§ 734.810 — Duties and powers of association; termination of obligations; limit of obligations

Oregon § 734.810

• Jurisdiction: Oregon
• Vol.: 18
• Title 56: Insurance
• Ch. 734: Rehabilitation, Liquidation and Conservation of Insurers

Text

(1) If a member insurer is an impaired insurer, the Oregon Life and Health Insurance Guaranty Association, in its discretion and subject to any conditions imposed by the association and approved by the Director of the Department of Consumer and Business Services, other than those that impair the contractual obligations of the impaired insurer, may:
(a) Guarantee, assume or reinsure, or cause to be guaranteed, assumed or reinsured, any or all of the covered policies of the impaired insurer.
(b) Provide such moneys, pledges, notes, loans, guarantees or other means as are proper to implement paragraph (a) of this subsection and ensure payment of the contractual obligations of the impaired insurer pending action under paragraph (a) of this subsection.
(2) If a member insurer is an insolvent insurer, the association, in its discretion and subject to the approval of the director, shall take either of the following steps:
(a)(A) Guarantee, assume or reinsure, or cause to be guaranteed, assumed or reinsured, the covered policies of the insolvent insurer;
(B) Ensure payment of the contractual obligations of the insolvent insurer; and
(C) Provide such moneys, pledges, notes, loans, guarantees or other means as are reasonably necessary to discharge such duties.
(b) Provide benefits and coverages in accordance with the following provisions:
(A) For life and health insurance policies and annuity contracts, the association shall ensure that the payment of benefits for premiums, except for terms of conversion and renewability, under the replacement coverage provided by the association is identical to the payment of benefits for premiums that would have been payable under the policies or contracts of the insolvent insurer, for claims incurred:
(i) With respect to group policies and contracts, not later than the earlier of the next renewal date under those policies or contracts or 45 days, but in no event less than 30 days, after the date on which the association becomes obligated with respect to the policies or contracts.
(ii) With respect to nongroup policies and contracts, if any, not later than the earlier of the next renewal date under those policies or contracts or one year, but in no event less than 30 days, after the date on which the association becomes obligated with respect to the policies or contracts.
(B) The association shall make diligent efforts to provide a 30-day notice of the termination of the benefits provided under subparagraph (A) of this paragraph to all known insureds or annuitants for nongroup policies and contracts, or to group policyholders or contract owners with respect to group policies and contracts.
(C) For nongroup life and health insurance policies and annuities covered by the association, the association shall make substitute coverage available to each known insured or annuitant, or owner if other than the insured or annuitant. For an individual formerly insured or formerly an annuitant under a group policy who is not eligible for replacement group coverage, the association shall make available substitute coverage on an individual basis in accordance with the provisions of subparagraph (D) of this paragraph, if the insureds or annuitants had a right under law or under the terminated policy or annuity to convert coverage to individual coverage or to continue an individual policy or annuity that was already in force until a specified age or for a specified time, during which the insurer had no right to make changes unilaterally in any provision of the policy or annuity or had a right to make changes only to premiums or to classes of risk.
(D) In providing the substitute coverage required under subparagraph (C) of this paragraph, the association:
(i) May offer either to reissue the terminated coverage or to issue an alternative policy.
(ii) Shall offer alternative or reissued policies without requiring evidence of insurability.
(iii) May not impose any waiting period or exclusion that would not have applied under the terminated policy.
(iv) May reinsure any alternative or reissued policy.
(E) Any alternative policy adopted by the association must:
(i) Be approved by the Director of the Department of Consumer and Business Services and the court. The association may adopt alternative policies of various types for future issuance without regard to any particular impairment or insolvency.
(ii) Contain at least the minimum statutory provisions required in this state and provide benefits that are not unreasonable in relation to the premium charged. The association shall set the premium in accordance with a table of rates adopted by the association. The premium shall reflect the amount of insurance to be provided and the age and class of risk of each insured, but may not reflect any changes in the health of the insured after the original policy was last underwritten.
(iii) Provide coverage of a type similar to that of the policy issued by the insolvent insurer, as determined by the association.
