Current Status Introducing Body:Senate Bill Number:589 Primary Sponsor:Committee (02) Committee Number:26 Type of Legislation:GB Subject:Administrative Supervision of Insurers Act Residing Body:House Current Committee:Labor, Commerce and Industry Companion Bill Number:505 Computer Document Number:589 Introduced Date:Feb 05, 1991 Last History Body:House Last History Date:Feb 12, 1991 Last History Type:Introduced, read first time, referred to Committee Scope of Legislation:Statewide Sponsor Committee:Banking and Insurance Sponsor Committee Number:02 Type of Legislation:General Bill
Bill Body Date Action Description CMN
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589 House Feb 12, 1991 Introduced, read first time, 26
referred to Committee
589 Senate Feb 08, 1991 Read third time, sent to House
589 Senate Feb 07, 1991 Read second time, unanimous
consent for third reading on
Friday, February 8
589 Senate Feb 05, 1991 Placed on Calendar without
reference
589 Senate Feb 05, 1991 Introduced, read first time
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Indicates New Matter
INTRODUCED
February 5, 1991
S. 589
S. Printed 2/5/91--S.
Read the first time February 5, 1991.
TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 1976, BY ADDING CHAPTER 26 TO TITLE 38 SO AS TO PROVIDE FOR THE ADMINISTRATIVE SUPERVISION OF INSURERS ACT; TO AMEND THE 1976 CODE BY ADDING SECTION 38-27-100 SO AS TO PROVIDE FOR THE CONDUCT OF INSURANCE PROCEEDINGS BEGUN BEFORE THE EFFECTIVE DATE OF THE INSURERS SUPERVISION, REHABILITATION, AND LIQUIDATION ACT; TO AMEND THE 1976 CODE BY ADDING SECTION 38-27-110 SO AS TO PROVIDE FOR PAYMENTS TO A GUARANTY ASSOCIATION WHEN AN INSURER IS SUBJECT TO A DELINQUENCY PROCEEDING; TO AMEND SECTION 38-27-10, RELATING TO THE CITE FOR THE "INSURERS SUPERVISION, REHABILITATION, AND LIQUIDATION ACT", SO AS TO DELETE "SUPERVISION"; TO AMEND SECTION 38-27-40, RELATING TO APPLICATION OF THE ACT, SO AS TO ADD PREPAID HEALTH CARE DELIVERY PLANS; TO AMEND SECTIONS 38-27-50, 38-27-230, AND 38-27-310, RELATING TO DEFINITIONS, HEARINGS, AND REHABILITATION UNDER THE ACT, SO AS TO DELETE THE REFERENCES TO "VALID" AS IT APPLIES TO "ORDER" AND SECTION 38-27-210, INSURANCE COMMISSIONER'S ORDERS AND SUPERVISION; TO AMEND SECTION 38-27-370, RELATING TO ORDERS TO LIQUIDATE AN INSURER, SO AS TO PROVIDE FOR A PLAN FOR THE CONTINUED PERFORMANCE OF A DEFENDANT COMPANY'S POLICY CLAIMS OBLIGATIONS DURING THE PENDENCY OF AN APPEAL; TO AMEND SECTION 38-27-400, RELATING TO THE POWERS OF A LIQUIDATOR, SO AS TO AUTHORIZE THE AUDIT OF THE BOOKS AND RECORDS OF AGENTS OF THE INSURER AND PROVIDE THAT A LIQUIDATOR IS NOT OBLIGATED TO DEFEND OR CONTINUE TO DEFEND CLAIMS AFTER THE ENTRY OF A LIQUIDATION ORDER; TO AMEND SECTION 38-27-610, RELATING TO THE PRIORITY OF DISTRIBUTION OF CLAIMS FROM AN INSURER'S ESTATE, SO AS TO INCLUDE IN CLASS 3 CLAIMS OF FEDERAL, STATE, AND LOCAL GOVERNMENTS FOR LOSSES INCURRED, "LOSS CLAIMS", AND TO EXCLUDE THOSE CLAIMS FROM CLASS 5; TO AMEND SECTION 38-27-950, RELATING TO PROCEEDINGS INSTITUTED BY THE INSURANCE COMMISSIONER, SO AS TO DELETE THE REFERENCE TO SECTION 38-27-210, ORDERS AND SUPERVISION; AND TO REPEAL SECTION 38-27-210 RELATING TO THE INSURANCE COMMISSIONER'S ORDERS AND SUPERVISION.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. The 1976 Code is amended by adding:
Section 38-26-10. This chapter may be cited as the `Administrative Supervision of Insurers Act'.
