26.1-38.1-05. Powers and duties of the association

26.1-38.1-05. Powers and duties of the association

1. If a member insurer is an impaired insurer, the association may, in its discretion, and

subject to any conditions imposed by the association that do not impair the contractual

obligations of the impaired insurer, and that are approved by the commissioner:

a. Guarantee, assume, reissue, or reinsure, or cause to be guaranteed, assumed,

reissued, or reinsured, any or all of the policies or contracts of the impaired

insurer; or

b. Provide such moneys, pledges, loans, notes, guarantees, or other means as are

proper to effectuate subdivision a and assure payment of the contractual

obligations of the impaired insurer pending action under subdivision a.

2. If a member insurer is an insolvent insurer, the association, in its discretion, shall:

a. Guarantee, assume, reissue, or reinsure, or cause to be guaranteed, assumed,

reissued, or reinsured, the policies or contracts of the insolvent insurer;

b. Assure payment of the contractual obligations of the insolvent insurer;

c. Provide moneys, pledges, loans, notes, guarantees, or other means reasonably

necessary to discharge the association's duties; or

d. Provide benefits and coverage in accordance with the following provisions:

(1) With respect to policies and contracts, assure payment of benefits that

would have been payable under the policies or contracts of the insolvent

insurer, for claims incurred:

(a) With respect to group policies and contracts, not later than the earlier

of the next renewal date under those policies or contracts or forty-five

days, but in no event less than thirty days, after the date on which the

association becomes obligated with respect to the policies and

contracts.

(b) With respect to nongroup policies, contracts, and annuities, not later

than the earlier of the next renewal date, if any, under such policies or

contracts or one year, but in no event less than thirty days, from the

date on which the association becomes obligated with respect to the

policies or contracts.

(2) Make diligent efforts to provide all known insureds, enrollees, or annuitants

for nongroup policies and contracts, or group policy or contract owners with

respect to group policies and contracts, thirty days' notice of the termination

pursuant to paragraph 1 of the benefits provided.

(3) With respect to nongroup policies and contracts covered by the association,

make available to each known insured, enrollee, or annuitant, or owner if

other than the insured or annuitant, and with respect to an individual

formerly an insured, enrollee, or annuitant under a group policy or contract

who is not eligible for replacement group coverage, make available

substitute coverage on an individual basis in accordance with the provisions

of paragraph 4, if the insureds, enrollees, or annuitants had a right under

law or the terminated policy, contract, or annuity to convert coverage to

individual coverage or to continue an individual policy, contract, or annuity in

force until a specified age or for a specified time, during which the insurer or

health maintenance organization had no right unilaterally to make changes

in any provision of the policy, contract, or annuity or had a right only to make

changes in premium by class.

(a) In providing the substitute coverage required under this paragraph, the

association may offer either to reissue the terminated coverage or to

issue an alternative policy or contract at actuarially justified rates,

subject to the prior approval of the commissioner.

(b) Alternative or reissued policies or contracts shall be offered without

requiring evidence of insurability, and shall not provide for any waiting

period or exclusion that would not have applied under the terminated

policy or contract.

sue the terminated coverage or to

issue an alternative policy or contract at actuarially justified rates,

subject to the prior approval of the commissioner.

(b) Alternative or reissued policies or contracts shall be offered without

requiring evidence of insurability, and shall not provide for any waiting

period or exclusion that would not have applied under the terminated

policy or contract.

(c) The association may reinsure any alternative or reissued policy or

contract.

(4) Alternative policies or contracts adopted by the association shall be subject

to the approval of the commissioner. The association may adopt alternative

policies or contracts of various types for future issuance without regard to

any particular impairment or insolvency.

(5) Alternative policies or contracts must contain at least the minimum statutory

provisions required in this state and provide benefits that are not

unreasonable in relation to the premium charged. The association shall set

the premium in accordance with a table of rates which it shall adopt. The

premium must reflect the amount of insurance to be provided and the age

and class of risk of each insured, but may not reflect any changes in the

health of the insured after the original policy or contract was last

underwritten.

(6) Any alternative policy or contract issued by the association shall provide

coverage of a type similar to that of the policy or contract issued by the

impaired or insolvent insurer, as determined by the association.

(7) If the association elects to reissue terminated coverage at a premium rate

different from that charged under the terminated policy or contract, the

premium must be actuarially justified and set by the association in

accordance with the amount of insurance or coverage provided and the age

and class of risk, subject to prior approval of the commissioner.

(8) The association's obligations with respect to coverage under any policy or

contract of the impaired or insolvent insurer or under any reissued or

alternative policy or contract shall cease on the date the coverage or policy

or contract is replaced by another similar policy or contract by the policy or

contract owner, the insured, the enrollee, or the association.

