Section 146B. (1) This section may be referred to and cited as the ”Massachusetts Life and Health Insurance Guaranty Association Law”.

(2) As used in this section the following words shall have the following meanings unless the context clearly requires otherwise:—

”Account”, any of the 3 accounts created under subsection (6).

”Association”, the Massachusetts Life and Health Insurance Guaranty Association created under subsection (6).

”Basic hospital expense insurance”, coverage for services rendered while confined in a hospital.

”Basic medical-surgical expense insurance”, coverage for in-hospital or surgical health services rendered by a physician or other covered health care provider.

”Benefit plan”, a specific employee, union or association of natural persons benefit plan.

”Contractual obligation”, any obligation under a policy or contract or portion thereof for which coverage is provided under subsection (4).

”Covered policy or contract”, any policy, contract or group certificate within the scope of this section as provided in subsection (4).

”Disability income insurance”, coverage providing weekly or monthly benefits to replace income that is lost due to disability arising from accident or sickness, including business expense insurance and business buy-out insurance policies that condition receipt of benefits upon the disability of the insured.

”Impaired insurer”, a member insurer which, is not an insolvent insurer, and (a) is deemed by the commissioner to be potentially unable to meet its obligations, or (b) is placed under an order of rehabilitation or conservation by a court of competent jurisdiction.

”Insolvent insurer”, a member insurer which is placed under an order of liquidation by a court of competent jurisdiction with a finding of insolvency.

”Long-term care insurance”, shall have the same meaning as defined in section 1 of chapter 176U.

”Major medical expense insurance”, coverage for inpatient and outpatient health care services.

”Member insurer”, any insurer licensed or which holds a certificate of authority to transact in the commonwealth any kind of insurance for which coverage is provided under subsection (4) and any insurer whose license or certificate of authority to transact in the commonwealth such insurance may have been suspended, revoked, not renewed or voluntarily withdrawn after the effective date of this section, other than a (a) fraternal benefit society; (b) mutual protective association; (c) mutual assessment company or other entity that operates on an assessment basis; (d) medical service corporation; (e) hospital service corporation; (f) health maintenance organization; (g) dental service corporation; (h) optometric service corporation; (i) mandatory state pooling plan; (j) insurance exchange; or (k) any other entity similar to any of the above.

”NAIC”, the National Association of Insurance Commissioners or its successor organization.

”Owner”, ”policy owner” or ”contract owner”, the person who is identified as the legal owner under the terms of the policy or contract or who is otherwise vested with legal title to the policy or contract through a valid assignment completed in accordance with the terms of the policy or contract and properly recorded as the owner on the books of the insurer; provided, that ”owner”, ”policy owner” and ”contract owner” shall not include persons with a mere beneficial interest in a policy or contract.

”Person”, any individual, corporation, limited liability company, partnership, association, governmental body or entity.

”Premiums”, amounts received on covered policies or contracts, less premiums, considerations and deposits returned thereon, and less dividends and experience credits thereon; provided, that ”premiums” shall not include any amount received for any policies or contracts or for the portions of any policies or contracts for which coverage is not provided under paragraph (B) of subsection (4), except that assessable premiums shall not be reduced on account of clause (d) of subparagraph (2) of said paragraph (B) of said subsection (4) relating to interest limitations and subparagraph (3) of said paragraph (B) of said subsection (4) relating to limitations with respect to 1 individual and 1 contract owner; provided, further that ”Premiums” shall not include, with respect to multiple non-group policies of life insurance owned by 1 owner, whether the policy owner is an individual, firm, corporation or other person, and whether the persons insured are officers, managers, employees or other persons, premiums in excess of $5,000,000 with respect to these policies or contracts, regardless of the number of policies or contracts held by the owner.

”Principal place of business”, a plan sponsor or a person other than a natural person is the single state in which the natural persons who establish policy for the direction, control and coordination of the operations of the entity as a whole primarily exercise that function, determined by the association in its reasonable judgment by considering the following factors: (a) the state in which the primary executive and administrative headquarters of the entity is located; (b) the state in which the principal office of the chief executive officer of the entity is located; (c) the state in which the board of directors, or similar governing person or persons, of the entity conducts the majority of its meetings; (d) the state in which the executive or management committee of the board of directors, or similar governing person or persons, of the entity conducts the majority of its meetings; (e) the state from which management of the overall operations of the entity is directed; and (f) in the case of a benefit plan sponsored by affiliated companies comprising a consolidated corporation, the state in which the holding company or controlling affiliate has its principal place of business as determined using the above factors; provided, however, that in the case of a plan sponsor, if more than 50 per cent of the participants in the benefit plan are employed in a single state, that state shall be deemed to be the principal place of business of the plan sponsor. In the case of a benefit plan established or maintained by 2 or more employers or jointly by 1 or more employers and 1 or more employee organizations, the principal place of business of a plan sponsor of such a benefit plan shall be deemed to be the principal place of business of the association, committee, joint board of trustees or other similar group of representatives of the parties who establish or maintain the benefit plan that, in lieu of a specific or clear designation of a principal place of business, shall be deemed to be the principal place of business of the employer or employer organization that has the largest investment in the benefit plan in question.

”Published monthly average”, the monthly average of the composite yield on seasoned corporate bonds as: (a) published by Moody’s Investors Service, Inc., or any successor thereto, or (b) established by regulation promulgated by the commissioner setting forth a substantially similar average in the event that such monthly average is no longer so published.

