CHAPTER 704a

INSURANCE GUARANTY FUNDS

Table of Contents

Sec. 38a-838. (Formerly Sec. 38-275). Definitions.

Sec. 38a-841. (Formerly Sec. 38-278). Obligations and rights of association. Limitations. Assessments. Investigation of claims. Right to intervene in court proceedings.

Sec. 38a-843. (Formerly Sec. 38-280). Insolvent insurers. Penalty. Petition to show cause.

Sec. 38a-860. (Formerly Sec. 38-303). Application of chapter. Obligations of association.


PART I

CONNECTICUT INSURANCE GUARANTY ASSOCIATION ACT

Sec. 38a-838. (Formerly Sec. 38-275). Definitions. The following terms as used in sections 38a-836 to 38a-853, inclusive, unless the context otherwise requires or a different meaning is specifically prescribed, shall have the following meanings:

(1) “Account” means any one of the three accounts created by section 38a-839;

(2) “Affiliate” means any affiliate, as defined in section 38a-1, of an insolvent insurer;

(3) “Association” means the Connecticut Insurance Guaranty Association created under section 38a-839;

(4) “Commissioner” means the Insurance Commissioner;

(5) (A) “Covered claim” means an unpaid claim, including, but not limited to, one for unearned premiums, that arises out of and is within the coverage and subject to the applicable limits of an insurance policy to which sections 38a-836 to 38a-853, inclusive, apply, if such insurer becomes an insolvent insurer or such claim was assumed as a direct obligation by an insurer that becomes an insolvent insurer, where such obligation was assumed through a merger or an acquisition, pursuant to an acquisition of assets and assumption of liabilities or pursuant to an assumption reinsurance transaction, and (i) the claimant or insured is a resident of this state at the time of the insured event, or (ii) the claim is a first party claim for damage to property with a permanent location in this state. For the purposes of this subparagraph, the residence of a claimant or an insured that is not an individual shall be the state in which such claimant’s or insured’s principal place of business is located at the time of the insured event.

(B) “Covered claim” does not include (i) any claim by or for the benefit of any reinsurer, insurer, insurance pool or underwriting association, as subrogation recoveries or otherwise, provided a claim for any such amount, asserted against a person insured under a policy issued by an insurer that has become an insolvent insurer, that, if it were not a claim by or for the benefit of a reinsurer, insurer, insurance pool or underwriting association, would be a “covered claim”, may be filed directly with the receiver of the insolvent insurer but in no event shall any such claim be asserted against the insured of such insolvent insurer, (ii) any claim by or on behalf of an individual who is neither a citizen of the United States nor an alien legally resident in the United States at the time of the insured event, or an entity other than an individual whose principal place of business is not in the United States at the time of the insured event, and it arises out of an accident, occurrence, offense, act, error or omission that takes place outside of the United States, or a loss to property normally located outside of the United States or, if a workers’ compensation claim, it arises out of employment outside of the United States, (iii) any claim by or on behalf of a person who is not a resident of this state, other than a claim for compensation or any other benefit that arises out of and is within the coverage of a workers’ compensation policy, against an insured whose net worth at the time the policy was issued or at any time thereafter exceeded twenty-five million dollars, provided an insured’s net worth for purposes of this section and section 38a-844 shall be deemed to include the aggregate net worth of the insured and all of its subsidiaries as calculated on a consolidated basis, (iv) any claim by or on behalf of an affiliate of the insolvent insurer at the time the policy was issued or at the time of the insured event, (v) any claim arising out of a policy issued by an insurer that was not licensed to transact insurance in this state at the time the policy was issued, when it assumed the obligation for the covered claim or when the insured event occurred, (vi) any amount due under any policy originally issued by a surplus lines carrier, risk retention group, self-insurer or group self-insurer, (vii) any obligation assumed by an insolvent insurer after the commencement of any delinquency proceeding, as defined in section 38a-905, involving the insolvent insurer or the original insurer, unless it would have been a covered claim absent such assumption, or (viii) any obligation assumed by an insolvent insurer in a transaction in which the original insurer remains separately liable;

