Kentucky Statutes 304.42-140 – Liquidation, rehabilitation or conservation proceedings
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(1) Nothing in this subtitle shall be construed to reduce the liability for unpaid assessments of the insureds on an impaired or insolvent insurer operating under a plan with assessment liability.
(2) Records shall be kept of all meetings of the board of directors to discuss the activities of the association in carrying out its powers and duties under KRS § 304.42-
080. The records of the association with respect to an impaired or insolvent insurer shall not be disclosed prior to the termination of a liquidation, rehabilitation, or conservation proceeding involving the impaired or insolvent insurer, prior to the termination of the impairment or insolvency of the member insurer, or prior to the order of a court of competent jurisdiction. Nothing in this subsection shall limit the duty of the association to render a report of its activities under KRS § 304.42-150.
(3) For the purpose of carrying out its obligations under this subtitle, the association shall be deemed to be a creditor of the impaired or insolvent insurer to the extent of assets attributable to covered policies reduced by any amounts to which the association is entitled as subrogee pursuant to subsection (8) of KRS § 304.42-080. Assets of the impaired or insolvent insurer attributable to covered policies and contracts shall be used to continue all covered policies and contracts and pay all contractual obligations of the impaired or insolvent insurer as required by this subtitle. Assets attributable to covered policies or contracts, as used in this subsection, is that proportion of the assets which the reserves that should have been established for the policies or contracts bear to the reserves that should have been established for all policies or contracts or health benefit plans written by the impaired or insolvent insurer.
(4) As a creditor of the impaired or insolvent insurer as established in subsection (3) of this section and consistent with KRS § 304.33-440, the association and other similar associations shall be entitled to receive a disbursement of assets out of the marshaled assets, from time to time as the assets become available to reimburse it, as a credit against contractual obligations under this subtitle. If the liquidator has not, within one hundred twenty (120) days of a final determination of insolvency of a member insurer by the receivership court, made an application to the court for the approval of a proposal to disburse assets out of marshaled assets to guaranty associations having obligations because of the insolvency, then the association shall be entitled to make application to the receivership court for approval of its own proposal to disburse these assets.
(5) (a) Prior to the termination of any liquidation, rehabilitation, or conservation proceeding, the court may take into consideration the contributions of the respective parties, including the association, the shareholders, enrollees, certificate holders, contract owners, and policy owners of the insolvent insurer, and any other party with a bona fide interest, in making an equitable distribution of the ownership rights of such insolvent insurer. In such a determination, consideration shall be given to the welfare of the enrollees, certificate holders, contract owners, and policy owners of the continuing or successor member insurer;
(b) No distribution to stockholders, if any, of an impaired or insolvent insurer shall be made until and unless the total amount of valid claims of the association for funds expended in carrying out its powers and duties under KRS § 304.42-080 with respect to the member insurer have been fully recovered by the association.
(6) (a) If an order for liquidation or rehabilitation of a member insurer domiciled in this state has been entered, the receiver appointed under such order shall have a right to recover on behalf of the member insurer, from any affiliate that controlled it, the amount of distributions, other than stock dividends paid by the member insurer on its capital stock, made at any time during the five (5) years preceding the petition for liquidation or rehabilitation subject to the limitations of paragraphs (b) to (d) of this subsection;
(b) No distribution shall be recoverable if the member insurer shows that when paid the distribution was lawful and reasonable, and that the member insurer did not know and could not reasonably have known that the distribution might adversely affect the ability of the member insurer to fulfill its contractual obligations;
(c) Any person who was an affiliate that controlled the member insurer at the time the distributions were paid shall be liable up to the amount of distributions he received. Any person who was an affiliate that controlled the member insurer at the time the distributions were declared, shall be liable up to the amount of distributions which would have been received if they had been paid immediately. If two (2) persons are liable with respect to the same distributions, they shall be jointly and severally liable;
(d) The maximum amount recoverable under this subsection shall be the amount needed in excess of all other available assets of the insolvent insurer to pay the contractual obligations of the insolvent insurer;
(e) If any person liable under paragraph (c) of this subsection is insolvent, all its affiliates that controlled it at the time the dividend was paid shall be jointly and severally liable for any resulting deficiency in the amount recovered from the insolvent affiliate.
