Download this document in MS Word 97 format

House Calendar

TUESDAY, APRIL 6, 1999

91st DAY OF BIENNIAL SESSION

ORDERS OF THE DAY

ACTION CALENDAR

Third Readings

H. 77

An act relating to elevator safety.

H. 83

An act relating to review of administrative rules.

H. 233

An act relating to the city of South Burlington charter.

H. 361

An act relating to the Joint Health Care Committee.

Amendment to be offered by Reps. Steele of Waterbury, DePoy of Rutland City and Mullin of Georgia to H. 361

Move to amend the bill as follows:

First: On page 3, after the period on line 10 by inserting the following: The committee shall not take official action while the general assembly is in session.

Second: On page 6, after the period on page 11 by inserting the following:

Sec. 3. SUNSET

This act shall be repealed on July 1, 2004.

H. 387

An act relating to deer and other types of pool selling.

Amendment to be offered by Rep. Corren of Burlington to H. 387

Moves to amend the bill in Sec. 1. 13 V.S.A. §2151 (1), by striking the following: "proceeds of the pool are paid" and inserting in lieu thereof the following: amount staked does not exceed $300 and is paid in its entirety

Amendment to be offered by Rep. Corren of Burlington to H. 387

Moves to amend the bill as follows:

First: In Sec. 1, before the words "Except as provided" by inserting the following: "(a)"

Second: In Sec. 1, by adding a new subsection to read as follows:

(b) No person who holds a liquor license issued pursuant to Title 7, other than a club as defined in 7 V.S.A. § 2(7), may permit any place or enclosure that the person owns, leases or occupies to be used or occupied for any purpose or in any manner prohibited under subsection (a)(1)-(4) of this section. This prohibition includes the pools otherwise allowed under subsection (a)(1) of this section.

H. 507

An act relating to first class license holders and food service.

Favorable with Amendment

H. 95

An act relating to the penalty for failure to stop a motor vehicle for an enforcement officer.

Rep. Neiman of Georgia, for the Committee on Transportation, recommends the bill be amended by striking all after the enacting clause and inserting in lieu thereof the following:

Sec. 1. 23 V.S.A § 1012 is amended to read:

§ 1012. OBEDIENCE TO ENFORCEMENT OFFICERS

(a) A person, while operating or in charge of a motor vehicle shall, upon request by an enforcement officer who reasonably suspects that the person has committed or is committing a violation of this title, give his or her name and address and the name and address of the owner of the motor vehicle and produce his or her operator's license and the registration certificate for the motor vehicle. If the operator does not have a valid Vermont operator's license the operator shall produce other suitable forms of identification.

(b) A person operating a motor vehicle shall promptly and carefully stop when signalled to stop by an enforcement officer wearing insignia which identifies the officer.

(c) A person who violates subsection (a) of this section may be imprisoned for not more than five days or fined not more than $250.00, or both.

*[(b)]* (d) A person who violates *[this]* subsection (b) of this section *[shall]* may be fined not more than $250.00.

(Committee vote: 9-1-1)

H. 390

An act relating to examination of insurers, licensing of agents and captive insurance companies.

Rep. Young of Orwell, for the Committee on Commerce, recommends the bill be amended by striking all after the enacting clause and inserting in lieu thereof the following:

Sec. 1. 8 V.S.A. § 3573(a) is amended to read:

(a) Upon determining that an examination should be conducted, the commissioner or the commissioner's designee shall issue an examination order appointing one or more examiners to perform the examination and instructing them as to the scope of the examination. In conducting *[the]* a financial or a market conduct examination, the examiner shall observe those guidelines and procedures set forth in the Examiners' Handbook adopted by the National Association of Insurance Commissioners as amended from time to time. The commissioner may also use such other guidelines or procedures as the commissioner may deem necessary or appropriate under the circumstances.

Sec. 2. 8 V.S.A. chapter 131, subchapter 3 is added to read:

Subchapter 3. Uniform Interstate Licensing

§ 4826. UNIFORM INTERSTATE LICENSING

Notwithstanding the provisions of subchapters 1 and 2 of this chapter or of chapter 142A of this title, the commissioner may enter into reciprocal, cooperative, coordinating and information-sharing agreements with any other insurance producer licensing agency of any other jurisdiction in order to promote uniformity and efficiency of producer licensing among jurisdictions. Such agreements may be used to resolve conflicts arising from inconsistent licensing or other regulatory requirements of this state with the laws and regulations of any other jurisdiction. The commissioner may waive by order the filing of any certification or class of certification under section 795 of Title 15 or section 3113 of Title 32 if it appears that the application of those sections would not materially further any legitimate interest of the state of Vermont. The provisions of this subchapter shall apply to licenses granted under the provisions of chapters 131 and 142A of this title.

