Be it enacted by the Senate and House of Representatives
in General Court assembled, and by the authority of the same,
SECTION 1. Section 63 of chapter 175 of the General Laws, as appearing in the 1984 Official Edition, is hereby amended by inserting after the word "mortgagee," in line 162, the words:- or a mortgagee under paragraph 7B.
SECTION 2. Said section 63 of said chapter 175, as so appearing, is hereby further amended by striking out, in line 176, the word "limitations" and inserting in place thereof the word:- provisions.
SECTION 3. Said section 63 of said chapter 175, as so appearing, is hereby further amended by inserting after paragraph 7A the following paragraph:-
7B. In loans of the same classes as those described in paragraphs 7 and 7A and subject to the provisions therein expressed except that the security for any such loan may be a junior lien upon the real property or leasehold estate securing such loan if the sum of the amounts unpaid on loans secured by prior mortgage liens and the amount of such loan does not exceed (i) seventy-five per cent of the fair market value of such real property or leasehold estate at the time of making such loan if clause (ii) of this paragraph 7B is not applicable or, (ii) ninety per cent of the fair market value thereof if such loan is secured by a junior lien upon residential real property designed for occupancy by not more than four families and if the terms of such loan otherwise meet the requirements of the second sentence of said paragraph 7. Real property and leasehold estates shall not be deemed to be encumbered within the meaning of said paragraph 7 by reason of the existence of prior mortgage liens permitted by this paragraph; provided, however, that, other than such prior mortgage liens, there is no condition or right of reentry or forfeiture under which such junior lien can be cut off, subordinated or otherwise disturbed.
SECTION 4. Paragraph 14A of said section 63 of said chapter 175, as so appearing, is hereby amended by striking out the first sentence and inserting in place thereof the following sentence:- In the bonds, notes or other evidences of indebtedness issued, assumed or guaranteed by companies incorporated under the laws of the United States, or any state thereof, or of the Dominion of Canada or any province thereof, or of associations or trusts as defined in section one of chapter one hundred and eighty-two, whose net earnings during either of the last two fiscal years next preceding the date of investment and whose average net earnings during the five fiscal years next preceding the date of investment, have been not less than (1) one and one-half times the average fixed charges for said period if such company, association or trust is not engaged in wholesale, retail, installment, commercial or consumer financing, factoring or the small loan business, or is not a bank chartered or incorporated under the laws of the United States or any state thereof; or (2) one and fifteen one-hundredths times the average fixed charges for said period if such company, association or trust is so engaged or is a bank chartered or incorporated under the laws of the United States or any state thereof.
SECTION 5. Clause (2) of paragraph 14C of said section 63 of said chapter 175, as so appearing, is hereby amended by striking out subclause (b) and inserting in place thereof the following subclause:- (b) the net earnings of any lessee under clause (2), or of any such company, association or trust assuming or guaranteeing said lease, during either of the last two fiscal years next preceding the date of investment and the average net earnings of such lessee, or company, association or trust assuming or guaranteeing said lease, during the five fiscal years next preceding the date of investment, have been not less than (1) one and one-half times the average fixed charges for said period if such company, association or trust is not engaged in wholesale, retail, installment, commercial or consumer financing, factoring or the small loan business, or is not a bank chartered or incorporated under the laws of the United States or any state thereof: or (2) one and fifteen one-hundredths times the average fixed charges for said period if such company, association or trust is so engaged or is a bank chartered or incorporated under the laws of the United States or any state thereof.
SECTION 6. The second paragraph of section 64 of said chapter 175, as most recently amended by chapter 336 of the acts of 1985, is hereby further amended by striking out the second sentence and inserting in place thereof the following sentence:- The board of directors, or committee thereof, referred to above, may authorize by vote duly recorded in the books of the company, one or more officers of the company or of any other person in the investment advisory business to acquire or dispose of investments for such company between meetings of said board or committee, under such restrictions and conditions as said board, or committee thereof, shall deem advisable, and a copy of such authorization shall be filed with the commissioner; provided, however, that for the purpose of this sentence any such person in the investment advisory business, except a company which controls, is controlled by, or is under common control with such domestic company, shall be registered as an investment adviser under the Investment Advisers Act of 1940 enacted by Congress on August twenty-second, nineteen hundred and forty as amended from time to time, or any similar statute enacted in substitution therefor, and have at least one hundred million dollars of assets under management.
SECTION 7. Section 65 of said chapter 175, as appearing in the 1984 Official Edition, is hereby amended by striking out, in line 19, the word "five", and inserting in place thereof the word:- ten.
SECTION 8. Said section 65 of said chapter 175, as so appearing, is hereby further amended by striking out, in line 4 and in line 25, the words "paragraph 7 or paragraph 7A" and inserting in place thereof, in each instance the words:- paragraph 7, 7A or 7B.
SECTION 9. The first paragraph of section 66 of said chapter 175, as so appearing, is hereby amended by striking out the second and third sentences and inserting in place thereof the following two sentences:- No domestic life company shall invest in, acquire or hold directly or indirectly more than twenty-five per cent of the capital stock of any corporation, other than a life company or except as otherwise provided in either section sixty-six C or section sixty-six D; nor, except as otherwise provided in section sixty-six C, shall more than two per cent of its assets be invested in the capital stock of any one corporation, other than a life company, without the approval of the commissioner, and such approval shall be granted only if after making such investment such life company's surplus shall be reasonable in relation to its outstanding liabilities and adequate to its financial needs. The disposition of the property of a domestic life company shall be at all times the responsibility of its board of directors.
SECTION 10. The second paragraph of said section 66 of said chapter 175, as so appearing, is hereby amended by striking out the first sentence and by inserting in place thereof the following sentence:- Nothing in this section or in section sixty-three shall prevent such a life company from investing or loaning any funds, not required to be invested as provided in section sixty-three, in any manner that the directors may determine; provided, however, that no loan of such funds shall be made to an individual unless it is secured by collateral security; and provided further, that such funds shall not be invested in the purchase of stock or evidence of indebtedness prohibited by the preceding paragraph except as hereinafter provided.
