BILL REQ. #: H-0201.1
State of Washington | 63rd Legislature | 2013 Regular Session |
Prefiled 01/04/13. Read first time 01/14/13. Referred to Committee on Business & Financial Services.
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business after its license has been revoked or suspended by the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.