Chapter 704a - Insurance Guaranty Funds

Cited. 217 C. 371. Legislative history of act discussed. 247 C. 442. Policy exclusion of government-owned vehicles was authorized pursuant to regulations Sec. 38a-334-6(c)(2)(C) and exclusion did not conflict with public policies embodied in act. 278 C. 794.

Sec. 38a-836. (Formerly Sec. 38-273). Short title: Connecticut Insurance Guaranty Association Act. Sections 38a-836 to 38a-853, inclusive, shall be known and may be cited as the “Connecticut Insurance Guaranty Association Act”.

(1971, P.A. 466, S. 1.)

History: Sec. 38-273 transferred to Sec. 38a-836 in 1991.

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Sec. 38a-837. (Formerly Sec. 38-274). Application of chapter. Sections 38a-836 to 38a-853, inclusive, shall apply to all kinds of direct insurance, except:

(1) Life, annuity, health or disability insurance;

(2) Mortgage guaranty, financial guaranty or other forms of insurance offering protection against investment risks;

(3) Fidelity or surety or any bonding obligations;

(4) Credit insurance, vendors' single interest insurance, or collateral protection insurance or any similar insurance protecting the interests of a creditor arising out of a creditor-debtor transaction;

(5) Insurance of warranties or service contracts, including insurance that provides for the repair, replacement or service of goods or property, or indemnification for repair, replacement or service, for the operational or structural failure of the goods or property due to a defect in materials, workmanship or normal wear and tear, or that provides reimbursement for the liability incurred by the issuer of agreements or service contracts that provide such benefits;

(6) Title insurance;

(7) Ocean marine insurance;

(8) Any transaction or combination of transactions between a person, including affiliates of such person, and an insurer, including affiliates of such insurer, which involves the transfer of investment or credit risk unaccompanied by transfer of insurance risk;

(9) Any insurance provided by or guaranteed by government; or

(10) Flood insurance pursuant to the federal Flood Disaster Protection Act of 1973, as amended, 42 USC Section 4001, et seq.

(1971, P.A. 466, S. 2; P.A. 86-63; P.A. 88-76, S. 1, 10; P.A. 97-125, S. 1, 9.)

History: P.A. 86-63 provided that certain types of flood insurance shall not be subject to the provisions of chapter 687; P.A. 88-76 excepted financial guaranty insurance from the provisions of this chapter; Sec. 38-274 transferred to Sec. 38a-837 in 1991; P.A. 97-125 reorganized section by expending types of excepted insurance and adding Subdiv. designators, effective July 1, 1997.

Cited. 217 C. 371.

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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 allocated to or otherwise become the obligation of a successor 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 same meaning as provided in 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; P.A. 17-2, S. 13; 17-15, S. 87.)

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; P.A. 17-2 redefined “insolvent insurer” in Subdiv. (6); P.A. 17-15 made technical changes in Subdiv. (11).

Annotations to former section 38-275:

Cited. 215 C. 224.

Annotations to present section:

Subdiv. (5):

Subpara. (B)(i): Waiver by state's indemnity insurer of its contractual right to reimbursement restored status of state's claim as a “covered claim” that was reimbursable by association since claim was no longer for the benefit of an insurer. 278 C. 77. Subpara. (B)(i): Association payment to plaintiff who was injured when her motor vehicle was struck by municipally owned police cruiser did not relieve plaintiff's automobile insurance company of obligation for purposes of statutory limitation on association payments for the benefit of a solvent insurer, nor did that payment violate Sec. 38a-845 requirement of exhaustion of solvent carrier policies; statutory sections do not have effect of automatically shifting liability from association to the nearest solvent insurer when liability does not rest there already. Id., 794. Because the obligation of association re a “covered claim” is limited to that “which arises out of and is within” the coverage of the underlying insurance policy, association is not liable for sanctions imposed by workers' compensation commissioner because the sanctions arose out of association's conduct in handling the claim and not out of the coverage of the policy. 298 C. 620. An insurer's preinsolvency misconduct during underlying litigation does not estop association from challenging the existence of a covered claim, which is a predicate for association's liability under the guaranty act. 314 C. 161.

Subdiv. (6):

Cited. 217 C. 371. All claims by insurers are excluded from definition of “covered claim”. 243 C. 438. Employer that is self-insurer under Workers' Compensation Act is not an “insurer” under definition of “covered claim”. 247 C. 442.

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Sec. 38a-839. (Formerly Sec. 38-276). Connecticut Insurance Guaranty Association created. Membership. Function. Accounts. There is created a nonprofit unincorporated legal entity to be known as the Connecticut Insurance Guaranty Association. All insurers defined as member insurers in section 38a-838 shall be members of said association as a condition of their authority to transact insurance in this state. Said association shall perform its functions under a plan of operation established and approved under section 38a-842 and shall exercise its powers through a board of directors established under section 38a-840. For the purposes of administration and assessment, said association shall be divided into three separate accounts: (1) The workers' compensation insurance account; (2) the automobile insurance account; and (3) an account for all other insurance to which sections 38a-836 to 38a-853, inclusive, apply.

(1971, P.A. 466, S. 4; P.A. 79-376, S. 63; P.A. 87-290, S. 2, 8; P.A. 10-5, S. 38; P.A. 11-19, S. 17.)

History: P.A. 79-376 substituted “workers' compensation” for “workmen's compensation”; P.A. 87-290 made a technical change, substituting reference to 38-275(8) for reference to Sec. 38-275(6); Sec. 38-276 transferred to Sec. 38a-839 in 1991; P.A. 10-5 made technical changes, effective May 5, 2010; P.A. 11-19 made a technical change.

Annotation to former section 38-276:

Cited. 215 C. 224.

Annotation to present section:

Cited. 217 C. 371.

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Sec. 38a-840. (Formerly Sec. 38-277). Board of directors. Selection. Reimbursement for expenses. (a) The board of directors of said association shall consist of not less than five nor more than nine persons serving terms as established in the plan of operation under section 38a-842. The members of the board of directors shall be selected by member insurers subject to the approval of the commissioner. Vacancies on the board shall be filled for the remaining period of the term by a majority vote of the remaining members, subject to the approval of the commissioner. If no members are selected within sixty days after October 1, 1971, the commissioner may appoint the initial members of the board of directors.

(b) In approving selections to said board, the commissioner shall consider among other things whether all member insurers are fairly represented.

(c) Members of said board shall receive no compensation as such but shall be reimbursed from the assets of said association for actual and necessary expenses incurred by them in carrying out their official duties as members of the board of directors.

(1971, P.A. 466, S. 5; P.A. 81-83, S. 2; P.A. 10-5, S. 39.)

History: P.A. 81-83 required that vacancies on the board be filled by majority vote of remaining members rather than “in the same manner as initial appointments” under Subsec. (1); Sec. 38-277 transferred to Sec. 38a-840 in 1991; P.A. 10-5 made technical changes, effective May 5, 2010.

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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.

Annotation to former section 38-278:

Cited. 215 C. 224.

Annotation to present section:

Cited. 217 C. 371.

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Sec. 38a-842. (Formerly Sec. 38-279). Plan of operation. (a)(1) Said 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 said association. The plan of operation and any amendments thereto shall become effective upon approval in writing by the commissioner.

(2) If said association fails to submit a suitable plan of operation within ninety days following October 1, 1971, or if at any time thereafter said association fails to submit suitable amendments to the plan, the commissioner shall, after notice and hearing, adopt and promulgate such reasonable regulations as are necessary or advisable to effectuate the provisions of sections 38a-836 to 38a-853, inclusive. Such regulations shall continue in force until modified by the commissioner or superseded by a plan submitted by said association and approved by the commissioner.

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

(c) The plan of operation shall: (1) Establish the procedures whereby all the powers and duties of said association under section 38a-841 shall be performed; (2) establish procedures for handling the assets of said association; (3) establish the number, the terms of office and the amount and method of reimbursing members of the board of directors under section 38a-840; (4) establish procedures by which claims may be filed with said association and establish acceptable forms of proof of covered claims. Notice of claims to the receiver or liquidator of the insolvent insurer shall be deemed notice to said association or its agent and a list of such claims shall be periodically submitted to said association or similar organization having a like function to that of said association in another state by the receiver or liquidator; (5) establish regular places and times for meetings of the board of directors; (6) establish procedures for records to be kept of all financial transactions of said association, its agents, and the board of directors; (7) provide that any member insurer aggrieved by any final action or decision of said association may appeal to the commissioner within thirty days after such action or decision; (8) establish the procedures whereby selections for the board of directors shall be submitted to the commissioner; (9) contain such additional provisions as may be necessary or proper for the execution of the powers and duties of said association under sections 38a-836 to 38a-853, inclusive.

(d) The plan of operation may delegate any or all powers and duties of said association, except those under subdivision (3) of subsection (a) of section 38a-841 and subdivision (2) of subsection (b) of section 38a-841, to a corporation, association, or other organization which performs or will perform functions similar to those of said association, or its equivalent having a like function to that of said association, in two or more states. Such a corporation, association or organization shall be reimbursed by said association as a servicing facility would be reimbursed and shall be paid by said association for its performance of any other functions of said association. Any delegation under this subsection 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 sections 38a-836 to 38a-853, inclusive.

(1971, P.A. 466, S. 7; P.A. 10-5, S. 41.)

History: Sec. 38-279 transferred to Sec. 38a-842 in 1991; P.A. 10-5 made technical changes, effective May 5, 2010.

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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.

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Sec. 38a-844. (Formerly Sec. 38-281). Assignment of rights under policy. Receiver or liquidator bound by settlements. Preservation of rights of association. Right of recovery. (a) Any person recovering any moneys under sections 38a-836 to 38a-853, inclusive, shall be deemed to have assigned his rights under the policy to said association to the extent of his recovery from said association. Every insured or claimant seeking the protection of said sections shall cooperate with said association to the same extent as such person would have been required to cooperate with the insolvent insurer. Said association shall have no cause of action against any insured of the insolvent insurer for any sums it has paid out to such insured except such causes of action as the insolvent insurer would have had if such sums had been paid by the insolvent insurer. In the case of an insolvent insurer operating on a plan with assessment liability, payments of claims of said association shall not operate to reduce the liability of insureds to the receiver, liquidator, or statutory successor for unpaid assessments.

(b) The receiver, liquidator, or statutory successor of an insolvent insurer shall be bound by determinations of covered claim eligibility under sections 38a-836 to 38a-853, inclusive, and by settlements of claims made by said association or any similar organization having a like function to that of said association in another state. The court having jurisdiction shall grant such claims priority equal to that to which the claimant would have been entitled in the absence of said sections 38a-836 to 38a-853, inclusive, against the assets of the insolvent insurer. The expenses of said association or any similar organization having a like function to that of said association in handling claims shall be accorded the same priority as the receiver's or liquidator's expenses.

(c) Said association shall periodically file with the receiver or liquidator of the insolvent insurer statements of the covered claims paid by said association, the expenses paid for the processing of covered claims paid or contested and estimates of anticipated claims on said association, and expenses of processing such claims which shall preserve the rights of said association against the assets of the insolvent insurer.

(d) (1) Except as provided in subdivision (2) of this subsection, the association shall have the right to recover from the following persons the amount of any covered claim paid on behalf of such person pursuant to sections 38a-836 to 38a-853, inclusive: (A) Any person who is an affiliate of the insolvent insurer and whose liability obligations to other persons are satisfied in whole or in part by payments made under this chapter; and (B) any insured whose net worth on December thirty-first of the year next preceding the date the insurer becomes an insolvent insurer exceeds fifty million dollars and whose liability obligations to other persons are satisfied in whole or in part by payments made under said sections. For purposes of this subdivision, “insured” does not include a municipality, as defined in section 7-148, or the Second Injury Fund, established in section 31-354.

