KRS 304.42-080: Powers and duties of association.

(1) If a member insurer is an impaired insurer, the association may, in its discretion,

and subject to any conditions imposed by the association that do not impair the

contractual obligations of the impaired insurer and that are approved by the

commissioner:

(a) Guarantee, assume, reissue, or reinsure, or cause to be guaranteed, assumed,

reissued, or reinsured, any or all of the policies or contracts of the impaired

insurer; or

(b) Provide such monies, pledges, loans, notes, guarantees, or other means as are

proper to effectuate paragraph (a) of this subsection and assure payment of the

contractual obligations of the impaired insurer pending action under paragraph

(a) of this subsection.

(2) If a member insurer is an insolvent insurer, the association shall, in its discretion,

either:

(a) 1. Guarantee, assume, reissue, or reinsure, or cause to be guaranteed,

assumed, reissued, or reinsured, the policies or contracts of the insolvent

insurer; or

2. Assure payment of the contractual obligations of the insolvent ins urer;

and

3. Provide such monies, pledges, loans, notes, guarantees, or other means

as are reasonably necessary to discharge such duties; or

(b) Provide benefits and coverages in accordance with the following provisions:

1. Assure payment of benefits that would have been payable under policies

or contracts of the insolvent insurer, for claims incurred:

a. With respect to group policies and contracts, not later than the

earlier of the next renewal date under such policies or contracts or

forty-five (45) days, but in no event less than thirty (30) days, after

the date on which the association becomes obligated with respect

to such policies or contracts;

b. With respect to nongroup policies, contracts, and annuities not

later than the earlier of the next renewal date (if any) under such

policies or contracts or one (1) year, but in no event less than thirty

(30) days, from the date on which the association be comes

obligated with respect to such policies or contracts;

2. Make diligent efforts to provide all known insureds, enrollees, or

annuitants for nongroup policies and contracts, or group policy or

contract owners with respect to group policies and contract s thirty (30)

days' notice of the termination under subparagraph 1. of this paragraph

of the benefits provided;

3. With respect to individual policies and contracts covered by the

association, make available to each known insured, enrollee, or

annuitant, or owner if other than the insured, enrollee, or annuitant, and

with respect to an individual formerly an insured, enrollee, or annuitant

under a group policy or contract who is not eligible for replacement

group coverage, make available substitute coverage on an individual

basis in accordance with the provisions of subparagraph 4. of this

paragraph, if the insureds, enrollees, or annuitants had a right under law

or the terminated policy, contract, or annuity to convert coverage to

individual coverage or to continue an individual policy, contract, or

annuity in force until a specified age or for a specified time, during

which the insurer or health maintenance organization had no right

unilaterally to make changes in any provision of the policy, contract, or

annuity or had a right only to make changes in premium by class;

4. a. In providing substitute coverage required under subparagraph 3. of

this paragraph the association may offer either to reissue the

terminated coverage or to issue an alternative policy or contract at

actuarially justified rates.

b. Alternative or reissued policies or contracts shall be offered

without requiring evidence of insurability, and shall not provide

for any waiting period or exclusion that would not have applied

under the terminated policy or contract.

c. The association may reinsure any alternative or reissued policy or

contract;

5. a. Alternative policies or contracts adopted by the association shall

be subject to approval by the commissioner. The association may

adopt alternativ e policies or contracts of various types for future

issuance without regard to any particular impairment or

insolvency.

b. Alternative policies or contracts shall contain at least the minimum

statutory provisions required in this state and provide benefits that

shall not be unreasonable in relation to the premium charged. The

association shall set the premium in accordance with a table of

rates which it shall adopt. The premium shall reflect the amount of

insurance or coverage to be provided and the age and class of risk

of each insured, but shall not reflect any changes in the health of

the insured or enrollee after the original policy or contract was last

underwritten.

c. Any alternative policy or contract issued by the association shall

provide coverage of a type similar to that of the policy or contract

issued by the impaired or insolvent insurer, as determined by the

association;

6. If the association elects to reissue terminated coverage at a premium rate

different from that charged under the terminated policy or contract, the

premium shall be actuarially justified and set by the association in

accordance with the amount of insurance or coverage provided and the

age and class of risk, subject to approval by the commissioner; and

7. The association's obli gations with respect to coverage under any policy

or contract of the impaired or insolvent insurer or under any reissued or

alternative policy or contract shall cease on the date such coverage,

contract, or policy is replaced by another similar policy or c ontract by

the policy or contract owner, enrollee, the insured, or the association.

