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BILL AS PASSED HOUSE AND SENATE 2007-2008

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S.284

AN ACT RELATING TO THE DEPARTMENT OF BANKING, INSURANCE, SECURITIES, AND HEALTH CARE ADMINISTRATION

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

Sec. 1.  8 V.S.A. § 2201(c)(14) is added to read:

(14)  nonprofit organizations established under testamentary instruments, exempt from taxation under Section 501(c)(3) of the Internal Revenue Code, 26 U.S.C. § 501(c)(3), and which make loans for postsecondary educational costs to students and their parents, provided that the organizations provide annual accountings to the probate court pursuant to 14 V.S.A. § 2324.

Sec. 2.  8 V.S.A. § 2240 is added to read:

§ 2240.  NATIONAL LICENSING SYSTEM

(a)  In furtherance of the commissioner's duties under this chapter, the commissioner may participate in a national licensing system and may take such action regarding participation in the licensing system as the commissioner deems necessary to carry out the purposes of this section, including:

(1)  Issue rules or orders to further participation in the national licensing system;

(2)  Facilitate and participate in the establishment and implementation of the national licensing system;

(3)  Contract with the administrator of the national licensing system to collect, process, and maintain information for the department;

(4)  Authorize the national licensing system to collect any fees associated with licensure on behalf of the commissioner;

(5)  Require persons engaged in activities that require a license under this chapter to utilize the national licensing system for license applications, renewals, amendments, surrenders, and such other activities as the commissioner may require, and to pay through the national licensing system all fees provided for under this chapter;

(6)  Authorize the national licensing system to collect fingerprints on behalf of the commissioner in order to receive or conduct criminal history background checks.

(b)  The commissioner may require persons engaged in activities that require a license under this chapter to submit fingerprints, and the commissioner may utilize the services of a national licensing system to process the fingerprints and to submit the fingerprints to the Federal Bureau of Investigation, the Vermont state police, or any equivalent state or federal law enforcement agency for the purpose of conducting a criminal history background check.  The licensee or applicant shall pay the cost of such criminal history background check, including any charges imposed by the national licensing system.

(c)  Persons engaged in activities that require licensure pursuant to this chapter shall pay all applicable charges to utilize the national licensing system, including such processing charges as the administrator of the national licensing system shall establish, in addition to the fees required under this chapter.

(d)  The national licensing system is not intended to and does not replace or affect the commissioner's authority to grant, deny, suspend, revoke, or refuse to renew licenses.

Sec. 3.  8 V.S.A. § 11404 is amended to read:

§ 11404.  REPORTS REQUIRED UNDER CONSUMER PROTECTION

                CHAPTER

A financial institution shall file with the commissioner reports as required by chapter 200 of this title on the following:

(1)  interest rates;

(2)  credit cards interest rates and charges;

(3)(1)  community reinvestment activities; and

(4)(2)  basic banking.

Sec. 4.  8 V.S.A. § 31306(f) is amended to read:

(f)  The supervisory committee shall perform or cause to be performed a verification of members' accounts at least once every two years through:

(1)  Verification of share and loan accounts of all members; or

(2)  Statistical sampling of member share and loan accounts done in connection with an opinion audit of the financial statements performed by an independent licensed certified public accountant; or

(3)  Verification of accounts and passbooks in accordance with the requirements of the National Credit Union Administration.

Sec. 5.  8 V.S.A. § 6004(c) is amended to read:

(c)  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.

Sec. 6.  8 V.S.A § 3368a is added to read:

§ 3368a.  UNAUTHORIZED AND MISLEADING TRANSACTIONS

(a)  No person shall transact insurance business in this state unless the commissioner has issued a license or certificate of authority to such person as required by section 3361 or 3368 of this title, or by chapters 123, 125, and 139 of this title.  The provisions of this subsection shall not apply to an insurer licensed in this state or in any foreign or alien jurisdiction who is subject to section 3368 of this title.

(b)  No person shall act as an officer, director, or controlling person for a person who is engaged in a violation of subsection (a) of this section.  As used in this subsection, “controlling” is defined by subdivision 3681(3) of this title.

