CHAPTER 21 HOUSE BILL No. 2115 An Act concerning the Kansas life and health insurance guaranty association; relating to
claim reimbursement; amending K.S.A. 40-3003, 40-3005 and 40-3008 and repealing
the existing sections.
Be it enacted by the Legislature of the State of Kansas:

      Section  1. K.S.A. 40-3003 is hereby amended to read as follows: 40-
3003. (a) This act shall provide coverage, for the policies and contracts
specified in subsection (b), for:

      (1) Persons who, regardless of where they reside, except for nonres-
ident certificate holders under group policies or contracts, are the ben-
eficiaries, assignees or payees, payees or providers of the persons covered
under paragraph (2); and

      (2) persons who are owners of or certificate holders under such pol-
icies or contracts, and who:

      (A) Are residents;

      (B) are not residents, but only with respect to an annuity contract
awarded pursuant to K.S.A. 60-3407 or 60-3409, and amendments
thereto, an annuity contract for future economic loss procured pursuant
to a settlement agreement in a medical malpractice liability action, as
defined by K.S.A. 60-3401, and amendments thereto, or fixed-return ac-
counts of the Kansas public employees deferred compensation plan under
K.S.A. 75-5521 through 75-5529a, and amendments thereto; or

      (C) are not residents, but only under all of the following conditions:

      (i) The insurers which issued such policies or contracts are domiciled
in this state;

      (ii) such insurers never had a license or certificate of authority in the
states in which such persons reside;

      (iii) such states have associations similar to the association created by
this act; and

      (iv) such persons are not eligible for coverage by such associations.

      (b) This act shall provide coverage to the persons specified in sub-
section (a) for direct, nongroup life, health, annuity and supplemental
policies or contracts, unallocated annuity contracts covering individuals
participating in a governmental deferred compensation plan established
under section 457 of the U.S. internal revenue code pursuant to K.S.A.
75-5521 through 75-5529a, and amendments thereto, whether or not a
resident, or the beneficiaries of each such individual if deceased, and for
certificates under direct group policies and contracts issued by member
insurers, except as limited by this act.

      Sec.  2. K.S.A. 40-3005 is hereby amended to read as follows: 40-
3005. As used in this act:

      (a) ``Account'' means either of the three accounts created under
K.S.A. 40-3006 and amendments thereto;

      (b) ``association'' means the Kansas life and health insurance guaranty
association created under K.S.A. 40-3006, and amendments thereto;

      (c) ``commissioner'' means the commissioner of insurance of this
state;

      (d) ``contractual obligation'' means any obligation of a policy or con-
tract or certificate under a group policy or contract, or portion thereof,
for which coverage is provided under K.S.A. 40-3003 and amendments
thereto;

      (e) ``covered policy'' means any policy or contract within the scope of
this act under K.S.A. 40-3003 and amendments thereto;

      (f) ``impaired insurer'' means a member insurer which, after the ef-
fective date of this act, is not an insolvent insurer, and which: (1) Is
deemed by the commissioner to be potentially unable to fulfill its con-
tractual obligations; or

      (2) is placed under an order of rehabilitation or conservation by a
court of competent jurisdiction;

      (g) ``insolvent insurer'' means a member insurer which, after the ef-
fective date of this act, is placed under an order of liquidation by a court
of competent jurisdiction with a finding of insolvency;

      (h) ``member insurer'' means any insurer licensed or holding a cer-
tificate of authority to transact in this state any kind of insurance for which
coverage is provided under K.S.A. 40-3003 and amendments thereto, and
includes any insurer whose license or certificate of authority in this state
may have been suspended, revoked, nonrenewed or voluntarily with-
drawn, but does not include: (1) A nonprofit hospital or medical service
organization;

      (2) a health maintenance organization;

      (3) a fraternal benefit society;

      (4) a mandatory state pooling plan;

      (5) a mutual assessment company or any entity that operates on an
assessment basis; or

      (6) an insurance exchange, except a reciprocal or interinsurance
exchange governed by the provisions of article 16 of chapter 40 of the
Kansas Statutes Annotated, and amendments thereto; or

      (7) any entity similar to any of the above;

      (i) ``Moody's corporate bond yield average'' means the monthly av-
erage corporates as published by Moody's investors service, inc., or any
successor thereto;

      (j) ``provider'' means a person who is entitled to receive compensation
for providing medical services to an insured covered under any health
insurance contract or policy issued by a member insurer, regardless of
whether the provider is obligated by statute or by agreement with the
member insurer to hold any insured covered by any health insurance
contract or policy harmless from liability for services;