”Receivership court”, the court in the insolvent or impaired insurer’s state having jurisdiction over the conservation, rehabilitation or liquidation of the insurer.

”Resident”, any person who resides in the commonwealth at the time a member insurer is determined to be an impaired or insolvent insurer and to whom a contractual obligation is owed. A person shall be a resident of only 1 state, which in the case of a person, other than a natural person, shall be its principal place of business. Citizens of the United States that are either (i) residents of foreign countries or (ii) residents of United States possessions, territories or protectorates that do not have an association similar to the association created by this section, shall be deemed residents of the state of domicile of the insurer that issued the policies or contracts.

”Structured settlement annuity”, an annuity purchased in order to fund periodic payments for a plaintiff or other claimant in payment for or with respect to personal injury suffered by the plaintiff or other claimant.

”Supplemental contract”, any agreement entered into for the distribution of policy or contract proceeds.

(3) The purpose of this section is to protect, subject to certain limitations, the persons specified in paragraph (A) of subsection (4), against failure in the performance of contractual obligations, under life and health insurance policies and annuity contracts specified in paragraph (B) of said subsection (4), because of the impairment or insolvency of the member insurer that issued the policies or contracts. To provide such protection, an association of insurers, the members of which are subject to assessment, is hereby created to pay benefits and to continue coverages, as limited herein.

(4)(A) This section shall provide coverage for the policies and contracts specified in paragraph (B) of this subsection:—

(1) To persons who, regardless of where they reside except for nonresident certificate holders under group policies or contracts, are the beneficiaries, assignees or payees of the persons covered under clause (2), and

(2) To persons who are owners of or certificate holders under such policies or contracts, other than structured settlement annuities, and in each case who (a) are residents or (b) are not residents but meet the following conditions: (i) the insurers which issued such policies or contracts are domiciled in the commonwealth, (ii) the states in which the persons reside have a life and health insurance guaranty association and (iii) such persons are not eligible for coverage by such guaranty association due to the fact that the insurer was not licensed in the state at the time specified in the state’s guaranty association law.

(3) For structured settlement annuities, subparagraphs (1) and (2) shall not apply, and this section shall, except as provided in subparagraphs (4) and (5), provide coverage to a person who is a payee under a structured settlement annuity or beneficiary of a payee if the payee is deceased; provided, that the payee is a resident regardless of where the contract owner resides or, if the payee is not a resident, that the following conditions are met: (i) that the contract owner of the structured settlement is a resident or, if the contract owner of the structured settlement is not a resident, that the insurer that issued the structured settlement annuity is domiciled in the commonwealth and further, that the states in which the persons reside have a life and health insurance guaranty association; and (ii) neither the payee, beneficiary or the contract owner are eligible for coverage by the association of the state in which the payee or contract owner resides.

(4) This section shall not provide coverage to a person who is a payee or beneficiary of a contract owner resident of this commonwealth, if the payee or beneficiary is afforded any coverage by the association of another state.

(5) In order to avoid duplicate coverage, if a person who would otherwise receive coverage under this section is provided coverage under the laws of any other state, the person shall not be provided coverage under this section. In determining the application of this paragraph in situations where a person could be covered by the association of more than 1 state, whether as an owner or payee, beneficiary or assignee, this section shall be construed in conjunction with other state laws to result in coverage by only 1 association.

(B)(1) This section shall provide coverage to the persons specified in paragraph (A) of this subsection for direct, nongroup life, health, annuity, and supplemental policies or contracts, and for certificates under direct group life and health insurance policies or annuity or supplemental contracts issued by member insurers, except as otherwise limited in this section.

(2) This section shall not provide coverage under:—

(a) any portion of a policy or contract not guaranteed by the insurer, or under which the risk is borne by the policy or contract holder;

(b) any policy or contract of reinsurance, other than reinsurance for which assumption certificates have been issued;

(c) any annuity contract or group annuity certificate that is not issued to and owned by an individual, except to the extent of any annuity benefits guaranteed to an individual by the insurer under any such contract or certificate;

(d) any 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, (i) averaged over the period of four years prior to the date on which the association becomes obligated with respect to such policy or contract, exceeds the rate of interest determined by subtracting two percentage points from the published monthly average as averaged for the same four year period, and (ii) on and after the date on which the association becomes obligated with respect to such policy or contract, exceeds the rate of interest determined by subtracting three percentage points from the published monthly average as most recently available on the date on which the association becomes obligated with respect to such policy or contract;

(e) any plan or program of an employer, association or similar entity to provide life, health, or annuity benefits to its employees or members to the extent that such plan or program is self-funded or uninsured, including but not limited to benefits payable by an employer, association or similar entity under (i) a Multiple Employer Welfare Arrangement as defined in Section 514 of the Employee Retirement Income Security Act of 1974, as amended; (ii) a minimum premium group insurance plan; (iii) a stop-loss group insurance plan; or (iv) an administrative services only contract;

(f) any portion of a policy or contract to the extent that it provides dividends or experience rating credits, or provides that any fees or allowances be paid to any person, including the policy or contract holder, in connection with the service to or administration of such policy or contract;

(g) any policy or contract issued in the commonwealth by a member insurer at a time when it was not licensed or did not have a certificate of authority to issue such policy or contract in the commonwealth;

(h) any policy or contract and any portion of a policy or contract to the extent that the assessments required by subsection (9) with respect to the policy or contract are preempted by federal or state law;