(6) “Insolvent insurer” means an insurer (A) (i) licensed to transact insurance in this state at the time the policy was issued, when it assumed the obligation for the covered claim or when the insured event occurred, and (ii) against which a final order of liquidation with a finding of insolvency has been entered by a court of competent jurisdiction in the insurer’s state of domicile; (B) that is (i) the legal successor of an insurer that was licensed to transact insurance in this state either at the time the policy was issued or when the insured event occurred, by reason of a merger, provided such merger is approved by an insurance regulator having jurisdiction over such merger, and (ii) against which a final order of liquidation with a finding of insolvency has been entered by a court of competent jurisdiction in the insurer’s state of domicile; or (C) that (i) succeeds to the policy obligations of an insurer that was licensed to transact insurance in this state either at the time the policy was issued or when the insured event occurred, by reason of a division whereby policies issued by such licensed insurer are transferred to an insurer, provided such division is approved (I) in a jurisdiction that allows such division, and (II) by an insurance regulator having jurisdiction over such division, and (ii) against which a final order of liquidation with a finding of insolvency has been entered by a court of competent jurisdiction in the succeeding insurer’s state of domicile. “Insolvent insurer” shall not be construed to mean any insurer with respect to which an order, decree, judgment or finding of insolvency, whether permanent or temporary in nature, or order of rehabilitation or conservation has been issued by a court of competent jurisdiction prior to October 1, 1971;

(7) “Member insurer” means any person who (A) writes any kind of insurance to which sections 38a-836 to 38a-853, inclusive, apply under section 38a-837, including, but not limited to, the exchange of reciprocal or interinsurance contracts, and (B) is licensed to transact insurance in this state. An insurer shall cease to be a member insurer effective on the day following the termination or expiration of its license to transact the kinds of insurance to which said sections 38a-836 to 38a-853, inclusive, apply, however such insurer shall remain liable as a member insurer for any obligations, including obligations for assessments levied prior to the termination or expiration of the insurer’s license and for assessments levied after the termination or expiration which relate to any insurer which became an insolvent insurer prior to the termination or expiration of such insurer’s license. In the case of such insurer, the average of its net direct written premium for the five calendar years prior to expiration or termination of its license, whether or not the insurer has net direct written premium in the year preceding such expiration or termination, shall be used as its assessment base for any year following such expiration or termination in which the insurer has no direct written premium;

(8) “Net direct written premiums” means direct gross premiums written in this state on insurance policies to which sections 38a-836 to 38a-853, inclusive, apply, less return premiums thereon and dividends paid or credited to policyholders on such direct business, provided the term “net direct written premiums” shall not include premiums on any contract between insurers or reinsurers;

(9) “Person” means an individual, corporation, partnership, association, joint stock company, business trust, limited liability company, unincorporated organization, voluntary organization, governmental entity or other legal entity;

(10) “Residence” means, when used in reference to a corporation, its principal place of business;

(11) “United States” has the meaning assigned to it by section 38a-1.

(1971, P.A. 466, S. 3; P.A. 77-614, S. 163, 610; P.A. 80-482, S. 321, 345, 348; P.A. 81-83, S. 1; P.A. 87-290, S. 1, 8; P.A. 88-76, S. 2, 10; P.A. 90-243, S. 151; P.A. 97-125, S. 2, 9; P.A. 03-49, S. 1; P.A. 04-174, S. 5; P.A. 05-140, S. 2; P.A. 15-171, S. 1.)

History: P.A. 77-614 placed insurance commissioner within the department of business regulation and made insurance department a division within that department, effective January 1, 1979; P.A. 80-482 restored insurance commissioner and division to prior independent status and abolished the department of business regulation; P.A. 81-83 added Subdiv. (9) defining “residence” and replaced “authorized” with “licensed” in Subdiv. (5); P.A. 87-290 added definitions of “affiliate”, “claimant”, and “United States”, and amended the definition of “covered claim” to limit its application to nonresidents of this state, renumbering previous Subdivs. as necessary; P.A. 88-76 clarified the definition of “covered claim”; P.A. 90-243 amended the definitions for “affiliate”, “affiliated”, “person” and “United States”; Sec. 38-275 transferred to Sec. 38a-838 in 1991; P.A. 97-125 amended Subdiv. (4) re time when a claimant files a claim, amended Subdiv. (6)(c) to require the claim to be a first party claim for damage to property with a permanent location and to exclude any claim by or for the benefit of any reinsurer, insurance pool or underwriting association, amended Subdiv. (8) re when an insurer ceases to be a member and such member’s liability for obligations and amended Subdiv. (10) to redefine “person”, effective July 1, 1997; P.A. 03-49 redefined “affiliate” and “covered claim”, deleted former Subdiv. (4) re definition of “claimant”, redesignated existing Subdivs. (5) to (12) as Subdivs. (4) to (11) and made technical changes, effective May 23, 2003, and applicable to claims filed on or after that date; P.A. 04-174 amended Subdiv. (6)(B) to insert clause (i) designator and add new clause (ii) to include the legal successor of the insolvent insurer in the event of merger; P.A. 05-140 redefined “covered claim” in Subdiv. (5) and “insolvent insurer” in Subdiv. (6), effective June 24, 2005, and applicable to insolvencies occurring on or after that date; P.A. 15-171 amended Subdivs. (5) and (6) to redefine “covered claim” and “insolvent insurer” and to make technical changes.