Sec. 3. 8 V.S.A. § 5105 (b) is amended to read:

(b) All financial and market conduct examinations shall be conducted pursuant to and in conformity with sections 3573, 3574, 3575 and 3576 of this title at the expense of the health maintenance organization and shall be conducted in accordance with *[statutory accounting principles pursuant to]* guidelines, principles, manuals, instructions and other procedures promulgated by the National Association of Insurance Commissioners, including the use of statutory accounting principles for financial examinations, together with any useful or necessary modifications or adaptation thereof required or approved by the commissioner. Every health maintenance organization shall provide the commissioner with all books and records relating to its operation, including books and records of any affiliate or subsidiary as defined in section 3681 of this title. For the purpose of examinations, the commissioner may issue subpoenas, administer oaths to, and examine any person and the officers and agents of the health maintenance organization.

Sec. 4. 8 V.S.A. § 6001 is amended to read:

§ 6001. DEFINITIONS

As used in this chapter, unless the context requires otherwise:

(1) "Affiliated company" means any company in the same corporate system as a parent, an industrial insured, or a member organization by virtue of common ownership, control, operation, or management.

(2) "Association" means any legal association of individuals, corporations, partnerships, or associations that has been in continuous existence for at least one year,

(A) the member organizations of which collectively *[(A)]* , or which does itself,

(i) own, control, or hold with power to vote all of the outstanding voting securities of an association captive insurance company incorporated as a stock insurer, or

*[(B)]*(ii) have complete voting control over an association captive insurance company incorporated as a mutual insurer; or

(B) the member organizations of which collectively constitute all of the subscribers of an association captive insurance company formed as a reciprocal.

(3) "Association captive insurance company" means any company that insures risks of the member organizations of the association, and their affiliated companies.

(4) "Captive insurance company" means any pure captive insurance company, association captive insurance company, sponsored captive insurance company or industrial insured captive insurance company formed or licensed under the provisions of this chapter. For purposes of this chapter, a branch captive insurance company shall be a pure captive insurance company with respect to operations in this state, unless otherwise permitted by the commissioner.

* * *

(9) "Industrial insured group" means any group that meets either of the following criteria:

(A) any group of industrial insureds that collectively

(i) own, control, or hold with power to vote all of the outstanding voting securities of an industrial insured captive insurance company incorporated as a stock insurer, *[or]*

(ii) have complete voting control over an industrial insured captive insurance company incorporated as a mutual insurer, or

(iii) constitute all of the subscribers of an industrial insured captive insurance company formed as a reciprocal insurer.

(B) any group which is created under the Product Liability Risk Retention Act of 1981, 15 U.S.C. § 3901 et seq., as amended, as a corporation or other limited liability association taxable as a stock insurance company or a mutual insurer under the law of the state of Vermont.

* * *

(14) "Alien captive insurance company" means any insurance company formed to write insurance business for its parents and affiliates and licensed pursuant to the laws of an alien jurisdiction which imposes statutory or regulatory standards in a form acceptable to the commissioner on companies transacting the business of insurance in such jurisdiction.

(15) "Branch business" means any insurance business transacted by a branch captive insurance company in this state.

(16) "Branch captive insurance company" means any alien captive insurance company licensed by the commissioner to transact the business of insurance in this state through a business unit with a principal place of business in this state.

(17) "Branch operations" means any business operations of a branch captive insurance company in this state.

(18) "Participant" means an entity as defined in section 6023 of this chapter, and any affiliates thereof, that are insured by a sponsored captive insurance company, where the losses of the participant are limited through a participant contract to the assets of a protected cell.

(19) "Participant contract" means a contract by which a sponsored captive insurance company insures the risks of a participant and limits the losses of such participant to the assets of a protected cell.

(20) "Protected cell" means a separate account established and maintained by a sponsored captive insurance company for one participant.

(21) "Sponsor" means any entity that meets the requirements of section 6022 of this title and is approved by the commissioner to provide all or part of the capital and surplus required by applicable law and to organize and operate a sponsored captive insurance company.

(22) "Sponsored captive insurance company" means any captive insurance company

(A) in which the minimum capital and surplus required by applicable law is provided by one or more sponsors;

(B) that is formed or licensed under the provisions of this chapter;

(C) that insures the risks of separate participants through contract; and

(D) that segregates each participant's liability through one or more protected cells.

