BILL NUMBER: AB 2413	INTRODUCED
	BILL TEXT


INTRODUCED BY   Assembly Member Feuer

                        FEBRUARY 24, 2012

   An act to amend Section 1033 of the Insurance Code, relating to
insurers.



	LEGISLATIVE COUNSEL'S DIGEST


   AB 2413, as introduced, Feuer. Insurers: insolvency: claims.
   Existing law sets forth the priorities for the payment of certain
claims from the assets of insolvent insurers, including claims made
by California Insurance Guarantee Association and the California Life
and Health Insurance Guarantee Association, but excluding certain
categories of claims, including those that are not covered claims for
the purposes of payment by those associations.
   This bill would make technical, nonsubstantive changes to those
provisions.
   Vote: majority. Appropriation: no. Fiscal committee: no.
State-mandated local program: no.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  Section 1033 of the Insurance Code is amended to read:
   1033.  (a) Claims allowed in a proceeding  under 
 pursuant to  this article shall be given preference in the
following order:
   (1) Expense of administration.
   (2) All claims of the California Insurance Guarantee Association
or the California Life and Health Insurance Guarantee Association,
and associations or entities performing a similar function in other
states, together with claims for refund of unearned premiums and all
claims under insurance and annuity policies or contracts, including
funding agreements, of an insolvent insurer that are not covered
claims.
   The following claims are excluded from this priority:
   (A) Any obligations of the insolvent insurer arising out of any
reinsurance contracts, as well as obligations incurred after the
expiration date of the policy or after the insurance policy has been
replaced by the insured or canceled at the insured's request, or
after the policy has been canceled by the California Insurance
Guarantee Association, the California Life and Health Insurance
Guarantee Association, or another association or entity performing a
similar function in another state.
   (B) Any obligations to insurers, insurance pools, or underwriting
associations, and their claims for contribution, indemnity, or
subrogation, equitable or otherwise, except as otherwise provided in
this chapter.
   (C) Any amount awarded as punitive or exemplary damages, and any
damages in excess of the liability limits of the policies or
contracts that represent damages for contractual bad faith.
   (D) Any amount that is a surplus deposit of a subscriber as
defined in Section 1374.1.
   (E) Any judgments against  or   , 
obligations ,  or liabilities of the insolvent insurer
otherwise arising from alleged or proven torts, and any default,
collusive, or stipulated judgment against either the insured or the
person subject to proceedings under this article, as well as any
judgment taken in violation of Section 1020. Nothing in this
subparagraph shall prohibit the commissioner from considering the
underlying claims as a claim entitled to priority under this section,
provided that the claimant shall provide to the commissioner a
written election that the judgment shall in all things be disregarded
in determining the liability for and valuation of the underlying
claim.
   (F) Any loss adjustment expenses, including adjustment fees and
expenses, attorneys' fees and expenses, court costs, interest, bond
premiums, expert witness fees, and other claims of a similar nature
incurred prior to the appointment of a liquidator.
   (G) Claims arising from any self-insured program of the insurer,
including employee life, health  and   , 
annuity plans, and self-funded employee benefit plans, however
denominated, as well as claims arising from a multiple employer
welfare arrangement as defined in Section 514 of the federal Employee
Retirement Income Security Act of 1974, as amended, a minimum
premium group insurance plan, a stop-loss group insurance plan, or an
administrative services-only plan.
   (H) Any portion of a policy or contract to the extent that it
provides experience rating credits or refunds, dividends, or for the
payment of fees or allowances to any person, including the
policyholder or contractholder, in connection with the service to or
administration of the policy or contract.
   (I) Any annuity issued by a charitable organization for which the
person subject to these proceedings did not have or utilize a
certificate of authority to issue the policy or contract.
   (3) Claims having preference by the laws of the United States.
   (4) Unpaid charges due under the provisions of Section 736.
   (5) Taxes due to the State of California.
   (6) Claims having preference by the laws of this state.
   (7) Claims of creditors not included in paragraphs (1) to (6),
inclusive.
   (8) Certificates of contribution, surplus notes, or similar
obligations, and premium refunds on assessable policies.
   (9) The interests of shareholders or other owners in any residual
value in the estate.
   (b) (1) Every claim allowed under a separate account policy,
contract, or agreement providing, in effect, that the assets
allocated to the separate account are not chargeable with liabilities
arising out of any other business of the insurer, shall be satisfied
out of the assets properly allocated to and maintained in the
separate account, excluding amounts allocated or transferred to the
separate account by the insurer pursuant to subdivision (b) of
Section 10506, equal to the reserves maintained in the separate