Sec. 38a-841. (Formerly Sec. 38-278). Obligations and rights of association. Limitations. Assessments. Investigation of claims. Right to intervene in court proceedings. (a) Said association shall:

(1) Be obligated to the extent of the covered claims existing prior to the determination of insolvency or the entry of a final order of liquidation with a finding of insolvency, as applicable, and arising within thirty days after the determination of insolvency or the entry of such order, or before the policy expiration date if less than thirty days after the determination or the entry of such order, or before the insured replaces the policy or causes its cancellation if the insured does so within thirty days after such determination or entry of such order, provided such obligation shall be limited as follows: (A) With respect to covered claims for unearned premiums, to one-half of the unearned premium on any policy, subject to a maximum of two thousand dollars per policy; (B) with respect to covered claims other than for unearned premiums, such obligation shall include only that amount of each such claim that is in excess of one hundred dollars and is less than (i) three hundred thousand dollars for claims arising under policies of insurers determined to be insolvent prior to October 1, 2007, (ii) four hundred thousand dollars for claims arising under policies of insurers determined to be insolvent on or after October 1, 2007, and prior to October 1, 2015, and (iii) five hundred thousand dollars for claims arising under policies of insurers against which a final order of liquidation with a finding of insolvency has been entered by a court of competent jurisdiction in the insurer’s state of domicile on or after October 1, 2015. Said association shall pay the full amount of any such claim arising out of a workers’ compensation policy, provided in no event shall said association be obligated (I) to any claimant in an amount in excess of the obligation of the insolvent insurer under the policy form or coverage from which the claim arises, or (II) for any claim filed with the association after the expiration of two years from the date of the declaration of insolvency unless such claim arose out of a workers’ compensation policy and was timely filed in accordance with section 31-294c;

(2) Be deemed the insurer to the extent of its obligations on the covered claims and to such extent shall have all rights, duties, and obligations of the insolvent insurer as if the insurer had not become insolvent;

(3) Allocate claims paid and expenses incurred among the three accounts, created by section 38a-839, separately, and assess member insurers separately (A) in respect of each such account for such amounts as shall be necessary to pay the obligations of said association under subdivision (1) of this subsection subsequent to an insolvency; (B) the expenses of handling covered claims subsequent to an insolvency; (C) the cost of examinations under section 38a-846; and (D) such other expenses as are authorized by sections 38a-836 to 38a-853, inclusive. The assessments of each member insurer shall be in the proportion that the net direct written premiums of such member insurer for the calendar year preceding the assessment on the kinds of insurance in such account bears to the net direct written premiums of all member insurers for the calendar year preceding the assessment on the kinds of insurance in such account. Each member insurer shall be notified of its assessment not later than thirty days before it is due. No member insurer may be assessed in any year on any account an amount greater than two per cent of that member insurer’s net direct written premiums for the calendar year preceding the assessment on the kinds of insurance in said account, provided if, at the time an assessment is levied on the all other insurance account, as defined in subdivision (3) of section 38a-839, the board of directors finds that at least fifty per cent of the total net direct written premiums of a member insurer and all its affiliates, for the year on which such assessment is based, were from policies issued or delivered in Connecticut, on risks located in this state, such member insurer shall be assessed only on such member insurer’s net direct written premium that is attributable to the kind of insurance that gives rise to each covered claim. If the maximum assessment, together with the other assets of said association in any account, does not provide in any one year in any account an amount sufficient to make all necessary payments from that account, the funds available may be prorated and the unpaid portion shall be paid as soon thereafter as funds become available. Said association may defer, in whole or in part, the assessment of any member insurer if the assessment would cause the member insurer’s financial statement to reflect amounts of capital or surplus less than the minimum amounts required for a certificate of authority by any jurisdiction in which the member insurer is authorized to transact insurance, provided during the period of deferment, no dividends shall be paid to shareholders or policyholders. Deferred assessments shall be paid when such payment will not reduce capital or surplus below the minimum amounts required for a certificate of authority. Such payments shall be refunded to those insurers receiving greater assessments because of such deferment or, at the election of the insurer, be credited against future assessments. Each member insurer serving as a servicing facility may set off against any assessment, authorized payments made on covered claims and expenses incurred in the payment of such claims by such member insurer if they are chargeable to the account in respect of which the assessment is made;

(4) Investigate claims brought against said association and adjust, compromise, settle, and pay covered claims to the extent of said association’s obligations and deny all other claims. The association shall pay claims in any order it deems reasonable including, but not limited to, payment in the order of receipt or by classification. It may review settlements, releases and judgments to which the insolvent insurer or its insureds were parties to determine the extent to which such settlements, releases and judgments may be properly contested;

(5) Notify such persons as the commissioner may direct under subdivision (1) of subsection (b) of section 38a-843;

(6) Handle claims through its employees or through one or more insurers or other persons designated by said association as servicing facilities, provided such designation of a servicing facility is approved by the commissioner and may be declined by a member insurer;

(7) Reimburse each such servicing facility for obligations of said association paid by such facility and for expenses incurred by such facility while handling claims on behalf of said association and shall pay such other expenses of said association as are authorized by sections 38a-836 to 38a-853, inclusive.