Effective: June 27, 2019
History: Amended 2019 Ky. Acts ch. 70, sec. 10, effective June 27, 2019. — Amended
1998 Ky. Acts ch. 537, sec. 9, effective July 15, 1998. — Created 1978 Ky. Acts ch.
282, sec. 14, effective June 17, 1978.
Legislative Research Commission Note (modified 10/29/96). Subsection (3) of this statute contains the following text, which appears to be incomplete: “Assets of the impaired or insolvent insurer as required by this subtitle.” The provisions of KRS
304.42-010 to 304.42-190 were modeled after the Model Act of the National Association of Insurance Commissioners on Life and Health Guaranty Associations, in which the following language appears after the word “insurer” in the text specified above: “attributable to cover losses should be used to continue all covered policies and pay all contractual obligations of the impaired or insolvent insurer.”
(2) Records shall be kept of all meetings of the board of directors to discuss the activities of the association in carrying out its powers and duties under KRS § 304.42-
Terms Used In Kentucky Statutes 304.42-140
- Assets: (1) The property comprising the estate of a deceased person, or (2) the property in a trust account.
- Association: means the Kentucky Life and Health Insurance Guaranty Association created under KRS §. See Kentucky Statutes 304.42-050
- Contract: A legal written agreement that becomes binding when signed.
- Directors: when applied to corporations, includes managers or trustees. See Kentucky Statutes 446.010
- Equitable: Pertaining to civil suits in "equity" rather than in "law." In English legal history, the courts of "law" could order the payment of damages and could afford no other remedy. See damages. A separate court of "equity" could order someone to do something or to cease to do something. See, e.g., injunction. In American jurisprudence, the federal courts have both legal and equitable power, but the distinction is still an important one. For example, a trial by jury is normally available in "law" cases but not in "equity" cases. Source: U.S. Courts
- Insolvent insurer: means a member insurer which after June 17, 1978, is placed under an order of liquidation by a court of competent jurisdiction with a finding of insolvency. See Kentucky Statutes 304.42-050
- Jurisdiction: (1) The legal authority of a court to hear and decide a case. Concurrent jurisdiction exists when two courts have simultaneous responsibility for the same case. (2) The geographic area over which the court has authority to decide cases.
- Member insurer: means any insurer or health maintenance organization licensed or authorized to transact in this state any kind of insurance or health maintenance organization business for which coverage is provided under KRS §. See Kentucky Statutes 304.42-050
- Person: means any individual, corporation, limited liability company, partnership, association, governmental body or entity, or voluntary organization. See Kentucky Statutes 304.42-050
- Receivership court: means the court in the insolvent or impaired insurer's state having jurisdiction over the conservation, rehabilitation, or liquidation of the member insurer. See Kentucky Statutes 304.42-050
- State: means a state, the District of Columbia, Puerto Rico, and a United States possession, territory, or protectorate. See Kentucky Statutes 304.42-050
- Statute: A law passed by a legislature.
080. The records of the association with respect to an impaired or insolvent insurer shall not be disclosed prior to the termination of a liquidation, rehabilitation, or conservation proceeding involving the impaired or insolvent insurer, prior to the termination of the impairment or insolvency of the member insurer, or prior to the order of a court of competent jurisdiction. Nothing in this subsection shall limit the duty of the association to render a report of its activities under KRS § 304.42-150.