(c)  No person shall directly or indirectly represent or aid a person in violating subsection (a) of this section.

(d)(1)  No person shall use in its advertisements or other marketing materials or communications the term “insurance” or any other term in a manner which could reasonably lead a person into believing that the product marketed, offered, or issued is insurance, unless such person is authorized under this title to transact the business of insurance.

(2)  No person shall use in its advertisements or other marketing materials or communications the terms “health plan,” “coverage,” “co‑pay,” “co‑payments,” “deductible,” “preexisting conditions,” “guaranteed issue,” “premium,” “enrollment,” “preferred provider organization,” or any other term in a manner that could reasonably mislead an individual into believing that the product marketed, offered, or issued is health insurance, unless such person is authorized under this title to transact the business of health insurance.

(e)  In addition to any other remedies or penalties provided by law:

(1)  For each violation of the provisions of subsection (a), (b), or (c) of this section a person shall be imprisoned not more than five years or fined not more than $10,000.00, or both.

(2)  For each violation of the provisions of subsection (d) of this section a person shall be imprisoned not more than two years or fined not more than $5,000.00, or both.

Sec. 7.  8 V.S.A. § 5102(f) is amended to read:

(f)  Upon request by a Program for All-Inclusive Care for the Elderly (PACE) authorized under federal Medicare law, or by a Prepaid Inpatient Health Plan (PIHP) or Prepaid Ambulatory Health Plan (PAHP) established in accordance with federal Medicare or Medicaid laws and regulations, the commissioner may approve the exemption of the PACE program, PIHP, or PAHP from the provisions of this chapter and from any other provisions of this title if the commissioner determines that the purposes of this chapter and the purposes of any other provision of this title will not be materially and adversely affected by the exemption.  In approving an exemption, the commissioner may prescribe such terms and conditions as the commissioner deems necessary to carry out the purposes of this chapter and this title.

Sec. 8.  18 V.S.A. § 9435(e) is amended to read:

(e)  Upon request under subsection 5102(f) of Title 8 by a Program for All-Inclusive Care for the Elderly (PACE) authorized under federal Medicare law, or by a Prepaid Inpatient Health Plan (PIHP) or Prepaid Ambulatory Health Plan (PAHP) established in accordance with federal Medicare or Medicaid laws and regulations, the commissioner may approve the exemption of the PACE program, PIHP or PAHP from the provisions of this subchapter and from any other provisions of this chapter if the commissioner determines that the purposes of this subchapter and the purposes of any other provision of this chapter will not be materially and adversely affected by the exemption.  In approving an exemption, the commissioner may prescribe such terms and conditions as the commissioner deems necessary to carry out the purposes of this subchapter and this chapter.

Sec. 9.  8 V.S.A. § 4840(d) is amended to read:

(d)  The commissioner may waive or reduce the requirements of this section for an attorney that is under common ownership or control with a reciprocal insurer.  The commissioner may reduce by 50 percent the bond amount required by this section for an attorney that is not under common ownership or control with a reciprocal insurer if the commissioner finds sufficient evidence of financial responsibility, notwithstanding the reduction of the bond amount.

Sec. 10.  8 V.S.A. § 6006(i) is amended to read:

(i)  The provisions of subchapter 3, and subchapter 3A of chapter 101 of this title, pertaining to mergers, consolidations, conversions, mutualizations, redomestications, and mutual holding companies, shall apply in determining the procedures to be followed by captive insurance companies in carrying out any of the transactions described therein, except that:

* * *

(3)  the provisions of subsections 3423(f) and (h) of this title shall not apply, and the commissioner may waive or modify the requirement of subdivision 3423(b)(4) of this title, with respect to market value of a converted company as necessary or desirable to reflect applicable restrictions on ownership of companies formed under this chapter; and

(4)  an alien insurer may be a party to a merger authorized under this subsection; provided that the requirements for a merger between a captive insurance company and a foreign insurer under section 3431 of this title shall apply to a merger between a captive insurance company and an alien insurer under this subsection.  Such alien insurer shall be treated as a foreign insurer under section 3431 and such other jurisdictions shall be the equivalent of a state for purposes of section 3431; and

(5)  the commissioner may issue a certificate of general good to permit the formation of a captive insurance company that is established for the sole purpose of merging with or assuming existing insurance or reinsurance business from an existing Vermont licensed captive insurance company.  The commissioner may, upon request of such newly formed captive insurance company, waive or modify the requirements of subdivisions 6002(c)(1)(B) and (2) of this title.