(F) If the association elects to reissue terminated coverage at a premium rate that is different from the premium rate that was charged under the terminated policy, the premium rate shall be set by the association, in accordance with the amount of insurance provided and the age and class of risk, and be subject to approval by the Director of the Department of Consumer and Business Services and the court.
(G) The association’s obligations with respect to coverage under any policy of the insolvent insurer or under any reissued or alternative policy shall cease on the date on which the coverage or policy is replaced by another similar policy by the policyholder, the insured or the association.
(H) When proceeding under this subsection with respect to a policy or contract that carries a guaranteed minimum interest rate, the association shall ensure the payment or crediting of a rate of interest consistent with the provisions of ORS 734.790 (3).
(3) Nonpayment of premiums within 31 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 the policy, contract or substitute coverage under ORS 734.750 to 734.890 with respect to the policy, contract or substitute coverage, except with respect to any claims incurred or any net cash surrender value or net cash withdrawal value that may be due in accordance with the provisions of ORS 734.750 to 734.890.
(4) Premiums due for coverage after entry of an order of liquidation of an insolvent insurer shall belong to and be payable at the direction of the association. At the request of the liquidator of an insolvent insurer, the association shall provide a report to the liquidator regarding any premium collected by the association. The association is liable for unearned premiums due to policyholders or contract owners arising after the entry of the order.
(5) The protection provided by ORS 734.750 to 734.890 does not apply where any guaranty protection is provided to residents of this state by the laws of the domiciliary state or jurisdiction of the impaired or insolvent insurer other than this state.
(6)(a) In carrying out its duties under subsection (2) of this section, the association may impose permanent policy liens or contract liens in connection with any guaranteed, assumption or reinsurance agreement, if the court considering the lien finds that the amounts that can be assessed under ORS 734.750 to 734.890 are less than the amounts needed to ensure full and prompt performance of the insolvent insurer’s contractual obligations or that the economic or financial conditions affecting member insurers are sufficiently adverse to render the imposition of policy or contract liens to be in the public interest, and approves the specific policy liens or contract liens to be used.
(b) In carrying out its duties under subsection (2) of this section, the association may request that there be imposed temporary moratoriums or liens on payments of cash values and policy loans or temporary moratoriums on the right to withdraw funds held in conjunction with the policies or contracts, in addition to any contractual provisions for deferral of cash or policy loan values, and such temporary moratoriums and liens may be imposed if they are approved by the court. In addition, in the event of a temporary moratorium or moratorium charge imposed by the court on payment of cash values or policy loan values, or on any other right to withdraw funds held in conjunction with policies or contracts, out of the assets of the impaired or insolvent insurer, the association may defer the payment of cash values, policy loan values and other rights by the association for the period of the temporary moratorium or moratorium charge that is imposed by the court, except for claims that are covered by the association to be paid in accordance with a hardship procedure that is established by the liquidator or rehabilitator and approved by the court.
(7) If the association fails to act as required in subsection (2) of this section within a reasonable time, the director shall have the powers and duties of the association under ORS 734.750 to 734.890 with respect to insolvent insurers.
(8) The association may render assistance and advice to the director, upon request of the director, concerning rehabilitation, payment of claims, continuance of coverage or the performance of other contractual obligations of any impaired or insolvent insurer.
(9) The association shall have standing to intervene or appear before any court or agency in this state having jurisdiction over an impaired or insolvent insurer concerning which the association is or may become obligated under ORS 734.750 to 734.890 or with jurisdiction over any person or property against which the association has rights through subrogation or otherwise. Such standing 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 of the impaired or insolvent insurer and the determination of the covered policies and contractual obligations. The association may also appear or intervene before a court or agency in another state with jurisdiction over an impaired or insolvent insurer for which the association is or may become obligated or with jurisdiction over any person or property against whom the association may have rights through subrogation or otherwise.
(10)(a) Any person receiving benefits under ORS 734.750 to 734.890 shall be considered to have assigned the rights under, and any causes of action against any person for losses arising under, resulting from or otherwise relating to, the covered policy to the association to the extent of the benefits received because of ORS 734.750 to 734.890, whether the benefits are payments of or on account of contractual obligations or continuation of coverage. The association may require an assignment to the association of such rights by any payee, policyholder, contract owner, beneficiary, insured or annuitant as a condition precedent to the receipt of any rights or benefits conferred by ORS 734.750 to 734.890 upon such person. The association shall be subrogated to these rights against the assets of any impaired or insolvent insurer.
