Vermont § 4178 - Powers and duties of the Association

§ 4178. Powers and duties of the Association

• (a) If a member insurer is an impaired insurer, the Association may, in its discretion
  and subject to any conditions imposed by the Association that do not impair the contractual
  obligations of the impaired insurer and that are approved by the Commissioner: (1) guarantee, assume, or reissue, reinsure, or cause to be guaranteed, assumed, reissued,
  or reinsured, any or all of the policies or contracts of the impaired insurer; or (2) provide such monies, pledges, loans, notes, guarantees, or other means as are proper
  to effectuate subdivision (1) of this subsection and ensure payment of the contractual
  obligations of the impaired insurer pending action under subdivision (1) of this subsection. (b) If a member insurer is an insolvent insurer, the Association, in its discretion, shall
  either: (1)(A)(i) guarantee, assume, or reissue, reinsure, or cause to be guaranteed, assumed, reissued,
  or reinsured, the policies or contracts of the insolvent insurer; or (ii) ensure payment of the contractual obligations of the insolvent insurer; and (B) provide monies, pledges, loans, notes, guarantees, or other means reasonably necessary
  to discharge the Association’s duties; or (2) provide benefits and coverages in accordance with the following provisions: (A) With respect to policies and contracts, ensure payment of benefits 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 and contracts; (ii) with respect to nongroup policies, contracts, and annuities, not later than the earlier
  of the next renewal date, if any, under the policies or contracts or one year, but
  in no event less than 30 days, from the date on which the Association becomes obligated
  with respect to the policies or contracts. (B) Make diligent efforts to provide all known insureds, enrollees, or annuitants, for
  nongroup policies and contracts, or group policy or contract owners with respect to
  group policies and contracts, 30 days’ notice of the termination, pursuant to subdivision
  (2)(A) of this subsection (b), of the benefits provided. (C) With respect to nongroup policies and contracts covered by the Association, make available
  to each known insured, enrollee, or annuitant, or owner if other than the insured
  or annuitant, and with respect to an individual formerly an insured, enrollee, or
  annuitant under a group policy or contract who is not eligible for replacement group
  coverage, make available substitute coverage on an individual basis in accordance
  with the provisions of subdivision (2)(D) of this subsection (b) if the insureds,
  enrollees, or annuitants had a right under law or the terminated policy, contract,
  or annuity to convert coverage to individual coverage or to continue an individual
  policy, contract, or annuity in force until a specified age or for a specified time,
  during which the insurer or health maintenance organization had no right unilaterally
  to make changes in any provision of the policy, contract, or annuity or had a right
  only to make changes in premium by class. (D)(i) In providing the substitute coverage required under subdivision (2)(C) of this subsection
  (b), the Association may offer either to reissue the terminated coverage or to issue
  an alternative policy or contract, subject to the prior approval of the Commissioner. (ii) Alternative or reissued policies or contracts shall be offered without requiring evidence
  of insurability and shall not provide for any waiting period or exclusion that would
  not have applied under the terminated policy or contract. (iii) The Association may reinsure any alternative or reissued policy or contract. (E)(i) Alternative policies or contracts adopted by the Association shall be subject to the
  approval of the Commissioner. The Association may adopt alternative policies or contracts
  of various types for future issuance without regard to any particular impairment or
  insolvency. (ii) Alternative policies or contracts shall contain at least the minimum statutory provisions
  required in Vermont and provide benefits that shall not be unreasonable in relation
  to the premium charged. The Association shall set the premium in accordance with a
  table of rates that it shall adopt. The premium shall reflect the amount of insurance
  to be provided and the age and class of risk of each insured. The premium shall not
  reflect any changes in the health of the insured after the original policy or contract
  was last underwritten. (iii) Any alternative policy or contract issued by the Association shall provide coverage
  of a type similar to that of the policy or contract issued by the impaired or insolvent
  insurer, as determined by the Association. (F) If the Association elects to reissue terminated coverage at a premium rate different
  from that charged under the terminated policy or contract, the premium shall be set
  by the Association in accordance with the amount of insurance or coverage provided
  and the age and class of risk, subject to prior approval of the Commissioner. (G) The Association’s obligations with respect to coverage under any policy or contract
  of the impaired or insolvent insurer or under any reissued or alternative policy or
  contract shall cease on the date the coverage or policy or contract is replaced by
  another similar policy or contract by the policy or contract owner, the insured, the
  enrollee, or the Association. (H) When proceeding under this subdivision (b)(2) of this section with respect to a policy
  or contract carrying guaranteed minimum interest rates, the Association shall ensure
  the payment or crediting of a rate of interest consistent with subdivision 4173(b)(2)(C)
  of this chapter. (c) 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 coverage
  under this chapter with respect to the policy, contract, or coverage, except with