(2) The association shall have no right to recover pursuant to subdivision (1) of this subsection from any nonprofit corporation organized to deliver health services and social services to meet the needs of the elderly, that is incorporated in this state and qualified as a Section 501(c)(3) organization under the Internal Revenue Code of 1986, or any subsequent corresponding internal revenue code of the United States, as amended from time to time, for any amount of covered claims paid on behalf of such corporation on or after December 1, 2001, provided the insolvent insurer was declared insolvent prior to May 27, 2008. Any amounts recovered by the association prior to May 27, 2008, from any such nonprofit corporation or affiliate of such nonprofit corporation shall not be required to be reimbursed to such nonprofit corporation or affiliate of such nonprofit corporation.

(1971, P.A. 466, S. 9; P.A. 81-83, S. 4; P.A. 87-290, S. 4, 8; P.A. 97-125, S. 4, 9; P.A. 03-182, S. 1; P.A. 04-10, S. 9; P.A. 05-199, S. 12; P.A. 08-96, S. 1; P.A. 10-5, S. 43.)

History: P.A. 81-83 required that association file statements of expenses paid for processing paid or contested claims in Subsec. (3); P.A. 87-290 added Subsec. (4) describing the persons from whom the association has the right to recover; Sec. 38-281 transferred to Sec. 38a-844 in 1991; P.A. 97-125 made a technical change in Subsec. (1) and amended Subsec. (2) re determinations of covered claim eligibility and settlements of claims made by the association, effective July 1, 1997; P.A. 03-182 amended Subdiv. (4) to make technical changes and provide that “insured” does not include a municipality, as defined in Sec. 7-148, effective June 26, 2003; P.A. 04-10 made technical changes in Subdiv. (4) (Revisor's note: In 2005, a provision in Subdiv. (4) defining “insured”, added by P.A. 03-182 and inadvertently omitted from P.A. 04-10, was reinstated editorially by the Revisors); P.A. 05-199 amended Subsec. (4) to exclude the Second Injury Fund from the definition of “insured”, effective July 1, 2006; P.A. 08-96 amended Subsec. (4) by adding provisions that exclude certain nonprofit corporations from association's right of recovery and by making conforming changes, effective May 27, 2008; P.A. 10-5 made technical changes, effective May 5, 2010.

Cited. 217 C. 371.

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Sec. 38a-845. (Formerly Sec. 38-282). Exhaustion of rights under policy prior to claim against association. Claims recoverable from more than one association. Persons required to exhaust rights under governmental insurance or guaranty program. (a) Any person having a claim against an insurer under any provision in an insurance policy, other than a policy of an insolvent insurer, which is also a covered claim under sections 38a-836 to 38a-853, inclusive, shall exhaust first his rights under such policy. Any amount payable on a covered claim under said sections shall be reduced by the amount recoverable under the claimant's insurance policy or chapter 568.

(b) Any person having a claim which may be recovered under more than one insurance guaranty association or its equivalent having a like function to that of said association shall seek recovery first from the association operating in the area of the residence of the insured except that (1) if it is a first party claim for damage to property with a permanent location, such person shall seek recovery first from the association operating in the location of the property, and (2) if it is a workers' compensation claim, such person shall seek recovery first from the association operating in the area of residence of the claimant. Any recovery under sections 38a-836 to 38a-853, inclusive, shall be reduced by the amount recoverable from any other insurance guaranty association or its equivalent having a like function to that of said association.

(c) Any person having a claim under any governmental insurance or guaranty program which such claim is also a covered claim shall be required to first exhaust his rights under such program. Any amount payable on a covered claim under sections 38a-836 to 38a-853, inclusive, shall be reduced by any amount recoverable under such program.

(1971, P.A. 466, S. 10; P.A. 79-376, S. 65; P.A. 87-290, S. 5, 8; P.A. 88-76, S. 3, 10; P.A. 97-125, S. 5, 9; P.A. 03-49, S. 2; P.A. 10-5, S. 44.)

History: P.A. 79-376 replaced “workmen's compensation” with “workers' compensation”; P.A. 87-290 amended Subsec. (2) to delete references to the procedure for the recovery of a workers' compensation claim from more than one association; P.A. 88-76 amended Subsec. (1) to reduce the amount payable to a claimant by the amount of recovery under the claimant's insurance or workers' compensation; Sec. 38-282 transferred to Sec. 38a-845 in 1991; P.A. 97-125 substituted “amount recoverable” for “amount of any recovery” in Subsecs. (1) and (2), and added new Subsec. (3) re exhaustion of claims under governmental insurance or guaranty programs, effective July 1, 1997; P.A. 03-49 amended Subdiv. (2) to substitute “residence of the insured” for “residence of the claimant”, designate existing exception as Subpara. (A) and add Subpara. (B) re workers' compensation claims, effective May 23, 2003, and applicable to claims filed on or after that date; P.A. 10-5 made technical changes, effective May 5, 2010.

Annotation to former section 38-282:

Cited. 215 C. 224.

Annotations to present section:

Cited. 217 C. 371. Section inapplicable where plaintiff does not have claim against an insurer under an insurance policy. 247 C. 442. Association payment to plaintiff who was injured when her motor vehicle was struck by municipally owned police cruiser did not relieve plaintiff's automobile insurance company of obligation for purposes of statutory limitation on association payments for the benefit of a solvent insurer, nor did that payment violate requirement of section re exhaustion of solvent carrier policies; statutory sections do not have effect of automatically shifting liability from association to the nearest solvent insurer when liability does not rest there already. 278 C. 794. Exhaustion provisions of Subsec. (a) do not preclude liability of association under Sec. 31-299b based on facts of case. 302 C. 219.

Subsec. (a):

Claimant satisfies exhaustion requirement of Subsec. by pursuing coverage under her own uninsured motorist policy prior to attempting to collect; claimant's failure to obtain the full policy limits from her own coverage does not preclude claimant from collecting from guaranty fund or tortfeasor personally, but any recovery is reduced by full amount of those policy limits. 275 C. 290.

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Sec. 38a-846. (Formerly Sec. 38-283). Detection and prevention of insurer insolvencies. To aid in the detection and prevention of insurer insolvencies:

(1) The board of directors, upon majority vote, shall notify the commissioner of any information which it may have indicating any member insurer may be insolvent or in a financial condition hazardous to its policyholders or the public.

(2) The board of directors may, upon majority vote, request that the commissioner order an examination of any member insurer which the board in good faith believes may be in a financial condition hazardous to its policyholders or the public. Within thirty days of the receipt of such request, the commissioner shall begin such examination. The examination may be conducted as a National Association of Insurance Commissioners examination or may be conducted by the commissioner or by such persons as the commissioner may designate. The cost of such examination shall be paid by said association. In no event shall such examination report be released to the board of directors prior to its release to the public, provided this shall not preclude the commissioner from complying with subdivision (3) of this section. The commissioner shall notify the board of directors when the examination is completed. The request for an examination shall be kept on file by the commissioner but it shall not be open to public inspection prior to the release of the examination report to the public.

(3) The commissioner shall report to the board of directors when he has reasonable cause to believe that any member insurer examined or being examined at the request of the board of directors may be insolvent or in a financial condition hazardous to its policyholders or the public.

(4) The board of directors may, upon majority vote, make reports and recommendations to the commissioner and the chief insurance regulatory official in any jurisdiction upon any matter germane to the solvency, liquidation, rehabilitation or conservation of any member insurer. Such reports and recommendations shall not be considered public documents.

(5) The board of directors may, upon majority vote, make recommendations to the commissioner and any other public official in any jurisdiction for the detection and prevention of insurer insolvencies.

(6) At the request of the commissioner, the board of directors shall, at the conclusion of any insurer insolvency in which said association was obligated to pay any covered claim, prepare a report on the history and causes of such insolvency, based on the information available to said association, and submit such report to the commissioner.

(1971, P.A. 466, S. 11; P.A. 81-83, S. 5; P.A. 97-125, S. 6, 9; P.A. 98-27, S. 18.)

History: P.A. 81-83 provided that the board shall prepare report “at the request of the commissioner” in Subsec. (6); Sec. 38-283 transferred to Sec. 38a-846 in 1991; P.A. 97-125 made a technical change in Subdiv. (2), amended Subdiv. (4) re recommendations to chief insurance regulatory officials and amended Subdiv. (5) re recommendations to any other public official, effective July 1, 1997; P.A. 98-27 amended Subdiv. (1) to substitute “it” for “they”.

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Sec. 38a-847. (Formerly Sec. 38-284). Association subject to examination and regulation by commissioner. Annual financial report. Said association shall be subject to examination and regulation by the commissioner. The board of directors shall submit, not later than March thirtieth of each year, a financial report for the preceding calendar year in a form approved by the commissioner.

(1971, P.A. 466, S. 12.)

History: Sec. 38-284 transferred to Sec. 38a-847 in 1991.

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Sec. 38a-848. (Formerly Sec. 38-285). Exemption from fees and taxes. Exception. Said association shall be exempt from payment of all fees and all taxes levied by the state or any of its subdivisions provided it shall not be exempt from the payment of real or personal property taxes.

(1971, P.A. 466, S. 13.)

History: Sec. 38-285 transferred to Sec. 38a-848 in 1991.

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Sec. 38a-849. (Formerly Sec. 38-286). Rates and premiums to include recoupment of assessments. Section 38a-849 is repealed, effective July 1, 2000.

(1971, P.A. 466, S. 14; P.A. 00-174, S. 82, 83.)

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Sec. 38a-850. (Formerly Sec. 38-287). No liability for action taken in performance of powers and duties. No liability for failure to act. There shall be no liability on the part of and no cause of action of any nature shall arise against any member insurer, said association or its agents or employees, the board of directors, or any person serving as an alternate or substitute representative of any director or the commissioner or his representatives for any action taken or any failure to act by them in the performance of their powers and duties under sections 38a-836 to 38a-853, inclusive.

(1971, P.A. 466, S. 15; P.A. 97-125, S. 7, 9.)

History: Sec. 38-287 transferred to Sec. 38a-850 in 1991; P.A. 97-125 extended “no liability” provision to any person serving as an alternate or substitute representative of any director, and to any failure to act, effective July 1, 1997.

Sanctions imposed by workers' compensation commissioner that obligated association to pay an amount of money constitute a “liability” under section, and section therefore affords association immunity from those sanctions. 298 C. 620.

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Sec. 38a-851. (Formerly Sec. 38-288). Association rights in proceedings to which insolvent insurer is party. Access to insolvent insurer's records. (a) All proceedings in which an insolvent insurer is a party or is obligated to defend an insured as a party in any court in this state shall be stayed for up to six months and for such additional time thereafter as may be determined by the court from the date of declaration of insolvency or from the time an ancillary proceeding is instituted in the state, whichever is later, to permit proper defense by said association of all pending causes of action in the case. Whenever any covered claims arise from a judgment under any decision, verdict or finding based on the default of an insolvent insurer or based on such insolvent insurer's failure to defend an insured, said association, either on its own behalf or on behalf of such insured, may apply to have such judgment, order, decision, verdict or finding set aside by the same court or administrator that made such judgment, order, decision, verdict or finding and said association may defend against any such claim on the merits of the case.