Sec. 11.  8 V.S.A. § 6048n is amended to read:

§ 6048n.  SPONSORED CAPTIVES

In addition to the provisions of sections 6048a-6048m of this subchapter, the provisions of this section shall apply to any sponsored captive insurance company licensed as a special purpose financial captive insurance company pursuant to this subchapter.

* * *

(4)  The special purpose financial captive insurance company on behalf of a protected cell shall be entitled to assert the same claims and defenses in actions in law or equity as if the protected cell were a corporation established under Title 11A of the Vermont Statutes Annotated, including, but not limited to, claims and defenses in actions at law or equity alleging alter ego, corporate veil piercing, offset, substantive consolidation, equitable subordination, or recoupment.  In connection with the conservation, rehabilitation, or liquidation of a special purpose financial captive insurance company or one or more of its protected cells, the assets and liabilities of a protected cell shall at all times be kept separate from, and shall not be commingled with, those of other protected cells and the special purpose financial captive insurance company, and the assets of one protected cell shall not be used to satisfy the obligations or liabilities of another protected cell or the special purpose financial captive insurance company based on legal or equitable claims or defenses, including but not limited to alter ego, piercing the corporate veil, offset, substantive consolidation, equitable subordination, or recoupment, unless such claims or defenses would apply to such protected cell if it were a special purpose finance captive insurance company without separate cells.

(4)(5)  Notwithstanding subdivision 6034(1) of this chapter, the special purpose financial captive insurance company may issue securities to any person approved in advance by the commissioner.

(5)(6)  Notwithstanding section 6048g of this subchapter, the special purpose financial captive insurance company shall possess and thereafter maintain unimpaired paid-in capital and surplus of not less than $500,000.00.

(6)(7)  The “general account” of a sponsored captive insurance company licensed as a special purpose financial captive insurance company shall mean all assets and liabilities of the sponsored captive insurance company not attributable to a protected cell.

(7)(8)(A)  Any security issued by a special purpose financial captive insurance company with respect to a protected cell and any other contract or obligation of the special purpose financial captive insurance company with respect to a protected cell shall include the designation of such protected cell and shall include a disclosure in a form and content satisfactory to the commissioner to the effect that the following statement, or such other statement as may be required by the commissioner:

(i)  In the case of a security:  “The holder of such this security and any counterparty to such contract or obligation shall have no right or recourse against the special purpose financial captive insurance company and its assets other than against assets properly attributable to such the designated protected cell. and the special purpose financial captive insurance company’s general account, to the extent permitted by Vermont law.”

(ii)  In the case of a contract or obligation:  “The counterparty to this contract or obligation shall have no right or recourse against the special purpose financial captive insurance company and its assets other than against assets properly attributable to the designated protected cell and the special purpose financial captive insurance company’s general account, to the extent permitted by Vermont law.”

(B)  Notwithstanding the requirements of this subdivision (7)(8) and subject to the provisions of this chapter and other applicable law or regulation, the failure to include such disclosure, in whole or part, in such security, contract, or obligation with respect to a protected cell shall not serve as the sole basis for a creditor, ceding insurer, or any other person to have recourse against the general account of the special purpose financial captive insurance company in excess of the limitations provided for in subdivision (12)(E) of this subsection, or against the assets of any other protected cell.

(8)(9)  In addition to the provisions of section 6034 of this chapter, the special purpose financial captive insurance company shall be subject to the following with respect to its protected cells:

(A)  The special purpose financial captive insurance company shall establish a protected cell only for the purpose of insuring or reinsuring risks of one or more reinsurance contracts with a ceding insurer or two or more affiliated ceding insurers, with the intent of facilitating an insurance securitization.  A separate protected cell shall be established with respect to each such ceding insurer, provided that a separate protected cell shall be established with respect to each reinsurance contract or contracts that are funded in whole or in part by a separate securitization transaction; and

(B)  A sale, an exchange, or another transfer of assets may not be made by the special purpose financial captive between or among any of its protected cells without the prior approval of the commissioner.

