Chapter 704c

Sec. 38a-903. (Formerly Sec. 38-421). Short title: Insurers Rehabilitation and Liquidation Act. Interpretation. Applicability. Sections 38a-903 to 38a-961, inclusive, may be cited as the “Insurers Rehabilitation and Liquidation Act”. Said sections shall not be interpreted to limit the powers granted the commissioner by other provisions of the law. Sections 38a-903 to 38a-961, inclusive, shall be construed to effect their purpose which is the protection of the interests of insureds, claimants, creditors and the public generally, with minimum interference with the normal prerogatives of the owners and managers of insurers, through:

(1) Early detection of any potentially dangerous condition in an insurer and prompt application of appropriate corrective measures;

(2) Improved methods for rehabilitating insurers, involving the cooperation and management expertise of the insurance industry;

(3) Enhanced efficiency and economy of liquidation, through clarification of the law, to minimize legal uncertainty and litigation;

(4) Equitable apportionment of any unavoidable loss;

(5) Reducing the problems of interstate rehabilitation and liquidation by facilitating cooperation between states in delinquency proceedings and by extending the scope of personal jurisdiction over debtors of the insurer outside this state;

(6) Regulation of the business of insurance by the impact of the law relating to delinquency procedures and related substantive rules; and

(7) Providing for a comprehensive scheme for the rehabilitation and liquidation of insurance companies and those subject to sections 38a-903 to 38a-961, inclusive, as part of the regulation of the business of insurance in the state. Proceedings in cases of insurer insolvency and delinquency are deemed an integral aspect of the business of insurance and are of vital public interest and concern.

(P.A. 79-382, S. 1; P.A. 92-93, S. 1; P.A. 98-214, S. 1.)

History: Sec. 38-421 transferred to Sec. 38a-903 in 1991; P.A. 92-93 added Subdivs. (1) to (7), inclusive, re early detection, improving the evaluation, enhancing efficiency and providing for equitable apportionment for the rehabilitation and liquidation of insurers; P.A. 98-214 substituted “delinquency proceedings” for “the liquidation process” in Subdiv. (5), and made changes in Subdivs. (6) and (7) re the business of insurance.

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Sec. 38a-904. (Formerly Sec. 38-422). Application of provisions. Sections 38a-903 to 38a-961, inclusive, shall apply to: (1) All insurers who are doing, or have done, an insurance business in this state and against whom claims arising from that business may exist now or in the future, and all persons subject to examination by the commissioner; (2) all insurers who purport to do an insurance business in this state; (3) all insurers who have insureds resident in this state; (4) all other persons organized or doing insurance business, or in the process of organizing with the intent to do an insurance business in this state; (5) all nonprofit service plans and all fraternal benefit societies; (6) all title insurance companies; and (7) all health care centers.

(P.A. 79-382, S. 2; P.A. 92-93, S. 2; P.A. 98-214, S. 2.)

History: Sec. 38-422 transferred to Sec. 38a-904 in 1991; P.A. 92-93 applied provisions to health care centers and made technical corrections for statutory consistency; P.A. 98-214 substituted “Sections 38a-903 to 38a-961” for “The proceedings authorized by sections 38a-903 to 38a-961”, amended Subdiv. (1) to include “all persons subject to examination by the commissioner” and amended Subdiv. (4) to include persons doing insurance business.

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Sec. 38a-905. (Formerly Sec. 38-423). Definitions. For the purposes of sections 38a-903 to 38a-961, inclusive:

(1) “Alien insurer domiciled in this state” means a United States branch.

(2) “Ancillary state” means any state other than a domiciliary state.

(3) “Commissioner” means the Insurance Commissioner.

(4) “Commodity contract” means: (A) A contract for the purchase or sale of a commodity for future delivery on, or subject to the rules of, a board of trade designated as a contract market by the Commodity Futures Trading Commission under the Commodity Exchange Act (7 USC 1 et seq.) or board of trade outside the United States; (B) an agreement that is subject to regulation under Section 19 of the Commodity Exchange Act (7 USC 1, et seq.) and that is commonly known to the commodities trade as a margin account, margin contract, leverage account or leverage contract; or (C) an agreement or transaction that is subject to regulation under section 4c(b) of the Commodity Exchange Act (7 USC 1 et seq.) and that is commonly known to the commodities trade as a commodity option.

(5) “Creditor” means a person having any claim, whether matured or unmatured, liquidated or unliquidated, secured or unsecured, absolute, fixed or contingent.

(6) “Delinquency proceeding” means any proceeding instituted against an insurer for the purpose of liquidating, rehabilitating, reorganizing or conserving such insurer, and any summary proceeding under section 38a-912. “Formal delinquency proceeding” means any liquidation or rehabilitation proceeding.

(7) “Doing business”, “doing insurance business” and the “business of insurance”, includes any of the following acts, whether effected by mail or otherwise: (A) The issuance or delivery of contracts of insurance, either to persons resident in or covering a risk located in this state; (B) the solicitation of applications for such contracts or other negotiations preliminary to the execution of such contracts; (C) the collection of premiums, membership fees, assessments or other consideration for such contracts; (D) the transaction of matters subsequent to execution of such contracts and arising out of them; or (E) operating under a license or certificate of authority, as an insurer, issued by the Insurance Department.

(8) “Domiciliary state” means the state in which an insurer is incorporated or organized, or, in the case of an alien insurer, its state of entry.

(9) “Fair consideration” is given for property or obligation: (A) When in exchange for such property or obligation, as a fair equivalent therefor, and in good faith, property is conveyed or services are rendered or an obligation is incurred or an antecedent debt is satisfied; or (B) when such property or obligation is received in good faith to secure a present advance or antecedent debt in an amount not disproportionately small as compared to the value of the property or obligation obtained.

(10) “Foreign country” has the same meaning as provided in section 38a-1.

(11) “Forward contract” means a contract, other than a commodity contract, for the purchase, sale or transfer of a commodity, as defined in Section 1 of the Commodity Exchange Act (7 USC 1 et seq.), or any similar good, article, service, right or interest that is presently or in the future becomes the subject of dealing in the forward contract trade, or product or by-product thereof, with a maturity date more than two days after the date the contract is entered into, including, but not limited to, a repurchase transaction, reverse repurchase transaction, unallocated hedge transaction, deposit, loan, option, allocated transaction or a combination of these or option on any of them.

(12) “General assets” includes all property, real, personal or otherwise, not specifically mortgaged, pledged, deposited or otherwise encumbered for the security or benefit of specified persons or classes of persons. As to specifically encumbered property, “general assets” includes all such property or its proceeds in excess of the amount necessary to discharge the sum or sums secured thereby. Assets held in trust and on deposit for the security or benefit of all policyholders or all policyholders and creditors, in more than a single state, shall be treated as general assets.

(13) “Guaranty association” means the Connecticut Insurance Guaranty Association established pursuant to sections 38a-836 to 38a-853, inclusive, the Connecticut Life and Health Insurance Guaranty Association established pursuant to sections 38a-858 to 38a-875, inclusive, and any other similar entity created by the General Assembly for the payment of claims of insolvent insurers. “Foreign guaranty association” means any similar entities created by the legislature of any other state.

(14) “Insolvency” and “insolvent” have the same meanings as provided in section 38a-1.

(15) “Insurer” means any person who has done, purports to do, is doing or is licensed to do an insurance business, and is or has been subject to the authority of, or to liquidation, rehabilitation, reorganization, supervision or conservation by, any insurance commissioner. For purposes of sections 38a-903 to 38a-961, inclusive, any other persons included under section 38a-904 shall be deemed to be insurers.

(16) “Netting agreement” means a contract or agreement, including terms and conditions incorporated by reference therein, including a master agreement, which master agreement, together with all schedules, confirmations, definitions and addenda thereto and transactions under any thereof, shall be treated as one netting agreement, that (A) documents one or more transactions between the parties to the agreement for or involving one or more qualified financial contracts and (B) provides for the netting or liquidation of qualified financial contracts or present or future payment obligations or payment entitlements thereunder, including liquidation or closeout values relating to such obligations or entitlements, among the parties to the netting agreement.

(17) “Preferred claim” means any claim with respect to which the terms of sections 38a-903 to 38a-961, inclusive, accord priority of payment from the general assets of the insurer.

(18) “Qualified financial contract” means a commodity contract, forward contract, repurchase agreement, securities contract, swap agreement and any similar agreement that the commissioner determines to be a qualified financial contract for the purposes of this chapter.

(19) “Receiver” means receiver, liquidator, rehabilitator or conservator, as the context requires.

(20) “Reciprocal state” means any state other than this state in which in substance and effect sections 38a-920, 38a-954, 38a-955 and 38a-957 to 38a-959, inclusive, are in force and in which provisions are in force, requiring that the commissioner or equivalent official be the receiver of a delinquent insurer and in which some provision exists for the avoidance of fraudulent conveyances and preferential transfers.

(21) “Repurchase agreement” and “reverse repurchase agreement” mean an agreement, including related terms, that provides for the transfer of certificates of deposit, eligible bankers' acceptances, or securities that are direct obligations of, or that are fully guaranteed as to principal and interest by, the United States or an agency of the United States against the transfer of funds by the transferee of the certificates of deposit, eligible bankers' acceptances or securities with a simultaneous agreement by the transferee to transfer to the transferor certificates of deposit, eligible bankers' acceptances or securities as described in this subdivision, at a date certain not later than one year after the transfers or on demand, against the transfer of funds. For the purposes of this subdivision, the items that may be subject to an agreement include mortgage-related securities, a mortgage loan, and an interest in a mortgage loan, and shall not include any participation in a commercial mortgage loan, unless the commissioner determines to include the participation within the meaning of the term.

(22) “Secured claim” means any claim secured by an asset that is not a general asset. “Secured claim” also includes claims which have become liens upon specific assets by reason of judicial process prior to four months before the commencement of delinquency proceedings. “Secured claim” does not include a special deposit claim or a claim arising from a constructive or resulting trust.

(23) “Securities contract” means a contract for the purchase, sale or loan of a security, including an option for the repurchase or sale of a security, certificate of deposit, or group or index of securities, including an interest therein or based on the value thereof, or an option entered into on a national securities exchange relating to foreign currencies, or the guarantee of a settlement of cash or securities by or to a securities clearing agency. For the purposes of this subdivision, “security” includes a mortgage loan, mortgage-related securities, and an interest in any mortgage loan or mortgage-related security.

(24) “Special deposit claim” means any claim secured by a deposit made pursuant to a state statute for the security or benefit of a limited class or classes of persons, but does not include any claim secured by general assets.

(25) “State” has the same meaning as provided in section 38a-1.

(26) “Swap agreement” means an agreement, including the terms and conditions incorporated by reference in an agreement, that is a rate swap agreement, basis swap, commodity swap, forward rate agreement, interest rate future, interest rate option, forward foreign exchange agreement, spot foreign exchange agreement, rate cap agreement, rate floor agreement, rate collar agreement, currency swap agreement, cross-currency rate swap agreement, currency future, or currency option or any other similar agreement, and includes any combination of agreements and an option to enter into an agreement.

(27) “Transfer” includes the sale and every other and different mode, direct or indirect, of disposing of or of parting with property or with an interest therein, or with the possession thereof or of fixing a lien upon property or upon an interest therein, absolutely or conditionally, voluntarily, by or without judicial proceedings. The retention of a security title to property delivered to a debtor shall be deemed a transfer suffered by the debtor.

(28) “United States branch” has the same meaning as provided in section 38a-58b.

(P.A. 79-382, S. 3; P.A. 80-482, S. 3, 4, 345, 348; P.A. 90-243, S. 164; P.A. 92-93, S. 3; P.A. 98-214, S. 3; P.A. 03-199, S. 7; P.A. 14-123, S. 24.)

History: P.A. 80-482 abolished the department of business regulation and restored its division of insurance as an independent department (as it was prior to creation of business regulation department in P.A. 77-614), thus allowing omission of reference to business regulation department in insurance commissioner's title; P.A. 90-243 amended the definitions for “foreign country”, “insolvency” and “insolvent”; Sec. 38-423 transferred to Sec. 38a-905 in 1991; P.A. 92-93 made technical corrections for statutory consistency; P.A. 98-214 changed definition designators from Subsecs. to Subdivs., added definitions for “commodity contract”, “forward contract”, “netting agreement”, “qualified financial contract”, “‘repurchase agreement’ and ‘reverse repurchase agreement’”, “securities contract” and “swap agreement”, amended the definition of “doing business” to apply definition to the terms “doing insurance business” and the “business of insurance” and to include contracts of insurance covering a risk located in this state, amended the definition of “general assets” to substitute “includes” for “means”, amended definition of “guaranty association” to delete “now or hereafter created” and similar phrase and to substitute “General Assembly” for “legislature of this state”, amended definition of “secured claim” to replace existing definition with new definition, and made technical changes; P.A. 03-199 redefined “swap agreement” in Subdiv. (25); P.A. 14-123 added new Subdiv. (1) re definition of “alien insurer domiciled in this state”, redesignated existing Subdivs. (1) to (23) as Subdivs. (2) to (24), deleted former Subdiv. (24) and added new Subdiv. (25) re definition of “state”, redesignated existing Subdivs. (25) and (26) as Subdivs. (26) and (27), added Subdiv. (28) re definition of “United States branch” and made technical changes, effective June 6, 2014.

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Sec. 38a-906. (Formerly Sec. 38-424). Jurisdiction and venue. (a) No delinquency proceeding shall be commenced under sections 38a-903 to 38a-961, inclusive, by anyone other than the commissioner and no court shall have jurisdiction to entertain, hear or determine any proceeding commenced by any other person.

(b) No court of this state shall have jurisdiction to entertain, hear or determine any complaint praying for the dissolution, liquidation, rehabilitation, sequestration, conservation or receivership of any insurer, or praying for an injunction or restraining order or other relief preliminary to, incidental to or relating to such proceedings other than in accordance with sections 38a-903 to 38a-961, inclusive.

(c) In addition to other grounds for jurisdiction provided by the law of this state, a court of this state having jurisdiction of the subject matter has jurisdiction over a person served pursuant to the provisions of the general statutes pertaining to an action brought by the receiver of a domestic insurer or an alien insurer domiciled in this state: (1) If the person served is obligated to the insurer in any way as an incident to any producer arrangement that may exist or has existed between the insurer and the producer, in any action on or incident to the obligation; or (2) if the person served is a reinsurer who has at any time entered into a contract of reinsurance with an insurer against which a delinquency proceeding has been instituted, or is a producer of or for the reinsurer, in any action on or incident to the reinsurance contract; or (3) if the person served is or has been an officer, manager, trustee, organizer, promoter or person in a position of comparable authority or influence in an insurer against which a rehabilitation or liquidation order is in effect when the action is commenced, in any action resulting from such a relationship with the insurer; or (4) if the person served is or was at the time of the institution of the delinquency proceeding against the insurer holding assets in which the receiver claims an interest on behalf of the insurer, in any action concerning the assets; or (5) if the person served is obligated to the insurer, in any way, in any action on or incident to the obligation.

(d) If the court on motion of any party finds that any action should as a matter of substantial justice be tried in a forum outside this state, the court may enter an appropriate order to stay further proceedings on the action in this state.

(e) All action herein authorized shall be brought in superior court for the judicial district of Hartford.

(P.A. 79-382, S. 4; P.A. 88-230, S. 1, 12; P.A. 90-98, S. 1, 2; P.A. 92-93, S. 4; P.A. 93-142, S. 4, 7, 8; P.A. 95-220, S. 4–6; P.A. 96-193, S. 30, 36.)

History: 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. 38-424 transferred to Sec. 38a-906 in 1991; P.A. 92-93 amended Subsec. (c) to add additional parties re subject matter jurisdiction in new Subdivs. (2), (4) and (5), renumbering former Subdiv. (2) as (3), and made technical corrections for statutory consistency; 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. 96-193 substituted “producer” for “agent or broker” and “producer arrangement” for “agency or brokerage” in Subsec. (c), effective June 3, 1996.

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Sec. 38a-907. (Formerly Sec. 38-425). Injunctions, orders and stays. (a) The conservation, rehabilitation and liquidation of insurance companies and other persons subject to the provisions of sections 38a-903 to 38a-961, inclusive, are a matter of vital public interest and affect the relationships between insureds and their insurers.

(1) An application or petition under sections 38a-912, 38a-914, 38a-915, 38a-918, 38a-919 and 38a-920, shall operate as an automatic stay applicable to all persons, other than the receiver, which shall be permanent and survive the entry of an order of conservation, rehabilitation or liquidation, and which shall prohibit: (A) The transaction of further business; (B) the transfer of property; (C) interference with the receiver or with a proceeding under said sections; (D) waste of the insurer's assets; (E) dissipation and transfer of bank accounts; (F) the institution or further prosecution of any actions or proceedings in which the insurer is a party; (G) the obtaining of preferences, judgments, attachments, garnishments, or liens against the insurer, its assets or its policyholders; (H) the levying of execution against the insurer, its assets, or its policyholders; (I) the making of any sale or deed for nonpayment of taxes or assessments that would lessen the value of the assets of the insurer; (J) the withholding from the receiver of books, accounts, documents, or other records relating to the business of the insurer; or (K) any other threatened or contemplated action that might lessen the value of the insurer's assets or prejudice the rights of policyholders, creditors, or shareholders, or the administration of any proceeding under said sections.

(2) Notwithstanding any other provision of law, no bond shall be required of the commissioner as a prerequisite for the issuance of any injunction or restraining order pursuant to this section.

(3) Upon motion of a person subject to the stay, the court, after notice to the receiver and a hearing, may modify or grant relief from the stay, provided said person shall have the burden of proof and shall establish by clear and convincing evidence that such relief should be granted.

(4) All matters that may be stayed, enjoined or barred under this section and all matters involving its interpretation or operation shall remain within the exclusive jurisdiction of the domiciliary receivership court.

(b) The receiver may apply to any court outside of the state for the relief described in subsection (a) of this section.

(P.A. 79-382, S. 5; P.A. 98-214, S. 4.)

History: Sec. 38-425 transferred to Sec. 38a-907 in 1991; P.A. 98-214 amended Subsec. (a) to replace introductory language authorizing restraining orders and injunctions with language re the vital public interest in the conservation, rehabilitation and liquidation of insurance companies, et al., inserted introductory language following Subdiv. (a)(1) designator concerning the operation of, and prohibitions under, applications or petitions, redesignated former Subdivs. as Subparas., limited newly designated Subsec. (a)(1)(F) to actions or proceedings in which the insurer is a party and added new Subdivs. (2) to (4), inclusive, re bonds, relief from stay and jurisdiction, respectively.

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Sec. 38a-908. (Formerly Sec. 38-426). Cooperation of officers, owners and employees. Penalties. (a) Any present or former officer, manager, director, trustee, owner, employee or agent of any insurer, or any other persons with authority over or in charge of any segment of the insurer's affairs, shall cooperate with the commissioner in any proceeding under this chapter or any investigation preliminary to the proceeding. As used in this section, “person” includes any person who exercises control directly or indirectly over activities of the insurer through any holding company or other affiliate of the insurer; and “to cooperate” includes, but is not limited to, the following: (1) To reply promptly in writing to any inquiry from the commissioner requesting such a reply; and (2) to make available to the commissioner any books, accounts, documents, or other records or information or property of or pertaining to the insurer and in the person's possession, custody or control.

(b) No person shall obstruct or interfere with the commissioner in the conduct of any delinquency proceeding or any investigation preliminary or incidental thereto.

(c) This section shall not be construed to abridge otherwise existing legal rights, including the right to resist a petition for liquidation or other delinquency proceedings, or other orders.

(d) Any person included within subsection (a) of this section who fails to cooperate with the commissioner, or any person who obstructs or interferes with the commissioner in the conduct of any delinquency proceeding or any investigation preliminary or incidental thereto, or who violates any order the commissioner issued validly under sections 38a-903 to 38a-961, inclusive, may: (1) Be sentenced to pay a fine not exceeding ten thousand dollars or imprisoned not more than one year, or both; or (2) after a hearing, be subject to a civil penalty not to exceed twenty-five thousand dollars and the revocation or suspension of any insurance licenses issued by the commissioner.

(P.A. 79-382, S. 6; P.A. 92-93, S. 5; P.A. 08-178, S. 46; P.A. 18-158, S. 9.)

History: Sec. 38-426 transferred to Sec. 38a-908 in 1991; P.A. 92-93 made technical corrections for statutory consistency; P.A. 08-178 amended Subsec. (d) by making technical changes and increasing maximum civil penalty in Subdiv. (2) from $10,000 to $25,000; P.A. 18-158 amended Subsec. (a) by adding “present or former” re officer, manager, director, trustee, owner, employee or agent of insurer and made technical changes.

