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NO. 71. AN ACT RELATING TO THE REGULATION OF INSURANCE COMPANIES.

(S.139)

It is hereby enacted by the General Assembly of the State of Vermont:

Sec. 1. 8 V.S.A. § 22 is added to read:

§ 22. CONFIDENTIALITY AND INFORMATION SHARING

AGREEMENTS

(a) Except as expressly provided in subsection (b) of this section, all documents, material or other information reported to, or developed or maintained by the commissioner may be used by the commissioner in the furtherance of legal or regulatory proceedings brought as a part of the commissioner’s official duties.

(b) In order to assist in the performance of the commissioner’s duties, the commissioner:

(1) may share documents, materials or other information, including confidential and privileged documents, materials or other information with other state, federal, or international regulatory agencies, the National Association of Insurance Commissioners, the North American Securities Administrators Association, self-regulatory organizations organized under 15 U.S.C. sections 78f, 78o-3 and 78q-1, other self-regulatory organizations and their affiliates or subsidiaries and with state, federal, and international law enforcement authorities, provided that the recipient agrees to maintain the confidentiality and privileged status of the document, material, or other information;

(2) may receive documents, materials, or information, including otherwise confidential and privileged documents, materials, or information, from other state, federal, and international regulatory agencies, the National Association of Insurance Commissioners, the North American Securities Administrators Association, self-regulatory organizations organized under 15 U.S.C. sections 78f, 78o-3 and 78q-1, other self-regulatory organizations and their affiliates or subsidiaries and from state, federal, and international law enforcement authorities, and shall maintain as confidential or privileged any document, material, or information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material, or information;

(3) may enter into agreements governing sharing and use of information consistent with this section; and

(4) shall determine, prior to sharing information about an individual pursuant to subdivision (1) of this subsection, that sharing the information will substantially further the performance of the regulatory or law enforcement duties of the recipient.

(c) Any information furnished pursuant to this subsection by or to the commissioner that has been designated confidential by the furnisher of the information shall not be subject to public inspection under Title 1, chapter 5, shall not be subject to subpoena, and shall not be subject to discovery or admissible in evidence in any private civil action.

(d) Neither the commissioner nor any person who received documents, material, or information while acting under the authority of the commissioner shall be permitted or required to testify in any private civil action concerning any confidential documents, material, or information.

(e) No waiver of an existing privilege or claim of confidentiality in the documents, materials, or information shall occur as a result of disclosure or sharing as authorized under this section.

(f) The provisions of this section shall apply to information relating to persons that engage in activities that are financial in nature, or incidental or complementary to such financial activity within the meaning of 12 U.S.C. § 1843(k) and to credit unions; provided, however, this section shall apply to captives formed or licensed under the provisions of chapter 141 or 142 of this title only to the extent contemplated by 15 U.S.C. § 6716.

Sec. 2. 8 V.S.A. § 3301a is added to read:

§ 3301a. INSURANCE DEFINED

As used in this title, "insurance" means an agreement to indemnify or otherwise assume an obligation, provide services or any other thing of value on the happening of a particular event or contingency, or to provide indemnity for loss with respect to a specified subject by specified circumstances in return for a consideration. Without limiting the generality of the term, "insurance" shall include any business defined in section 3301 of this title, annuity contracts and the business of health maintenance organizations and continuing care retirement communities.

Sec. 3. 8 V.S.A. § 3315 is added to read:

§ 3315. COORDINATED REGULATION

Notwithstanding section 5112 of this title and any other provision of this title, the commissioner may cooperate and coordinate with the insurance supervisory authorities of other states or through the facilities or subsidiaries of a national organization which facilitate regulatory efficiency and cooperation on a nationwide basis. The areas of cooperation and coordination contemplated by this section include, but are not limited to, the following: solvency oversight; company and producer licensing, appointment and discipline; rate and forms review and approval; and investigation and examination of persons subject to the insurance laws of this state. The commissioner may enter into agreements or contracts concerning the coordination and cooperation contemplated by this section with such other state or organization. The commissioner may adopt, by rule, any uniform standards or procedures as are necessary to fully implement cooperative and coordinated supervision of the business of insurance. In the event of conflict between this provision and other pertinent provisions of Parts 3 and 4 of this title, the commissioner may elect that this provision prevail, if the commissioner deems that such election is in the best interests of the state.