SECTION 11. Said section 66 of said chapter 175, as so appearing, is hereby further amended by striking out the third paragraph and inserting in place thereof the following paragraph:-
Nothing in this section or in section sixty-three shall prevent such a life company from investing or loaning any funds, not required to be invested as provided in section sixty-three, in the transferable certificates of participation or shares, bonds, notes or other evidences or indebtedness whether or not secured by collateral, of an association or trust as defined in section one of chapter one hundred and eighty-two. Any such association or trust shall be treated as if it were a corporation for purposes of this section and of section sixty-six D.
SECTION 12. The second paragraph of section 132F of said chapter 175, as so appearing, is hereby amended by inserting after the word "contracts", in line 11, the words:- or any other policies or contracts.
SECTION 12A. Said second paragraph of said section 132F of said chapter 175, as so appearing, is hereby further amended by striking out in lines 13, 14, 15 and 16, the words:- "which meets the requirements for the tax treatment specified in sections 402(a), 402(c), 402(d), 403(a), or 403(b) of the Internal Revenue Code of 1954, as such sections may at any time be in force".
SECTION 13. The third paragraph of said section 132F of said chapter 175, as so appearing, is hereby amended by adding the following sentence:- If and to the extent so provided under the applicable contracts, that portion of the assets of a separate account equal to the reserves and other contract liabilities with respect to such account shall not be chargeable with liabilities arising out of any other business the life company may conduct.
SECTION 14. Section 132H of said chapter 175, as so appearing, is hereby amended by striking out the second sentence.
SECTION 15. The first paragraph of section 141 of said chapter 175, as so appearing, is hereby amended by adding the following sentence:- This safety fund shall be in addition to any safety fund accumulated from a mutual domestic life company's surplus funds attributable to its nonparticipating business, which funds may be appointed equitably, in the discretion of the company, as part of any annual dividend on participating business.
SECTION 16. Said chapter 175 is hereby further amended by striking out section 149, as so appearing, and inserting in place thereof the following section:-
Section 149. A domestic life company is authorized to issue both participating and nonparticipating policies of life, endowment and accident and sickness insurance, and annuity and pure endowment contracts, but no such company shall issue any such participating policies or contracts which do not by their terms give to the holders thereof full right to participate in the accumulations of said company attributable to such business as provided in section one hundred and forty.
Every domestic mutual and stock life company issuing both participating and nonparticipating policies or contracts shall file with the commissioner each year together with its annual statement for the year a separate calculation of its annual analysis of operations by line of business.
A domestic life company issuing policies or contracts on the nonparticipating plan may provide therein that, in addition to the rate of interest guaranteed by the company to be paid on deferred payments of the proceeds, excess interest may be paid thereon at such rate as the company may annually declare; and the inclusion in any nonparticipating policy or contract of such provision shall not be construed to make the policy or contract participating.
The provisions of sections ninety-four, one hundred and ten, one hundred and thirty-two D and one hundred and thirty-seven relative to membership and voting rights shall not apply to nonparticipating policies and contracts issued by a domestic mutual life company under this section, unless the domestic mutual life company elects to provide membership and voting rights in the policy or contract.
The provisions of this section shall not apply to policies of reinsurance.
SECTION 17. Chapter 175 of the General Laws is hereby amended by inserting after section 146A, as appearing in the 1984 Official Edition, the following section 147:-
Section 147. 1. This section may be referred to and cited as the "Massachusetts Life and Health Insurance Guaranty Association Law".
2. The following words as used in this section, unless the context otherwise requires, shall have the following meanings:
"Account", any of the three accounts created under subsection 6.
"Association", the Massachusetts Life and Health Insurance Guaranty Association created under subsection 6.
"Contractual obligation", any obligation under a policy or contract or portion thereof for which coverage is provided under subsection 4.
"Covered policy or contract", any policy, contract or group certificate within the scope of this section as provided in subsection 4.
"Impaired insurer", a member insurer which, is not an insolvent insurer, and (a) is deemed by the commissioner to be potentially unable to meet its obligations, or (b) is placed under an order of rehabilitation or conservation by a court of competent jurisdiction.
"Insolvent Insurer", a member insurer which is placed under an order of liquidation by a court of competent jurisdiction with a finding of insolvency.
"Member Insurer", any insurer licensed or which holds a certificate of authority to transact in the commonwealth any kind of insurance for which coverage is provided under subsection 4 and any insurer whose license or certificate of authority to transact in the Commonwealth such insurance may have been suspended, revoked, not renewed, or voluntarily withdrawn after the effective date of this section, other than a (a) fraternal benefit society, (b) mutual protective association, (c) mutual assessment company or other entity that operates on an assessment basis, (d) medical service corporation, (e) hospital service corporation, (f) health maintenance organization, (g) dental service corporation, (h) optometric service corporation, (i) mandatory state pooling plan, (j) insurance exchange, (k) savings and insurance bank as defined in section one of chapter one hundred and seventy-eight or other depository underwriting insurance subject to analagous terms and conditions, or (j) any other entity similar to any of the above.
"NAIC", the National Association of Insurance Commissioners or its successor organization.
"Person", any individual, corporation, partnership, association or voluntary organization.
"Premiums", amounts received on covered policies or contracts, less premiums, considerations and deposits returned thereon, and less dividends and experience credits thereon. Premiums does not include any amount received for any policies or contracts or for the portions of any policies or contracts for which coverage is not provided under subdivision paragraph (B) of subsection 4, except for subclause (d) of clause (2) of said paragraph (B) and clause (3) of paragraph (B).
