§ 26.1-38.1-01 — Coverage and limitations

North Dakota § 26.1-38.1-01

• Jurisdiction: North Dakota
• Title 26.1: Insurance
• Ch. 26.1-38.1: Life and Health Insurance Guaranty Association

Text

1. This section provides coverage for the policies and contracts specified in subsection 2:
a. To persons, except for nonresident certificate holders under group policies or
contracts, who, regardless of where they reside, are the beneficiaries, assignees,
or payees, including health care providers rendering services covered under
health insurance policies or certificates, of the persons covered under
subdivision b.
b. 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:
(1) Are residents; or
(2) Are not residents, but only under all of the following conditions:
(a) The member insurer that issued such policies or contracts is domiciled
in this state;
(b) The states in which the persons reside have associations similar to
the association created under this chapter; and
(c) The persons are not eligible for coverage by an association in any
other state because the insurer or the health maintenance
organization was not licensed in the state at the time specified in the
state's guaranty association law.
c. For any unallocated annuity contract specified in subsection 2, subdivisions a and
b do not apply, and this chapter, except as provided in subdivisions e and f,
provides coverage to:
(1) Persons who are the owners of the unallocated annuity contracts if the
contracts are issued to or in connection with a specific benefit plan, the
sponsor of which has its principal place of business in this state; and
(2) Persons who are owners of unallocated annuity contracts issued to or in
connection with government lotteries if the owners are residents.
d. For structured settlement annuities specified in subsection 2, subdivisions a and
b do not apply, and this chapter, except as provided in subdivisions e and f,
provides 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:
(1) Is a resident, regardless of where the contract owner resides; or
(2) Is not a resident, and:
(a) The contract owner of the structured settlement annuity is a resident,
or the contract owner of the structured settlement annuity is not a
resident but the insurer that issued the structured settlement annuity is
domiciled in this state and the state in which the contract owner
resides has an association similar to the association created under
this chapter; and
(b) 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.
e. This chapter does not provide coverage to:
(1) 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;
(2) A person covered under subdivision c, if any coverage is provided by the
association of another state to the person; or
(3) A person who acquires rights to receive payments through a structured
settlement factoring transaction as defined in section 5891(c)(3)(A) of title
26 of the United States Code, regardless of whether the transaction
occurred before or after this federal law became effective.

f. This chapter provides 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 may not be provided
coverage under this chapter. In determining the application of the provisions of
this subdivision in situations in which a person could be covered by the
association of more than one state, whether as an owner, payee, enrollee,
beneficiary, or assignee, this chapter must be construed in conjunction with other
state laws to result in coverage by only one association.
2. This chapter provides coverage to the persons specified in subsection 1 for policies or
contracts of direct, nongroup life insurance, health insurance, which for the purposes
of this chapter includes health maintenance organization subscriber contracts and
certificates, or annuities, and supplemental contracts to any of these, for certificates
under direct group policies and contracts, and supplemental contracts to any of these
and for unallocated annuity contracts issued by member insurers, except as limited by
this chapter. Annuity contracts and certificates under group annuity contracts include
guaranteed investment contracts, deposit administration contracts, unallocated funding
agreements, allocated funding agreements, structured settlement annuities, annuities
issued to or in connection with government lotteries, and any immediate or deferred
annuity contracts.
3. Except for the portion of a policy or contract, including a rider, which provides
long-term care or any other health insurance benefits, this chapter does not provide
coverage for:
a. Any portion of a policy or contract not guaranteed by the member insurer, or
under which the risk is borne by the policy owner 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
the portion of the policy or contract is based or to the extent that the rate of
interest, crediting of a rate of interest, or similar factor determined by using an
index or other external reference stated in the policy or contract which is
employed in calculating returns or changes in value:
(1) Averaged over the period of four years prior to the date on which the
member insurer becomes an impaired or insolvent insurer under this
chapter, whichever is earlier, exceeds a rate of interest determined by
subtracting two percentage points from Moody's corporate bond yield
average averaged for that same four-year period or for such lesser period if
the policy or contract was issued less than four years prior to the date on
which 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 three percentage points from Moody's
corporate bond yield average as most recently available;
d. A 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:
(1) A multiple employer welfare arrangement as defined in section 1144 of
title 29 of the United States Code;
(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 for dividends or
experience rating credits, voting rights, or payment of any fees or allowances to

