N.Y. Insurance Law § 7437: Qualified financial contracts

§ 7437. Qualified financial contracts. (a) As used in this section:

(1) "Actual direct compensatory damages" means and includes normal and

reasonable costs of cover or other reasonable measures of damages

utilized in the derivatives, securities or other market for the contract

and agreement claims but does not include punitive or exemplary damages,

damages for lost profit or lost opportunity or damages for pain and

suffering.

(2) "Business day" means a day other than a Saturday, a Sunday or any

day on which either the New York stock exchange or the Federal Reserve

Bank of New York is closed.

(3) "Commodity contract" means: (A) a contract for the purchase or

sale of a commodity for future delivery on, or subject to the rules of,

a board of trade or contract market under the Commodity Exchange Act (7

U.S.C. § 1, et seq.) or a board of trade outside the United States; (B)

an agreement that is subject to regulation under section 19 of the

Commodity Exchange Act (7 U.S.C. § 1, et seq.) and that is commonly

known to the commodities trade as a margin account, margin contract,

leverage account or leverage contract; (C) an agreement or transaction

that is subject to regulation under section 4c(b) of the Commodity

Exchange Act (7 U.S.C. § 1, et seq.) and that is commonly known to the

commodities trade as a commodity option; (D) any combination of the

agreements or transactions referred to in this paragraph; (E) any option

to enter into an agreement or transaction referred to in this paragraph;

or (F) any other contract that is included from time to time as a

commodity contract as defined in the Federal Deposit Insurance Act, 12

U.S.C. § 1821(e)(8)(D).

(4) "Contractual right" means and includes any right set forth in a

rule or bylaw of a derivatives clearing organization (as defined in the

Commodity Exchange Act), a multilateral clearing organization (as

defined in the Federal Deposit Insurance Corporation Improvement Act of

1991), a national securities exchange, a national securities

association, a securities clearing agency, a contract market designated

under the Commodity Exchange Act, a derivatives transaction execution

facility registered under the Commodity Exchange Act, or a board of

trade (as defined in the Commodity Exchange Act) or in a resolution of

the governing board thereof and any right, whether or not evidenced in

writing, arising under statutory or common law, or under law merchant,

or by reason of normal business practice.

(5) "Forward contract" shall have the meaning set forth in the Federal

Deposit Insurance Act, 12 U.S.C. § 1821(e)(8)(D).

(6) "Netting agreement" means: (A) a contract or agreement (including

the terms and conditions incorporated by reference in such agreement),

including a master agreement (which master agreement, together with all

schedules, confirmations, definitions and addenda thereto and

transactions under any thereof, shall be treated as one netting

agreement), that documents one or more transactions between the parties

to the agreement for or involving one or more qualified financial

contracts and that provides for the netting, offset, liquidation,

termination, acceleration or close out, under or in connection with one

or more qualified financial contracts or present or future payment or

delivery obligations or payment or delivery entitlements thereunder

(including liquidation or close-out values relating to such obligations

or entitlements) among the parties to the netting agreement; (B) any

master agreement or bridge agreement for one or more master agreements

described in subparagraph (A) of this paragraph; or (C) any security

arrangement related to one or more contracts or agreements described in

subparagraph (A) or (B) of this paragraph; provided that any contract or

agreement described in subparagraph (A) or (B) of this paragraph

relating to agreements or transactions that are not qualified financial

contracts shall be deemed to be a netting agreement only with respect to

those agreements or transactions that are qualified financial contracts.

(7) "Qualified financial contract" means any commodity contract,

forward contract, repurchase agreement, securities contract, swap

agreement and any similar agreement that the superintendent determines

by regulation to be a qualified financial contract for the purposes of

this article.

(8) "Repurchase agreement" shall have the meaning set forth in the

Federal Deposit Insurance Act, 12 U.S.C. § 1821(e)(8)(D).

(9) "Securities contract" shall have the meaning set forth in the

Federal Deposit Insurance Act, 12 U.S.C. § 1821(e)(8)(D).

(10) "Security arrangement" means any security agreement or

arrangement or other credit enhancement or guarantee or reimbursement

obligation, including a pledge, security, collateral or guarantee

agreement or credit support document.

(11) "Separate account" means an account established pursuant to

section four thousand two hundred forty of this chapter.

(12) "Swap agreement" shall have the meaning set forth in the Federal

Deposit Insurance Act, 12 U.S.C. § 1821(e)(8)(D).

(13) "Walkaway clause" means a provision in a netting agreement or a

qualified financial contract that, after calculation of a value of a

party's position or an amount due to or from one of the parties in

accordance with its terms upon termination, liquidation or acceleration

of the netting agreement or qualified financial contract, either does

not create a payment obligation of a party or extinguishes a payment

obligation of a party in whole or in part solely because of the party's

status as a non-defaulting party.

(b) (1) Notwithstanding any other provision of this article, including

any other provision of this article permitting the modification of

contracts, or other law of this state, no person shall be stayed or

prohibited from exercising: (A) a contractual right to cause the

termination, liquidation, acceleration or close out of any obligation

under or in connection with a netting agreement or qualified financial

contract with an insurer, other than an insurer licensed to write

financial guaranty insurance, because of: (i) the insolvency, financial

condition or default of the insurer at any time, provided that the right

is enforceable under applicable law other than this article; or (ii) the

commencement of any proceeding under this article; (B) any right under a

security arrangement relating to one or more netting agreements or

qualified financial contracts, other than a right against an insurer

licensed to write financial guaranty insurance; or (C) subject to any

provision of subsection (b) of section seven thousand four hundred

twenty-seven of this article, any right to offset or net out any

termination value, payment amount, or other transfer obligation arising

under or in connection with one or more qualified financial contracts,

other than a right against an insurer licensed to write financial

guaranty insurance, where the counterparty or its guarantor is organized

under the laws of the United States, a state, or a foreign jurisdiction

approved by the Securities Valuation Office of the National Association

of Insurance Commissioners as eligible for netting.