      (k) ``premiums'' means amounts received on covered policies or con-
tracts less premiums, considerations and deposits returned thereon, and
less dividends and experience credits thereon. Premiums does not include
any amounts received for any policies or contracts or for the portions of
any policies or contracts for which coverage is not provided under sub-
section (b) of K.S.A. 40-3003 and amendments thereto, except that as-
sessible premiums shall not be reduced on accounts for subsection (n)(3)
of K.S.A. 40-3008 and amendments thereto relating to interest limitations
and subsection (o)(2) of K.S.A. 40-3008 and amendments thereto relating
to limitations with respect to any one life and any one contract holder.
Premiums shall not include any premiums on any unallocated annuity
contract;

      (k) (l) ``person'' means any individual, corporation, partnership, as-
sociation or, voluntary organization or provider;

      (l) (m) ``resident'' means any person who resides in this state at the
time a member insurer is determined to be an impaired or insolvent
insurer and to whom a contractual obligation is owed. A person may be
a resident of only one state which, in the case of a person other than a
natural person, shall be its principal place of business;

      (m) (n) ``unallocated annuity contract'' means any annuity contract or
group annuity certificate which is not issued to and owned by an individ-
ual, except to the extent of any annuity benefits guaranteed to an individ-
ual by an insurer under such contract or certificate; and

      (n) (o) ``supplemental contract'' means any agreement entered into
for the distribution of policy or contract proceeds.

      Sec.  3. K.S.A. 40-3008 is hereby amended to read as follows: 40-
3008. (a) If a member insurer is an impaired domestic insurer, the as-
sociation may, in its discretion and subject to any conditions imposed by
the association that do not impair the contractual obligations of the im-
paired insurer, that are approved by the commissioner and that are, ex-
cept in cases of court-ordered conservation or rehabilitation, also ap-
proved by the impaired insurer:

      (1) Guarantee, assume or reinsure, or cause to be guaranteed, as-
sumed or reinsured, any or all of the policies or contracts of the impaired
insurer;

      (2) provide such moneys, pledges, notes, guarantees or other means
as are proper to effectuate the provisions of paragraph (1) of this subsec-
tion and assure payment of the contractual obligations of the impaired
insurer pending action under paragraph (1); or

      (3) lend money to the impaired insurer.

      (b)  (1) If a member insurer is an impaired insurer, whether domes-
tic, foreign or alien, and the insurer is not paying claims timely, then
subject to the preconditions specified in paragraph (2) of this subsection,
the association shall, in its discretion, either: (A) Take any of the actions
specified in subsection (a), subject to the conditions therein; or

      (B) provide substitute benefits in lieu of the contractual obligations
of the impaired insurer solely for health claims, periodic annuity benefit
payments, death benefits, supplemental benefits and cash withdrawals for
policy or contract owners who petition therefor under claims of emer-
gency or hardship in accordance with standards proposed by the associ-
ation and approved by the commissioner.

      (2) The association shall be subject to the requirements of paragraph
(1) of this subsection only if: (A) The laws of the impaired insurer's state
of domicile provide that: (i) The delinquency proceeding shall not be
dismissed;

      (ii) neither the impaired insurer nor its assets shall be returned to the
control of its shareholders or private management; and

      (iii) it shall not be permitted to solicit or accept new business or have
any suspended or revoked license restored; and until all payments of or
on account of the impaired insurer's contractual obligations by all guar-
anty associations, along with all expenses thereof and interest on all such
payments and expenses, shall have been repaid to the guaranty associa-
tions or a plan of repayment by the impaired insurer shall have been
approved by the guaranty associations; and

      (B)  (i) with respect to the impaired insurer who is a domestic insurer,
it has been placed under an order of rehabilitation by a court of com-
petent jurisdiction in this state; or

      (ii) with respect to the impaired insurer who is a foreign or alien
insurer: (aa) It has been prohibited from soliciting or accepting new busi-
ness in this state;

      (bb) its certificate of authority has been suspended or revoked in this
state; and

      (cc) a petition for rehabilitation or liquidation has been filed in a court
of competent jurisdiction in its state of domicile by the commissioner of
the state.

      (c) If a member insurer is an insolvent insurer, the association shall,
in its discretion, either: (1)  (A) Guarantee, assume or reinsure, or cause
to be guaranteed, assumed or reinsured, the policies or contracts of the
insolvent insurer;

      (B) assure payment of the contractual obligations of the insolvent
insurer; and

      (C) provide such moneys, pledges, guarantees or other means as are
reasonably necessary to discharge such duties; or

      (2) with respect only to life and health policies, provide benefits and
coverages in accordance with subsection (d).