(b) The liquidator, receiver or statutory successor of an insolvent insurer covered by sections 38a-836 to 38a-853, inclusive, shall permit access by the board or its authorized representative to such insolvent insurer's records which the board determines are necessary for the board to carry out its functions under said sections 38a-836 to 38a-853, inclusive, with regard to covered claims. The liquidator, receiver or statutory successor shall provide the board or its representative with copies of such records upon the request of the board.

(1971, P.A. 466, S. 16; P.A. 81-83, S. 6; P.A. 86-403, S. 80, 132; P.A. 97-125, S. 8, 9.)

History: P.A. 81-83 required that proceedings be stayed for up to six months and for additional time as determined by the court, eliminating requirement of stay of 60 days from insolvency determination; P.A. 86-403 made technical change; Sec. 38-288 transferred to Sec. 38a-851 in 1991; P.A. 97-125 designated existing provisions as Subsec. (a) and added Subsec. (b) re access to insolvent insurer's records, effective July 1, 1997.

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Sec. 38a-852. (Formerly Sec. 38-288a). Prohibited unfair trade practice. It shall be a prohibited unfair trade practice and a violation of section 38a-815 for any person to make use in any manner of the protection afforded by sections 38a-836 to 38a-853, inclusive, in the solicitation, negotiation, procurement or effectuation of insurance provided, this section shall not apply to the distribution of any publication approved by the commissioner and describing the general purposes and current limitations of sections 38a-836 to 38a-853, inclusive. Violations of this section shall be subject to the provisions of section 38a-817.

(P.A. 85-105, S. 1; P.A. 92-60, S. 22.)

History: Sec. 38-288a transferred to Sec. 38a-852 in 1991; P.A. 92-60 included the provisions of this section as a violation of Sec. 38a-815 and excluded its effect from the distribution of publications approved by the insurance commissioner describing the general purposes or current limitations of the Connecticut Insurance Guaranty Association Act.

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Sec. 38a-853. (Formerly Sec. 38-289). Regulations. The commissioner may promulgate such reasonable regulations as he deems necessary to carry out the intent of sections 38a-836 to 38a-853, inclusive. Such regulations may include definitions of the kinds of insurance specified in section 38a-837.

(1971, P.A. 466, S. 17; P.A. 88-76, S. 4, 10.)

History: P.A. 88-76 authorized the commissioner to adopt regulations defining the kinds of insurance specified in Sec. 38a-274; Sec. 38-289 transferred to Sec. 38a-853 in 1991.

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Secs. 38a-854 to 38a-857. Reserved for future use.

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PART II*

CONNECTICUT LIFE AND HEALTH INSURANCE
GUARANTY ASSOCIATION ACT

*Annotation to former chapter 689:

Cited. 173 C. 352.

Sec. 38a-858. (Formerly Sec. 38-301). Short title: Connecticut Life and Health Insurance Guaranty Association Act. Sections 38a-858 to 38a-875, inclusive, shall be known and may be cited as the “Connecticut Life and Health Insurance Guaranty Association Act”.

(1972, P.A. 280, S. 1.)

History: Sec. 38-301 transferred to Sec. 38a-858 in 1991.

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Sec. 38a-859. (Formerly Sec. 38-302). Association of member insurers. To provide protection for persons covered under section 38a-860, subject to certain limitations, against failure in the performance of contractual obligations under life, health and annuity policies, plans or contracts specified in section 38a-860 due to the impairment of the insurer issuing such policies, plans or contracts, an association of member insurers is created to enable the guaranty of payment of benefits and of continuation of coverages. Members of the association are subject to assessment to provide funds to carry out the purpose of sections 38a-858 to 38a-875, inclusive, and the association is authorized to assist the commissioner in the prescribed manner in the detection and prevention of insurer impairments.

(1972, P.A. 280, S. 2; P.A. 18-13, S. 1.)

History: Sec. 38-302 transferred to Sec. 38a-859 in 1991; P.A. 18-13 substituted “persons covered under section 38a-860” for “policyowners, insureds, beneficiaries, annuitants, payees and assignees of life insurance policies, health insurance policies, annuity contracts, and supplemental contracts”, added “under life, health and annuity policies, plans or contracts specified in section 38a-860”, replaced “association of insurers” with “association of member insurers”, and made a conforming change, effective July 1, 2018.

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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, including a health care provider rendering services covered under a health insurance policy or certificate, 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 or enrollee under, such policy or contract, other than an unallocated annuity contract or a structured settlement annuity, and in each case who (A) is a resident, or (B) is not a resident, provided (i) the member 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-859, 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 in which the person resides 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 person who is 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; (2) a person covered under subsection (b) of this section, if any coverage is provided by the association of another state to the person; or (3) a person who acquires rights to receive payments through a structured settlement factoring transaction as defined in 26 USC 5891(c)(3)(A), regardless of whether the transaction occurred before, on or after the date 26 USC 5891 (c)(3)(A) became effective.

(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, enrollee, 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 (e), inclusive, of this section for policies or contracts of direct, nongroup life insurance, health insurance, or annuities 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) except as set forth in subdivision (3) of this subsection, 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) a portion of a policy or contract to the extent that the assessments required by section 38a-866 with respect to the policy or contract are preempted by federal or state law; (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 member insurer to the enrollee, certificate holder, 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 member insurer without meeting applicable policy or contract form filing or approval requirements, (iii) a misrepresentation of or regarding policy or contract 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; (O) structured settlement annuity benefits to which a payee or beneficiary has transferred the payee's or beneficiary's rights in a structured settlement factoring transaction as defined in 26 USC 5891(c)(3)(A), regardless of whether the transaction occurred before or after said section became effective; and (P) any policy or contract providing hospital, medical, prescription drugs or other health care benefits pursuant to Part C, 42 USC 1395w21 et seq., Part D, 42 USC 1395w101 et seq., or 42 USC Chapter 7, Subchapter XIX, as said parts and subchapter may be amended from time to time, or any regulations issued thereunder.

(3) Subparagraph (C) of subdivision (2) of this subsection shall not apply to any portion of a policy or contract, including any rider to such policy or contract, that provides long-term care benefits or any other health insurance benefits.

(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 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 five million dollars in benefits, regardless of the number of policies and contracts held by the owner; and (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. The limits set forth in this subsection 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.

(h) For purposes of sections 38a-858 to 38a-875, inclusive, benefits provided by a long-term care rider to a life insurance policy or annuity contract shall be considered the same type of benefits as the benefits provided under the base life insurance policy or annuity contract to which such rider relates.

(i) In performing its obligation to provide coverage under section 38a-865, the association shall not be required to guarantee, assume, reinsure, reissue or perform, or cause to be guaranteed, assumed, reinsured, 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 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; P.A. 18-13, S. 2; P.A. 19-196, S. 5, 6.)

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; P.A. 18-13 amended Subsec. (a) by adding provision re health care provider in Subdiv. (1), adding reference to enrollee and adding provision re unallocated annuity contract in Subdiv. (2), replacing “insurer” with “member insurer” in Subdiv. (2)(B)(i), adding reference to Sec. 38a-859 in Subdiv. (2)(B)(ii), and adding “in which the person resides” in Subdiv. (2)(B)(iii), amended Subsec. (d) by adding Subdiv. (3) re person who acquires rights to receive payments through structured settlement factoring transaction, amended Subsec. (e) by adding reference to enrollee, amended Subsec. (f)(1) by replacing reference to Subsec. (d) with reference to Subsec. (e), amended Subsec. (f)(2) by adding “except as set forth in subdivision (3) of this subsection,” in Subpara. (C), replacing “any subscriber contract issued by a health care center” with “a portion of a policy or contract to the extent that the assessments required by section 38a-866 with respect to the policy or contract are preempted by federal or state law” in Subpara. (J), replacing “insurer” with “member insurer”, and adding references to enrollee, certificate holder and contract in Subpara. (L), adding new Subpara. (O) re structured settlement annuity benefits, redesignating existing Subpara. (O) as Subpara. (P) and amending same by adding reference to 42 USC Chapter 7, Subchapter XIX, further amended Subsec. (f) by adding Subdiv. (3) re portion of policy or contract that provides long-term care benefits or other health insurance benefits, amended Subsec. (g) by adding “or contract” in Subdiv. (2)(C)(ii), redesignated existing Subsec. (h) as Subsec. (g)(2)(E), added new Subsec. (h) re benefits provided by long-term care rider to life insurance policy or annuity contract, amended Subsec. (i) by adding reference to reissue, and made technical and conforming changes, effective July 1, 2018, and applicable to impairments and insolvencies occurring on or after said date; P.A. 19-196 added “or” in Subsec. (f)(2)(L)(ii) and amended Subsec. (g)(2) by deleting “; and (E)” and making conforming changes.

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Sec. 38a-861. (Formerly Sec. 38-304). Liberal construction. Sections 38a-858 to 38a-875, inclusive, shall be liberally construed to effect the purpose under section 38a-859 which shall constitute an aid and guide to interpretation.

(1972, P.A. 280, S. 4.)

History: Sec. 38-304 transferred to Sec. 38a-861 in 1991.

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Sec. 38a-862. (Formerly Sec. 38-305). Definitions. As used in sections 38a-858 to 38a-875, inclusive:

(1) “Account” means either of the two accounts created under section 38a-863;

(2) “Association” means the Connecticut Life and Health Insurance Guaranty Association created under section 38a-863;

(3) “Authorized assessment” or “authorized”, when used in the context of assessments, means a resolution that has been passed by the board of directors of the association whereby an assessment will be called immediately or in the future from member insurers for a specified amount. An assessment is authorized when the resolution is passed;

(4) “Benefit plan” means a specific employee, union or association of natural persons benefit plan;

(5) “Called assessment” or “called”, when used in the context of assessments, means that a notice has been issued by the association to member insurers requiring that an authorized assessment be paid within the time frame set forth in the notice. An authorized assessment becomes a called assessment when notice is mailed by the association to member insurers;

(6) “Commissioner” means the Insurance Commissioner of this state;

(7) “Contractual obligation” means any obligation under a policy or contract or certificate under a group policy or contract, or portion thereof for which coverage is provided under section 38a-860;

(8) “Covered contract” or “covered policy” means any policy or contract within the scope of section 38a-860;

(9) “Entity” means a person other than a natural person;

(10) “Health insurance” means a policy or contract of health insurance, including, but not limited to, a health care center subscriber contract or certificate;

(11) “Impaired insurer” means a member insurer that, after October 1, 1972, is not an insolvent insurer, and is placed under an order of rehabilitation or conservation by a court of competent jurisdiction;

(12) “Insolvent insurer” means a member insurer that after October 1, 1972, is placed under an order of liquidation by a court of competent jurisdiction with a finding of insolvency;

(13) “Member insurer” means any insurer or health care center licensed or holding a certificate of authority to issue in this state any kind of insurance or conduct any health care center business to which sections 38a-858 to 38a-875, inclusive, apply under section 38a-860, and may include an insurer or health care center whose license in this state has been suspended, revoked or voluntarily withdrawn;

(14) “Moody's corporate bond yield average” means the monthly average corporates as published by Moody's Investors Service, Inc., or any successor thereto;

(15) “Owner”, “policy holder”, “policy owner” or “contract owner” means 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 member insurer. “Owner”, “policy holder”, “policy owner” and “contract owner” does not include a person with a mere beneficial interest in a policy or contract;