(9)(10)  All attributions of assets and liabilities to the protected cells and the general account shall be in accordance with the plan of operation approved by the commissioner.  No other attribution of assets or liabilities may be made by a special purpose financial captive insurance company between its general account and any protected cell or between any protected cells.  The special purpose financial captive insurance company shall attribute all insurance obligations, assets, and liabilities relating to a reinsurance contract entered into with respect to a protected cell and shall attribute the related insurance securitization transaction, including any securities issued by the special purpose financial captive insurance company as part of the insurance securitization, to such protected cell.  The rights, benefits, obligations, and liabilities of any securities attributable to such protected cell and the performance under such reinsurance contract and the related securitization transaction and any tax benefits, losses, refunds, or credits allocated pursuant to a tax allocation agreement to which the special purpose financial captive insurance company is a party, including any payments made by or due to be made to the special purpose financial captive insurance company pursuant to the terms of such agreement, shall reflect the insurance obligations, assets, and liabilities relating to the reinsurance contract and the insurance securitization transaction that are attributed to such protected cell.

(10)(11)  For purposes of applying the provisions of chapter 145 of this title to a sponsored captive insurance company licensed as a special purpose financial captive insurance company, the definition of “insolvency” and “insolvent” in subdivision 6048c(2) shall be applied separately to each protected cell and to the special purpose financial captive insurance company’s general account.

(11)(12)  In addition to the provisions of section 6048m of this chapter:

(A)  The provisions of chapter 145 of this title shall apply to each protected cell of the special purpose financial captive. Any proceeding or action taken by the commissioner pursuant to chapter 145 of this title with respect to a protected cell of a special purpose financial captive shall not be the sole basis for a proceeding pursuant to chapter 145 of this title with respect to any other protected cell of such special purpose financial captive insurance company or the special purpose financial captive insurance company’s general account.

(B)  The receiver of a special purpose financial captive insurance company shall ensure that the assets attributable to one protected cell are not applied to the liabilities attributable to another protected cell or to the special purpose financial captive insurance company’s general account unless an asset or liability is attributable to more than one protected cell, in which case the receiver shall deal with the asset or liability in accordance with the terms of any relevant governing instrument or contract.

(C)  The insolvency of a protected cell shall not be the sole basis for the commissioner to prohibit payments by the special purpose financial captive insurance company made pursuant to a special purpose financial captive insurance company security or reinsurance contract with respect to any other protected cell or to prohibit any action required to make such payments.

(A)  Except as otherwise modified in this section, the terms and conditions set forth in chapter 145 of this title pertaining to administrative supervision of insurers and the rehabilitation, receiverships, and liquidation of insurers apply in full to special purpose financial captive insurance companies or any of the special purpose financial captive insurance company’s protected cells, independently, without causing or otherwise effecting a conservation, rehabilitation, receivership, or liquidation of the special purpose financial captive insurance company or another protected cell that is not otherwise insolvent.

(B)  Notwithstanding the provisions of chapter 145 of this title, and without causing or otherwise effecting the conservation or rehabilitation of an otherwise solvent protected cell of a special purpose financial captive insurance company and subject to the provisions of subdivision (G)(v) of this subdivision (12), the commissioner may apply by petition to the superior court for an order authorizing the commissioner to conserve, rehabilitate, or liquidate a special purpose financial captive insurance company domiciled in this state on one or more of the following grounds:

(i)  embezzlement, wrongful sequestration, dissipation, or diversion of the assets of the special purpose financial captive insurance company intended to be used to pay amounts owed to the ceding insurer or the holders of special purpose financial captive insurance company securities; or

(ii)  the special purpose financial captive insurance company is insolvent; or

(iii)  the holders of a majority in outstanding principal amount of each class of special purpose financial captive insurance company securities attributable to each particular protected cell requests or consents to conservation, rehabilitation, or liquidation pursuant to the provisions of this subchapter.