      (d) When proceeding under subsection (b)(1)(B) or (c)(2), the asso-
ciation shall, with respect only to life and health insurance policies: (1)
Assure payment of benefits for premiums identical to the premiums and
benefits, except for terms of conversion and renewability, that would have
been payable under the policies of the insolvent insurer, for claims in-
curred: (A) With respect to group policies, not later than the earlier of
the next renewal date under such policies or contracts or 45 days, but in
no event less than 30 days, after the date on which the association be-
comes obligated with respect to such policies;

      (B) with respect to individual policies, not later than the earlier of
the next renewal date, if any, under such policies or one year, but in no
event less than 30 days, from the date on which the association becomes
obligated with respect to such policies;

      (2) make diligent efforts to provide all known insureds or group pol-
icyholders with respect to group policies 30 days' notice of the termination
of the benefits provided; and

      (3) with respect to individual policies, make available to each known
insured, or owner if other than the insured, and with respect to an indi-
vidual formerly insured under a group policy who is not eligible for re-
placement group coverage, make available substitute coverage on an in-
dividual basis in accordance with the provisions of paragraph (4) of this
subsection, if the insureds had a right under law or the terminated policy
to convert coverage to individual coverage or to continue an individual
policy in force until a specified age or for a specified time, during which
the insurer had no right unilaterally to make changes in any provision of
the policy or had a right only to make changes in premium by class;

      (4)  (A) in providing the substitute coverage required under para-
graph (3) of this subsection, the association may offer either to reissue
the terminated coverage or to issue an alternative policy;

      (B) alternative or reissued policies 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; and

      (C) the association may reinsure any alternative or reissued policy;

      (5)  (A) alternative policies adopted by the association shall be subject
to the approval of the commissioner. The association may adopt alter-
native policies of various types for future issuance without regard to any
particular impairment or insolvency;

      (B) alternative policies shall contain at least the minimum statutory
provisions required in this state and provide benefits that shall not be
unreasonable in relation to the premiums charged. The association shall
set the premiums in accordance with a table of rates which it shall adopt.
The premiums shall reflect the amount of insurance 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 after the original policy was last underwritten;

      (C) any alternative policy issued by the association shall provide cov-
erage of a type similar to that of the policy issued by the impaired or
insolvent insurer, as determined by the association;

      (6) if the association elects to reissue the insured's terminated cov-
erage at a premium rate different from that charged under the terminated
policy, the premium shall be set by the association in accordance with
the amount of insurance provided and the age and class of risk, subject
to approval by the commissioner and by a court of competent jurisdiction;

      (7) the association's obligations with respect to coverage under any
policy of the impaired or insolvent insurer or under any reissued or al-
ternative policy shall cease on the date such coverage or policy is replaced
by another similar policy by the policyholder, the insured or the associ-
ation.

      (e) When proceeding under subsection (b)(1)(B) or (c) 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 subsection (n)(3).

      (f) Nonpayment of premiums within 31 days after the date required
under the terms of any guaranteed, assumed, alternative or reissued pol-
icy or contract or substitute coverage shall terminate the association's
obligations under such policy or coverage under this act with respect to
such policy or coverage, except with respect to any claims incurred or any
net cash surrender value which may be due in accordance with the pro-
visions of this act.

      (g) Premiums due 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 be liable for unearned premiums due to policy
or contract owners arising after the entry of such order.

      (h) The protection provided by this act shall not apply where any
guaranty protection is provided to residents of this state by the laws of
the domiciliary state or jurisdiction of the impaired or insolvent insurer
other than this state.

      (i) In carrying out its duties under subsections (b) and (c), the asso-
ciation may, subject to approval by the court: (1) Impose permanent pol-
icy 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 act are less than the amounts needed to assure
full and prompt performance of the association's duties under this act, 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

      (2) impose temporary moratoriums or liens on payments of cash val-
ues and policy loans, or any other right to withdraw funds held in con-
junction with policies or contracts, in addition to any contractual provi-
sions for deferral of cash or policy loan value.

      (j) If the association fails to act within a reasonable period of time as
provided in subsections (b)(1)(B), (c) and (d) of this section, the com-
missioner shall have the powers and duties of the association under this
act with respect to impaired or insolvent insurers.

      (k) The association may render assistance and advice to the commis-
sioner, upon request, concerning rehabilitation, payment of claims, con-
tinuance of coverage or the performance of other contractual obligations
of any impaired or insolvent insurer.