  respect to any claims incurred or any net cash surrender value that may be due in
  accordance with the provisions of this chapter. (d) 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. If the liquidator
  of an insolvent insurer requests, the Association shall provide a report to the liquidator
  regarding such premium collected by the Association. The Association shall be liable
  for unearned premiums due to policy or contract owners arising after the entry of
  the order. (e) The protection provided by this chapter shall not apply where any guaranty protection
  is provided to residents of Vermont by the laws of the domiciliary state or jurisdiction
  of the impaired or insolvent insurer other than this State. (f) In carrying out its duties under subsection (b) of this section, the Association may: (1) Subject to approval by a court in this State, impose permanent policy or contract
  liens, in connection with a guarantee, assumption, or reinsurance agreement, if the
  Association finds that the amounts that can be assessed under this chapter are less
  than the amounts needed to ensure full and prompt performance of the Association’s
  duties under this chapter, or that the economic or financial conditions as they affect
  member insurers are sufficiently adverse to render the imposition of policy or contract
  liens to be in the public interest. (2) Subject to the approval by a court in this State, impose temporary moratoriums or
  liens on payments of cash values and policy loans, or any other right to withdraw
  funds held in conjunction with policies or contracts, in addition to any contractual
  provisions for deferral of cash or policy loan value. In addition, in the event of
  a temporary moratorium or moratorium charge imposed by the receivership court on payment
  of cash values or policy loans, 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 loans, or other rights
  by the Association for the period of the moratorium or moratorium charge imposed by
  the receivership court, except for claims covered by the Association to be paid in
  accordance with a hardship procedure established by the liquidator or rehabilitator
  and approved by the receivership court. (g) A deposit in Vermont, held pursuant to law or required by the Commissioner for the
  benefit of creditors, including policy or contract owners, not turned over to the
  domiciliary liquidator upon the entry of a final order of liquidation or order approving
  a rehabilitation plan of a member insurer domiciled in this State or in a reciprocal
  state, shall be promptly paid to the Association. The Association shall be entitled
  to retain a portion of any amount so paid to it equal to the percentage determined
  by dividing the aggregate amount of policy or contract owners’ claims related to that
  insolvency for which the Association has provided statutory benefits by the aggregate
  amount of all policy or contract owners’ claims in this State related to that insolvency
  and shall remit to the domiciliary receiver the amount so paid to the Association
  less the amount retained pursuant to this subsection. Any amount so paid to the Association
  and retained by it shall be treated as a distribution of estate assets pursuant to
  applicable state receivership law dealing with early access disbursements. (h) If the Association fails to act within a reasonable period of time with respect to
  an insolvent insurer, as provided in subsection (b) of this section, the Commissioner
  shall have the powers and duties of the Association under this chapter with respect
  to the insolvent insurer. (i) The Association may render assistance and advice to the Commissioner, upon the Commissioner’s
  request, concerning rehabilitation, payment of claims, continuance of coverage, or
  the performance of other contractual obligations of any impaired or insolvent insurer. (j) The Association shall have standing to appear or intervene before any court or agency
  in Vermont with jurisdiction over an impaired or insolvent insurer concerning which
  the Association is or may become obligated under this chapter or with jurisdiction
  over any person or property against which the Association may have rights through
  subrogation or otherwise. Standing shall extend to all matters germane to the powers
  and duties of the Association, including proposals for reinsuring, reissuing, modifying,
  or guaranteeing the policies or contracts of the impaired or insolvent insurer and
  the determination of the policies or contracts and contractual obligations. The Association
  shall also have the right to 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. (k)(1) Any person receiving benefits under this chapter shall be deemed 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 or contract to the Association
  to the extent of the benefits received because of this chapter, whether the benefits
  are payments of or on account of contractual obligations, continuation of coverage,
  or provision of substitute or alternative policies, contracts, or coverages. The Association
  may require an assignment to it of such rights and cause of action by any enrollee,
  payee, policy or contract owner, beneficiary, insured, or annuitant as a condition
  precedent to the receipt of any rights or benefits conferred by this chapter upon
  such person. (2) 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 this chapter. (3) In addition to subdivisions (1) and (2) of this subsection, the Association shall
  have all common law rights of subrogation and any other equitable or legal remedy
  that would have been available to the impaired or insolvent insurer or owner, beneficiary,
  enrollee, or payee of a policy or contract with respect to the policy or contracts,
  including, without limitation, in the case of a structured settlement annuity, any
  rights of the owner, beneficiary, or payee of the annuity, to the extent of benefits