"Published monthly average", the monthly average of the composite yield on seasoned corporate bonds as:- (a) published by Moody's Investors Service, Inc., or any successor thereto, or (b) established by regulation promulgated by the commissioner setting forth a substantially similar average in the event that such monthly average is no longer so published.
"Resident", any person who resides in the commonwealth at the time a member insurer is determined to be an impaired or insolvent insurer and to whom a contractual obligation is owed. A person may be a resident of only one state, which in the case of a person, other than a natural person, shall be its principal place of business.
"Supplemental contract", any agreement entered into for the distribution of policy or contract proceeds.
3. The purpose of this section is to protect, subject to certain limitations, the persons specified in paragraph (A) of subsection 4, against failure in the performance of contractual obligations, under life and health insurance policies and annuity contracts specified in paragraph (B) of said subsection 4, because of the impairment or insolvency of the member insurer that issued the policies or contracts. To provide such protection, an association of insurers, the members of which are subject to assessment, is hereby created to pay benefits and to continue coverages, as limited herein.
4. (A) This section shall provide coverage for the policies and contracts specified in paragraph (B) of this subsection:
(1) To persons who, regardless of where they reside except for non-resident certificate holders under group policies or contracts, are the beneficiaries, assignees or payees of the persons covered under subclause (2), and
(2) To persons who are owners of such policies or contracts, or are insureds or annuitants under such policies or contracts, and who (a) are residents, or (b) are not residents, but only under all of the following conditions: (i) the insurers which issued such policies or contracts are domiciled in the commonwealth, (ii) such insurers never held a license or certificate of authority in the states in which such persons reside, (iii) such states have a life and health insurance guaranty association, and (iv) such persons are not eligible for coverage by such guaranty association.
(B) (1) This section shall provide coverage to the persons specified in paragraph (A) of this subsection for direct, non-group life, health, annuity, and supplemental policies or contracts, and for certificates under direct group life and health insurance policies or annuity or supplemental contracts issued by member insurers, except as otherwise limited in this section.
(2) This section shall not provide coverage under:-
(a) 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;
(b) any policy or contract of reinsurance, other than reinsurance for which assumption certificates have been issued;
(c) any annuity contract or group annuity certificate that is not issued to and owned by an individual, except to the extent of any annuity benefits guaranteed to an individual by the insurer under any such contract or certificate;
(d) any portion of a policy or contract to the extent that the rate of interest on which it is based, (i) averaged over the period of four years prior to the date on which the Association becomes obligated with respect to such policy or contract, exceeds the rate of interest determined by subtracting two percentage points from the published monthly average as averaged for the same four year period, and (ii) on and after the date on which the Association becomes obligated with respect to such policy or contract, exceeds the rate of interest determined by subtracting three percentage points from the published monthly average as most recently available on the date on which the Association becomes obligated with respect to such policy or contract;
(e) 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 (i) a Multiple Employer Welfare Arrangement as defined in Section 514 of the Employee Retirement Income Security Act of 1974, as amended; (ii) a minimum premium group insurance plan; (iii) a stop-loss group insurance plan; or (iv) an administrative services only contract;
(f) any portion of a policy or contract to the extent that it provides dividends or experience rating credits, or provides that any fees or allowances be paid to any person, including the policy or contract holder, in connection with the service to or administration of such policy or contract; and
(g) any policy or contract issued in the Commonwealth by a member insurer at a time when it was not licensed or did not have a certificate of authority to issue such policy or contract in the commonwealth.
(3) The benefits for which the Association may become liable shall in no event exceed the lesser of:
(a) the contractual obligations for which the insurer is liable or would have been liable if it were not an impaired or insolvent insurer, or
(b) with respect to any one life: (i) three hundred thousand dollars in life insurance death benefits, but not more than one hundred thousand dollars in net cash surrender and net cash withdrawal values under life insurance policies; (ii) one hundred thousand dollars in health insurance benefits, including any net cash surrender and net cash withdrawal values; (iii) one hundred thousand dollars in the present value of annuity benefits, including net cash surrender and net cash withdrawal values; but in no event shall the Association's liability exceed three hundred thousand dollars in the aggregate for all life insurance, health insurance and annuity benefits, including net cash surrender and net cash withdrawal values.
(C) The protection provided by this section shall not apply where any guaranty protection is provided, independent of this section, to residents of the commonwealth by laws of the domiciliary state or jurisdiction of an impaired or insolvent insurer.
5. This section shall be liberally construed to effect the purpose under subsection 3 which shall constitute an aid and guide to interpretation.
6. (A) There is created a nonprofit, legal entity to be known as the Massachusetts Life and Health Insurance Guaranty Association. All member insurers shall be and remain members of the Association as a condition of their authority to transact insurance in the commonwealth. The Association shall perform its functions under the plan of operation established and approved under subsection 10 and shall exercise its powers through a board of directors established under subsection 7. For purposes of administration and assessment, the Association shall maintain three accounts:
(1) the health insurance account;
(2) the life insurance account; and
(3) the annuity account.
(B) The Association shall be under the immediate supervision of the commissioner.
7. (A) The board of directors of the Association shall consist of not less than five nor more than nine member insurers serving terms as established in the plan of operation. The members of the board of directors shall be selected by member insurers subject to the approval of the commissioner. Vacancies on the board of directors shall be filled for the remaining period of the term by a majority vote of the remaining board members, subject to the approval of the commissioner. To select the initial board of directors, and initially organize the Association, the commissioner shall give notice to all member insurers of the time and place of the organizational meeting. In determining voting rights at the organizational meeting each member shall be entitled to one vote in person or by proxy. If the board of directors is not selected within sixty days after notice of the organizational meeting, the commissioner may appoint the initial members.
(B) In approving selections or in appointing members to the board of directors, the commissioner shall consider, among other things, whether member insurers are fairly represented.
(C) Members of the board of directors may be reimbursed from the assets of the Association for expenses incurred by them as members of the board of directors but shall not otherwise be compensated by the Association for their services.
