S 589 Session 109 (1991-1992)
S 0589 General Bill, By Senate Banking and Insurance
A Bill to amend the Code of Laws of South Carolina, 1976, by adding Chapter 26
to Title 38 so as to provide for the Administrative Supervision of Insurers
Act; to amend the 1976 Code by adding Section 38-27-100 so as to provide for
the conduct of insurance proceedings begun before the effective date of the
Insurers Supervision, Rehabilitation, and Liquidation Act; to amend the 1976
Code by adding Section 38-27-110 so as to provide for payments to a Guaranty
Association when an insurer is subject to a delinquency proceeding; to amend
Section 38-27-10, relating to the cite for the "Insurers Supervision,
Rehabilitation, and Liquidation Act", so as to delete "Supervision"; to amend
Section 38-27-40, relating to application of the Act, so as to add prepaid
health care delivery plans; to amend Sections 38-27-50, 38-27-230, and
38-27-310, relating to definitions, hearings, and rehabilitation under the
Act, so as to delete the references to "valid" as it applies to "order" and
Section 38-27-210, insurance commissioner's orders and supervision; to amend
Section 38-27-370, relating to orders to liquidate an insurer, so as to
provide for a plan for the continued performance of a defendant company's
policy claims obligations during the pendency of an appeal; to amend Section
38-27-400, relating to the powers of a liquidator, so as to authorize the
audit of the books and records of agents of the insurer; to amend Section
38-27-610, relating to the priority of distribution of claims from an
insurer's estate, so as to include in Class 3 claims of federal, state, and
local governments for losses incurred, "loss claims", and to exclude those
claims from Class 5; to amend Section 38-27-950, relating to proceedings
instituted by the Insurance Commissioner, so as to delete the reference to
Section 38-27-210, orders and supervision; and to repeal Section 38-27-210
relating to the Insurance Commissioner's orders and supervision.
02/05/91 Senate Introduced, read first time, placed on calendar
without reference SJ-11
02/07/91 Senate Read second time SJ-14
02/07/91 Senate Unanimous consent for third reading on next
legislative day SJ-15
02/08/91 Senate Read third time and sent to House SJ-1
02/12/91 House Introduced and read first time HJ-12
02/12/91 House Referred to Committee on Labor, Commerce and
Industry HJ-13
Indicates Matter Stricken
Indicates New Matter
INTRODUCED
February 5, 1991
S. 589
Introduced by Banking and Insurance Committee
S. Printed 2/5/91--S.
Read the first time February 5, 1991.
A BILL
TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 1976,
BY ADDING CHAPTER 26 TO TITLE 38 SO AS TO PROVIDE FOR
THE ADMINISTRATIVE SUPERVISION OF INSURERS ACT; TO
AMEND THE 1976 CODE BY ADDING SECTION 38-27-100 SO AS
TO PROVIDE FOR THE CONDUCT OF INSURANCE
PROCEEDINGS BEGUN BEFORE THE EFFECTIVE DATE OF THE
INSURERS SUPERVISION, REHABILITATION, AND
LIQUIDATION ACT; TO AMEND THE 1976 CODE BY ADDING
SECTION 38-27-110 SO AS TO PROVIDE FOR PAYMENTS TO A
GUARANTY ASSOCIATION WHEN AN INSURER IS SUBJECT TO
A DELINQUENCY PROCEEDING; TO AMEND SECTION 38-27-10,
RELATING TO THE CITE FOR THE "INSURERS
SUPERVISION, REHABILITATION, AND LIQUIDATION
ACT", SO AS TO DELETE "SUPERVISION"; TO
AMEND SECTION 38-27-40, RELATING TO APPLICATION OF
THE ACT, SO AS TO ADD PREPAID HEALTH CARE DELIVERY
PLANS; TO AMEND SECTIONS 38-27-50, 38-27-230, AND
38-27-310, RELATING TO DEFINITIONS, HEARINGS, AND
REHABILITATION UNDER THE ACT, SO AS TO DELETE THE
REFERENCES TO "VALID" AS IT APPLIES TO
"ORDER" AND SECTION 38-27-210, INSURANCE
COMMISSIONER'S ORDERS AND SUPERVISION; TO AMEND
SECTION 38-27-370, RELATING TO ORDERS TO LIQUIDATE AN
INSURER, SO AS TO PROVIDE FOR A PLAN FOR THE
CONTINUED PERFORMANCE OF A DEFENDANT COMPANY'S
POLICY CLAIMS OBLIGATIONS DURING THE PENDENCY OF
AN APPEAL; TO AMEND SECTION 38-27-400, RELATING TO
THE POWERS OF A LIQUIDATOR, SO AS TO AUTHORIZE THE
AUDIT OF THE BOOKS AND RECORDS OF AGENTS OF THE
INSURER AND PROVIDE THAT A LIQUIDATOR IS NOT
OBLIGATED TO DEFEND OR CONTINUE TO DEFEND CLAIMS
AFTER THE ENTRY OF A LIQUIDATION ORDER; TO AMEND
SECTION 38-27-610, RELATING TO THE PRIORITY OF
DISTRIBUTION OF CLAIMS FROM AN INSURER'S ESTATE, SO
AS TO INCLUDE IN CLASS 3 CLAIMS OF FEDERAL, STATE,
AND LOCAL GOVERNMENTS FOR LOSSES INCURRED,
"LOSS CLAIMS", AND TO EXCLUDE THOSE CLAIMS
FROM CLASS 5; TO AMEND SECTION 38-27-950, RELATING TO
PROCEEDINGS INSTITUTED BY THE INSURANCE
COMMISSIONER, SO AS TO DELETE THE REFERENCE TO
SECTION 38-27-210, ORDERS AND SUPERVISION; AND TO
REPEAL SECTION 38-27-210 RELATING TO THE INSURANCE
COMMISSIONER'S ORDERS AND SUPERVISION.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. The 1976 Code is amended by adding:
"CHAPTER 26
Administrative Supervision of Insurers
Section 38-26-10. This chapter may be cited as the `Administrative
Supervision of Insurers Act'.