  received pursuant to this chapter, against a person originally or by succession responsible
  for the losses arising from the personal injury relating to the annuity or payment
  therefore, excepting any such person responsible solely by reason of serving as an
  assignee in respect of a qualified assignment under section 130 of the U.S. Internal Revenue Code. (4) If the preceding subdivisions of this subsection are invalid or ineffective with respect
  to any person or claim for any reason, the amount payable by the Association with
  respect to the related covered obligations shall be reduced by the amount realized
  by any other person with respect to the person or claim that is attributable to the
  policies or contracts, or portion thereof, covered by the Association. (5) If the Association has provided benefits with respect to a covered obligation and
  a person recovers amounts as to which the Association has rights as described in the
  preceding subdivisions of this subsection, the person shall pay to the Association
  the portion of the recovery attributable to the policies or contracts, or portion
  thereof, covered by the Association. (l) In addition to the rights and powers elsewhere in this chapter, the Association may: (1) enter into such contracts as are necessary or proper to carry out the provisions and
  purposes of this chapter; (2) sue or be sued, including taking any legal actions necessary or proper for recovery
  of any unpaid assessments under section 4179 of this chapter and to settle claims
  or potential claims against it; (3) borrow money to effect the purposes of this chapter; and any notes or other evidence
  of indebtedness of the Association not in default shall be legal investments for domestic
  member insurers and may be carried as admitted assets; (4) employ or retain such persons as are necessary or appropriate to handle the financial
  transactions of the Association, and to perform such other functions as become necessary
  or proper under this chapter; (5) take such legal action as may be necessary or appropriate to avoid payment or recover
  payment of improper claims; (6) exercise, for the purposes of this chapter and to the extent approved by the Commissioner,
  the powers of a domestic life insurer, health insurer, or health maintenance organization,
  but in no event may the Association issue policies or contracts other than those issued
  to perform its obligations under this chapter; (7) organize itself as a corporation or in other legal form permitted by Vermont law; (8) request information from a person seeking coverage from the Association in order to
  aid the Association in determining its obligations under this chapter with respect
  to the person, and the person shall promptly comply with the request; (9) unless prohibited by law, in accordance with the terms and conditions of the policy
  or contract, file for actuarially justified rate or premium increases for any policy
  or contract for which it provides coverage under this chapter; and (10) take other necessary or appropriate action to discharge its duties and obligations
  under this chapter or to exercise its powers under this chapter. (m) The Association may join an organization of one or more other State associations of
  similar purposes, to further the purposes and administer the powers and duties of
  the Association. (n)(1)(A) At any time within 180 days after the date of the order of liquidation, the Association
  may elect to succeed to the rights and obligations of the ceding member insurer that
  relate to policies, contracts, 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 or by the National Organization of Life and Health Insurance Guaranty
  Associations (NOLHGA) on its behalf 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 or to NOLHGA on its behalf as soon as possible after
  commencement of formal delinquency proceedings: (i) 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 (ii) notices of any defaults under the reinsurance contacts or any known event or condition
  that, with the passage of time, could become a default under the reinsurance contracts. (C) Subdivisions (i)–(iv) of this subdivision (1)(C) shall apply to reinsurance contracts
  assumed by the Association under subdivision (1)(A) of this subsection (n): (i) The Association shall be 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, in each case that relate to policies,
  contracts, or annuities covered, in whole or in part, by the Association. The Association
  may charge policies, contracts, 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 these charges to
  the liquidator. (ii) The Association shall be 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, contracts, or annuities
  covered, in whole or in part, by the Association, provided that, upon receipt of any
  such amounts, the Association shall be obliged to pay to the beneficiary under the
  policy, contracts, 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; and (II) the excess of the amount received by the Association over the amount equal to the
  benefits paid by the Association on account of the policy, contracts, or annuity,
  less the retention of the insurer applicable to the loss or event. (iii) Within 30 days following the Association’s election (the election date), the Association
  and each reinsurer under contracts assumed by the Association shall calculate the
  net balance due to or from the Association under each reinsurance contract as of the
  election date with respect to policies, contracts, or annuities covered, in whole
  or in part, by the Association, which calculation shall give full credit to all items
  paid by either the member insurer or its receiver or 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 set-off for premiums unpaid
  for periods prior to the date, and the Association or reinsurer shall pay any remaining
