§ 27-14.3-46. Priority of distribution.
(a) 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 retained for such payment before
the members of the next class receive any payment. Once such funds are retained by
the liquidator and approved by the court, the insurer's estate shall have no further
liability to members of that class except to the extent of the retained funds and
any other undistributed funds. No subclasses shall be established within any class
except as provided in §â€‚27-14.3-25(a)(12). No claim by a shareholder, policyholder, or other creditor shall be permitted to
circumvent the priority classes through the use of equitable remedies. The order of
distribution of claims shall be:
(1) Class 1. The costs and expenses of administration expressly approved by the receiver, including,
but not limited to, the following:
(i) The actual and necessary costs of preserving or recovering the assets of the insurer;
(ii) Compensation for all authorized services rendered in the conservation, rehabilitation,
or liquidation;
(iii) Any necessary filing fees;
(iv) The fees and mileage payable to witnesses; and
(v) Authorized reasonable attorney's fees and other professional services rendered in
the conservation, rehabilitation, or liquidation.
(2) Class 2. The administrative expenses of guaranty associations. For purposes of this section
these expenses shall be the reasonable expenses incurred by guaranty associations
where the expenses are not payments or expenses which are required to be incurred
as direct policy benefits in fulfillment of the terms of the insurance contract or
policy, and that are of the type and nature that, but for the activities of the guaranty
association otherwise would have been incurred by the receiver, including, but not
limited to, evaluations of policy coverage, activities involved in the adjustment
and settlement of claims under policies, including those of in-house or outside adjusters,
and the reasonable expenses incurred in connection with the arrangements for ongoing
coverage through transfer to other insurers, policy exchanges, or maintaining policies
in force. The receiver may in the receiver's sole discretion approve as an administrative
expense under this section any other reasonable expenses of the guaranty association
if the receiver finds:
(i) The expenses are not expenses required to be paid or incurred as direct policy benefits
by the terms of the policy; and
(ii) The expenses were incurred in furtherance of activities that provided a material economic
benefit to the estate as a whole, irrespective of whether the activities resulted
in additional benefits to covered claimants. The court shall approve such expenses
unless it finds the receiver abused the receiver's discretion in approving the expenses.
If the receiver determines that the assets of the estate will be sufficient to pay
all Class 1 claims in full, Class 2 claims shall be paid currently, provided that
the liquidator shall secure from each of the associations receiving disbursements
pursuant to this section and agreement to return to the liquidator such disbursements,
together with investment income actually earned on such disbursements, as may be required
to pay Class 1 claims. No bond shall be required of any such association.
(3) Class 3.(i) All claims under policies including claims of the federal or any state or local government
for losses incurred, ("loss claims�) including third-party claims, claims for unearned
premiums, and all claims of guaranty association for reasonable expenses other than
those included in Class 2. All claims under life and health insurance and annuity
policies, whether for death proceeds, health benefits, annuity proceeds, or investment
values shall be treated as loss claims. That portion of any loss, indemnification
for which is provided by other benefits or advantages recovered by the claimant, shall
not be included in this class, 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. No payment by an employer to the
employer's employee shall be treated as a gratuity;
(ii) Notwithstanding the foregoing, the following claims shall be excluded from Class 3
priority:
(A) Obligations of the insolvent insurer arising out of reinsurance contracts;
(B) Obligations incurred after the expiration date of the insurance policy or after the
policy has been replaced by the insured or canceled at the insured's request or after
the policy has been canceled as provided in this chapter;
(C) Obligations to insurers, insurance pools, or underwriting associations and their claims
for contribution, indemnity, or subrogation, equitable or otherwise;
(D) Any claim which is in excess of any applicable limits provided in the insurance policy
issued by the insolvent insurer;
(E) Any amount accrued as punitive or exemplary damages unless expressly covered under
the terms of the policy; and
(F) Tort claims of any kind against the insurer, and claims against the insurer for bad
faith or wrongful settlement practices.
(4) Class 4. Claims of the federal government other than those claims included in Class 3.
(5) Class 5. Debts due to employees for services, benefits, contractual or otherwise due arising
out of such reasonable compensation to employees for services performed to the extent
that they do not exceed two (2) months of monetary compensation and represent payment
for services performed within six (6) months before the filing of the petition for
liquidation or, if rehabilitation preceded liquidation within one year before the
filing of the petition for rehabilitation. Principal officers and directors shall
not be entitled to the benefit of this priority except as otherwise approved by the
liquidator and the court. This priority shall be in lieu of any other similar priority
which may be authorized by law as to wages or compensation of employees.
(6) Class 6. Claims of any person, including claims of state or local governments, except those
specifically classified elsewhere in this section. Claims of attorneys for fees and
expenses owed them by a person for services rendered in opposing a formal delinquency
proceeding. In order to prove the claim, the claimant must show that the insurer which
is the subject of the delinquency proceeding incurred such fees and expenses based
on its best knowledge, information and belief, formed after reasonable inquiry indicating
opposition was in the best interests of the person, was well grounded in fact and
was warranted by existing law or a good faith argument for the extension, modification,
or reversal of existing law, and that opposition was not pursued for any improper
purpose, such as to harass or to cause unnecessary delay or needless increase in the
cost of the litigation.
(7) Class 7. Surplus claims of any state or local government for a penalty or forfeiture, but only
to the extent of the pecuniary loss sustained from the act, transaction, or proceeding
out of which the penalty or forfeiture arose with reasonable and actual costs occasioned
thereby. The remainder of such claims shall be postponed to the class of claims under
subsection (a)(8).
(8) Class 8. Surplus or contribution notes or similar obligations, premium refunds on assessable
policies, interest on claims of Classes 1 through 7, and any other claims specifically
subordinated to this class.
(9) Class 9. Claims of shareholders or other owners arising out of their capacity as shareholders
or other owners, or any other capacity except as they may be qualified in Class 3
or 6 above.
(b) If any claimant of this state, another state or foreign country shall be entitled
to or shall receive a dividend upon the claimant's claim out of a statutory deposit
or the proceeds of any bond or other asset located in another state or foreign country,
unless such deposit or proceeds shall have been delivered to the domiciliary liquidator,
then the claimants shall not be entitled to any further dividend from the receiver
until and unless all other claimants of the same class, irrespective of residence
or place of the acts or contracts upon which their claims are based, shall have received
an equal dividend upon their claims, and after such equalization, such claimants shall
be entitled to share in the distribution of further dividends by the receiver, along
with and like all other creditors of the same class, wheresoever residing.
(c) Upon the declaration of a dividend, the receiver shall apply the amount of the dividend
against any indebtedness owed to the insurer by the person entitled to the dividend.
There shall be no claim allowed for any deductible charged by a guaranty association
or entity performing a similar function.