8. (A) If a member insurer is an impaired domestic insurer, the Association may, in its discretion, and subject to any conditions imposed by the Association that (i) do not defeat the reasonable expectations of the policyholder or contractholder as to the benefits afforded under a policy or contract, (ii) that are approved by the commissioner, and (iii) that are, except in cases of court ordered conservation or rehabilitation, also approved by the impaired insurer:-
(1) guarantee, assume or reinsure, or cause to be guaranteed, assumed, or reinsured, any or all of the policies or contracts of the impaired insurer;
(2) provide such monies, pledges, notes, guarantees, or other means as are proper to effectuate subsection (1) and assure payment of the contractual obligations of the impaired insurer pending action pursuant thereto; or
(3) loan money to the impaired insurer.
(B)(1) If a member insurer is an impaired insurer, whether domestic, foreign or alien, and the insurer is not paying claims in a timely fashion, then subject to the preconditions specified in clause (2) of this paragraph the Association shall, in its discretion, either (a) take any of the actions specified in paragraph (A), subject to the conditions therein, or (b) provide substitute benefits, with respect to covered policies or contracts, in lieu of the contractual obligations of the impaired insurer, solely for: health claims and death benefits, pursuant to paragraph (D); periodic annuity benefit payments; supplemental benefits; and cash withdrawals for policy or contract owners who petition therefor under claims of emergency or hardship in accordance with standards proposed by the Association and approved by the commissioner.
(2) The Association shall be subject to the requirements of clause (1) only if: (a) (i) in the case of an impaired domestic insurer, an order instituting a rehabilitation proceeding has been entered pursuant to section one hundred and eighty B of chapter one hundred and seventy-five; or (ii) in the case of an impaired foreign or alien insurer a petition for rehabilitation or liquidation of the impaired insurer has been filed in a court of competent jurisdiction in its state of domicile by the commissioner of that state;
(b) the laws of the impaired insurer's state of domicile provide that until all payments of or on account of the impaired insurer's contractual obligations by all guaranty associations, along with all expenses thereof and interest on all such payments and expenses, shall have been repaid to the guaranty associations or a plan of repayment by the impaired insurer shall have been approved by the guaranty associations (i) the delinquency proceedings shall not be dismissed; (ii) neither the impaired insurer nor its assets shall be returned to the control of its shareholders or private management; and (iii) it shall not be permitted to solicit or accept new business or have any suspended or revoked license restored.
(c) in the event the impaired insurer is a foreign or alien insurer, (i) it has been prohibited from soliciting or accepting new business in the commonwealth, and (ii) its certificate of authority has been suspended or revoked.
(C) If a member insurer is an insolvent insurer, the Association shall, in its discretion, either:
(1) (a) guaranty, assume or reinsure, or cause to be guaranteed, assumed or reinsured, the covered policies or contracts of the insolvent insurer; or
(b) assure payment of the contractual obligations of the insolvent insurer; and
(c) provide such monies, pledges, guarantees, or other means as are reasonably necessary to discharge such duties; or
(2) With respect only to life and health insurance policies provide benefits and coverages in accordance with paragraph (D).
(D) (1) When proceeding under subclause (b) of clause (1) of paragraph (B) or clause (2) of paragraph (C), the Association shall, with respect to only life and health insurance policies:
(a) assure payment of benefits for premiums identical to the premiums and benefits, except for terms of conversion and renewability, that would have been payable under the group policies of the insurer for claims incurred not later than the earlier of the next renewal date under such policies or contracts or forty-five days, but in no event for a claim incurred less than thirty days after the date on which the Association becomes obligated with respect to such policies. Notwithstanding the foregoing, the Association may, if it finds the premium rate under a group policy to be inadequate, increase such premium rate in an amount approved by the commissioner.
(b) (i) with respect to individual policies, assure payment of benefits for premiums identical to the premiums and benefits, except for terms of conversion and renewability, that would have been payable under such policies of the insurer, for claims incurred not later than the earlier of the next renewal date, if any, under such policies, or one year from the date on which the Association becomes obligated with respect to such policies, but in any event for claims incurred not later than the thirtieth day after the Association becomes obligated with respect to such policies; and (ii) make diligent efforts to provide all known insureds, or owners, if other than the insureds, and group policyholders with respect to group policies, thirty days notice of the termination of the benefits provided; and (iii) with respect to individual policies, make available to each known insured, or owner if other than the insured, and with respect to an individual formerly insured under a group policy who is not eligible for replacement group coverage, make available substitute coverage on an individual basis in accordance with the provisions of clause (2) of paragraph (D), if such insured or owner had a right under law or under the terminated policy to convert coverage to individual coverage or to continue an individual policy in force until a specified age or for a specified time, during which the insurer had no right unilaterally to make changes in any provision of the policy or had a right only to make changes in premium by class.
(2) In providing the substitute coverage required under paragraph (D), the Association may offer either to reissue the terminated coverage or to issue an alternative policy. Alternative or reissued policies shall be offered without requiring evidence of insurability, and shall not provide for any waiting period or exclusion that would not have applied under the terminated policy. Any alternative or reissued policy may be reinsured by the Association.
(3) (a) Alternative policies adopted by the Association shall be subject to the approval of the commissioner. The Association may adopt alternative policies of various types for future issuance without regard to any particular impairment or insolvency.
(b) Alternative policies shall contain at least the minimum statutory provisions required in the commonwealth and provide benefits that shall not be unreasonable in relation to the premium charged. The Association shall set the premium in accordance with the table of rates which it shall adopt. The premium shall reflect the amount of insurance to be provided and the age and class of risk of each insured, but shall not reflect any changes in the health of the insured after the original policy was last underwritten.
(c) Any alternative policy issued by the Association shall provide coverage of a type similar to that of the policy issued by the impaired or insolvent insurer, as determined by the Association.