3. When proceeding under subsection 2 with respect to any policy or contract carrying

guaranteed minimum interest rates, the association shall assure the payment or

crediting of a rate of interest consistent with subdivision c of subsection 3 of section

26.1-38.1-01.

4. 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 terminates the association's obligations under the policy, contract,

or coverage under this chapter with respect to the policy, contract, or coverage, except

with respect to any claims incurred or any net cash surrender value which may be due

in accordance with the provisions of this chapter.

5. Premiums due for coverage after entry of an order of liquidation of an insolvent insurer

belong to and are payable at the direction of the association. If the liquidator of an

insolvent insurer requests, the association shall provide a report to the liquidator

regarding the premium collected by the association. The association is liable for

unearned premiums due to policy or contract owners arising after the entry of the

order.

6. The protection provided by this chapter does not apply when any guaranty protection

is provided to residents of this state by the laws of the domiciliary state or jurisdiction

of the impaired or insolvent insurer other than this state.

7. In carrying out its duties under subsection 2, the association may:

a. Subject to approval by a court in this state, impose permanent policy or contract

liens in connection with any guarantee assumption or reinsurance agreement, if

otection

is provided to residents of this state by the laws of the domiciliary state or jurisdiction

of the impaired or insolvent insurer other than this state.

7. In carrying out its duties under subsection 2, the association may:

a. Subject to approval by a court in this state, 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 chapter

are less than the amounts needed to assure full and prompt performance of the

association's duties under this chapter, or that the economic or financial

conditions as they affect member insurers are sufficiently adverse to render the

imposition of such permanent policy or contract liens, to be in the public interest.

b. Subject to approval by a court in this state, impose temporary moratoriums or

liens on payments of cash values and policy loans, or any other right to withdraw

funds held in conjunction with policies or contracts, in addition to any contractual

provisions for deferral or cash or policy loan value. In addition, in the event of a

temporary moratorium or moratorium charge imposed by the receivership court

on payment of cash values or policy loans, or on any other right to withdraw funds

held in conjunction with policies or contracts, out of the assets of the impaired or

insolvent insurer, the association may defer the payment of cash values, policy

loans, or other rights by the association for the period of the moratorium or

moratorium charge imposed by the receivership court, except for claims covered

by the association to be paid in accordance with a hardship procedure

established by the liquidator or rehabilitator and approved by the receivership

court.

8. A deposit in this state, held according to law or as required by the commissioner for

the benefits of creditors, including policy or contract owners, not turned over to the

domiciliary liquidator upon the entry of a final order of liquidation or order approving a

rehabilitation plan of a member insurer domiciled in this state or in a reciprocal state,

under section 26.1-06.1-50, must be paid promptly to the association. The association

may retain a portion of any amount received equal to the percentage determined by

dividing the aggregate amount of policy or contract owners' claims related to that

insolvency for which the association has provided statutory benefits by the aggregate

amount of all policy or contract owners' claims in this state related to that insolvency

and shall remit to the domiciliary receiver the amount so paid to the association, less

the amount retained pursuant to this subsection. Any amount paid to the association

and retained by it is treated as a distribution of estate assets pursuant to section

26.1-06.1-43 or similar provision of the state of domicile of the impaired or insolvent

insurer.

9. If the association fails to act within a reasonable period of time with respect to an

insolvent insurer, as provided in subsection 2, the commissioner shall have the powers

and duties of the association under this chapter with respect to insolvent insurers.

10. The association may render assistance and advice to the commissioner, upon request,

concerning rehabilitation, payment of claims, continuance of coverage, or the

performance of other contractual obligations of any impaired or insolvent insurer.

11. The association shall have standing to appear or intervene before any court or agency

in this state with jurisdiction over an impaired or insolvent insurer concerning which the

association is or may become obligated under this chapter or with jurisdiction over any

person or property against which the association may have rights through subrogation

or otherwise. Such standing extends to all matters germane to the powers and duties

of the association, including proposals for reinsuring, reissuing, modifying, or

over an impaired or insolvent insurer concerning which the

association is or may become obligated under this chapter or with jurisdiction over any

person or property against which the association may have rights through subrogation

or otherwise. Such standing extends to all matters germane to the powers and duties

of the association, including proposals for reinsuring, reissuing, modifying, or

guaranteeing the policies or contracts of the impaired or insolvent insurer and the

determination of the policies or contracts and contractual obligations. The association

shall also have the right to appear or intervene before a court or agency in another

state with jurisdiction over an impaired or insolvent insurer for which the association is

or may become obligated or with jurisdiction over any person or property against

whom the association may have rights through subrogation or otherwise.