(C)  Notwithstanding the provisions of chapter 145 of this title, the commissioner may apply by petition to the superior court for an order authorizing the commissioner to conserve, rehabilitate, or liquidate one or more of a special purpose financial captive insurance company’s protected cells, independently, without causing or otherwise effecting a conservation, rehabilitation, receivership, or liquidation of the special purpose financial captive insurance company generally or another of its protected cells, on one or more of the following grounds:

(i)  embezzlement, wrongful sequestration, dissipation, or diversion of the assets of the special purpose financial captive insurance company attributable to the affected protected cell or cells intended to be used to pay amounts owed to the ceding insurer or the holders of special purpose financial captive insurance company securities of the affected protected cell or cells; or

(ii)  the affected protected cell is insolvent; or

(iii)  the holders of a majority in outstanding principal amount of each class of special purpose financial captive insurance company securities attributable to that particular protected cell request or consent to conservation, rehabilitation, or liquidation pursuant to the provisions of this subchapter.

(D)  Except where consent is given as described in subdivisions (B)(iii) and (C)(iii) of this subdivision (12), the court may not grant relief provided by subdivision (B) or (C) of this subdivision (12) unless, after notice and a hearing, the commissioner, who shall have the burden of proof, establishes by clear and convincing evidence that relief must be granted.  The court’s order may be made in respect of one or more protected cells by name, rather than the special purpose financial captive insurance company generally.

(E)  Notwithstanding another provision in this title, regulations adopted under this title, or another applicable law or regulation, upon any order of conservation, rehabilitation, or liquidation of a special purpose financial captive insurance company, or one or more of the special purpose financial captive insurance company’s protected cells, the receiver shall manage the assets and liabilities of the special purpose financial captive insurance company or the applicable protected cell pursuant to the provisions of this subchapter.  The assets attributable to one protected cell shall not be applied to the liabilities attributable to another protected cell, unless an asset or liability is attributable to more than one protected cell, in which case the receiver shall deal with the asset or liability in accordance with the terms of any relevant governing instrument or contract.  Recourse to the special purpose financial captive insurance company’s general account in connection with the conservation, rehabilitation, or liquidation of a protected cell shall be limited to the greater of the amount of assets in the general account as of the date such proceeding is commenced or the required minimum capital for the general account as of the date such proceeding is commenced.  Assets attributable to one protected cell or the special purpose financial captive insurance company’s general account shall not be set off against the liabilities attributable to another protected cell or to the special purpose financial captive insurance company’s general account.  Relief shall not be granted nor shall any order be issued based on equitable theories of recovery, including substantive consolidation, equitable subordination, or recoupment, to attach or seize the assets of any solvent protected cell for the benefit of another protected cell or special purpose financial captive insurance company, or to pierce the corporate veil of any protected cell, in connection with the conservation, rehabilitation, or liquidation of a special purpose financial captive insurance company or one or more protected cells, unless such equitable theories, attachment, seizure or corporate veil piercing would apply to such cell if it were a special purpose financial captive insurance company without separate cells.

(F)  With respect to amounts recoverable under a reinsurance contract, the amount recoverable by the receiver of a special purpose financial captive insurance company must not be reduced or diminished as a result of the entry of an order of conservation, rehabilitation, or liquidation with respect to the ceding insurer, notwithstanding another provision in the contract or other documentation governing the insurance securitization.

(G)  Notwithstanding the provisions of chapter 145 of this title or other laws of this state:

(i)  An application or petition, or a temporary restraining order or injunction issued pursuant to the provisions of chapter 145 of this title, with respect to a ceding insurer, does not prohibit the transaction of business by a special purpose financial captive insurance company with the ceding insurer, including any payment by a special purpose financial captive insurance company made pursuant to a security issued by a special purpose financial captive insurance company with respect to a protected cell, or any action or proceeding against a special purpose financial captive insurance company or its assets.