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Sec. 38a-909. (Formerly Sec. 38-427). Persons afforded protection. Official immunity. Segregation of funds. Bonds. (a) For the purposes of this section the persons entitled to protection under this section shall be:

(1) All receivers responsible for the conduct of a delinquency proceeding under sections 38a-903 to 38a-961, inclusive, including present and former receivers; and

(2) The employees of any receiver responsible for the conduct of a delinquency proceeding, including all present and former special deputies and assistant special deputies appointed by the commissioner and all persons whom the commissioner, special deputies or assistant special deputies have employed to assist in a delinquency proceeding under sections 38a-903 to 38a-961, inclusive. Attorneys, accountants, auditors and other professional persons or firms who are retained by the receiver as independent contractors, and their employees, shall not be considered employees of the receiver for purposes of this section.

(b) The receiver and his employees shall have official immunity and shall be immune from suit and liability, both personally and in their official capacities, for any claim for damage to or loss of property, personal injury or other civil liability caused by or resulting from any alleged act, error or omission of the receiver or any employee arising out of or by reason of their duties or employment, provided nothing in this section shall be construed to hold the receiver or any employee immune from suit or liability for any damage, loss, injury or liability caused by the intentional or wilful and wanton misconduct of the receiver or any employee.

(c) If any legal action is commenced against the receiver or any employee, whether against him personally or in his official capacity, alleging property damage, property loss, personal injury or other civil liability caused by or resulting from any alleged act, error or omission of the receiver or any employee arising out of or by reason of their duties or employment, the receiver and any employee shall be indemnified from the assets of the insurer for all expenses, attorneys' fees, judgments, settlements, decrees or amounts due and owing or paid in satisfaction of or incurred in the defense of such legal action unless it is determined upon a final adjudication on the merits that the alleged act, error or omission of the receiver or employee giving rise to the claim did not arise out of or by reason of his duties or employment, or was caused by intentional or wilful and wanton misconduct.

(1) Attorneys' fees and any related expenses incurred in defending a legal action for which immunity or indemnity is available under this section shall be paid from the assets of the insurer, as they are incurred, in advance of the final disposition of such action upon receipt of an undertaking by or on behalf of the receiver or employee to repay the attorneys' fees and expenses if it shall ultimately be determined upon a final adjudication on the merits that the receiver or employee is not entitled to immunity or indemnity under this section.

(2) Any indemnification for expense payments, judgments, settlements, decrees, attorneys' fees, surety bond premiums or other amounts paid or to be paid from the insurer's assets pursuant to this section shall be an administrative expense of the insurer.

(3) In the event of any actual or threatened litigation against a receiver or any employee for which immunity or indemnity may be available under this section, a reasonable amount of funds which in the judgment of the commissioner may be needed to provide immunity or indemnity shall be segregated and reserved from the assets of the insurer as security for the payment of indemnity until such time as all applicable statutes of limitation shall have run and all actual or threatened actions against the receiver or any employee have been completely and finally resolved, and all obligations of the insurer and the commissioner under this section shall have been satisfied.

(4) In lieu of segregation and reserving of funds, the commissioner may, in his discretion, obtain a surety bond or make other arrangements which will enable the commissioner to fully secure the payment of all obligations under this section.

(d) If any legal action against an employee for which indemnity may be available under this section is settled prior to final adjudication on the merits, the insurer shall pay the settlement amount on behalf of the employee or indemnify the employee for the settlement amount unless the commissioner determines:

(1) That the claim did not arise out of or by reason of the employee's duties or employment; or

(2) That the claim was caused by the intentional or wilful and wanton misconduct of the employee.

(e) In any legal action in which the receiver is a defendant, that portion of any settlement relating to the alleged act, error or omission of the receiver shall be subject to the approval of the court before which the delinquency proceeding is pending. The court shall not approve that portion of the settlement if it determines:

(1) That the claim did not arise out of or by reason of the receiver's duties or employment; or

(2) That the claim was caused by the intentional or wilful and wanton misconduct of the receiver.

(f) Nothing contained or implied in this section shall operate, or be construed or applied to deprive the receiver or any employee of any immunity, indemnity, benefits of law, rights or any defense otherwise available.

(g) (1) Subsection (b) of this section shall apply to any suit based in whole or in part on any alleged act, error or omission which takes place on or after October 1, 1992.

(2) No legal action shall lie against the receiver or any employee based in whole or in part on any alleged act, error or omission which took place prior to October 1, 1992, unless suit is filed and valid service of process is obtained within twelve months after October 1, 1992.

(3) Subsections (c), (d) and (e) of this section shall apply to any suit which is pending on or filed after October 1, 1992, without regard to when the alleged act, error or omission took place.

(h) In any proceeding under sections 38a-903 to 38a-961, inclusive, the commissioner and his deputies shall be responsible on their official bonds for the faithful performance of their duties. If the court deems it desirable for the protection of the assets, it may at any time require an additional bond from the commissioner or his deputies, and such bonds shall be paid for out of the assets of the insurer as a cost of administration.

(P.A. 79-382, S. 7; P.A. 92-93, S. 6; P.A. 14-235, S. 34.)

History: Sec. 38-427 transferred to Sec. 38a-909 in 1991; P.A. 92-93 added new Subsecs. (a) to (g) re parties protected in a delinquency proceeding, relettered the original section as Subsec. (h) and made technical corrections for statutory consistency; P.A. 14-235 made a technical change in Subsec. (d).

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Sec. 38a-910. (Formerly Sec. 38-428). Continuation of delinquency proceedings. Section 38a-910 is repealed, effective October 1, 2018.

(P.A. 79-382, S. 8; P.A. 18-158, S. 19.)

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Sec. 38a-911. (Formerly Sec. 38-429). Delinquency proceeding: Limitations and conditions. No insurer that is subject to any delinquency proceedings, whether formal, informal, administrative or judicial, shall:

(1) Be permitted to solicit or accept new business or request or accept the restoration of any suspended or revoked license or certificate of authority;

(2) Be returned to the control of its shareholders or private management; or

(3) Have any of its assets returned to the control of its shareholders or private management until all payments of or on account of the insurer's contractual obligations by all guaranty associations, along with all expenses thereof and interest on all such payments and expenses, shall have been repaid to the guaranty associations or a plan of repayment by the insurer shall have been approved by the guaranty association.

(P.A. 79-382, S. 9; P.A. 92-93, S. 7; P.A. 98-214, S. 6.)

History: Sec. 38-429 transferred to Sec. 38a-911 in 1991; P.A. 92-93 entirely replaced prior provisions with new language prohibiting insurers subject to delinquency proceedings from transacting further business or controlling assets; P.A. 98-214 deleted former Subdiv. (1), which had prohibited insurer's release from proceedings unless proceedings converted to judicial rehabilitation or liquidation proceeding, and designated former Subdivs. (2), (3) and (4) as Subdivs. (1), (2) and (3), respectively.

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Sec. 38a-912. (Formerly Sec. 38-430). Seizure order by court. (a) The commissioner may file in the Superior Court of this state a petition alleging, with respect to a domestic insurer: (1) That there exist any grounds that would justify a court order for a formal delinquency proceeding against an insurer under sections 38a-903 to 38a-961, inclusive; (2) that the interests of policyholders, creditors or the public will be endangered by delay; and (3) the contents of an order deemed necessary by the commissioner.

(b) Upon a filing under subsection (a) of this section, the court may issue forthwith, ex parte and without a hearing, the requested order which shall direct the commissioner to take possession and control of all or a part of the property, books, accounts, documents and other records of an insurer, and of the premises occupied by it for the transaction of its business, and until further order of the court enjoin the insurer and its officers, managers, agents and employees from disposition of its property and from the transaction of its business except with the written consent of the commissioner.

(c) The court shall specify in the order what its duration shall be, which shall be such time as the court deems necessary for the commissioner to ascertain the condition of the insurer. On motion of either party or on its own motion, the court may from time to time hold such hearings as it deems desirable after such notice as it deems appropriate, and may extend, shorten, or modify the terms of the seizure order. The court shall vacate the seizure order if the commissioner fails to commence a formal proceeding under sections 38a-903 to 38a-961, inclusive, after having had a reasonable opportunity to do so. An order of the court pursuant to a formal proceeding under said sections shall vacate the seizure order.

(d) Entry of a seizure order under this section shall not constitute an anticipatory breach of any contract of the insurer.

(e) An insurer subject to an ex parte order under this section may petition the court at any time after the issuance of such order for a hearing and review of the order. The court shall hold such a hearing and review not more than fifteen days after the request. A hearing under this subsection may be held privately in chambers and it shall be so held if the insurer proceeded against so requests.

(f) If, at any time after the issuance of such an order, it appears to the court that any person whose interest is or will be substantially affected by the order did not appear at the hearing and has not been served, the court may order that notice be given. An order that notice be given shall not stay the effect of any order previously issued by the court.

(P.A. 79-382, S. 10; P.A. 92-93, S. 8.)

History: Sec. 38-430 transferred to Sec. 38a-912 in 1991; P.A. 92-93 made technical corrections for statutory consistency.

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Sec. 38a-913. (Formerly Sec. 38-431). Confidentiality of proceedings. In all proceedings and judicial reviews thereof pursuant to section 38a-912, all records of the insurer, other documents and all Insurance Department files and court records and papers, so far as they pertain to or are a part of the record of the proceedings, shall be and remain confidential, and all papers filed with the clerk of the Superior Court shall be held by the clerk in a confidential file, except as is necessary to obtain compliance with any order entered in connection with such proceedings, unless: (1) The Superior Court, after hearing arguments in chambers, orders otherwise; (2) the insurer requests that the matter be made public; or (3) the commissioner applies for an order under section 38a-914 or section 38a-919.

(P.A. 79-382, S. 11; P.A. 80-482, S. 4, 345, 348; P.A. 92-93, S. 9; P.A. 98-214, S. 8.)

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Sec. 38a-913a. Records of delinquent insurer. Use as evidence. Applicability of Freedom of Information Act. Costs of producing records. (a) All records or certified copies thereof of any delinquent insurer which come into the possession of the receiver and are held by the receiver in the course of the delinquency proceedings shall be received in evidence in all cases without proof of the correctness of such records and without other proof, except the certificate of the receiver that such records were received from the custody of the delinquent insurer or found among its property. For the purposes of this section, “record” means books, records, documents and papers.

(b) The receiver shall have the authority to certify to the correctness of any record of his office and to make certificates of the receiver certifying to any fact contained in such records. Such records shall be received in evidence in all cases in which the original would be evidence.

(c) Original records, or certified copies thereof, when offered by the receiver and received in evidence shall be prima facie evidence of the facts disclosed.

(d) The appointment of the Insurance Commissioner as receiver shall not make records of a delinquent insurer subject to disclosure under the Freedom of Information Act, as defined in section 1-200. In the event a third party successfully pursues a records request in the receivership court, the receiver shall be reimbursed for the reasonable cost of producing such records.

(P.A. 98-214, S. 7.)

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Sec. 38a-914. (Formerly Sec. 38-432). Grounds for rehabilitation. The commissioner may apply by petition to the Superior Court for an order authorizing the commissioner to rehabilitate a domestic insurer or an alien insurer domiciled in this state on any one or more of the following grounds:

(1) The insurer is in such condition that the further transaction of business would be hazardous, financially, to its policyholders, creditors or the public.

(2) There is reasonable cause to believe that there has been embezzlement from the insurer, wrongful sequestration or diversion of the insurer's assets, forgery or fraud affecting the insurer, or other illegal conduct in, by, or with respect to the insurer that if established would endanger assets in an amount threatening the solvency of the insurer.

(3) The insurer has failed to remove any person who in fact has executive authority in the insurer, whether an officer, manager, general agent, employee, or other person, if the person has been found after notice and hearing by the commissioner to be dishonest or untrustworthy in a way affecting the insurer's business.

(4) Control of the insurer, whether by stock ownership or otherwise, and whether direct or indirect, is in a person or persons found after notice and hearing to be dishonest or untrustworthy.

(5) Any person who in fact has executive authority in the insurer, whether an officer, manager, general agent, director or trustee, employee or other person has refused to be examined under oath by the commissioner concerning its affairs, whether in this state or elsewhere, and after reasonable notice of the fact the insurer has failed promptly and effectively to terminate the employment and status of the person and all such person's influence on management.

(6) After demand by the commissioner pursuant to section 38a-14 or sections 38a-903 to 38a-961, inclusive, the insurer has failed to promptly make available for examination any of its own property, books, accounts, documents or other records, or those of any subsidiary or related company within the control of the insurer, or those of any person having executive authority in the insurer so far as they pertain to the insurer.

(7) Without first obtaining the written consent of the commissioner, (A) the insurer has transferred or attempted to transfer, in a manner contrary to section 38a-136, substantially its entire property or business, or has entered into any transaction the effect of which is to merge, consolidate or reinsure substantially its entire property or business in or with the property or business of any other person, or (B) the United States branch has transferred or attempted to transfer, in a manner contrary to section 38a-58d, substantially its entire property or business, or has entered into any transaction the effect of which is to merge, consolidate or reinsure substantially its entire property or business in or with the property or business of any other person.

(8) The insurer or its property has been or is the subject of an application for the appointment of a receiver, trustee, custodian, conservator or sequestrator or similar fiduciary of the insurer or its property other than as authorized under the insurance laws of this state, and such appointment has been made or is imminent, and such appointment might oust the courts of this state of jurisdiction or might prejudice orderly delinquency proceedings under sections 38a-903 to 38a-961, inclusive.

(9) Within the previous four years the insurer has wilfully violated its charter or articles of incorporation, its bylaws, any insurance laws of this state or any valid order of the commissioner.

(10) The insurer has failed to pay within sixty days after due date any obligation to any state or any subdivision thereof or any judgment entered in any state, if the court in which such judgment was entered had jurisdiction over such subject matter, except that such nonpayment shall not be a ground until sixty days after any good faith effort by the insurer to contest the obligation has been terminated, whether it is before the commissioner or in the courts, or the insurer has systematically attempted to compromise or renegotiate previously agreed settlements with its creditors on the ground that it is financially unable to pay its obligations in full.

(11) The insurer has failed to file its annual report or other financial report required by statute within the time allowed by law and, after written demand by the commissioner, has failed to give an adequate explanation immediately.

(12) The board of directors or the holders of a majority of the shares entitled to vote, or a majority of those individuals entitled to the control of those entities specified in section 38a-904, request or consent to rehabilitation under sections 38a-903 to 38a-961, inclusive.

(P.A. 79-382, S. 12; P.A. 92-93, S. 10; P.A. 14-123, S. 25.)

History: Sec. 38-432 transferred to Sec. 38a-914 in 1991; P.A. 92-93 made technical corrections for statutory consistency; P.A. 14-123 redesignated existing Subdivs. (a) to (l) as Subdivs. (1) to (12), amended redesignated Subdiv. (7) to designate existing provisions re transfer or attempted transfer by insurer as Subpara. (A) and add Subpara. (B) re transfer or attempted transfer by United States branch, and made technical changes, effective June 6, 2014.

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Sec. 38a-915. (Formerly Sec. 38-433). Rehabilitation orders. Appointment of judge to supervise rehabilitation. Accounting. Appeals. (a) An order to rehabilitate the business of a domestic insurer, or an alien insurer domiciled in this state, shall appoint the commissioner and his successors in office the rehabilitator and shall direct the rehabilitator forthwith to take possession of the assets of the insurer and to administer them under the general supervision of the court. The commissioner shall be entitled to request the administrative judge of the superior court for the judicial district of Hartford to appoint a single judge to supervise the rehabilitation and hear any cases or controversies arising out of or related to the rehabilitation. Rehabilitation proceedings shall be exempt from any dormancy or similar program maintained by the court for the early closure of civil actions. The filing or recording of the order with the clerk of the Superior Court or recorder of deeds of the judicial district in which the principal business of the company is conducted, or the judicial district in which its principal office or place of business is located, shall impart the same notice as a deed, bill of sale or other evidence of title duly filed or recorded with that recorder of deeds would have imparted. The order to rehabilitate the insurer shall by operation of law vest title to all assets of the insurer in the rehabilitator.

(b) Any order issued under this section shall require accounting to the court by the rehabilitator. Accountings shall be at such intervals as the court specified in its order, but no less frequently than semiannually. Each accounting shall include a report concerning the rehabilitator's opinion as to the likelihood that a plan under subsection (e) of section 38a-916, will be prepared by the rehabilitator and the timetable for doing so.

(c) Entry of an order of rehabilitation shall not constitute an anticipatory breach of any contracts of the insurer nor shall it be grounds for retroactive revocation or retroactive cancellation of any contracts of the insurer unless such revocation or cancellation is done by the rehabilitator pursuant to section 38a-916.

(d) In order to facilitate the prompt and final resolution for all affected by a plan of rehabilitation, any appeal from an order of rehabilitation or an order approving a plan of rehabilitation shall be heard on an expedited basis. A stay of an order of rehabilitation or an order approving a plan of rehabilitation shall not be granted unless the appellant demonstrates that extraordinary circumstances warrant delaying the recovery under the plan of rehabilitation of all other persons, including policyholders. If the plan provides an appropriate mechanism for adjustment in the event of any adverse ruling from an appeal, no stay shall be granted.

(P.A. 79-382, S. 13; P.A. 88-230, S. 1, 12; P.A. 90-98, S. 1, 2; P.A. 92-93, S. 11; P.A. 93-142, S. 4, 7, 8; P.A. 95-220, S. 4–6; P.A. 98-214, S. 9.)

History: Sec. 38-433 transferred to Sec. 38a-915 in 1991; P.A. 92-93 amended Subsec. (b) to add language re semiannual accounting and amended Subsec. (c) specifying that entry of order of rehabilitation is not grounds for retroactive revocation; P.A. 98-214 amended Subsec. (a) to allow commissioner to request the administrative judge of Superior Court to appoint a judge to supervise rehabilitation and hear related cases, and to exempt rehabilitation proceedings from dormancy or similar programs maintained by the court, and added new Subsec. (d) re appeals of orders or plans of rehabilitation (Revisor's note: P.A. 88-230, 90-98, 93-142 and 95-220 authorized substitution of “judicial district of Hartford” for “judicial district of Hartford-New Britain” in public and special acts of the 1998 regular and special sessions of the General Assembly, effective September 1, 1998).

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Sec. 38a-916. (Formerly Sec. 38-434). Powers and duties of the rehabilitator. Advisory committees. (a) The commissioner as rehabilitator may appoint one or more special deputies, who shall have all the powers and responsibilities of the rehabilitator granted under this section, and notwithstanding any provision of law, including chapters 55a and 67, the commissioner may employ such counsel, clerks and assistants as deemed necessary. The compensation of the special deputy, counsel, clerks and assistants and all expenses of taking possession of the insurer and of conducting the proceedings shall be fixed by the commissioner, with the approval of the court and shall be paid out of the funds or assets of the insurer. The persons appointed under this section shall serve at the pleasure of the commissioner. The commissioner, as rehabilitator, may, with the approval of the court, appoint an advisory committee of policyholders, claimants or other creditors including guaranty associations should such a committee be deemed necessary, except that the decision to appoint an advisory committee shall be at the sole discretion of the commissioner, and the committee shall serve at the pleasure of the commissioner and shall serve without compensation and without reimbursement for expenses. No other committee of any nature shall be appointed by the commissioner or the court in rehabilitation proceedings conducted under sections 38a-903 to 38a-961, inclusive.

(b) In the event that the property of the insurer does not contain sufficient cash or liquid assets to defray the costs incurred, the commissioner may advance the costs so incurred out of any appropriation for the maintenance of the Insurance Department. Any amounts so advanced for expenses of administration shall be repaid to the commissioner for the use of the Insurance Department out of the first available money of the insurer.

(c) The rehabilitator may take such action as he deems necessary or appropriate to reform and revitalize the insurer. He shall have all the powers of the directors, officers and managers, whose authority shall be suspended, except as they are redelegated by the rehabilitator. He shall have full power to direct and manage, to hire and discharge employees subject to any contract rights they may have and to deal with the property and business of the insurer.

(d) If it appears to the rehabilitator that there has been criminal or tortious conduct, or breach of any contractual or fiduciary obligation detrimental to the insurer by any officer, manager, producer, employee or other person, he may pursue all appropriate legal remedies on behalf of the insurer.

(e) If the rehabilitator determines that reorganization, consolidation, conversion, reinsurance, merger or other transformation of the insurer is appropriate, he shall prepare a plan to effect such changes. Upon application of the rehabilitator for approval of the plan, and after such notice and hearing as the court may prescribe, the court may either approve or disapprove the plan proposed, or may modify it and approve it as modified. Any plan approved under this section shall be, in the judgment of the court, fair and equitable to all parties concerned. If the plan is approved, the rehabilitator shall carry out the plan. In the case of a life insurer, the plan proposed may include the imposition of liens upon the policies of the company, if all rights of shareholders are first relinquished. A plan for a life insurer may also propose imposition of a moratorium upon loan and cash surrender rights under policies, for such period and to such an extent as may be necessary.

