HB-6097, As Passed Senate, August 19, 2010
April 29, 2010, Introduced by Reps. Haveman, Young, Denby, Meekhof, Neumann, Lund, Walsh, Moore, Sheltrown, Womack, Lemmons, Green and Constan and referred to the Committee on Insurance.
A bill to amend 1956 PA 218, entitled
"The insurance code of 1956,"
by amending section 7704 (MCL 500.7704), as amended by 2006 PA 671.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 7704. (1) This chapter shall provide coverage for the
policies and contracts specified in subsection (2) to the following
persons:
(a) To a person, other than nonresident certificate holders
under group policies or contracts, who, regardless of where he or
she resides, is the beneficiary, assignee, or payee of a person
covered under subdivision (b).
(b) To a person who is an owner of, or certificate holder
under, a policy or contract described in subsection (2), other than
an unallocated annuity contract or structured settlement contract,
and which owner or certificate holder is 1 of the following:
(i) A resident.
(ii) Not a resident, if all of the following conditions are
met:
(A) The insurer that issued the policy or contract is
domiciled in this state.
(B) The state in which the person resides has an association
similar to the association created by this chapter.
(C) The person is not eligible for coverage by an association
in any other state because the insurer was not licensed in that
state at the time specified in the state's guaranty association
law.
(iii) Not a resident, if both of the following conditions are
met:
(A) The person would have been considered a resident at the
time
the coverage contract was obtained by the person.
(B) The person is not eligible for coverage by another
guaranty association.
(c) For an unallocated annuity contract, except as provided in
subsection (3), to either of the following:
(i) To a person who is the owner of an unallocated annuity
contract if the contract is issued to or in connection with a
specific plan whose sponsor has its principal place of business in
this state.
(ii) To a person who is the owner of an unallocated annuity
contract issued to or in connection with a government lottery if
the owner is a resident of this state.
(d) For a structured settlement annuity, except as provided in
subsection (3), to a person who is a payee under a structured
settlement annuity, or a beneficiary of a payee if the payee is
deceased, and the payee is either of the following:
(i) A resident, regardless of where the contract owner resides.
(ii) Not a resident, if either of the following conditions is
met:
(A) The contract owner of the structured settlement annuity is
a resident, and the payee or beneficiary is not eligible for
coverage from the association where the payee or beneficiary
resides.
(B) The contract owner of the structured settlement annuity is
not a resident, and both of the following conditions are met:
(I) The insurer that issued the structured settlement annuity
is domiciled in this state, and the state in which the contract
owner resides has an association similar to the association created
by this chapter.
(II) Neither the payee or beneficiary nor the contract owner
is eligible for coverage by the association of the state in which
the payee or contract owner resides.
(2) Except as provided in subsections (3), (4), and (5), this
chapter provides coverage to a person specified in subsection (1)
for direct, nongroup life, health, annuity, and supplemental
policies or contracts, for certificates under direct group life,
health, annuity, and supplemental policies and contracts, and for
unallocated annuity contracts issued by member insurers, except as
limited by this chapter.
(3) This chapter does not provide coverage to a person who is
a payee or beneficiary of a contract owner that is a resident of
this state, if the payee or beneficiary is afforded any coverage by
the association of another state or to a person otherwise covered
under subsection (1)(c), if any coverage is provided by the
association of another state to that person.
(4) This chapter is intended to provide coverage to a person
who is a resident of this state and, in special circumstances, to a
nonresident. To avoid duplicate coverage, if a person who would
otherwise receive coverage under this chapter is provided coverage
under the laws of any other state, the person shall not be provided
coverage under this chapter. In determining the application of the
provisions of this chapter in situations where a person could be
covered by the association of more than 1 state, whether as an
owner, payee, beneficiary, or assignee, this chapter shall be
construed in conjunction with other state laws to result in
coverage by only 1 association.
(5) This chapter does not provide coverage for the following:
(a) A portion of a policy or contract not guaranteed by the
insurer or under which the risk is borne by the policy or contract
owner, including, but not limited to, the nonguaranteed portion of
a variable or separate account product.
(b) A policy or contract of reinsurance, unless assumption
certificates have been issued pursuant to the reinsurance policy or
contract.