(16) “Plan sponsor” means: (A) The employer in the case of a benefit plan established or maintained by a single employer; (B) the employee organization in the case of a benefit plan established or maintained by an employee organization; or (C) in the case of a benefit plan established or maintained by two or more employers or jointly by one or more employers and one or more employee organizations, the association, committee, joint board of trustees or other similar group of representatives of the parties who establish or maintain the benefit plan;

(17) “Premiums” means amounts or considerations, by whatever name called, received on covered policies or contracts less premiums, considerations and deposits returned thereon, and less dividends and experience credits thereon. “Premiums” does not include (A) any amounts or considerations received for any policies or contracts or for the portions of any policies or contracts for which coverage is not provided under subsection (f) of section 38a-860, except that (i) assessable premium shall not be reduced on account of subparagraph (C) of subdivision (2) of subsection (f) of section 38a-860, relating to interest limitations, and subdivision (2) of subsection (g) of section 38a-860, relating to limitations with respect to any one individual, any one participant and any one policy or contract owner, and (ii) “premiums” does not include any premiums in excess of five million dollars on any unallocated annuity contract not issued under a governmental retirement benefit plan established under Section 401, 403(b) or 457 of the Internal Revenue Code of 1986, or any subsequent corresponding internal revenue code of the United States, as from time to time amended, or (B) with respect to multiple nongroup policies of life insurance owned by one owner, whether the policy owner or contract 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 five million dollars with respect to such policies or contracts, regardless of the number of policies or contracts held by the owner;

(18) “Person” means any individual, corporation, limited liability company, partnership, association, governmental body or entity, or voluntary organization;

(19) “Principal place of business” of a plan sponsor or an entity means the single state in which the natural persons who establish policy for the direction, control and coordination of the operations of the plan sponsor or entity as a whole primarily exercise that function, as determined by the association in its reasonable judgment by considering the factors set forth in subparagraphs (A) to (G), inclusive, of this subdivision: (A) The state in which the primary executive and administrative headquarters of the plan sponsor or entity is located; (B) the state in which the principal office of the chief executive officer of the plan sponsor or entity is located; (C) the state in which the board of directors, or similar governing person or persons, of the plan sponsor or 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 plan sponsor or entity conducts the majority of its meetings; (E) the state from which the management of the overall operations of the plan sponsor or entity is directed; (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 factors set forth in subparagraphs (A) to (E), inclusive, of this subdivision; and (G) notwithstanding subparagraphs (A) to (F), inclusive, of this subdivision, in the case of a plan sponsor, if more than fifty 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. The principal place of business of a plan sponsor of a benefit plan described in subparagraph (C) of subdivision (16) of this section 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 employee organization that has the largest investment in the benefit plan in question;

(20) “Receivership court” means the court in the insolvent or impaired insurer's state having jurisdiction over the conservation, rehabilitation or liquidation of the member insurer;

(21) “Resident” means a person to whom a contractual obligation is owed and who resides in this state on the date of entry of a court order that determines a member insurer to be an impaired insurer or a court order that determines a member insurer to be an insolvent insurer, whichever occurs first. A person may be a resident of only one state, which in the case of an entity shall be its principal place of business. Citizens of the United States that are either (A) residents of foreign countries, or (B) residents of United States possessions, territories or protectorates that do not have an association similar to the association created by sections 38a-858 to 38a-875, inclusive, shall be deemed residents of the state of domicile of the member insurer that issued the policies or contracts;

(22) “Structured settlement annuity” means an annuity purchased 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;

(23) “Supplemental contract” means any agreement entered into for the distribution of policy or contract proceeds under a life, health or annuity policy or contract; and

(24) “Unallocated annuity contract” means 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 an insurer under such contract or certificate.

(1972, P.A. 280, S. 5; P.A. 77-614, S. 163, 610; P.A. 80-482, S. 323, 345, 348; P.A. 88-76, S. 6, 10; P.A. 90-243, S. 153; P.A. 93-57, S. 11; P.A. 95-79, S. 151, 189; P.A. 01-67, S. 2; P.A. 02-24, S. 4; P.A. 17-15, S. 88; P.A. 18-13, S. 3.)

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. 88-76 revised the definitions of “account”, “contractual obligation”, “premiums” and “resident”, and added definitions of “Moody's corporate bond yield average”, “supplemental contract” and “unallocated annuity contract”; P.A. 90-243 amended the definition of “member insurer” to exclude “health care center”; Sec. 38-305 transferred to Sec. 38a-862 in 1991; P.A. 93-57 redefined “member insurer”; P.A. 95-79 redefined “person” to include a limited liability company, effective May 31, 1995; P.A. 01-67 changed alphabetic Subdiv. designators to numeric designators, defined “authorized assessment”, “authorized”, “benefit plan”, “called assessment”, “called”, “entity”, “insolvent insurer”, “owner”, “policy owner”, “contract owner”, “plan sponsor”, “principal place of business”, “receivership court”, and “structured settlement annuity”, redefined “impaired insurer”, “premiums”, “resident” and “supplemental contract”, and made technical changes; P.A. 02-24 substituted “exercise” for “exercises” in Subdiv. (18); P.A. 17-15 replaced “shall not include” with “does not include” re premiums, and made a technical change in Subdiv. (16)(A); P.A. 18-13 amended Subdiv. (8) by adding reference to “covered contract”, added new Subdiv. (10) defining “health insurance”, redesignated existing Subdivs. (10) to (23) as Subdivs. (11) to (24), amended redesignated Subdiv. (13) by redefining “member insurer”, amended redesignated Subdiv. (15) by adding reference to “policy holder”, amended redesignated Subdiv. (17) by redefining “premiums”, amended redesignated Subdiv. (18) by redefining “person”, and made technical and conforming changes, effective July 1, 2018.

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Sec. 38a-863. (Formerly Sec. 38-306). Creation of association. Accounts. Supervision. (a) There is created a nonprofit legal entity to be known as the Connecticut 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 or conduct health care center business in this state. The association shall perform its functions under the plan of operation established and approved under section 38a-867 and shall exercise its powers through a board of directors established under section 38a-864. For purposes of administration and assessment, the association shall maintain two accounts:

(1) The life insurance and annuity account which includes the following subaccounts:

(A) Life insurance account;

(B) Annuity account which shall include, but is not limited to, annuity contracts owned by a governmental retirement plan, or its trustee, established under Section 401, 403(b) or 457 of the Internal Revenue Code of 1986, or any subsequent corresponding internal revenue code of the United States, as from time to time amended, but shall otherwise exclude unallocated annuities; and

(C) Unallocated annuity account which shall exclude contracts owned by a governmental retirement benefit plan, or its trustee, established under Section 401, 403(b) or 457 of the Internal Revenue Code of 1986, or any subsequent corresponding internal revenue code of the United States, as from time to time amended; and

(2) The health account.

(b) The association shall come under the immediate supervision of the commissioner and shall be subject to the applicable provisions of the insurance laws of this state.

(1972, P.A. 280, S. 6; P.A. 88-76, S. 7, 10; P.A. 01-67, S. 3; P.A. 18-13, S. 4.)

History: P.A. 88-76 amended Subsec. (a) restructuring the accounts to be maintained by the association by reducing their number from three to two, combining the life insurance account and the annuity account, and creating three subaccounts under such combined account; Sec. 38-306 transferred to Sec. 38a-863 in 1991; P.A. 01-67 amended Subsec. (a)(1)(B) and (C) to include in annuity accounts, and exclude from unallocated annuity accounts, those contracts owned by a governmental retirement plan or its trustee established under the internal revenue code; P.A. 18-13 amended Subsec. (a) by adding “or conduct health care center business”, replacing “health insurance account” with “health account” in Subdiv. (2), and making technical changes, effective July 1, 2018.

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Sec. 38a-864. (Formerly Sec. 38-307). Board of directors. (a) The board of directors of the association shall consist of not less than seven nor more than eleven members serving terms as established in the plan of operation. The members of the board shall be selected by member insurers subject to the approval of the commissioner. Vacancies on the board shall be filled for the remaining period of the term in the manner described in the plan of operation. 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 insurer 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, the commissioner shall consider, among other things, whether all member insurers are fairly represented.

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

(1972, P.A. 280, S. 7; P.A. 18-13, S. 5.)

History: Sec. 38-307 transferred to Sec. 38a-864 in 1991; P.A. 18-13 amended Subsec. (a) by increasing minimum number of board members from 5 to 7 and increasing maximum number of board members from 9 to 11, effective July 1, 2018.

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Sec. 38a-865. (Formerly Sec. 38-308). Powers. (a) 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:

(1) 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

(2) Provide such moneys, pledges, loans, notes, guarantees or other means as are proper to effectuate subdivision (1) of this subsection and assure payment of the contractual obligations of the impaired insurer pending action under subdivision (1) of this subsection.

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

(1) (A) (i) Guarantee, assume, reissue or reinsure, or cause to be guaranteed, assumed, reissued or reinsured, the policies or contracts of the insolvent insurer, or (ii) assure payment of the contractual obligations of the insolvent insurer, and (B) provide moneys, pledges, loans, notes, guarantees or other means reasonably necessary to discharge the association's duties; or

(2) Provide benefits and coverages in accordance with the following provisions:

(A) 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: (i) 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; (ii) with respect to nongroup policies, contracts and annuities, not later than the earlier of the next renewal date, if any, under the 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;

(B) 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 of benefits pursuant to subparagraph (A) of this subdivision;

(C) With respect to nongroup policies and contracts covered by the association, make available to each known insured or annuitant, or owner if other than the insured, enrollee 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 subparagraph (D) of this subdivision, 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 care center had no right to make unilateral changes in any provision of the policy, contract or annuity or had a right only to make changes in premium by class;

(D) In providing the substitute coverage required under subparagraph (C) of this subdivision, the association may offer either to reissue the terminated coverage or to issue an alternative policy or contract at actuarially justified rates. 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 or contract. The association may reinsure any alternative or reissued policy or contract;

(E) 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;

(F) Alternative policies or contracts adopted by the association shall 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 that 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 or contract was last underwritten;

(G) 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;

(H) If the association elects to reissue terminated coverage at a premium rate different from that charged under the terminated policy or contract, the premium shall 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;

(I) 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 owner, the insured, the enrollee or the association;

(J) When proceeding under this subdivision with respect to a policy or contract carrying guaranteed minimum interest rates, the association shall assure the payment or crediting of a rate of interest consistent with subparagraph (C) of subdivision (2) of subsection (f) of section 38a-860.

(c) Nonpayment of premiums by the thirty-first day 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 the policy, contract or coverage under sections 38a-858 to 38a-875, inclusive, with respect to the policy, contract or coverage, except with respect to any claims incurred or any net surrender value that may be due in accordance with the provisions of sections 38a-858 to 38a-875, inclusive.

(d) Premiums due for coverage 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 the order.

(e) The protection provided by sections 38a-858 to 38a-875, inclusive, shall not apply where 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.

(f) Repealed by P.A. 87-290, S. 7, 8.

(g) In carrying out its duties under subsection (b) of this section, the association may:

(1) Subject to approval by a court in this state, impose permanent policy or contract liens in connection with a guarantee, assumption or reinsurance agreement, if the association finds that the amounts which can be assessed under sections 38a-858 to 38a-875, inclusive, are less than the amounts needed to assure full and prompt performance of the association's duties under sections 38a-858 to 38a-875, inclusive, 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) 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 of 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.

(h) If the association fails to act within a reasonable period of time with respect to any insolvent insurer, as provided in subsection (b) of this section, the commissioner shall have the powers and duties of the association under sections 38a-858 to 38a-875, inclusive, with respect to the insolvent insurer.