  balance due the other, in each case within five days of the completion of the aforementioned
  calculation. Any disputes over the amounts due to either the Association or the reinsurer
  shall be resolved by arbitration pursuant 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 pursuant to subdivision
  (1)(C)(ii) of this subsection (n), the receiver shall remit the same to the Association
  as promptly as practicable. (iv) If the Association or receiver, on the Association’s behalf, within 60 days following
  the election date, pays the unpaid premiums due for periods both before and after
  the election date that relate to policies, contracts, or annuities covered, in whole
  or in part, by the Association, the reinsurer shall not be entitled to terminate the
  reinsurance contracts for failure to pay premium insofar as the reinsurance contracts
  relate to policies, contracts, or annuities covered, in whole or in part, by the Association,
  and shall not be entitled to set off any unpaid amounts due under other contracts,
  or unpaid amounts due from parties other than the Association, against amounts due
  the Association. (2) During the period from the date of the order of liquidation until the election date
  or, if the election date does not occur, until 180 days after the date of the order
  of liquidation: (A)(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 subdivision
  (1) of this subsection (n), 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 each other data and records reasonably requested; (B) provided that once the Association has elected to assume a reinsurance contract, the
  parties’ rights and obligations shall be governed by subdivision (1) of this subsection
  (n). (3) If the Association does not elect to assume a reinsurance contract by the election
  date pursuant to subdivision (1) of this subsection (n), the Association shall have
  no rights or obligations, in each case for periods both before and after the date
  of the order of liquidation, with respect to the reinsurance contract. (4) When policies, contracts, or annuities, or covered obligations with respect thereto,
  are transferred to an assuming insurer, reinsurance on the policies, contracts, or
  annuities may also be transferred by the Association, in the case of contracts assumed
  under subdivision (1) of this subsection (n), subject to the following: (A) unless the reinsurer and the assuming insurer agree otherwise, the reinsurance contract
  transferred shall not cover any new policies of insurance, contracts, or annuities
  in addition to those transferred; (B) the obligations described in subdivision (1) of this subsection (n) shall no longer
  apply with respect to matters arising after the effective date of the transfer; and (C) notice shall be given in writing, return receipt requested, by the transferring party
  to the affected reinsurer not less than 30 days prior to the effective date of the
  transfer. (5) The provisions of this subsection shall supersede the provisions of any State law
  or of 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 of the insolvent insurer or
  any other person. The receiver shall remain entitled to any amounts payable by the
  reinsurer under the reinsurance contracts with respect to losses or events that occur
  in periods prior to the date of the order of liquidation, subject to applicable setoff
  provisions. (6) Except as otherwise provided in this section, nothing in this subsection shall alter
  or modify the terms and conditions of any reinsurance contract. Nothing in this subsection
  shall: (A) abrogate or limit any rights of any reinsurer to claim that it is entitled to rescind
  a reinsurance contract; (B) give a policyholder, contract owner, enrollee, certificate holder, or beneficiary
  an independent cause of action against a reinsurer that is not otherwise set forth
  in the reinsurance contract; (C) limit or affect the Association’s rights as a creditor of the estate against the assets
  of the estate; or (D) apply to reinsurance agreements covering property or casualty risks. (o) The Board of Directors of the Association shall have discretion and may exercise reasonable
  business judgment to determine the means by which the Association is to provide the
  benefits of this chapter in an economical and efficient manner. (p) Where the Association has arranged or offered to provide the benefits of this chapter
  to a covered person under a plan or arrangement that fulfills the Association’s obligations
  under this chapter, the person shall not be entitled to benefits from the Association
  in addition to or other than those provided under the plan or arrangement. (q) Venue in a suit against the Association arising under this chapter shall be in the
  Civil Division of the Washington Superior Court. The Association shall not be required
  to give an appeal bond in an appeal that relates to a cause of action arising under
  this chapter. (r) In carrying out its duties in connection with guaranteeing, assuming, reissuing, or
  reinsuring policies or contracts under subsection (a) or (b) of this section, the
  Association may 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 employed in calculating
  returns or changes in value by issuing an alternative policy or contract in accordance
  with all of the following provisions: (1) 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) a fixed interest rate; (B) payment of dividends with minimum guarantees; or (C) a different method for calculating interest or changes in value. (2) There is no requirement for evidence of insurability, waiting period, or other exclusion
  that would not have applied under the replaced policy or contract. (3) The alternative policy or contract is substantially similar to the replaced policy
  or contract in all other material terms. (Added 2023, No. 32, § 9, eff. July 1, 2023.)