(c) A portion of a policy or contract to the extent that the
rate of interest on which it is based or the interest rate,
crediting rate, or similar factor determined by use of an index or
other external reference stated in the policy or contract employed
in calculating returns or changes in value exceeds the following:
(i) Averaged over the period of 4 years prior to the date on
which the member insurer becomes an impaired insurer or an
insolvent insurer, whichever occurs first, the rate of interest
determined by subtracting 2 percentage points from Moody's
corporate bond yield average averaged for that same 4-year period
or for a lesser period if the policy or contract was issued less
than 4 years before the member insurer becomes an impaired insurer
or an insolvent insurer, whichever occurs first.
(ii) On and after the date on which the member insurer becomes
an impaired insurer or an insolvent insurer, whichever occurs
first, the rate of interest determined by subtracting 3 percentage
points from Moody's corporate bond yield average as most recently
available.
(d) A portion of a plan or contract issued to a plan or
program of an employer, association, or other person to provide
life, health, or annuity benefits to its employees, members, or
others to the extent that the plan or program is self-funded or
uninsured, including, but not limited to, benefits payable by an
employer, association, or other person under any of the following:
(i) A multiple employer welfare arrangement as defined in
section 7001.
(ii) A minimum premium group insurance plan.
(iii) A stop-loss or excess-loss group insurance plan. This
subparagraph does not apply to the insured portion of a stop-loss
or excess-loss group insurance plan written pursuant to section
407a or 5208 or written by a member property casualty insurer if
the premiums were identified as disability insurance premiums in
its annual statement.
(iv) An administrative services only contract.
(e) A portion of a policy or contract to the extent that it
provides dividends or experience rating credits, voting rights, or
payment of any fees or allowances be paid to a person, including
the policy or contract owner, in connection with the service to or
administration of the policy or contract.
(f) A policy or contract issued in this state by an insurer at
a time when it did not have a certificate of authority to issue the
policy or contract in this state.
(g) An unallocated annuity contract issued to or in connection
with a benefit plan protected under the federal pension benefit
guaranty corporation regardless of whether the federal pension
benefit guaranty corporation has become liable to make any payments
with respect to the benefit plan.
(h) A portion of an unallocated annuity contract that is not
issued to or in connection with a specific employee, union, or
association of natural persons benefit plan or a government
lottery.
(i) An obligation that does not arise under the express
written terms of the policy or contract issued by the insurer to
the contract owner or policy owner, including, but not limited to,
any of the following:
(i) A claim based on marketing materials.
(ii) A claim based on side letters, riders, or other documents
that were issued by the insurer without meeting applicable policy
form filing or approval requirements.
(iii) A claim based on misrepresentations of or regarding policy
benefits.
(iv) An award of exemplary or punitive damages or statutory
interest and claims related to bad faith in the payment of claims,
and attorney fees and costs.
(v) A claim for penalties or consequential or incidental
damages.
(j) A contractual agreement that establishes the member
insurer's obligations to provide a book value accounting guaranty
for defined contribution benefit plan participants by reference to
a portfolio of assets that is owned by the benefit plan or its
trustee, which in each case is not an affiliate of the member
insurer.
(k) A portion of a policy or contract to the extent it
provides for interest or other changes in value to be determined by
the use of an index or other external reference stated in the
policy or contract, but which have not been credited to the policy
or contract, or as to which the policy or contract owner's rights
are subject to forfeiture, as of the date the member insurer
becomes an impaired insurer or an insolvent insurer, whichever
occurs first. If a policy's or contract's interest or changes in
value are credited less frequently than annually, then for purposes
of determining the values that have been credited and are not
subject to forfeiture under this subdivision, the interest or
change in value determined by using the procedures defined in the
policy or contract shall be credited as if the contractual date of
crediting interest or changing values was the date of impairment or
insolvency, whichever is earlier, and is not subject to forfeiture.
(l) A portion of a policy or contract to the extent that the
assessments required by section 7709 for the policy or contract are
preempted by federal or state law.
(m) A policy or contract providing any hospital, medical,
prescription drug, or other health care benefits under part C or
part D of title XVIII of the social security act, 42 USC 1395w-21
to 1395w-29 and 42 USC 1395w-101 to 1395w-152, or under regulations
issued under part C or part D of title XVIII of the social security
act, 42 USC 1395w-21 to 1395w-29 and 42 USC 1395w-101 to 1395w-152.