(i) The association may render assistance and advice to the commissioner, upon the commissioner's request, concerning rehabilitation, payment of claims, continuation of coverage, or the performance of other contractual obligations of an impaired or insolvent insurer.

(j) The association shall have standing to appear or intervene before a court or agency in this state with jurisdiction over an impaired or insolvent insurer concerning which the association is or may become obligated under sections 38a-858 to 38a-875, inclusive, or with jurisdiction over any person or property against which 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, reissuing, modifying or guaranteeing 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.

(k) (1) A person receiving benefits under sections 38a-858 to 38a-875, inclusive, 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, shall be deemed to have assigned (A) the rights under the covered policy or contract to the association to the extent of the benefits received under sections 38a-858 to 38a-875, inclusive, and (B) 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 sections 38a-858 to 38a-875, inclusive. The association may require an assignment to it of such rights or cause 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 under sections 38a-858 to 38a-875, inclusive, upon the 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 sections 38a-858 to 38a-875, inclusive.

(3) In addition to subdivisions (1) and (2) of this subsection, the association shall have, originally or by succession, all common law rights of subrogation and any 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 the policy or contracts, against a person responsible for the losses arising from the personal injury relating to the annuity or payment thereof, except any such person responsible solely by reason of serving as an assignee with respect to a qualified assignment under Section 130 of the Internal Revenue Code of 1986, or any subsequent corresponding internal revenue code of the United States, as from time to time amended. Such rights of the association shall include, but are not limited to, 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 pursuant to sections 38a-858 to 38a-875, inclusive.

(4) If the provisions of subdivisions (1) to (3), inclusive, of this subsection 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 shall 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 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 subdivisions (1) to (4), inclusive, of this subsection, the person shall pay to the association the portion of the recovery attributable to the policies or contracts, or portion thereof, covered by the association.

(l) In addition to the rights and powers otherwise provided in sections 38a-858 to 38a-875, inclusive, the association may:

(1) Enter into such contracts as are necessary or proper to carry out the provisions and purposes of sections 38a-858 to 38a-875, inclusive;

(2) Sue or be sued, including, but not limited to, taking any legal actions necessary or proper to recover any unpaid assessments under section 38a-866, and to settle claims or potential claims against it;

(3) Borrow money to effect the purposes of sections 38a-858 to 38a-875, inclusive, and any notes or other evidence of indebtedness of the association not in default shall be legal investments for domestic member insurers and may be carried as admitted assets;

(4) Employ or retain such persons as are necessary or proper to handle the financial transactions of the association, and to perform such other functions as become necessary or proper under sections 38a-858 to 38a-875, inclusive;

(5) Take such legal action as may be necessary or proper to avoid or recover payment of improper claims;

(6) Exercise, for the purposes of sections 38a-858 to 38a-875, inclusive, and to the extent approved by the commissioner, the powers of a domestic life insurer, health insurer or health care center, but in no case may the association issue insurance policies or annuity contracts other than those issued to perform its obligations under sections 38a-858 to 38a-875, inclusive;

(7) Request information from a person seeking coverage from the association in order to aid the association in determining its obligations under sections 38a-858 to 38a-875, inclusive, with respect to the person, and the person shall promptly comply with the request;

(8) Unless otherwise prohibited by law, file for an actuarially justified rate or premium increase for any policy or contract for which the association provides coverage under sections 38a-858 to 38a-875, inclusive, provided such increase is in accordance with the terms and conditions set forth in such policy or contract; and

(9) Take other necessary or proper action to discharge its duties and obligations under sections 38a-858 to 38a-875, inclusive, or to exercise its powers under sections 38a-858 to 38a-875, inclusive.

(m) The association may join an organization of one or more other state associations of similar purposes to further the purposes and administer the powers and duties of the association.

(n) (1) At any time within one year after the date on which the association becomes responsible for the obligations of a member insurer, which date shall be deemed the coverage date, the association may elect to succeed to the rights and obligations of the member insurer that accrue on or after the coverage date and that relate to policies, contracts or annuities covered, in whole or in part, by the association, under any one or more indemnity reinsurance agreements entered into by the member insurer as a ceding insurer and selected by the association, except that the association may not exercise an election with respect to a reinsurance agreement if the receiver, rehabilitator or liquidator of a member insurer has previously and expressly disaffirmed the reinsurance agreement. The election shall be effected by a notice to the receiver, rehabilitator or liquidator and to the affected reinsurers. If the association makes an election, then subparagraphs (A) to (D), inclusive, of this subdivision shall apply with respect to the reinsurance agreements selected by the association:

(A) The association shall be responsible for all unpaid premiums due under the agreements for periods before, on and after the coverage date, and shall be responsible for the performance of all other obligations to be performed after the coverage date, in each case which relate to policies, contracts or annuities covered in whole or in part by the association. The association may charge policies, contracts or annuities 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 shall be 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 policies, contracts or annuities covered by the association in whole or in part, and upon the association's receipt of any such amount, the association shall pay any beneficiary under the policy, contract or annuity under which the association paid only a portion of the policy, contract or annuity amount:

(i) The amount received by the association that exceeds the benefits paid the beneficiary under the policy, contract or annuity; less

(ii) The benefits paid by the association on account of the policy, contract or annuity less the retention of the impaired or insolvent member insurer applicable to the loss or event.

(C) Not later than thirty days after the association's election, the association and each 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 with respect to policies, contracts or annuities covered, in whole or in part by the association, giving full credit to all items paid by either the member insurer or its receiver, rehabilitator or liquidator or the reinsurer during the period between the coverage date and the date of the association's election. Either the association or reinsurer shall pay the net balance due the other not later than five days after the completion of the calculation. If the receiver, rehabilitator or liquidator has received any amounts due the association pursuant to subparagraph (B) of this subdivision, the receiver, rehabilitator or liquidator shall remit the same to the association as promptly as practicable.

(D) If the association or receiver, on behalf of the association, not later than sixty days after the election, pays the premiums due for periods before, on and after the coverage date that relate to policies, contracts or annuities covered by the association in whole or in part, the reinsurer shall not be entitled to terminate the reinsurance agreements insofar as the agreements relate to policies, contracts or annuities covered by the association in whole or in part and shall not be entitled to set off any unpaid premium due for periods prior to the coverage date against amounts due the association.

(2) If the association does not elect to assume a reinsurance contract by the date of the association election pursuant to subdivision (1) of this subsection, 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.

(3) If the association transfers policies, contracts or annuities, or covered obligations with respect to such policies, contracts or annuities, to another assuming insurer, and if the association and the other insurer agree, the other insurer shall succeed to the rights and obligations of the association under subdivision (1) of this subsection, provided:

(A) The reinsurance agreements shall automatically terminate for new reinsurance unless the reinsurer and the other insurer agree to the contrary;

(B) The association's obligation to pay the beneficiary pursuant to subparagraph (B) of subdivision (1) of this subsection shall no longer apply on or after the date the reinsurance agreement is transferred to the assuming insurer; and

(C) The transferring party shall give written notice to the affected reinsurer at least thirty days prior to the effective date of the transfer.

(4) The provisions of this subsection shall supersede the provisions of any law of this state or of any affected reinsurance agreement 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, liquidator or rehabilitator of the insolvent member insurer or any other person. The receiver, rehabilitator or liquidator shall remain entitled to any amount payable by the reinsurer under the reinsurance agreement with respect to losses or events that occur in periods prior to the coverage date subject to applicable setoff provisions.

(5) Except as otherwise expressly provided in this section, nothing in this subsection shall alter or modify the terms and conditions of the reinsurance agreements of the insolvent member insurer. Nothing in this section shall abrogate or limit any rights of any reinsurer to claim that it is entitled to rescind a reinsurance agreement. Nothing in this section shall give a policy owner, contract owner, enrollee, certificate holder or beneficiary an independent cause of action against a reinsurer that is not otherwise set forth in the reinsurance agreement. Nothing in this section shall limit or affect the association's rights as a creditor of an estate against the assets of the estate. Nothing in this section shall apply to reinsurance agreements covering property or casualty risks.

(o) The board of directors of the association shall have discretion and may exercise reasonable business judgment to determine the means by which the association is to provide the benefits under sections 38a-858 to 38a-875, inclusive, in an economical and efficient manner.

(p) Where the association has arranged or offered to provide the benefits under sections 38a-858 to 38a-875, inclusive, to a covered person under a plan or arrangement that fulfills the association's obligations under sections 38a-858 to 38a-875, inclusive, the person shall not be entitled to benefits from the association in addition to or other than those provided under the plan or arrangement.

(q) Venue in a suit against the association arising under sections 38a-858 to 38a-875, inclusive, shall be in the superior court for the judicial district of Hartford. The association shall not be required to give an appeal bond in an appeal that relates to a cause of action arising under sections 38a-858 to 38a-875, inclusive.

(r) In carrying out its duties in connection with guaranteeing, assuming, reissuing or reinsuring policies or contracts under subsections (a) or (b) of this section, the association may 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 subdivisions (1) to (3), inclusive, of this subsection:

(1) In lieu of the index or other external reference provided for in the original policy or contract, the alternative policy or contract provides for (A) a fixed interest rate, (B) payment of dividends with minimum guarantees, or (C) a different method for calculating interest or changes in value;

(2) There is no requirement for evidence of insurability, waiting period or other exclusion that would not have applied under the replaced policy or contract; and

(3) The alternative policy or contract is substantially similar to the replaced policy or contract in all other material terms.

(1972, P.A. 280, S. 8; P.A. 75-18; P.A. 78-58, S. 1; P.A. 87-290, S. 7, 8; P.A. 88-76, S. 8, 10; P.A. 01-67, S. 4; P.A. 18-13, S. 6.)

History: P.A. 75-18 raised liability limit in Subsec. (j) from $25,000 to $300,000; P.A. 78-58 imposed new liability limits in Subsec. (j); P.A. 87-290 repealed Subsec. (f) which specified that association had no liability under the section for covered policies of a lien or foreign insurers whose domiciliary jurisdiction or state of entry provides for Connecticut residents, similar protection provided by the chapter to other states' residents; P.A. 88-76 deleted Subsec. (j) and transferred its provisions to Subsec. (c) of Sec. 38-303, relettered Subsec. (k) as (j), and added new Subsecs. (k) and (l); Sec. 38-308 transferred to Sec. 38a-865 in 1991; P.A. 01-67 replaced former Subsecs. (a) to (e) and (g) to (1) with new Subsecs. (a) to (e) and (g) to (r); P.A. 18-13 amended Subsec. (b) by replacing “life and health insurance policies and annuities” with “policies and contracts” in Subdivs. (2)(A) and (2)(C), deleting “for premiums identical to the premiums and benefits, except for terms of conversion and renewability” in Subdiv. (2)(A), replacing “or formerly an annuitant” with “or annuitant” and adding “or health care center” in Subdiv. (2)(C), adding “or contract at actuarially justified rates” in Subdiv. (2)(D), replacing “the domiciliary insurance commissioner and the receivership court” with “the commissioner” in Subdiv. (2)(E), adding “actuarially justified” re premium, adding “or coverage”, and replacing “subject to approval of the domiciliary insurance commissioner and the receivership court” with “subject to prior approval of the commissioner” in Subdiv. (2)(H), amended Subsec. (l) by replacing “domestic insurers” with “domestic member insurers” in Subdiv. (3), adding references to insurer and health care center in Subdiv. (6), adding new Subdiv. (8) re filing for actuarially justified rate or premium increase for policy or contract for which association provides coverage, and redesignating existing Subdiv. (8) as Subdiv. (9), amended Subsec. (n) by replacing “agreements” with “reinsurance agreements” and adding references to policies, replacing “indemnity reinsurer” with “reinsurer”, adding “with respect to policies, contracts or annuities covered, in whole or in part by the association” in Subdiv. (1), adding “or receiver, on behalf of the association” in Subdiv. (1)(D), adding new Subdiv. (2) re association not electing to assume reinsurance contract by date of association election, redesignating existing Subdiv. (2) as Subdiv. (3) and amended same by replacing “its obligations to another insurer” with “policies, contracts or annuities, or covered obligations with respect to such policies, contracts or annuities, to another assuming insurer”, deleting provision re subdivision does not apply if association previously expressly determined in writing it will not exercise election referred to in Subdiv. (1) of Subsec. in Subpara. (B), and adding Subpara. (C) re transferring party to give written notice to affected reinsurer, redesignating existing Subdiv. (3) as Subdiv. (4) and amended same by replacing “coverage date” with “date of the order of liquidation”, and adding “or any other person”, redesignating existing Subdiv. (4) as Subdiv. (5) and amended same by adding references to contract owner and certificate holder, replacing reference to indemnity reinsurance agreement with references to reinsurance agreement, and adding provisions re nothing to limit or affect association's rights as creditor of estate against assets of estate and nothing to apply to reinsurance agreements covering property or casualty risks, added references to polices or contracts reissued, enrollees, contracts and annuities, and made technical and conforming changes, effective July 1, 2018, and applicable to impairments and insolvencies occurring on or after said date.