(b) Said association may: (1) Employ or retain such persons as are necessary to handle claims and perform other duties of said association; (2) borrow such funds as may be necessary from time to time to effect the purposes of sections 38a-836 to 38a-853, inclusive, in accord with the plan of operation under section 38a-842; (3) sue or be sued; (4) intervene as a matter of right as a party in any proceeding before any court in this state that has jurisdiction over an insolvent insurer, as defined in section 38a-838; (5) negotiate and become a party to such contracts as are necessary to carry out the purpose of sections 38a-836 to 38a-853, inclusive; (6) perform such other acts as are necessary or proper to effectuate the purpose of said sections; (7) refund to the member insurers in proportion to the contribution of each such member insurer to that account, that amount by which the assets of the account exceed the liabilities, if, at the end of any calendar year, the board of directors finds that the assets of said association in any account exceed the liabilities of that account as estimated by the board of directors for the coming year.

(c) (1) Each insurer paying an assessment under sections 38a-836 to 38a-853, inclusive, may offset one hundred per cent of the amount of such assessment against its premium tax liability to this state under chapter 207. Such offset shall be taken over a period of the five successive tax years following the year of payment of the assessment, at the rate of twenty per cent per year of the assessment paid to the association. Each insurer to which has been refunded by the association, pursuant to subsection (b) of this section, all or a portion of an assessment previously paid to the association by the insurer shall be required to pay to the Department of Revenue Services an amount equal to the total amount that has been claimed as an offset against the premiums tax liability on the premiums tax return or returns, as the case may be, filed by such insurer and that is attributable to such refunded assessment, provided the amount required to be paid to said department shall not exceed the amount of the refunded assessment. If the amount of the refunded assessment exceeds the total amount that has been claimed as an offset against the premiums tax liability on the premiums tax return or returns filed by such insurer and that is attributable to such refunded assessment, such excess may not be claimed as an offset against the premiums tax liability on a premiums tax return or returns filed by such insurer or, if the offset has been transferred to another person pursuant to subdivision (2) of this subsection, by such other person. For purposes of this subparagraph, if the offset has been transferred to another person pursuant to subdivision (2) of this subsection, the total amount that has been claimed as an offset against the premiums tax liability on the premiums tax return or returns filed by such insurer includes the total amount that has been claimed as an offset against the premiums tax liability on the premiums tax return or returns filed by such other person. The association shall promptly notify the Commissioner of Revenue Services of the name and address of the insurers to which such refunds have been made, the amount of such refunds and the date on which such refunds were mailed to such insurer. If the amount that an insurer is required to pay to the Department of Revenue Services has not been so paid on or before the forty-fifth day after the date of mailing of such refunds, the insurer shall be liable for interest on such amount at the rate of one per cent per month or fraction thereof from such forty-fifth day to the date of payment.

(2) An insurer, in this subparagraph called “the transferor”, may transfer any offset provided under subdivision (1) of this subsection to an affiliate, as defined in section 38a-1, of the transferor. Any such transfer of the offset by the transferor and any subsequent transfer or transfers of the same offset shall not affect the obligation of the transferor to pay to the Department of Revenue Services any sums which are acquired by refund from the association pursuant to subsection (b) of this section and which are required to be paid to the Department of Revenue Services pursuant to subdivision (1) of this subsection. Such offset may be taken by any transferee only against the transferee’s premium tax liability to this state under chapter 207. The Commissioner of Revenue Services shall not allow such offset to a transferee against its premium tax liability unless the transferor, the affiliate to which the offset was originally transferred, each subsequent transferor and each subsequent transferee have filed such information as may be required on forms provided by said commissioner with respect to any such transfer or transfers on or before the due date of the premium tax return on which such offset would have been taken by the transferor if no transfer had been made by the transferor.

(1971, P.A. 466, S. 6; P.A. 79-376, S. 64; P.A. 81-83, S. 3; P.A. 87-290, S. 3, 8; P.A. 90-50, S. 1, 3; P.A. 97-43; 97-125, S. 3, 9; P.A. 00-174, S. 77, 83; June Sp. Sess. P.A. 01-6, S. 40, 41, 85; P.A. 07-21, S. 1; P.A. 10-5, S. 40; P.A. 11-19, S. 18; P.A. 15-171, S. 2.)