(4) If the Association elects to reissue the insured's terminated coverage at a premium rate different from that charged under the terminated policy, the premium shall be set by the Association in accordance with the amount of insurance provided and the age and class of risk of the insured, and shall be subject to approval by a court of competent jurisdiction.
(5) The Association's obligations with respect to coverage under any policy of the impaired or insolvent insurer or under any reissued or alternative policy shall cease on the date such coverage or policy is replaced by another similar policy by the policyholder, the insured, or the Association.
(E) Nonpayment of premiums within thirty-one days after the date required under the terms of any guaranteed, assumed, alternative or reissued policy or contract or substitute coverage shall terminate the Association's obligations under such policy or coverage under this section with respect to such policy or coverage, except with respect to any claims incurred or any net cash surrender value which may be due in accordance with the provisions of this section.
(F) Premiums due after entry of an order of liquidation of an insolvent insurer shall belong to, and be payable at the direction of the Association, and the Association shall be liable for unearned premiums due to policy or contract owners arising after the entry of such order.
(G) In carrying out its duties under paragraphs (B) and (C) of this subsection, the Association may, subject to approval by the court:
(1) impose permanent policy or contract liens in connection with any guarantee, assumption or reinsurance agreement, if the Association finds that the amounts which can be assessed under this section are less than the amounts needed to assure full and prompt performance of the Association's duties under this section, or that the economic or financial conditions as they affect member insurers are sufficiently adverse to render the imposition of such permanent policy or contract liens, to be in the public interest;
(2) impose temporary moratoriums or liens on payments of cash values and policy loans, or any other right to withdraw funds held in conjunction with policies or contracts, in addition to any contractual provisions for deferral of cash or policy loan value.
(H) If the Association fails to act within a reasonable period of time as provided in paragraphs (B), (C), and (D), the commissioner shall have the powers and duties of the Association under this section with respect to impaired or insolvent insurers.
(I) The Association may render assistance and advice to the commissioner, upon his request, concerning any insurer which is insolvent, impaired or potentially impaired, or concerning the rehabilitation, payment of claims, continuance of coverage, or the performance of other contractual obligations of any impaired or insolvent insurer.
(J) The Association, shall have standing to appear before any court in the commonwealth with jurisdiction over an impaired or insolvent insurer concerning which the Association is or may become obligated under this section. Such rights shall extend to all matters germane to the powers and duties of the Association, including, but not limited to, proposals for reinsuring, modifying or guaranteeing the covered policies or contracts of the impaired or insolvent insurer and the determination of the covered policies or contracts and contractual obligations. The Association shall also have the right to appear or intervene before a court in the commonwealth or in another state with jurisdiction over an impaired or insolvent insurer for which the Association is or may become obligated or with jurisdiction over a third party against whom the Association may have rights through subrogation of the insurer's policyholders.
(K) (1) Any person receiving benefits under this section shall be deemed to have assigned the rights under, and any causes of action relating to, the covered policy or contract to the Association to the extent of the benefits received because of this section, whether the benefits are payments of or on account of contractual obligations, continuation of coverage or provision of substitute or alternative coverages. The Association may require an assignment to it of such rights and causes of action by any payee, policy or contract owner, beneficiary, insured or annuitant, as a condition precedent to the receipt of any rights or benefits conferred by this section upon such person. The Association also shall be subrogated to these rights and causes of action against the assets of any impaired or insolvent insurer, or any other person.
(2) The subrogation rights of the Association under this subsection shall have the same priority against the assets of the impaired or insolvent insurer as that possessed by the person entitled to receive benefits under this Act.
(3) In addition to clauses (1) and (2) above, the Association shall have all common law rights of subrogation and any other equitable or legal remedy which would have been available to the impaired or insolvent insurer or holder of a policy or contract with respect to such policy or contracts.
(L) The Association may: (i) enter into such contracts as are necessary or proper to carry out the provisions and purposes of this section; (ii) sue or be sued, including taking any legal actions necessary or proper for recovery of any unpaid assessments under subsection 9; (iii) borrow money to effect the purposes of this section, such notes or other evidence of indebtedness of the Association not in default being legal investments for domestic insurers which may be carried as admitted assets; (iv) employ or retain such persons as are necessary to handle the financial transactions of the Association, and to perform such other functions as become necessary or proper under this section; (v) take such legal action as may be necessary to avoid payment of improper claims; (vi) exercise, for the purposes of this section and to the extent approved by the commissioner, the powers of a domestic life or health insurer, but in no case may the Association issue insurance policies or annuity contracts other than those issued to perform its obligations under this section; (vii) join an organization of one or more other state Associations of similar purposes, to further the purposes and administer the powers and duties of this Association; (viii) enter into agreements with other state Associations of similar purposes to determine the residence of persons for purposes of this section.
9. (A) For the purpose of providing the funds necessary to carry out the powers and duties of the Association, the board of directors shall assess the member insurers, separately for each account, at such time and for such amounts as the board of directors finds necessary. Assessments shall be due not less than thirty days after prior written notice to the member insurers and shall accrue interest at ten per cent per annum on and after the due date.
(B) There shall be two classes of assessments, as follows:
(1) Class A assessments shall be made for the purpose of meeting administrative costs and other expenses and examinations conducted under the authority of paragraph (E) of subsection 12, which assessments may be made whether or not related to a particular impaired or insolvent insurer.
(2) Class B assessments shall be made to the extent necessary to carry out the powers and duties of the Association under paragraphs (A), (B) or (C) of subsection 8.
(C) (1) The amount of any Class A assessment shall be determined by the board of directors and may be made on a pro rata or non-pro rata basis. If made on a pro rata basis, the board of directors may provide that it be credited against future Class B assessments. If it is made on a non-pro rata basis, such assessment shall not exceed one hundred and fifty dollars per member insurer in any one calendar year. The amount of any Class B assessments shall be allocated for assessment purposes among the accounts pursuant to an allocation formula which may be based on the premiums or reserves of the impaired or insolvent insurer or on any other standard deemed by the board of directors in its sole discretion as being fair and reasonable under the circumstances.