(i) any obligation that does not arise under the express written terms of the policy or contract issued to the contract owner or policy owner, including without limitation: (i) claims based on marketing materials; (ii) claims based on side letters, riders or other documents that were issued by the insurer without meeting applicable policy form filing or approval requirements; (iii) misrepresentation of or regarding policy benefits; (iv) extra-contractual claims, such as claims relating to bad faith in the payment of claims, punitive or exemplary damages or attorneys fees and costs; or (v) a claim for penalties or consequential or incidental damages;

(j) any 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 section, whichever is earlier; provided, that if a policy’s or contract’s interest or changes in value are credited less frequently than annually, then for the purposes of determining the values that have been credited and are not subject to forfeiture under this clause, the interest or change in value determined by using the procedures defined in the policy or contract shall be credited as if the contractual date of crediting interest or changing values was the date of impairment or insolvency, whichever is earlier, and shall not be subject to forfeiture; and

(k) 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 regulation issued pursuant thereto.

(3) The benefits for which the association may become liable shall in no event exceed the lesser of:

(a) the contractual obligations for which the insurer is liable or would have been liable if it were not an impaired or insolvent insurer, or

(b) with respect to any one life regardless of the number of policies or contracts: (i) three hundred thousand dollars in life insurance death benefits, but not more than one hundred thousand dollars in net cash surrender and net cash withdrawal values under life insurance policies; (ii) in health insurance benefits: (I) $100,000 for coverage not defined as disability income insurance or basic hospital expense insurance, basic medical-surgical insurance, major medical expense insurance or long term care insurance, including any cash surrender and net cash withdrawal values, (II) $300,000 for disability income insurance, (III) $300,000 for long term care insurance and (IV) $500,000 for basic hospital expense insurance, basic medical-surgical expense insurance or major medical expense insurance; (iii) $250,000 in the present value of annuity benefits, including net cash surrender and net cash withdrawal values; and

(c) with respect to each payee of a structured settlement annuity, or beneficiary or beneficiaries of the payee if deceased, $250,000 in present value of annuity benefits in the aggregate, including net cash surrender and net cash withdrawal values.

(4) The association shall not be obligated to cover more than (i) an aggregate of $300,000 in benefits with respect to any 1 life under clauses (b) or (c) of subparagraph (3), except with respect to benefits for basic hospital expense insurance, basic medical-surgical insurance or major medical expense insurance under item (IV) of subclause (ii) of clause (b) of said subparagraph (3), in which case the aggregate liability of the association shall not exceed $500,000 with respect to any 1 individual, or (ii) with respect to 1 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 $5,000,000 in benefits, regardless of the number of policies and contracts held by the owner.

(5) The limitations in this subsection shall be 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 section may be met by the use of assets attributable to covered policies or reimbursed to the association pursuant to its subrogation and assignment rights.

(C) The protection provided by this section shall not apply where any guaranty protection is provided, independent of this section, to residents of the commonwealth by laws of the domiciliary state or jurisdiction of an impaired or insolvent insurer.

(D) In performing its obligations to provide coverage under subsection (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 impaired or insolvent insurer under a covered policy or contract that does not materially affect the economic values or economic benefits of the covered policy or contract.

(5) This section shall be construed to effect the purpose under subsection (3).

(6)(A) There is created a nonprofit, legal entity to be known as the Massachusetts Life and Health Insurance Guaranty Association. All member insurers shall be and remain members of the association as a condition of their authority to transact insurance in the commonwealth. The association shall perform its functions under the plan of operation established and approved under subsection (10) and shall exercise its powers through a board of directors established under subsection (7). For purposes of administration and assessment, the association shall maintain three accounts:

(1) the health insurance account;

(2) the life insurance account; and

(3) the annuity account.

(B) The association shall be under the immediate supervision of the commissioner.

(7)(A) The board of directors of the association shall consist of not less than five nor more than nine member insurers serving terms as established in the plan of operation. The members of the board of directors shall be selected by member insurers subject to the approval of the commissioner. Vacancies on the board of directors shall be filled for the remaining period of the term by a majority vote of the remaining board members, subject to the approval of the commissioner. To select the initial board of directors, and initially organize the association, the commissioner shall give notice to all member insurers of the time and place of the organizational meeting. In determining voting rights at the organizational meeting each member shall be entitled to one vote in person or by proxy. If the board of directors is not selected within sixty days after notice of the organizational meeting, the commissioner may appoint the initial members.

(B) In approving selections or in appointing members to the board of directors, the commissioner shall consider, among other things, whether member insurers are fairly represented.

(C) Members of the board of directors may be reimbursed from the assets of the association for expenses incurred by them as members of the board of directors but shall not otherwise be compensated by the association for their services.

(8)(A) If a member 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 reinsure, or cause to be guaranteed, assumed or reinsured, any or all of the policies or contracts of the impaired insurer; or

(2) provide such monies, pledges, loans, guarantees or other means as are proper to effectuate subparagraph (1) of paragraph (A) of subsection (8) and assure payment of the contractual obligations of the impaired insurer pending action under said subparagraph (1) of said paragraph (A) of said subsection (8).

(B) If a member insurer is an insolvent insurer, the association shall, in its discretion, either:

(1)(a) Guaranty, assume or reinsure, or cause to be guaranteed, assumed or reinsured, the covered policies or contracts of the insolvent insurer; or

(b) assure payment of the contractual obligations of the insolvent insurer; and

(c) provide such monies, pledges, guarantees, or other means as are reasonably necessary to discharge such duties; or

(2) With respect only to life and health insurance policies provide benefits and coverages in accordance with paragraph (C).