Section 38-26-20. As used in this chapter:
(1) `Insurer' means a person who has done, purports to do, is going to do, or is licensed to do an insurance business and is or has been subject to the authority of, or to liquidation, rehabilitation, reorganization, supervision, or conservation by, the commissioner of insurance, or similar entity, of a state. For purposes of this chapter, other persons included under Section 38-27-40 are considered insurers.
(2) `Exceed its powers' means the following conditions:
(a) The insurer has refused to permit examination of its books, papers, accounts, records, or affairs by the commissioner or his deputies, employees, or commissioned examiners.
(b) A domestic insurer unlawfully has removed from this State books, papers, accounts, or records necessary for an examination of the insurer.
(c) The insurer has failed to comply promptly with the applicable financial reporting statutes or regulations and related departmental requests.
(d) The insurer has neglected or refused to observe an order of the commissioner to make good, within the time prescribed by law, prohibited deficiency in its capital, capital stock, or surplus.
(e) The insurer is continuing to transact insurance or write business after its license has been revoked or suspended by the commissioner.
(f) The insurer, by contract or otherwise, unlawfully, in violation of an order of the commissioner, or without first having obtained written approval of the commissioner if approval is required by law has:
(i) totally reinsured its entire outstanding business; or
(ii) merged or consolidated substantially its entire property or business with another insurer.
(g) The insurer engaged in a transaction in which it is not authorized to engage under the laws of this State.
(h) The insurer refused to comply with a lawful order of the commissioner.
(3) `Consent' means agreement to administrative supervision by the insurer.
Section 38-26-30. The provisions of this chapter apply to:
(1) domestic insurers;
(2) an insurer doing business in this State whose state of domicile has asked the commissioner to apply the provisions of this chapter as regards the insurer.
Section 38-26-40. (A) An insurer may be subject to administrative supervision by the commissioner if upon examination or at another time it appears in the commissioner's discretion that one or more of the following circumstances exist:
(1) The insurer's condition renders the continuance of its business hazardous to the public or to its insureds.
(2) The insurer has exceeded its powers granted under its certificate of authority and applicable law.
(3) The insurer has failed to comply with a provision of the insurance laws of this State.
(4) The business of the insurer is being conducted fraudulently.
(5) The insurer gives its consent.
(B) If the commissioner determines that the one or more of the conditions set forth in subsection (A) exist, he shall:
(1) notify the insurer of his determination;
(2) furnish to the insurer a written list of the requirements to abate this determination;
(3) notify the insurer that it is under the supervision of the commissioner and that the commissioner is applying the provisions of the chapter. Action by the commissioner is subject to review pursuant to related regulations and the Administrative Procedures Act.
(C) If placed under administrative supervision, the insurer has sixty days or another period of time designated by the commissioner to comply with the requirements of the commissioner subject to the provisions of this chapter.
(D) If it is determined after notice and hearing that the conditions giving rise to the supervision still exist at the end of the supervision period, the commissioner may extend the period or may initiate proceedings under Chapter 27 of this title.
(E) If it is determined that none of the conditions giving rise to the supervision exist, the commissioner shall release the insurer from supervision.