Sec. 5. 8 V.S.A. § 6002 is amended to read:

§ 6002. LICENSING; AUTHORITY

(a) Any captive insurance company, when permitted by its articles of *[association]* incorporation, charter, or other organizational document, may apply to the commissioner for a license to do any and all insurance comprised in subdivisions (1), (2), (3)(A)-(C), (3)(E)-(R) and (4)-(9) of section 3301(a) of these titles; provided, however, that:

* * *

(6) any captive insurance company may provide excess workers' compensation insurance to its parent and affiliated companies, unless prohibited by the laws of the state having jurisdiction over the transaction. Any captive insurance company may reinsure workers' compensation of a qualified self-insured plan of its parent and affiliated companies; *[and]*

(7) any captive insurance company which insures risks described in subdivisions (1) and (2) of section 3301(a) of this title shall comply with all applicable state and federal laws;

(8) no branch captive insurance company may write any business in this state except insurance or reinsurance of the employee benefit business of its parent and affiliated companies which is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended; and

(9) no sponsored captive insurance company may insure any risks other than those of its participants.

(b) No captive insurance company shall do any insurance business in this state unless:

(1) it first obtains from the commissioner a license authorizing it to do insurance business in this state;

(2) its board of directors, or in the case of a reciprocal insurer its subscribers' advisory committee, holds at least one meeting each year in this state;

(3) it maintains its principal place of business in this state, -or in the case of a branch captive insurance company, maintains the principal place of business for its branch operations in this state; and

(c)(1) Before receiving a license, a captive insurance company

(A) formed as a corporation shall file with the commissioner a certified copy of its charter and bylaws, a statement under oath of its president and secretary showing its financial condition, and any other statements or documents required by the commissioner;

(B) formed as a reciprocal insurer shall:

(i) file with the commissioner a certified copy of the power of attorney of its attorney-in-fact, a certified copy of its subscribers' agreement, a statement under oath of its attorney-in-fact showing its financial condition and any other statements or documents required by the commissioner; and

(ii) submit to the commissioner for approval a description of the coverages, deductibles, coverage limits, and rates, together with such additional information as the commissioner may reasonably require. In the event of any subsequent material change in any item in such description, the reciprocal captive insurance company shall submit to the commissioner for approval an appropriate revision and shall not offer any additional kinds of insurance until a revision of such description is approved by the commissioner. The reciprocal captive insurance company shall inform the commissioner of any material change in rates within thirty (30) days of the adoption of such change.

(2) In addition to the information required by subdivision (1) of subsection (c) of this section, each applicant captive insurance company shall file with the commissioner evidence of the following:

(A) the amount and liquidity of its assets relative to the risks to be assumed;

(B) the adequacy of the expertise, experience, and character of the person or persons who will manage it;

(C) the overall soundness of its plan of operation;

(D) the adequacy of the loss prevention programs of its parent, member organizations, or industrial insureds as applicable; and

(E) such other factors deemed relevant by the commissioner in ascertaining whether the proposed captive insurance company will be able to meet its policy obligations.

(3) In addition to the information required by subdivisions (1) and (2) of subsection (c) of this section, each applicant sponsored captive insurance company shall file with the commissioner the following:

(A) a business plan demonstrating how the applicant will account for the loss and expense experience of each protected cell at a level of detail found to be sufficient by the commissioner and how it will report such experience to the commissioner;

(B) a statement acknowledging that all financial records of the sponsored captive insurance company, including records pertaining to any protected cells, shall be made available for inspection or examination by the commissioner or the commissioner's designated agent;

(C) all contracts or sample contracts between the sponsored captive insurance company and any participants; and

(D) evidence that expenses shall be allocated to each protected cell in a fair and equitable manner.

*[(3)]*(4) Information submitted pursuant to this subsection shall be and remain confidential, and may not be made public by the commissioner or an employee or agent of the commissioner without the written consent of the company, except that:

(A) such information may be discoverable by a party in a civil action or contested case to which the captive insurance company that submitted such information is a party, upon a showing by the party seeking to discover such information that (i) the information sought is relevant to and necessary for the furtherance of such action or case, (ii) the information sought is unavailable from other nonconfidential sources, and (iii) a subpoena issued by a judicial or administrative officer of competent jurisdiction has been submitted to the commissioner; provided, however, that the provisions of this subdivision (4) shall not apply to any industrial insured captive insurance company insuring the risks of an industrial insured group as defined in subdivision 6001(9)(B) of this title; and

* * *

Sec. 6. 8 V.S.A. § 6004 is amended to read:

§ 6004. MINIMUM CAPITAL AND SURPLUS; LETTER OF CREDIT

(a) No pure captive insurance company, association captive insurance company *[incorporated as a stock insurer]*, sponsored captive insurance company or industrial insured captive insurance company *[incorporated as a stock insurer]* shall be issued a license unless it shall possess and thereafter maintain unimpaired paid-in capital and surplus of:

(1) in the case of a pure captive insurance company, not less than *[$100,000.00]* $250,000.00,

(2) in the case of an association captive insurance company *[incorporated as a stock insurer]*, not less than *[$400,000.00]* $750,000.00, *[and]*

(3) in the case of an industrial insured captive insurance company *[incorporated as a stock insurer]*, not less than *[$200,000.00.]* $500,000.00, and

(4) in the case of a sponsored captive insurance company, not less than $1,000,000.00.