Sec. 4. 8 V.S.A. § 3361(b) is amended to read:

(b) An insurer making an application or reapplication for an original license to transact business in this state shall pay to the commissioner a nonrefundable fee of $200.00 for examining, investigating and processing the application. In addition, each insurer shall pay a license fee for the year of registration and a renewal fee for each year thereafter of $300.00 not including fees for *[agents’]* producers licenses and renewals thereof. The annual renewal fee of $300.00 shall be paid on or before March 1.

Sec. 5. 8 V.S.A. § 3463(b) is amended to read:

(b) Investments in subsidiaries are subject to section *[3862]* 3682 of this title and are not subject to any other investment limitations contained in this subchapter.

Sec. 6. 8 V.S.A. § 3562 is amended to read:

§ 3562. TIME REPORTS DUE

Reports of all insurance companies shall be made annually, *[prior to March 15]* on or before March 1 for the year ending December 31, or within any extension of time not to exceed thirty days which the commissioner for good cause may have granted. Whenever *[in his judgment he]* the commissioner deems it necessary, the commissioner may demand an additional statement of the affairs of any company transacting business in this state.

Sec. 7. 8 V.S.A. § 3578(b) is amended to read:

(b) Audit report. *[The accountant shall prepare an annual audit report which conforms to statutory accounting practices and contains at least the following]* The audited financial report shall include:

* * *

(6) notes to financial statements required by the National Association of Insurance Commissioners’ Annual Statement Instructions *[or generally accepted accounting principles]* and the National Association of Insurance Commissioners’ Accounting Practices and Procedures Manual. The notes shall include, but are not limited to, a written *[report reconciling any differences]* reconciliation of differences, if any, between the audited statutory financial statements and the annual statement filed pursuant to section 3561 of this title with a written description of the nature of those differences;

Sec. 8. 8 V.S.A. § 3683(b)(1) is amended to read:

(b) Content of statement. The statement to be filed with the commissioner hereunder shall be made under oath or affirmation and shall contain the following information:

(1) The name and address of each person by whom or on whose behalf the merger or other acquisition of control referred to in subsection (a) of this section is to be effected (hereinafter called "acquiring party"), and

* * *

(B) if such person is not an individual, a report of the nature of its business operations during the past five years or for such lesser period as such person and any predecessors thereof shall have been in existence; an informative description of the business intended to be done by such person and such person’s subsidiaries; and a list of all individuals who are or who have been selected to become directors or executive officers of such person, or who perform or will perform functions appropriate to such positions. Such list shall include for each such individual the information required by subdivision (A) of this section;

(C) whether such person is a depository institution or an affiliate of a depository institution.

Sec. 9. 8 V.S.A. § 3683(f)(2) is amended to read:

(2) The public hearing referred to in subdivision (1) of this subsection shall be held within 30 days after the statement required by subsection (a) of this section is filed, and at least 20 days’ notice thereof shall be given by the commissioner to the person filing the statement. Not less than *[7]* seven days’ notice of such public hearing shall be given by the person filing the statement to the insurer and to such other persons as may be designated by the commissioner. The insurer shall give such notice to its security holders. The commissioner shall make a determination within 30 days after the conclusion of such hearing; provided, however, that, if the insurer is or will be an affiliate of a depository institution or any affiliate thereof, the commissioner shall issue a determination within the 60-day period preceding the effective date of the acquisition or change or continuation of control of an insurer. At such hearing, the person filing the statement, the insurer, any person to whom notice of hearing was sent, and any other person whose interests may be affected thereby shall have the right to present evidence, examine and cross-examine witnesses, and offer oral and written arguments and in connection therewith shall be entitled to conduct discovery proceedings in the same manner as is presently allowed in the superior court of this state. All discovery proceedings shall be concluded not later than *[3]* three days prior to the commencement of the public hearing.