Annotations to former section 38-308:

Cited. 173 C. 352.

Cited. 35 CS 13; Id., 186.

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Sec. 38a-866. (Formerly Sec. 38-309). Assessments. (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 times and for such amounts as the board finds necessary. The association shall establish a due date for each assessment which shall be at least thirty days after the association has provided the member notice of the assessment. Each member insurer shall pay interest on any late payment at the rate of one per cent per month, or any portion thereof, from the due date to the date of payment.

(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 general expenses not related to a particular impaired or insolvent insurer; and

(2) Class B assessments shall be authorized and called to the extent necessary to carry out the powers and duties of the association under section 38a-865 with regard to an impaired or insolvent insurer.

(c) (1) The amount of any Class A assessment shall be determined by the board and may be authorized and called on a pro-rata or non-pro-rata basis. If an assessment is made on a pro-rata basis, the board may provide that the assessment be credited against future Class B assessments.

(2) (A) The amount of any Class B assessment, except for any assessment related to long-term care insurance, shall be allocated for assessment purposes between the accounts and among the subaccounts of the life insurance and annuity account pursuant to an allocation formula which may be based on the premiums or reserves of the impaired or insolvent insurer or any other standard that the board, in its sole discretion, deems as being fair and reasonable under the circumstances.

(B) The amount of the Class B assessment for long-term care insurance written by the impaired or insolvent insurer shall be allocated according to a methodology included in the plan of operation and approved by the commissioner. The methodology shall provide for fifty per cent of the assessment to be allocated to accident and health member insurers and fifty per cent to be allocated to life and annuity member insurers.

(3) Class B assessments against member insurers for each account and subaccount shall be in the proportion that the premiums received on business in this state by each assessed member insurer on policies or contracts covered by each account for the three most recent calendar years for which information is available preceding the year in which the member insurer became insolvent or, in the case of an assessment with respect to an impaired insurer, the three most recent calendar years for which information is available preceding the year in which the member insurer became impaired bear to such premiums received on business in this state for those calendar years by all assessed member insurers.

(4) Assessments for funds to meet the requirements of the association with respect to an impaired or insolvent insurer shall not be authorized or called until necessary to implement the purposes of sections 38a-858 to 38a-875, inclusive. Classification of assessments under subsection (b) of this section 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. The association shall notify each member insurer of its anticipated pro-rata share of an authorized assessment that is not yet called not later than one hundred eighty days after the association authorizes the assessment.

(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, 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 section. Once the conditions that caused a deferral have been removed or rectified, the member insurer shall pay all assessments that were deferred pursuant to a repayment plan approved by the association.

(e) (1) (A) Subject to the provisions of subparagraph (B) of this subdivision, the total of all assessments authorized by the association with respect to a member insurer for each subaccount of the life insurance and annuity account and for the health account shall not in any one calendar year exceed two per cent of such insurer's average annual premiums received in this state on the policies and contracts covered by the subaccount or account during the three calendar years preceding the year in which the member insurer became an impaired or insolvent insurer.

(B) If two or more assessments are authorized in one calendar year with respect to member insurers that become impaired or insolvent in different calendar years, the average annual premiums for purposes of the aggregate assessment percentage shall be equal and limited to the higher of the three-year average annual premium for the applicable subaccount or account as calculated pursuant to this section.

(C) If the maximum assessment, together with the other assets of the association in any account, does not provide in any one year in either 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 sections 38a-858 to 38a-875, inclusive.

(2) The board may provide in the plan of operation a method of allocating funds among claims, whether relating to one or more impaired insurers, when the maximum assessment will be insufficient to cover anticipated claims.

(3) If the maximum assessment for any subaccount of the life insurance and annuity account in any one year does not provide an amount sufficient to carry out the responsibilities of the association, then pursuant to subdivision (3) of subsection (c) of this section, the board shall access the other subaccounts of the life insurance and annuity account for the necessary additional amount, subject to the maximum stated in subdivision (1) of this subsection.

(f) The board may, by an equitable method as established in the plan of operation, refund to member insurers, in proportion to the contribution of each member insurer to that account, the amount by which the assets of the account exceed the amount the board 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 if refunds are impractical.

(g) It shall be proper for any member insurer, in determining its premium rates and policy owner dividends as to any kind of insurance or health care center business within the scope of sections 38a-858 to 38a-875, inclusive, to consider the amount reasonably necessary to meet its assessment obligations under said sections.

(h) (1) Each member insurer paying an assessment under sections 38a-858 to 38a-875, 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 member insurer to which has been refunded by the association, pursuant to subsection (f) of this section, all or a portion of an assessment previously paid to the association by the member 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 member 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 subdivision, 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 member insurers to which such refunds have been made, the amount of such refunds, and the date on which such refunds were mailed to each such insurer. If the amount that a member 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) A member insurer, in this subdivision 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 (f) 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.

(i) (1) A member insurer that wishes to protest all or part of an assessment shall pay when due the full amount of the assessment as set forth in the notice provided by the association. The payment shall be available to meet association obligations during the pendency of the protest or any subsequent appeal. Payment shall be accompanied by a written statement that (A) the payment is made under protest, and (B) includes a brief statement of the grounds for the protest.

(2) Not later than sixty days following the payment of an assessment under protest by a member insurer, the association shall notify the member insurer in writing of its determination with respect to the protest unless the association notifies the member insurer that additional time is required to resolve the issues raised by the protest.

(3) Not later than thirty days after a final decision has been made, the association shall notify the protesting member insurer in writing of the final decision.

(4) Not later than sixty days after receipt of notice of the final decision, the protesting member insurer may appeal the final action to the commissioner.

(5) In the alternative to rendering a final decision with respect to a protest based on a question regarding the assessment base, the association may refer protests to the commissioner for a final decision, with a recommendation from the association.

(6) If the protest or appeal on the assessment is upheld, the amount paid in error or excess shall be returned to the member insurer. Interest on a refund due a protesting member insurer whose protest or appeal was upheld shall be paid at the rate actually earned by the association.

(j) The association may request information from member insurers in order to aid in the exercise of its power under this section and member insurers shall promptly comply with such request.

(1972, P.A. 280, S. 9; P.A. 78-58, S. 2; P.A. 81-101, S. 9; P.A. 88-76, S. 9, 10; P.A. 93-239, S. 8; P.A. 00-174, S. 50, 76, 83; P.A. 01-67, S. 5; June Sp. Sess. P.A. 01-6, S. 42, 43, 85; P.A. 02-24, S. 14; P.A. 03-225, S. 15; P.A. 04-17, S. 2; P.A. 18-13, S. 7.)

History: P.A. 78-58 authorized making Class A assessments on non pro rata basis in Subsec. (c)(1) and removed Class A assessments from provisions of Subsec. (c)(2); P.A. 81-101 deleted Subsec. (h) re certificates of contribution and relettered Subsec. (i) as (h), substituting “this chapter” for reference to repealed Subsec. (h); P.A. 88-76 amended Subsecs. (d) and (e) revising the methods by which the association may assess member insurers and subaccounts for amounts abated or deferred; Sec. 38-309 transferred to Sec. 38a-866 in 1991; P.A. 93-239 amended Subsec. (h) re refunds paid due to offset assessments made to the Connecticut Life and Health Insurance Guaranty Association from the insurer's premium tax liability; P.A. 00-174 amended Subsec. (h) to require specific details from the association in reports to the Department of Revenue Services re refunds under Subsec. (f), to provide for interest on late payments under this section, to allow 100% of an assessment to be offset from the premium tax liability, to require the offset to be taken over five years 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, and to refunds made on or after July 1, 2000; P.A. 01-67 amended Subsec. (a) to delete provision re 30 days' written notice of assessments and substitute requirement that association establish a due date for assessment and to require insurers to pay interest on any late payment, amended Subsecs. (b) and (c) to delete provisions re Class C assessments, provide for two classes of assessments and revise provisions re assessments, amended Subsec. (d) to add provisions re repayment of deferrals, amended Subsec. (e) to designate provisions of Subdiv. (1) as Subparas. (A) and (C), revising Subpara. (A) and adding Subpara. (B) re two or more assessments in one calendar year, amended Subsec. (f) to substitute “account” for “amount” and insert “assignment” and “subrogation” re asset accrual, deleted Subsec. (h)(2) allowing an insurer to transfer any offset, added new Subsec. (i) re insurer protests of assessments and new Subsec. (j) re requests for information from member insurers, and made technical and conforming changes in Subsecs. (b), (c), (e) and (h); June Sp. Sess. P.A. 01-6 amended Subsec. (h)(1) to delete former provisions re offset assessments paid to association against premium tax liability, add provisions to specify procedures for tax treatment of refunds of assessments of association members, change “thirtieth day” to “forty-fifth day” and make a technical change, effective July 1, 2001, and would have amended Subsec. (h)(2) to add procedures for the transfer to affiliates of tax offsets for association members, effective July 1, 2001, and applicable to calendar years commencing on or after January 1, 2001, but failed to take effect, subdivision (2) having been previously deleted by P.A. 01-67; P.A. 02-24 amended Subsec. (h) to add “each” to “such insurer” re mailing of refunds; P.A. 03-225 amended Subsec. (h) to designate existing provisions as Subdiv. (1), make technical changes therein and add new Subdiv. (2) re transfer of certain offsets, effective July 9, 2003, and applicable to calendar years commencing on or after January 1, 2001; P.A. 04-17 amended Subsec. (c)(1) to delete $150 limit on all non-pro-rata assessments per member insurer; P.A. 18-13 amended Subsec. (c) by redesignating existing provisions in Subdiv. (1) re amount of Class B assessment as new Subdiv. (2)(A) and amended same by adding provision re exception for assessment related to long-term care insurance, replacing “among” with “between” and adding “and among the subaccounts of the life insurance and annuity account”, adding Subpara. (B) re amount of Class B assessment for long-term care insurance written by impaired or insolvent insurer in new Subdiv. (2), and redesignating existing Subdivs. (2) and (3) as Subdivs. (3) and (4), amended Subsec. (g) by adding “or health care center business”, amended Subsec. (i)(6) by adding “insurer whose protest or appeal was upheld” and replacing “member company” with “member insurer”, replaced “insurer” with “member insurer”, and made technical and conforming changes, effective July 1, 2018, and applicable to impairments and insolvencies occurring on or after said date.