(b) 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 ORS 734.750 to 734.890.
(c) In addition to the rights set forth in paragraphs (a) and (b) of this subsection, the association may exercise any common law rights of subrogation or any other equitable or legal remedy that would have been available to the impaired or insolvent insurer or to the policyholder or contract owner, beneficiary or payee of a policy or contract with respect to the policy or contract. In the case of a structured settlement annuity, these rights include but are not limited to any rights of the policyholder or contract owner, beneficiary or payee of the annuity, to the extent of benefits received under ORS 734.750 to 734.890, against a person originally or by succession responsible for the losses arising from the personal injury relating to the annuity or payment therefor, with the exception of a person responsible solely by reason of serving as an assignee in respect of a qualified assignment under section 130 of the federal Internal Revenue Code.
(d) If the provisions of this subsection are determined by a court to be invalid or ineffective with respect to any person or claim for any reason, the association shall reduce the amount payable by the association with respect to the related covered obligations by the amount realized by any other person with respect to the person or claim that is attributable to the policies or contracts covered by the association.
(e) If the association provides benefits with respect to a covered obligation and a person recovers amounts to which the association has rights as described in this subsection, the person shall pay to the association the portion of the recovery attributable to the policies or contracts covered by the association.
(11) The contractual obligations of the impaired or insolvent insurer for which the association becomes or may become liable may not exceed the least of:
(a) The contractual obligations for which the impaired or insolvent insurer is liable or would have been liable if it were not an impaired or insolvent insurer, unless such obligations are reduced as permitted by subsection (6) of this section;
(b) With respect to any one life, regardless of the number of policies or contracts:
(A) $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.
(B) $100,000 in health insurance benefits other than basic hospital, medical and surgical insurance, major medical insurance, disability insurance or long term care insurance, including any net cash surrender and net cash withdrawal values.
(C) $300,000 in disability insurance benefits.
(D) $300,000 in long term care insurance benefits.
(E) $500,000 in basic hospital, medical and surgical insurance or major medical insurance.
(F) $250,000 in the present value of annuity benefits, including any net cash surrender and net cash withdrawal values;
(c) With respect to each payee of a structured settlement annuity or the beneficiary of the payee if deceased, $250,000 in the present value of annuity benefits, in the aggregate, including any net cash surrender and net cash withdrawal values; or
(d) $250,000 in the present value of annuity benefits, in the aggregate, including any net cash surrender and net cash withdrawal values, with respect to each individual participating in a governmental retirement plan established under section 401, 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.
(12) The association may not be liable for more than:
(a) $300,000 in benefits, in the aggregate, with respect to any one life under subsection (11)(b), (c) and (d) of this section, with the exception of benefits under subsection (11)(b)(E) of this section, in which case the aggregate liability of the association may not exceed $500,000 with respect to any one life.
(b) With respect to one policyholder of multiple nongroup policies of life insurance, regardless of whether the policyholder is an individual, firm, corporation or other person, and whether the persons insured are officers, managers, employees or other persons, $5 million in benefits, regardless of the number of policies and contracts held by the policyholder.
(13) The limitations set forth in subsections (11) and (12) of this section 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 ORS 734.750 to 734.890 may be met by the use of assets attributable to covered policies or reimbursed to the association under its subrogation and assignment rights.
(14) In performing its obligations to provide coverage under ORS 734.750 to 734.890, the association is not required to guarantee, assume, reinsure or perform, or cause to be guaranteed, assumed, reinsured or performed, any contractual obligation of the impaired or insolvent insurer or contract owner under a covered policy that does not materially affect the economic values or economic benefits of the covered policy or contract.
(15) The association may:
(a) Enter into such contracts as are necessary or proper to carry out the provisions and purposes of ORS 734.750 to 734.890.
(b) Sue or be sued, including taking any legal actions necessary or proper for recovery of any unpaid assessments under ORS 734.815 and to settle claims or potential claims against the association.
(c) Borrow money to effect the purposes of ORS 734.750 to 734.890. Any notes or other evidence of indebtedness of the association not in default shall be legal investments for member insurers and may be carried as admitted assets.