any person, including the policy owner or contract owner, in connection with the
service to or administration of the 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 the 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
section 26.1-38.1-06 with respect to the policy or contract are preempted or
otherwise not permitted 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;
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 has not been credited to the
policy or contract, or as to which the policy owner's 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 subdivision, the interest or changes 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 is not subject to forfeiture;
m. A policy or contract providing any hospital, medical, prescription drug, or other
health care benefits pursuant to part C or part D of subchapter XVIII of chapter 7
of title 42 of the United States Code, commonly known as Medicare part C and
part D, or subchapter XIX of chapter 7 of title 42 of the United States Code;
commonly known as Medicaid, or any regulations issued pursuant thereto; and
n. Structured settlement annuity benefits to which a payee or beneficiary has
transferred the payee's or beneficiary's rights in a structured settlement factoring
transactions, as defined in section 5891(c)(3)(A) of title 26 of the United States
Code, regardless of whether the transaction occurred before or after this federal
law became effective.
4. The benefits that the association may become obligated to cover may in no event
exceed the lesser of:
a. 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

b. (1) With any respect to one life, regardless of the number of policies, or
contracts:
(a) 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 for life insurance;
(b) For health insurance benefits:
[1] One hundred thousand dollars for coverages not defined as
disability income insurance or health benefit plans or long-term
care insurance, including any net cash surrender and net cash
withdrawal values.
[2] Three hundred thousand dollars for disability income insurance,
and three hundred thousand dollars for long-term care insurance.
[3] Five hundred thousand dollars for health benefit plans.
(c) Two hundred fifty thousand dollars in the present value of annuity
benefits, including net cash surrender and net cash withdrawal values.
(2) With respect to each individual participating in a government retirement
benefit plan established under section 401(k), 403(b), or 457 of the United
States Internal Revenue Code covered by an unallocated annuity contract
or the beneficiaries of each such individual if deceased, in the aggregate,
two hundred fifty thousand dollars in present value annuity benefits,
including net cash surrender and net cash withdrawal values.
(3) With respect to each payee of a structured settlement annuity or beneficiary,
or beneficiaries of the payee if deceased, two hundred fifty thousand dollars
in present value annuity benefits, in the aggregate, including net cash
surrender and net cash withdrawal values, if any.
(4) However, in no event shall the association be obligated to cover more than:
(a) An aggregate of three hundred thousand dollars in benefits with
respect to any one life under paragraphs 1, 2, and 3 of subdivision b
except with respect to the benefits for health benefit plans under
subparagraph b of paragraph 1 of subdivision b, in which case the
aggregate liability of the association shall not exceed five hundred
thousand dollars with respect to any one individual; or
(b) With respect to one owner of multiple nongroup policies of life
insurance, whether the persons insured are officers, managers,
employees, or other persons, more than five million dollars in benefits,
regardless of the number of policies and contracts held by the owner.
(5) With respect to either one contract owner provided coverage under
paragraph 2 of subdivision c of subsection 1; or one plan sponsor whose
plans own directly or in trust one or more unallocated annuity contracts not
included in paragraph 2 of subdivision b, five million dollars in benefits,
irrespective of the number of contracts with respect to the contract owner or
plan sponsor. However, in the case in which one or more unallocated
annuity contracts are covered contracts under this chapter and are owned
by a trust or other entity for the benefit of two or more plan sponsors,
coverage must 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 is the
association obligated to cover more than five million dollars in benefits with
respect to all these unallocated contracts.
(6) 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.
5. In performing its obligations to provide coverage under this chapter, the association is
not 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.
6. For purposes of this chapter, benefits provided by a long-term care rider to a life
insurance policy or annuity contract must be considered the same type of benefits as
the related base life insurance policy or annuity contract.