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Sec. 38a-867. (Formerly Sec. 38-310). Plan of operation. (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 approval in writing by the commissioner. (2) If the association fails to submit a suitable plan of operation within one hundred and eighty days following October 1, 1972, 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 sections 38a-858 to 38a-875, inclusive. 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 sections 38a-858 to 38a-875, inclusive: (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 section 38a-864; (3) establish regular places and times for meetings 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 section 38a-866; (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 subdivision (3) of subsection (k) of section 38a-865 and section 38a-866, 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 a 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 subsection 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 sections 38a-858 to 38a-875, inclusive.

(1972, P.A. 280, S. 10.)

History: Sec. 38-310 transferred to Sec. 38a-867 in 1991.

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Sec. 38a-868. (Formerly Sec. 38-311). Duties of commissioner. In addition to the duties and powers enumerated elsewhere in sections 38a-858 to 38a-875, inclusive:

(a) The commissioner shall: (1) Notify the board of directors of the existence of an impaired insurer not later than three days after a determination of impairment is made or he receives notice of impairment; (2) upon request of the board of directors, provide the association with a statement of the premiums in the appropriate states for each member insurer; (3) 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 shall constitute notice to its shareholders, if any. The failure of the insurer to promptly comply with such demand shall not excuse the association from the performance of its powers and duties under sections 38a-858 to 38a-875, inclusive; (4) in any liquidation or rehabilitation proceeding involving a domestic insurer, be appointed as the liquidator or rehabilitator. If a foreign or alien member insurer is subject to a liquidation proceeding in its domiciliary jurisdiction or state of entry, the commissioner shall be appointed conservator.

(b) The commissioner may suspend or revoke, after notice and hearing, the certificate of authority issued by this state to any member insurer that 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 that 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 five 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 thirty days of the action being appealed. Any final action or order of the commissioner shall be subject to judicial review in the superior court for the judicial district of Hartford.

(d) The liquidator, rehabilitator or conservator of any impaired insurer may notify all interested persons of the effect of sections 38a-858 to 38a-875, inclusive.

(1972, P.A. 280, S. 11; P.A. 76-436, S. 635, 681; P.A. 78-280, S. 5, 127; 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. 43.)

History: P.A. 76-436 replaced court of common pleas with superior court in Subsec. (c), effective July 1, 1978; P.A. 78-280 substituted “judicial district of Hartford-New Britain” for “Hartford county” in Subsec. (c); 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. 38-311 transferred to Sec. 38a-868 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. (b) by making technical changes and increasing per month minimum forfeiture from $100 to $500.

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Sec. 38a-869. (Formerly Sec. 38-312). Action by board of directors. Examination of insurer. To aid in the detection and prevention of insurer impairments:

(a) The board of directors shall, upon majority vote, notify the commissioner of any information indicating any member insurer may be unable or potentially unable to fulfill its contractual obligations.

(b) The board of directors may, upon majority vote, request that the commissioner order an examination of any member insurer which the board in good faith believes may be unable or potentially unable to fulfill its contractual obligations. The commissioner may conduct such examination. The examination may be conducted as a National Association of Insurance Commissioners examination or may be conducted by such persons as the commissioner designates. The cost of such examination shall be paid by the association and the examination report shall be treated as are other examination reports. In no event shall such examination report be released to the board of directors of the association prior to its release to the public, but this shall not excuse the commissioner from his obligation to comply with subsection (c) of this section. The commissioner shall notify the board of directors when the examination is completed. The request for an examination shall be kept on file by the commissioner but it shall not be open to public inspection prior to the release of the examination report to the public and shall be released at that time only if the examination discloses that the examined insurer is unable or potentially unable to meet its contractual obligations.

(c) The commissioner shall report to the board of directors when he has reasonable cause to believe that any member insurer examined at the request of the board of directors may be unable or potentially unable to fulfill its contractual obligations.

(d) The board of directors may, upon majority vote, make reports and recommendations to the commissioner upon any matter germane to the solvency, liquidation, rehabilitation or conservation of any member insurer. Such reports and recommendations shall not be considered public documents.

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

(f) The board of directors shall, at the conclusion of any insurer impairment in which the association carried out its duties under sections 38a-858 to 38a-875, inclusive, or exercised any of its powers under said sections, prepare a report on the history and causes of such impairment, based on the information available to the association, and submit such report to the commissioner.

(1972, P.A. 280, S. 12.)

History: Sec. 38-312 transferred to Sec. 38a-869 in 1991.

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Sec. 38a-870. (Formerly Sec. 38-313). Special deputy to supervise liquidation, rehabilitation or conservation. The association may recommend a natural person to serve as a special deputy to act for the commissioner and under his supervision in the liquidation, rehabilitation or conservation of any member insurer.

(1972, P.A. 280, S. 13.)

History: Sec. 38-313 transferred to Sec. 38a-870 in 1991.

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Sec. 38a-871. (Formerly Sec. 38-314). Liability for unpaid assessments. Records. Use of assets of impaired insurer. Distributions. (a) Nothing in sections 38a-858 to 38a-875, inclusive, shall be construed to reduce the liability for unpaid assessments of the insureds of an impaired insurer operating under a plan with assessment liability.

(b) Records shall be kept of all negotiations and meetings in which the association or its representatives are involved to discuss the activities of the association in carrying out its powers and duties under section 38a-865. Records of such negotiations or meetings shall be made public only upon the termination of a liquidation, rehabilitation, or conservation proceeding involving the impaired insurer, upon the termination of the impairment of the insurer, or upon the order of a court of competent jurisdiction. Nothing in this subsection shall limit the duty of the association to render a report of its activities under section 38a-872.

(c) For the purpose of carrying out its obligations under sections 38a-858 to 38a-875, inclusive, the association shall be deemed to be a creditor of the impaired insurer to the extent of assets attributable to covered policies reduced by any amounts to which the association is entitled as subrogee pursuant to subdivision (i) of section 38a-865. All assets of the impaired insurer attributable to covered policies shall be used to continue all covered policies and pay all contractual obligations of the impaired insurer as required by sections 38a-858 to 38a-875, inclusive. Assets attributable to covered policies or contracts, as used in this subsection, is that proportion of the assets which the reserves that should have been established for such policies or contracts bear to the reserve that should have been established for all policies or contracts of insurance or health care center subscriber contracts and certificates 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, contract owners, certificate holders, enrollees and policy owners of the insolvent insurer, and any other party with a bona fide interest, in making an equitable distribution of the ownership rights of such insolvent insurer. In such a determination, consideration shall be given to the welfare of the policy holders, contract owners, certificate holders and enrollees of the continuing or successor member 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 under section 38a-865 with respect to the member insurer have been fully recovered by the association.

(e) It shall be a prohibited unfair trade practice and a violation of section 38a-815 for any person to make use in any manner of the protection afforded by sections 38a-858 to 38a-875, inclusive, in the solicitation, negotiation, procurement or effectuation of insurance provided, this subsection shall not apply to the distribution of any publication approved by the commissioner and describing the general purposes and current limitations of sections 38a-858 to 38a-874, inclusive. Violations of this section shall be subject to the provisions of section 38a-817.

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

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

(3) Any person who was an affiliate that controlled the member insurer at the time the distributions were paid shall be liable up to the amount of distributions such person received. Any person who was an affiliate that controlled the member insurer at the time the distributions were declared shall be liable up to the amount of distributions which such person would have received if such person had been paid immediately. If two 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 insolvent insurer.

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

(1972, P.A. 280, S. 14; P.A. 85-105, S. 2; P.A. 92-60, S. 23; P.A. 18-13, S. 8.)

History: P.A. 85-105 amended Subsec. (e) to expand the prohibition to any “solicitation, negotiation, procurement or effectuation” of insurance, rather than the “sale” of insurance; Sec. 38-314 transferred to Sec. 38a-871 in 1991; P.A. 92-60 amended Subsec. (e) making the provisions of this section a violation of Sec. 38a-815 and excluding its effect from the distribution of publications approved by the insurance commissioner describing the general purposes or current limitations of the Connecticut Insurance Guaranty Association Act; P.A. 18-13 amended Subsec. (c) by adding references to contracts, adding “or health care center subscriber contracts and certificates”, and adding reference to insolvent insurer, amended Subsec. (d) by adding references to contract owners, certificate holders and enrollees, replacing “impaired insurer” with “insolvent insurer”, and replacing “successor insurer” with “successor member insurer” in Subdiv. (1), adding reference to insolvent insurer, and replacing “assessments levied by the association with respect to such insurer has been fully recovered by the commission” with “valid claims of the association with interest thereon for funds expended in carrying out its powers under section 38a-865 with respect to the member insurer have been fully recovered by the association” in Subdiv. (2), amended Subsec. (f) by replacing “insurer” with “member insurer”, and replacing “impaired insurer” with “insolvent insurer” in Subdiv. (4), and made technical and conforming changes, effective July 1, 2018, and applicable to impairments and insolvencies occurring on or after said date.

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Sec. 38a-872. (Formerly Sec. 38-315). Examination and regulation of association. Reports. The association shall be subject to examination and regulation by the commissioner. The board of directors shall submit to the commissioner, not later than May first of each year, a financial report for the preceding calendar year in a form approved by the commissioner and a report of its activities during the preceding calendar year.

(1972, P.A. 280, S. 15.)

History: Sec. 38-315 transferred to Sec. 38a-872 in 1991.

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Sec. 38a-873. (Formerly Sec. 38-316). Exemption from fees and taxes. The association shall be exempt from payment of all fees and all taxes levied by this state or any of its subdivisions, except taxes levied on real or personal property.

(1972, P.A. 280, S. 16.)

History: Sec. 38-316 transferred to Sec. 38a-873 in 1991.

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Sec. 38a-874. (Formerly Sec. 38-317). Immunity. 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, members of the board of directors, or the commissioner or his representatives, for any action taken by them in the performance of their powers and duties under sections 38a-858 to 38a-875, inclusive.

(1972, P.A. 280, S. 17.)

History: Sec. 38-317 transferred to Sec. 38a-874 in 1991.

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Sec. 38a-875. (Formerly Sec. 38-318). Stay of proceedings in which impaired insurer a party. All proceedings in which the impaired insurer is a party in any court in this state shall be stayed one hundred eighty days from the date an order of liquidation, rehabilitation or conservation is final to permit proper legal action by the association on any matters germane to its powers or duties. The association may apply to have any judgment under any decision, order, verdict, or finding based on default set aside by the same court that made such judgment and shall be permitted to defend against such suit on the merits.

(1972, P.A. 280, S. 18.)

History: Sec. 38-318 transferred to Sec. 38a-875 in 1991.

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Secs. 38a-876 to 38a-879. Reserved for future use.

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PART III

BROKERED TRANSACTIONS GUARANTY FUND

Sec. 38a-880. Brokered Transactions Guaranty Fund. The Insurance Department shall establish and maintain a Brokered Transactions Guaranty Fund from which any resident aggrieved by an action of an insurance producer duly licensed in this state under section 38a-769, or an unlicensed person acting as a producer engaged in the business of insurance, concerning the business of insurance, by reason of the embezzlement of money or property, or the unlawful obtainment of money or property from any person by false pretenses, artifice, trickery or forgery, or by reason of any fraud, misrepresentation or deceit, by or on the part of any such producer or unlicensed person acting as a producer engaged in the business of insurance, excluding the failure in performance of contractual obligations due to the impairment of an insurer, may recover, upon approval by the department of an application brought pursuant to section 38a-884, compensation in an amount not exceeding in the aggregate the sum of ten thousand dollars.