(f) The rehabilitator shall have the power pursuant to sections 38a-928 and 38a-929 to avoid fraudulent transfers, and may exercise any of the powers under section 38a-923 as necessary or appropriate, except that in the case of a life insurer, the rehabilitator of such an insurer may, as part of a court-approved plan of rehabilitation, modify or restructure the policies or contracts of insurance. In the event the rehabilitator proposes to modify or restructure the policies or contracts of insurance, the rehabilitator may, with the concurrence of the court, approve payment of certain expenses incurred by an advisory committee appointed pursuant to subsection (a) of this section, the expenses to be limited to the reasonable and necessary expenses incurred in obtaining an expert evaluation of the effect upon policyholders of any proposed modification or restructuring of policies or contracts of insurance.

(g) The enumeration, in this section, of the powers and authority of the rehabilitator shall not be construed as a limitation upon the rehabilitator, nor shall it exclude in any manner the right to do other acts not specifically enumerated or otherwise provided for, as may be necessary or appropriate for the accomplishment of or in the aid of the purpose of rehabilitation.

(P.A. 79-382, S. 14; P.A. 80-482, S. 4, 345, 348; P.A. 92-93, S. 12; P.A. 96-193, S. 31, 36; P.A. 98-214, S. 10; P.A. 10-5, S. 45.)

History: P.A. 80-482 abolished the department of business regulation and restored its division of insurance as an independent department (as it was prior to creation of business regulation department in P.A. 77-614); Sec. 38-434 transferred to Sec. 38a-916 in 1991; P.A. 92-93 amended Subsec. (a) to add provision re commissioner's appointment of an advisory committee, created new Subsec. (b) using language taken from old Subsec. (a) re insufficient cash or liquid assets, relettered the remaining Subsecs. as necessary and made technical corrections for statutory consistency; P.A. 96-193 amended Subsec. (d) to substitute “producer” for “agent” and “broker”, effective June 3, 1996; P.A. 98-214 amended Subsec. (a) to notwithstand any contrary provision of law, including chapters 55a and 67, to make the decision to appoint an advisory committee be at the sole discretion of the commissioner, and to delete compensation for “reasonable travel and per diem living expenses”, substituted “the” for “said” in Subsec. (b), amended Subsec. (f) to allow rehabilitator to exercise powers under Sec. 38a-923, with exception re a life insurer, and to allow rehabilitator to, with concurrence of court, approve payment of certain advisory committee expenses if the rehabilitator proposes to modify or restructure policies or contracts, and added new Subsec. (g) re the enumeration of powers and authority not to be construed as a limitations on the rehabilitator; P.A. 10-5 made a technical change in Subsec. (a), effective May 5, 2010.

Subsec. (c):

Commissioner is legally empowered to participate in and control insurer's business activities whenever its solvency is threatened. 47 CS 202.

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Sec. 38a-917. (Formerly Sec. 38-435). Actions by and against rehabilitator. (a) Any court in this state before which any action or proceeding in which the insurer is a party or is obligated to defend a party is pending when a rehabilitation order against the insurer is entered shall stay the action or proceeding for ninety days and such additional time as is necessary for the rehabilitator to obtain proper representation and prepare for further proceedings. The rehabilitator shall take such action respecting the pending litigation as he deems necessary in the interests of justice and for the protection of creditors, policyholders and the public. The rehabilitator shall immediately consider all litigation pending outside this state and shall petition the courts having jurisdiction over that litigation for stays whenever necessary to protect the estate of the insurer.

(b) No statute of limitations or defense of laches shall run with respect to any action by or against an insurer between the filing of a petition for appointment of a rehabilitator for that insurer and the order granting or denying that petition. Any action by or against the insurer that might have been commenced when the petition was filed may be commenced for at least sixty days after the order of rehabilitation is entered or the petition is denied. The rehabilitator may, upon an order for rehabilitation, within one year or such other longer time as applicable law may permit, institute an action or proceeding on behalf of the insurer upon any cause of action against which the period of limitation fixed by applicable law has not expired at the time of the filing of the petition upon which such order is entered.

(c) Any guaranty association or foreign guaranty association covering life or health insurance or annuities shall have standing to appear in any court proceeding concerning the rehabilitation of a life or health insurer if such association is or may become liable to act as a result of the rehabilitation.

(P.A. 79-382, S. 15; P.A. 92-93, S. 13.)

History: Sec. 38-435 transferred to Sec. 38a-917 in 1991; P.A. 92-93 amended Subsec. (b) re rehabilitator's institution of an action on insurer's behalf.

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Sec. 38a-918. (Formerly Sec. 38-436). Order of liquidation. Termination of rehabilitation. (a) Whenever the commissioner believes further attempts to rehabilitate an insurer would substantially increase the risk of loss to creditors, policyholders or the public, or would be futile, the commissioner may petition the Superior Court for an order of liquidation. A petition under this subsection shall have the same effect as a petition pursuant to section 38a-919. The Superior Court shall permit the directors of the insurer to take such actions as are reasonably necessary to defend against the petition and may order payment from the estate of the insurer of such costs and other expenses of defense as justice may require.

(b) The rehabilitator may at any time petition the Superior Court for an order terminating rehabilitation of an insurer. The court shall also permit the directors of the insurer to petition the court for an order terminating rehabilitation of the insurer and may order payment from the estate of the insurer of such costs and other expenses of such petition as justice may require. If the Superior Court finds that rehabilitation has been accomplished and that grounds for rehabilitation pursuant to section 38a-914 no longer exist, it shall order that the insurer be restored to possession of its property and the control of its business. The Superior Court may also make that finding and issue that order at any time upon its own motion.

(P.A. 79-382, S. 16.)

History: Sec. 38-436 transferred to Sec. 38a-918 in 1991.

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Sec. 38a-919. (Formerly Sec. 38-437). Grounds for liquidation. The commissioner may petition the Superior Court for an order directing him to liquidate a domestic insurer or an alien insurer domiciled in this state on the basis:

(a) Of any ground for an order of rehabilitation as specified in section 38a-914, whether or not there has been a prior order directing the rehabilitation of the insurer;

(b) That the insurer is insolvent; or

(c) That the insurer is in such condition that the further transaction of business would be hazardous, financially or otherwise, to its policyholders, its creditors or the public.

(P.A. 79-382, S. 17.)

History: Sec. 38-437 transferred to Sec. 38a-919 in 1991.

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Sec. 38a-920. (Formerly Sec. 38-438). Liquidation orders. Financial reports: Contents and filings. Handling of claim obligations. Appointment of judge to supervise liquidation. Preference of claims. Appeals. (a) An order to liquidate the business of a domestic insurer shall appoint the commissioner and his successors in office as liquidator and shall direct the liquidator to take possession of the assets of the insurer and to administer them under the general supervision of the court. The commissioner shall be entitled to request the administrative judge of the superior court for the judicial district of Hartford to appoint a single judge to supervise the liquidation and hear any cases or controversies arising out of or related to the liquidation. Liquidation proceedings shall be exempt from any dormancy or similar program maintained by the court for the early closure of civil actions. The liquidator shall be vested by operation of law with the title to all of the property, contracts, and rights of action and all of the books and records of the insurer ordered liquidated, wherever located, as of the entry of the final order of liquidation. The filing or recording of the order with the clerk of the Superior Court and with the recorder of deeds of the town in which its principal office or place of business is located, or, in the case of real estate with the recorder of deeds of the town where the property is located, shall impart the same notice as a deed, bill of sale, or other evidence of title duly filed or recorded with that recorder of deeds would have imparted.

(b) Upon issuance of the order, the rights and liabilities of any such insurer and of its creditors, policyholders, shareholders, members and all other persons interested in its estate shall become fixed as of the date of entry of the order of liquidation, except as provided in sections 38a-921 and 38a-939 unless otherwise fixed by the Superior Court.

(c) An order to liquidate the business of an alien insurer domiciled in this state shall be in the same terms and have the same legal effect as an order to liquidate a domestic insurer, except that the assets and the business in the United States shall be the only assets and business included therein.

(d) At the time of petitioning for an order of liquidation, or at any time thereafter, the commissioner, after making appropriate findings of an insurer's insolvency, may petition the court for a judicial declaration of such insolvency. After providing such notice and hearing as it deems proper the court may make the declaration.

(e) Any order issued under this section shall require the liquidator to submit financial reports to the court. Financial reports shall include, at a minimum, a statement of the assets and liabilities of the insurer and all funds received or disbursed by the liquidator during the current period. Financial reports shall be filed within one year of the liquidation order and at least annually thereafter.

(f) (1) Not later than five days after the initiation of an appeal of an order of liquidation, which order has not been stayed, the commissioner shall present for the court's approval a plan for the continued performance of the defendant company's policy claim obligations, including the duty to defend the insured under liability insurance policies, during the pendency of an appeal. Such plan shall provide for the continued performance and payment of policy claim obligations in the normal course of events, notwithstanding the grounds alleged in support of the order of liquidation including the ground of insolvency. In the event the defendant company's financial condition will not, in the judgment of the commissioner, support the full performance of all policy claim obligations during the appeal pendency period, the plan may prefer the claims of certain policyholders and claimants over creditors and interested parties as well as other policyholders and claimants, as the commissioner finds to be fair and equitable considering the relative circumstances of such policyholders and claimants. The court shall examine the plan submitted by the commissioner and if it finds the plan to be in the best interests of the parties, the court shall approve the plan. No action shall lie against the commissioner or any of his deputies, agents, clerks, assistants or attorneys by any party based on preference in an appeal pendency plan approved by the court.

(2) The appeal pendency plan shall not supersede or affect the obligations of any insurance guaranty association.

(3) Any such plans shall provide for equitable adjustments to be made by the liquidator to any distributions of assets to guaranty associations, in the event that the liquidator pays claims from assets of the estate, which would otherwise be the obligations of any particular guaranty association but for the appeal of the order of liquidation, such that all guaranty associations equally benefit on a pro rata basis from the assets of the estate. In the event an order of liquidation is set aside upon any appeal, the company shall not be released from delinquency proceedings unless and until funds advanced by any guaranty association, including reasonable administrative expenses in connection therewith relating to obligations of the company, shall be repaid in full, together with interest at the judgment rate of interest or unless an arrangement for repayment thereof has been made with the consent of all applicable guaranty associations.

(P.A. 79-382, S. 18; P.A. 88-230, S. 1, 12; P.A. 90-92, S. 1, 2; P.A. 92-93, S. 14; P.A. 93-142, S. 4, 7, 8; P.A. 95-220, S. 4–6; P.A. 98-214, S. 11.)

History: Sec. 38-438 transferred to Sec. 38a-920 in 1991; P.A. 92-93 amended Subsec. (e) re financial reports and filings and re appeal pendency plans for continued performance of obligations; P.A. 98-214 amended Subsec. (a) to delete “forthwith” and to allow commissioner to request the administrative judge of Superior Court to appoint a judge to supervise liquidation and hear related cases, and to exempt liquidation proceedings from dormancy or similar programs maintained by the court, amended Subsec. (b) to allow the Superior Court to fix the rights and liabilities of enumerated persons, amended Subsec. (e) to make technical changes and to substitute “a statement of the assets and liabilities” for “the assets and liabilities”, and amended Subsec. (f) to substitute “not later than” for “within” and to delete a comma in Subdiv. (3) (Revisor's note: P.A. 88-230, 90-98, 93-142 and 95-220 authorized substitution of “judicial district of Hartford” for “judicial district of Hartford-New Britain” in public and special acts of the 1998 regular and special sessions of the General Assembly, effective September 1, 1998).

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Sec. 38a-921. (Formerly Sec. 38-439). Continuance of coverage. Cancellation of bond or surety undertaking. (a) Notwithstanding any policy or contract language or any other provision of law, all policies, insurance contracts, other than reinsurance, surety bonds or surety undertakings, other than life or health insurance or annuities, in effect at the time of issuance of an order of liquidation shall continue in force only for the lesser of: (1) A period of thirty days from the date of entry of the liquidation orders; (2) the expiration of the policy coverage; (3) the date when the insured has replaced the insurance coverage with equivalent insurance in another insurer or otherwise terminated the policy; (4) the liquidator has effected a transfer of the policy obligation pursuant to subdivision (8) of subsection (a) of section 38a-923; or (5) the date proposed by the liquidator and approved by the court to cancel coverage.

(b) An order of liquidation pursuant to section 38a-920 shall terminate coverages at the time specified in subsection (a) of this section for purposes of any other statute.

(c) Policies of life or health insurance or annuities shall continue in force for such period and under such terms as is provided for by any applicable guaranty association.

(d) Policies of life or health insurance or annuities or any period of coverage of such policies not covered by a guaranty association shall terminate under subsections (a) and (b) of this section.

(e) The cancellation of any bond or surety undertaking shall not release any cosurety or guarantor.

(f) A cancellation under this section shall not affect the obligations of the insolvent insurer's reinsurers with respect to losses arising out of acts or occurrences prior to such cancellation.

(P.A. 79-382, S. 19; P.A. 92-93, S. 15; P.A. 98-214, S. 12.)

History: Sec. 38-439 transferred to Sec. 38a-921 in 1991; P.A. 92-93 amended Subsec. (a) re court-approved liquidation date and amended Subsecs. (b) and (d) to make technical corrections for statutory consistency; P.A. 98-214 amended Subsec. (a) to replace introductory language with provision, notwithstanding any policy or contract language or any other provision of law, making certain policies continue in force for lesser of periods set forth in existing Subdivs., deleted reference to foreign guaranty association in Subsecs. (c) and (d), added new Subsec. (e) re cancellation of bond or surety undertaking and added new Subsec. (f) re cancellation under this section.

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Sec. 38a-922. (Formerly Sec. 38-440). Dissolution of insurer. The commissioner may petition for an order dissolving the corporate existence of a domestic insurer or the United States branch of an alien insurer domiciled in this state at the time he applies for a liquidation order. The court shall order dissolution of the corporation upon petition by the commissioner upon or after the granting of a liquidation order. If the dissolution has not previously been ordered, it shall be effected by operation of law upon the discharge of the liquidator if the insurer is insolvent but may be ordered by the court upon the discharge of the liquidator if the insurer is under a liquidation order for some other reason.

(P.A. 79-382, S. 20.)

History: Sec. 38-440 transferred to Sec. 38a-922 in 1991.

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Sec. 38a-923. (Formerly Sec. 38-441). Powers of liquidator. (a) The liquidator shall have the power: (1) To appoint a special deputy to act for such liquidator under sections 38a-903 to 38a-961, inclusive, and to determine such special deputy's reasonable compensation. The special deputy shall have all powers of the liquidator granted by this section. The special deputy shall serve at the pleasure of the liquidator; (2) to employ employees and agents, legal counsel, actuaries, accountants, appraisers, consultants and such other personnel as the liquidator may deem necessary to assist in the liquidation, notwithstanding any provision of law, including chapters 55a and 67; (3) to fix the reasonable compensation of employees and agents, legal counsel, actuaries, accountants, appraisers and consultants with the approval of the court; (4) to pay reasonable compensation to persons appointed and to defray from the funds or assets of the insurer all expenses of taking possession of, conserving, conducting, liquidating, disposing of, or otherwise dealing with the business and property of the insurer. The liquidator shall have the power to pay reasonable compensation to such persons on an interim basis. All such interim payments shall be subject to the approval of the court upon submission by the liquidator. In the event that the property of the insurer does not contain sufficient cash or liquid assets to defray the costs incurred, the commissioner may advance the costs so incurred out of any appropriation for the maintenance of the Insurance Department. Any amounts so advanced for expenses of administration shall be repaid to the commissioner for the use of the Insurance Department out of the first available moneys of the insurer; (5) to hold hearings, to subpoena witnesses, to compel their attendance, to administer oaths, to examine any person under oath and to compel any person to subscribe to such person's testimony after it has been correctly reduced to writing, and in connection therewith to require the production of any books, papers, records or other documents which the liquidator deems relevant to the inquiry; (6) to collect all debts and moneys due and claims belonging to the insurer, wherever located, and for this purpose (A) to institute timely action in other jurisdictions in order to forestall garnishment and attachment proceedings against such debts; (B) to do such other acts as are necessary or expedient to collect, conserve or protect its assets or property, including the power to sell, compound, compromise or assign debts for purposes of collection upon such terms and conditions as the liquidator deems best; and (C) to pursue any creditor's remedies available to enforce the creditor's claims; (7) to conduct public and private sales of the property of the insurer; (8) to use assets of the estate of an insurer under a liquidation order to transfer policy obligations to a solvent assuming insurer, if the transfer can be arranged without prejudice to applicable priorities under section 38a-944; (9) to acquire, hypothecate, encumber, lease, improve, sell, transfer, abandon or otherwise dispose of or deal with, any property of the insurer at its market value or upon such terms and conditions as are fair and reasonable. The liquidator shall also have power to execute, acknowledge and deliver any and all deeds, assignments, releases and other instruments necessary or proper to effectuate any sale of property or other transaction in connection with the liquidation; (10) to borrow money on the security of the assets in the insurer's estate or without security and to execute and deliver all documents necessary to that transaction for the purpose of facilitating the liquidation. Any such funds borrowed may be repaid as an administrative expense and have priority over any other claims in class 1 under the priority of distributions; (11) to enter into such contracts as are necessary to carry out the order to liquidate and to affirm or disavow any contracts to which the insurer is a party; (12) to continue to prosecute and to institute in the name of the insurer or in the liquidator's own name any and all suits and other legal proceedings, in this state or elsewhere, and to abandon the prosecution of claims the liquidator deems unprofitable to pursue further. If the insurer is dissolved pursuant to section 38a-922, the liquidator shall have the power to apply to any court in this state or elsewhere for leave to substitute the liquidator for the insurer as plaintiff; (13) to prosecute any action which may exist on behalf of the creditors, members, policyholders or shareholders of the insurer against any officer of the insurer or any other person; (14) to remove any or all records and property of the insurer to the offices of the commissioner or to such other place as may be convenient for the purposes of efficient and orderly execution of the liquidation. Guaranty associations shall have such reasonable access to the records of the insurer as is necessary for them to carry out their statutory obligations; (15) to deposit in one or more banks in this state such sums as are required for meeting current administration expenses and dividend distributions; (16) to invest all sums not currently needed, unless the court orders otherwise; (17) to file any necessary documents for record in the office of any recorder of deeds or record office in this state or elsewhere where property of the insurer is located; (18) to assert all defenses available to the insurer as against third persons, including statutes of limitation, statutes of frauds and the defense of usury. A waiver of any defense by the insurer after a petition in liquidation has been filed shall not bind the liquidator. Whenever a guaranty association or foreign guaranty association has an obligation to defend any suit, the liquidator shall give precedence to such obligation and may defend only in the absence of a defense by such guaranty associations; (19) to exercise and enforce all the rights, remedies and powers of any creditor, shareholder, policyholder or member, including any power to avoid any transfer or lien that may be given by the general law and that is not included under sections 38a-928 to 38a-930, inclusive; (20) to intervene in any proceeding wherever instituted that might lead to the appointment of a receiver or trustee and to act as the receiver or trustee whenever the appointment is offered; (21) to enter into agreements with any receiver or commissioner of any other state relating to the rehabilitation, liquidation, conservation or dissolution of an insurer doing business in both states; (22) to exercise all powers conferred upon receivers by the laws of this state not inconsistent with the provisions of sections 38a-903 to 38a-961, inclusive; (23) to appoint, with the approval of the court, an advisory committee of policyholders, claimants or other creditors including guaranty associations should such a committee be deemed necessary. The committee shall serve at the pleasure of the commissioner and the decision to appoint an advisory committee shall be at the sole discretion of the commissioner. The committee shall serve without compensation and without reimbursement for expenses. No other committee shall be appointed by the commissioner or the court in liquidation proceedings conducted under sections 38a-903 to 38a-961, inclusive; and (24) to audit the books and records of all agents of the insurer insofar as those records relate to the business activities of the insurer.

(b) The enumeration, in this section, of the powers and authority of the liquidator shall not be construed as a limitation upon him, nor shall it exclude in any manner his right to do other acts not specifically enumerated, or otherwise provided for, as may be necessary or appropriate for the accomplishment of or in aid of the purpose of liquidation.

(c) The liquidator shall not be obligated to defend any action against the insurer or insured and may enforce injunctions, stays and the claims procedure set forth in sections 38a-903 to 38a-961, inclusive. The liquidator may elect to defend any actions against the insurer or insureds if it is in the best interest of the estate. Any insureds not defended by a guaranty association shall provide their own defense, and include the cost of the defense as part of their claims, if the defense was an obligation of the insurer. The rights of the liquidator to contest coverage on a particular claim shall be deemed preserved without the necessity for an express reservation of rights.