History: P.A. 79-376 substituted “workers’ compensation” for “workmen’s compensation”; P.A. 81-83 specified that associations are not obligated for claims filed more than two years from date of declaration of insolvency, provided for permissive rather than mandatory proration of funds in account, prohibited payment of dividends during deferment period, added provisions re payment of deferred assessments and refunds and authorized payment of claims “in any order it deems reasonable, including but not limited to, payment in the order of receipt or by classification” in Subsec. (1); P.A. 87-290 amended Subsec. (1) to limit the assessment levied on the “all other insurance account” of a member insurer whenever over half the premiums received by the insurer were for policies issued in the state for risks in the state; P.A. 90-50 amended Subsec. (1)(a)(i) to raise the per policy maximum for covered claims for unearned premiums from $1,000 to $2,000; Sec. 38-278 transferred to Sec. 38a-841 in 1991; P.A. 97-43 amended Subsec. (1) to exclude timely filed workers’ compensation claims from two-year filing deadline; P.A. 97-125 added new Subdiv. in Subsec. (2) to allow the association to intervene in proceedings before any court with jurisdiction over an insolvent insurer, relettering remaining Subdivs. accordingly, effective July 1, 1997; P.A. 00-174 added Subdiv. (3) re offsets against premium tax liability for amounts assessed under this chapter, and to allow transfer of the offset to an affiliate, effective May 26, 2000, and applicable to income years commencing on and after January 1, 2000; June Sp. Sess. P.A. 01-6 amended Subdiv. (3)(A) to specify procedures for tax treatment of refunds of assessments of association members, effective July 1, 2001, and amended Subdiv. (3)(B) to add procedures for the transfer to affiliates of tax offsets for association assessments, effective July 1, 2001, and applicable to calendar years commencing on or after January 1, 2001; P.A. 07-21 amended Subdiv. (l)(a)(ii) to provide that coverage limit of $300,000 is applicable to claims arising under policies of insurers determined to be insolvent prior to October 1, 2007, and that coverage limit of $400,000 is applicable to claims arising under policies of insurers determined to be insolvent on or after October 1, 2007; P.A. 10-5 made technical changes, effective May 5, 2010; P.A. 11-19 made technical changes in Subsecs. (a) and (b); P.A. 15-171 amended Subsec. (a) to add references to entry of final order of liquidation with a finding of insolvency, provide that coverage limit of $400,000 is applicable to claims arising under policies of insurers determined to be insolvent on or after October 1, 2007, and prior to October 1, 2015, and provide that coverage limit of $500,000 is applicable to claims arising under policies of insurers against which final order of liquidation with a finding of insolvency has been entered by a court of competent jurisdiction on or after October 1, 2015, in Subdiv. (1), and to make technical changes.

Sec. 38a-843. (Formerly Sec. 38-280). Insolvent insurers. Penalty. Petition to show cause. (a) The commissioner shall: (1) Notify said association of the existence of an insolvent insurer, and notify the chairman of the Workers’ Compensation Commission and the State Treasurer of the existence of an insolvent workers’ compensation insurer, not later than three days after the commissioner receives notice of any such insolvency; (2) upon request of the board of directors, provide said association with a statement of the net direct written premiums of each member insurer.

(b) The commissioner may: (1) Require that said association notify those persons insured by the insolvent insurer, and any other interested parties, of the entry of a final order of liquidation with a finding of insolvency and of their rights under sections 38a-836 to 38a-853, inclusive. Such notification shall be by mail sent to their last known address, where available, provided if sufficient information for such notification by mail is not available, notice by publication in a newspaper of general circulation shall be sufficient to satisfy the requirements of this subsection; (2) suspend or revoke, after notice and hearing, the certificate of authority to transact insurance in this state of any member insurer that fails to pay an assessment when due or which fails to comply with said plan of operation. In lieu of such suspension or revocation, the commissioner may levy a fine on any member insurer that fails to pay an assessment when due, provided no such fine shall exceed five per cent of the unpaid assessment per month, and provided no fine shall be less than five hundred dollars per month; (3) revoke the designation of any servicing facility if the commissioner finds claims are being handled unsatisfactorily.

(c) Any person aggrieved by any final action or order of the commissioner under sections 38a-836 to 38a-853, inclusive, may, not later than thirty days from the date of such action or order, petition the superior court for the judicial district of Hartford to require the commissioner to show cause why such action or order should not be reversed or eliminated, and, if said court finds that the action or order of the commissioner was arbitrary and unjustified it shall take such action in the premises as may seem equitable. The pendency of any such petitions to show cause shall act as a stay of execution of any such order. Petitions under this section shall be privileged in respect of trial assignment.