12. Any person receiving benefits under this chapter must be deemed to have assigned

the rights under, and any causes of action against any person for losses arising under,

resulting from, or otherwise relating to, the covered policy or contract to the

association to the extent of the benefits received because of this chapter, whether the

benefits are payments of or on account of contractual obligations, continuation of

coverage, or provision of substitute or alternative policies, contracts, or coverages. The

association may require an assignment to it of such rights and causes of action by any

enrollee, payee, policy or contract owner, beneficiary, insured, or annuitant as a

condition precedent to the receipt of any right or benefits conferred by this chapter

upon such person.

13. The subrogation rights of the association under this section have the same priority

against the assets of the impaired or insolvent insurer as that possessed by the person

entitled to receive benefits under this chapter.

14. In addition to subsections 12 and 13, the association shall have all common-law rights

of subrogation and other equitable or legal remedy that would have been available to

the impaired or insolvent insurer or owner, beneficiary, enrollee, or payee of a policy or

contract with respect to such policy or contract, including, in the case of a structured

settlement annuity, any rights of the owner, beneficiary, or payee of the annuity, to the

extent of benefits received under this chapter, against a person originally or by

succession responsible for the losses arising from the personal injury relating to the

annuity or payment for the personal injury, except any such person responsible solely

by reason of serving as an assignee in respect of a qualified assignment under section

130 of the Internal Revenue Code.

15. If subsections 12, 13, and 14 are invalid or ineffective with respect to any person or

claim for any reason, the amount payable by the association with respect to the related

covered obligations must be reduced by the amount realized by any other person with

respect to the person or claim that is attributable to the policies or contracts or portion

of the policies or contracts covered by the association. 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 of this

subsection, the person shall pay to the association the portion of the recovery

attributable to the policies or contracts or portion of the policies or contracts covered

by the association.

16. In addition to any other rights and powers under this chapter, the association may:

a. Enter into such contracts as are necessary or proper to carry out the provisions

and purposes of this chapter;

b. Sue or be sued, including taking any legal actions necessary or proper to recover

any unpaid assessments under section 26.1-38.1-06 and to settle claims or

potential claims against it;

ion.

16. In addition to any other rights and powers under this chapter, the association may:

a. Enter into such contracts as are necessary or proper to carry out the provisions

and purposes of this chapter;

b. Sue or be sued, including taking any legal actions necessary or proper to recover

any unpaid assessments under section 26.1-38.1-06 and to settle claims or

potential claims against it;

c. Borrow money to effect the purposes of this chapter and any notes or other

evidences of indebtedness of the association not in default shall be legal

investments for domestic member insurers and may be carried as admitted

assets;

d. Employ or retain such persons as are necessary or appropriate to handle the

financial transactions of the association, and to perform such other functions as

become necessary or proper under this chapter;

e. Take such legal action as may be necessary or appropriate to avoid or recover

payment of improper claims;

f. Exercise, for the purposes of this chapter and to the extent approved by the

commissioner, the powers of a domestic life insurer, health insurer, or health

maintenance organization, but in no case may the association issue policies or

contracts other than those issued to perform its obligations under this chapter;

g. Organize itself as a corporation or in other legal form permitted by the laws of this

state;

h. Request information from a person seeking coverage from the association in

order to aid the association in determining its obligations under this chapter with

respect to the person, and the person promptly shall comply with the request;

i. Unless prohibited by law, in accordance with the terms and conditions of the

policy or contract, file for actuarially justified rate or premium increases for any

policy or contract for which the association provides coverage under this chapter;

and

j. Take other necessary or appropriate action to discharge its duties and obligations

under this chapter or to exercise its powers under this chapter.

17. The association may join an organization of one or more state associations of similar

purposes, to further the purposes and administer the powers and duties of the

association.

18. At any time within one year after the date on which the association becomes

responsible for the obligations of a member insurer, the association may elect to

succeed to the rights and obligations of the member insurer which accrue on or after

this coverage date and which relate to contracts covered in whole or in part by the

association under any indemnity reinsurance agreement entered by the member

insurer as a ceding insurer and selected by the association. However, the association

may not exercise an election with respect to a reinsurance agreement if the receiver,

rehabilitator, or liquidator of the member insurer previously and expressly has

disaffirmed the reinsurance agreement. The election is effected by a notice to the

receiver, rehabilitator, or liquidator and to the affected reinsurers. If the association

makes an election, subdivisions a through d apply with respect to the agreements

selected by the association.

a. The association is responsible for all unpaid premiums due under the

agreements, for periods both before and after the coverage date, and is

responsible for the performance of all other obligations to be performed after the

coverage date, in each case which relate to contracts covered, in whole or in part,

by the association. The association may charge contracts covered in part by the

association, through reasonable allocation methods, the costs for reinsurance in

excess of the obligations of the association.

b. The association is entitled to any amounts payable by the reinsurer under the

agreements with respect to losses or events that occur in periods after the

coverage date and that relate to contracts covered by the association, in whole or

racts covered in part by the

association, through reasonable allocation methods, the costs for reinsurance in

excess of the obligations of the association.