(2) Class B assessments against member insurers for each account shall be in the proportion that the premiums received on business in the commonwealth by each assessed member insurer on policies or contracts covered by each account for the most recent three calendar years for which information is available preceding the year in which the insurer became impaired or insolvent, as the case may be, bears to such premiums received on business in the commonwealth for such calendar years by all assessed member insurers.
(3) Assessments for funds to meet the requirements of the Association with respect to an impaired or insolvent insurer shall not be made until necessary to implement the purposes of this section. Classification of assessments and computation of assessments under this subsection shall be made with a reasonable degree of accuracy, recognizing that exact determinations may not always be possible.
(D) The Association may abate or defer, in whole or in part, the assessment of a member insurer if, in the opinion of the board of directors, payment of the assessment would endanger the ability of the member insurer to fulfill its contractual obligations. In the event an assessment against a member insurer is abated, or deferred in whole or in part, 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 subsection.
(E) The total of all assessments upon a member insurer for each account shall not in any one calendar year exceed two per cent of such insurer's average premiums received in the Commonwealth on the policies covered by the account during the three calendar years preceding the year in which the insurer became an impaired or insolvent insurer. If the maximum assessment, together with the other assets of the association in any account, does not provide in any one year in any account an amount sufficient to carry out the responsibilities of the association, the necessary additional funds shall be assessed as soon thereafter as permitted by this Act.
(F) The board of directors may, by an equitable method as established in the plan of operation, refund to member insurers, in proportion to the contribution of each insurer to that account, the amount by which the assets of the account exceed the amount the board of directors finds is necessary to carry out during the coming year the obligations of the Association with regard to that account, including assets accruing from assignment, subrogation, net realized gains and income from investments. A reasonable amount may be retained in any account to provide funds for the continuing expenses of the Association and for future losses.
(G) It shall be proper for any member insurer, in determining its premium rates and policyowner dividends as to any kind of insurance within the scope of this section, to consider the amount reasonably necessary to meet its assessment obligations under this section.
(H) The Association shall issue to an insurer paying an assessment under this section, other than a Class A assessment, a certificate of contribution, in a form approved by the commissioner, for the amount of the assessment so paid. All outstanding certificates shall be of equal dignity and priority without reference to amounts or dates of issue. A certificate of contribution may be shown by the insurer in its financial statements as an asset in such form and for such amount, if any, and for such period of time as the commissioner may approve.
10. (A) (1) The Association shall submit to the commissioner a plan of operation and any amendments thereto necessary or suitable to assure the fair, reasonable, and equitable administration of the Association. The plan of operation and any amendments thereto shall become effective upon the commissioner's written approval or unless the commissioner has not disapproved it within thirty days.
(2) If the Association fails to submit a suitable plan of operation within one hundred twenty days following the effective date of this section, or if at any time thereafter the Association fails to submit suitable amendments to the plan, the commissioner shall, after notice and hearing, adopt and promulgate such reasonable rules as are necessary or advisable to effectuate the provisions of this section. Such rules shall continue in force until modified by the commissioner or superseded by a plan submitted by the Association and approved by the commissioner.
(B) All member insurers shall comply with the plan of operation.
(C) The plan of operation shall, in addition to requirements enumerated elsewhere in this section:
(1) establish procedures for handling the assets of the Association;
(2) establish the amount and method of reimbursing members of the board of directors under subsection 7;
(3) establish regular places and times for meetings, including telephone conference calls, of the board of directors;
(4) establish procedures for records to be kept of all financial transactions of the Association, its agents, and the board of directors.
(5) establish the procedures whereby selections for the board of directors will be made and submitted to the commissioner;
(6) establish any additional procedures for assessments under subsection 9; and
(7) contain additional provisions necessary or proper for the execution of the powers and duties of the Association.
(D) The plan of operation may provide that any or all powers and duties of the Association, except those under clause 3 of paragraph (K) of subsection 8 and of subsection 9, are delegated to a corporation, association, or other organization which performs or will perform functions similar to those of this Association, or its equivalent, in two or more states. Such corporation, association, or organization shall be reimbursed for any payments made on behalf of the Association and shall be paid for its performance of any function of the Association. A delegation under this paragraph shall take effect only with the approval of both the board of directors and the commissioner, and may be made only to a corporation, association, or organization which extends protection not substantially less favorable and effective than that provided by this section.
11. In addition to the duties and powers enumerated elsewhere in this section:
(A) The commissioner shall:
(1) upon request of the board of directors, provide the Association with a statement of the premiums in this and any other appropriate state for each member insurer;
(2) when an impairment is declared and the amount of the impairment is determined, serve a demand upon the impaired insurer to make good the impairment within a reasonable time; notice to the impaired insurer constituting notice to its shareholders, if any, and failure of the impaired insurer to promptly comply with such demand not excusing the Association from the performance of its powers and duties under this Act;
(3) in any liquidation or rehabilitation proceeding involving a domestic insurer, be appointed as the receiver;
(4) in any liquidation proceeding involving a foreign or alien member insurer in such insurer's domiciliary jurisdiction or state of entry, be appointed as conservator.
(B) The commissioner may suspend or revoke, after notice and hearing, the certificate of authority to transact insurance in the commonwealth of any member insurer which fails to pay an assessment when due or fails to comply with the plan of operation. As an alternative, the commissioner may levy a forfeiture on any member insurer which fails to pay an assessment when due. Such forfeiture shall not exceed five per cent of the unpaid assessment per month, but no forfeiture shall be less than one hundred dollars per month.