Sec. 10. 8 V.S.A. § 3683(k) is added to read:

(k) As a condition for approval under this section, the commissioner may require the person that is acquiring control of an insurer domiciled in this state to maintain or restore capital in compliance with and under the time frame established under the provisions of 15 U.S.C. § 6701(c)(2)(B).

Sec. 10a. 8 V.S.A. § 5112 is amended to read:

§ 5112. STATUTORY CONSTRUCTION AND RELATIONSHIP TO OTHER LAWS

Except as provided in this chapter, and except as provided in section 3315, section 4080a, section 4080b and subchapter 2 of chapter 112 of this title, provisions of the insurance laws and specifically provisions of 8 V.S.A. chapters 123 and 125 shall not be applicable to any health maintenance organization granted a certificate of authority under this chapter.

Sec. 11. 8 V.S.A. § 6001 is amended to read:

§ 6001. DEFINITIONS

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

* * *

(18) "Participant" means an entity as defined in section 6023 of this *[chapter]* title, 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 such participant’s pro rata share of the assets of *[a protected cell]* one or more protected cells identified in such participant contract.

(19) "Participant contract" means a contract by which a sponsored captive insurance company insures the risks of a participant and limits the losses of each such participant to its pro rata share of the assets of *[a protected cell]* one or more protected cells identified in such participant contract.*[

]*

(20) "Protected cell" means a separate account established *[and maintained]* by a sponsored captive insurance company formed or licensed under the provisions of this chapter, in which assets are maintained for *[one participant]* one or more participants in accordance with the terms of one or more participant contracts to fund the liability of the sponsored captive insurance company to such participants as set forth in such participant contracts.

* * *

(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]* participant contracts; and

(D) that *[segregates each participant’s]* funds its liability to each participant through one or more protected cells and segregates the assets of each protected cell from the assets of other protected cells and from the assets of the sponsored captive insurance company’s general account.

Sec. 12. 8 V.S.A. § 6007(b) is amended to read:

(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 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)]* 6002(c)(4) 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.

Sec. 13. 8 V.S.A. § 6010(a) is amended to read:

(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; provided, however, that compliance with such investment requirements shall be waived for sponsored captive insurance companies to the extent that credit for risks ceded to reinsurers is allowed pursuant to section 6011 of this title or to the extent otherwise deemed reasonable and appropriate by the commissioner. Section 3463a of this title shall apply to association captives, sponsored captive insurance *[company]* companies and industrial insured captive insurance companies insuring the risks of industrial insured groups defined in *[section]* subdivision 6001(9)(B) of this title 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]* subdivision 6001(9)(B) of this title. Notwithstanding any other provision of this title, the commissioner may approve the use of alternative reliable methods of valuation and rating.

Sec. 13a. 8 V.S.A. § 6014(j) is added to read:

(j) A captive insurance company, first licensed under this chapter after January 1, 2001, shall receive a nonrefundable credit of $5,000.00 applied against the aggregate taxes owed for the first taxable year for which the company has a liability under this section.

Sec. 14. 8 V.S.A. § 7081 is amended to read:

§ 7081. PRIORITY OF DISTRIBUTION

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. No subclass shall be established within any class. The order of distribution of claims shall be:

(1) Class 1. The costs and expenses of administration, during conservation, rehabilitation and liquidation, including but not limited to the following:

(A) actual and necessary costs of preserving or recovering the assets of the insurer;

(B) compensation for all services rendered in the conservation, rehabilitation and liquidation;

(C) necessary filing fees;

(D) fees and mileage payable to witnesses; and

(E) authorized reasonable attorney’s fees and other professional services rendered in the conservation, rehabilitation and liquidation*[; and

(F) reasonable administrative expenses of a guaranty association or foreign guaranty association for unallocated loss adjustment expenses in handling claims]*.