(3) When proceeding under subsection (2)(b) of this section with respect to any policy

or contract carrying guaranteed minimum interest rates, the association shall assure

the payment or crediting of a rate of interest consistent with KRS 304.42 -

030(2)(b)3.

(4) Nonpayment of premiums within thirty -one (31) days after the date required under

the terms of any guaranteed, assumed, alternative, or reissued policy or contract for

substitute coverage shall terminate the association's obligations under such policy,

contract, or coverage under this subtitle with respect to such policy, contract, or

coverage, except with respect to any claims incurred or any net cash surrender value

which may be due in accordance with the provisions of this subtitle.

(5) Premiums due for coverage after entry of an order of liquidation of an insolvent

insurer shall belong to and be payable at the direction of the association, and the

association shall b e liable for unearned premiums due to policy or contract owners

arising after the entry of such order.

(6) The protection provided by this subtitle shall not apply where any guaranteed

protection is provided to residents of this state by the laws of the do miciliary state

or jurisdiction of the impaired or insolvent insurer other than this state.

(7) In carrying out its duties under subsection (2) of this section, the association may:

(a) Subject to approval by a court in this state, impose permanent policy or

contract liens in connection with any guarantee, assumption, or reinsurance

agreement, if the association finds that the amounts which can be assessed

under this subtitle are less than the amounts needed to assure full and prompt

performance of the asso ciation's duties under this subtitle, or that the

economic or financial conditions as they affect member insurers are

sufficiently adverse to render the imposition of such permanent policy or

contract liens to be in the public interest; and

(b) Subject to approval by a court in this state, impose temporary moratoriums or

liens on payments of cash values and policy loans, or any other right to

withdraw funds held in conjunction with policies or contracts, in addition to

any contractual provisions for deferra l of cash or policy loan value. In

addition, in the event of a temporary moratorium or moratorium charge

imposed by the receivership court on payment of cash values or policy loans,

or on any other right to withdraw funds held in conjunction with policies or

contracts, out of the assets of the impaired or insolvent insurer, the association

may defer the payment of cash values, policy loans, or other rights by the

association for the period of the moratorium or moratorium charge imposed by

the receivership court, except for claims covered by the association to be paid

in accordance with a hardship procedure established by the liquidator or

rehabilitator and approved by the receivership court.

(8) A deposit in this state, held under law or required by the comm issioner for the

benefit of creditors, including policy or contract owners, not turned over to the

domiciliary liquidator upon the entry of a final order of liquidation or order

approving a rehabilitation plan of a member insurer domiciled in this state or in a

reciprocal state, shall be promptly paid to the association. The association:

(a) Shall be entitled to retain a portion of any amount so paid to it equal to the

percentage determined by dividing the aggregate amount of policy or contract

owners' clai ms related to that insolvency for which the association has

provided statutory benefits by the aggregate amount of all policy or contract

owners' claims in this state related to that insolvency; and

(b) Shall remit to the domiciliary receiver the amount so paid to the association

and retained in accordance with paragraph (a) of this subsection. Any amount

so paid to the association less the amount retained by it in accordance with

paragraph (a) of this subsection shall be treated as a distribution of estate

assets under KRS 304.33 -440 or similar provision of the state of domicile of

the impaired or insolvent insurer.

(9) If the association fails to act within a reasonable period of time with respect to an

insolvent insurer as provided in subsection (2) of th is section, the commissioner

shall have the powers and duties of the association under this subtitle with respect

to the insolvent insurer.

(10) The association may render assistance and advice to the commissioner, upon his or

her request, concerning rehab ilitation, payment of claims, continuance of coverage,

or the performance of other contractual obligations of any impaired or insolvent

insurer.

(11) The association shall have standing to appear or intervene before any court or

agency in this state with j urisdiction over an impaired or insolvent insurer

concerning which the association is or may become obligated under this subtitle or

with jurisdiction over any person or property against whom the association may

have rights through subrogation or otherwise . Such standing shall extend to all

matters germane to the powers and duties of the association, including, but not

limited to, proposals for reinsuring, reissuing, modifying, or guaranteeing the

policies or contracts of the impaired or insolvent insurer a nd the determination of

the policies or contracts and contractual obligations. The association shall also have

the right to appear or intervene before a court or agency in another state with

jurisdiction over an impaired or insolvent insurer for which the association is or

may become obligated or with jurisdiction over any person or property against

whom the association may have rights through subrogation or otherwise.