(2) If a counterparty to a master netting agreement or a qualified

financial contract with an insurer, other than an insurer licensed to

write financial guaranty insurance, subject to a proceeding under this

article terminates, liquidates, closes out or accelerates the agreement

or contract, damages shall be measured as of the date or dates of

termination, liquidation, close out or acceleration. The amount of a

claim for damages shall be actual direct compensatory damages.

(c) Upon termination of a netting agreement or qualified financial

contract, the net or settlement amount, if any, owed by a nondefaulting

party to an insurer against which an application has been filed under

this article, other than an insurer licensed to write financial guaranty

insurance, shall be transferred to or on the order of the

superintendent, as liquidator, rehabilitator or conservator for the

insurer, even if the insurer is the defaulting party, notwithstanding

any walkaway clause in the netting agreement or qualified financial

contract. Any limited two-way payment or first method provision in a

netting agreement or qualified financial contract with an insurer that

has defaulted shall be deemed to be a full two-way payment or second

method provision as against the defaulting insurer. Any such property or

amount shall, except to the extent it is subject to one or more

secondary liens or encumbrances or rights of netting or setoff, be an

asset of the insurer.

(d) In making any transfer of a netting agreement or qualified

financial contract of an insurer subject to a proceeding under this

article, other than an insurer licensed to write financial guaranty

insurance, the superintendent, as liquidator, rehabilitator or

conservator for the insurer, shall either:

(1) transfer to one party (other than an insurer subject to a

proceeding under this article) all netting agreements and qualified

financial contracts between a counterparty or any affiliate of such

counterparty and the insurer that is the subject of the proceeding,

including: (A) all rights and obligations of each party under each such

netting agreement and qualified financial contract; and (B) all

property, including any guarantees or other credit enhancement, securing

any claims of each party under each such netting agreement and qualified

financial contract; or

(2) transfer none of the netting agreements, qualified financial

contracts, rights, obligations or property referred to in paragraph one

of this subsection (with respect to such counterparty and any affiliate

of such counterparty).

(e) If the superintendent, as liquidator, rehabilitator or conservator

for an insurer, other than an insurer licensed to write financial

guaranty insurance, makes a transfer of one or more netting agreements

or qualified financial contracts, then the superintendent shall use his

or her best efforts to notify any person who is party to the netting

agreements or qualified financial contracts of the transfer by 12:00

noon, New York time, on the business day following the transfer.

(f) Notwithstanding any other provision of this article, the

superintendent, as liquidator, rehabilitator or conservator for an

insurer, other than an insurer licensed to write financial guaranty

insurance, may not avoid a transfer of money or other property arising

under or in connection with a netting agreement or qualified financial

contract, or any security arrangement relating to a netting agreement or

qualified financial contract, that is made before the commencement of a

liquidation, rehabilitation or conservation proceeding under this

article, except that a transfer may be avoided under section seven

thousand four hundred twenty-five of this article if the transfer was

made with actual intent to hinder, delay or defraud the insurer, the

superintendent, as liquidator, rehabilitator or conservator of the

insurer, any other receiver appointed for the insurer, or existing or

future creditors.

(g)(1) In exercising any rights of disaffirmance or repudiation of a

liquidator, rehabilitator or conservator with respect to any netting

agreement or qualified financial contract to which an insurer is a

party, other than an insurer licensed to write financial guaranty

insurance, the superintendent, as liquidator, rehabilitator or

conservator for the insurer shall either: (A) disaffirm or repudiate all

netting agreements and qualified financial contracts between a

counterparty or any affiliate of such counterparty and the insurer that

is the subject of the proceeding; or (B) disaffirm or repudiate none of

the netting agreements and qualified financial contracts referred to in

subparagraph (A) of this paragraph (with respect to such person or any

affiliate of such person).

(2) Notwithstanding any other provision of this article, any claim of

a counterparty against the estate, other than the estate of an insurer

licensed to write financial guaranty insurance, arising from the

superintendent's disaffirmance or repudiation of a netting agreement or

qualified financial contract that has not been previously affirmed in

the liquidation proceeding or in the immediately preceding

rehabilitation proceeding shall be determined and shall be allowed or

disallowed: (A) as if the claim had arisen before the date of the filing

of the application for liquidation; or (B) if a rehabilitation

proceeding is converted to a liquidation proceeding, as if the claim had

arisen before the date of the filing of the application for

rehabilitation.

(3) The amount of the claim identified in paragraph two of this

subsection shall be the actual direct compensatory damages determined as

of the date of the disaffirmance or repudiation of the netting agreement

or qualified financial contract.

(h) All rights of a counterparty under this article shall apply to a

netting agreement and a qualified financial contract entered into on

behalf of or allocated to: (1) the general account of the insurer; or

(2) a separate account of the insurer, other than an insurer licensed to

write financial guaranty insurance, if the assets of the separate

account are available only to a counterparty to a netting agreement and

a qualified financial contract entered into on behalf of, or allocated

to, that separate account.