KRS 304.42-030: Scope of subtitle.

(1) This subtitle shall provide coverage for the policies and contracts specified in

subsection (2) of this section:

(a) To persons who, regardless of where they reside (except for nonresident

certificate holders or enrollees under group policies or contracts) , are the

beneficiaries, assignees, or payees, including health care providers rendering

services covered under a health insurance policy, contract, or certificate, of the

persons covered under paragraph (b) of this subsection.

(b) To persons who are the o wners of or certificate holders or enrollees under

such policies or contracts, other than structured settlement annuities, who:

1. Are residents; or

2. Are not residents, but only under the following conditions:

a. The member insurer which issued the polic ies or contracts is

domiciled in this state;

b. The states in which the persons reside have associations similar to

the association created by this subtitle; and

c. The persons are not eligible for coverage by an association in any

other state due to the f act that the insurer or health maintenance

organization was not licensed in the state at the time specified in

the state's guaranty association law.

(c) For structured settlement annuities covered in subsection (2) of this section,

paragraphs (a) and (b) of this subsection shall not apply and this subtitle shall,

except as provided in paragraphs (d) and (e) of this subsection, provide

coverage to a person who is a payee under a structured settlement annuity, or

beneficiary of a payee if the payee is decease d, if the payee is a resident,

regardless of where the contract owner resides. If the payee is not a resident,

this subtitle shall provide coverage but only under both of the following

conditions:

1. a. The contract owner of the structured settlement annui ty is a

resident; or

b. The contract owner of the structured settlement annuity is not a

resident, but 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 subtitle; and

2. Neither the payee, the beneficiary, nor the contract owner is eligible for

coverage by the association of the state in which the payee or contract

owner resides.

(d) This subtitle shall not provide coverage to:

1. A person who is a payee or beneficiary of a contract owner resident of

this state, if the payee or beneficiary is afforded any coverage by the

association of another state; or

2. A person who acquires rights to receive payments through a structured

settlement factoring transaction as defined in 26 U.S.C. sec.

5891(c)(3)(A), regardless of whether the transaction occurred before or

after the section became effective.

(e) This subtitle is intende d to provide coverage to a person who is a resident of

this state and, in special circumstances, to a nonresident. In order to avoid

duplicate coverage, if a person who would otherwise receive coverage in this

subtitle is provided coverage under the laws o f any other state, the person

shall not be provided coverage under this subtitle. In determining the

application of the provisions of this paragraph in situations where a person

could be covered by the association of more than one (1) state, whether as an

owner, payee, enrollee, beneficiary, or assignee, this subtitle shall be

construed in conjunction with other state laws to result in coverage by only

one (1) association.

(2) (a) This subtitle shall provide coverage to the persons specified in subsection ( 1)

of this section for policies and contracts of direct, nongroup life insurance,

health insurance, which for purposes of this subtitle includes health

maintenance organization subscriber contracts and certificates, or annuities

and supplemental contracts to any of these and for certificates issued under

direct group policies and contracts.

(b) This subtitle shall not provide coverage for:

1. Any portion of a policy or contract not guaranteed by the member

insurer, or under which the risk is borne by the policy or contract owner;

2. Any policy or contract of reinsurance, unless assumption certificates

have been issued pursuant to the reinsurance policy or contract;

3. Except as otherwise provided in paragraph (c) of this subsection, any

portion of a policy o r contract to the extent that the rate of interest on

which it is based:

a. Averaged over the period of four (4) years prior to the date on

which the association becomes obligated with respect to such

policy or contract, exceeds a rate of interest determin ed by

subtracting two (2) percentage points from Moody's corporate

bond yield average averaged for that same four (4) year period or

for such lesser period if the policy or contract was issued less than

four (4) years before the association became obligated; and

b. On and after the date on which the association becomes obligated

with respect to the policy or contract, exceeds the rate of interest

determined by subtracting three (3) percentage points from

Moody's corporate bond yield average as most recently available;

4. Any portion of a policy 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 such plan

or program is self -funded or uninsured including, but not limited to,

benefits payable by an employer, association, or other person under:

a. A multiple employer welfare arrangement as defined in 29 U.S.C.

sec. 1144;

b. A minimum premium group insurance plan;

c. A stop-loss group insurance plan; or

d. An administrative services only contract;

5. Any portion of a policy or contract to the extent that it provides for:

a. Dividends or experience rating credits;

b. Payment of any fees or allowances to any person, including the

policy or contract owner, in connection with the service to or

administration of such policy or contract; or

c. Voting rights;