(ii)  The commencement of a summary proceeding or other interim proceeding commenced before a formal delinquency proceeding with respect to a special purpose financial captive insurance company, and any order issued by the court, does not prohibit the payment by a special purpose financial captive insurance company made pursuant to a security issued by a special purpose financial captive insurance company with respect to a protected cell or special purpose financial captive insurance company contract or the special purpose financial captive insurance company from taking any action required to make the payment.

(iii)  A receiver of a ceding insurer may not void a nonfraudulent transfer by the ceding insurer to a special purpose financial captive insurance company of money or other property made pursuant to a reinsurance contract.

(iv)  A receiver of a special purpose financial captive insurance company may not void a nonfraudulent transfer by the special purpose financial captive insurance company of money or other property made to a ceding insurer pursuant to a reinsurance contract or made to or for the benefit of any holder of a special purpose financial captive insurance company security issued with respect to a protected cell, or a special purpose financial captive insurance company security.

(v)  In the event of an insolvency of a special purpose financial captive insurance company where one or more protected cells remain solvent, the commissioner shall separate the special purpose financial captive insurance company’s solvent protected cells from the insolvent special purpose financial captive insurance company, shall allow on petition of the sponsor for the conversion of such solvent protected cells into one or more special purpose financial captive insurance companies, and shall issue such orders as the commissioner deems necessary to protect the solvency of the remaining solvent protected cells.  In the event of an insolvency of a protected cell, the special purpose financial captive insurance company’s assets shall be accounted for and managed in compliance with subdivision (E) of this subdivision (12) and the other laws of this state.

(H)  Subdivision (G) of this subdivision (12) does not prohibit the commissioner from taking any action permitted under chapter 145 of this title with respect only to the conservation or rehabilitation of a special purpose financial captive insurance company with protected cell or cells, provided the commissioner would have had sufficient grounds to seek to declare the special purpose financial captive insurance company insolvent; subject to and without otherwise affecting the provisions of subdivision (G)(v) of this subdivision (12).  In this case, with respect to the solvent protected cell or cells, the commissioner may not prohibit payments made by the special purpose financial captive insurance company pursuant to the special purpose financial captive insurance company security, reinsurance contract, or otherwise made under the insurance securitization transaction that are attributable to these protected cell or cells or prohibit the special purpose financial captive insurance company from taking any action required to make these payments.

(I)  With the exception of the fulfillment of the obligations under a special purpose financial captive insurance company contract, and notwithstanding another provision of this title or other laws of this state, the assets of a special purpose financial captive insurance company, including assets held in trust, shall not be consolidated with or included in the estate of a ceding insurer in any delinquency proceeding against the ceding insurer pursuant to the provisions of this title for any purpose, including, without limitation, distribution to creditors of the ceding insurer.

Sec. 12.  8 V.S.A. § 3614(a) is amended to read: 

§ 3614.  BOARD OF DIRECTORS

(a)  The board of directors of the association shall consist of not less than five nor more than nine persons serving, at least three of whom shall be persons who are officers, directors, or employees of insurance companies incorporated under the laws of this state, unless there are fewer than three such companies, in which case there shall be one director for each such company.  The directors shall serve terms as established in the plan of operation.  The members of the board shall be selected by member insurers subject to the approval of the commissioner.  Vacancies on the board shall be filled for the remaining period of the term by a majority vote of the remaining board members, subject to the approval of the commissioner.  Not less than one-half of the directors shall be persons who are officers, directors or employees of insurance companies incorporated under the laws of this state.

Sec. 13.  REPORT REQUIRED

On or before January 15, 2009 the commissioner of banking, insurance, securities and health care administration shall report to the house committee on commerce, the house committee on human services, the house committee on health care, the senate committee on health and welfare, and the senate committee on finance the commissioner’s recommendations for amending 33 V.S.A. § 1908a (Vermont Partnership for Long-Term Care) so as to conform Vermont law with the requirements of federal law.

Sec. 14.  EFFECTIVE DATE

This act shall take effect July 1, 2008, except for Secs. 2 and 14 (this section) which shall take effect upon passage.



Published by:

The Vermont General Assembly
115 State Street
Montpelier, Vermont


www.leg.state.vt.us