account for the policies, contracts, or agreements. No liabilities of
the insurer arising out of any other business of the insurer shall
be satisfied from assets properly allocated to and maintained in a
separate account except (A) from amounts allocated or transferred to
the separate account pursuant to subdivision (b) of Section 10506
 ,  and (B) from any assets allocated to the separate
account that exceed the reserves under the separate account policies,
contracts, or agreements. For the purposes of this subdivision,
"separate account policies, contracts, or agreements" means any
policies, contracts, or agreements that provide for separate accounts
as contemplated by Section 10506, 10506.3, 10506.4, or 10541. Any
valid and allowed claim for contractual benefits that cannot be
satisfied out of the assets properly allocated to and maintained in a
separate account for obligations authorized by subdivision (a) of
Section 10506.3 shall be included as a claim against the general
account within paragraph (2) of subdivision (a). Any valid and
allowed claim against the general account for contractual benefits
under an obligation authorized by Section 10506.4 shall be included
as a claim within paragraph (2) of subdivision (a).
   (2) Notwithstanding any other provision of law, to the extent that
any assets of a life insurer, other than those assets properly
allocated to, and maintained in, a separate account, have been used
to fund or pay any expenses, taxes, or policyholder benefits that are
attributable to a separate account policy, contract, or agreement
that should have been paid by a separate account prior to the
commencement of delinquency proceedings, then upon the commencement
of delinquency proceedings, the separate accounts that benefited from
this payment or funding shall first be used to repay or reimburse
the company's general assets or account for any unreimbursed net sums
due at the commencement of delinquency proceedings prior to the
application of the separate account assets to the satisfaction of
liabilities of the corresponding separate account policies,
contracts, and agreements.
   (c) Upon the issuance of an order appointing a conservator or
liquidator for any person under either Section 1011 or 1016 or both
these sections, the lien of taxes due to the State of California
imposed by Article 4 (commencing with Section 12491) of Chapter 4 of
Part 7 of Division 2 of the Revenue and Taxation Code shall become
subordinate to the reasonable administrative expenses of the
proceeding under the order.
   (d) The following definitions are for purposes of this section
only and shall not be used to determine coverage under the California
Life and Health Insurance Guarantee Association Act (Article 14.7
(commencing with Section 1067)):
   (1) "Funding agreements" means those agreements authorized to be
delivered or issued pursuant to Section 10541.
   (2) "Annuity" means only those annuity contracts, including
period-certain annuities issued by a life insurer, that require for
their lawful issuance a certificate of authority from the
commissioner, and excludes without limitation all instruments for
which the commissioner's certificate of authority is not required,
such as promissory notes, installment loans, negotiable instruments,
mortgages, and debentures.
   (3) Reinsurance contracts shall not be included as insurance or
annuity policies or contracts, or funding agreements. However, any
insurance or annuity policy or contract, including any funding
agreement, that is assumed by an insurer under an assumption
reinsurance agreement pursuant to a plan of liquidation,
rehabilitation, or reorganization shall, unless the plan provided
otherwise, be deemed to retain the issue date of the original
insurance or annuity policy or contract, or funding agreement that is
assumed.
   (e) The provisions of this section are severable. If any portion
of this section is held invalid or is preempted by federal law, the
remainder of the section and its application shall not be affected.
Specifically, should any of paragraphs (1) to (6), inclusive, of
subdivision (a) be held to be invalid or preempted by federal law,
the claims included within the invalid paragraph shall be included
within paragraph (7) of subdivision (a), and the remaining paragraphs
shall not be affected thereby.
   (f) No payment shall be made to any creditor in paragraphs (8) or
(9) of subdivision (a), unless all claims in paragraphs (3) to (7),
inclusive, of subdivision (a) have been paid in full, together with
interest at the legal rate of the date of the order commencing the
proceeding or the date on which the claim became liquidated,
whichever date is later. In proceedings involving life insurance
companies, no payment shall be made for any claim in paragraph (7),
(8), or (9) of subdivision (a) unless and until all claims in
paragraph (1) of subdivision (a) have been paid in full, together
with interest at the legal rate, all claims in paragraph (2) of
subdivision (a) have been paid the full value of the policy or
contract upon which the claim is based, as of the time of
distribution to claimants, and all claims in paragraphs (3) to (6),
inclusive, of subdivision (a) have been paid in full, together with
interest at the legal rate from the date of the order commencing the
proceeding. Notwithstanding the provisions of this subdivision, no
payment of interest shall be made to any insurance guaranty
association that receives early access disbursements from the estate
pursuant to Section 1035.5.