(P.A. 79-382, S. 21; P.A. 80-482, S. 4, 345, 348; 80-483, S. 112, 145, 186; P.A. 92-93, S. 16; P.A. 98-214, S. 13; P.A. 10-5, S. 46.)

History: P.A. 80-482 abolished the department of business regulation and restored its division of insurance as an independent department (as it was prior to creation of the business regulation department in P.A. 77-614); P.A. 80-483 had no effect; Sec. 38-441 transferred to Sec. 38a-923 in 1991; P.A. 92-93 amended Subsec. (a) to allow repayment of borrowed funds as administrative expense, to make technical corrections for statutory consistency, and to add Subdivs. (23) and (24) re liquidator's powers to appoint advisory committee and audit books and records and added new Subsec. (c) re liquidator having no obligation to defend claims subsequent to entry of liquidation order; P.A. 98-214 amended Subsec. (a) to notwithstand any contrary provision of law, including chapters 55a and 67, to allow liquidator to, subject to the approval of the court, pay reasonable compensation to persons on an interim basis, to substitute “the creditor's” for “his” in Subpara. (a)(6)(C), to substitute “The liquidator” for “he” and “himself” and “the liquidator's” for “his” in Subdivs. (9) and (12), to delete “foreign guaranty associations” in Subdiv. (14), to delete “now held or hereafter” in Subdiv. (22), to make the decision to appoint an advisory committee be at the sole discretion of the commissioner, to delete compensation for “reasonable travel and per diem living expenses”, and to make technical changes, deleted “such” and “herein” in Subsec. (b), and replaced existing Subsec. (c) with new language re obligations and powers of the liquidator; P.A. 10-5 made technical changes in Subsec. (a), effective May 5, 2010.

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Sec. 38a-924. (Formerly Sec. 38-442). Notice to creditors and others. Requirements. Exceptions. (a) Unless the court otherwise directs, the liquidator shall give or cause to be given notice of the liquidation order as soon as possible: (1) By first class mail and electronic communication to the Insurance Commissioner of each jurisdiction in which the insurer is doing business; (2) by first class mail to any guaranty association which is or may become obligated as a result of the liquidation; (3) by first class mail to all the insurer's agents, brokers or producers of record, with current appointments or current licenses to represent the insurer, and to all other agents, brokers or producers as the liquidator deems appropriate at their last-known address; (4) by first class mail to all persons known or reasonably expected to have claims against the insurer, including all policyholders and reinsurers, at their last-known addresses as indicated by the records of the insurer; and (5) by publication in a newspaper of general circulation in the town in which the insurer has its principal place of business and in such other locations as the liquidator deems appropriate.

(b) Whenever the Insurance Commissioner of this state is appointed receiver for an insurer domiciled in another state, the notice of the liquidation order given by the domiciliary liquidator in compliance with the laws of that state shall be sufficient notice, and the ancillary receiver shall not be required to give any notice unless the domiciliary liquidator fails to give notice. The ancillary receiver may request that the domiciliary liquidator's notice mention the existence of any applicable guaranty association laws in this state, and inform claimants that any claims which the guaranty association of this state may cover may be filed with the domiciliary liquidator and will be forwarded to the applicable guaranty association. If notice by the domiciliary liquidator in another state does not mention the possibility of guaranty association coverage in this state, then the ancillary receiver shall arrange to give notice to those who may have rights under applicable guaranty association laws in this state, together with a citation to the guaranty association statute in this state. The notice may include a brief summary of claimant's rights under the guaranty association laws in this state and any other information deemed appropriate.

(c) Except as otherwise established by the liquidator with the approval of the court, notice to potential claimants under subsection (a) of this section shall require claimants to file with the liquidator their claims together with proper proofs specified in section 38a-938, on or before a date the liquidator shall specify in the notice. The liquidator need not require persons claiming cash surrender values or other investment values in life insurance and annuities to file a claim. All claimants shall have a duty to keep the liquidator informed of any changes of address.

(d) (1) Notice under subsection (a) to agents of the insurer and to potential claimants who are policyholders shall include, where applicable, notice that coverage by state guaranty associations may be available for all or part of policy benefits in accordance with applicable state guaranty laws.

(2) The liquidator shall promptly provide to the guaranty associations such information concerning the identities and addresses of such policyholders and their policy coverages as may be within the liquidator's possession or control, and otherwise cooperate with guaranty associations to assist them in providing to such policyholders timely notice of the guaranty associations' coverage of policy benefits, including, as applicable, coverage of claims and continuation or termination of coverages.

(e) If notice is given in accordance with this section, the distribution of assets of the insurer under sections 38a-903 to 38a-961, inclusive, shall be conclusive with respect to all claimants, whether or not they received notice.

(f) Notwithstanding the provisions of subsections (a) to (e), inclusive, of this section, the liquidator shall have no duty to locate any person if no address is found in the records of the insurer, or if mailings are returned to the liquidator because of an inability to deliver at the address shown in the company's books and records. In such circumstances the notice by publication as required by this chapter, or actual notice received shall be sufficient notice. Written certification by the liquidator or other knowledgeable person acting for the liquidator, that the notices were deposited in the United States mail, postage prepaid, shall be prima facie evidence of mailing and receipt.

(g) Upon application of the liquidator and for good cause shown, the court may find that notice by publication as required in this section is sufficient notice to those persons holding an occurrence policy which expired more than four years prior to the entry of the order of liquidation, and under which there are no pending claims; or the court may order such notice to those persons as it deems appropriate.

(P.A. 79-382, S. 22; P.A. 92-93, S. 17; P.A. 98-214, S. 14.)

History: Sec. 38-442 transferred to Sec. 38a-924 in 1991; P.A. 92-93 inserted new Subsec. (c) re notice requirements and guaranty association involvement and relettered former Subsec. (c) as (d); P.A. 98-214 amended Subdiv. (a)(1) to substitute “electronic communication” for “either by telegram or telephone”, deleted “foreign guaranty association” in Subdiv. (2), replaced “all insurance agents of the insurer” with list of agents, brokers or producers of records, et al., and amended Subdiv. (a)(4) to include reinsurers, inserted new Subsec. (b) re notice when the Insurance Commissioner is appointed receiver for an insurer domiciled in another state, redesignated existing Subsecs. (b), (c) and (d) as Subsecs. (c), (d) and (e), respectively, amending newly designated Subsec. (c) to allow exception as otherwise established by liquidator with the approval of the court and substitute “proofs specified in” for “proofs thereof pursuant to”, added new Subsec. (f) notwithstanding Subsecs. (a) to (e) re liquidator's duty to locate persons, and added new Subsec. (g) re court authority to find that notice by publication is sufficient notice in certain events.

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Sec. 38a-925. (Formerly Sec. 38-443). Duties of agents. Penalty. (a) Each person who receives notice in the form prescribed in section 38a-924 that an insurer such person represents as an agent is the subject of a liquidation order shall, within thirty days of such notice, provide to the liquidator, in addition to the information the agent may be required to provide pursuant to section 38a-908, the information in the agent's records related to any policy issued by the insurer through the agent, and if the agent is a general agent, the information in the general agent's records related to any policy issued by the insurer through an agent under contract to the general agent, including the name and address of such subagent. A policy shall be deemed issued through an agent if the agent has a property interest in the expiration of the policy, or if the agent has had in the agent's possession a copy of the declarations of the policy at any time during the life of the policy, except where the ownership of the expiration of the policy has been transferred to another.

(b) Any agent who fails to provide information to the liquidator as required in subsection (a) of this section may be subject to a penalty of not more than two thousand five hundred dollars and may have such agent's license suspended, said penalty to be imposed after a hearing held by the commissioner.

(P.A. 79-382, S. 23; P.A. 92-93, S. 18; P.A. 08-178, S. 47; P.A. 18-158, S. 10.)

History: Sec. 38-443 transferred to Sec. 38a-925 in 1991; P.A. 92-93 amended Subsec. (a) to increase the number of days to respond to notice of liquidation from 15 days to 30 days and to make additional provision for policy information and deleted Subsec. (c) which had authorized liquidator to waive notification duties; P.A. 08-178 amended Subsec. (b) by making a technical change and increasing maximum penalty from $1,000 to $2,500; P.A. 18-158 amended Subsec. (a) by deleting provisions re written notice, satisfaction of the notice requirement by general agent, and report of compliance to be filed with liquidators, amended Subsec. (b) by substituting “who fails to provide information to the liquidator” for “failing to give notice or file a report of compliance”, and made technical changes.

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Sec. 38a-926. (Formerly Sec. 38-444). Actions by and against liquidator. (a) Upon issuance of an order appointing a liquidator of a domestic insurer or of an alien insurer domiciled in this state, no action at law or equity shall be brought against the insurer or liquidator, whether in this state or elsewhere, nor shall any such existing actions be maintained or further proceedings presented after issuance of such order. The courts of this state shall give full faith and credit to injunctions against new actions against the liquidator or the company or the continuation of existing actions against the liquidator or the company, when such injunctions are included in an order to liquidate an insurer issued pursuant to corresponding provisions in other states. Whenever in the liquidator's judgment, protection of the estate of the insurer necessitates intervention in an action against the insurer that is pending outside this state, he may intervene in the action. The liquidator may defend any action in which he intervenes under this section at the expense of the estate of the insurer.

(b) The liquidator may, upon or after an order for liquidation, within two years or such time in addition to two years as applicable law may permit, institute an action or proceeding on behalf of the estate of the insurer upon any cause of action against which the period of limitation fixed by applicable law has not expired at the time of the filing of the petition upon which such order is entered. Where, by any agreement, a period of limitation is fixed for instituting a suit or proceeding upon any claim, or for filing any claim, proof of claim, proof of loss, demand, notice, or the like, or where in any proceeding, judicial or otherwise, a period of limitation is fixed, either in the proceeding or by applicable law, for taking any action, filing any claim or pleading, or doing any act, and where in any such case the period had not expired at the date of the filing of the petition, the liquidator may, for the benefit of the estate, take any such action or do any such act, required of or permitted to the insurer, within a period of one hundred eighty days subsequent to the entry of an order for liquidation, or within such further period as is shown to the satisfaction of the court not to be unfairly prejudicial to the other party.

(c) No statute of limitations or defense of laches shall run with respect to any action against an insurer between the filing of a petition for liquidation against an insurer and the denial of the petition. Any action against the insurer that might have been commenced when the petition was filed may be commenced for at least sixty days after the petition is denied.

(d) Any guaranty association or foreign guaranty association shall have standing to appear in any court proceeding concerning the liquidation of an insurer if such association is or may become liable to act as a result of the liquidation.

(P.A. 79-382, S. 24; P.A. 92-93, S. 19.)

History: Sec. 38-444 transferred to Sec. 38a-926 in 1991; P.A. 92-93 made technical corrections for statutory consistency.

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Sec. 38a-927. (Formerly Sec. 38-445). List of assets. (a) As soon as practicable after the liquidation order but not later than one hundred twenty days thereafter, the liquidator shall prepare in duplicate a list of the insurer's assets. The list shall be amended or supplemented from time to time as the liquidator may determine. One copy shall be filed in the office of the clerk of the Superior Court and one copy shall be retained for the liquidator's files. All amendments and supplements shall be similarly filed.

(b) The liquidator shall reduce the assets to a degree of liquidity that is consistent with the effective execution of the liquidation.

(c) A submission to the court for disbursement of assets in accordance with section 38a-936 fulfills the requirements of subsection (a) of this section.

(P.A. 79-382, S. 25.)

History: Sec. 38-445 transferred to Sec. 38a-927 in 1991.

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Sec. 38a-928. (Formerly Sec. 38-446). Fraudulent transfers prior to petition. (a) Every transfer made or suffered and every obligation incurred by an insurer within one year prior to the filing of a successful petition for rehabilitation or liquidation under sections 38a-903 to 38a-961, inclusive, is fraudulent as to then existing and future creditors if made or incurred without fair consideration, or with actual intent to hinder, delay, or defraud either existing or future creditors. A transfer made or an obligation incurred by an insurer ordered to be rehabilitated or liquidated under said sections, which is fraudulent under this section, may be avoided by the receiver, except as to a person who in good faith is a purchaser, lienor, or obligee for a present fair equivalent value, and except that any purchaser, lienor, or obligee, who in good faith has given a consideration less than fair for such transfer, lien, or obligation, may retain the property, lien or obligation as security for repayment. The court may, on due notice, order any such transfer or obligation to be preserved for the benefit of the estate, and in that event, the receiver shall succeed to and may enforce the rights of the purchaser, lienor, or obligee.

(b) (1) A transfer of property other than real property shall be deemed to be made or suffered when it becomes so far perfected that no subsequent lien obtainable by legal or equitable proceedings on a simple contract could become superior to the rights of the transferee under subsection (c) of section 38a-930.

(2) A transfer of real property shall be deemed to be made or suffered when it becomes so far perfected that no subsequent bona fide purchaser from the insurer could obtain rights superior to the rights of the transferee.

(3) A transfer which creates an equitable lien shall not be deemed to be perfected if there are available means by which a legal lien could be created.

(4) Any transfer not perfected prior to the filing of a petition for liquidation shall be deemed to be made immediately before the filing of the successful petition.

(5) The provisions of this subsection apply whether or not there are or were creditors who might have obtained any liens or persons who might have become bona fide purchasers.

(c) Any transaction of the insurer with a reinsurer shall be deemed fraudulent and may be avoided by the receiver under subsection (a) of this section if: (1) The transaction consists of the termination, adjustment, or settlement of a reinsurance contract in which the reinsurer is released from any part of its duty to pay the originally specified share of losses that had occurred prior to the time of the transaction, unless the reinsurer gives a present fair equivalent value for the release; and (2) any part of the transaction took place within one year prior to the date of filing of the petition through which the receivership was commenced.

(d) Any person receiving property from the insurer or any benefit thereof which is a fraudulent transfer under subsection (a) of this section shall be personally liable therefor and shall be bound to account to the liquidator.

(P.A. 79-382, S. 26; P.A. 92-93, S. 20.)

History: Sec. 38-446 transferred to Sec. 38a-928 in 1991; P.A. 92-93 added new Subsec. (d) re personal liability to liquidator for receipt of property and made technical corrections for statutory consistency.

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Sec. 38a-929. (Formerly Sec. 38-447). Fraudulent transfer after petition. (a) After a petition for rehabilitation or liquidation has been filed a transfer of any of the real property of the insurer made to a person acting in good faith shall be valid against the receiver if made for a present fair equivalent value, or, if not made for a present fair equivalent value, then to the extent of the present consideration actually paid therefor, for which amount the transferee shall have a lien on the property so transferred. The commencement of a proceeding in rehabilitation or liquidation shall be constructive notice upon the recording of a copy of the petition for or order of rehabilitation or liquidation with the recorder of deeds in the town where any real property in question is located. The exercise by a court of the United States or any state or jurisdiction to authorize or effect a judicial sale of real property of the insurer within any town in any state shall not be impaired by the pendency of such a proceeding unless the copy is recorded in the town prior to the consummation of the judicial sale.

(b) After a petition for rehabilitation or liquidation has been filed and before either the receiver takes possession of the property of the insurer or an order of rehabilitation or liquidation is granted: (1) A transfer of any of the property of the insurer, other than real property, made to a person acting in good faith shall be valid against the receiver if made for a present fair equivalent value, or, if not made for a present fair equivalent value, then to the extent of the present consideration actually paid therefor, for which amount the transferee shall have a lien on the property so transferred; (2) a person indebted to the insurer or holding property of the insurer may, if acting in good faith, pay the indebtedness or deliver the property, or any part thereof, to the insurer or upon his order, with the same effect as if the petition were not pending; (3) a person having actual knowledge of the pending rehabilitation or liquidation shall be deemed not to act in good faith; (4) a person asserting the validity of a transfer under this section shall have the burden of proof. Except as elsewhere provided in this section, no transfer by or on behalf of the insurer after the date of the petition for liquidation by any person other than the liquidator shall be valid against the liquidator.

(c) Any person receiving property from the insurer or any benefit thereof which is a fraudulent transfer under subsection (a) of this section shall be personally liable therefor and shall be bound to account to the liquidator.

(d) Nothing in sections 38a-903 to 38a-961, inclusive, shall impair the negotiability of currency or negotiable instruments.

(P.A. 79-382, S. 27 P.A. 92-93, S. 21.)

History: Sec. 38-447 transferred to Sec. 38a-929 in 1991; P.A. 92-93 inserted new Subsec. (c) re personal liability to liquidator for receipt of property, relettering former Subsec. (c) as (d), and made technical corrections for statutory consistency.

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Sec. 38a-930. (Formerly Sec. 38-448). Voidable preferences and liens. Exceptions. (a)(1) A preference is a transfer of any of the property of an insurer to or for the benefit of a creditor, for or on account of an antecedent debt, made or suffered by the insurer within one year before the filing of a successful petition for liquidation under sections 38a-903 to 38a-961, inclusive, the effect of which transfer may be to enable the creditor to obtain a greater percentage of this debt than another creditor of the same class would receive. If a liquidation order is entered while the insurer is already subject to a rehabilitation order, then such transfers shall be deemed preferences if made or suffered within one year before the filing of the successful petition for rehabilitation, or within two years before the filing of the successful petition for liquidation, whichever time is shorter.

(2) Any preference may be avoided by the liquidator if: (A) The insurer was insolvent at the time of the transfer; (B) the transfer was made within four months before the filing of the petition; (C) the creditor receiving it or to be benefited thereby or such creditor's agent acting with reference thereto had, at the time when the transfer was made, reasonable cause to believe that the insurer was insolvent or was about to become insolvent; or (D) the creditor receiving it was an officer, or any employee or attorney or other person who was in fact in a position of comparable influence in the insurer to an officer whether or not such employee, attorney or other person held such position, or any shareholder holding directly or indirectly more than five per cent of any class of any equity security issued by the insurer, or any other person, firm, corporation, association, or aggregation of persons with whom the insurer did not deal at arm's length.

(3) Where the preference is voidable, the liquidator may recover the property, or if it has been converted, its value from any person who has received or converted the property, except where a bona fide purchaser or lienor has given less than fair equivalent value, such purchaser or lienor shall have a lien upon the property to the extent of the consideration actually given by such purchaser or lienor. Where a preference by way of lien or security title is voidable, the court may on due notice order the lien or title to be preserved for the benefit of the estate, in which event the lien or title shall pass to the liquidator.

(4) Notwithstanding subdivisions (1) to (3), inclusive, of this subsection, a transfer pursuant to a commutation of a reinsurance agreement that is approved by the commissioner or the commissioner's designated appointee under section 38a-962d shall not be voidable as a preference. For the purposes of this subdivision, a commutation of a reinsurance agreement is the elimination of all present and future obligations between the parties, arising from the reinsurance agreement, in exchange for a current consideration.

(3) A transfer which creates an equitable lien shall not be deemed to be perfected if there are available means by which a legal lien could be created.

(4) A transfer not perfected prior to the filing of a petition for liquidation shall be deemed to be made immediately before the filing of the successful petition.

(5) The provisions of this subsection apply whether or not there are or were creditors who might have obtained liens or persons who might have become bona fide purchasers.

(c) (1) A lien obtainable by legal or equitable proceedings upon a simple contract is one arising in the ordinary course of such proceedings upon the entry or docketing of a judgment or decree, or upon attachment, garnishment, execution, or like process, whether before, upon, or after judgment or decree and whether before or upon levy. It does not include liens which under applicable law are given a special priority over other liens which are prior in time.

(2) A lien obtainable by legal or equitable proceedings could become superior to the rights of a transferee, or a purchaser could obtain rights superior to the rights of a transferee within the meaning of subsection (b) of this section, if such consequences would follow only from the lien or purchase itself, or from the lien or purchase followed by any step wholly within the control of the respective lienholder or purchaser, with or without the aid of ministerial action by public officials. Such a lien could not, however, become superior and such a purchase could not create superior rights for the purpose of subsection (b) of this section through any acts subsequent to the obtaining of such a lien or subsequent to such a purchase which require the agreement or concurrence of any third party or which require any further judicial action, or ruling.

(d) A transfer of property for or on account of a new and contemporaneous consideration which is deemed under subsection (b) of this section to be made or suffered after the transfer because of delay in perfecting it does not thereby become a transfer for or on account of an antecedent debt if any acts required by the applicable law to be performed in order to perfect the transfer as against liens or bona fide purchasers' rights are performed within twenty-one days or any period expressly allowed by the law, whichever is less. A transfer to secure a future loan, if such a loan is actually made, or a transfer which becomes security for a future loan, shall have the same effect as a transfer for or on account of a new and contemporaneous consideration.

(e) If any lien deemed voidable under subdivision (2) of subsection (a) of this section has been dissolved by the furnishing of a bond or other obligation, the surety on which has been indemnified directly or indirectly by the transfer of or the creation of a lien upon any property of an insurer before the filing of a petition under sections 38a-903 to 38a-961, inclusive, which results in a liquidation order, the indemnifying transfer or lien shall also be deemed voidable.