(d) 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 ORS 734.750 to 734.890.
(e) Negotiate and contract with any liquidator, rehabilitator, conservator or ancillary receiver to carry out the powers and duties of the association.
(f) Take such legal action as may be necessary to avoid payment of improper claims.
(g) Exercise, for the purposes of ORS 734.750 to 734.890 and to the extent approved by the director, the powers of a member life or health insurer, but in no case may the association issue policies other than those issued to perform the contractual obligations of the impaired or insolvent insurer.
(h) Organize itself as a corporation or other legal form permitted by the laws of this state.
(i) Request information from a person seeking coverage from the association to aid the association in determining its obligations under ORS 734.750 to 734.890 with respect to that person.
(j) Take any other necessary or appropriate action to discharge its duties and obligations and to exercise its powers under ORS 734.750 to 734.890.
(16) The duties and powers of the association described in this section are in addition to any other duties and powers of the association described in ORS 734.750 to 734.890.
(17)(a) Within 180 days after the date of the order of liquidation, the association may succeed to the rights and obligations of the ceding member insurer that relate to policies or annuities covered, in whole or in part, by the association, in each case under any one or more reinsurance contracts entered into by the insolvent insurer and its reinsurers and selected by the association. Any such assumption shall be effective as of the date of the order of liquidation. The election shall be effected by the association sending written notice, return receipt requested, to the affected reinsurers.
(b) To facilitate the earliest practicable decision about whether to assume any of the contracts of reinsurance, and in order to protect the financial position of the estate, the receiver and each reinsurer of the ceding member insurer shall make available upon request to the association as soon as possible after commencement of formal delinquency proceedings copies of in-force contracts of reinsurance and all related files and records relevant to the determination of whether such contracts should be assumed, and notices of any defaults under the reinsurance contracts or any known event or condition which with the passage of time could become a default under the reinsurance contracts.
(c) For any reinsurance contracts assumed by the association under paragraphs (a) and (b) of this subsection:
(A) The association is responsible for all unpaid premiums due under the reinsurance contracts for periods both before and after the date of the order of liquidation, and shall be responsible for the performance of all other obligations to be performed after the date of the order of liquidation, related to policies or annuities covered by the reinsurance contract, in whole or in part, by the association. The association may charge policies or annuities covered in part by the association, through reasonable allocation methods, the costs for reinsurance in excess of the obligations of the association and shall provide notice and an accounting of those charges to the liquidator.
(B) The association is entitled to any amounts payable by the reinsurer under the reinsurance contracts with respect to losses or events that occur in periods after the date of the order of liquidation and that relate to policies or annuities covered, in whole or in part, by the association. Upon receipt of any such amounts, the association shall pay the beneficiary under the policy or annuity on account of which the amounts were paid a portion of the amount equal to the lesser of:
(i) The amount received by the association; or
(ii) The amount received by the association that is in excess of the amount equal to the benefits paid by the association on account of the policy or annuity minus the amount retained by the insurer applicable to the loss or event.
(C) Within 30 days following the association’s election, the association and each reinsurer shall calculate the net balance due to or from the association under each reinsurance contract as of the election date with respect to policies or annuities covered, in whole or in part, by the association. The calculation shall give full credit to all items paid by the insurer or its receiver or by the reinsurer prior to the election date. The reinsurer shall pay the receiver any amounts due for losses or events prior to the date of the order of liquidation, subject to any setoff for premiums unpaid for periods prior to that date, and the association or the reinsurer shall pay any remaining balance due to one another. The reinsurer and the association shall make such payments within five days after the completion of the calculation of the net balance due under each reinsurance contract. Any disputes over the amounts due to the association or the reinsurer shall be resolved by arbitration according to the terms of the affected reinsurance contracts or, if the contract contains no arbitration clause, as otherwise provided by law. If the receiver has received any amounts due the association under subparagraph (B) of this paragraph, the receiver shall remit the amounts to the association as promptly as practicable.