(P.A. 89-106, S. 1; P.A. 93-236, S. 1; P.A. 96-193, S. 24, 36.)

History: P.A. 93-236 clarified that an “unlicensed person” would be a person acting as an insurance agent or broker, allowed payment from the guaranty fund except in cases when the insurer is impaired and decreased the compensation allowed from the guaranty fund from $25,000 to $10,000; P.A. 96-193 substituted “producer” for “agent” and “broker”, effective June 3, 1996.

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Sec. 38a-881. Fee payable to fund. Any individual who is licensed as an insurance broker or an insurance agent on October 1, 1989, shall pay a fee of ten dollars which shall be credited to the Brokered Transactions Guaranty Fund. Any individual who receives an insurance broker's license or an insurance agent's license for the first time prior to June 3, 1996, or an insurance producer's license for the first time on or after June 3, 1996, shall pay a fee of ten dollars, in addition to all other fees payable, to be credited to the Brokered Transactions Guaranty Fund.

(P.A. 89-106, S. 2; P.A. 96-193, S. 25, 36.)

History: P.A. 96-193 substituted “producer” for “agent” and “broker” re licenses, effective June 3, 1996.

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Sec. 38a-882. Level of guaranty fund. Credits to General Fund. Assessment of additional fee. (a) The Insurance Department shall maintain the Brokered Transactions Guaranty Fund at a level not to exceed one hundred thousand dollars and to this intent moneys received under section 38a-881 shall be credited to such guaranty fund whenever the fund balance is below one hundred thousand dollars and any such moneys may be invested or reinvested in the same manner as funds of the state employees retirement system, and the interest arising from such investments shall be credited to the General Fund. Any moneys received under section 38a-881 not required to maintain such guaranty fund balance shall be deposited to the General Fund. All moneys in such guaranty fund in excess of one hundred thousand dollars shall be transferred by the Treasurer to the General Fund.

(b) If, at any time, the amount deposited in the Brokered Transactions Guaranty Fund is under one hundred thousand dollars, the department, in its discretion, may assess all persons licensed as insurance producers a fee not to exceed ten dollars which shall be credited to said guaranty fund.

(P.A. 89-106, S. 3; P.A. 96-193, S. 26, 36; P.A. 98-27, S. 9; P.A. 18-137, S. 24.)

History: P.A. 96-193 amended Subsec. (b) to substitute “producer” for “agent” and “broker”, effective June 3, 1996; P.A. 98-27 amended Subsec. (b) to substitute “said” for “such”; P.A. 18-137 amended Subsec. (a) to decrease required level of fund from $500,000 to $100,000, effective July 1, 2018.

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Sec. 38a-883. Limitation of actions. No application to recover compensation under sections 38a-880 to 38a-889, inclusive, which might subsequently result in an order for collection from the Brokered Transactions Guaranty Fund shall be brought later than two years from the action of an insurance producer duly licensed in this state under section 38a-769, or an unlicensed person acting as a producer engaged in the business of insurance, by reason of the embezzlement of money or property, or the unlawful obtainment of money or property from any person by false pretenses, artifice, trickery or forgery, or by reason of any fraud, misrepresentation or deceit by or on the part of any such producer or unlicensed person acting as a producer engaged in the business of insurance, excluding the failure in performance of contractual obligations due to the impairment of an insurer.

(P.A. 89-106, S. 4; P.A. 93-236, S. 2; P.A. 96-193, S. 27, 36; P.A. 98-27, S. 8.)

History: P.A. 93-236 deleted ambiguous language and substituted clear language regarding the limitation of actions which may be brought and outlined the specific actions covered by the limitation; P.A. 96-193 substituted “producer” for “agent” and “broker”, effective June 3, 1996; P.A. 98-27 substituted “the Brokered Transactions Guaranty Fund” for “such guaranty fund”.

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Sec. 38a-884. Procedure. (a) Any person aggrieved under section 38a-880 may apply to the Insurance Department for an order directing payment out of the Brokered Transactions Guaranty Fund subject to the limitations stated in said section and the limitations specified in this section.

(b) The department shall proceed upon such application in a summary manner, after giving reasonable notice to such producer pursuant to section 38a-774, or to an unlicensed person acting as a producer engaged in the business of insurance, alleged to have caused the aggrieved person's loss or damages and, upon the hearing thereof, the aggrieved person shall be required to show: (1) He is not a spouse of the debtor, or the personal representative of such spouse; (2) he is aggrieved by the action of such insurance producer duly licensed in this state under section 38a-769, or that he is aggrieved by the action of such unlicensed person acting as a producer engaged in the business of insurance, by reason of the embezzlement of money or property, or the unlawful obtainment of money or property by false pretenses, artifice, trickery or forgery, or by reason of any fraud, misrepresentation or deceit; and (3) the aggrieved person's loss or damages are equivalent to either the amount of unearned premium or the expense of obtaining duplicate coverage, or the amount of unpaid claims in conformance with the aggrieved person's insurance contract applying any deductibles, copayment requirements or exclusions.

(c) The commissioner shall make an order requiring payment from the Brokered Transactions Guaranty Fund of whatever sum he shall find to be payable upon the claim, pursuant to the provisions of and in accordance with the limitations contained in this section and section 38a-880, if the commissioner is satisfied, upon the hearing, of the truth of all matters required to be shown by the aggrieved person by subsection (b) of this section.

(d) The payment from said fund of any amount in settlement of a claim against a licensed insurance producer or an unlicensed person acting as a producer engaged in the business of insurance pursuant to an order under subsection (c), shall constitute cause for the suspension or revocation of any license issued by the commissioner or for the imposition of a fine pursuant to section 38a-774 and for an order of restitution to the fund in the amount it has paid, and such producer or unlicensed person shall not be eligible to apply for a license until he has repaid in full, plus interest at a rate to be determined by the department and which shall reflect current market rates, the amount paid from said guaranty fund on his account. A discharge in bankruptcy shall not relieve a person from the penalties and disabilities provided in this subsection.

(e) If, at any time, the money deposited in said guaranty fund is insufficient to satisfy any duly authorized claim or portion thereof, the department shall, when sufficient money has been deposited in said guaranty fund, satisfy such unpaid claims or portions thereof, in the order that such claims or portions thereof were originally filed, plus accumulated interest at the rate of four per cent a year.

(P.A. 89-106, S. 5; P.A. 93-236, S. 3; P.A. 96-193, S. 28, 36; P.A. 98-27, S. 5–7.)

History: P.A. 93-236 substantially revised procedure to secure payment from the guaranty fund, deleting Subsecs. (a) and (b), which had required aggrieved person to notify department of commencement of action and had detailed circumstances for payment from fund of amounts unpaid after judgment, substituting new Subsec. (a) re application for payment from fund, rewrote Subsec. (c), relettered as Subsec. (b), to provide notice requirements to the agent or broker or unlicensed agent or broker engaged in the business of insurance and to outline the showing required to state a claim against the guaranty fund, deleted Subsec. (d) re waiver of compliance with certain requirements by aggrieved person, relettered Subsec. (e) as (c), substituting “commissioner” for “department” and making certain technical changes for accuracy, relettered Subsec. (f) as (d) and made provision for suspension or revocation of license or imposition of a fine and relettered Subsec. (g) as (e) (Revisor's note: The word “that” was deleted editorially by the Revisors from the beginning of Subdivs. (2) and (3) of Subsec. (b) for consistency with Subdiv. (1)); P.A. 96-193 substituted “producer” for “agent” and “broker”, effective June 3, 1996; P.A. 98-27 amended Subsec. (a) to substitute “the Brokered Transactions Guaranty Fund” for “such guaranty fund”, amended Subsec. (d) to substitute “said” for “such” and amended Subsec. (e) to substitute “said” for “such” (Revisor's note: A missed reference in Subsec. (e) to “such guaranty fund” was changed editorially by the Revisors to “said guaranty fund”).

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Sec. 38a-885. Penalty for false or untrue claim. Any person filing with the department any notice, statement or other document required under the provisions of section 38a-884 that is false or untrue or contains any material misstatement of fact shall be fined not less than three hundred dollars.

(P.A. 89-106, S. 6; P.A. 08-178, S. 44.)

History: P.A. 08-178 made a technical change and increased minimum fine from $200 to $300.

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Sec. 38a-886. Procedure. Application to the Superior Court. When the department receives an application, as provided in section 38a-884, the Attorney General, at the request of the commissioner, may apply in the name of the state of Connecticut to the Superior Court for an order temporarily or permanently restraining and enjoining the continuance of such act or acts, for an order directing restitution to any aggrieved person, payment to the guaranty fund for any payments the fund made to aggrieved persons, attorney's fees, costs, a civil penalty of not more than one thousand five hundred dollars per violation and such other relief as may be granted in equity.

(P.A. 89-106, S. 7; P.A. 93-236, S. 4; P.A. 08-178, S. 45.)

History: P.A. 93-236 replaced prior general provisions re attorney general's authority with more specific provisions; P.A. 08-178 increased maximum penalty from $1,000 to $1,500 per violation.

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Sec. 38a-887. Payment from guaranty fund. When the commissioner has caused to be paid from the Brokered Transactions Guaranty Fund any sum to the aggrieved person, the department shall be subrogated to all of the rights of the aggrieved person up to the amount paid, and the aggrieved person shall assign all of his right, title and interest in the claim. By accepting payment from the guaranty fund the aggrieved person shall agree to cooperate with the department in any action it takes against the licensed insurance producer or unlicensed person acting as a producer engaged in the business of insurance. Any amount and interest recovered by the department shall be deposited to said guaranty fund.

(P.A. 89-106, S. 8; P.A. 93-236, S. 5; P.A. 96-193, S. 29, 36; P.A. 98-27, S. 4.)

History: P.A. 93-236 substituted “commissioner” for “department” and “aggrieved person” for “judgment creditor” and clarified the procedures in accepting payment from the guaranty fund; P.A. 96-193 substituted “producer” for “agent” and “broker”, effective June 3, 1996; P.A. 98-27 substituted “the Brokered Transactions Guaranty Fund” for “such guaranty fund” and substituted “said” for “such”.

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Sec. 38a-888. Regulations. The Insurance Commissioner may adopt such regulations as he deems necessary, in accordance with chapter 54, to carry out the purposes of sections 38a-880 to 38a-889, inclusive.

(P.A. 89-106, S. 9.)

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Sec. 38a-889. Department rulings: Appeal. Any person aggrieved by any decision, order or regulation of the department under sections 38a-880 to 38a-888, inclusive, may appeal in accordance with the provisions of section 38a-19.

(P.A. 89-106, S. 10.)

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Secs. 38a-890 to 38a-893. Reserved for future use.

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CHAPTER 704a*

INSURANCE GUARANTY FUNDS

Table of Contents

PART I*

CONNECTICUT INSURANCE GUARANTY ASSOCIATION ACT

PART II*

CONNECTICUT LIFE AND HEALTH INSURANCEGUARANTY ASSOCIATION ACT

PART III

BROKERED TRANSACTIONS GUARANTY FUND

CONNECTICUT LIFE AND HEALTH INSURANCE
GUARANTY ASSOCIATION ACT