*[Such capital may be in the form of cash or an irrevocable letter of credit issued by a bank chartered by the state of Vermont or a member bank of the Federal Reserve System and approved by the commissioner.]*

(b) Notwithstanding the requirements of subsection (a) of this section, no captive insurance company organized as a reciprocal insurer under this chapter shall be issued a license unless it shall possess and thereafter maintain free surplus of $1,000,000.00.

*[(b)]*(c) The commissioner may prescribe additional capital and surplus based upon the type, volume, and nature of insurance business transacted*[, which capital may be in the form of an irrevocable letter of credit issued by a bank chartered by the state of Vermont, or a member bank of the Federal Reserve System]*. *[(c) No captive insurance company may pay a dividend out of, or other distribution with respect to, capital or surplus, in excess of the limitations set forth in section 3685(d) of this title, without the prior approval of the commissioner. Approval of an ongoing plan for the payment of dividends or other distributions shall be conditioned upon the retention, at the time of each payment, of capital or surplus in excess of amounts specified by, or determined in accordance with formulas approved by, the commissioner.]*

(d) Capital and surplus may be in the form of cash or an irrevocable letter of credit issued by a bank chartered by the state of Vermont or a member bank of the Federal Reserve System and approved by the commissioner.

(e) In the case of a branch captive insurance company, as security for the payment of liabilities attributable to the branch operations, the commissioner shall require that a trust fund, funded by an irrevocable letter of credit or other acceptable asset, be established and maintained in the United States for the benefit of United States policyholders and United States ceding insurers under insurance policies issued or reinsurance contracts issued or assumed, by the branch captive insurance company through its branch operations. The amount of such security may be no less than the capital and surplus required hereunder and the reserves on such insurance policies or such reinsurance contracts, including reserves for losses, allocated loss adjustment expenses, incurred but not reported losses and unearned premiums with regard to business written through the branch operations; provided, however, the commissioner may permit a branch captive insurance company that is required to post security for loss reserves on branch business by its reinsurer to reduce the funds in the trust account required by this section by the same amount so long as the security remains posted with the reinsurer. If the form of security selected is a letter of credit, the letter of credit must be established by, or issued or confirmed by, a bank chartered in this state or a member bank of the Federal Reserve System.

Sec. 7. 8 V.S.A. § 6005 is amended to read:

§ 6005. *[ MINIMUM SURPLUS; LETTER OF CREDIT]* DIVIDENDS

*[(a) No captive insurance company shall be issued a license unless it shall possess and thereafter maintain free surplus of:]*

*[(1) in the case of a pure captive insurance company, not less than $150,000.00,]* *[(2) in the case of an association captive insurance company incorporated as a stock insurer, not less than $350,000.00,]* *[(3) in the case of an industrial insured captive insurance company incorporated as a stock insurer, not less than $300,000.00,]* *[(4) in the case of an association captive insurance company incorporated as a mutual insurer, not less than $750,000.00, and]* *[(5) in the case of an industrial insured captive insurance company incorporated as a mutual insurer, not less than $500,000.00. Such surplus may be in the form of cash or an irrevocable letter of credit issued by a bank chartered by the state of Vermont or member bank of the Federal Reserve System and approved by the commissioner.]* *[(b) Notwithstanding the requirements of subsection (a) of this section, no captive insurance company organized as a reciprocal insurer under this chapter shall be issued a license unless it shall possess and thereafter maintain free surplus of $1,000,000.00.]* *[(c) The commissioner may prescribe additional surplus based upon the type, volume, and nature of insurance business transacted, which surplus may be in the form of an irrevocable letter of credit issued by a bank chartered in the state of Vermont, or a member bank of the Federal Reserve System.]* *[(d)]* No captive insurance company may pay a dividend out of, or other distribution with respect to, capital or surplus, in excess of the limitations set forth in section 3685(d) of this title, without the prior approval of the commissioner. Approval of an ongoing plan for the payment of dividends or other distributions shall be conditioned upon the retention, at the time of each payment, of capital or surplus in excess of amounts specified by, or determined in accordance with formulas approved by, the commissioner.

Sec. 8. 8 V.S.A. § 6006 is amended to read:

§ 6006. FORMATION OF CAPTIVE INSURANCE COMPANIES IN THIS

STATE

(a) A pure captive insurance company or a sponsored captive insurance company shall be incorporated as a stock insurer with its capital divided into shares and held by the stockholders.

(b) An association captive insurance company or an industrial insured captive insurance company may be

(1) incorporated as a stock insurer with its capital divided into shares and held by the stockholders, or

(2) incorporated as a mutual insurer without capital stock, the governing body of which is elected by the member organizations of its association, or

(3) organized as a reciprocal insurer in accordance with chapter 132 of this title.