(d) If the association, or the receiver on the association’s behalf, within 60 days after the election date pays the unpaid premiums due for periods both before and after the election date that relate to policies or annuities covered, in whole or in part, by the association, the reinsurer may not terminate the reinsurance contracts for failure to pay premiums insofar as the reinsurance contracts relate to policies or annuities covered, in whole or in part, by the association, and may not set off any unpaid amounts due under other contracts, or unpaid amounts due from parties other than the association, against amounts due to the association.
(e)(A) During the period from the date of the order of liquidation until the election date or, if the election date does not occur, 180 days after the date of the order of liquidation:
(i) Neither the association nor the reinsurer shall have any rights or obligations under reinsurance contracts that the association has the right to assume under paragraph (a) of this subsection, whether for periods prior to or after the date of the order of liquidation; and
(ii) The reinsurer, the receiver and the association shall, to the extent practicable, provide to each other data and records that are reasonably requested.
(B) After the association has elected to assume a reinsurance contract, the parties’ rights and obligations shall be governed by paragraph (a) of this subsection.
(f) If the association does not elect to assume a reinsurance contract by the election date under paragraph (a) of this subsection, the association shall have no rights or obligations, for periods both before and after the date of the order of liquidation, with respect to the reinsurance contract.
(g) When policies or annuities, or covered obligations related to policies or annuities, are transferred to an assuming insurer, the association may also transfer reinsurance on the policies or annuities for contracts assumed under paragraph (a) of this subsection, subject to the following:
(A) Unless the reinsurer and the assuming insurer agree otherwise, the reinsurance contract transferred may not cover any new policies of insurance or annuities in addition to those transferred;
(B) The obligations described in paragraph (a) of this subsection shall no longer apply with respect to matters arising after the effective date of the transfer; and
(C) The transferring party shall give notice in writing, return receipt requested, to the affected reinsurer not less than 30 days before the effective date of the transfer.
(h) The provisions of this subsection shall supersede any other provision of law or any affected reinsurance contract that provides for or requires any payment of reinsurance proceeds, on account of losses or events that occur in periods after the date of the order of liquidation, to the receiver or any other person. The receiver shall remain entitled to any amounts payable by the reinsurer under the reinsurance contract with respect to losses or events that occur in periods prior to the date of the order of liquidation, subject to applicable setoff provisions.
(i) Except as otherwise provided in this subsection, nothing in this section shall:
(A) Alter or modify the terms and conditions of any reinsurance contract;
(B) Abrogate or limit any rights of any reinsurer to claim that the reinsurer is entitled to rescind a reinsurance contract;
(C) Grant a policyholder, contract owner or beneficiary an independent cause of action against a reinsurer that is not otherwise set forth in the reinsurance contract;
(D) Limit or affect the association’s rights as a creditor of the estate against the assets of the estate; or
(E) Apply to reinsurance agreements covering property or casualty risks.
(18) The board of directors of the association may exercise reasonable business judgment to determine the means by which the association is to provide the benefits under ORS 734.750 to 734.890 in an economical and efficient manner.
(19) If the association has arranged or offered to provide the benefits of ORS 734.750 to 734.890 to a covered person under a plan or arrangement that fulfills the association’s obligations under this section, the person is not entitled to benefits from the association in addition to or other than those provided under the plan or arrangement.
(20) Venue in a suit against the association arising under ORS 734.750 to 734.890 shall be in the Circuit Court for Marion County.
(21) In carrying out its duties in connection with guaranteeing, assuming or reinsuring policies or contracts under this section, the association may, subject to approval of the court, issue substitute coverage for a policy or contract that provides an interest rate, crediting rate or similar factor determined by use of an index or other external reference stated in the policy or contract for the purpose of calculating returns or changes in value by issuing an alternative policy or contract in accordance with all of the following provisions:
(a) In lieu of the index or other external reference provided for in the original policy or contract, the alternative policy or contract provides for a fixed interest rate, payment of dividends with minimum guarantees, or a different method for calculating interest or changes in value.
(b) There is no requirement for evidence of insurability, waiting period or other exclusion that would not have applied under the original policy or contract.
(c) The alternative policy or contract is substantially similar to the original policy or contract in all other material terms.

Legislative History

1975 c.251 §9; 1991 c.811 §4; 2010 c.26 §1; 2011 c.142 §5; 2019 c.13 §67