(f) The property affected by any lien deemed voidable under subsections (a) and (e) of this section shall be discharged from such lien, and that property and any of the indemnifying property transferred to or for the benefit of a surety shall pass to the liquidator, except that the court may on due notice order any such lien to be preserved for the benefit of the estate and the court may direct that such conveyance be executed as may be proper or adequate to evidence the title of the liquidator.

(g) The Superior Court shall have summary jurisdiction of any proceeding by the liquidator to hear and determine the rights of any parties under this section. Reasonable notice of any hearing in the proceeding shall be given to all parties in interest, including the obligee of a releasing bond or other like obligation. Where an order is entered for the recovery of indemnifying property in kind or for the avoidance of an indemnifying lien, the court, upon application of any party in interest, shall in the same proceeding ascertain the value of the property or lien, and if the value is less than the amount for which the property is indemnity or than the amount of the lien, the transferee or lienholder may elect to retain the property or lien upon payment of its value, as ascertained by the court, to the liquidator, within such reasonable times as the court shall fix.

(h) The liability of a surety under a releasing bond or other like obligation shall be discharged to the extent of the value of the indemnifying property recovered or the indemnifying lien nullified and avoided by the liquidator, or where the property is retained under subsection (g) of this section to the extent of the amount paid to the liquidator.

(i) If a creditor has been preferred, and afterward in good faith gives the insurer further credit without security of any kind, for property which becomes a part of the insurer's estate, the amount of the new credit remaining unpaid at the time of the petition may be set off against the preference which would otherwise be recoverable from him.

(j) If an insurer, directly or indirectly, within four months before the filing of a successful petition for liquidation under sections 38a-903 to 38a-961, inclusive, or at any time in contemplation of a proceeding to liquidate it, pays money or transfers property to an attorney-at-law for services rendered or to be rendered, the transaction may be examined by the court on its own motion or shall be examined by the court on petition of the liquidator and shall be held valid only to the extent of a reasonable amount to be determined by the court, and the excess may be recovered by the liquidator for the benefit of the estate, provided if the attorney is in a position of influence in the insurer or an affiliate thereof payment of any money or the transfer of any property to the attorney-at-law for services rendered or to be rendered shall be governed by the provisions of subdivision (2) of subsection (a) of this section.

(k) (1) Every officer, manager, employee, shareholder, member, subscriber, attorney, or any other person acting on behalf of the insurer who knowingly participates in giving any preference when he has reasonable cause to believe the insurer is or is about to become insolvent at the time of the preference shall be personally liable to the liquidator for the amount of the preference. It is permissible to infer that there is reasonable cause to so believe if the transfer was made within four months before the date of filing of the successful petition for liquidation.

(2) Every person receiving any property from the insurer or the benefit thereof as a preference voidable under subsection (a) shall be personally liable therefor and shall be bound to account to the liquidator.

(3) Nothing in this subsection shall prejudice any other claim by the liquidator against any person.

(P.A. 79-382, S. 28; P.A. 85-613, S. 105, 154; P.A. 17-198, S. 7; P.A. 18-68, S. 22.)

History: P.A. 85-613 made technical change in Subsec. (k); Sec. 38-448 transferred to Sec. 38a-930 in 1991; P.A. 17-198 amended Subsec. (a) by replacing “he” with “such employee, attorney or other person” in Subdiv. (2)(D), making technical changes in Subdivs. (2) and (3), and adding Subdiv. (4) re transfer pursuant to commutation of reinsurance agreement, effective July 1, 2017; P.A. 18-68 made technical changes in Subsec. (j).

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Sec. 38a-931. (Formerly Sec. 38-449). Claims of holders of void or voidable rights. (a) No claims of a creditor who has received or acquired a preference, lien, conveyance, transfer, assignment, or encumbrance, voidable under sections 38a-903 to 38a-961, inclusive, shall be allowed unless he surrenders the preference, lien, conveyance, transfer, assignment, or encumbrance. If the avoidance is effected by a proceeding in which a final judgment has been entered, the claim shall not be allowed unless the money is paid or the property is delivered to the liquidator within thirty days from the date of the entering of the final judgment, except that the court having jurisdiction over the liquidation may allow further time if there is an appeal or other continuation of the proceeding.

(b) A claim allowable under subsection (a) of this section by reason of the avoidance, whether voluntary or involuntary, or a preference, lien, conveyance, transfer, assignment, or encumbrance, may be filed as an excused late filing under section 38a-937 if filed within thirty days from the date of the avoidance, or within the further time allowed by the court under subsection (a) of this section.

(P.A. 79-382, S. 29.)

History: Sec. 38-449 transferred to Sec. 38a-931 in 1991.

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Sec. 38a-932. (Formerly Sec. 38-450). Set-offs and counterclaims. Accounting statements. (a) Mutual debts or mutual credits, whether arising out of one or more contracts between the insurer and another person in connection with any action or proceeding under sections 38a-903 to 38a-961, inclusive, shall be set off and the balance only shall be allowed or paid, except as provided in subsection (b) of this section and section 38a-935.

(b) No set-off or counterclaim shall be allowed in favor of any person where: (1) The obligation of the insurer to the person would not at the date of the filing of a petition for receivership entitle the person to share as a claimant in the assets of the insurer; (2) the obligation of the insurer to the person was purchased by or transferred to the person with a view to its being used as a set-off; (3) the obligation of the insurer is owed to an affiliate of such person or any other entity or association other than the person; (4) the obligation of the person is owed to an affiliate of the insurer or any other entity or association other than the insurer; (5) the obligation of the person is to pay an assessment levied against the members or subscribers of the insurer, or is to pay a balance upon a subscription to the capital stock of the insurer, or is in any other way in the nature of a capital contribution; or (6) the obligations between the person and the insurer arise from business where either the person or the insurer has assumed risks and obligations from the other party and then has ceded back to that party substantially the same risks and obligations.

(c) The receiver shall provide persons with accounting statements identifying all debts which are due and payable. Where a person owes to the insurer amounts which are due and payable, against which the person asserts set-off of mutual credits which may become due and payable from the insurer in the future, the person shall promptly pay to the receiver the amounts due and payable provided, notwithstanding section 38a-944 or any other provision of sections 38a-903 to 38a-961, inclusive, the receiver shall promptly and fully refund, to the extent of the person's prior payments, any mutual credits that become due and payable to the person by the insurer. Prior to the termination of any proceeding under said sections, the amount due the person shall be determined for the purpose of the receiver making a final refund, if any.

(d) This section shall apply to all contracts entered into, renewed, extended or amended on or after October 1, 1993, and to debts or credits arising from any business written or transactions occurring after that date pursuant to any such contract. Contracts entered into, renewed, extended or amended before October 1, 1993, shall continue to be subject to the provisions of this section as revised to 1991. For purposes of this section, any change in the terms of, or consideration for, any such contract shall be deemed an amendment.

(P.A. 79-382, S. 30; P.A. 92-93, S. 22, 46; May Sp. Sess. P.A. 92-11, S. 51, 70.)

History: Sec. 38-450 transferred to Sec. 38a-932 in 1991; P.A. 92-93 amended Subsec. (a) re applicability of set-offs to two or more contracts, amended Subsec. (b) to change reference to “liquidation” to “receivership” and to add additional provisions re disallowance of set-offs or counterclaims, added new Subsecs. (c) re accounting statements and (d) re applicability to contracts, effective October 1, 1993; May Sp. Sess. P.A. 92-11 amended Subsec. (d) to clarify application of section as amended by P.A. 92-93 to contracts entered into, renewed, extended or amended on or after October 1, 1993.

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Sec. 38a-933. (Formerly Sec. 38-451). Assessments. (a) As soon as practicable but not more than two years from the date of an order of liquidation pursuant to section 38a-920 of an insurer issuing assessable policies, the liquidator shall make a report to the court setting forth: (1) The reasonable value of the assets of the insurer; (2) the insurer's probable total liabilities; (3) the probable aggregate amount of the assessment necessary to pay all claims of creditors and expenses in full, including expenses of administration and costs of collecting the assessment; and (4) a recommendation as to whether or not an assessment should be made and in what amount.

(b) Upon the basis of the report provided in subsection (a) of this section, including any supplements and amendments thereto, the Superior Court may levy one or more assessments against all members of the insurer who are subject to assessment. Subject to any applicable legal limits on assessability, the aggregate assessment shall be for the amount that the sum of the probable liabilities, the expenses of administration, and the estimated cost of collection of the assessment, exceeds the value of existing assets, with due regard being given to assessments that cannot be collected economically.

(c) After levy of assessment under subsection (b) of this section the liquidator shall issue an order directing each member who has not paid the assessment pursuant to the order, to show cause why the liquidator should not pursue a judgment therefor.

(d) The liquidator shall give notice of the order to show cause by publication and by first class mail to each member liable thereunder mailed to his last-known address as it appears on the insurer's records, at least twenty days before the return day of the order to show cause.

(e) (1) If a member does not appear and serve duly verified objections upon the liquidator on or before the return day of the order to show cause under subsection (c) of this section, the court shall make an order adjudging the member liable for the amount of the assessment against him, pursuant to subsection (c) of this section, together with costs, and the liquidator shall have a judgment against the member therefor.

(2) If on or before such return day, the member appears and serves duly verified objections upon the liquidator, the commissioner may hear and determine the matter or may appoint a referee to hear it and make such order as the facts warrant. In the event that the commissioner determines that such objections do not warrant relief from assessment, the member may request the court to review the matter and vacate the order to show cause.

(f) The liquidator may enforce any order or collect any judgment under subsection (e) of this section by any lawful means.

(P.A. 79-382, S. 31.)

History: Sec. 38-451 transferred to Sec. 38a-933 in 1991.

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Sec. 38a-933a. Amounts recoverable. Affiliate liability. Timing of proceedings. (a) If an order instituting a delinquency proceeding against an insurer authorized to do business in this state is entered under this chapter, the receiver appointed under the order has a right to recover on behalf of the insurer from any affiliate that controlled the insurer the amount of distributions, other than stock dividends paid by the insurer on its capital stock, made at any time during the five years preceding the petition for liquidation, rehabilitation or conservation. This recovery is subject to the limitations of subsections (b) to (g), inclusive, of this section. For purposes of this section, “distribution” includes any dividend, or any loan, advance, payment or other transfer for which the insurer did not receive fair consideration prior to the commencement of delinquency proceedings.

(b) No distribution is recoverable if the recipient shows that, when paid, the distribution was lawful and reasonable, and that the insurer did not know and could not reasonably have known that the distribution might adversely affect its solvency.

(c) The maximum amount recoverable under this section is the amount needed, in excess of all other available assets, to pay all claims under the receivership, reduced for each recipient by any amount the recipient has already paid to receivers under similar laws of other states.

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

(e) If any person liable under subsection (d) of this section is insolvent, all affiliates that controlled that person at the time the dividend was declared or paid shall be jointly and severally liable for any resulting deficiency in the amount recovered from the insolvent affiliate.

(f) An action or proceeding under this section may not be commenced after the earlier of: (1) Two years after the appointment of a rehabilitator under section 38a-915 or a liquidator under section 38a-920; or (2) the date the rehabilitation is terminated under subsection (b) of section 38a-918 or the liquidation is terminated under section 38a-948.

(P.A. 98-214, S. 15.)

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Sec. 38a-934. (Formerly Sec. 38-452.) Reinsurer's liability. The amount recoverable by the liquidator from reinsurers shall not be reduced as a result of the delinquency proceedings, regardless of any provision in the reinsurance contract or other agreement. Payment made directly to an insured or other creditor shall not diminish the reinsurer's obligation to the insurer's estate except when (1) the reinsurance contract provides for payment of the reinsurance proceeds to another payee, (2) the underlying insurance policy, including any amendments or endorsements, provides for the assumption of the policy obligations by the reinsurer, or (3) there has been a novation of the underlying policy obligations and an assumption of those obligations by the reinsurer and the proceeds are payable to another payee.

(P.A. 79-382, S. 32 P.A. 92-93, S. 23; P.A. 98-214, S. 5.)

History: Sec. 38-452 transferred to Sec. 38a-934 in 1991; P.A. 92-93 made technical corrections for statutory consistency; P.A. 98-214 deleted exception re reinsurer's obligation for when the reinsurance contract provided direct coverage of a named insured and payment discharged the obligation and added new exceptions by creating new Subdiv. (1) re contract which provides for payment to another payee, new Subdiv. (2) re assumption of policy obligations in underlying policy, and new Subdiv. (3) re novation and assumption of obligations by reinsurer with proceeds payable to another payee.

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Sec. 38a-935. (Formerly Sec. 38-453). Recovery of premiums owed. Penalty. Appeals. (a)(1) A producer, premium finance company or any other person, other than the insured, responsible for the payment of a premium shall pay any unpaid collected premium including any amount representing commissions held by such person at the time of the entry of the liquidation order, whether earned or unearned based on the termination of coverage under section 38a-921, and any unpaid earned premium, all as shown on the records of the insurer. A producer, premium finance company or any other person shall have no obligation to pay an uncollected unpaid unearned premium to the liquidator. (2) The liquidator shall also have the right to recover from any person other than the insured, responsible for the payment of a premium, any unearned commission actually paid or credited to such person based on the termination of coverage under section 38a-921. Credits or set-offs or both shall not be allowed to a producer or premium finance company, or any other person against unpaid premium due the insurer for any amounts advanced to the insurer by such person on behalf of, but in the absence of a payment by, the insured, or for any other amount paid by such person to any other person after the entry of the order of liquidation. (3) An insured shall pay, either directly to the liquidator or to any agent who has paid or is obligated to pay the liquidator on behalf of the insured, any unpaid earned premium or retrospectively rated premium due the insurer based on the termination of coverage under section 38a-921. Premium on surety business shall be deemed earned at inception if no policy term can be determined. All other premium shall be deemed earned and shall be prorated over the determined policy term, regardless of any provision in the bond, guaranty, contract or other agreement. If a claim for losses incurred under a policy is approved by the court under subsection (b) of section 38a-945, then all premium for the full policy term shall be deemed earned. (4) Any person who collected premium, or financed premium under a premium finance contract, that is due the insurer in liquidation shall be deemed to hold that premium in trust as a fiduciary for the benefit of the insurer and to have availed himself of the laws of this state, regardless of any provision in any agency contract or other agreement. (5) Any premium finance company shall be obligated to pay any amounts due the insurer from premium finance contracts, whether the premium is earned or unearned. The liquidator has the right to collect any unpaid financed premium directly from the premium finance company, by taking an assignment of the underlying premium finance contracts, or directly from the insured who is a party to the premium finance contract.

(b) Upon satisfactory evidence of a violation of this section by a person other than an insured, the commissioner may require any of the following: (1) Suspend or revoke or refuse to renew the licenses of such offending party or parties; or (2) impose a penalty of not more than two thousand five hundred dollars for each act in violation of this section by said party or parties.

(c) Before the commissioner takes any action as set forth in subsection (b) of this section, he shall give written notice to the person, company, association, or exchange accused of violating the law, stating specifically the nature of the alleged violation, and fixing a time and place, at least ten days thereafter, when a hearing on the matter shall be held. After such hearing, or upon failure of the accused to appear at such hearing, the commissioner, if he shall find such violation, shall impose such of the penalties under subsection (b) of this section as he deems advisable.

(d) Any person aggrieved by the action of the commissioner in revoking, suspending or refusing to grant a license or in imposing a fine may appeal therefrom in accordance with the provisions of section 4-183, except venue for such appeal shall be in the judicial district of Hartford.

(P.A. 79-382, S. 33; P.A. 88-230, S. 1, 12; P.A. 90-50, S. 2, 3; 90-98, S. 1, 2; P.A. 93-142, S. 4, 7, 8; P.A. 95-220, S. 4–6; P.A. 96-193, S. 32, 36; P.A. 98-214, S. 16; P.A. 08-178, S. 48.)

History: P.A. 90-50 amended Subsec. (a) to allow recovery of collected premium and any unpaid earned premium at the time of insolvency, to require that any entity responsible for premium payment on behalf of the insured shall not be required to pay an uncollected unpaid unearned premium to the liquidator and to allow an insured to recover any part of an unearned premium which represents commission actually paid or credited; Sec. 38-453 transferred to Sec. 38a-935 in 1991; P.A. 96-193 amended Subsec. (a) to substitute “producer” for “agent” and “broker”, effective June 3, 1996; P.A. 98-214 amended Subsec. (a) to insert Subdiv. designators, to include “any amount representing commissions” re unpaid collected premium, to add “based on the termination of coverage under section 38a-921” re such premium, to delete right of insured to recover any part of an unearned premium, to add as Subdiv. (2) power of liquidator to recover from any person other than the insured, responsible for payment of a premium, any unearned commission based on the termination of coverage under Sec. 38a-921, to prohibit certain credits or set-offs, to specify in Subdiv. (3) that insured's payment be either directly to the liquidator or to any agent who has paid or is obligated to pay the liquidator on behalf of the insured, including any retrospectively rated premium due the insurer, to delete “at the time of the declaration of insolvency, as shown on the records of the insurer”, and replace with “based on the termination of coverage under section 38a-921”, to add provision in Subdiv. (3) re when premium on surety business and other premium shall be deemed earned and re claim for losses approved by court, to add new Subdiv. (4) re person who collected or financed premium that is due the insurer in liquidation, and to add new Subdiv. (5) re obligation of premium finance companies, amended Subsec. (b) to insert “by a person other than an insured” re a violation of section, deleted existing language in Subsec. (d) and substituted with language re appeals, and made technical changes throughout section (Revisor's note: P.A. 88-230, 90-98, 93-142 and 95-220 authorized substitution of “judicial district of Hartford” for “judicial district of Hartford-New Britain” in public and special acts of the 1998 regular and special sessions of the General Assembly, effective September 1, 1998; P.A. 08-178 amended Subsec. (b) by making technical changes and increasing maximum penalty from $1,000 to $2,500 per violation.

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Sec. 38a-936. (Formerly Sec. 38-454). Liquidator's proposal to distribute assets. (a) Within one hundred twenty days of a final determination of insolvency of an insurer by a court of competent jurisdiction of this state, the liquidator shall make application to the court for approval of a proposal to disburse assets out of marshaled assets, from time to time as such assets become available, to a guaranty association or foreign guaranty association having obligations because of such insolvency. If the liquidator determines that there are insufficient assets to disburse, the application required by this section shall be considered satisfied by a filing by the liquidator stating the reasons for this determination.

(b) Such proposal shall at least include provisions for: (1) Reserving amounts for the payment of expenses of administration and the payment of claims of secured creditors, to the extent of the value of the security held, and claims falling within priorities established in section 38a-944, classes 1 and 2; (2) disbursement of the assets marshaled to date and subsequent disbursement of assets as they become available; (3) equitable allocation of disbursements to each of the guaranty associations and foreign guaranty associations entitled thereto; (4) the securing by the liquidator from each of the associations entitled to disbursements pursuant to this section of an agreement to return the liquidator such assets, together with income earned on assets previously disbursed, as may be required to pay claims of secured creditors and claims falling within the priorities established in section 38a-944, in accordance with such priorities. No bond shall be required of any such association; and (5) a full report to be made by each association to the liquidator accounting for all assets so disbursed to the association, all disbursements made therefrom, any interest earned by the association on such assets and any other matter as the court may direct.

(c) The liquidator's proposal shall provide for disbursements to the associations in amounts estimated at least equal to the claim payments made or to be made thereby for which such associations could assert a claim against the liquidator and shall further provide that if the assets available for disbursement from time to time do not equal or exceed the amount of such claim payments made or to be made by the association then disbursements shall be in the amount of available assets.

(d) The liquidator's proposal shall, with respect to an insolvent insurer writing life or health insurance or annuities, provide for disbursements of assets to any guaranty association or any foreign guaranty association covering life or health insurance or annuities or to any other entity or organization reinsuring, assuming or guaranteeing policies or contracts of insurance under the acts creating such associations.

(e) Notice of such application shall be given to the associations in and to the commissioners of insurance of each of the states. Any such notice shall be deemed to have been given when deposited in the United States certified mails, first class postage prepaid, at least thirty days prior to submission of such application to the court. Action on the application may be taken by the court provided the above required notice has been given and provided further that the liquidator's proposal complies with subdivisions (1) and (2) of subsection (b) of this section.

(P.A. 79-382, S. 34; P.A. 92-93, S. 24.)

History: Sec. 38-454 transferred to Sec. 38a-936 in 1991; P.A. 92-93 made technical corrections in Subsec. (b) for statutory consistency.