(1971, P.A. 466, S. 8; P.A. 78-280, S. 6, 127; P.A. 86-35, S. 2; P.A. 88-230, S. 1, 12; P.A. 90-98, S. 1, 2; P.A. 93-142, S. 4, 7, 8; P.A. 95-220, S. 4–6; P.A. 08-178, S. 42; P.A. 10-5, S. 42; P.A. 11-19, S. 19; P.A. 15-171, S. 3.)

History: P.A. 78-280 substituted “judicial district of Hartford-New Britain” for “Hartford county” in Subsec. (3); P.A. 86-35 amended Subsec. (1) to require the insurance commissioner to notify the chairman of the workers’ compensation commission and the state treasurer whenever a workers’ compensation insurer becomes insolvent; P.A. 88-230 replaced “judicial district of Hartford-New Britain” with “judicial district of Hartford”, effective September 1, 1991; P.A. 90-98 changed the effective date of P.A. 88-230 from September 1, 1991, to September 1, 1993; Sec. 38-280 transferred to Sec. 38a-843 in 1991; P.A. 93-142 changed the effective date of P.A. 88-230 from September 1, 1993, to September 1, 1996, effective June 14, 1993; P.A. 95-220 changed the effective date of P.A. 88-230 from September 1, 1996, to September 1, 1998, effective July 1, 1995; P.A. 08-178 amended Subsec. (2) by making technical changes and increasing per month minimum fine from $100 to $500; P.A. 10-5 made technical changes, effective May 5, 2010; P.A. 11-19 made a technical change in Subsec. (c); P.A. 15-171 amended Subsec. (a) by deleting “the determination of” and making a technical change, and amended Subsec. (b) by replacing “determination” with “entry of a final order of liquidation with a finding” and making a technical change.

PART II

CONNECTICUT LIFE AND HEALTH INSURANCE
GUARANTY ASSOCIATION ACT

Sec. 38a-860. (Formerly Sec. 38-303). Application of chapter. Obligations of association. (a) Sections 38a-858 to 38a-875, inclusive, shall provide coverage for the policies and contracts specified in subsection (f) of this section: (1) To any person, except for a nonresident certificate holder under a group policy or contract, who is the beneficiary, assignee or payee of the person covered under subdivision (2) of this subsection, regardless of where the person resides, and (2) any person who is the owner of, or certificate holder under, such policy or contract and in each case who (A) is a resident, or (B) is not a resident, provided (i) the insurer that issued such policy or contract is domiciled in this state, (ii) the state in which the person resides has an association similar to the association created by this section and sections 38a-837, 38a-838, 38a-845, 38a-853, 38a-862, 38a-863, 38a-865 and 38a-866, and (iii) the person is not eligible for coverage by an association in any other state because the insurer was not licensed in the state at the time specified in the state’s guaranty association law.

(b) For unallocated annuity contracts specified in subsection (f) of this section, subdivisions (1) and (2) of subsection (a) of this section shall not apply, and except as provided in subsections (d) and (e) of this section, sections 38a-858 to 38a-875, inclusive, shall apply to: (1) Any person who is the owner of the unallocated annuity contract if the contract is issued to, or in connection with, a specific benefit plan whose plan sponsor has its principal place of business in this state; and (2) any person who is the owner of an unallocated annuity contract issued to, or in connection with, government lotteries if the owners are residents.

(c) For structured settlement annuities specified in subsection (f) of this section, subdivisions (1) and (2) of subsection (a) of this section shall not apply, and except as provided in subsections (d) and (e) of this section, sections 38a-858 to 38a-875, inclusive, shall apply to a person who is a payee under a structured settlement annuity, or to a beneficiary of a payee if the payee is deceased, if the payee: (1) Is a resident, regardless of where the contract owner resides, or (2) is not a resident, provided: (A) (i) The contract owner of the structured settlement annuity is a resident, or (ii) the contract owner of the structured settlement annuity is not a resident, but the insurer that issued the structured settlement annuity is domiciled in this state, and the state in which the contract owner resides has an association similar to the association created by sections 38a-858 to 38a-875, inclusive; and (B) neither the payee, beneficiary or contract owner is eligible for coverage by the association of the state in which the payee, beneficiary or contract owner resides.

(d) Sections 38a-858 to 38a-875, inclusive, shall not provide coverage to: (1) A person who is a payee or beneficiary of a contract owner resident of this state, if the payee or beneficiary is afforded any coverage by the association of another state; or (2) a person covered under subsection (b) of this section, if any coverage is provided by the association of another state to the person.

(e) Sections 38a-858 to 38a-875, inclusive, shall provide coverage to a person who is a resident and, in special circumstances, to a nonresident. In order to avoid duplicate coverage, if a person who would otherwise receive coverage under sections 38a-858 to 38a-875, inclusive, is provided coverage under the laws of any other state, the person shall not be provided coverage under sections 38a-858 to 38a-875, inclusive. 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, beneficiary or assignee, sections 38a-858 to 38a-875, inclusive, shall be construed in conjunction with the laws of other states to result in coverage by only one association.