Section 38-26-20. As used in this chapter:
(1) `Insurer' means a person who has done, purports to do, is
going to do, 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, the commissioner of
insurance, or similar entity, of a state. For purposes of this chapter,
other persons included under Section 38-27-40 are considered insurers.
(2) `Exceed its powers' means the following conditions:
(a) The insurer has refused to permit examination of its books,
papers, accounts, records, or affairs by the commissioner or his deputies,
employees, or commissioned examiners.
(b) A domestic insurer unlawfully has removed from this State
books, papers, accounts, or records necessary for an examination of the
insurer.
(c) The insurer has failed to comply promptly with the applicable
financial reporting statutes or regulations and related departmental
requests.
(d) The insurer has neglected or refused to observe an order
of the commissioner to make good, within the time prescribed by law,
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, unlawfully, in violation
of an order of the commissioner, or without first having obtained written
approval of the commissioner if approval is required by law has:
(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 a 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.
Section 38-26-30. The provisions of this chapter apply to:
(1) domestic insurers;
(2) an insurer doing business in this State whose state of domicile
has asked the commissioner to apply the provisions of this chapter as
regards the insurer.
Section 38-26-40. (A) An insurer may be subject to
administrative supervision by the commissioner if upon examination or
at another time it appears in the commissioner's discretion that one or
more of the following circumstances exist:
(1) The insurer's condition renders the continuance of its
business hazardous to the public or to its insureds.
(2) The insurer has exceeded its powers granted under its
certificate of authority and applicable law.
(3) The insurer has failed to comply with a provision of the
insurance laws of this State.
(4) The business of the insurer is being conducted
fraudulently.
(5) The insurer gives its consent.
(B) If the commissioner determines that the one or more of the
conditions set forth in subsection (A) exist, he shall:
(1) notify the insurer of his determination;
(2) furnish to the insurer a written list of the requirements to
abate this determination;
(3) notify the insurer that it is under the supervision of the
commissioner and that the commissioner is applying the provisions of
the chapter. Action by the commissioner is subject to review pursuant
to related regulations and the Administrative Procedures Act.
(C) If placed under administrative supervision, the insurer has
sixty days or another period of time designated by the commissioner to
comply with the requirements of the commissioner subject to the
provisions of this chapter.
(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, the commissioner may extend the period or may initiate
proceedings under Chapter 27 of this title.
(E) If it is determined that none of the conditions giving rise to the
supervision exist, the commissioner shall release the insurer from
supervision.
Section 38-26-50. (A) Proceedings, hearings, notices,
correspondence, reports, records, and other information in the possession
of the commissioner or the Department of Insurance relating to the
supervision of an insurer are confidential except as provided by this
section.
(B) Department personnel have access to the proceedings,
hearings, notices, correspondence, reports, records, and other
information permitted by the commissioner.
(C) The commissioner may open the proceedings or hearings or
disclose notices, correspondence, reports, records, or other information
to a department, agency, or instrumentality of this or another state or 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 or the United States.
(D) The commissioner may open the proceedings or hearings or
make public notices, correspondence, reports, records, or other
information if the commissioner determines that it is in the best interest
of the public or in the best interest of the insurer, its insureds, its
creditors, or the general public.
(E) This section does not apply to hearings, notices,
correspondence, reports, records, or other information obtained after the
appointment of a receiver for the insurer by a court of competent
jurisdiction.