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Sec. 38a-937. (Formerly Sec. 38-455). Filing of claims. (a) Proof of all claims shall be filed with the liquidator in the form required by section 38a-938 on or before the last day for filing specified in the notice required pursuant to section 38a-924, except that proof of claims for cash surrender values or other investment values in life insurance and annuities need not be filed unless the liquidator expressly so requires, provided, only upon application of the liquidator, the court may allow alternative procedures and requirements for the filing of proofs of claim or for allowing or proving claims. Upon such application, if the court dispenses with the requirement of filing a proof of claim by a person, class or group of persons, a proof of claim for such persons shall be deemed as having been filed for all purposes, including the application of guaranty association or foreign guaranty association laws.

(b) The liquidator may permit a claimant making a late filing to share in distributions, whether past or future, as if he were not late, to the extent that any such payment will not prejudice the orderly administration of the liquidation, under the following circumstances: (1) The existence of the claim was not known to the claimant and that he filed his claim as promptly thereafter as reasonably possible after learning of it; (2) a transfer to a creditor was avoided pursuant to sections 38a-928 to 38a-930, inclusive, or was voluntarily surrendered pursuant to section 38a-931, and that the filing satisfies the conditions of said section 38a-931; (3) the valuation pursuant to section 38a-943 of security held by a secured creditor shows a deficiency, which is filed within thirty days after the valuation.

(c) The liquidator shall permit late filing claims to share in distributions, whether past or future, as if they were not late, if such claims are claims of a guaranty association or foreign guaranty association for reimbursement of covered claims paid or expenses incurred, or both, subsequent to the last day for filing where such payments were made and expenses incurred as provided by law.

(d) The liquidator may consider any claim filed late which is not covered by subsection (b) of this section, and permit it to receive distributions which are subsequently declared on any claims of the same or lower priority if the payment does not prejudice the orderly administration of the liquidation. The late-filing claimant shall receive, at each distribution, the same percentage of the amount allowed on his claim as is then being paid to claimants of any lower priority. This shall continue until his claim has been paid in full.

(P.A. 79-382, S. 35; P.A. 92-93, S. 25; P.A. 96-227, S. 13.)

History: Sec. 38-455 transferred to Sec. 38a-937 in 1991; P.A. 92-93 amended Subsec. (a) re alternative procedures and requirements for filing proof of claims; P.A. 96-227 corrected punctuation in Subsec. (c).

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Sec. 38a-938. (Formerly Sec. 38-456). Proof of claim. (a) Proof of claim shall consist of a statement signed by the claimant that includes all of the following that are applicable: (1) The particulars of the claim including the consideration given for it; (2) the identity and amount of the security on the claim; (3) the payments made on the debt, if any; (4) that the sum claimed is justly owing and that there is no set-off, counterclaim, or defense to the claim; (5) any right of priority of payment or other specific right asserted by the claimants; (6) a copy of any written instrument which is the foundation of the claim; (7) the name and address of the claimant and the attorney who represents him, if any; and (8) the Social Security or federal employer identification number of the claimant.

(b) No claim need be considered or allowed if it does not contain all the information in subsection (a) of this section which may be applicable. The liquidator may require that a prescribed form be used and may require that other information and documents be included.

(c) At any time the liquidator may request the claimant to present information or evidence supplementary to that required under subsection (a) of this section and may take testimony under oath, require production of affidavits or depositions or otherwise obtain additional information or evidence.

(d) No judgment or order against an insured or the insurer entered after the date of filing of a successful petition for liquidation, and no judgment or order against an insured or the insurer entered at any time by default or by collusion, need be considered as evidence of liability or of quantum of damages. No judgment or order against an insured or the insurer entered within four months before the filing of the petition need be considered as evidence of liability or of the quantum of damages.

(e) A guaranty association shall be permitted to file a single omnibus proof of claim for all claims of the association in connection with payment of claims of the insolvent insurer. The omnibus proof of claim shall be periodically updated by the association, and the liquidator may require the association to submit a reasonable amount of supporting documentation.

(P.A. 79-382, S. 36; P.A. 80-483, S. 113, 186; P.A. 92-93, S. 26; P.A. 98-214, S. 17.)

History: P.A. 80-483 made technical change in Subsec. (c), substituting “section” for “act”; Sec. 38-456 transferred to Sec. 38a-938 in 1991; P.A. 92-93 made technical correction in Subsec. (a) for statutory consistency; P.A. 98-214 amended Subsec. (a) to add new Subdiv. (8) re Social Security or federal employer identification number of claimant, and replaced former Subsec. (e) with new language allowing a guaranty association to file a single omnibus proof of claim.

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Sec. 38a-939. (Formerly Sec. 38-457). Special claims. (a) Claims made under employment contracts by directors, principal officers, or persons in fact performing similar functions or having similar powers are limited to payment for services rendered prior to the issuance of any order of rehabilitation or liquidation pursuant to section 38a-915 or 38a-920.

(b) When a liquidation order has been entered in a proceeding against an insurer, any insured, reinsured, third party person who has a cause of action against an insured of the insurer, or any other person or entity that has a claim or cause of action against the insurer, shall have the right to file a claim in the proceeding, regardless of the fact that the claim may be contingent, unliquidated or immature. For purposes of this section: (1) A claim is contingent if the accident, casualty, disaster or loss insured or reinsured against occurred on or before the date fixed under section 38a-920 but the act or event triggering the insurer's obligation to pay has not occurred as of that date; (2) a claim is unliquidated if the amount of the claim has not been determined; and (3) a claim is immature if payment on the claim is not yet due.

(c) Except as provided in this section, a claim may not share in a distribution of assets pursuant to this chapter unless it has been definitely determined, proved and allowed. A contingent, unliquidated or immature claim may share in a distribution of assets provided, as of the time of the allowance or disallowance of the claim by the court: (1) If the claim was a contingent claim against the insurer as of the date established under section 38a-920, the claimant has presented proof of the insurer's obligation to pay reasonably satisfactory to the receiver; (2) if the claim was a contingent claim as of the date established under section 38a-920 and was based upon a cause of action against an insured of the insurer, (A) it may be reasonably inferred from proof presented upon the claim that the claimant would be able to obtain a judgment, (B) the person has furnished suitable proof, unless the court for good cause shown shall otherwise direct, that no further valid claims can be made against the insurer arising out of the cause of action other than those already presented, and (C) the total liability of the insurer to all claimants arising out of the same act shall be no greater than its total liability would be were it not in liquidation. In those cases under subparagraph (C) of this subdivision, insureds may include in contingent claims reasonable attorney's fees for services rendered after the date of liquidation, in defense of claims or suits covered by the insured's policy, provided the attorney's fees have been paid by the insured and evidence of payment is presented to the receiver; (3) if the claim was unliquidated as of the date established under section 38a-920, its amount has been determined, provided such determination does not prejudice the orderly administration of the liquidation proceeding; or (4) if the claim was immature as of the date established under section 38a-920, it shall be discounted at the higher of the legal rate of interest accruing on judgments or the rate of interest available on United States Treasury securities of approximately the same maturity.

(d) Notwithstanding the provisions of subsections (a) to (c), inclusive, of this section, any insured shall have the right to file a claim for the protection afforded under the insured's policy, irrespective of whether a claim is then known, if the policy is an occurrence policy. Thereafter, at such time that a specific claim is made by or against the insurer, the insured shall supplement his claim and the receiver shall treat the same as a contingent, unliquidated or immature claim. Any such claims of policyholders for the protection under an occurrence policy remaining at or near the closing of the estate shall be disposed of in accordance with section 38a-945.

(e) The estimation and allowance of a contingent claim under this section shall not provide a basis to compel payment from a reinsurer of estimated incurred but not reported losses and, except with respect to claims made under subsection (c) of section 38a-939, outstanding reserves, unless the reinsurance contract specifically provides for the payment of such losses or reserves.

(P.A. 79-382, S. 37; P.A. 98-214, S. 18; P.A. 17-15, S. 89.)

History: Sec. 38-457 transferred to Sec. 38a-939 in 1991; P.A. 98-214 deleted former Subsecs. (a), (b) and (c), redesignated former Subsec. (d) as Subsec. (a), added new Subsec. (b) re claims when a liquidation order has been entered, added new Subsec. (c) prohibiting a claim from sharing in a distribution of assets pursuant to chapter except as provided in section, added new Subsec. (d) allowing any insured to file a claim for protection offered under his policy, and added new Subsec. (e) providing that the estimation and allowance of a contingent claim under section shall not be a basis to compel payment from reinsurer of certain losses; P.A. 17-15 made a technical change in Subsec. (c).

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Sec. 38a-940. (Formerly Sec. 38-458). Special provisions for third party claims. Liquidator recommendations. Provisions not applicable to claims covered by guaranty association. (a) Whenever any third party asserts a cause of action against an insured of an insurer in liquidation, the third party may file a claim with the liquidator on or before the last day for filing claims.

(b) Whether or not the third party files a claim, the insured may file a claim on the insured's own behalf in the liquidation. To the extent the insured files a claim, it shall be deemed sufficient to cover all related third party claims. If the insured fails to file a claim by the date for filing claims specified in the order of liquidation or within sixty days after mailing of the notice required by section 38a-924, whichever is later, the insured shall be deemed an unexcused late filer.

(c) The liquidator shall make recommendations to the court pursuant to section 38a-944 for the allowance of an insured's claim pursuant to subsection (b) of this section after consideration of the probable outcome of any pending action against the insured on which the claim is based, the probable damages recoverable in the action and the probable costs and expenses of defense. After allowance by the court, the liquidator shall withhold any dividends payable on the claim, pending the outcome of litigation and negotiation with the insured. Whenever it seems appropriate, the liquidator shall reconsider the claim on the basis of additional information and amend his recommendations to the court. The insured shall be afforded the same notice and opportunity to be heard on all changes in the recommendation as in its initial determination. The court may amend its allowance as it finds appropriate. As claims against the insured are settled or barred, the insured shall be paid from the amount withheld the same percentage dividend as was paid on other claims of like priority, based on the lesser of (1) the amount actually recovered from the insured by action or paid by agreement plus the reasonable costs and expenses of defense, or (2) the amount allowed on the claims by the court. After all claims are settled or barred, any sum remaining from the amount withheld shall revert to the undistributed assets of the insurer. Delay in final payment under this subsection shall not be a reason for unreasonable delay of final distribution and discharge of the liquidator.

(d) If several claims founded upon one policy are filed, whether by third parties or as claims by the insured under this section, and the aggregate allowed amount of the claims to which the same limit of liability in the policy is applicable exceeds that limit, each claim as allowed shall be reduced in the same proportion so that the total equals the policy limit. Claims by the insured shall be evaluated as in subsection (c) of this section. If any insured's claim is subsequently reduced under subsection (c) of this section, the amount thus freed shall be apportioned ratably among the claims which have been reduced under this subsection.

(e) No claim may be presented under this section if it is or may be covered by any guaranty association.

(P.A. 79-382, S. 38; P.A. 98-214, S. 19; P.A. 15-118, S. 58.)

History: Sec. 38-458 transferred to Sec. 38a-940 in 1991; P.A. 98-214 amended Subsec. (a) to add “on or before the last day for filing claims”, amended Subsec. (b) re sufficiency of claim filed by insured re all related third party claims and to make technical changes, amended Subsec. (c) to delete “his” re liquidator's recommendations and to substitute “the liquidator” for “he” and “finds” for “thinks”, and amended Subsec. (e) to delete “or foreign guaranty association”; P.A. 15-118 made a technical change in Subsec. (b).

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Sec. 38a-941. (Formerly Sec. 38-459). Disputed claims. Hearings. Procedure. (a) When a claim is denied in whole or in part by the liquidator, written notice of the determination shall be given to the claimant or the claimant's attorney by first class mail at the address shown in the proof of claim. Not later than thirty days after the mailing of the notice, the claimant may file objections with the liquidator. Any filed objections shall clearly set forth all facts and the legal basis for the objections and the reasons why the claim should be allowed. If no such filing is made, the determination shall be final.

(b) Whenever objections are filed with the liquidator and the liquidator does not alter the determination of the claim as a result of the objections, the liquidator shall ask the court for a hearing as soon as practicable and give notice of the hearing by first class mail to the claimant or the claimant's attorney and to any other persons directly affected, not less than ten nor more than thirty days before the date of the hearing. The matter may be heard by the court or by a court-appointed referee. The hearing shall be conducted on the record in an informal manner and the formal rules of evidence and civil procedure need not be strictly applied. Hearings shall be held without a jury. Prehearing discovery shall be limited to such pretrial discovery as expressly permitted in arbitration proceedings under chapter 909.

(c) When a disputed claim is heard by a referee, the referee shall submit written findings of fact and conclusions of law along with the recommendation for disposition to the court. The referee's recommendation shall become the final judgment of the court, unless objections to the referee's recommendations are filed by the liquidator or claimant with the court not later than fifteen days after the recommendation is mailed to the liquidator and claimant.

(d) The final disposition by the court of a disputed claim, whether after a hearing by the court or after a recommendation by a referee, shall be deemed a final judgment for purposes of appeal.

(e) The courts of this state may make special rules of civil procedure for disputed claims, provided the rules are not inconsistent with this chapter.

(P.A. 79-382, S. 39; P.A. 98-214, S. 20; P.A. 17-15, S. 90.)

History: Sec. 38-459 transferred to Sec. 38a-941 in 1991; P.A. 98-214 amended Subsec. (a) to make technical changes, to add provision that filed objections set forth facts and legal basis for objections and reasons why claim should be allowed, and to substitute “the determination shall be final” for “the claimant may not further object to the determination”, amended Subsec. (b) to make technical changes, to substitute “the determination” for “his denial” re liquidator, to delete “who shall submit findings of fact along with his recommendation” re referee and to add provisions re conduct of hearing and added new Subsecs. (c) to (e), inclusive, re disputed claims heard by a referee, re final disposition of a disputed claim for purposes of appeal and re special rules of civil procedure for disputed claims, respectively; P.A. 17-15 made a technical change in Subsec. (e).

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Sec. 38a-942. (Formerly Sec. 38-460). Claims of surety. Whenever an obligee whose claim against an insurer is secured, in whole or in part, by the undertaking of another person, fails to prove and file that claim, the other person may do so in the obligee's name, and shall be subrogated to the rights of the obligee, whether the claim has been filed by the obligee or by the other person in the obligee's name, to the extent that the obligee discharges the undertaking. In the absence of an agreement with the obligee to the contrary, the other person shall not be entitled to any distribution until the amount paid to the obligee on the undertaking plus the distributions paid on the claim from the insurer's estate to the obligee equals the amount of the entire claim of the obligee. Any excess received by the obligee shall be held by him in trust for such other person. The term “other person”, as used in this section is not intended to apply to a guaranty association.

(P.A. 79-382, S. 40; P.A. 98-214, S. 21.)

History: Sec. 38-460 transferred to Sec. 38a-942 in 1991; P.A. 98-214 substituted “obligee” for “creditor” and “he”, and deleted “however” and “or foreign guaranty association”.

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Sec. 38a-943. (Formerly Sec. 38-461). Secured creditor's claims. (a) The value of any security held by a secured creditor shall be determined in one of the following ways, as the court may direct: (1) By converting the same into money according to the terms of the agreement pursuant to which the security was delivered to such creditors; or (2) by agreement, arbitration, compromise or litigation between the creditor and the liquidator.

(b) The determination shall be under the supervision and control of the court with due regard for the recommendation of the liquidator. The amount so determined shall be credited upon the secured claim, and any deficiency shall be treated as an unsecured claim. If the claimant shall surrender his security to the liquidator, the entire claim shall be allowed as if unsecured.

(P.A. 79-382, S. 41.)

History: Sec. 38-461 transferred to Sec. 38a-943 in 1991.

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Sec. 38a-944. (Formerly Sec. 38-462). Priority of distribution of claims. (a) The priority of distribution of claims from the insurer's estate shall be in accordance with the order in which each class of claims is set forth in this section. Every claim in each class shall be paid in full or adequate funds retained for such payment before the members of the next class receive any payment. Once such funds are retained by the liquidator and approved by the court, the insurer's estate shall have no further liability to members of that class except to the extent of the retained funds and any other undistributed funds. No subclasses shall be established within any class, except as provided in subdivision (1) of subsection (a) of section 38a-923. No claim by a shareholder, policyholder or other creditor shall be permitted to circumvent the priority classes through the use of equitable remedies. The order of distribution of claims shall be:

(1) Class 1. The costs and expenses of administration expressly approved by the receiver, including but not limited to the following: (A) The actual and necessary costs of preserving or recovering the assets of the insurer; (B) compensation for all services rendered in the conservation, rehabilitation or liquidation; (C) any necessary filing fees; (D) the fees and mileage payable to witnesses; and (E) authorized reasonable attorney's fees and other professional services rendered in the conservation, rehabilitation or liquidation.

(2) Class 2. The administrative expenses of guaranty associations. For purposes of this section such expenses shall be those reasonable expenses incurred by guaranty associations where the expenses are not payments or expenses that are required to be incurred as direct policy benefits in fulfillment of the terms of the insurance contract or policy, and that are of the type and nature that, but for the activities of the guaranty association otherwise would have been incurred by the receiver, including, but not limited to, evaluations of policy coverage, activities involved in the adjustment and settlement of claims under policies, including those of in-house or outside adjusters, and the reasonable expenses incurred in connection with the arrangements for ongoing coverage through transfer to other insurers, policy exchanges or maintaining policies in force. The receiver may in his or her sole discretion approve as an administrative expense under this section any other reasonable expenses of the guaranty association if the receiver finds: (A) The expenses are not expenses required to be paid or incurred as direct policy benefits by the terms of the policy, and (B) the expenses were incurred in furtherance of activities that provided a material economic benefit to the estate as a whole, irrespective of whether the activities resulted in additional benefits to covered claimants. The court shall approve such expenses unless it finds the receiver abused his or her discretion in approving the expenses. If the receiver determines that the assets of the estate will be sufficient to pay all class 1 claims in full, class 2 claims shall be paid currently, provided the liquidator shall secure from each of the associations receiving disbursements pursuant to this section an agreement to return to the liquidator such disbursement, together with investment income actually earned on such disbursements, as may be required to pay class 1 claims. No bond shall be required of any such association.

(3) Class 3. All claims under policies including such claims of the federal or any state or local government for losses incurred, including third party claims, claims for unearned premiums, and all claims of a guaranty association for payment of covered claims or covered obligations of the insurer. All claims of a guaranty association for reasonable expenses other than those included in class 2. All claims under life and health insurance policies, annuity contracts and funding agreements, whether for death proceeds, health benefits, annuity proceeds, or investment values shall be treated as loss claims. That portion of any loss, indemnification for which is provided by other benefits or advantages recovered by the claimant, shall not be included in this class, other than benefits or advantages recovered or recoverable in discharge of familial obligations of support or by way of succession at death or as proceeds of life insurance, or as gratuities. No payment by an employer to his employee shall be treated as a gratuity. Notwithstanding the provisions of this subdivision, the following claims shall be excluded from class 3 priority: (A) Obligations of the insolvent insurer arising out of reinsurance contracts; (B) obligations incurred after the expiration date of the insurance policy or after the policy has been replaced by the insured or canceled at the insured's request or after the policy has been canceled as provided in this chapter. Notwithstanding the provisions of this subdivision, earned premium claims on policies, other than reinsurance agreements, shall not be excluded; (C) obligations to insurers, insurance pools or underwriting associations and their claims for contribution, indemnity or subrogation, equitable or otherwise; and (D) any claim which is in excess of any applicable limits provided in the insurance policy issued by the insolvent insurer.

(4) Class 4. Claims of the federal government except those under class 3.

(5) Class 5. Debts due employees for services, benefits, contractual or otherwise due arising out of such reasonable compensation to employees for services performed to the extent that they do not exceed two months of monetary compensation and represent payment for services performed within six months before the filing of the petition for liquidation or, if rehabilitation preceded liquidation, within one year before the filing of the petition for rehabilitation. Officers and directors shall not be entitled to the benefit of this priority, except as otherwise approved by the liquidator and the court. Such priority shall be in lieu of any other similar priority which may be authorized by law as to wages or compensation of employees.

(6) Class 6. Claims of general creditors, including claims of ceding and assuming companies in their capacity as such, and claims against the insurer for liability for bodily injury or for injury to or destruction of tangible property which are not under policies.

(7) Class 7. Claims of any state or local government, except those under class 4. Claims of any such governmental body for a penalty or forfeiture, but only to the extent of the pecuniary loss sustained from the act, transaction or proceeding out of which the penalty or forfeiture arose, with reasonable and actual costs occasioned thereby. The remainder of such claims shall be postponed to the class of claims under subdivision (8) of this subsection.

(8) Class 8. Surplus or contribution notes, or similar obligations, and premium refunds on assessable policies, interest on claims of classes 1 to 7, inclusive, and any other claims specifically subordinated to this class.

(9) Class 9. Claims of shareholders or other owners arising out of their capacity as shareholders or owners, or arising in any other capacity or facts except as they may be qualified in class 3 or 4.