(f) (1) Sections 38a-858 to 38a-875, inclusive, shall provide coverage to the persons specified in subsections (a) to (d), inclusive, of this section for direct, nongroup life, health or annuity policies or contracts and supplemental contracts to such policies or contracts, for certificates under direct group policies and contracts, and for unallocated annuity contracts issued by member insurers, except as limited by said sections. Annuity contracts and certificates under group annuity contracts include, but are not limited to, guaranteed investment contracts, deposit administration contracts, unallocated funding agreements, allocated funding agreements, structured settlement annuities, annuities issued to or in connection with government lotteries and any immediate or deferred annuity contracts.

(2) Sections 38a-858 to 38a-875, inclusive, shall not provide coverage for: (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, unless assumption certificates have been issued; (C) 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 member insurer becomes an impaired or insolvent insurer under sections 38a-858 to 38a-875, inclusive, 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 sections 38a-858 to 38a-875, inclusive, whichever is earlier, and (ii) on and after the date on which the member insurer becomes an impaired or insolvent insurer under sections 38a-858 to 38a-875, inclusive, whichever is earlier, exceeds the rate of interest determined by subtracting three percentage points from Moody’s corporate bond yield average as most recently available; (D) a portion of a policy or contract issued to 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 federal Employee Retirement Income Security Act of 1974, as amended from time to time, (ii) a minimum premium group insurance plan, or (iii) an administrative services only contract; (E) any stop-loss or excess loss insurance policy or contract providing for the indemnification of or payment to a policy owner, a contract owner, a plan or another person obligated to pay life, health or annuity benefits; (F) any portion of a policy or contract to the extent that it provides dividends, experience rating credits, voting rights or provides that any fees or allowances be paid to any person, including, but not limited to, 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 this state 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 this state; (H) any unallocated annuity contract issued to an employee benefit plan protected under the federal Pension Benefit Guaranty Corporation, regardless of whether the federal Pension Benefit Guaranty Corporation has yet become liable to make any payments with respect to the benefit plan; (I) any portion of an unallocated annuity contract that is not issued to, or in connection with a specific employee, union or association of natural persons benefit plan or a government lottery; (J) any subscriber contract issued by a health care center; (K) a contractual agreement that establishes the insurer’s obligation by reference to a portfolio of assets that is not owned or possessed by the insurance company; (L) an obligation that does not arise under the express written terms of the policy or contract issued by the insurer to the contract owner or policy owner, including, but not limited to, (i) a claim based on marketing materials, (ii) a claim based on side letters, riders or other documents that were issued by the insurer without meeting applicable policy form filing or approval requirements, (iii) a misrepresentation of or regarding policy benefits, (iv) an extra-contractual claim, or (v) a claim for penalties or consequential or incidental damages; (M) 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; (N) 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 that 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 sections 38a-858 to 38a-875, inclusive, whichever is earlier. If a policy’s or contract’s interest or changes in value are credited less frequently than annually, then for purposes of determining the values that have been credited and are not subject to forfeiture under this subparagraph, 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 (O) any policy or contract providing hospital, medical, prescription drugs or other health care benefits pursuant to Part C, 42 USC 1395w21 et seq., or Part D, 42 USC 1395w101 et seq., as both may be amended from time to time, or any regulations issued thereunder.

(g) The benefits for which the association may become liable shall in no event exceed the lesser of: (1) The contractual obligations for which the insurer is liable or would have been liable if it were not an impaired insurer, or (2) (A) with respect to any one life, regardless of the number of policies or contracts: (i) Five hundred thousand dollars in life insurance death benefits, but no more than five hundred thousand dollars in net cash surrender and net cash withdrawal values for life insurance; (ii) five hundred thousand dollars in health insurance benefits, including, but not limited to, any net cash surrender and net cash withdrawal values; (iii) five hundred thousand dollars in the present value of annuity benefits, including, but not limited to, net cash surrender and net cash withdrawal values; (B) with respect to each individual participating in a governmental retirement plan established under Section 401, 403(b) or 457 of the United States Internal Revenue Code of 1986, or any subsequent internal revenue code of the United States, as amended from time to time, covered by an unallocated annuity contract or the beneficiaries of each such individual if deceased, in the aggregate, five hundred thousand dollars in present value annuity benefits, including, but not limited to, net cash surrender and net cash withdrawal values; (C) with respect to each payee of a structured settlement annuity, or beneficiary or beneficiaries of the payee if deceased, five hundred thousand dollars in present value annuity benefits, in the aggregate, including, but not limited to, net cash surrender and net cash withdrawal values, if any, provided in no event shall the association be liable to expend (i) more than the five hundred thousand dollars in the aggregate with respect to any one individual under subparagraphs (A), (B) and (C) of this subdivision, and (ii) with respect to one owner of multiple nongroup policies of life insurance, whether the policy owner is an individual, firm, corporation or other person, and whether the persons insured are officers, managers, employees or other persons, more than five million dollars in benefits, regardless of the number of policies and contracts held by the owner; (D) with respect to either (i) one contract owner provided coverage under subdivision (2) of subsection (b) of this section, or (ii) one plan sponsor whose plans own directly or in trust one or more unallocated annuity contracts not included in subparagraph (B) of subdivision (2) of this subsection, five million dollars in benefits regardless of the number of contracts with respect to the contract owner or plan sponsor, except that in the case where one or more unallocated annuity contracts are covered contracts under sections 38a-858 to 38a-875, inclusive, and are owned by a trust or other entity for the benefit of two or more plan sponsors, coverage shall be afforded by the association if the largest interest in the trust or entity owning the contract or contracts is held by a plan sponsor whose principal place of business is in this state and in no event shall the association be obligated to cover more than five million dollars in benefits with respect to all such unallocated contracts.

