual intent to hinder, delay, or defraud the insurer, a receiver appointed for the insurer, or existing or future creditors.
     (7)(a) In exercising the rights of disaffirmance or repudiation of a receiver with respect to any netting agreement or qualified financial contract to which an insurer is a party, the receiver for the insurer shall either:
     (i) Disaffirm or repudiate all netting agreements and qualified financial contracts between a counterparty or any affiliate of the counterparty and the insurer that is the subject of the proceeding; or
     (ii) Disaffirm or repudiate none of the netting agreements and qualified financial contracts referred to in (a) of this subsection (with respect to the person or any affiliate of the person).
     (b) Notwithstanding any other provision of this chapter, any claim of a counterparty against the estate arising from the receiver's disaffirmance or repudiation of a netting agreement or qualified financial contract that has not been previously affirmed in the liquidation or immediately preceding conservation or rehabilitation case must be determined and allowed or disallowed as if the claim had arisen before the date of the filing of the petition for liquidation or, if a conservation or rehabilitation proceeding is converted to a liquidation proceeding, as if the claim had arisen before the date of the filing of the petition for conservation or rehabilitation. The amount of the claim is the actual direct compensatory damages determined as of the date of the disaffirmance or repudiation of the netting agreement or qualified financial contract. "Actual direct compensatory damages" does not include punitive or exemplary damages, damages for lost profit or lost opportunity, or damages for pain and suffering, but does include normal and reasonable costs of cover or other reasonable measures of damages utilized in the derivatives, securities, or other market for the contract and agreement claims.
     (8) "Contractual right" as used in this section includes any right set forth in a rule or bylaw of a derivatives clearing organization (as defined in the CEA), a multilateral clearing organization (as defined in the FDICIA), a national securities exchange, a national securities association, a securities clearing agency, a contract market designated under the CEA, a derivatives transaction execution facility registered under the CEA, or a board of trade (as defined in the CEA) or in a resolution of the governing board thereof and any right, whether or not evidenced in writing, arising under statutory or common law, or under law merchant, or by reason of normal business practice.
     (9) This section does not apply to persons who are affiliates of the insurer that is the subject of the proceeding.
     (10) All rights of counterparties under this chapter apply to netting agreements and qualified financial contracts entered into on behalf of the general account or separate accounts if the assets of each separate account are available only to counterparties to netting agreements and qualified financial contracts entered into on behalf of that separate account.