(C)(1) When proceeding under paragraph (A) of subsection (8) or subparagraph (2) of paragraph (B) of subsection (8), the association shall, with respect to life and health insurance policies and annuities:

(a) assure payment of benefits for premiums identical to the premiums and benefits, except for terms of conversion and renewability, that would have been payable under the group policies of the insurer for claims incurred not later than the earlier of the next renewal date under such policies or contracts or forty-five days, but in no event for a claim incurred less than thirty days after the date on which the association becomes obligated with respect to such policies. Notwithstanding the foregoing, the association may, if it finds the premium rate under a group policy to be inadequate, increase such premium rate in an amount approved by the commissioner.

(b)(i) with respect to individual policies, assure payment of benefits for premiums identical to the premiums and benefits, except for terms of conversion and renewability, that would have been payable under such policies of the insurer, for claims incurred not later than the earlier of the next renewal date, if any, under such policies, or one year from the date on which the association becomes obligated with respect to such policies, but in any event for claims incurred not later than the thirtieth day after the association becomes obligated with respect to such policies; and (ii) make diligent efforts to provide all known insureds, annuitants or owners, if other than the insureds or annuitants, and group policyholders with respect to group policies, 30 days notice of the termination of the benefits provided; and (iii) with respect to individual policies, make available to each known insured, annuitant or owner if other than the insured or annuitant, and with respect to an individual formerly insured under a group policy who is not eligible for replacement group coverage, make available substitute coverage on an individual basis in accordance with subparagraph (2) of paragraph (C), if such insured or owner had a right under law or under the terminated policy to convert coverage to individual coverage or to continue an individual policy in force until a specified age or for a specified time, during which the insurer had no right unilaterally to make changes in any provision of the policy or had a right only to make changes in premium by class.

(2) In providing the substitute coverage required under paragraph (C), the association may offer either to reissue the terminated coverage or to issue an alternative policy. Alternative or reissued policies 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. Any alternative or reissued policy may be reinsured by the association.

(3)(a) Alternative policies adopted by the association shall be subject to the approval of the commissioner. The association may adopt alternative policies of various types for future issuance without regard to any particular impairment or insolvency.

(b) Alternative policies shall contain at least the minimum statutory provisions required in the commonwealth and provide benefits that shall not be unreasonable in relation to the premium charged. The association shall set the premium in accordance with the table of rates which it shall adopt. The premium shall reflect the amount of insurance to be provided and the age and class of risk of each insured, but shall not reflect any changes in the health of the insured after the original policy was last underwritten.

(c) Any alternative policy issued by the association shall provide coverage of a type similar to that of the policy issued by the impaired or insolvent insurer, as determined by the association.

(4) If the association elects to reissue the insured’s terminated coverage at a premium rate different from that charged under the terminated policy, the premium shall be set by the association in accordance with the amount of insurance provided and the age and class of risk of the insured, and shall be subject to approval by a court of competent jurisdiction.

(5) The association’s obligations with respect to coverage under any policy of the impaired or insolvent insurer or under any reissued or alternative policy shall cease on the date such coverage or policy is replaced by another similar policy by the policyholder, the insured, or the association.

(6) When proceeding under subparagraph (2) of paragraph (C) of subsection (8) with respect to a policy or contract carrying minimum guaranteed interest rates, the association shall assure the payment or crediting of a rate of interest consistent with clause (d) of subparagraph (2) of paragraph (B) of subsection (4).

(D) Nonpayment of premiums within thirty-one 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 such policy or coverage under this section with respect to such policy or coverage, except with respect to any claims incurred or any net cash surrender value which may be due in accordance with the provisions of this section.

(E) Premiums due after entry of an order of liquidation of an insolvent insurer shall belong to, and be payable at the direction of the association, and the association shall be liable for unearned premiums due to policy or contract owners arising after the entry of such order.

(F) In carrying out its duties under paragraph (B) of this subsection, the association may, subject to approval by the court:

(1) impose permanent policy or contract liens in connection with any guarantee, assumption or reinsurance agreement, if the association finds that the amounts which can be assessed under this section are less than the amounts needed to assure full and prompt performance of the association’s duties under this section, or that the economic or financial conditions as they affect member insurers are sufficiently adverse to render the imposition of such permanent policy or contract liens, to be in the public interest;

(2) 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; provided, however, that in the event of a temporary moratorium charge imposed by the receivership court on payment of cash values or policy loans, or any other right to withdraw funds held in conjunction with policies or contracts, out of assets of the impaired or insolvent insurer, the association may defer the payment of such values, policy loans or other rights by the association for a 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) If the association fails to act within a reasonable period of time as provided in paragraphs (B) and (C), the commissioner shall have the powers and duties of the association under this section with respect to impaired or insolvent insurers.

(H) The association may render assistance and advice to the commissioner, upon his request, concerning any insurer which is insolvent, impaired or potentially impaired, or concerning the rehabilitation, payment of claims, continuance of coverage, or the performance of other contractual obligations of any impaired or insolvent insurer.

(I) The association shall have standing to appear or intervene before any court or agency in the commonwealth with jurisdiction over an impaired or insolvent insurer for which the association is or may become obligated under this section or with jurisdiction over any person or property against whom the association may have rights through subrogation or otherwise. Such standing shall extend to all matters germane to the powers and duties of the association, including, but not limited to, proposals for reinsuring, modifying or guaranteeing the covered policies or contracts of the impaired or insolvent insurer and the determination of the covered policies or contracts and contractual obligations. The association shall also have the right to appear or intervene before a court or agency in any other 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 of the insurer’s policyholders.

