§ 4403 — Coverage and limitations
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(a) This chapter shall provide coverage for the policies and contracts specified in subsection (b) of this section:
(1) To persons who, regardless of where they reside (except for nonresident certificate holders under group policies or contracts), are the beneficiaries, assignees, or payees, including health care providers rendering services covered under health insurance policies or certificates, of the persons covered under paragraph (a)(2) of this section;
(2) To persons who are owners of or certificate holders or enrollees under such policies or contracts (other than unallocated annuity contracts, and structured settlement annuities) and in each case who:
a. Are residents; or
b. Are not residents, but only under all of the following conditions:
1. The member insurer which issued such policies or contracts is domiciled in this State;
2. The states in which the persons reside have associations similar to the Association created by this chapter;
3. The persons are not eligible for coverage by an association in any other state due to the fact that the insurer, managed care organization, or health maintenance organization was not licensed in the state at the time specified in the state’s guaranty association law.
(3) For unallocated annuity contracts specified in subsection (b) of this section, paragraphs (a)(1) and (2) of this section shall not apply, and this chapter shall (except as provided in paragraphs (a)(5) and (6) of this section) provide coverage to:
a. Persons who are the owners of the unallocated annuity contracts if the contracts are issued to or in connection with a specific benefit plan whose plan sponsor has its principal place of business in this State; and
b. Persons who are owners of unallocated annuity contracts issued to or in connection with government lotteries if the owners are residents.
(4) For structured settlement annuities specified in subsection (b) of this section, paragraphs (a)(1) and (2) of this section shall not apply, and this chapter shall (except as provided in paragraphs (a)(5) and (6) of this section) provide coverage to a person who is a payee under a structured settlement annuity (or beneficiary of a payee if the payee is deceased), if the payee:
a. Is a resident, regardless of where the contract owner resides; or
b. Is not a resident, but only under both of the following conditions:
1. A. The contract owner of the structured settlement annuity is a resident; or
B. The contract owner of the structured settlement annuity is not a resident, but
I. The insurer that issued the structured settlement annuity is domiciled in this State; and
II. The state in which the contract owner resides has an association similar to the Association created by this chapter; and
2. Neither the payee (or beneficiary) nor the contract owner is eligible for coverage by the association of the state in which the payee or contract owner resides.
(5) This chapter shall not provide coverage to:
a. A person who is a payee (or beneficiary) of a contract owner resident of this State if the payee (or beneficiary) is afforded any coverage by the association of another state;
b. A person covered under paragraph (a)(3) of this section if any coverage is provided by the association of another state to the person; or
c. A person who acquires rights to receive payments through a structured settlement factoring transaction, as defined in 26 U.S.C. § 5891(c)(3)(A), regardless of whether the transaction occurred before or after 26 U.S.C. § 5891(c)(3)(A) became effective.
(6) This chapter is intended to provide coverage to a person who is a resident of this State and, in special circumstances, to a nonresident. In order to avoid duplicate coverage, if a person who would otherwise receive coverage under this chapter is provided coverage under the laws of any other state, the person shall not be provided coverage under this chapter. In determining the application of the provisions of this paragraph in situations where a person could be covered by the association of more than 1 state, whether as an owner, payee, enrollee, beneficiary, or assignee, this chapter shall be construed in conjunction with other state laws to result in coverage by only one association.
(b) (1) This chapter shall provide coverage to the persons specified in subsection (a) of this section for policies or contracts of direct, nongroup life insurance; health insurance, which for the purposes of this chapter includes managed care organization and health maintenance organization subscriber contracts and certificates; or annuities for certificates under direct group policies and contracts, and for supplemental contracts to any of these, and for unallocated annuity contracts, in each case issued by member insurers, except as limited by this chapter. Annuity contracts and certificates under group annuity contracts include but are not limited to guaranteed investment contracts, deposit administration contracts, unallocated funding agreements, structured settlement annuities, annuities issued to or in connection with government lotteries, and any immediate or deferred annuity contracts.