(C) Any action of the board of directors or the Association may be appealed to the commissioner by any member insurer if such appeal is taken within sixty days of the action being appealed. If a member company is appealing an assessment, the amount assessed shall be paid to the Association and available to meet Association obligations during the pendency of an appeal. If the appeal on the assessment is upheld, the amount paid in error or excess shall be returned to the member company. Any final action or order of the commissioner shall be subject to judicial review in a court of competent jurisdiction.
(D) The receiver, liquidator, rehabilitator, or conservator of any impaired or insolvent insurer may notify all interested persons of the effect of this section.
12. To aid in the detection and prevention of insurer insolvencies or impairments:
(A) It shall be the duty of the commissioner:
(1) To notify the commissioners of all the other states, territories of the United States and the District of Columbia when he takes any of the following actions against a member insurer:
(a) revocation of license;
(b) suspension of license;
(c) makes any formal order that such company restrict its premium writing, obtain additional contributions to surplus, withdraw from the state, reinsure all or any part of its business, or increase capital, surplus, or any other account for the security of policyholders or creditors. Such notice shall be mailed to all insurance commissioners within thirty days following the action taken or the date on which such action occurs.
(2) To report to the board of directors when he has taken any of the actions set forth in paragraph (A), subsection (1) or has received a report from any other insurance commissioner indicating that any such action has been taken in another state. Such report to the board of directors shall contain all significant details of the action taken or the report received from another commissioner.
(3) To report to the board of directors when he has reasonable cause to believe from any examination, whether completed or in process, of any member company that such company may be an impaired or insolvent insurer.
(4) To furnish to the board of directors the NAIC Insurance Regulatory Information System tests and listings of companies not included in the tests developed by the NAIC, for the use of the board of directors in carrying out its duties and responsibilities under this subsection. Such report and the information contained therein shall be kept confidential by the board of directors until such time as made public by the commissioner or other lawful authority.
(B) The commissioner may seek the advice and recommendation of the board of directors concerning any matter affecting his duties and responsibilities regarding the financial condition of member insurers and companies seeking admission to transact insurance business in the commonwealth.
(C) The board of directors may, upon majority vote, make reports and recommendations to the commissioner upon any matter germane to the solvency, rehabilitation, conservation, or liquidation of any member insurer or germane to the solvency of any company seeking to do an insurance business in the Commonwealth. Such reports and recommendations shall not be considered public documents.
(D) It shall be the duty of board of directors, upon majority vote, to notify the commissioner of any information the board of directors possesses which indicates any member insurer may be an impaired or insolvent insurer.
(E) The board of directors may, upon majority vote, request that the commissioner order an examination of any member insurer which the board in good faith believes may be an impaired or insolvent insurer. Within thirty days of the receipt of such request, the commissioner shall begin such examination. The examination may be conducted as an NAIC examination or may be conducted by such persons as the commissioner designates. The cost of such examination shall be paid by the Association and the examination report shall be treated as are other examination reports. In no event shall such examination report be released to the board of directors of the Association prior to its release to the public, but this shall not preclude the commissioner from complying with paragraph (A). The commissioner shall notify the board of directors when the examination is completed. The request for an examination shall be kept on file by the commissioner but it shall not be open to public inspection prior to the release of the examination report to the public.
(F) The board of directors may, upon majority vote, make recommendations to the commissioner for the detection and prevention of insurer insolvencies.
(G) The board of directors may, at the conclusion of any insurer insolvency in which the Association was obligated to pay covered claims, prepare a report to the commissioner containing such information as it may have in its possession bearing on the history and causes of such insolvency. The board shall cooperate with the boards of directors of guaranty associations in other states in preparing a report on the history and causes of insolvency of a particular insurer, and may adopt by reference any report prepared by such other associations.
13. (A) Assessments described in paragraph (H) of subdivision 9, paragraph (H) may be applied as an offset to the premium, excise, franchise, or income tax liability of member insurers to the commonwealth, to the extent of ten per cent of the amount of such assessments for each of the five calendar years following the year in which such assessments are paid. If the sum of the offsets, so determined, for all member insurers for a calendar year exceeds three million dollars, the excess shall be carried forward and shall be allowed as an offset in calendar years in which, and to the extent that the sum of member insurer's offsets are less than three million dollars. In the event that the total of the offsets reported by all member insurers on their premium, excise, franchise or income tax returns exceeds three million dollars for a calendar year, the commissioner of revenue shall assess each member insurer with an additional tax equal to the amount offset for the calendar year which is in excess of such member insurer's pro rata share of three million dollars. Each member insurer's pro rata share of three million dollars shall be determined by dividing three million dollars by the total of all member insurer offsets reported in such calendar year and multiplying the result by the offset taken by each such member insurer.
(B) Any sums which are acquired by refund, pursuant to paragraph (F) of subsection 9, from the Association by member insurers, and which have theretofore been offset against premium, excise, income or franchise taxes as provided in paragraph (A) above, shall be paid by such insurers to the commonwealth in such manner as the department of revenue may require. The Association shall notify the commissioner that such refunds have been made.
14. (A) Nothing in this section shall be construed to reduce the liability for unpaid assessments of the insureds of an impaired or insolvent insurer operating under a plan with assessment liability.
(B) Records shall be kept of all negotiations and meetings in which the Association or its representatives are involved to discuss the activities of the Association in carrying out its powers and duties under subsection 8. Records of such negotiations or meetings shall be made public only upon the termination of a liquidation, rehabilitation, or conservation proceeding involving the impaired or insolvent insurer, upon the termination of the impairment of insolvency of the insurer, or upon the order of a court of competent jurisdiction. Nothing in this subsection shall limit the duty of the Association to render a report of its activities under subdivision 15.
(C) For the purpose of carrying out its obligations under this section, the Association shall be deemed to be a creditor of the impaired or insolvent insurer to the extent of assets attributable to covered policies reduced by any amounts to which the Association is entitled as subrogee pursuant to paragraph (K) of subdivision 8. Assets of the impaired or insolvent insurer attributable to covered policies shall be used to continue all covered policies and pay all contractual obligations of the impaired or insolvent insurer as required by this section. Assets attributable to covered policies, as used in this subsection, are that proportion of the assets which the reserves that should have been established for such policies bear to the reserves that should have been established for all policies of insurance written by the impaired or insolvent insurer.