(J)(1) Any person receiving benefits under this section shall be deemed to have assigned the rights under, and any causes of action relating to, the covered policy or contract to the association to the extent of the benefits received because of this section, whether the benefits are payments of or on account of contractual obligations, continuation of coverage or provision of substitute or alternative coverages. The association may require an assignment to it of such rights and causes of action by any payee, policy or contract owner, beneficiary, insured or annuitant, as a condition precedent to the receipt of any rights or benefits conferred by this section upon such person. The association also shall be subrogated to these rights and causes of action against the assets of any impaired or insolvent insurer, or any other 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 section.

(3) In addition to clauses (1) and (2) above, the association shall have all common law rights of subrogation and any other equitable or legal remedy which would have been available to the impaired or insolvent insurer or holder of a policy or contract with respect to such policy or contracts.

(4) If the preceding provisions of this paragraph 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 coverage obligations shall be reduced by the amount realized by any other person with respect to the person or claim that is attributable to the polices, 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 paragraphs, the person shall pay to the association the portion of the recovery attributable to the policies, or portion thereof, covered by the association.

(K) In addition to the other rights and powers granted in this section, the association may: (i) enter into such contracts as are necessary or proper to carry out the provisions and purposes of this section; (ii) sue or be sued, including taking any legal actions necessary or proper for recovery of any unpaid assessments under subsection (9) and to settle claims or potential claims against it; (iii) borrow money to effect the purposes of this section, such notes or other evidence of indebtedness of the association not in default being legal investments for domestic insurers which may be carried as admitted assets; (iv) employ or retain such persons as are necessary to handle the financial transactions of the association, and to perform such other functions as become necessary or proper under this section; (v) take such legal action as may be necessary to avoid payment of improper claims; (vi) exercise, for the purposes of this section and to the extent approved by the commissioner, the powers of a domestic life or health insurer, but in no case may the association issue insurance policies or annuity contracts other than those issued to perform its obligations under this section; (vii) join an organization of one or more other state associations of similar purposes, to further the purposes and administer the powers and duties of this association; (viii) enter into agreements with other state associations of similar purposes to determine the residence of persons for purposes of this section.

(L)(1)(a) At any time within 180 days of 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 or annuities covered, in whole or in part, by the association, in each case under 1 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 the National Organization of Life and Health Insurance Guaranty Associations, hereinafter referred to as 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 upon request make available to the association or 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 contracts or any known event or condition which with the passage of time could become a default under the reinsurance contracts.

(c) The following subclauses shall apply to reinsurance contracts so assumed by the association:

(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 which relate to policies or annuities covered, in whole or in part, by the association; provided, that the association may charge policies or annuities covered in part by the association, through reasonable allocation methods, the cost 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 or annuities covered, in whole or in part, by the association; provided that, upon the receipt of any such amounts, the association shall be obligated to pay to the beneficiary under the policy 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 or annuity less the retention of the insurer applicable to the loss or event;

(iii) within 30 days following the association’s election, hereinafter referred to as 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 or annuities covered, in whole or in part, by the association, which calculation shall give full credit to all items paid by either the insurer or its receiver or the reinsurer prior to the election date; provided, that 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 5 days of the completion of the aforementioned calculation; provided further, that any dispute 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; and provided further, that if the receiver has received any amounts due the association pursuant to subclause (ii) of clause (c) the receiver shall remit the same to the association as promptly as is practicable; and

(iv) if the association, or the receiver, on the association’s behalf within 60 days of the election date, pays the unpaid premiums due for periods both before and after the election date that relate to policies 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 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: (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 subparagraph (1) of paragraph (L) of subsection (8), 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; provided, that once the association has elected to assume a reinsurance contract, the parties’ rights and obligations shall be governed by subparagraph (1) of paragraph (L).

(3) If the association does not elect to assume a reinsurance contract by the election date pursuant to subparagraph (1) of paragraph (L), 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 or annuities, or covered obligations with respect thereto, are transferred to an assuming insurer, reinsurance on the policies or annuities may also be transferred by the association, in the case of contracts assumed under subparagraph (1) of paragraph (L), subject to the following:

(a) unless the reinsurer and the assuming reinsurer agree otherwise, the reinsurance contract transferred shall not cover any new policies of insurance or annuities in addition to those transferred;

(b) the obligations described in subparagraph (1) of paragraph (L) 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) This paragraph shall supersede the provisions of any 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 paragraph, nothing in this paragraph shall alter or modify the terms and conditions of any reinsurance contract. Nothing in this paragraph shall abrogate or limit any rights of any reinsurer to claim that it is entitled to rescind a reinsurance contract. Nothing in this paragraph shall give a policyholder or beneficiary an independent cause of action against a reinsurer that is not otherwise set forth in the reinsurance contract. Nothing in this paragraph shall limit or affect the association’s rights as a creditor of the estate against the assets of the estate. Nothing in this paragraph shall apply to reinsurance agreements covering property or casualty risks.

(M) In carrying out its duties in connection with guaranteeing, assuming or reinsuring policies or contracts pursuant to paragraph (A) or (B) the association may, subject to approval of the receivership court, 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 the following:

(1) in lieu of the index or other external reference provided for in the original policy or contract the alternative policy or contract shall provide for: (i) a fixed interest rate; (ii) payment of dividends with minimum guarantees; or (iii) a different method for calculating interest or changes in value;

(2) there shall not be a requirement for evidence of insurability, a waiting period or other exclusion that would not have applied under the replaced policy or contract; and

(3) the alternative policy or contract shall be substantially similar to the replaced policy or contract in all material terms.