(2) Class 2. *[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 one year before the filing of the petition for liquidation or, if rehabilitation preceded liquidation, within one year before the filing of the petition for rehabilitation. Principal 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.]*

(A) The administrative expenses of guaranty associations. For purposes of this section, these expenses shall be the reasonable expenses incurred by guaranty associations where the expenses are not payments or expenses which 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:

(i) The expenses are not expenses required to be paid or incurred as direct policy benefits by the terms of the policy.

(ii) 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.

(B) 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 that the liquidator shall secure from each of the associations receiving disbursements pursuant to this section an agreement to return to the liquidator such disbursements, 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 or foreign guaranty association, other than claims included in Class 2, for payment of covered claims or covered obligations of the insurer. It shall include claims of members of a health maintenance organization, if the member is liable to any provider for services provided under the plan; provided, however, claims of providers obligated by statute or agreement to hold members of a health maintenance organization harmless from liability for services provided under the plan shall be Class 6 claims. All claims under life insurance and annuity policies, whether for death proceeds, 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 obligation 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 or her employee shall be treated as a gratuity.

(4) Class 4. *[Claims under nonassessable policies for unearned premium or other premium refunds and claims of general creditors including claims of ceding and assuming companies in their capacity as such]* Claims of the federal government other than those claims included in 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. Principal officers and directors shall not be entitled to the benefit of this priority except as otherwise approved by the liquidator and the court. This 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 any person, including claims of state or local governments, except those specifically classified elsewhere in this section. Class 6 includes claims of providers obligated by statute or agreement to hold members of a health maintenance organization harmless from liability for services provided under the plan, and claims of attorneys for fees and expenses owed them by a person for services rendered in opposing a formal delinquency proceeding. In order to prove the claim, the claimant must show that the insurer which is the subject of the delinquency proceeding incurred such fees and expenses based on its best knowledge, information and belief, formed after reasonable inquiry indicating opposition was in the best interests of the person, was well-grounded in fact, and was warranted by existing law or a good faith argument for the extension, modification or reversal of existing law, and that opposition was not pursued for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of the litigation.

*[

(5) Class 5.]* (7) Class 7. Claims of *[the federal or]* any state or local government *[except those under Class 3, above. Claims, including those of any governmental body]* for a penalty or forfeiture, shall be 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 remaining amount of such claims shall be postponed to the class of claims under subdivision *[(8)]*(9) of this section.

*[

(6) Class 6.]* (8) Class 8. Claims filed late or any other claims other than claims under subdivisions *[(7) and (8)]*(9) and (10) of this section.

*[

(7) Class 7.]* (9) Class 9. Surplus or contribution notes, or similar obligations, and premium refunds on assessable policies. Payments to members of domestic mutual insurance companies shall be limited in accordance with law.

*[

(8) Class 8.]* (10) Class 10. The claims of shareholders or other owners in their capacity as shareholders.

Sec. 15. 8 V.S.A. § 7100 is amended to read:

§ 7100. 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 or her 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 under subdivision 7081*[(7)]*(9) of this title.

Sec. 16. REPEAL

8 V.S.A. § 4811 (lending institutions) is repealed.

Sec. 16a. SUNSET

8 V.S.A. § 6014(j), relating to a premium tax credit for captive insurers, is repealed on January 1, 2004, and shall not be available for any tax year beginning on or after January 1, 2004.

Sec. 17. EFFECTIVE DATE.

This act shall take effect upon passage. The provisions of Secs. 14 and 15 shall apply to proceedings under chapter 145 of Title 8 filed on or after the effective date of this act.

Approved: June 16, 2001