(h) The limits set forth in subsection (g) of this section are limits on the benefits for which the association is obligated before taking into account either the association’s subrogation and assignment rights or the extent to which those benefits could be provided out of the assets of the impaired or insolvent insurer that are attributable to covered policies. The costs of the association’s obligations under sections 38a-858 to 38a-875, inclusive, may be met by the use of assets attributable to covered policies or reimbursed to the association pursuant to the association’s subrogation and assignment rights.

(i) In performing its obligation to provide coverage under section 38a-865, the association shall not be required to guarantee, assume, reinsure or perform, or cause to be guaranteed, assumed, reinsured or performed, the contractual obligations of the insolvent or impaired insurer under a covered policy or contract that does not materially affect the economic value or economic benefit of the covered policy or contract.

(1972, P.A. 280, S. 3; P.A. 75-224; P.A. 87-290, S. 6, 8; P.A. 88-76, S. 5, 10; P.A. 90-243, S. 152; P.A. 97-108, S. 4; P.A. 98-19, S. 1, 2; P.A. 01-67, S. 1; P.A. 04-17, S. 1; P.A. 08-147, S. 10; P.A. 09-74, S. 27, 28; P.A. 15-171, S. 4.)

History: P.A. 75-224 divided section into Subsecs., rephrased provisions re applicability of chapter, now Subsec. (b), specifically exempted variable life insurance or annuity contract not guaranteed by an insurer and added reference to “insolvent” insurers; P.A. 87-290 amended Subsec. (a) to limit the chapter’s application to policies and contracts issued to residents of this state; P.A. 88-76 rewrote section entirely, describing the limits of coverage in greater detail; P.A. 90-243 amended Subsec. (b) to exempt coverage for subscriber contracts issued by a health care center; Sec. 38-303 transferred to Sec. 38a-860 in 1991; P.A. 97-108 added Subsec. (b)(J) re a contractual agreement that establishes the insurer’s obligation by reference to a portfolio not owned by the insurer; P.A. 98-19 amended Subsec. (c)(2)(A)(ii) to substitute $500,000 for $300,000 re health insurance, and amended Subsec. (c)(2)(B) to substitute $500,000 for $300,000 re aggregate with respect to any individual under Subparas. (A) and (B), effective April 24, 1998; P.A. 01-67 amended Subsec. (a) to make a technical change and replace former Subdivs. (1) and (2) with new Subdivs. (1) and (2), added new Subsecs. (b) to (e), redesignated existing Subsecs. (b) and (c) as Subsecs. (f) and (g) and made substantial revisions thereto, adding new Subsec. (f)(K) to (M), and (g)(D), and added new Subsecs. (h) and (i) re obligations of the association; P.A. 04-17 substituted $500,000 for $300,000 and $100,000 re benefits in Subsec. (g); P.A. 08-147 amended Subsec. (f)(2) to delete former Subpara. (D)(iii) re stop-loss group insurance plan, redesignate existing Subpara. (D)(iv) as new Subpara. (D)(iii), insert new Subpara. (E) re stop-loss or excess loss insurance policy or contract and redesignate existing Subparas. (E) to (M) as new Subparas. (F) to (N) and amended Subsec. (g)(2)(B) by making a technical change; P.A. 09-74 made technical changes in Subsecs. (f) and (g), effective May 27, 2009; P.A. 15-171 amended Subsec. (f)(2) to add “a portion of a policy or contract issued to” in Subpara. (D), add Subpara. (O) re policy or contract providing health care benefits pursuant to federal law, and make technical changes.