(N) The board of directors of the association may exercise reasonable business judgment to determine the means by which the association is to provide the benefits of this section in an economical and efficient manner.

(O) If the association has arranged or offered to provide the benefits of this section to a covered person under a plan or arrangement that fulfills the association’s obligations under this section, the person shall not be entitled to benefits from the association in addition to or other than those provided under the plan or arrangement.

(9)(A) For the purpose of providing the funds necessary to carry out the powers and duties of the association, the board of directors shall assess the member insurers, separately for each account, at such time and for such amounts as the board of directors finds necessary. Assessments shall be due not less than thirty days after prior written notice to the member insurers and shall accrue interest at ten per cent per annum on and after the due date.

(B) There shall be two classes of assessments, as follows:

(1) Class A assessments shall be made for the purpose of meeting administrative costs and other expenses, which assessments may be made whether or not related to a particular impaired or insolvent insurer.

(2) Class B assessments shall be made to the extent necessary to carry out the powers and duties of the association under paragraph (A) or (B) of subsection (8).

(C)(1) The amount of any Class A assessment shall be determined by the board of directors and may be made on a pro rata or non-pro rata basis or any combination thereof. If made on a pro rata basis, the board of directors may provide that it be credited against future Class B assessments. The amount of any Class B assessments shall be allocated for assessment purposes among the accounts pursuant to an allocation formula which may be based on the premiums or reserves of the impaired or insolvent insurer or on any other standard deemed by the board of directors in its sole discretion as being fair and reasonable under the circumstances.

(2) Class B assessments against member insurers for each account shall be in the proportion that the premiums received on business in the commonwealth by each assessed member insurer on policies or contracts covered by each account for the most recent three calendar years for which information is available preceding the year in which the insurer became impaired or insolvent, as the case may be, bears to such premiums received on business in the commonwealth for such calendar years by all assessed member insurers.

(3) Assessments for funds to meet the requirements of the association with respect to an impaired or insolvent insurer shall not be made until necessary to implement the purposes of this section. Classification of assessments and computation of assessments under this subsection shall be made with a reasonable degree of accuracy, recognizing that exact determinations may not always be possible.

(D) The association may abate or defer, in whole or in part, the assessment of a member insurer if, in the opinion of the board of directors, payment of the assessment would endanger the ability of the member insurer to fulfill its contractual obligations. In the event an assessment against a member insurer is abated, or deferred in whole or in part, the amount by which such assessment is abated or deferred may be assessed against the other member insurers in a manner consistent with the basis for assessments set forth in this subsection.

(E)(1) The total of all assessments upon a member insurer for each account shall not in any 1 calendar year exceed 2 per cent of such insurer’s average premiums received in the commonwealth on the policies covered by the account during the 3 calendar years preceding the year in which the insurer became an impaired or insolvent insurer. If the maximum assessment, together with the other assets of the association in any account, does not provide in any 1 year in any account an amount sufficient to carry out the responsibilities of the association, the necessary additional funds shall be assessed as soon thereafter as permitted by this section.

The board of directors may provide a method of allocating funds among claims, whether relating to 1 or more impaired or insolvent insurers, when the maximum assessment will be insufficient to cover anticipated claims.

(2) If the maximum assessment for the life or annuity account in any 1 year does not provide an amount sufficient to carry out the responsibilities of the association, then pursuant to subparagraph (2) of paragraph (C), the board of directors shall assess the other account for the necessary additional amount, subject to the maximum stated in subparagraph (1) of paragraph (E).

(F) The board of directors may, by an equitable method as established in the plan of operation, refund to member insurers, in proportion to the contribution of each insurer to that account, the amount by which the assets of the account exceed the amount the board of directors finds is necessary to carry out during the coming year the obligations of the association with regard to that account, including assets accruing from assignment, subrogation, net realized gains and income from investments. A reasonable amount may be retained in any account to provide funds for the continuing expenses of the association and for future losses.

(G) It shall be proper for any member insurer, in determining its premium rates and policyowner dividends as to any kind of insurance within the scope of this section, to consider the amount reasonably necessary to meet its assessment obligations under this section.

(H) The association shall issue to an insurer paying an assessment under this section, other than a Class A assessment, a certificate of contribution, in a form approved by the commissioner, for the amount of the assessment so paid. All outstanding certificates shall be of equal dignity and priority without reference to amounts or dates of issue. A certificate of contribution may be shown by the insurer in its financial statements as an asset in such form and for such amount, if any, and for such period of time as the commissioner may approve.

(10)(A)(1) The association shall submit to the commissioner a plan of operation and any amendments thereto necessary or suitable to assure the fair, reasonable, and equitable administration of the association. The plan of operation and any amendments thereto shall become effective upon the commissioner’s written approval or unless the commissioner has not disapproved it within thirty days.

(2) If the association fails to submit a suitable plan of operation within one hundred twenty days following the effective date of this section, or if at any time thereafter the association fails to submit suitable amendments to the plan, the commissioner shall, after notice and hearing, adopt and promulgate such reasonable rules as are necessary or advisable to effectuate the provisions of this section. Such rules shall continue in force until modified by the commissioner or superseded by a plan submitted by the association and approved by the commissioner.

(B) All member insurers shall comply with the plan of operation.