(c) A captive insurance company incorporated or organized in this state shall have not less than three incorporators or two organizers of whom not less than one shall be a resident of this state.

(d) In the case of a captive insurance company:

(1) formed as a corporation, before the articles of *[association]* incorporation are transmitted to the secretary of state, the incorporators shall petition the commissioner to issue a certificate setting forth the commissioner's finding that the establishment and maintenance of the proposed corporation will promote the general good of the state. In arriving at such a finding the commissioner shall consider;

(A) the character, reputation, financial standing and purposes of the incorporators;

(B) the character, reputation, financial responsibility, insurance experience, and business qualifications of the officers and directors; and

(C) such other aspects as the commissioner shall deem advisable.

The articles of *[association]* incorporation, such certificate, and the organization fee shall be transmitted to the secretary of state, who shall thereupon record both the articles of incorporation and the certificate.

(2) formed as a reciprocal insurer, the organizers shall petition the commissioner to issue a certificate setting forth the commissioner's finding that the establishment and maintenance of the proposed association will promote the general good of the state. In arriving at such a finding the commissioner shall consider:

(A) the character, reputation, financial standing and purposes of the organizers;

(B) the character, reputation, financial responsibility, insurance experience, and business qualifications of the attorney-in-fact; and

(C) such other aspects as the commissioner shall deem advisable.

(3) licensed as a branch captive insurance company, the alien captive insurance company shall petition the commissioner to issue a certificate setting forth the commissioner's finding that, after considering the character, reputation, financial responsibility, insurance experience, and business qualifications of the officers and directors of the alien captive insurance company, the licensing and maintenance of the branch operations will promote the general good of the state. The alien captive insurance company may register to do business in this state after the commissioner's certificate is issued.

(e) The capital stock of a captive insurance company incorporated as a stock insurer *[shall be issued at not less than par value]* may be authorized with no par value.

(f) In the case of a captive insurance company

(1) formed as a corporation *[in this state]*, at least one of the members of the board of directors shall be a resident of this state;

(2) formed as a reciprocal insurer *[in this state]*, at least one of the members of the subscribers' advisory committee shall be a resident of this state.

* * *

Sec. 9. 8 V.S.A. § 6007 is amended to read:

§ 6007. REPORTS AND STATEMENTS

* * *

(b) Prior to March 1 of each year, each captive insurance company shall submit to the commissioner a report of its financial condition, verified by oath of two of its executive officers. Except as provided in *[sections 6004 and 6005]* section 6004 of this title, each captive insurance company shall report using generally accepted accounting principles, unless the commissioner approves the use of statutory accounting principles, with any useful or necessary modifications or adaptations thereof required or approved or accepted by the commissioner for the type of insurance and kinds of insurers to be reported upon, and as supplemented by additional information required by the commissioner. Except as otherwise provided, each association captive insurance company and each industrial insured captive insurance company insuring the risks of an industrial insured group defined in subdivision 6001(9)(B) of this title shall file its report in the form required by section 3561 of this title, and each industrial insured captive insurance company insuring the risks of an industrial insured group defined in subdivision 6001(9)(B) of this title shall comply with the requirements set forth in section 3569 of this title. The commissioner shall by rule propose the forms in which pure captive insurance companies and industrial insured captive insurance companies insuring the risks of an industrial insured group defined in subdivision 6001(9)(A) shall report. Subdivision 6002(c)(3) of this title shall apply to each report filed pursuant to this section, except that such subdivision shall not apply to reports filed by industrial insured captive insurance companies insuring the risks of industrial insured groups as defined in subdivision 6001(9)(B) of this title.

(c) *[A]* Any pure captive insurance company or an industrial insured captive insurance company insuring the risks of industrial insured groups as defined in subdivision (9)(A) of section 6001 of this title may make written application for filing the required report on a fiscal year-end *[that is consistent with the parent company's fiscal year]*. If an alternative reporting date is granted:

(1) the annual report is due 60 days after the fiscal year-end;

(2) in order to provide sufficient detail to support the premium tax return, the pure captive insurance company or industrial insured captive insurance company insuring the risks of industrial insureds as defined in subdivision (9)(A) of section 6001 of this title shall file prior to March 1 of each year for each calendar year-end, pages 1, 2, 3, and 5 of the "Captive Annual Statement; Pure or Industrial Insured," verified by oath of two of its executive officers.

(d) Sixty days after the fiscal year end, a branch captive insurance company shall file with the commissioner a copy of all reports and statements required to be filed under the laws of the jurisdiction in which the alien captive insurance company is formed, verified by oath of two of its executive officers. If the Commissioner is satisfied that the annual report filed by the alien captive insurance company in its domiciliary jurisdiction provides adequate information concerning the financial condition of the alien captive insurance company, the commissioner may waive the requirement for completion of the Captive Annual Statement for business written in the alien jurisdiction.