(b) Upon the declaration of a dividend, the receiver shall apply the amount of the dividend against any indebtedness owed to the insurer by the person entitled to the dividend. There shall be no claim allowed for any deductible charged by a guaranty association or entity performing a similar function.

(c) Every claim under a separate account agreement providing, in effect, that the assets in the separate account shall not be chargeable with liabilities arising out of any other business of the insurer shall be satisfied out of the assets in the separate account equal to the reserves maintained in such account for such agreement and, to the extent, if any, not fully discharged thereby, shall be treated as a class 3 claim against the estate. For the purposes of this section, “insurer's estate” means the general assets of such company less any assets held in separate accounts that, pursuant to section 38a-433 or 38a-459, are not chargeable with liabilities arising out of any other business of the insurer.

(P.A. 79-382, S. 42; P.A. 82-472, S. 118, 183; P.A. 92-93, S. 27; P.A. 97-113, S. 1, 2; P.A. 98-214, S. 23; P.A. 14-122, S. 173; P.A. 17-15, S. 91.)

History: P.A. 82-472 made a technical correction; Sec. 38-462 transferred to Sec. 38a-944 in 1991; P.A. 92-93 divided section into Subsecs. and Subdivs., prohibited claims by creditors to circumvent priority classes, extensively revised classes of priority distribution to include in class 1 costs of professional services, to change “debts due” in class 2 to “reasonable compensation” and to change maximum payment from $1,000 to two month's compensation and include cases where rehabilitation precedes liquidation, to include in class 3 certain claims of federal, state and local government, annuity contracts and funding agreements, and to make changes in class 4, i.e. claims under nonassessable policies, incorporating former class 5 within class 4, renumbering classes as necessary and making technical changes for statutory consistency; P.A. 97-113 reorganized classes in Subsec. (a) by moving Subdiv. (2) to Subdiv. (4), inserting new Subdiv. (3) re claims of federal government, and renumbering remaining Subdivs., and made technical changes in Subsecs. (a) and (b), effective June 6, 1997; P.A. 98-214 amended Subsec. (a) re liability of insurer's estate once funds are retained by liquidator and approved by court, and amended prohibition on subclasses within any class to provide exceptions as provided in Subdiv. (a)(1) of Sec. 38a-923, amended Subdiv. (1) to make costs and expenses of administration those “expressly approved by the receiver”, amended Subpara. (a)(1)(B) to reference conservation and rehabilitation re services rendered, amended Subpara. (a)(1)(E) to include reference to “conservation” re services rendered, deleted former Subpara. (a)(1)(F), inserted new Subdiv. (2) re administrative expenses of guaranty associations, redesignated Subdiv. (2) as Subdiv. (3) and amended it to include claims for unearned premiums, to delete reference to foreign guaranty associations, to include payment of covered claims or covered obligations of the insurer, to add claims of a guaranty association for reasonable expenses, to add claims under health insurance policies and health benefits, and to add provision notwithstanding provisions of subdivision that enumerated claims be excluded from class 3 priority, redesignated Subdiv. (3) as Subdiv. (4), redesignated Subdiv. (4) as Subdiv. (5) and included debts due employees for services, benefits, contractual or otherwise due arising out of reasonable compensation and substituted “six months” for “one year”, redesignated Subdiv. (5) as Subdiv. (6) and deleted claims under nonassessable policies for unearned premium or other premium refunds and claims, redesignated Subdiv. (6) as Subdiv. (7) and made minor changes, deleted former Subdiv. (7), amended Subdiv. (8) to include “interest on claims of classes 1 to 7 and other claims specifically subordinated to this class, and deleted provision re payments to members of domestic mutual insurance companies, replaced Subdiv. (9) with provision re claims of shareholders except as they may qualify in class 3 or 4, added new Subsec. (b) re declaration of a dividend and application thereof against indebtedness owed to insurer, and redesignated former Subsec. (b) as Subsec. (c), making a technical change; P.A. 14-122 made technical changes in Subsec. (c); P.A. 17-15 made technical changes in Subsec. (a)(2).

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Sec. 38a-944a. Additional rights. Netting agreements. Qualified financial contracts. Security arrangements. (a) Notwithstanding any provision of sections 38a-903 to 38a-961, inclusive, including any provision permitting the modification of contracts, or other law of a state, no person shall be stayed or prohibited from exercising: (1) A contractual right to terminate, liquidate or close out any netting agreement or qualified financial contract with an insurer because of: (A) The insolvency, financial condition or default of the insurer at any time, provided the right is enforceable under applicable law other than sections 38a-903 to 38a-961, inclusive, or (B) the commencement of a formal delinquency proceeding under sections 38a-903 to 38a-961, inclusive; (2) any right under a pledge, security, collateral or guarantee agreement or any other similar security arrangement or credit support document relating to a netting agreement or qualified financial contract; or (3) subject to any provision of subsection (b) of section 38a-932, any right to set off or net out any termination value, payment amount, or other transfer obligation arising under or in connection with a netting agreement or qualified financial contract where the counterparty or its guarantor is organized under the laws of the United States or a state or foreign jurisdiction approved by the Securities Valuation Office of the National Association of Insurance Commissioners as eligible for netting.

(b) Upon termination of a netting agreement, the net or settlement amount, if any, owed by a nondefaulting party to an insurer against which an application or petition has been filed under sections 38a-903 to 38a-961, inclusive, shall be transferred to or on the order of the receiver for the insurer, even if the insurer is the defaulting party, notwithstanding any provision in the netting agreement that may provide that the nondefaulting party is not required to pay any net or settlement amount due to the defaulting party upon termination. Any limited two-way payment provision in a netting agreement with an insurer that has defaulted shall be deemed to be a full two-way payment provision as against the defaulting insurer. Any such property or amount shall, except to the extent it is subject to one or more secondary liens or encumbrances, be a general asset of the insurer.

(c) In making any transfer of a netting agreement or qualified financial contract of an insurer subject to a delinquency proceeding, the receiver shall either: (1) Transfer to one party, other than an insurer subject to a delinquency proceeding, all netting agreements and qualified financial contracts between a counterparty or any affiliate of the counterparty and the insurer that is the subject of the proceeding, including: (A) All rights and obligations of each party under each such netting agreement and qualified financial contract; and (B) all property, including any guarantees or credit support documents, securing any claims of each party under such netting agreement and qualified financial contract; or (2) transfer none of the netting agreements, qualified financial contracts, rights, obligations or property referred to in subdivision (1) of this subsection, with respect to such counterparty and any affiliate of such counterparty.

(d) If a receiver for an insurer makes a transfer of one or more netting agreements or qualified financial contracts, then the receiver shall use its best efforts to notify any person who is a party to the netting agreements or qualified financial contracts of the transfer by twelve o'clock noon, the receiver's local time, on the business day following the transfer. For purposes of this subsection, “business day” means a day other than a Saturday, Sunday or any day on which either the New York Stock Exchange or the Federal Reserve Bank of New York is closed.

(e) Notwithstanding any other provision of sections 38a-903 to 38a-961, inclusive, a receiver may not avoid a transfer of money or other property arising under or in connection with a netting agreement or qualified financial contract, or any pledge, security, collateral or guarantee agreement or any other similar security arrangement or credit support document relating to a netting agreement or qualified financial contract, that is made before the commencement of a formal delinquency proceeding under sections 38a-903 to 38a-961, inclusive, except that a transfer may be avoided under subsection (a) of section 38a-928 if the transfer was made with actual intent to hinder, delay or defraud the insurer, a receiver appointed for the insurer or existing or future creditors.

(f) Notwithstanding any other provision of sections 38a-903 to 38a-961, inclusive, any claim of a counterparty against the estate arising from the receiver's disaffirmance or repudiation of a netting agreement or qualified financial contract that has not been previously affirmed in the liquidation or immediately preceding rehabilitation case shall be determined and shall be allowed or disallowed as if the claim has arisen before the date of the filing of the petition for liquidation or, if a rehabilitation proceeding is converted to a liquidation proceeding, as if the claim had arisen before the date of the filing of the petition for rehabilitation. The amount of the claim shall be the actual direct compensatory damages determined as of the date of the disaffirmance or repudiation of the netting agreement or qualified financial contract. “Actual direct compensatory damages” does not include punitive or exemplary damages, damages for lost profit or lost opportunity or damages for pain and suffering, but does include normal and reasonable costs of cover or other reasonable measures of damages utilized in the derivatives market for the contract and agreement claims.

(g) As used in this section, “contractual right” includes any right, whether or not evidenced in writing, arising under statutory or common law, a rule or bylaw of a national securities exchange, national securities clearing organization or securities clearing agency, a rule or bylaw, or a resolution of the governing body, of a contract market or its clearing organization, or under law merchant.

(h) The provisions of this section shall not apply to persons who are affiliates of the insurer that is the subject of the proceeding.

(i) All rights of counterparties under sections 38a-903 to 38a-961, inclusive, shall apply to netting agreements entered into on behalf of the general account or separate accounts if the assets of each separate account are available only to counterparties to netting agreements entered into on behalf of that separate account.

(P.A. 98-214, S. 22; P.A. 17-15, S. 92.)

History: P.A. 17-15 made technical changes in Subsec. (a).

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Sec. 38a-945. (Formerly Sec. 38-463). Liquidator's recommendations to the court. (a) The liquidator shall review all claims duly filed in the liquidation and shall make such further investigation as deemed necessary. The liquidator may compound, compromise or in any other manner negotiate the amount for which claims will be recommended to the court except where the liquidator is required by law to accept claims as settled by any person or organization, including any guaranty association. Unresolved disputes shall be determined pursuant to section 38a-941. As soon as practicable, he shall present to the court a report of the claims against the insurer with his recommendations. The report shall include the name and address of each claimant and the amount of the claim finally recommended, if any. If the insurer has issued annuities or life insurance policies, the liquidator shall report the persons to whom, according to the records of the insurer, amounts are owed as cash surrender values or other investment value and the amounts owed.

(b) The court may approve, disapprove, or modify, the report on claims by the liquidator. Such reports as are not modified by the court within a period of sixty days following submission by the liquidator shall be treated by the liquidator as allowed claims, subject thereafter to later modification or to rulings made by the court pursuant to section 38a-941. No claim under a policy of insurance shall be allowed for an amount in excess of the applicable policy limits.

(c) After giving due consideration to the nature of the policies that were sold by the insurer, and the number of claims by policyholders for protection under their policies, and after considering actuarial estimates that substantial amounts of incurred but not reported losses exist, the liquidator may, but need not, formulate a proposal, subject to the approval of the court to allow such claims. The proposal may allocate or attribute all or a portion of the incurred but not reported losses to individual policyholder claimants on a basis of reasonable expert opinion. The court shall approve the proposal and the allowance of the claims unless it finds that the basis of allocation is arbitrary or capricious.

(d) The liquidator is not required to process claims for any class until it appears reasonably likely that assets will be available for a distribution to that class. If there are insufficient assets to justify processing all claims for any class listed in section 38a-944 the liquidator shall report the facts to the court and make such recommendations as may be appropriate for handling the remainder of the claims.

(P.A. 79-382, S. 43; P.A. 98-214, S. 24.)

History: Sec. 38-463 transferred to Sec. 38a-945 in 1991; P.A. 98-214 amended Subsec. (a) to substitute “deemed” for “he shall deem” re further investigation, substitute “the liquidator” for “he” and delete “or foreign guaranty association”, added new Subsec. (c) re liquidator's authority to formulate a proposal to allow claims, subject to court approval, and added new Subsec. (d) re processing of claims based on assets available.

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Sec. 38a-946. (Formerly Sec. 38-464). Distribution of assets. Under the direction of the court, the liquidator shall pay distributions in a manner that will assure the proper recognition of priorities and a reasonable balance between the expeditious completion of the liquidation and the protection of unliquidated and undetermined claims, including third party claims. Distribution of assets in kind may be made at valuations set by agreement between the liquidator and the creditor and approved by the court.

(P.A. 79-382, S. 44.)

History: Sec. 38-464 transferred to Sec. 38a-946 in 1991.

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Sec. 38a-947. (Formerly Sec. 38-465). Unclaimed and withheld funds. (a) All unclaimed funds subject to distribution remaining in the liquidator's hands when the liquidator is ready to apply to the court for discharge, including the amount distributable to any creditor, shareholder, member, or other person who is unknown or cannot be found, shall be deposited with the State Treasurer, and shall be paid without interest except in accordance with section 38a-944 to the person entitled thereto or that person's legal representative upon proof satisfactory to the State Treasurer of the person's right thereto. Any amount on deposit not claimed within six years from the discharge of the liquidator shall be deemed to have been abandoned and shall be escheated without formal escheat proceedings and be deposited in the General Fund. Alternatively, the liquidator may elect to apply to the court for authority to hold the unclaimed funds subject to distribution for a period of two years. Thereafter, any unclaimed funds may be distributed to approved claimants who have previously received a distribution, if it is economically feasible for the liquidator to make the distribution, or the liquidator may apply to the court for permission for the funds to be held by the State Treasurer in an account on behalf of the commissioner in the commissioner's capacity as receiver for the purpose and use of defraying the costs and expenses of administration of other insolvent insurers for which there are insufficient assets to fund the costs and expenses of administration.

(b) All funds withheld pursuant to section 38a-939 and not distributed shall upon discharge of the liquidator be deposited with the State Treasurer and paid by him in accordance with section 38a-944. Any sums remaining which pursuant to section 38a-944 would revert to the undistributed assets of the insurer shall be transferred to the State Treasurer and become the property of the state under subsection (a), unless the commissioner in his discretion petitions the court to reopen the liquidation pursuant to section 38a-949.

(P.A. 79-382, S. 45; P.A. 98-214, S. 25; P.A. 01-139, S. 6.)

History: Sec. 38-465 transferred to Sec. 38a-947 in 1991; P.A. 98-214 amended Subsec. (a) to make technical changes, to allow the liquidator to apply to the court for authority to hold, or have the State Treasurer hold, unclaimed funds, and to add provisions re distributions; P.A. 01-139 amended Subsec. (a) to add “Alternatively” re the liquidator's election to apply to court to hold unclaimed funds, and made technical changes for the purpose of gender neutrality.

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Sec. 38a-948. (Formerly Sec. 38-466). Termination of proceedings. (a) When all assets justifying the expense of collection and distribution have been collected and distributed under sections 38a-903 to 38a-961, inclusive, the liquidator shall apply to the court for discharge. The court may grant the discharge and make any other orders, including an order to transfer any remaining funds that are uneconomic to distribute, as may be deemed appropriate.

(b) Any other person may apply to the court at any time for an order pursuant to subsection (a) of this section. If the application is denied, the applicant shall pay the costs and expenses of the liquidator in resisting the application, including a reasonable attorney's fee.

(c) At any time after the court or judge has ordered the liquidation of the business of any such company, the commissioner may apply for the dissolution of such company, and such company, after notice and hearing and such other proceedings as the court deems equitable, may be dissolved.

(P.A. 79-382, S. 46.)

History: Sec. 38-466 transferred to Sec. 38a-948 in 1991.

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Sec. 38a-949. (Formerly Sec. 38-467). Reopening liquidation. After the liquidation proceeding has been terminated and the liquidator discharged, the commissioner or other interested party may at any time petition the Superior Court to reopen the proceedings for good cause, including the discovery of additional assets. If the court is satisfied that there is justification for reopening, it shall so order.

(P.A. 79-382, S. 47.)

History: Sec. 38-467 transferred to Sec. 38a-949 in 1991.

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Sec. 38a-950. (Formerly Sec. 38-468). Disposition of records during and after termination of liquidation. Whenever it shall appear to the commissioner that the records of any insurer in process of liquidation or completely liquidated are no longer useful, he may recommend to the court and the court shall direct what records should be retained for future reference and what should be destroyed.

(P.A. 79-382, S. 48.)

History: Sec. 38-468 transferred to Sec. 38a-950 in 1991.

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Sec. 38a-951. (Formerly Sec. 38-469). External audit of the receiver's books. The Superior Court may, as it deems desirable, cause audits to be made of the books of the commissioner relating to any receivership established under sections 38a-903 to 38a-961, inclusive, and a report of each audit shall be filed with the commissioner and with the court. The books, records, and other documents of the receivership shall be made available to the auditor at any time without notice. The expense of each audit shall be considered a cost of administration of the receivership.

(P.A. 79-382, S. 49.)

History: Sec. 38-469 transferred to Sec. 38a-951 in 1991.

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Sec. 38a-952. (Formerly Sec. 38-470). Conservation of property of foreign or alien insurers found in this state. Termination of conservation. Appointment of judge to supervise ancillary proceeding. (a) If a domiciliary liquidator has not been appointed, the commissioner may apply to the Superior Court by verified petition for an order directing the commissioner to act as conservator to conserve the property found in this state of an alien insurer not domiciled in this state or property found in this state of a foreign insurer on any one or more of the following grounds: (1) Any of the grounds pursuant to section 38a-914; (2) that any of its property has been sequestered by official action in its domiciliary state or in any other state; (3) that enough of its property has been sequestered in a foreign country to give reasonable cause to fear that the insurer is or may become insolvent; (4) that its certificate of authority to do business in this state has been revoked or that none was ever issued; and (5) that there are residents of this state with outstanding claims or outstanding policies.

(b) When an order is sought pursuant to subsection (a) of this section, the court shall cause the insurer to be given such notice and time to respond as is reasonable under the circumstances.

(c) The court may issue the order in whatever terms it shall deem appropriate. The filing or recording of the order with the clerk of the superior court of the judicial district or the recorder of deeds of the town in which the principal business of the company is located or the country in which its principal office or place of business is located shall impart the same notice as a deed, bill of sale or other evidence of title duly filed or recorded with that recorder of deeds would have imparted.

(d) The conservator may at any time petition for and the court may grant an order pursuant to section 38a-953 to liquidate assets of a foreign or alien insurer under conservation, or, if appropriate, for an order pursuant to section 38a-955, to be appointed ancillary receiver. The commissioner shall be entitled to request the administrative judge of the superior court for the judicial district of Hartford to appoint a single judge to supervise the ancillary proceeding and hear any cases or controversies arising out of or related to the ancillary proceeding. Ancillary proceedings shall be exempt from any dormancy or similar program maintained by the court for the early closure of civil actions.

(e) The conservator may at any time petition the court for an order terminating conservation of the property of an insurer. If the court finds that the conservation is no longer necessary, it shall order that the insurer be restored to possession of its property and the control of its business. The court may also make a finding and issue an order at any time upon motion of any interested party, but if the motion is denied all costs shall be assessed against such party.

(P.A. 79-382, S. 50; P.A. 88-230, S. 1, 12; P.A. 90-98, S. 1, 2; P.A. 92-93, S. 28; P.A. 93-142, S. 4, 7, 8; P.A. 95-220, S. 4–6; P.A. 98-214, S. 26.)

History: Sec. 38-470 transferred to Sec. 38a-952 in 1991; P.A. 92-93 added new Subsec. (e) re petition of court to terminate conservation of insurer and made technical corrections for statutory consistency; P.A. 98-214 amended Subsec. (a) to substitute “the commissioner” for “him”, insert two references to “property found in this state”, and to insert Subdiv. designator (5) prior to final existing provision, deleted “thereto” in Subsec. (b), amended Subsec. (d) to allow the commissioner to request appointment of a single judge to supervise ancillary proceedings, and amended Subsec. (e) by inserting “the property of” re insurer and replacing “such” with other references (Revisor's note: P.A. 88-230, 90-98, 93-142 and 95-220 authorized substitution of “judicial district of Hartford” for “judicial district of Hartford-New Britain” in public and special acts of the 1998 regular and special sessions of the General Assembly, effective September 1, 1998).

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Sec. 38a-953. (Formerly Sec. 38-471). Liquidation of property of foreign or alien insurers found in this state. (a) If no domiciliary receiver has been appointed, the commissioner may apply to the Superior Court by verified petition for an order directing him to liquidate the assets found in this state of a foreign insurer or an alien insurer not domiciled in this state, on any of the following grounds: (1) Any of the grounds in section 38a-914 or 38a-919; or (2) any of the grounds specified in sections 38a-952 to 38a-956, inclusive.

(b) When an order is sought pursuant to subsection (a) of this section, the court shall cause the insurer to be given such notice and time to respond thereto as is reasonable under the circumstances.

(c) If it shall appear to the court that the best interests of creditors, policyholders, and the public require, the court may issue an order to liquidate in whatever terms it shall deem appropriate. The filing or recording of the order with the clerk of the superior court of the judicial district or the recorder of deeds of the town in which the principal business of the company is located or the town in which its principal office or place of business is located, shall impart the same notice as a deed, bill of sale, or other evidence of title duly filed or recorded with that recorder of deeds would have imparted.

(d) If a domiciliary liquidator is appointed in a reciprocal state while a liquidation is proceeding under this section, the liquidator under this section shall thereafter act as ancillary receiver pursuant to section 38a-955. If a domiciliary liquidator is appointed in a nonreciprocal state while a liquidation is proceeding under this section, the liquidator under this section may petition the court for permission to act as ancillary receiver pursuant to section 38a-955.