(2) Except as otherwise provided in paragraph (b)(3) of this section, this chapter shall not provide coverage for the following:
a. Any portion of a policy or contract not guaranteed by the member insurer or under which the risk is borne by the policy or contract owner;
b. Any policy or contract of reinsurance unless assumption certificates have been issued pursuant to the reinsurance policy or contract;
c. Any portion of a policy or contract to the extent that the rate of interest on which it is based or the interest rate, crediting rate or similar factor determined by use of an index or other external reference stated in the policy or contract employed in calculating returns or changes in value:
1. Averaged over the period of 4 years prior to the date on which the member insurer becomes an impaired or insolvent insurer under this chapter, whichever is earlier, exceeds the rate of interest determined by subtracting 2 percentage points from Moody’s Corporate Bond Yield Average averaged for that same 4-year period or for such lesser period if the policy or contract was issued less than 4 years before the member insurer becomes an impaired or insolvent insurer under this chapter, whichever is earlier; and
2. On and after the date on which the member insurer becomes an impaired or insolvent insurer under this chapter, whichever is earlier, exceeds the rate of interest determined by subtracting 3 percentage points from Moody’s Corporate Bond Yield Average as most recently available;
d. Any portion of a policy or contract issued to a plan or program of an employer, association or other person to provide life, health or annuity benefits to its employees, members or others to the extent that such plan or program is self-funded or uninsured, including benefits payable by an employer, association, or other person under any of the following:
1. A multiple employer welfare arrangement, as defined in § 3(40) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. § 1002(40));
2. A minimum premium group insurance plan;
3. A stop-loss group insurance plan; or
4. An administrative services only contract;
e. Any portion of a policy or contract to the extent that it provides:
1. Dividends or experience rating credits;
2. Voting rights; or
3. Payment of any fees or allowances to any person, including the policy or contract owner, in connection with the service to or administration of such policy or contract;
f. Any policy or contract issued in this State 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 this State;
g. Any unallocated annuity contract issued to or in connection with a benefit plan protected under the federal Pension Benefit Guaranty Corporation, regardless of whether the federal Pension Benefit Guaranty Corporation has yet become liable to make any payments with respect to the benefit plan;
h. Any portion of any unallocated annuity contract which is not issued to or in connection with a specific employee, union or association of natural persons benefit plan or a government lottery;
i. A portion of a policy or contract to the extent that the assessments required by § 4409 of this title with respect to the policy or contract are preempted by federal or state law;
j. An obligation that does not arise under the express written terms of the policy or contract issued by the member insurer to the enrollee, certificate holder, contract owner, or policy owner, including:
1. Claims based on marketing materials;
2. Claims based on side letters, riders or other documents that were issued by the member insurer without meeting applicable policy or contract form filing or approval requirements;
3. Misrepresentations of or regarding policy or contract benefits;
4. Extracontractual claims; or
5. A claim for penalties or consequential or incidental damages; and
k. A contractual agreement that establishes the member insurer’s obligations to provide a book value accounting guaranty for defined contribution benefit plan participants by reference to a portfolio of assets that is owned by the benefit plan or its trustee, which in each case is not an affiliate of the member insurer.
l. A portion of a policy or contract to the extent it provides for interest or other changes in value to be determined by the use of an index or other external reference stated in the policy or contract but which have not been credited to the policy or contract, or as to which the policy or contract owner’s rights are subject to forfeiture, as of the date the member insurer becomes an impaired or insolvent insurer under this chapter, whichever is earlier. If a policy’s or contract’s interest or changes in value are credited less frequently than annually, then for purposes of determining the values that have been credited and are not subject to forfeiture under this paragraph (b)(2)l., the interest or change in value determined by using the procedures defined in the policy or contract will be credited as if the contractual date of crediting interest or changing values was the date of impairment or insolvency, whichever is earlier, and will not be subject to forfeiture.
m. Any employer owned life insurance policy, as defined in § 2704(e) of this title.
n. A policy or contract providing any hospital, medical, prescription drug, or other health-care benefits under Part C or Part D of Subchapter XVIII, Chapter 7 of Title 42 of the U.S.C. (commonly known as Medicare Part C and D); Subchapter XIX, Chapter 7 of Title 42 of the U.S.C. (commonly known as Medicaid); or any regulations issued under either of these provisions.
o. Structured settlement annuity benefits to which a payee or beneficiary has transferred the payee’s or beneficiary’s rights in a structured settlement factoring transaction, as defined in 26 U.S.C. § 5891(c)(3)(A), regardless of whether the transaction occurred before or after 26 U.S.C. § 5891(c)(3)(A) became effective.