Section 38-26-50. (A) Proceedings, hearings, notices, correspondence, reports, records, and other information in the possession of the commissioner or the Department of Insurance relating to the supervision of an insurer are confidential except as provided by this section.
(B) Department personnel have access to the proceedings, hearings, notices, correspondence, reports, records, and other information permitted by the commissioner.
(C) The commissioner may open the proceedings or hearings or disclose notices, correspondence, reports, records, or other information to a department, agency, or instrumentality of this or another state or of the United States if the commissioner determines that the disclosure is necessary or proper for the enforcement of the laws of this or another state or the United States.
(D) The commissioner may open the proceedings or hearings or make public notices, correspondence, reports, records, or other information if the commissioner determines that it is in the best interest of the public or in the best interest of the insurer, its insureds, its creditors, or the general public.
(E) This section does not apply to hearings, notices, correspondence, reports, records, or other information obtained after the appointment of a receiver for the insurer by a court of competent jurisdiction.
Section 38-26-60. During the period of supervision, the commissioner or his designated appointee shall serve as the administrative supervisor. The commissioner may provide, after notice to the insurer, that the insurer may not do any of the following things during supervision without the prior approval of the commissioner or his appointed supervisor:
(1) dispose of, convey, or encumber its assets or its business in force;
(2) withdraw its bank accounts;
(3) lend its funds;
(4) invest its funds;
(5) transfer its property;
(6) incur debt, obligation, or liability;
(7) merge or consolidate with another company;
(8) approve new premiums or renew policies;
(9) enter into a new reinsurance contract or treaty;
(10) terminate, surrender, forfeit, convert, or lapse an insurance policy, a certificate, or a contract, except for nonpayment of premiums due;
(11) release, pay, or refund premium deposits, accrued cash or loan values, unearned premiums, or other reserves on an insurance policy, certificate, or contract;
(12) make a material change in management;
(13) increase salaries and benefits of officers or directors or the preferential payment of bonuses, dividends, or other preferential payments.
Section 38-26-70. During supervision the insurer may contest an action taken or proposed to be taken by the supervisor specifying the manner in which the action being complained of would not result in improving the condition of the insurer. Denial of the insurer's request upon reconsideration entitles the insurer to review under related regulations and the Administrative Procedures Act.
Section 38-26-80. Nothing in this chapter precludes the commissioner from initiating judicial proceedings to place an insurer in conservation, rehabilitation, or liquidation or other delinquency proceedings, however designated under the laws of this State, regardless of whether the commissioner previously has initiated administrative supervision proceedings under this chapter against the insurer.
Section 38-26-90. The commissioner may meet with a supervisor appointed under this chapter and with his attorney or other representative without the presence of another person at the time of or during a proceeding held under authority of this chapter to carry out the commissioner's duties or for the supervisor to carry out his duties under this chapter.
Section 38-26-100. There is no liability on the part of, and no cause of action may arise against, the commissioner or the Department of Insurance or its employees or agents for action taken by them in the performance of their powers and duties under this chapter.
Section 38-26-110. The commissioner may promulgate regulations necessary for the implementation of this chapter."
SECTION 2. The 1976 Code is amended by adding:
"Section 38-27-100. An insurance proceeding under this chapter begun before the effective date of the `Insurers Supervision, Rehabilitation, and Liquidation Act' is deemed to have begun after that date for the purpose of conducting the proceeding. However, in the discretion of the commissioner, the proceeding may be continued, in whole or in part, as it would have been if this act was not in effect.
Section 38-27-110. Until payments of or on account of an insurer's contractual obligations by a guaranty association, including expenses and interest, are repaid to the guaranty association or a plan of repayment by the insurer is approved by the guaranty association, no insurer that is subject to a delinquency proceeding, whether formal or informal, administrative or judicial, may:
(1) be released from the proceeding unless it is converted into a judicial rehabilitation or liquidation proceeding;
(2) be permitted to solicit or accept new business or request or accept the restoration of a suspended or revoked license or certificate of authority;
(3) be returned to the control of its shareholders or private management; or
(4) have its assets returned to the control of its shareholders or private management."
