(1) The priority of
distribution of claims from the insurer's estate shall be in accordance with the order
in which each class of claims is set forth in this section. Every claim in each class
shall be paid in full, or adequate funds shall be retained for such payment, before
the members of the next class receive any payment. No subclasses shall be
established within any class. The order of distribution of claims shall be:
(a) Class 1. (I) The costs and expenses of administration during rehabilitation
and liquidation, including but not limited to the following:
(A) The actual and necessary costs of preserving or recovering the assets of
the insurer;
(B) Compensation for all authorized services rendered in the rehabilitation
and liquidation;
(C) Any necessary filing fees;
(D) The fees and mileage payable to witnesses;
(E) Authorized reasonable attorney fees and fees for other professional
services rendered in the rehabilitation and liquidation; and
(F) The administrative expenses of guaranty associations; and
(II) Claims by member insurers for their pro rata share of the risk adjustment
program payable by an impaired insurer or insolvent insurer if the commissioner
determines that the failure of the impaired insurer or insolvent insurer to pay such
risk adjustment program payments would result in the impairment or insolvency of
the claimant member insurer and that such impairment or insolvency would be
avoided by payment of the claim. The amount of the payment of the claim must not
exceed the lesser of:
(A) The pro rata amount the claimant member insurer would be entitled to
from the risk adjustment program but did not receive because the estate of the
impaired or insolvent insurer has not made the full payment; or
(B) The amount needed to avoid the claimant member insurer's impairment
or insolvency.
(b) Class 2. All claims under policies including such claims of the federal or
any state or local government including unearned premium claims, third-party
claims, and all claims of a guaranty association or foreign guaranty association.
That portion of any loss for which indemnification is provided by other benefits or
advantages recovered by the claimant, other than benefits or advantages recovered
or recoverable in discharge of familial obligation of support or by way of succession
at death or as proceeds of life insurance, or as gratuities, shall not be included in
this class. No payment by an employer to the employer's employee shall be treated
as a gratuity. All claims under life insurance and annuities policies and deposits,
whether for death proceeds, annuity proceeds, or values, shall be treated as class 2
claims. For the purpose of this paragraph (b), policies shall include those insurance
company products that are authorized under the laws of this state as such laws
existed on the date of the issuance of such policies or on the date of the entry of an
order of liquidation. Notwithstanding the provisions of this paragraph (b), class 2
claims shall not include:
(I) Claims under annuity and deposit contracts issued on or before August 15,
2000, however labeled, including labels such as annuity, deposit, financial
guarantee, funding agreement, or guaranteed investment contract, unless the
contract is:
(A) Issued to, or owned by, an individual or is otherwise an annuity issued in
connection with and for the purpose of funding structured settlements of liability;
or
(B) Issued to, for the benefit of, or in connection with, a specific employee
benefit plan or governmental lottery;
(II) Claims where the risk is not borne by the insurer, such as the uninsured
portion of:
(A) A minimum premium group insurance plan;
(B) A stop-loss group insurance plan; or
(C) An administrative-services only contract and the related uninsured plan
liabilities;
(III) Claims under an unallocated annuity contract issued to an employee
benefit plan protected under the federal pension benefit guaranty corporation; and
(IV) Claims for benefits which are exclusively payable or determined by a
separate account required by the terms of such contract to be maintained by the
insurer or a separate entity.
(c) (I) Class 3. Claims of the federal government, except those described in
subsection (1)(b) of this section.
(II) On and after May 15, 2023, through June 30, 2026, class 3 claims include
all claims owed for the risk adjustment program.
(d) Class 4. Reasonable compensation to employees for services performed
to the extent that they do not exceed two months of monetary compensation and
represent payment for services performed within the one-year period immediately
preceding the filing of the petition for liquidation. Principal officers and directors
shall not be entitled to the benefit of this priority except as otherwise approved by
the liquidator and the court. Such priority shall be in lieu of any other similar priority
which may be authorized by law as to wages or compensation of employees.
(e) Class 5. Claims of any state or local government except those under
paragraph (b) of this subsection (1). Claims in this paragraph (e), including those of
any governmental body for a penalty or forfeiture, shall be allowed only to the
extent of the pecuniary loss sustained from the act, transaction, or proceeding out
of which the penalty or forfeiture arose and for the reasonable and actual costs
occasioned thereby. The remainder of such claims shall be postponed to class 7.
(f) Class 6. Claims filed late and any other claims other than claims
described in paragraph (h) of this subsection (1).
(g) Class 7. Surplus or contribution notes or similar obligations, and premium
refunds on assessable policies. Payments to members of domestic mutual
insurance companies shall be limited in accordance with law.
(h) Class 8. Claims of shareholders or other owners in their capacity as
shareholders.
(2) (a) (Deleted by amendment, L. 2003, p. 2045, � 2, effective May 22, 2003.)
(b) Every claim under a separate account contract providing, in effect, that
the assets in the separate account shall not be chargeable with liabilities arising
out of any other business of the insurer shall be satisfied out of the assets in the
separate account equal to the reserves and other contract liabilities maintained in
such account for such contract. To the extent, if any, that the separate account
assets are not sufficient to discharge such claims due to fraud, error, or other
malfeasance on the part of the insurer or if unsatisfied claims arise from a
contractual guarantee made to a contract holder by the insurer's general account,
such unsatisfied claims shall be treated as a class 2 claim against the insurer's
estate. Any such class 2 claim shall be subject to the applicable exceptions for this
class, excluding the exception for separate accounts under subparagraph (IV) of
paragraph (b) of subsection (1) of this section.
(2.5) The commissioner shall order a member insurer that received payments
pursuant to subsection (1)(a)(II) of this section to refund to the estate of an impaired
insurer or insolvent insurer any amounts received pursuant to subsection (1)(a)(II) of
this section that duplicate payments the member insurer received from the risk
adjustment program.
(3) As used in this section:
(a) Impaired insurer has the same meaning as set forth in section 10-20-103
(6.7).
(b) Insolvent insurer has the same meaning as set forth in section 10-20-103 (7).
(c) Insurer's estate or estate means the general assets of such insurer
less any assets held in separate accounts that, pursuant to section 10-7-402, are
not chargeable with liabilities arising out of any other business of the insurer. To the
extent, if any, assets maintained in the separate account are in excess of the
amounts needed to satisfy claims under the separate account contracts, the excess
shall be treated as part of the insurer's estate.
(d) Member insurer has the same meaning as set forth in section 10-20-103
(8).
(e) Risk adjustment program means the program established pursuant to
section 1343 of the federal Patient Protection and Affordable Care Act, Pub.L. 111-148, as amended by the federal Health Care and Education Reconciliation Act of
2010, Pub.L. 111-152, and as may be further amended, 42 U.S.C. sec. 18063, to
provide payments to health insurance carriers that cover high-risk populations and
to more evenly distribute the financial risk borne by carriers.
(f) Separate account contract means any life policy or contract, annuity
contract, funding agreement, or guaranteed investment contract providing for the
allocation of amounts received in connection with such policy, contract, or
agreement to a separate account authorized by section 10-7-402.
(4) Subsections (1)(a)(II), (1)(c)(II), (2.5), (3)(a), (3)(b), (3)(d), and (3)(e) of this
section and this subsection (4) are repealed, effective July 1, 2026.