(3) The exclusion from coverage under paragraph (b)(2)c. of this section does not apply to any portion of a policy or contract, including rider, that provides long-term care or any other health insurance benefits.
(c) The benefits that the Association may become obligated to cover shall in no event exceed the lesser of the following:
(1) The contractual obligations for which the member insurer is liable or would have been liable if it were not an impaired or insolvent insurer; or
(2) a. With respect to any one life, regardless of the number of policies or contracts:
1. $300,000 in life insurance death benefits, but not more than $100,000 in net cash surrender and net cash withdrawal values for life insurance;
2. For health insurance benefits:
A. $100,000 for coverages not defined as disability income insurance, health benefit plans, or long-term care insurance including any net cash surrender and net cash withdrawal values;
B. $300,000 for disability income insurance and $300,000 for long-term care insurance. For purposes of this section, “disability income insurance” means the type of policy which pays a monthly or weekly amount if an individual is disabled and cannot work. “Long-term care insurance” means as defined in § 7103(5) of this title;
C. $500,000 for health benefit plans; or
3. $250,000 in present value of annuity benefits including net cash surrender and net cash withdrawal values.
b. With respect to each individual participating in a governmental retirement benefit plan established under § 401, § 403(b) or § 457 of the U.S. Internal Revenue Code (26 U.S.C. § 401, § 403(b) or § 457) covered by an unallocated annuity contract, or the beneficiaries of each such individual if deceased, $250,000 in the aggregate in present value annuity benefits, including net cash surrender and net cash withdrawal values;
c. With respect to each payee of a structured settlement annuity (or beneficiary or beneficiaries of the payee, if deceased), $250,000 in present value annuity benefits, in the aggregate, including net cash surrender and net cash withdrawal values, if any;
d. However, in no event shall the Association be obligated to cover more than (i) an aggregate of $300,000 in benefits with respect to any 1 life under paragraphs (c)(2)a., (c)(2)b., and (c)(2)c. of this section except with respect to benefits for health benefit plans under paragraph (c)(2)a.2. of this section, in which case the aggregate liability of the Association shall not exceed $500,000 with respect to any 1 individual; or (ii) with respect to 1 owner of multiple nongroup policies of life insurance, whether the policy or contract owner is an individual, firm, corporation, or other person, and whether the persons insured are officers, managers, employees, or other persons, more than $1,000,000 in benefits, regardless of the number of policies and contracts held by the owner;
e. With respect to either (i) 1 contract owner provided coverage under paragraph (a)(3)b. of this section; or (ii) 1 plan sponsor whose plans own directly or in trust 1 or more unallocated annuity contracts not included in paragraph (c)(2)b. of this section, $1,000,000 in benefits, irrespective of the number of contracts with respect to the contract owner or plan sponsor. However, in the case where 1 or more unallocated annuity contracts are covered contracts under this chapter and are owned by a trust or other entity for the benefit of 2 or more plan sponsors, coverage shall be afforded by the Association if the largest interest in the trust or entity owning the contract or contracts is held by a plan sponsor whose principal place of business is in this State and in no event shall the Association be obligated to cover more than $1,000,000 in benefits with respect to all these unallocated contracts.
f. The limitations set forth in this subsection are limitations on the benefits for which the Association is obligated before taking into account either its subrogation and assignment rights or the extent to which those benefits could be provided out of the assets of the impaired or insolvent insurer attributable to covered policies. The costs of the Association’s obligations under this chapter may be met by the use of assets attributable to covered policies or reimbursed to the Association pursuant to its subrogation and assignment rights.
g. For purposes of this chapter, benefits provided by a long-term care rider to a life insurance policy or annuity contract are considered the same type of benefits as the base life insurance policy or annuity contract to which it relates.
(d) In performing its obligations to provide coverage under § 4408 of this title, the Association shall not be required to guarantee, assume, reinsure, reissue, or perform, or cause to be guaranteed, assumed, reinsured, reissued, or performed, the contractual obligations of the insolvent or impaired insurer under a covered policy or contract that do not materially affect the economic values or economic benefits of the covered policy or contract.
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