SECTION 3. Section 38-27-10 of the 1976 Code is amended to read:
"Section 38-27-10. This chapter is known and may be cited as the `Insurers Supervision, Rehabilitation, and Liquidation Act'."
SECTION 4. Section 38-27-40 of the 1976 Code is amended to read:
"Section 38-27-40. The proceedings authorized by this chapter may be applied to:
(1) All insurers who are doing, or have done, an insurance business in this State and against whom claims arising from that business may exist now or in the future.;
(2) All insurers who purport to do an insurance business in this State.;
(3) All insurers who have insureds resident in this State.;
(4) All other persons organized or in the process of organizing with the intent to do an insurance business in this State.;
(5) All nonprofit service plans and all, fraternal benefit societies, and beneficial societies.;
(6) All title insurance companies.;
(7) All surety companies subject to Chapter 15 of Title 38.;
(8) multiple employer self-insured health plans as defined in Chapter 41 of Title 38.;
(9) prepaid health care delivery plans."
SECTION 5. Section 38-27-50(3) of the 1976 Code is amended to read:
"(3) `Delinquency proceeding' means any a proceeding instituted against an insurer for the purpose of liquidating to liquidate, rehabilitating rehabilitate, reorganizing reorganize, or conserving conserve the insurer, and any a summary proceeding under Section 38-27-210 or 38-27-220. `Formal delinquency proceeding' means any a liquidation or rehabilitation proceeding."
SECTION 6. Section 38-27-230 of the 1976 Code is amended to read:
"Section 38-27-230. In all proceedings and judicial reviews thereof under Sections 38-27-210 and Section 38-27-220, all records of the insurer, other documents, and all insurance department files, and court records and papers, so far as they pertain to or are a part of the record of the proceedings, are and must remain confidential except as is necessary to obtain compliance therewith, unless and until the circuit court, after hearing arguments from the parties in chambers, orders otherwise, or unless the insurer requests that the matter be made public. Until a court order, all papers filed with the clerk of the circuit court must be held by him in a confidential file."
SECTION 7. Section 38-27-310(9) of the 1976 Code is amended to read:
"(9) Within the previous three years the insurer has wilfully has violated its charter or, articles of incorporation, its or bylaws, any an insurance law of this State, or any valid an order of the commissioner under Section 38-27-210."
SECTION 8. Section 38-27-370 of the 1976 Code is amended to read:
"Section 38-27-370. (a)(A) An order to liquidate the business of a domestic insurer shall must appoint the commissioner, and his successors in office, as liquidator and shall direct the liquidator immediately to take possession of the assets of the insurer and to administer them under the general supervision of the court. The liquidator is vested by operation of law with the title to all of the property, contracts, and rights of action and all of the books and records of the insurer ordered liquidated, wherever located, as of the entry of the final order of liquidation. The filing or recording of the order with the clerk of court or the register of mesne conveyances of the county in which its principal office or place of business is located or, in the case of for real estate, with the clerk of court and the register of mesne conveyances of the county where the property is located imparts the same notice which a deed, bill of sale, or other evidence of title duly filed or recorded with that office would have imparted.
(b)(B) Upon issuance of the order, the rights and liabilities of the insurer and of its creditors, policyholders, shareholders, members, and all other persons interested in its estate become fixed as of the date of entry of the order of liquidation, except as provided in Sections 38-27-380 and 38-27-560.
(c)(C) An order to liquidate the business of an alien insurer domiciled in this State must be in the same terms and has the same legal effect as an order to liquidate a domestic insurer, except that the assets and the business in the United States are the only assets and business included therein.
(d)(D) At the time of petitioning for an order of liquidation, or at any after that time thereafter, the commissioner, after making appropriate findings of an insurer's insolvency, may petition the court for a judicial declaration of insolvency. After providing notice and hearing it considers proper the court may make the declaration.