(12) (a) Any person receiving benefits under this subtitle shall be deemed to have

assigned the rights under, and any causes of action against any person for

losses arising under, resulting from, or otherwise relating to, the covered

policy or contract to the association to the extent the benefits received because

of this subtitle, whether ben efits are payments of or on account of contractual

obligations, continuation of coverage, or provision of substitute or alternative

policies, contracts, or coverages. The association may require an assignment

to it of such rights and cause of action by any payee, policy or contract owner,

beneficiary, insured, enrollee, or annuitant as a condition precedent to the

receipt of any right or benefits conferred by this subtitle upon such person.

(b) The subrogation rights of the association under this subsection shall have the

same priority against the assets of the impaired or insolvent insurer as that

possessed by the person entitled to receive benefits under this subtitle.

(c) In addition to paragr aphs (a) and (b) of this subsection, the association shall

have all common law rights of subrogation and any other equitable or legal

remedy that would have been available to the impaired or insolvent insurer or

owner, beneficiary, enrollee, or payee of a policy or contract with respect to

such policy or contract, including without limitation, in the case of a

structured settlement annuity, any rights of the owner, beneficiary, enrollee, or

payee of the annuity, to the extent of benefits received under this subtitle

against a person originally or by succession responsible for the losses arising

from the personal injury relating to the annuity or payment therefor.

(d) If the preceding provisions of this subsection are invalid or ineffective with

respect to an y person or claim for any reason, the amount payable by the

association with respect to the related covered obligations shall be reduced by

the amount realized by any other person with respect to the person or claim

that is attributable to the policies, co ntracts, or portion thereof covered by the

association.

(e) If the association has provided benefits with respect to a covered obligation

and a person recovers amounts as to which the association has rights as

described in the preceding paragraphs of this subsection, the person shall pay

to the association the portion of the recovery attributable to the policies,

contracts, or portion thereof covered by the association.

(13) In addition to the rights and powers elsewhere in this subtitle, the association may:

(a) Enter into such contracts as are necessary or proper to carry out the provisions

and purposes of this subtitle;

(b) Sue or be sued, including taking any legal actions necessary or proper to

recover any unpaid assessments under KRS 304.42-090 and to settle claims or

potential claims against it;

(c) Borrow money to effect the purposes of this subtitle; any notes or other

evidence of indebtedness of the association not in default shall be legal

investments for domestic member insurers and may be carried as admitted

assets;

(d) Employ or retain such persons as are necessary or appropriate to handle the

financial transactions of the association, and to perform such other functions

as may become necessary or proper under this subtitle;

(e) Take such legal action as may be necessary or appropriate to avoid or recover

payment of improper claims;

(f) Exercise, for the purposes of this subtitle and to the extent approved by the

commissioner, the powers of a domestic life insurer, health insurer, or health

maintenance organization, but in no case may the association issue policies or

contracts other than those issued to perform its obligations under this subtitle;

(g) Organize itself as a corporation or in other legal form permitted by the laws of

the state;

(h) Request information from a person seeking coverage from the association in

order to aid the association in determining its obligations under this subtitle

with respect to the person, and the person shall promptly comply with the

request;

(i) Unless prohibited by law, in accordance with the terms and conditions of the

policy or contract, file for actuarially justified rate or premium increases for

any policy or contract for which it provides coverage under this subtitle; and

(j) Take other necessary or approp riate action to discharge its duties and

obligations under this subtitle or to exercise its powers under this subtitle.

(14) The association may join an organization of one (1) or more other state associations

of similar purposes, to further the purposes a nd administer the powers and duties of

the association.

(15) (a) At any time within one (1) year after the date on which the association

becomes responsible for the obligations of a member insurer, the association

may elect to succeed to the rights and obl igations of the member insurer that

accrue on or after that date and that relate to policies, contracts, or annuities

covered in whole or in part by the association, under any one (1) or more

indemnity reinsurance agreements entered into by the member insu rer as a

ceding member insurer and selected by the association. The association may

not exercise any such election with respect to a reinsurance agreement if the

receiver, rehabilitator, or liquidator of the member insurer has previously and

expressly disa ffirmed the reinsurance agreement. The election shall be

effected by a notice to the receiver, rehabilitator, or liquidator and to the

affected reinsurer. If the association makes an election, subparagraphs 1. to 4.

of this paragraph shall apply with respe ct to the agreements selected by the

association:

1. The association shall be responsible for all unpaid premiums due under

the agreements for periods both before and after the date, and shall be

responsible for the performance of all other obligations to be performed

after the coverage date, in each case which relate to policies, contracts,

or annuities covered, in whole or in part, by the association. The

association may charge policies, contracts, or annuities covered in part

by the association, through reasonable allocation methods, the costs for

reinsurance in excess of the obligations of the association;

2. The association shall be entitled to any amounts payable by the reinsurer

under the agreements with respect to losses or events that occur in

periods after the coverage date and that relate to policies, contracts, or

annuities covered by the association, in whole or in part. Upon receipt of

any such amounts the association shall be obliged to pay to the

beneficiary under the policy, contract, or annu ity on account of which

the amounts were paid a portion of the amount equal to the excess of:

a. The amount received by the association, over

b. The benefits paid by the association on account of the policy,

contract, or annuity less the retention of the i mpaired or insolvent

member insurer applicable to the loss or event;

3. Within thirty (30) days following the association's election, the

association and each indemnity reinsurer shall calculate the net balance

due to or from the association under each suc h reinsurance agreement as

of the date of the association's election with respect to policies,

contracts, or annuities covered in whole or in part by the association,

which calculation shall give full credit to all items paid by either the

member insurer o r its receiver, rehabilitator, or liquidator, or the

indemnity reinsurer during the period between the coverage date and the

date of the association's election. Either the association or indemnity

reinsurer shall pay the net balance due the other within fi ve (5) days of

the completion of the calculation. If the receiver, rehabilitator, or

liquidator has received any amounts due the association under

subparagraph 2. of this paragraph, the receiver, rehabilitator, or

liquidator shall remit those amounts to th e association as promptly as

practicable; and

4. If the association, within sixty (60) days of the election, pays the

premiums due for periods both before and after the coverage date that

relate to policies, contracts, or annuities covered by the associati on in

whole or in part, the member insurer shall not be entitled to terminate

the reinsurance agreements insofar as the agreements relate to policies,

contracts, or annuities covered by the association in whole or in part and

shall not be entitled to set o ff any unpaid premium due for periods prior

to the coverage date against amounts due the association.

(b) If the association transfers its obligations to another insurer, and if the

association and the other insurer agree, the other insurer shall succeed t o the

rights and obligations of the association under paragraph (a) of this subsection

effective as of the date agreed upon by the association and the other insurer

and regardless of whether the association has made the election referred to in

paragraph (a) of this subsection if:

1. The indemnity reinsurance agreements automatically terminate for new

reinsurance unless the indemnity reinsurer and the other member insurer

agree to the contrary;

2. The obligations described in subparagraph 2. of paragraph (a) of this

subsection no longer apply on and after the date the indemnity

reinsurance agreement is transferred to the third party member insurer;

and

3. The association has not previously expressly determined in writing that

it will not exercise the election referred to in paragraph (a) of this

subsection.

(c) The provisions of this subsection shall supersede the provisions of any state

law or of any affected reinsurance agreements that provide for or require any

payment of reinsurance proceeds, on account of losses or events that occur in

periods after the coverage date, to the receiver, liquidator, or rehabilitator of

the insolvent member insurer. The receiver, rehabilitator, or liquidator shall

remain entitled to any amounts payable by the reinsurer under the reinsurance

agreements with respect to losses or events that occur in periods prior to the

coverage date, subject to applicable setoff provisions.

(d) Except as otherwise expressly provided in this subsection, nothing in this

subsection shall alter or modify the terms and conditions of the indemnity

reinsurance agreements of the insolvent member insurer. Nothing in this

subsection shall abrogate or limit any rights of any reinsurer to claim tha t it is

entitled to rescind a reinsurance agreement. Nothing in this subsection shall

give a policyholder, contract owner, enrollee, certificate holder, or beneficiary

an independent cause of action against an indemnity reinsurer that is not

otherwise set forth in the indemnity reinsurance agreement.

(16) The board of directors of the association shall have discretion and may exercise

reasonable business judgment to determine the means by which the association is to

provide the benefits of this subtitle in an economical and efficient manner.

(17) If the association has arranged or offered to provide the benefits of this subtitle to a

covered person under a plan or arrangement that fulfills the association's obligations

under this subtitle, the person shall n ot be entitled to benefits from the association

in addition to or other than those provided under the plan or arrangement.

(18) Venue in a suit against the association under this subtitle shall be in Franklin

County. The association shall not be required t o give an appeal bond in an appeal

that relates to a cause of action arising under this subtitle.