Section 38-26-60. During the period of supervision, the
commissioner or his designated appointee shall serve as the
administrative supervisor. The commissioner may provide, after notice
to the insurer, that the insurer may not do any of the following things
during supervision without the prior approval of the commissioner or his
appointed supervisor:
(1) dispose of, convey, or encumber its assets or its business in
force;
(2) withdraw its bank accounts;
(3) lend its funds;
(4) invest its funds;
(5) transfer its property;
(6) incur debt, obligation, or liability;
(7) merge or consolidate with another company;
(8) approve new premiums or renew policies;
(9) enter into a new reinsurance contract or treaty;
(10) terminate, surrender, forfeit, convert, or lapse an insurance
policy, a certificate, or a 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 an insurance policy,
certificate, or contract;
(12) make a material change in management;
(13) increase salaries and benefits of officers or directors or the
preferential payment of bonuses, dividends, or other preferential
payments.
Section 38-26-70. During supervision the insurer may contest an
action taken or proposed to be taken by the supervisor specifying the
manner in which 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 review under related
regulations and the Administrative Procedures Act.
Section 38-26-80. Nothing in this chapter precludes the
commissioner from initiating judicial proceedings to place an insurer in
conservation, rehabilitation, or liquidation or other delinquency
proceedings, however designated under the laws of this State, regardless
of whether the commissioner previously has initiated administrative
supervision proceedings under this chapter against the insurer.
Section 38-26-90. The commissioner may meet with a supervisor
appointed under this chapter and with his attorney or other
representative without the presence of another person at the time of or
during a proceeding held under authority of this chapter to carry out the
commissioner's duties or for the supervisor to carry out his duties under
this chapter.
Section 38-26-100. There is no liability on the part of, and no cause
of action may arise against, the commissioner or the Department of
Insurance or its employees or agents for action taken by them in the
performance of their powers and duties under this chapter.
Section 38-26-110. The commissioner may promulgate regulations
necessary for the implementation of this chapter."
SECTION 2. The 1976 Code is amended by adding:
"Section 38-27-100. An insurance proceeding under this
chapter begun before the effective date of the `Insurers Supervision,
Rehabilitation, and Liquidation Act' is deemed to have begun after that
date for the purpose of conducting the proceeding. However, in the
discretion of the commissioner, the proceeding may be continued, in
whole or in part, as it would have been if this act was not in effect.
Section 38-27-110. Until payments of or on account of an insurer's
contractual obligations by a guaranty association, including expenses
and interest, are repaid to the guaranty association or a plan of
repayment by the insurer is approved by the guaranty association, no
insurer that is subject to a delinquency proceeding, whether formal or
informal, administrative or judicial, may:
(1) be released from the proceeding unless it is converted into a
judicial rehabilitation or liquidation proceeding;
(2) be permitted to solicit or accept new business or request or
accept the restoration of a suspended or revoked license or certificate of
authority;
(3) be returned to the control of its shareholders or private
management; or
(4) have its assets returned to the control of its shareholders or
private management."
SECTION 3. Section 38-27-10 of the 1976 Code is amended to read:
"Section 38-27-10. This chapter is known and may be
cited as the `Insurers Supervision, Rehabilitation, and
Liquidation Act'."
SECTION 4. Section 38-27-40 of the 1976 Code is amended to read:
"Section 38-27-40. The proceedings authorized by this
chapter may be applied 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.;
(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 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, and beneficial
societies.;
(6) All title insurance companies.;
(7) All surety companies subject to Chapter 15 of Title
38.;
(8) multiple employer self-insured health plans as defined
in Chapter 41 of Title 38.;
(9) prepaid health care delivery plans."
SECTION 5. Section 38-27-50(3) of the 1976 Code is amended to
read:
"(3) `Delinquency proceeding' means any a
proceeding instituted against an insurer for the purpose of
liquidating to liquidate, rehabilitating
rehabilitate, reorganizing reorganize, or
conserving conserve the insurer, and any
a summary proceeding under Section 38-27-210 or
38-27-220. `Formal delinquency proceeding' means any
a liquidation or rehabilitation proceeding."
SECTION 6. Section 38-27-230 of the 1976 Code is amended to
read:
"Section 38-27-230. In all proceedings and judicial
reviews thereof under Sections 38-27-210 and
Section 38-27-220, 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, are and must remain confidential except as is necessary
to obtain compliance therewith, unless and until the
circuit court, after hearing arguments from the parties in chambers,
orders otherwise, or unless the insurer requests that the matter be
made public. Until a court order, all papers filed with the clerk
of the circuit court must be held by him in a confidential file."
SECTION 7. Section 38-27-310(9) of the 1976 Code is amended to
read:
"(9) Within the previous three years the insurer has
wilfully has violated its charter or, articles of
incorporation, its or bylaws, any an
insurance law of this State, or any valid an order of the
commissioner under Section 38-27-210."