(e)(E) Any An order issued under this section shall must require accounting to the court by the liquidator. Accountings must be at intervals the court specifies in its order.
(F)(1) Within five days of the effective date of this subsection or within five days after the initiation of an appeal of an order of liquidation, which order has not been stayed, the commissioner shall present for the court's approval a plan for the continued performance of the defendant company's policy claims obligations, including the duty to defend insureds under liability insurance policies during the pendency of an appeal. The plan must provide for the continued performance and payment of policy claims obligations in the normal course of events notwithstanding the grounds alleged in support of the order of liquidation including the ground of insolvency. If the defendant company's financial condition, in the judgment of the commissioner, does not support the full performance of policy claims obligations during the appeal pendency period, the plan may prefer the claims of certain policyholders and claimants over creditors and interested parties as well as other policyholders and claimants as the commissioner finds to be fair and equitable considering the relative circumstances of the policyholders and claimants. The court shall examine the plan submitted by the commissioner and if it finds the plan to be in the best interests of the parties, the court shall approve the plan. No action may lie against the commissioner or his deputies, agents, clerks, assistants, or attorneys based on preference in an appeal pendency plan approved by the court.
(2) The appeal pendency plan may not supersede or affect the obligations of an insurance guaranty association. An appeal pendency plan must provide for equitable adjustments to be made by the liquidator to distributions of assets to guaranty associations, if the liquidator pays claims from assets of the estate, which otherwise would be the obligations of a guaranty association but for the appeal of the order of liquidation, so that guaranty associations equally benefit on a pro rata basis from the assets of the estate. If an order of liquidation is set aside upon appeal, the company must not be released from delinquency proceedings unless funds advanced by a guaranty association, including reasonable administrative expenses relating to obligations of the company, are repaid in full, together with interest at the judgment rate of interest or unless an arrangement for repayment has been made with the consent of applicable guaranty associations."
SECTION 9. Section 38-27-400(a) of the 1976 Code is amended by adding an appropriately numbered item to read:
"( ) To audit the books and records of agents of the insurer insofar as those records relate to the business activities of the insurer."
SECTION 10. Section 38-27-400 of the 1976 Code is amended by adding an appropriately lettered subsection to read:
"( ) Notwithstanding the powers of the liquidator in subsections (a) and (b), the liquidator is not obligated to defend claims or to continue to defend claims after the entry of a liquidation order."
SECTION 11. Section 38-27-610(3) and (5) of the 1976 Code are amended to read:
"(3) Class 3. All claims Claims under policies, including claims of federal, state, and local governments, for losses incurred, loss claims, including third party claims, all claims against the insurer for liability for bodily injury or for injury to or destruction of tangible property which are not under policies, and all claims of a guaranty association or foreign guaranty association. All claims Claims under life insurance and annuity policies, whether for death proceeds, annuity proceeds, or investment values, must be treated as loss claims. That portion of any a loss, indemnification for which is provided by other benefits or advantages recovered by the claimant, may must not be included in this class, other than benefits or advantages recovered or recoverable in discharge of familial obligations of support or by way of succession at death, or as proceeds of life insurance or as gratuities. No payment by an employer to his employee may be treated as a gratuity."
"(5) Class 5. Claims of the federal or any, state or, and local government governments, except those under item (3). Claims, including those of any a governmental body for a penalty or forfeiture, are allowed in this class 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 the claims are postponed to the class of claims under item (9) of this section."
SECTION 12. Section 38-27-950 of the 1976 Code is amended to read:
"Section 38-27-950. The commissioner in his sole discretion may institute proceedings under Sections 38-27-210 through 38-27-220 and 38-27-230 at the request of the commissioner or other appropriate insurance official of the domiciliary state of any a foreign or an alien insurer having property located in this State."
SECTION 13. Section 38-27-210 of the 1976 Code is repealed.
SECTION 14. This act takes effect upon approval by the Governor.