Sec. 10. 8 V.S.A. § 6008(d) is added to read:

(d)(1) The provisions of this section shall apply to all business written by a captive insurance company; provided, however, that the examination for a branch captive insurance company shall be of branch business and branch operations only, as long as the branch captive insurance company provides annually to the commissioner a certificate of compliance, or its equivalent, issued by or filed with the licensing authority of the jurisdiction in which the branch captive insurance company is formed, and demonstrates to the commissioner's satisfaction that it is operating in sound financial condition in accordance with all applicable laws and regulations of such jurisdiction.

(2) As a condition of licensure, the alien captive insurance company shall grant authority to the commissioner for examination of the affairs of the alien captive insurance company in the jurisdiction in which the alien captive insurance company is formed.

Sec. 11. 8 V.S.A. § 6009(a)(2) is amended to read:

(a) The license of a captive insurance company to do an insurance business in this state may be suspended or revoked by the commissioner for any of the following reasons:

(1) Insolvency or impairment of capital and surplus;

(2) Failure to meet the requirements of *[sections 6004 or 6005]* section 6004 of this title;

Sec. 12. 8 V.S.A. § 6010 is amended to read:

§ 6010. LEGAL INVESTMENTS

(a) An association captive insurance company, sponsored captive insurance company and an industrial insured captive insurance company insuring the risks of an industrial insured group defined in subdivision 6001(9)(B) of this title shall comply with the investment requirements contained in sections 3461 through 3472, exclusive of section 3463a, of this title, as applicable. Section 3463a shall apply to association captives, sponsored captive insurance company and industrial insured captive insurance companies insuring the risks of industrial insured groups defined in section 6001(9)(B) except to the extent it is inconsistent with approved accounting standards in use by the association captive insurance company, sponsored captive insurance company or industrial insured captive insurance company insuring the risks of an industrial insured group as defined in section 6001(9)(B). Notwithstanding any other provision of this title, the commissioner may approve the use of alternative reliable methods of valuation and rating.

(b) No pure captive insurance company or industrial insured captive insurance company insuring the risks of an industrial insured group as defined in subdivision 6001 (9)(A) of this title shall be subject to any restrictions on allowable investments whatever, including those limitations contained in sections 3461-3472; provided, however, that the commissioner may prohibit or limit any investment that threatens the solvency or liquidity of any such company.

(c) Only a pure captive insurance company may make loans to its parent company or affiliates. No loans to a parent company or any affiliate will be permitted without prior written approval of the commissioner and must be evidenced by a note in a form approved by the commissioner. Loans of minimum capital and surplus funds required by *[sections 6004(a) and 6005(a)]* section 6004 of this title are prohibited.

Sec. 13. 8 V.S.A. § 6011(b) is amended to read:

(b) Any captive insurance company may take credit for reserves on risks or portions of risks ceded to reinsurers complying with the provisions of section 3634a(a) through (f) of this title. Prior approval of the commissioner shall be required for ceding or taking credit for reserves on risks or portions of risks ceded to reinsurers not complying with section 3634a(a) through (f) of this title, except for business written by an alien captive insurance company outside of the United States.

Sec. 14. 8 V.S.A. § 6014 is amended to read:

§ 6014. TAX ON PREMIUMS COLLECTED

* * *

(g) In the case of a branch captive insurance company, the tax provided for in this section shall apply only to the branch business of such company.

*[(g)]*(h) The tax provided for in this section shall constitute all taxes collectible under the laws of this state from any captive insurance company, and no other occupation tax or other taxes shall be levied or collected from any captive insurance company by the state or any county, city, or municipality within this state, except ad valorem taxes on real and personal property used in the production of income. *[(h)]*(i) Annually, ten percent of the premium tax revenues collected pursuant to this section shall be appropriated to the department of banking, insurance, securities, and health care administration for the regulation of captive insurance companies under this chapter.

Sec. 15. 8 V.S.A. § 6018 is amended to read:

§ 6018. *[TERMS AND CONDITIONS]* DELINQUENCY

(a) *[The]* Except as otherwise provided in this section, the terms and conditions set forth in chapter 145 of this title, pertaining to insurance reorganizations, receiverships and injunctions, shall apply in full to captive insurance companies formed or licensed under this chapter.

(b) In the case of a sponsored captive insurance company:

(1) the assets of a protected cell may not be used to pay any expenses or claims other than those attributable to such protected cell; and

(2) its capital and surplus shall at all times be available to pay any expenses of or claims against the sponsored captive insurance company.