(6) The benefits that the association may become obligated to
cover shall not exceed the lesser of the following:
(a) The contractual obligations for which the insurer is
liable or would have been liable if it were not an impaired insurer
or an insolvent insurer.
(b) With respect to 1 life, regardless of the number of
policies or contracts:
(i) $300,000.00 in life insurance death benefits, but not more
than $100,000.00 in net cash surrender and net cash withdrawal
values for life insurance.
(ii) Except as otherwise provided in subparagraphs (iv) and (v),
$100,000.00 in health insurance benefits, including any net cash
surrender and net cash withdrawal values.
(iii) $100,000.00 $250,000.00 in the present
value of annuity
benefits, including net cash surrender and net cash withdrawal
values. ;
however, for an individual qualified retirement annuity,
$250,000.00
in the present value of annuity benefits, including net
cash
surrender and net cash withdrawal values. As used in this
subparagraph,
"individual qualified retirement annuity" means an
annuity
issued to an individual or a custodian on behalf of the
individual
pursuant to section 408 or 408A of the internal revenue
code
of 1986, 26 USC 408 and 408A, or an annuity certificate issued
to
an individual pursuant to section 403(b) of the internal revenue
code
of 1986, 26 USC 403(b).
(iv) $300,000.00 in disability income insurance benefits or
long-term care benefits.
(v) $500,000.00 in basic hospital, medical, and surgical
insurance benefits.
(c) With respect to each individual participating in a
governmental retirement benefit plan established under section
401(k), 403(b), or 457 of the internal revenue code of 1986, 26 USC
401, 403, and 457, covered by an unallocated annuity contract or
the beneficiaries of each such individual, if deceased, in the
aggregate,
$100,000.00 $250,000.00 in present value annuity
benefits, including net cash surrender and net cash withdrawal
values.
(d) With respect to each payee of a structured settlement
annuity, or the beneficiary or beneficiaries of a deceased payee,
$100,000.00
$250,000.00 in present value annuity benefits, in the
aggregate, including net cash surrender and net cash withdrawal
values, if any.
(e) For either 1 contract owner provided coverage under
subsection (1)(c)(ii) or 1 plan sponsor whose plans own directly or
in trust 1 or more unallocated annuity contracts not included in
subdivision (C), $5,000,000.00 in benefits, irrespective of the
number of contracts with respect to the contract owner or plan
sponsor. However, if 1 or more unallocated annuity contracts are
covered contracts under this chapter and are owned by a trust or
other entity for the benefit of 2 or more plan sponsors, coverage
shall be afforded by the association if the largest interest in the
trust or entity owning the contract or contracts is held by a plan
sponsor whose principal place of business is in this state, but in
no event is the association obligated to cover more than
$5,000,000.00 in benefits for all those unallocated contracts.
(7) In no event is the association obligated to cover more
than the following:
(a) An aggregate of $300,000.00 in benefits for any 1 life
under subsection (6)(b)(i), (ii), (iii), and (iv), (c), and (d).
(b) An aggregate of $500,000.00 in benefits for any 1 life
under subsection (6)(b)(v).
(c) For 1 owner of multiple nongroup policies of life
insurance, whether the policy owner is an individual, firm,
corporation, or other person, and whether the persons insured are
officers, managers, employees, or other persons, $5,000,000.00 in
benefits, regardless of the number of policies and contracts held
by the owner.
(8) The limitations under subsections (6) and (7) are
limitations on the benefits for which the association is obligated
before taking into account either its subrogation and assignment
rights or the extent to which those benefits could be provided out
of the assets of the impaired insurer or insolvent insurer
attributable to covered policies. The costs of the association's
obligations under this act may be satisfied by the use of assets
attributable to covered policies or reimbursed to the association
pursuant to its subrogation and assignment rights.
(9) In performing its obligations to provide coverage under
section 7708, the association is not required to guarantee, assume,
reinsure, or perform, or cause to be guaranteed, assumed,
reinsured, or performed, contractual obligations of the insolvent
insurer or impaired insurer under a covered policy or contract that
do not materially affect the economic benefits of the covered
policy or contract.
Enacting section 1. This amendatory act's increase in the
maximum benefits under section 7704(6)(b)(iii), (c), and (d) of the
insurance code of 1956, 1956 PA 218, MCL 500.7704, does not apply to
a member insurer that is under either a rehabilitation or
liquidation order on the effective date of this amendatory act.