KRS 304.42-140: Liquidation, rehabilitation or conservation proceedings.

(1) Nothing in this subtitle shall be construed to reduce the liability for unpaid

assessments of the insureds on an impaired or insolvent insurer operating under a

plan with assessment liability.

(2) Records shall be kept of all meetings of the board of direc tors to discuss the

activities of the association in carrying out its powers and duties under KRS 304.42-

080. The records of the association with respect to an impaired or insolvent insurer

shall not be disclosed prior to the termination of a liquidation, rehabilitation, or

conservation proceeding involving the impaired or insolvent insurer, prior to the

termination of the impairment or insolvency of the member insurer, or prior to the

order of a court of competent jurisdiction. Nothing in this subsection s hall limit the

duty of the association to render a report of its activities under KRS 304.42-150.

(3) For the purpose of carrying out its obligations under this subtitle, the association

shall be deemed to be a creditor of the impaired or insolvent insurer to the extent of

assets attributable to covered policies reduced by any amounts to which the

association is entitled as subrogee pursuant to subsection (8) of KRS 304.42 -080.

Assets of the impaired or insolvent insurer attributable to covered policies and

contracts shall be used to continue all covered policies and contracts and pay all

contractual obligations of the impaired or insolvent insurer as required by this

subtitle. Assets attributable to covered policies or contracts, as used in this

subsection, is that proportion of the assets which the reserves that should have been

established for the policies or contracts bear to the reserves that should have been

established for all policies or contracts or health benefit plans written by the

impaired or insolvent insurer.

(4) As a creditor of the impaired or insolvent insurer as established in subsection (3) of

this section and consistent with KRS 304.33 -440, the association and other similar

associations shall be entitled to receive a disbursement of assets out of the

marshaled assets, from time to time as the assets become available to reimburse it,

as a credit against contractual obligations under this subtitle. If the liquidator has

not, within one hundred twenty (120) days of a final determination of ins olvency of

a member insurer by the receivership court, made an application to the court for the

approval of a proposal to disburse assets out of marshaled assets to guaranty

associations having obligations because of the insolvency, then the association sh all

be entitled to make application to the receivership court for approval of its own

proposal to disburse these assets.

(5) (a) Prior to the termination of any liquidation, rehabilitation, or conservation

proceeding, the court may take into consideration the contributions of the

respective parties, including the association, the shareholders, enrollees,

certificate holders, contract owners, and policy owners of the insolvent

insurer, and any other party with a bona fide interest, in making an equitable

distribution of the ownership rights of such insolvent insurer. In such a

determination, consideration shall be given to the welfare of the enrollees,

certificate holders, contract owners, and policy owners of the continuing or

successor member insurer;

(b) No distribution to stockholders, if any, of an impaired or insolvent insurer

shall be made until and unless the total amount of valid claims of the

association for funds expended in carrying out its powers and duties under

KRS 304.42 -080 with respect to the member insurer have been fully

recovered by the association.

(6) (a) If an order for liquidation or rehabilitation of a member insurer domiciled in

this state has been entered, the receiver appointed under such order shall have

a right to recover on behal f of the member insurer, from any affiliate that

controlled it, the amount of distributions, other than stock dividends paid by

the member insurer on its capital stock, made at any time during the five (5)

years preceding the petition for liquidation or re habilitation subject to the

limitations of paragraphs (b) to (d) of this subsection;

(b) No distribution shall be recoverable if the member insurer shows that when

paid the distribution was lawful and reasonable, and that the member insurer

did not know and could not reasonably have known that the distribution might

adversely affect the ability of the member insurer to fulfill its contractual

obligations;

(c) Any person who was an affiliate that controlled the member insurer at the time

the distributions were paid shall be liable up to the amount of distributions he

received. Any person who was an affiliate that controlled the member insurer

at the time the distributions were declared, shall be liable up to the amount of

distributions which would have been r eceived if they had been paid

immediately. If two (2) persons are liable with respect to the same

distributions, they shall be jointly and severally liable;

(d) The maximum amount recoverable under this subsection shall be the amount

needed in excess of all other available assets of the insolvent insurer to pay the

contractual obligations of the insolvent insurer;

(e) If any person liable under paragraph (c) of this subsection is insolvent, all its

affiliates that controlled it at the time the dividend was paid shall be jointly

and severally liable for any resulting deficiency in the amount recovered from

the insolvent affiliate.