(C) The plan of operation shall, in addition to requirements enumerated elsewhere in this section:

(1) establish procedures for handling the assets of the association;

(2) establish the amount and method of reimbursing members of the board of directors under subsection (7);

(3) establish regular places and times for meetings, including telephone conference calls, of the board of directors;

(4) establish procedures for records to be kept of all financial transactions of the association, its agents, and the board of directors;

(5) establish the procedures whereby selections for the board of directors will be made and submitted to the commissioner;

(6) establish any additional procedures for assessments under subsection (9); and

(7) contain additional provisions necessary or proper for the execution of the powers and duties of the association.

(D) The plan of operation may provide that any or all powers and duties of the association, except those under clause (3) of paragraph (J) of subsection (8) and of subsection (9), are delegated to a corporation, association, or other organization which performs or will perform functions similar to those of this association, or its equivalent, in two or more states. Such corporation, association, or organization shall be reimbursed for any payments made on behalf of the association and shall be paid for its performance of any function of the association. A delegation under this paragraph shall take effect only with the approval of both the board of directors and the commissioner, and may be made only to a corporation, association, or organization which extends protection not substantially less favorable and effective than that provided by this section.

(11) In addition to the duties and powers enumerated elsewhere in this section:

(A) The commissioner shall:

(1) upon request of the board of directors, provide the association with a statement of the premiums in this and any other appropriate state for each member insurer;

(2) when an impairment is declared and the amount of the impairment is determined, serve a demand upon the impaired insurer to make good the impairment within a reasonable time; notice to the impaired insurer constituting notice to its shareholders, if any, and failure of the impaired insurer to promptly comply with such demand not excusing the association from the performance of its powers and duties under this section;

(3) in any liquidation or rehabilitation proceeding involving a domestic insurer, be appointed as the receiver;

(4) in any liquidation proceeding involving a foreign or alien member insurer in such insurer’s domiciliary jurisdiction or state of entry, be appointed as conservator.

(B) The commissioner may suspend or revoke, after notice and hearing, the certificate of authority to transact insurance in the commonwealth of any member insurer which fails to pay an assessment when due or fails to comply with the plan of operation. As an alternative, the commissioner may levy a forfeiture on any member insurer which fails to pay an assessment when due. Such forfeiture shall not exceed five per cent of the unpaid assessment per month, but no forfeiture shall be less than one hundred dollars per month.

(C) Any action of the board of directors or the association may be appealed to the commissioner by any member insurer if such appeal is taken within sixty days of the action being appealed. If a member company is appealing an assessment, the amount assessed shall be paid to the association and available to meet association obligations during the pendency of an appeal. If the appeal on the assessment is upheld, the amount paid in error or excess shall be returned to the member company. Any final action or order of the commissioner shall be subject to judicial review in a court of competent jurisdiction.

(D) The receiver, liquidator, rehabilitator, or conservator of any impaired or insolvent insurer may notify all interested persons of the effect of this section.

(12) To aid in the detection and prevention of insurer insolvencies or impairments:

(A) It shall be the duty of the commissioner:

(1) To notify the commissioners of all the other states, territories of the United States and the District of Columbia when he takes any of the following actions against a member insurer:

(a) revocation of license;

(b) suspension of license;

(c) makes any formal order that such company restrict its premium writing, obtain additional contributions to surplus, withdraw from the state, reinsure all or any part of its business, or increase capital, surplus, or any other account for the security of policyholders or creditors. Such notice shall be mailed to all insurance commissioners within thirty days following the action taken or the date on which such action occurs.

(2) To report to the board of directors when he has taken any of the actions set forth in paragraph (A), subsection (1) or has received a report from any other insurance commissioner indicating that any such action has been taken in another state. Such report to the board of directors shall contain all significant details of the action taken or the report received from another commissioner.

(3) To report to the board of directors when he has reasonable cause to believe from any examination, whether completed or in process, of any member company that such company may be an impaired or insolvent insurer.

(4) To furnish to the board of directors the NAIC Insurance Regulatory Information System tests and listings of companies not included in the tests developed by the NAIC, for the use of the board of directors in carrying out its duties and responsibilities under this subsection. Such report and the information contained therein shall be kept confidential by the board of directors until such time as made public by the commissioner or other lawful authority.

(B) The commissioner may seek the advice and recommendation of the board of directors concerning any matter affecting his duties and responsibilities regarding the financial condition of member insurers and companies seeking admission to transact insurance business in the commonwealth.

(C) The board of directors may, upon majority vote, make reports and recommendations to the commissioner upon any matter germane to the solvency, rehabilitation, conservation, or liquidation of any member insurer or germane to the solvency of any company seeking to do an insurance business in the commonwealth. Such reports and recommendations shall not be considered public documents.

(D) It shall be the duty of the board of directors, upon majority vote, to notify the commissioner of any information the board of directors possesses which indicates any member insurer may be an impaired or insolvent insurer.

(E) The board of directors may, upon majority vote, make recommendations to the commissioner for the detection and prevention of insurer insolvencies.

(13)(A) Assessments described in paragraph (H) of subsection (9), paragraph (H) may be applied as an offset to the premium, excise, franchise, or income tax liability of member insurers to the commonwealth, to the extent of ten per cent of the amount of such assessments for each of the five calendar years following the year in which such assessments are paid. If the sum of the offsets, so determined, for all member insurers for a calendar year exceeds three million dollars, the excess shall be carried forward and shall be allowed as an offset in calendar years in which, and to the extent that the sum of member insurer’s offsets are less than three million dollars. In the event that the total of the offsets reported by all member insurers on their premium, excise, franchise or income tax returns exceeds three million dollars for a calendar year, the commissioner of revenue shall assess each member insurer with an additional tax equal to the amount offset for the calendar year which is in excess of such member insurer’s pro rata share of three million dollars. Each member insurer’s pro rata share of three million dollars shall be determined by dividing three million dollars by the total of all member insurer offsets reported in such calendar year and multiplying the result by the offset taken by each such member insurer.

