(1)(a) The provisions of this chapter shall provide coverage to a person, regardless of where they reside, excluding nonresident certificate holders under group policies or contracts, who is the beneficiary, assignee, or payee, including health care providers rendering services covered under health insurance policies or certificates, of the persons covered under this section.
(b) The provisions of this chapter shall provide coverage to a person who is the owner of, certificate holder, or enrollee under a policy or contract, other than a structured settlement annuity, and is:
(i) a resident; or
(ii) not a resident, but under all of the following conditions:
(A) the member insurer that issued the policies or contracts is domiciled in this State;
(B) the states in which the person resides have associations similar to the association created by this chapter;
(C) the person is not eligible for coverage by an association in any other state due to the fact that the insurer or health maintenance organization was not licensed in the state at the time specified in the state's guaranty association law.
(c) The provisions of this chapter shall provide coverage to a person who is a payee or a beneficiary if the payee is deceased under a structured settlement annuity if the payee:
(i) is a resident, regardless of where the contract owner resides;
(ii) is not a resident but the contract owner is a resident; or
(iii) is not a resident but:
(A) the insurer that issued the structured settlement annuity is domiciled in this State; and
(B) the state in which the contract owner resides has an association similar to the association created pursuant to this chapter but the payee and contract owner are not eligible for coverage by the association of the state in which they reside.
(d) The provisions of this chapter shall not provide coverage to a person who:
(i) is a payee of a contract owner resident of this State, if the payee is afforded any coverage by the association of another state; or
(ii) acquires rights to receive payments through a structured settlement factoring transaction as defined in 26 U.S.C. Section 55891(c)(3)(A), regardless of when the transaction occurred.
(e) This chapter is intended to provide coverage to a person who is a resident of this State and, in special circumstances, to a nonresident. In order to avoid duplicate coverage, if a person who would otherwise receive coverage under this chapter is provided coverage under the laws of any other state, the person may not be provided coverage under this chapter. In determining the application of the provisions of this subsection in situations where a person could be covered by the association of more than one state, whether as an owner, payee, enrollee, beneficiary, or assignee, this chapter may be construed in conjunction with other state laws to result in coverage by only one association.
(2)(a) This chapter shall provide coverage for policies or contracts of direct, nongroup life insurance, health insurance including health maintenance organization subscriber contracts and certificates, or annuities, for certificates under direct group policies and contracts, and for supplemental contracts to any of these, in each case issued by member insurers, except as limited by this chapter. Annuity contracts and certificates under group annuity contracts include, but are not limited to, allocated funding agreements, structured settlement annuities, and any immediate or deferred annuity contracts.
(b) Except as otherwise provided, this chapter does not provide coverage for:
(i) a portion of a policy or contract or part thereof not guaranteed by the member insurer, or under which the risk is borne by the policy or contract owner;
(ii) a policy or contract of reinsurance, unless assumption certificates have been issued pursuant to the reinsurance policy or contract;
(iii) a portion of a policy or contract, other than a portion, including a rider, that provides long-term care or any other health insurance benefits, to the extent 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:
(A) averaged over the period of four years prior to the date on which the member insurer becomes an impaired or insolvent insurer under this chapter, whichever is earlier, exceeds the rate of interest determined by subtracting two percentage points from Moody's Corporate Bond Yield Average averaged for that same four-year period or for such lesser period if the policy or contract was issued less than four years before the member insurer becomes an impaired or insolvent insurer under this chapter, whichever is earlier; and
(B) on and after the date on which the member insurer becomes an impaired or insolvent insurer, whichever is earlier, exceeds the rate of interest determined by subtracting three percentage points from Moody's Corporate Bond Yield Average as most recently available;
(iv) any policy or contract issued by assessment mutuals, fraternals, and nonprofit hospital and medical service plans;
(v) a portion of a policy or contract issued to a plan or program of an employer, association, or other person to provide life, health, or annuity benefits to its employees, members, or others, to the extent that the plan or program is self-funded or uninsured including, but not limited to, benefits payable by an employer, association, or other person under:
(A) a multiple employer welfare arrangement as defined in 29 U.S.C. Section 1002(40);
(B) a minimum premium group insurance plan;
(C) a stop-loss group insurance plan; or
(D) an administrative services-only contract;
(vi) a portion of a policy or contract to the extent that it provides for:
(A) dividends or experience rating credits;
(B) voting rights; or
(C) payment of any fees or allowances to any person, including the policy or contract owner, in connection with the service to or administration of the policy or contract;
(vii) a portion of a policy or contract to the extent that the assessments required by Section 38-29-80 with respect to the policy or contract are preempted by federal or state law;