(e) On the same grounds as are specified in subsection (a) of this section, the commissioner may petition any appropriate federal district court to be appointed receiver to liquidate that portion of the insurer's assets and business over which the court will exercise jurisdiction, or any lesser part thereof that the commissioner deems desirable for the protection of the policyholders and creditors in this state.

(f) The court may order the commissioner, when he has liquidated the assets of a foreign or alien insurer under this section, to pay claims of residents of this state against the insurer under such rules as to the liquidation of insurers under sections 38a-903 to 38a-961, inclusive, as are otherwise compatible with the provisions of this section.

(P.A. 79-382, S. 51.)

History: Sec. 38-471 transferred to Sec. 38a-953 in 1991.

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Sec. 38a-954. (Formerly Sec. 38-472). Domiciliary liquidators in other states. (a) The domiciliary liquidator of an insurer domiciled in a reciprocal state shall, except as to special deposits and security on secured claims pursuant to subsection (c) of section 38a-955, be vested by operation of law with the title to all of the assets, property, contracts and rights of action, agents' balances and all of the books, accounts and other records of the insurer located in this state. The date of vesting shall be the date of the filing of the petition, if that date is specified by the domiciliary law for the vesting of property in the domiciliary state. Otherwise, the date of vesting shall be the date of entry of the order directing possession to be taken. The domiciliary liquidator shall have the immediate right to recover balances due from agents and to obtain possession of the books, accounts and other records of the insurer located in this state. He also shall have the right to recover all other assets of the insurer located in this state, subject to section 38a-955.

(b) If a domiciliary liquidator is appointed for an insurer not domiciled in a reciprocal state, the commissioner of this state shall be vested by operation of law with the title to all of the property, contracts and rights of action and all of the books, accounts and other records of the insurer located in this state, at the same time that the domiciliary liquidator is vested with title in the domicile. The commissioner of this state may petition for a conservation or liquidation order pursuant to section 38a-952 or 38a-953, or for an ancillary receivership pursuant to section 38a-955, or after approval by the Superior Court may transfer title to the domiciliary liquidator, as the interests of justice and the equitable distribution of the assets require.

(c) Claimants residing in this state may file claims with the liquidator or ancillary receiver, if any, in this state or with the domiciliary liquidator, if the domiciliary law permits. The claims shall be filed on or before the last date fixed for the filing of claims in the domiciliary liquidation proceedings.

(P.A. 79-382, S. 52; P.A. 92-93, S. 29; P.A. 14-235, S. 35.)

History: Sec. 38-472 transferred to Sec. 38a-954 in 1991; P.A. 92-93 amended Subsec. (a) re applicable law of vesting of property and made technical corrections for statutory consistency; P.A. 14-235 made a technical change in Subsec. (c).

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Sec. 38a-955. (Formerly Sec. 38-473). Ancillary formal proceedings. (a) If a domiciliary liquidator has been appointed for an insurer not domiciled in this state, the commissioner may file a petition with the Superior Court requesting appointment as ancillary receiver in this state: (1) If he finds that there are sufficient assets of the insurer located in this state to justify the appointment of an ancillary receiver; (2) if the protection of creditors or policyholders in this state so requires.

(b) The court may issue an order appointing an ancillary receiver in whatever terms it shall deem appropriate. The filing or recording of the order with the recorder of deeds in this state imparts the same notice as a deed, bill of sale, or other evidence of title duly filed or recorded with that recorder of deeds.

(c) When a domiciliary liquidator has been appointed in a reciprocal state, then the ancillary receiver appointed in this state may, whenever necessary, aid and assist the domiciliary liquidator in recovering assets of the insurer located in this state. The ancillary receiver shall, as soon as practicable, liquidate from their respective securities those special deposit claims and secured claims which are proved and allowed in the ancillary proceedings in this state, and shall pay the necessary expenses of the proceedings. He shall promptly transfer all remaining assets, books, accounts and records to the domiciliary liquidator. Subject to this section, the ancillary receiver and his deputies shall have the same powers and be subject to the same duties with respect to the administration of assets as a liquidator of an insurer domiciled in this state.

(d) When a domiciliary liquidator has been appointed in this state, ancillary receivers appointed in reciprocal states shall have, as to assets and books, accounts, and other records in their respective states, corresponding rights, duties and powers to those provided in subsection (c) of this section for ancillary receivers appointed in this state.

(P.A. 79-382, S. 53.)

History: Sec. 38-473 transferred to Sec. 38a-955 in 1991.

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Sec. 38a-956. (Formerly Sec. 38-474). Ancillary summary proceedings. The commissioner in his sole discretion may institute proceedings pursuant to sections 38a-911 to 38a-913, inclusive, at the request of the commissioner or other appropriate insurance official of the domiciliary state of any foreign or alien insurer having property located in this state.

(P.A. 79-382, S. 54.)

History: Sec. 38-474 transferred to Sec. 38a-956 in 1991.

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Sec. 38a-957. (Formerly Sec. 38-475). Claims of nonresidents against insurers domiciled in this state. (a) In a liquidation proceeding begun in this state against an insurer domiciled in this state, claimants residing in foreign countries or in states not reciprocal states shall file claims in this state, and claimants residing in reciprocal states may file claims either with the ancillary receivers, if any, in their respective states, provided a claim filing procedure is established in the ancillary proceeding, or with the domiciliary liquidator. Claims shall be filed on or before the last dates fixed for the filing of claims in the domiciliary liquidation proceeding.

(b) Claims belonging to claimants residing in reciprocal states may be proved either in the liquidation proceeding in this state as provided in sections 38a-903 to 38a-961, inclusive, or in ancillary proceedings, if any, in the reciprocal states, provided a claim filing procedure is established in the ancillary proceeding. If notice of the claims and opportunity to appear and be heard is afforded the domiciliary liquidator of this state as provided in subsection (b) of section 38a-958 with respect to ancillary proceedings, the final allowance of claims by the courts in ancillary proceedings in reciprocal states shall be conclusive as to amount and as to priority against special deposits or other security located in such ancillary states, but shall not be conclusive with respect to priorities against general assets pursuant to section 38a-944.

(P.A. 79-382, S. 55; P.A. 92-93, S. 30; P.A. 14-235, S. 36.)

History: Sec. 38-475 transferred to Sec. 38a-957 in 1991; P.A. 92-93 amended Subsec. (a) re ancillary claim filing procedures; P.A. 14-235 made technical changes in Subsec. (a).

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Sec. 38a-958. (Formerly Sec. 38-476). Commissioner as ancillary receiver for insurers not domiciled in this state. (a) Promptly after the appointment of the commissioner as ancillary receiver for an insurer not domiciled in this state, the commissioner shall determine whether there are claimants residing in this state who are not protected by guaranty funds and if so, whether the protection of such claimants requires the establishing of a claim filing procedure in the ancillary proceeding. If a claim filing procedure is established, claimants against the insurer who reside within this state may file claims either with the ancillary receiver, if any, in this state, or with the domiciliary liquidator. Claims shall be filed on or before the last dates fixed for the filing of claims in the domiciliary liquidation proceeding.

(b) Claims belonging to claimants residing in this state may be proved either in the domiciliary state under the law of that state, or in ancillary proceedings, if any, in this state, provided a claim filing procedure is established in the ancillary proceeding. If a claimant elects to prove his claim in this state, he shall file his claim with the liquidator in the manner provided in sections 38a-937 and 38a-938. The ancillary receiver shall make his recommendation to the court pursuant to section 38a-945. He shall also arrange a date for hearing if necessary pursuant to section 38a-941 and shall give notice to the liquidator in the domiciliary state, either by certified mail or by personal service, at least forty days prior to the date set for hearing. If the domiciliary liquidator, within thirty days after the giving of such notice, gives notice in writing to the ancillary receiver and to the claimant, either by certified mail or by personal service, of his intention to contest the claim, he shall be entitled to appear or to be represented in any proceeding in this state involving the adjudication of the claim.

(c) The final allowance of the claim by the courts of this state shall be accepted as conclusive as to amount and as to priority against special deposits or other security located in this state.

(P.A. 79-382, S. 56; P.A. 92-93, S. 31; P.A. 14-235, S. 37.)

History: Sec. 38-476 transferred to Sec. 38a-958 in 1991; P.A. 92-93 amended Subsec. (a) re appointment of commissioner as ancillary receiver for insurer not domiciled in this state and amended Subsec. (b) re ancillary claim filing procedures; P.A. 14-235 made a technical change in Subsec. (a).

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Sec. 38a-959. (Formerly Sec. 38-477). Attachment, garnishment or levy of execution not to be commenced. During the pendency in this or any other state of a liquidation proceeding, whether called by that name or not, no action or proceeding in the nature of an attachment, garnishment, or levy of execution shall be commenced or maintained in this state against the delinquent insurer or its assets.

(P.A. 79-382, S. 57.)

History: Sec. 38-477 transferred to Sec. 38a-959 in 1991.

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Sec. 38a-960. (Formerly Sec. 38-478). Interstate priorities. (a) In a liquidation proceeding in this state involving one or more reciprocal states, the order of distribution of the domiciliary state shall control as to all claims of residents of this and reciprocal states. All claims of residents of reciprocal states shall be given equal priority of payment from general assets regardless of where such assets are located.

(b) The owners of special deposit claims against an insurer for which a liquidator is appointed in this or any other state shall be given priority against the special deposits in accordance with the statutes governing the creation and maintenance of the deposits. If there is a deficiency in any deposit, so that the claims secured by it are not fully discharged from it, the claimants may share in the general assets, but the sharing shall be deferred until general creditors, and also claimants against other special deposits who have received smaller percentages from their respective special deposits, have been paid percentages of their claims equal to the percentage paid from the special deposit.

(c) The owner of a secured claim against an insurer for which a liquidator has been appointed in this or any other state may surrender his security and file his claim as a general creditor, or the claim may be discharged by resort to the security in accordance with section 38a-943, in which case the deficiency, if any, shall be treated as a claim against the general assets of the insurer on the same basis as claims of unsecured creditors.

(P.A. 79-382, S. 58.)

History: Sec. 38-478 transferred to Sec. 38a-960 in 1991.

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Sec. 38a-961. (Formerly Sec. 38-479). Subordination of claims for noncooperation. If an ancillary receiver in another state or foreign country, whether called by that name or not, fails to transfer to the domiciliary liquidator in this state any assets within his control other than special deposits, diminished only by the expenses of the ancillary receivership, if any, the claims filed in the ancillary receivership, other than special deposit claims or secured claims, shall be placed in the class of claims pursuant to subdivision (8) of subsection (a) of section 38a-944.

(P.A. 79-382, S. 59; P.A. 98-214, S. 27.)

History: Sec. 38-479 transferred to Sec. 38a-961 in 1991; P.A. 98-214 substituted reference to Sec. 38a-944(a)(8) for reference to Sec. 38a-944(g).

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Sec. 38a-962. Definitions. As used in sections 38a-129, 38a-140 and 38a-962 to 38a-962j, inclusive:

(1) “Insurer” means and includes every person engaged as indemnitor, surety or contractor in the business of entering into contracts of insurance or of annuities as limited to:

(A) Any insurer who is doing an insurer business, or who has transacted insurance in this state, and against whom claims arising from that transaction may exist now or in the future;

(B) Any fraternal benefit society which is subject to the provisions of sections 38a-595 to 38a-640, inclusive, and 38a-800;

(2) “Exceeded its powers” means:

(A) The insurer has refused to permit examination of its books, papers, accounts, records or affairs by the commissioner, his or her deputies, employees or duly commissioned examiners;

(B) A domestic insurer has unlawfully removed from this state books, papers, accounts or records necessary for an examination of the insurer;

(C) The insurer has failed to promptly comply with the applicable financial reporting statutes or rules and departmental requests relating thereto;

(D) The insurer has neglected or refused to observe an order of the commissioner to make good, within the time prescribed by law, any prohibited deficiency in its capital, capital stock or surplus;

(E) The insurer is continuing to transact insurance or write business after its license has been revoked or suspended by the commissioner;

(F) The insurer, by contract or otherwise, has unlawfully or has in violation of an order of the commissioner or has without first having obtained written approval of the commissioner if approval is required by law: (i) Totally reinsured its entire outstanding business, or (ii) merged or consolidated substantially its entire property or business with another insurer;

(G) The insurer engaged in any transaction in which it is not authorized to engage under the laws of this state;

(H) The insurer refused to comply with a lawful order of the commissioner.

(3) “Consent” means agreement to administrative supervision by the insurer.

(P.A. 92-93, S. 32; P.A. 07-217, S. 159; P.A. 14-122, S. 174.)

History: P.A. 07-217 made technical changes in Subdiv. (2)(F), effective July 12, 2007; P.A. 14-122 made a technical change in Subdiv. (2).

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Sec. 38a-962a. Applicability. The provisions of sections 38a-129, 38a-140 and 38a-962 to 38a-962j, inclusive, shall apply to: (1) All domestic insurers, and (2) any other insurer doing business in this state whose state of domicile has asked the commissioner to apply the provisions of said sections to such insurer.

(P.A. 92-93, S. 33.)

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Sec. 38a-962b. Administrative supervision by the commissioner. (a) An insurer may be subject to administrative supervision by the commissioner if upon examination or at any other time it appears in the commissioner's discretion that: (1) The insurer's condition renders the continuance of its business hazardous to the public or to its insureds; (2) the insurer appears to have exceeded its powers granted under its certificate of authority and applicable law; (3) the insurer has failed to comply with the applicable provisions of the insurance code; (4) the business of the insurer is being conducted fraudulently; or (5) the insurer gives its consent.

(b) If the commissioner determines that the conditions set forth in subsection (a) of this section exist, the commissioner shall: (1) Notify the insurer of his determination; (2) furnish to the insurer a written list of the requirements to abate this determination; and (3) notify the insurer that it is under the supervision of the commissioner and that the commissioner is applying and effectuating the provisions of sections 38a-129, 38a-140 and 38a-962 to 38a-962j, inclusive. Such action by the commissioner shall be subject to appeal in accordance with the provisions of section 4-183.

(c) If placed under administrative supervision, the insurer shall have sixty days, or another period of time as designated by the commissioner, to comply with the requirements of the commissioner subject to the provisions of sections 38a-129, 38a-140 and 38a-962 to 38a-962j, inclusive.

(d) If it is determined after notice and hearing that the conditions giving rise to the supervision still exist at the end of the supervision period specified above, the commissioner may extend such period.

(e) If it is determined that none of the conditions giving rise to the supervision exist, the commissioner shall release the insurer from supervision.

(P.A. 92-93, S. 34.)

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Sec. 38a-962c. Confidentiality of proceedings, hearings, records, reports and correspondence. Exception. (a) Notwithstanding any other provision of law and except as set forth in this section, proceedings, hearings, notices, correspondence, reports, records and other information in the possession of the commissioner or the department relating to the supervision of any insurer are confidential except as provided by this section.

(b) The personnel of the department shall have access to these proceedings, hearings, notices, correspondence, reports, records or information as permitted by the commissioner.

(c) The commissioner may open the proceedings or hearings or make public the notices, correspondence, reports, records or information to a department, agency or instrumentality of this or another state of the United States if the commissioner determines that the disclosure is necessary or proper for the enforcement of the laws of this or another state of the United States.

(d) The commissioner may open the proceedings or hearings or make public the notices, correspondence, reports, records or other information the commissioner deems to be in the best interest of the public or in the best interest of the insurer, its insureds and creditors.

(e) This section does not apply to hearings, notices, correspondence, reports, records or other information obtained upon the appointment of a receiver for the insurer by a court of competent jurisdiction.

(P.A. 92-93, S. 35.)

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Sec. 38a-962d. Prohibited activities during supervision. Prior approval. During the period of supervision, the commissioner or his designated appointees shall serve as the administrative supervisor. The commissioner may determine that the insurer may not do any of the following during the period of supervision, without the prior approval of the commissioner or his designated appointee: (1) Dispose of, convey or encumber any of its assets or its business in force; (2) withdraw any of its bank accounts; (3) lend any of its funds; (4) invest any of its funds; (5) transfer any of its property; (6) incur any debt, obligation or liability; (7) merge or consolidate with another company; (8) approve new premiums or renew any policies; (9) enter into any new reinsurance contract or treaty; (10) terminate, surrender, forfeit, convert or lapse any insurance policy, certificate or contract, except for nonpayment of premiums due; (11) release, pay or refund premium deposits, accrued cash or loan values, unearned premiums or other reserves on any insurance policy, certificate or contract; (12) make any material change in management; or (13) increase salaries and benefits of officers or directors or the preferential payment of bonuses, dividends or other payments deemed preferential.

(P.A. 92-93, S. 36.)

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Sec. 38a-962e. Contested action. Appeal. During the period of supervision the insurer may contest any action taken or proposed to be taken by the supervisor specifying the manner wherein the action being complained of would not result in improving the condition of the insurer. Denial of the insurer's request upon reconsideration entitles the insurer to appeal in accordance with the provisions of section 4-183.

(P.A. 92-93, S. 37.)

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Sec. 38a-962f. Judicial or other delinquency proceedings. Nothing contained in sections 38a-129, 38a-140 and 38a-962 to 38a-962j, inclusive, shall preclude the commissioner from initiating judicial proceedings to place an insurer in conservation, rehabilitation or liquidation proceedings or other delinquency proceedings, however designated under the laws of this state, regardless of whether the commissioner has previously initiated administrative supervision proceedings under said sections against the insurer.

(P.A. 92-93, S. 38.)

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Sec. 38a-962g. Regulations. The commissioner may adopt regulations in accordance with the provisions of chapter 54 to implement sections 38a-129, 38a-140 and 38a-962 to 38a-962j, inclusive.

(P.A. 92-93, S. 39.)

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Sec. 38a-962h. Supervision proceeding: Contact with commissioner allowed. Notwithstanding any other provision of law, the commissioner may meet with a supervisor appointed under sections 38a-129, 38a-140 and 38a-962 to 38a-962j, inclusive, and with the attorney or other representative of the supervisor, without the presence of any other person, at the time of any proceeding or during the pendency of any proceeding held under authority of said sections to carry out the commissioner's duties under said sections or for the supervisor to carry out his duties under said sections.

(P.A. 92-93, S. 40; P.A. 10-5, S. 47.)

History: P.A. 10-5 made a technical change, effective May 5, 2010.

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Sec. 38a-962i. Immunity from liability. There shall be no liability on the part of, and no cause of action shall arise against, the commissioner or the department or its employees or agents for any action taken by them in the performance of their powers and duties under sections 38a-129, 38a-140 and 38a-962 to 38a-962j, inclusive.

(P.A. 92-93, S. 41.)

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Sec. 38a-962j. Right of recovery. (a) If an order for liquidation of a domestic insurance company has been entered, the receiver appointed under such order shall have a right to recover on behalf of the insurance company, (1) from any parent corporation or holding company or person or affiliate who otherwise controlled the insurance company, the amount of distributions, other than distributions of shares of the same class of stock, paid by the insurance company on its capital stock, or (2) any payment in the form of a bonus, termination settlement or extraordinary lump sum salary adjustment made by the insurance company or its subsidiary to a director, officer or other employee exercising senior managerial responsibilities, where the distribution or payment pursuant to subdivision (1) or (2) is made at any time during the one year preceding the petition for liquidation, conservation or rehabilitation, as the case may be, subject to the limitations of subsections (b), (c) and (d) of this section.

(b) No distribution or payment shall be recoverable if the parent corporation, holding company, person or affiliate shows that when paid such distribution or payment was lawful and reasonable, and that the insurance company did not know and could not reasonably have known that such distribution might adversely affect the ability of the insurance company to fulfill its contractual obligations.

(c) Any person who was a parent corporation or holding company or a person or affiliate who otherwise controlled the insurance company at the time such distributions were paid shall be liable up to the amount of distributions or payments such person received under subsection (a) of this section. Any person who otherwise controlled the insurance company at the time such distributions were declared shall be liable up to the amount of distributions he would have received if they had been paid immediately. If two or more persons are liable with respect to the same distributions, they shall be jointly and severally liable.

(d) The maximum amount recoverable under this section shall be the amount needed in excess of other available assets of the impaired or insolvent insurance company to pay the contractual obligations of the impaired or insolvent insurance company and to reimburse any guaranty funds.

(e) To the extent that any person liable under subsection (c) of this section is insolvent or otherwise fails to pay any claims due from it pursuant to such subsection, its parent corporation or holding company or person who otherwise controlled it at the time the distribution was paid, shall be jointly and severally liable for any resulting deficiency in the amount recovered from the person who is insolvent or otherwise fails to pay.

(P.A. 92-93, S. 44.)

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Secs. 38a-963 to 38a-965. Reserved for future use.

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