KRS 304.33-430: Order of distribution.

The order of distribution of claims from the insurer's estate shall be as stated in this

section. The first fifty dollars ($50) of the amount allowed on each claim in the classes

under subsections (3) to (7), inclusive, of this section, shall be deducted f rom the claim

and included in the class under subsection (9) of this section. Claims may not be

cumulated by assignment to avoid application of the fifty dollars ($50) deductible

provision. Subject to the fifty dollars ($50) deductible provision, every claim in each class

shall be paid in full or adequate funds retained for the payment before the members of the

next class receive any payment. No subclasses shall be established within any class. No

claim by a shareholder, policyholder, or other creditor shal l be permitted to circumvent

the priority classes through the use of equitable remedies.

(1) Administration costs. The costs and expenses of administration, including but not

limited to the following: the actual and necessary costs of preserving or recover ing

the assets of the insurer; compensation for all services rendered in the liquidation;

any necessary filing fees; the fees and mileage payable to witnesses; and reasonable

attorney's fees.

(2) Health maintenance organization and limited health service o rganization out -of-

network claims. In a liquidation of a health maintenance organization or limited

health service organization, any claims for health plan benefits or for limited health

service contract benefits for out -of-network claims that would have o therwise been

covered.

(3) Loss and unearned premium claims. Claims by policyholders, beneficiaries, and

insureds arising from and within the coverage of and not in excess of the applicable

limits of insurance policies and insurance contracts issued by the company, and

liability claims against insureds which claims are within the coverage of and not in

excess of the applicable limits of insurance policies and insurance contracts issued

by the company, and claims of guaranty associations or foreign guaranty

associations. Notwithstanding the foregoing, the following claims shall be excluded

from Class 2 priority:

(a) Obligations of the insolvent insurer arising out of reinsurance contracts;

(b) Obligations incurred after the expiration date of the insurance po licy or after

the policy has been replaced by the insured or canceled at the insured's request

or after the policy has been canceled as provided in this chapter.

Notwithstanding this subsection, earned premium claims on policies, other

than reinsurance agreements, shall not be excluded;

(c) Obligations to insurers, insurance pools, or underwriting associations and their

claims for contribution, indemnity, or subrogation, equitable or otherwise;

(d) Any claim which is in excess of any applicable limits provi ded in the

insurance policy issued by the insolvent insurer;

(e) Any amount accrued as punitive or exemplary damages unless expressly

covered under the terms of the policy; and

(f) Tort claims of any kind against the insurer, and claims against the insurer for

bad faith or wrongful settlement practices.

(4) Claims of the federal government other than those claims included in Class 2.

(5) Wages.

(a) Debts due to employees for services performed, not to exceed one thousand

dollars ($1,000) to each employee which have been earned within one (1) year

before the filing of the petition for liquidation. Officers shall not be entitled to

the benefit of this priority.

(b) This priority shall be in lieu of any other similar priority authorized by law as

to wages or compensation of employees.

(6) Residual classification. All other claims including claims of the federal or any state

or local government, not falling within othe r classes under this section. 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 remainder of such claims shall

be postponed to the class of claims under subsection (9) of this section.

(7) Judgments. Claims based solely on judgments. If a claimant files a c laim and bases

it both on the judgment and on the underlying facts, the claim shall be considered by

the liquidator who shall give the judgment such weight as he deems appropriate.

The claim as allowed shall receive the priority it would receive in the absence of the

judgment. If the judgment is larger than the allowance on the underlying claim, the

remaining portion of the judgment shall be treated as if it were a claim based solely

on a judgment.

(8) Interest on claims already paid. Interest at the legal rate compounded annually on all

claims in the classes under subsections (1) to (7) of this section, inclusive, from the

date of the petition for liquidation or the date on which the claim becomes due,

whichever is later, until the date on which the dividen d is declared. The liquidator,

with the approval of the court, may make reasonable classifications of claims for

purposes of computing interest, may make approximate computations, and may

ignore certain classifications and time periods as de minimis.

(9) Miscellaneous subordinated claims. The remaining claims or portions of claims not

already paid, with interest as in subsection (8) of this section:

(a) The first fifty dollars ($50) of each claim in the classes under subsections (3)

to (7), inclusive, of this section, subordinated under this section;

(b) Claims under subsection (2) of KRS 304.33-380;

(c) Claims subordinated by KRS 304.33-600;

(d) Claims filed late;

(e) Portions of claims subordinated under subsection (6) of this section; and

(f) Claims or po rtions of claims, payment of which is provided by other benefits

or advantages recovered or recoverable by the claimant.

(10) Preferred ownership claims. Surplus or contribution notes, or similar obligations,

and premium refunds on assessable policies. Int erest at the legal rate shall be added

to each claim, as in subsections (8) and (9) of this section.

(11) Proprietary claims. The claims of shareholders or other owners.