(3) For the purpose of carrying out its obligations under this subtitle, the association shall be deemed to be a creditor of the impaired or insolvent insurer to the extent of assets attributable to covered policies reduced by any amounts to which the association is entitled as subrogee pursuant to subsection (8) of KRS § 304.42-080. Assets of the impaired or insolvent insurer attributable to covered policies and contracts shall be used to continue all covered policies and contracts and pay all contractual obligations of the impaired or insolvent insurer as required by this subtitle. Assets attributable to covered policies or contracts, as used in this subsection, is that proportion of the assets which the reserves that should have been established for the policies or contracts bear to the reserves that should have been established for all policies or contracts or health benefit plans written by the impaired or insolvent insurer.
(4) As a creditor of the impaired or insolvent insurer as established in subsection (3) of this section and consistent with KRS § 304.33-440, the association and other similar associations shall be entitled to receive a disbursement of assets out of the marshaled assets, from time to time as the assets become available to reimburse it, as a credit against contractual obligations under this subtitle. If the liquidator has not, within one hundred twenty (120) days of a final determination of insolvency of a member insurer by the receivership court, made an application to the court for the approval of a proposal to disburse assets out of marshaled assets to guaranty associations having obligations because of the insolvency, then the association shall be entitled to make application to the receivership court for approval of its own proposal to disburse these assets.
(5) (a) Prior to the termination of any liquidation, rehabilitation, or conservation proceeding, the court may take into consideration the contributions of the respective parties, including the association, the shareholders, enrollees, certificate holders, contract owners, and policy owners of the insolvent insurer, and any other party with a bona fide interest, in making an equitable distribution of the ownership rights of such insolvent insurer. In such a determination, consideration shall be given to the welfare of the enrollees, certificate holders, contract owners, and policy owners of the continuing or successor member insurer;
(b) No distribution to stockholders, if any, of an impaired or insolvent insurer shall be made until and unless the total amount of valid claims of the association for funds expended in carrying out its powers and duties under KRS § 304.42-080 with respect to the member insurer have been fully recovered by the association.
(6) (a) If an order for liquidation or rehabilitation of a member insurer domiciled in this state has been entered, the receiver appointed under such order shall have a right to recover on behalf of the member insurer, from any affiliate that controlled it, the amount of distributions, other than stock dividends paid by the member insurer on its capital stock, made at any time during the five (5) years preceding the petition for liquidation or rehabilitation subject to the limitations of paragraphs (b) to (d) of this subsection;
(b) No distribution shall be recoverable if the member insurer shows that when paid the distribution was lawful and reasonable, and that the member insurer did not know and could not reasonably have known that the distribution might adversely affect the ability of the member insurer to fulfill its contractual obligations;
(c) Any person who was an affiliate that controlled the member insurer at the time the distributions were paid shall be liable up to the amount of distributions he received. Any person who was an affiliate that controlled the member insurer at the time the distributions were declared, shall be liable up to the amount of distributions which would have been received if they had been paid immediately. If two (2) persons are liable with respect to the same distributions, they shall be jointly and severally liable;
(d) The maximum amount recoverable under this subsection shall be the amount needed in excess of all other available assets of the insolvent insurer to pay the contractual obligations of the insolvent insurer;
(e) If any person liable under paragraph (c) of this subsection is insolvent, all its affiliates that controlled it at the time the dividend was paid shall be jointly and severally liable for any resulting deficiency in the amount recovered from the insolvent affiliate.
Effective: June 27, 2019
History: Amended 2019 Ky. Acts ch. 70, sec. 10, effective June 27, 2019. — Amended
1998 Ky. Acts ch. 537, sec. 9, effective July 15, 1998. — Created 1978 Ky. Acts ch.
282, sec. 14, effective June 17, 1978.
Legislative Research Commission Note (modified 10/29/96). Subsection (3) of this statute contains the following text, which appears to be incomplete: “Assets of the impaired or insolvent insurer as required by this subtitle.” The provisions of KRS
304.42-010 to 304.42-190 were modeled after the Model Act of the National Association of Insurance Commissioners on Life and Health Guaranty Associations, in which the following language appears after the word “insurer” in the text specified above: “attributable to cover losses should be used to continue all covered policies and pay all contractual obligations of the impaired or insolvent insurer.”