(D) (1) Prior to the termination of any liquidation, rehabilitation or conservation proceeding, the court may take into consideration the contributions of the respective parties, including the Association, the shareholders and policyowners of the insolvent insurer, and any other party with a bona fide interest, in making an equitable distribution of the ownership rights of such insolvent insurer. In such determination, consideration shall be given to the welfare of the policyholders of the continuing or successor insurer.
(2) No distribution to stockholders, if any, of an impaired or insolvent insurer shall be made until and unless the total amount of valid claims of the Association with interest thereon for funds expended in carrying out its powers and duties under subdivision 8 with respect to such insurer have been fully recovered by the Association.
(E) (1) If an order for rehabilitation or liquidation of an insurer domiciled in the commonwealth has been entered, the receiver appointed under such order shall have a right to recover on behalf of the insurer, from any affiliate that controlled it, the amount of distributions, other than stock dividends paid by the insurer on its capital stock, made at any time during the five years preceding the petition for liquidation or rehabilitation subject to the limitations of clauses (2) and (4) of this paragraph.
(2) No such distribution shall be recoverable if the insurer shows that when paid the distribution was lawful and reasonable, and that the insurer did not know and could not reasonably have known that the distribution might adversely and materially affect the ability of the insurer to fulfill its contractual obligations.
(3) Any person who was an affiliate that controlled the insurer at the time the distributions were paid shall be liable up to the amount of distributions he received. Any person who was an affiliate that controlled the insurer at the time the distributions were declared, shall be liable up to the amount of distributions he would have received if they had been paid immediately. If two or more persons are liable with respect to the same distributions, they shall be jointly and severally liable.
(4) The maximum amount recoverable under this subsection shall be the amount needed in excess of all other available assets of the insolvent insurer to pay the contractual obligations of the insurer.
(5) If any person liable under paragraph (3) of this paragraph is insolvent, all its affiliates that controlled it at the time the distribution was paid, shall be jointly and severally liable for any resulting deficiency in the amount recovered from the insolvent affiliate.
15. The Association shall be subject to examination and regulation by the commissioner. The board of directors annually shall submit to the commissioner, not later than five months after the end of the Association's prior fiscal year, a financial report for the preceding fiscal year in a form approved by the commissioner and a report of its activities during the preceding fiscal year.
16. The Association shall be exempt from payment of all fees and all taxes levied by the commonwealth or any of its subdivisions, except taxes levied on real property.
17. There shall be no liability on the part of and no cause of action of any nature shall arise against any member insurer or its agents or employees, the Association or its agents or employees, the board of directors or any member thereof, or the commissioner or his representatives, for any action or omission by them pursuant to the purposes and provisions of this section or in the performance of their powers and duties under this section. Such immunity shall extend to the participation in any organization of one or more other state associations of similar purposes as provided in subclause (vii) of paragraph L subsection 8, and to any such organization and its agents and employees.
18. All proceedings in which the insolvent insurer is a party in any court in the commonwealth shall be stayed sixty days from the date an order of rehabilitation or liquidation is final to permit proper legal action by the Association on any matters germane to its powers or duties. As to judgment under any decision, order, verdict, or finding based on default the Association may apply to have such judgment set aside by the same court that made such judgment and shall be permitted to defend against such suit on the merits.
19. No person, including an insurer, agent or affiliate of an insurer shall make, publish, disseminate, circulate, or place before the public, or cause directly, to be made, published, disseminated, circulated or placed before the public, in any newspaper, magazine or other publication, or in the form of a notice, circular, pamphlet, letter or poster, or over any radio station or television station, or in any other way, any advertisement, announcement or statement, written or oral, which uses the existence of the Massachusetts Life and Health Insurance Guaranty Association for the purposes of sales, solicitation, or inducement to purchase any form of insurance covered by this section, provided, however, that this section shall not apply to the Massachusetts Life and Health Insurance Guaranty Association or any other entity which does not sell or solicit insurance.
20. This section shall not apply to any insurer which is insolvent or unable to fulfill its contractual obligations on the effective date of this section.
SECTION 18. The second paragraph of section 180B of said chapter 175 as so appearing is hereby amended by striking out the last sentence and inserting in place thereof the following sentence:- The court, if satisfied after due notice and a full hearing that the purposes of the proceedings have been substantially accomplished, shall grant such application, provided that no such application instituted on behalf of an impaired insurer, as defined in section one hundred and forty-seven of chapter one hundred and seventy-five, shall be granted except upon compliance with the terms and conditions of subclause (b) of clause (2) of paragraph (B) of subsection 8 of said section 147.
SECTION 19. The third paragraph of section 180C of said chapter 175 is hereby amended by striking out the first sentence and inserting in place thereof the following sentence:- Within one hundred and twenty days of a final determination of insolvency of a company by the supreme judicial court, the receiver shall make application to the supreme judicial court for approval of a proposal to disburse assets out of such company's marshalled assets from time to time as such assets become available, to the Massachusetts Insurers Insolvency Fund, the Massachusetts Life and Health Insurance Guaranty Association, and to any similar organization in another state, such fund, association or organization hereinafter collectively referred to as Funds.
SECTION 20. The third paragraph of section 180F of said chapter 175, as so appearing, is hereby amended by striking out clause (4), and inserting in place thereof the following clause:-
(4) Claims by policyholders, beneficiaries, and insurers arising from and within the coverage of and not in excess of the applicable limits of insurance policies and insurance contracts issued by the company, and claims presented by the Massachusetts Insurer's Insolvency Fund, the Massachusetts Life and Health Insurance Guaranty Association, or any similar organization in another state.