(viii) an obligation that does not arise under the express written terms of the policy or contract issued by the member insurer to the enrollee, certificate holder, contract owner, or policy owner, including without limitation:
(A) claims based on marketing materials;
(B) claims based on side letters, riders, or other documents that were issued by the member insurer without meeting applicable policy or contract form filing or approval requirements;
(C) misrepresentations of or regarding policy or contract benefits;
(D) extra-contractual claims; or
(E) a claim for penalties or consequential or incidental damages;
(ix) a contractual agreement that establishes the member insurer's obligations to provide a book value accounting guaranty for defined contribution benefit plan participants by reference to a portfolio of assets that is owned by the benefit plan or its trustee, which in each case is not an affiliate of the member insurer;
(x) an unallocated annuity contract;
(xi) a portion of a policy or contract to the extent it provides for interest or other changes in value to be determined by the use of an index or other external reference stated in the policy or contract, but which have not been credited to the policy or contract, or as to which the policy or contract owner's rights are subject to forfeiture, as of the date the member insurer becomes an impaired or insolvent insurer under this chapter, whichever is earlier. If a policy's or contract's interest or changes in value are credited less frequently than annually, then for purposes of determining the values that have been credited and are not subject to forfeiture, the interest or change in value determined by using the procedures defined in the policy or contract will be credited as if the contractual date of crediting interest or changing values was the date of impairment or insolvency, whichever is earlier, and will not be subject to forfeiture;
(xii) a policy or contract providing any hospital, medical, prescription drug, or other health care benefits pursuant to 42 U.S.C. Chapter 7, Subchapter XVIII, Part C or Part D; 42 U.S.C. Chapter 7, Subchapter XIX; or 42 U.S.C. Chapter 7; or any regulations issued pursuant thereto; or
(xiii) structured settlement annuity benefits to which a payee or beneficiary has transferred his rights in a structured settlement factoring transaction as defined in 26 U.S.C. Section 5891(c)(3)(A), regardless of when the transaction occurred before or after such section became effective.
(c) The exclusion from coverage referenced in subitem (iii) does not apply to any portion of a policy or contract, including a rider that provides long-term care or any other health insurance benefits.
(3) The benefits that the association may become obligated to cover may not exceed the lesser of:
(a) the contractual obligations for which the member insurer is liable or would have been liable if it were not an impaired or insolvent insurer; or
(b)(i) with respect to one life, regardless of the number of policies or contracts:
(A) $300,000 in life insurance death benefits, but not more than $300,000 in net cash surrender and net cash withdrawal values for life insurance;
(B) for health insurance benefits:
(1) $300,000 for coverages not defined as disability income insurance or health benefit plans or long-term care insurance, including any net cash surrender and net cash withdrawal values;
(2) $300,000 for disability income insurance and $300,000 for long-term care insurance;
(3) $500,000 for health benefit plans;
(C) $300,000 in the present value of annuity benefits, including net cash surrender and net cash withdrawal values;
(ii) with respect to each payee of a structured settlement annuity or beneficiary if the payee is deceased, $300,000 in present value annuity benefits, in the aggregate, including net cash surrender and net cash withdrawal values, if any;
(iii) the association is not obligated to cover more than an aggregate of $300,000 in benefits with respect to any one life except with respect to benefits for health benefit plans, in which case the aggregate liability of the association shall not exceed $500,000 with respect to any one individual or with respect to one owner of multiple nongroup policies of life insurance, whether the policy or contract 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;
(iv) the 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 may be met by the use of assets attributable to covered policies or reimbursed to the association pursuant to its subrogation and assignment rights;
(v) for purposes of this chapter, benefits provided by a long-term care rider to a life insurance policy or annuity contract are considered the same type of benefits as the base life insurance policy or annuity contract to which it relates.
(4) In performing its obligations to provide coverage, the association may not be required to guarantee, assume, reinsure, reissue, or perform, or cause to be guaranteed, assumed, reinsured, or reissued, or performed, the contractual obligations of the insolvent or impaired insurer under a covered policy or contract that does not materially affect the economic values or economic benefits of the covered policy or contract.
HISTORY: Former 1976 Code Section 38-29-40 [1962 Code Section 37-1403; 1971 (57) 351] recodified as Section 38-21-40 by 1987 Act No. 155, Section 1; Former 1976 Code Section 38-17-40 [1962 Code Section 37-563; 1972 (57) 2776] recodified as Section 38-29-40 by 1987 Act No. 155, Section 1; 1993 Act No. 181, Section 631; 2008 Act No. 348, Section 11, eff June 16, 2008; 2020 Act No. 121 (S.580), Section 1.A, eff March 24, 2020.
Editor's Note
2020 Act No. 121, Section 1.B, provides as follows:
"[1.]B. The amendments made by this act do not apply to a member insurer that has been placed under an order of rehabilitation or liquidation before July 1, 2020."
Effect of Amendment
2020 Act No. 121, Section 1.A, rewrote the section.