b. The association is entitled to any amounts payable by the reinsurer under the

agreements with respect to losses or events that occur in periods after the

coverage date and that relate to contracts covered by the association, in whole or

in part, provided that, upon receipt of any of these amounts, the association is

obliged to pay to the beneficiary under the policy or contract on account of which

the amounts were paid a portion of the amount equal to the excess of the amount

received by the association, over the benefits paid by the association on account

of the policy or contract less the retention of the impaired or insolvent member

insurer applicable to the loss or event.

c. Within thirty days following the association's election, the association and each

indemnity reinsurer shall calculate the net balance due to or from the association

under each reinsurance agreement as of the date of the association's election,

giving full credit to every item paid by the member insurer or its receiver,

rehabilitator, or liquidator, or the indemnity reinsurer during the period between

the coverage date and the date of the association's election. The association or

indemnity reinsurer shall pay the net balance due the other within five days of the

completion of the aforementioned calculation. If the receiver, rehabilitator, or

liquidator received any amounts due the association pursuant to subdivision b,

the receiver, rehabilitator, or liquidator shall remit the amounts to the association

as promptly as practicable.

d. If the association, within sixty days of the election, pays the premiums due for

periods both before and after the coverage date that relate to contracts covered

by the association, in whole or in part, the reinsurer may not terminate the

reinsurance agreements, to the extent the agreements relate to contracts covered

by the association, in whole or in part, and may not set off any unpaid premium

due for periods before the coverage date against amounts due the association.

19. If the association transfers its obligations to another insurer, and if the association and

the other insurer agree, the other insurer shall succeed to the rights and obligations of

the association under subsection 18 effective as of the date agreed by the association

and the other insurer and regardless of whether the association made the election,

provided that:

a. The indemnity reinsurance agreements automatically terminate for new

reinsurance unless the indemnity reinsurer and the other insurer agree to the

contrary;

b. The obligations described in the proviso to subdivision b of subsection 18 no

longer apply on and after the date the indemnity reinsurance agreement is

transferred to the third-party insurer; and

c. This subsection does not apply if the association previously expressly determined

in writing that it will not exercise the election referred to in subsection 18.

20. Subsections 18 and 19 supersede the provisions of any law of this state 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 coverage date,

to the receiver, rehabilitator, or liquidator, of the insolvent member insurer. The

receiver, rehabilitator, or liquidator remains entitled to any amounts payable by the

reinsurer under the reinsurance agreement with respect to losses or events that occur

in periods before the coverage date, subject to applicable setoff provisions.

21. Except as otherwise expressly provided in this section, this section does not alter or

modify the terms and conditions of the indemnity reinsurance agreements of the

insolvent member insurer. This section does not abrogate or limit any rights of any

einsurance agreement with respect to losses or events that occur

in periods before the coverage date, subject to applicable setoff provisions.

21. Except as otherwise expressly provided in this section, this section does not alter or

modify the terms and conditions of the indemnity reinsurance agreements of the

insolvent member insurer. This section does not abrogate or limit any rights of any

reinsurer to claim that it is entitled to rescind a reinsurance agreement. This section

does not give a policy owner, contract owner, enrollee, certificate holder, or beneficiary

an independent claim for relief against an indemnity reinsurer which is not otherwise

set forth in the indemnity reinsurance agreement.

22. The board of directors of the association has discretion and may exercise reasonable

business judgment to determine the means by which the association is to provide the

benefits of this chapter in an economical and efficient manner.

23. If the association arranged or offered to provide the benefits of this chapter to a

covered person under a plan or arrangement that fulfills the association's obligations

under this chapter, the person is not entitled to benefits from the association in addition

to or other than those provided under the plan or arrangement.

24. Burleigh County is the venue in a course of action against the association arising

under this chapter. The association is not required to give an appeal bond in an appeal

that relates to a cause of action arising under this chapter.

25. The association, in carrying out association duties in connection with guaranteeing,

assuming, reissuing, or reinsuring policies or contracts under subsections 1 and 2,

may issue substitute coverage for a policy or contract that provides a rate of interest,

crediting of a rate of interest, or similar factor determined by using an index or other

external reference stated in the policy or contract which is employed in calculating

returns or changes in value by issuing an alternative policy or contract if:

a. Instead of the index or other external reference provided for in the original policy

or contract, the alternative policy or contract provides for a fixed interest rate,

payment of dividends with minimum guarantees, or different method for

calculating interest or changes in value;

b. There is no requirement for evidence of insurability, a waiting period, or other

exclusion that would not have applied under the replaced policy or contract; and

c. The alternative policy or contract is substantially similar to the replaced policy or

contract in all other material terms.