KRS 304.33-140: Grounds for rehabilitation.

(1) The commissioner may apply by verified petition to the court for an order directing

the commissioner to rehabilitate a domestic insurer or an alien insurer domiciled in

this state on any one (1) or more of the following grounds:

(a) Any ground on which the commissioner may apply for an order of liquidation

under KRS 304.33 -190, whenever the commissioner believes that the insurer

may be successfully rehabilitated without substantial increase in the risk of

loss to creditors of the insurer or to the public;

(b) That the commissioner has reasonable cause to believe that there has been

embezzlement from the insurer, wrongful sequestration or diversion of the

insurer's assets, forgery or fraud affecting the insurer, or other illegal conduct

in, by, or with respect to the insurer, that if established would endanger assets

in an amount threatening the solvency of the insurer;

(c) That any one (1) of the following circumstances has occurred and the

commissioner has reasonable cause to believe that the insurer is inso lvent or

that assets are endangered in an amount threatening the solvency of the

insurer:

1. That information coming into the commissioner's possession has

disclosed substantial and not adequately explained discrepancies

between the insurer's records and t he most recent annual report or other

official company reports;

2. That the insurer has failed to remove any person who in fact has

executive authority in the insurer, whether an officer, manager, general

agent, employee, or other person, if the person has been found by the

commissioner after notice and hearing to be dishonest or untrustworthy

in a way affecting the insurer's business;

3. That control of the insurer, whether by stock ownership or otherwise,

and whether direct or indirect, is in one (1) or more persons found by the

commissioner after notice and hearing to be dishonest or untrustworthy;

4. That any person who in fact has executive authority in the insurer,

whether an officer, manager, general agent, employee, or other person,

has refused to be examined under oath by the commissioner concerning

its affairs, whether in this state or elsewhere, and after reasonable notice

of the fact the insurer has failed promptly and effectively to terminate

the employment and status of the person and all his or her influence on

management;

5. That the insurer has refused to submit its books, accounts, documents, or

other records to the reasonable examination or inspection of the

commissioner or the commissioner's authorized representative;

(d) That the insurer is or is about to become insolvent;

(e) That the insurer is engaging in a systematic practice of reaching settlements

with and obtaining releases from policyholders or third -party claimants and

then unreasonably delaying payment of or failing to pay the agr eed upon

settlements;

(f) That the insurer is in such condition that the further transaction of business

would be hazardous, financially or otherwise, to its policyholders, its

creditors, or the public;

(g) That within the previous twelve (12) months the insurer has systematically

attempted to compromise with its creditors on the ground that it is financially

unable to pay its claims in full;

(h) That without first obtaining the written consent of the commiss ioner, the

insurer has transferred, or attempted to transfer, substantially its entire

property or business, or has entered into any transaction the effect of which is

to merge, consolidate, or reinsure substantially its entire property or business

in or with the property or business of any other person;

(i) That the insurer or its property has been or is the subject of an application for

the appointment of a receiver, trustee, custodian, conservator, or sequestrator

or similar fiduciary of the insurer or i ts property otherwise than as authorized

under this subtitle, and that such appointment has been made or is imminent,

and that such appointment might oust the courts of this state of jurisdiction or

prejudice orderly delinquency proceedings under this subtitle;

(j) That within the previous year the insurer has willfully violated its charter or

articles of incorporation or any insurance law or regulation of this state, or

having become aware within the previous year of an unintentional violation

has failed t o take all reasonable steps to remedy the situation resulting from

the violation and to prevent future violations;

(k) That the directors of the insurer are deadlocked in the management of the

insurer's affairs and that the members or shareholders are unab le to break the

deadlock and that irreparable injury to the insurer, its creditors or its

policyholders is threatened by reason thereof;

(l) That the insurer has failed to file its annual report or other report within the

time allowed by law, and after written demand by the commissioner has failed

to give an adequate explanation immediately; and

(m) That two-thirds (2/3) of the board of directors, or the holders of a majority of

the shares entitled to vote, or a majority of members or policyholders of an

insurer subject to control by its members or policyholders, consent to

rehabilitation under this subtitle.

(2) Upon the issuance of an order directing the commissioner to rehabilitate a domestic

insurer, the court shall have exclusive jurisdiction over all m atters relating to the

rehabilitation, including, but not limited to, the proper scope and application of the

provisions of this subtitle to the rehabilitation as well as all interpretation and

enforceability of all contracts of insurance to which the insurer is a party.