SECTION 8. Section 38-27-370 of the 1976 Code is amended to
read:
"Section 38-27-370. (a)(A) An order to
liquidate the business of a domestic insurer shall must
appoint the commissioner, and his successors in office,
as liquidator and shall direct the liquidator immediately to take
possession of the assets of the insurer and to administer them under the
general supervision of the court. The liquidator is 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 court
or the register of mesne conveyances of the county in which its principal
office or place of business is located or, in the case of
for real estate, with the clerk of court and the register of mesne
conveyances of the county where the property is located imparts the
same notice which a deed, bill of sale, or other evidence of title
duly filed or recorded with that office would have imparted.
(b)(B) Upon issuance of the order, the rights and
liabilities of the insurer and of its creditors, policyholders,
shareholders, members, and all other persons interested in its
estate become fixed as of the date of entry of the order of liquidation,
except as provided in Sections 38-27-380 and 38-27-560.
(c)(C) An order to liquidate the business of an alien
insurer domiciled in this State must be in the same terms and has the
same legal effect as an order to liquidate a domestic insurer, except that
the assets and the business in the United States are the only assets and
business included therein.
(d)(D) At the time of petitioning for an order of
liquidation, or at any after that time thereafter,
the commissioner, after making appropriate findings of an insurer's
insolvency, may petition the court for a judicial declaration of
insolvency. After providing notice and hearing it considers proper the
court may make the declaration.
(e)(E) Any An order issued under
this section shall must require accounting to the court
by the liquidator. Accountings must be at intervals the court specifies in
its order.
(F)(1) Within five days of the effective date of this subsection
or within 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 claims obligations, including the duty
to defend insureds under liability insurance policies during the pendency
of an appeal. The plan must provide for the continued performance and
payment of policy claims obligations in the normal course of events
notwithstanding the grounds alleged in support of the order of
liquidation including the ground of insolvency. If the defendant
company's financial condition, in the judgment of the commissioner,
does not support the full performance of policy claims 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 the
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 may lie against
the commissioner or his deputies, agents, clerks, assistants, or attorneys
based on preference in an appeal pendency plan approved by the court.
(2) The appeal pendency plan may not supersede or affect the
obligations of an insurance guaranty association. An appeal pendency
plan must provide for equitable adjustments to be made by the liquidator
to distributions of assets to guaranty associations, if the liquidator pays
claims from assets of the estate, which otherwise would be the
obligations of a guaranty association but for the appeal of the order of
liquidation, so that guaranty associations equally benefit on a pro rata
basis from the assets of the estate. If an order of liquidation is set aside
upon appeal, the company must not be released from delinquency
proceedings unless funds advanced by a guaranty association, including
reasonable administrative expenses relating to obligations of the
company, are repaid in full, together with interest at the judgment rate
of interest or unless an arrangement for repayment has been made with
the consent of applicable guaranty associations."
SECTION 9. Section 38-27-400(a) of the 1976 Code is amended by
adding an appropriately numbered item to read:
"( ) To audit the books and records of agents of the insurer
insofar as those records relate to the business activities of the
insurer."
SECTION 10. Section 38-27-400 of the 1976 Code is amended by
adding an appropriately lettered subsection to read:
"( ) Notwithstanding the powers of the liquidator in
subsections (a) and (b), the liquidator is not obligated to defend claims
or to continue to defend claims after the entry of a liquidation
order."
SECTION 11. Section 38-27-610(3) and (5) of the 1976 Code are
amended to read:
"(3) Class 3. All claims Claims under
policies, including claims of federal, state, and local
governments, for losses incurred, loss claims, including
third party claims, all claims against the insurer for liability for
bodily injury or for injury to or destruction of tangible property which
are not under policies, and all claims of a guaranty association
or foreign guaranty association. All claims Claims
under life insurance and annuity policies, whether for death proceeds,
annuity proceeds, or investment values, must be treated as loss claims.
That portion of any a loss, indemnification for which is
provided by other benefits or advantages recovered by the claimant,
may must 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 may be treated as a gratuity."
"(5) Class 5. Claims of the federal or
any, state or, and local government
governments, except those under item (3). Claims, including
those of any a governmental body for a penalty or
forfeiture, are allowed in this class 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 the claims are postponed
to the class of claims under item (9) of this section."
SECTION 12. Section 38-27-950 of the 1976 Code is amended to
read:
"Section 38-27-950. The commissioner in his sole discretion
may institute proceedings under Sections 38-27-210 through
38-27-220 and 38-27-230 at the request of the commissioner or
other appropriate insurance official of the domiciliary state of
any a foreign or an alien insurer having
property located in this State."
SECTION 13. Section 38-27-210 of the 1976 Code is repealed.
SECTION 14. This act takes effect upon approval by the
Governor.
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