6. Any policy or contract issued in this state by a member insurer at a time

when it did not have a certificate of authority to issue such policy or

contract in this state;

7. Any unallocated annuity contract;

8. A portion of a policy or contract to the extent that the assessments

required by KRS 304.42 -090 with respect to the policy or contract are

preempted by federal or state law;

9. An obligation that does not arise under the express written terms of the

policy or contract issued by the member insurer to the enrollee,

certificate holder, policyholder, contract owner, or policy owner,

including without limitation:

a. Claims based on marketing materials;

b. Claims based on side letters, riders, or other documents that were

issued by the member insurer without meeting applicable policy or

contract form filing or approval requirements;

c. Misrepresentations of or regarding policy or contract benefits;

d. Extracontractual claims; or

e. A claim for penalties or consequential or incidental damages;

10. 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;

11. A policy or contract providing any hospital, medical, prescription drug

or other health care benefits pursuant to:

a. Medicare Part C or Part D, 42 U.S.C. secs. 1395w-21 to w-154;

b. Medicaid, 42 U.S.C. secs. 1396 to 1396w-5; or

c. Any regulations issued pursuant to the sections referenced in

subdivision a. or b. of this subparagraph; and

12. Structured settlement annuity benefits to which a payee or beneficiary

has transferred his or her rights in a structured settlement factoring

transaction as defined in 26 U.S.C. sec. 5891(c)(3)(A), regardless of

whether the transaction occurre d before or after the section became

effective.

(c) The exclusion of coverage under paragraph (b)3. of this subsection shall not

apply to any portion of a policy or contract, including a rider, that provides

long-term care or any other health insurance benefits.

(3) (a) The benefits that the association may become obligated to cover shall in no

event exceed the lesser of the contractual obligations for which the member

insurer is liable or would have been liable if it were not an impaired or

insolvent insurer, or with respect to any one (1) life, regardless of the number

of policies or contracts:

1. In life insurance, three hundred thousand dollars ($300,000) in death

benefits, but not more than one hundred thousand dollars ($100,000) net

cash surrender and net cash withdrawal values for life insurance;

2. For health insurance benefits:

a. One hundred thousand dollars ($100,000) for coverages not

defined as disability income insurance, health benefit plans, or

long-term care insurance, including any net cash surrender and net

cash withdrawal values;

b. Three hundred thousand dollars ($300,000) for disability income

insurance and long-term care insurance; and

c. Five hundred thousand dollars ($500,000) for health benefit plans;

and

3. In annuity benefits, two hundred fifty thousand dollars ($250,000) in the

present value of annuity benefits, including net cash surrender and net

cash withdrawal values; except with respect to each payee of a

structured settlement annuity or beneficiary or beneficiaries of the paye e

if deceased, two hundred fifty thousand dollars ($250,000) in present

value annuity benefits, in the aggregate, including net cash surrender and

net cash withdrawal values.

(b) In no event shall the association be obligated to cover more than:

1. An aggregate of three hundred thousand dollars ($300,000) in benefits

with respect to any one (1) life under subparagraphs 2. and 3. of

paragraph (a) of this subsection, except with respect to benefits for

health benefit plans as stated in paragraph (a) of this s ubsection, in

which case the aggregate liability of the association shall not exceed five

hundred thousand dollars ($500,000) with respect to any one (1)

individual; or

2. With respect to one (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, more than five million dollars ($5,000,000)

in benefits, regardless of the number of policies and contracts held by

the owner.

(c) The limitations set forth in this subsection 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 benef its could

be provided out of the assets of the impaired or insolvent insurer attributable

to covered policies. The costs of the association's obligations under this

subtitle may be met by the use of assets attributable to covered policies or

reimbursed to the association in accordance with its subrogation and

assignment rights.

(d) For purposes of this subtitle, benefits provided by a long-term care rider to a

life insurance policy or annuity contract shall be considered the same type of

benefits as the base life insurance policy or annuity contract to which it

relates.

(4) In performing its obligations to provide coverage under K RS 304.42 -080, the

association shall not be required to guarantee, assume, reinsure, reissue, or perform,

or cause to be performed, assumed, reinsured, reissued, or performed, the

contractual obligations of the insolvent or impaired insurer under a covered policy

or contract that do not materially affect the economic values or economic benefits of

the covered policy or contract.