Sec. 16. 8 V.S.A. § 6020(d)(8) is amended to read:

(d) A merger authorized under subsection (a) of this section shall be accomplished substantially in accordance with the procedures set forth in sections 3424, 3426 and 3431 of this title, except that, solely for purposes of such merger:

* * *

(8) notwithstanding section *[6005]* 6004 of this title, the commissioner may permit the formation, without surplus, of a captive insurance company organized as a reciprocal insurer, into which an existing captive insurance company may be merged for the purpose of facilitating a transaction under this section; provided, however, that there shall be no more than one authorized insurance company surviving such merger; and

Sec. 17. 8 V.S.A. § 6021 is added to read:

§ 6021. SPONSORED CAPTIVE INSURANCE COMPANIES

(a) One or more sponsors may form a sponsored captive insurance company under this chapter.

(b) A sponsored captive insurance company formed or licensed under the provisions of this chapter may establish and maintain one or more protected cells to insure risks of one or more participants, subject to the following conditions:

(1) the shareholders of a sponsored captive insurance company shall be limited to its participants and sponsors;

(2) each protected cell shall be accounted for separately on the books and records of the sponsored captive insurance company to reflect the financial condition and results of operations of such protected cell, net income or loss, dividends or other distributions to participants, and such other factors as may be provided in the participant contract or required by the commissioner;

(3) the assets of a protected cell shall not be chargeable with liabilities arising out of any other insurance business the sponsored captive insurance company may conduct;

(4) no sale, exchange or other transfer of assets may be made by such sponsored captive insurance company between or among any of its protected cells without the consent of such protected cells;

(5) no sale, exchange, transfer of assets, dividend or distribution may be made from a protected cell to a sponsor or participant without the commissioner's approval and in no event shall such approval be given if the sale, exchange, transfer, dividend or distribution would result in insolvency or impairment with respect to a protected cell;

(6) each sponsored captive insurance company shall annually file with the commissioner such financial reports as the commissioner shall require, which shall include, without limitation, accounting statements detailing the financial experience of each protected cell;

(7) each sponsored captive insurance company shall notify the commissioner in writing within 10 business days of any protected cell that is insolvent or otherwise unable to meet its claim or expense obligations; and

(8) no participant contract shall take effect without the commissioner's prior written approval, and the addition of each new protected cell and withdrawal of any participant of any existing protected cell shall constitute a change in the business plan requiring the commissioner's prior written approval.

Sec. 18. 8 V.S.A. § 6022 is added to read:

§ 6022. QUALIFICATION OF SPONSORS

A sponsor of a sponsored captive insurance company shall be an insurer licensed under the laws of any state, a reinsurer authorized or approved under the laws of any state or a captive insurance company formed or licensed under this chapter. The business written by a sponsored captive insurance company shall be fronted by an insurance company licensed under the laws of any state. A risk retention group shall not be either a sponsor or a participant of a sponsored captive insurance company.

Sec. 19. 8 V.S.A. § 6023 is added to read:

§ 6023. PARTICIPANTS IN SPONSORED CAPTIVE INSURANCE

COMPANIES

(a) Associations, corporations, limited liability companies, partnerships, trusts and other business entities may be a participant in any sponsored captive insurance company formed or licensed under this chapter.

(b) A sponsor may be a participant in a sponsored captive insurance company.

(c) A participant need not be a shareholder of the sponsored captive insurance company or any affiliate thereof.

(d) A participant shall insure only its own risks through a sponsored captive insurance company.

Sec. 20. 8 V.S.A. § 6052(a) is amended to read:

(a) Pursuant to the provisions of chapter 141 of this title, a risk retention group shall be chartered and licensed to write only liability insurance pursuant to this chapter, and must comply with all of the laws, rules, regulations and requirements applicable to such insurers chartered and licensed in this state under chapter 141 of this title, and with subdivisions (4), (5), (7) and (8) of section 6053 of this title. A risk retention group chartered in this state may provide coverage for payment of punitive damages, the multiplied portion of multiple damages, or other penalties in the nature of compensatory damages, and any such coverage shall be enforceable against such risk retention group in accordance with its terms.

Sec. 21. 8 V.S.A. § 8004 is amended to read:

(a) Prior to the issuance of a certificate of authority under this chapter, or at such other time as the commissioner may determine it is in the best interests of residents of a facility, the commissioner may file a lien on the real and personal property of the provider or facility to secure the obligations of the provider pursuant to existing and future contracts for continuing care. A lien filed under this section shall be effective for a period of ten years following such filing and may be extended by the commissioner upon a finding that such extension is advisable for the protection of residents of the facility. The lien may be foreclosed upon the liquidation of the facility or the insolvency *[or bankruptcy]* of the provider and in such event the proceeds thereof shall be used in full or partial satisfaction of obligations of the provider pursuant to contracts for continuing care then in effect. The lien provided for in this section shall be subordinate to the lien of any mortgage on the property of the provider used to fund the costs of acquiring, developing, or constructing and funding the reserves thereof, and may be subordinated with the written consent of the commissioner to the claims of other persons if the commissioner shall determine such subordination to be advisable for the efficient operation of the facility. A lien filed by the commissioner under this section does not displace any previously perfected lien.

