(a) This chapter shall provide coverage for the policies and contracts specified in subsection (b) as follows:

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Terms Used In Alabama Code 27-44-3

  • Annuity: A periodic (usually annual) payment of a fixed sum of money for either the life of the recipient or for a fixed number of years. A series of payments under a contract from an insurance company, a trust company, or an individual. Annuity payments are made at regular intervals over a period of more than one full year.
  • Assets: (1) The property comprising the estate of a deceased person, or (2) the property in a trust account.
  • Beneficiary: A person who is entitled to receive the benefits or proceeds of a will, trust, insurance policy, retirement plan, annuity, or other contract. Source: OCC
  • Contract: A legal written agreement that becomes binding when signed.
  • Corporation: A legal entity owned by the holders of shares of stock that have been issued, and that can own, receive, and transfer property, and carry on business in its own name.
  • Damages: Money paid by defendants to successful plaintiffs in civil cases to compensate the plaintiffs for their injuries.
  • following: means next after. See Alabama Code 1-1-1
  • Interest rate: The amount paid by a borrower to a lender in exchange for the use of the lender's money for a certain period of time. Interest is paid on loans or on debt instruments, such as notes or bonds, either at regular intervals or as part of a lump sum payment when the issue matures. Source: OCC
  • Obligation: An order placed, contract awarded, service received, or similar transaction during a given period that will require payments during the same or a future period.
  • person: includes a corporation as well as a natural person. See Alabama Code 1-1-1
  • Settlement: Parties to a lawsuit resolve their difference without having a trial. Settlements often involve the payment of compensation by one party in satisfaction of the other party's claims.
  • state: when applied to the different parts of the United States, includes the District of Columbia and the several territories of the United States. See Alabama Code 1-1-1
  • Trustee: A person or institution holding and administering property in trust.
  • United States: includes the territories thereof and the District of Columbia. See Alabama Code 1-1-1
(1) To persons who, regardless of where they reside (except for non-resident certificate holders under group policies or contracts), are the beneficiaries, assignees, or payees of the persons covered under subdivision (2).
(2) To persons who are owners of or certificate holders under the policies or contracts, other than structured settlement annuities, and in each case who are either of the following:

a. Residents
b. Not residents, but only under all of the following conditions:

1. The insurer that issued the policies or contracts is domiciled in this state.
2. The states in which the persons reside have associations similar to the association created by this chapter.
3. The persons are not eligible for coverage by an association in any other state due to the fact the insurer was not licensed in the state at the time specified in the state’s guaranty association law.
(3) For structured settlement annuities specified in subsection (b), subdivision (1) and (2) of this subsection shall not apply, and this chapter, except as provided in subdivisions (4) and (5) of this subsection, shall provide coverage to a person who is a payee under a structured settlement annuity (or beneficiary of a payee if the payee is deceased), if the payee is either of the following:

a. A resident, regardless of where the contract owner resides.
b. Not a resident, but only under both of the following conditions:

1. The contract owner of the structured settlement annuity is either of the following:

(i) A resident.
(ii) Not a resident, but only under both of the following conditions:

(I) The insurer that issued the structured settlement annuity is domiciled in this state.
(II) The state in which the contract owner resides has an association similar to the association created by this chapter.
2. Neither the payee (or beneficiary) nor the contract owner is eligible for coverage by the association of the state in which the payee or contract owner resides.
(4) The chapter shall not provide coverage to a person who is a payee (or beneficiary) of a contract owner resident of this state, if the payee (or beneficiary) is afforded any coverage by the association of another state.
(5) This chapter is intended to provide coverage to a person who is a resident of this state and, in special circumstances, to a nonresident. In order to avoid duplicate coverage, if a person who would otherwise receive coverage under this chapter is provided coverage under the laws of any other state, the person shall not be provided coverage under this chapter. In determining the application of the provisions of this subdivision in situations where a person could be covered by the association of more than one state, whether as an owner, payee, beneficiary, or assignee, this chapter shall be construed in conjunction with other state laws to result in coverage by only one association.
(b)

(1) This chapter shall provide coverage to the persons specified in subsection (a) for direct, non-group life, disability, or annuity policies or contracts, and for certificates under direct group policies and contracts, and for supplemental contracts to any of these, in each case issued by member insurers, except as limited by this chapter. Annuity contracts and certificates under group annuity contracts include allocated funding agreements, structured settlement annuities, and any immediate or deferred annuity contracts.
(2) This chapter shall not provide coverage for any of the following:

a. A portion of a policy or contract not guaranteed by the insurer, or under which the risk is borne by the policy or contract owner.
b. A policy or contract of reinsurance, unless assumption certificates have been issued pursuant to the reinsurance policy or contract.
c. A portion of a policy or contract to the extent that the rate of interest on which it is based, or the 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:

1. Averaged over the period of four years prior to the date on which the member insurer becomes an impaired or insolvent insurer under this chapter, whichever is earlier, exceeds the rate of interest determined by subtracting two percentage points from Moody’s Corporate Bond Yield Average averaged for that same four-year period or for such lesser period if the policy or contract was issued less than four years before the member insurer becomes an impaired or insolvent insurer under this chapter, whichever is earlier.
2. On and after the date on which the member insurer becomes an impaired or insolvent insurer under this chapter, whichever is earlier, exceeds the rate of interest determined by subtracting three percentage points from Moody’s Corporate Bond Yield Average as most recently available.
d. A portion of a policy or contract issued to a plan or program of an employer, association, or other person to provide life, disability, or annuity benefits to its employees, members, or others, to the extent that the plan or program is self-funded or uninsured, including, but not limited to, benefits payable by an employer, association, or other person under any of the following:

1. A multiple employer welfare arrangement as defined in Section 3(40) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. § 1002(40)) .
2. A minimum premium group insurance plan.
3. A stop-loss group insurance plan.
4. An administrative services only contract.
e. A portion of a policy or contract to the extent that it provides for any of the following:

1. Dividends or experience rating credits.
2. Voting rights.
3. Payment of any fees or allowances to any person, including the policy or contract owner, in connection with the service to or administration of the policy or contract.
f. A policy or contract issued in this state by a member insurer at a time when it was not licensed or did not have a certificate of authority to issue the policy or contract in this state.
g. A portion of a policy or contract to the extent that the assessments required by Section 27-44-9 with respect to the policy or contract are preempted by federal or state law.
h. An obligation that does not arise under the express written terms of the policy or contract issued by the insurer to the contract owner or policy owner, including without limitation:

1. Claims based on marketing materials.
2. Claims based on side letters, riders, or other documents that were issued by the insurer without meeting applicable policy form filing or approval requirements.
3. Misrepresentations of or regarding policy benefits.
4. Extra-contractual claims, including, without limitation, claims relating to bad faith in the payment of claims, punitive or exemplary damages, or attorneys’ fees and costs.
5. A claim for penalties or consequential or incidental damages.
i. A contractual agreement that establishes the member insurer’s obligations to provide a book value accounting guaranty for defined contribution benefit plan participants by reference to a portfolio of assets that is owned by the benefit plan or its trustee, which in each case is not an affiliate of the member insurer.
j. An unallocated annuity contract.
k. A portion of a policy or contract to the extent it provides for interest or other changes in value to be determined by the use of an index or other external reference stated in the policy or contract, but which have not been credited to the policy or contract, or as to which the policy or contract owner’s rights are subject to forfeiture, as of the date the member insurer becomes an impaired or insolvent insurer under this chapter, whichever is earlier. If a policy’s or contract’s interest or changes in value are credited less frequently than annually, then for purposes of determining the values that have been credited and are not subject to forfeiture under this subsection, the interest or change in value determined by using the procedures defined in the policy or contract will be credited as if the contractual date of crediting interest or changing values was the date of impairment or insolvency, whichever is earlier, and will not be subject to forfeiture.
l. A policy or contract providing any hospital, medical, prescription drug, or other health care benefits pursuant to Part C or Part D of Subchapter XVIII, Chapter 7 of Title 42 of the United States Code (commonly known as Medicare Part C and D) or any regulations issued pursuant thereto.
(c) The benefits that the association may become obligated to cover shall in no event exceed the lesser of:

(1) The contractual obligations for which the insurer is liable or would have been liable if it were not an impaired or insolvent insurer.
(2)

a. With respect to one life, regardless of the number of policies or contracts:

1. Three hundred thousand dollars ($300,000) in life insurance death benefits, but not more than one hundred thousand dollars ($100,000) in net cash surrender and net cash withdrawal values for life insurance.
2. In disability insurance benefits:

(i) One hundred thousand dollars ($100,000) for coverages not defined as disability income insurance or basic hospital, medical, and surgical insurance or major medical insurance or long-term care insurance including any net cash surrender and net cash withdrawal values.
(ii) Three hundred thousand dollars ($300,000) for disability income insurance and three hundred thousand dollars ($300,000) for long-term care insurance.
(iii) Five hundred thousand dollars ($500,000) for basic hospital, medical, and surgical insurance or major medical insurance.
3. Two hundred fifty thousand dollars ($250,000) in the present value of annuity benefits, including net cash surrender and net cash withdrawal values.
b. With respect to each payee of a structured settlement annuity (or beneficiary or beneficiaries if the payee is deceased), two hundred fifty thousand dollars ($250,000) in present value annuity benefits, in the aggregate, including net cash surrender and net cash withdrawal values, if any.
c. However, in no event shall the association be obligated to cover more than either of the following:

1. An aggregate of three hundred thousand dollars ($300,000) in benefits with respect to any one life under paragraphs a. and b. except with respect to benefits for basic hospital, medical, and surgical insurance and major medical insurance under paragraph a.2., in which case the aggregate liability of the association shall not exceed five hundred thousand dollars ($500,000) with respect to any one individual.
2. With respect to one owner of multiple non-group policies of life insurance, whether the policy owner is an individual, firm, corporation, or other person, and whether the persons insured are officers, managers, employees, or other persons, more than five million dollars ($5,000,000) in benefits, regardless of the number of policies and contracts held by the owner.
d. The limitations set forth in this subsection 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 this chapter may be met by the use of assets attributable to covered policies or reimbursed to the association pursuant to its subrogation and assignment rights.
(d) In performing its obligations to provide coverage under Section 27-44-8, the association shall not be required to guarantee, assume, reinsure, or perform, or cause to be guaranteed, assumed, reinsured, or performed, the contractual obligations of the insolvent or impaired insurer under a covered policy or contract that do not materially affect the economic values or economic benefits of the covered policy or contract.
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