(B) Any sums which are acquired by refund, pursuant to paragraph (F) of subsection (9), from the association by member insurers, and which have theretofore been offset against premium, excise, income or franchise taxes as provided in paragraph (A), shall be paid by such insurers to the commonwealth in such manner as the department of revenue may require. The association shall notify the commissioner that such refunds have been made.

(14)(A) Nothing in this section shall be construed to reduce the liability for unpaid assessments of the insureds of an impaired or insolvent insurer operating under a plan with assessment liability.

(B) 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 subsection (8). 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, except (i) upon the termination of the impairment of insolvency of the insurer or (ii) upon the order of a court of competent jurisdiction. This subsection shall not limit the duty of the association to render a report of its activities under subsection (15).

(C) For the purpose of carrying out its obligations under this section, 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 paragraph (J) of subsection (8). Assets of the impaired or insolvent insurer attributable to covered policies shall be used to continue all covered policies and pay all contractual obligations of the impaired or insolvent insurer as required by this section. Assets attributable to covered policies, as used in this subsection, are that proportion of the assets which the reserves that should have been established for such policies bear to the reserves that should have been established for all policies of insurance written by the impaired or insolvent insurer.

(D)(1) 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 and policyowners 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 determination, consideration shall be given to the welfare of the policyholders of the continuing or successor insurer.

(2) 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 with interest thereon for funds expended in carrying out its powers and duties under subdivision (8) with respect to such insurer have been fully recovered by the association.

(E)(1) If an order for rehabilitation or liquidation of an insurer domiciled in the commonwealth has been entered, the receiver appointed under such order shall have a right to recover on behalf of the insurer, from any affiliate that controlled it, the amount of distributions, other than stock dividends paid by the insurer on its capital stock, made at any time during the five years preceding the petition for liquidation or rehabilitation subject to the limitations of clauses (2) and (4) of this paragraph.

(2) No such distribution shall be recoverable if the insurer shows that when paid the distribution was lawful and reasonable, and that the insurer did not know and could not reasonably have known that the distribution might adversely and materially affect the ability of the insurer to fulfill its contractual obligations.

(3) Any person who was an affiliate that controlled the 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 insurer at the time the distributions were declared, shall be liable up to the amount of distributions he would have received if they had been paid immediately. If two or more persons are liable with respect to the same distributions, they shall be jointly and severally liable.

(4) 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 insurer.

(5) If any person liable under subparagraph (3) of this paragraph is insolvent, all its affiliates that controlled it at the time the distribution was paid, shall be jointly and severally liable for any resulting deficiency in the amount recovered from the insolvent affiliate.

(F) As a creditor of the impaired or insolvent insurer, as established in paragraph (C) of this subsection and consistent with section 180C, 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 section. If the liquidator has not, within 120 days of a final determination of insolvency of an 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 assets.

(15) The association shall be subject to examination and regulation by the commissioner. The board of directors annually shall submit to the commissioner, not later than five months after the end of the association’s prior fiscal year, a financial report for the preceding fiscal year in a form approved by the commissioner and a report of its activities during the preceding fiscal year.

(16) The association shall be exempt from payment of all fees and all taxes levied by the commonwealth or any of its subdivisions, except taxes levied on real property.

(17) There shall be no liability on the part of and no cause of action of any nature shall arise against any member insurer or its agents or employees, the association or its agents or employees, the board of directors or any member thereof, or the commissioner or his representatives, for any action or omission by them pursuant to the purposes and provisions of this section or in the performance of their powers and duties under this section. Such immunity shall extend to the participation in any organization of one or more other state associations of similar purposes as provided in subclause (vii) of paragraph (K) subsection (8), and to any such organization and its agents and employees.

(18) All proceedings in which the insolvent insurer is a party in any court in the commonwealth shall be stayed 180 days from the date an order of rehabilitation, conservation or liquidation is final to permit proper legal action by the association on any matters germane to its powers or duties. As to judgment under any decision, order, verdict, or finding based on default the association may apply to have such judgment set aside by the same court that made such judgment and shall be permitted to defend against such suit on the merits.

(19) No person, including an insurer, agent or affiliate of an insurer shall make, publish, disseminate, circulate, or place before the public, or cause directly, to be made, published, disseminated, circulated or placed before the public, in any newspaper, magazine or other publication, or in the form of a notice, circular, pamphlet, letter or poster, or over any radio station or television station, or in any other way, any advertisement, announcement or statement, written or oral, which uses the existence of the Massachusetts Life and Health Insurance Guaranty Association for the purposes of sales, solicitation, or inducement to purchase any form of insurance covered by this section; provided, however, that this section shall not apply to the Massachusetts Life and Health Insurance Guaranty Association or any other entity which does not sell or solicit insurance.

(20) This section shall not apply to any insurer which was insolvent or unable to fulfill its contractual obligations as of April third, nineteen hundred and eighty-six. Amendments to this section shall not apply to any insurer which was placed under an order of liquidation with a finding of insolvency prior to the effective date of this act.