(b) If, at any time, the commissioner determines, after notice and an opportunity for the provider to be heard, that:

(1) a portion of a reserve fund escrow required under this chapter has been or is proposed to be released;

(2) a provider has been or will be unable, in such a manner as may endanger the ability of the provider to fully perform its obligations pursuant to contracts for continuing care, to meet the most recent pro forma income or cash flow projections filed by the provider;

(3) a provider has failed to maintain the reserves required under this chapter; or

(4) a provider is *[bankrupt or]* insolvent, or in imminent danger of becoming *[bankrupt]* subject to a delinquency proceeding under chapter 145 of this title or insolvent;

the commissioner may apply to the appropriate court for an order directing or authorizing the commissioner *[to appoint a trustee]* to seize the property of, to rehabilitate or to liquidate a provider under chapter 145 of this title.

*[(c) An order to rehabilitate a provider shall direct the commissioner or trustee to take possession of the property of the provider and to conduct the business thereof, including the employment of such managers or agents as the commissioner or trustee may deem necessary and to take such steps as the court may direct toward removal of the causes and conditions which have made rehabilitation necessary.]* *[(d) If, at any time, the court finds, upon petition of the commissioner, trustee or provider, or on its own motion, that the objectives of an order to rehabilitate a provider have been accomplished and that the facility can be returned to the provider's management without further jeopardy to the residents of the facility, creditors, owners of the facility and the public, the court may, upon a full report and accounting of the conduct of the provider's affairs during the rehabilitation and of the provider's current financial condition, terminate the rehabilitation and, by order, return the facility and its assets and affairs to the provider's management.]* *[(e) If, at any time, the commissioner determines that further efforts to rehabilitate the provider would not be in the best interests of the residents of the facility, the commissioner may apply to the court for an order of liquidation.]* *[(f) An order to liquidate a provider:]* *[(1) may be issued upon application of the commissioner whether or not there has been issued a prior order to rehabilitate the provider;]* *[(2) shall act as a revocation of the certificate of authority of the provider under this chapter; and]* *[(3) shall include an order directing the commissioner or a trustee to marshal and liquidate all the provider's assets.]* *[(g) In applying for an order to rehabilitate or liquidate a provider, the commissioner shall give due consideration in the application to the manner in which the welfare of persons who have previously contracted with the provider for continuing care may be best served. In furtherance of this objective, the proceeds of any lien obtained by the commissioner pursuant to this section shall be distributed in the following order of priority:]* *[(1) used on behalf of residents of a facility being liquidated;]* *[(2) used in full or partial refund of entrance fees;]* *[(3) used to pay other creditors as provided by law.]* *[(h) An order for rehabilitation under this section shall be refused or vacated if the provider posts a bond, by a recognized surety authorized to do business in this state and executed in favor of the commissioner on behalf of persons who may be found entitled to a refund of entrance fees from the provider or other damages in the event the provider is unable to fulfill its contracts to provide continuing care at the facility, in an amount determined by the court to be equal to the reserve funding which would otherwise need to be available to fulfill such obligations.]*

(c) In furtherance of the welfare of the persons who have previously contracted with the provider for continuing care, the proceeds of any lien obtained by the commissioner pursuant to this section shall be distributed in the following order of priority:

(1) used on behalf of residents of a facility being liquidated;

(2) used in full or partial refund of entrance fees;

(3) used to pay other creditors as provided by law.

Sec. 22. 18 V.S.A. § 9414(h) is amended to read:

(h) Each managed care organization subject to examination, investigation, or review by the commissioner under this section shall pay the commissioner the reasonable costs of such examination, investigation, or review conducted or caused to be conducted by the commissioner, at a rate to be determined by the commissioner. All examinations conducted under this section shall be pursuant to and in conformity with sections 3573, 3574, 3575 and 3576 of Title 8, except that the commissioner may modify or adapt those examination guidelines, principles and procedures to be more appropriate or useful to the examination of managed care organizations.

Sec. 23. EFFECTIVE DATE

This act shall take effect upon passage. The provisions of Secs. 1, 3 and 22 clarify existing law. The provisions of Sec. 9, relating to fiscal years, shall apply to fiscal years beginning on or after January 1, 1999.

(Committee vote: 9-0-2)

For Action Under Rule 52

J.R.H. 79

Joint resolution in recognition of Equal Pay Day.

(For text see House Journal 4-2-99)

Action Postponed Until Thursday, April 8, 1999

H. 10

An act relating to motor vehicles.

H. 97

An act relating to a graduated driver license program.

S. 17

An act relating to motor vehicle dealers.

S. 104

An act relating to the temporary operation of all-terrain vehicles in Beecher Falls.