      (l) The association shall have standing to appear before any court in
this state with jurisdiction over an impaired or insolvent insurer concern-
ing which the association is or may become obligated under this act. Such
standing shall extend to all matters germane to the powers and duties of
the association, including, but not limited to, proposals for reinsuring or
guaranteeing the covered policies of the impaired insurer and the deter-
mination of the covered policies or contracts and contractual obligations.
The association shall also have the right to appear or intervene before a
court in another state with jurisdiction over an impaired or insolvent in-
surer for which the association is or may become obligated or with juris-
diction over a third party against whom the association may have rights
through subrogation of the insurer's policyholders.

      (m)  (1) Any person receiving benefits under this act shall be deemed
to have assigned the rights under any cause of action relating to the cov-
ered policy or contract to the association to the extent of the benefits
received because of this act, whether the benefits are payments of or on
account of contractual obligations, continuation of coverage or provision
of substitute or alternative 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 or annuitant as a condition prec-
edent to the receipt of any right or benefits conferred by this act upon
such person.

      (2) 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 act.

      (3) In addition to paragraphs (1) and (2), the association shall have
all common-law rights of subrogation and any other equitable or legal
remedy which would have been available to the impaired or insolvent
insurer or holder of a policy or contract with respect to such policy or
contracts.

      (n) The contractual obligations of the impaired or insolvent insurer
for which the association becomes, or may become, liable shall be as great
as but no greater than the contractual obligations of the impaired or in-
solvent insurer would have been in the absence of an impairment or
insolvency unless such obligations are reduced as permitted by subsection
(e) but the association shall not provide coverage for: (1) Any portion of
a policy or contract not guaranteed by the insurer, or under which the
risk is borne by the policy or contract holder;

      (2) any policy or contract of reinsurance, unless assumption certifi-
cates have been issued;

      (3) any portion of a policy or contract to the extent that the rate of
interest on which it is based: (A) Averaged over the period of four years
prior to the date on which the association becomes obligated with respect
to such policy or contract, exceeds a rate of interest determined by sub-
tracting two percentage points from Moody's corporate bond yield aver-
age averaged for that same four-year period or for such lesser period if
the policy or contract was issued less than four years before the association
became obligated; and

      (B) on and after the date on which the association becomes obligated
with respect to such policy or contract, exceeds the rate of interest de-
termined by subtracting three percentage points from Moody's corporate
bond yield average as most recently available;

      (4) any plan or program of an employer, association or similar entity
to provide life, health or annuity benefits to its employees or members
to the extent that such plan or program is self-funded or uninsured, in-
cluding but not limited, to benefits payable by an employer, association
or similar entity under: (A) A multiple employer welfare arrangement as
defined in section 514 of the employee retirement income security act of
1974, as amended;

      (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
dividends or experience rating credits, or provides that any fees or allow-
ances be paid to any person, including the policy or contract holder, in
connection with the service to or administration of such policy or contract;

      (6) any policy or contract issued in this state by a member insurer at
a time when it was not licensed or did not have a certificate of authority
to issue such policy or contract in this state; and

      (7) any unallocated annuity contract, except as provided in subsection
(b) of K.S.A. 40-3003 and amendments thereto.

      (o) The benefits for which the association may become liable shall in
no event exceed the lesser of: (1) The contractual obligations for which
the insurer is liable or would have been liable if it were not an impaired
or insolvent insurer; or

      (2) with respect to any one life, regardless of the number of policies
or contracts: (A) $300,000 in life insurance death benefits, but not more
than $100,000 in net cash surrender and net cash withdrawal values for
life insurance;

      (B) $100,000 in health insurance benefits, including any net cash sur-
render and net cash withdrawal values; or

      (C) $100,000 in the present value of annuity benefits, including net
cash surrender and net cash withdrawal values;

      (D) In no event shall the association be liable to expend more than
$300,000 in the aggregate with respect to any one life as provided in
paragraph (A), (B) or (C) of this subsection.

      (E) Any increased limits of liability of the guaranty association by this
act shall not apply to an impaired or insolvent insurer for which the guar-
anty association becomes liable prior to July 1, 1993.

      The provisions of subsection (o) shall not apply to annuity contracts for
future economic loss procured pursuant to a judgment or settlement
agreement in a medical malpractice liability action.

      (p) The association may: (1) Enter into such contracts as are necessary
or proper to carry out the provisions and purposes of this act;

      (2) sue or be sued, including taking any legal actions necessary or
proper to recover any unpaid assessments under K.S.A. 40-3009 and
amendments thereto, and to settle claims or potential claims against it;

      (3) borrow money to effect the purposes of this act. Any notes or
other evidence of indebtedness of the association not in default shall be
legal investments for domestic insurers and may be carried as admitted
assets;

      (4) employ or retain such persons as are necessary to handle the fi-
nancial transactions of the association, and to perform such other func-
tions as become necessary or proper under this act;

      (5) take such legal action as may be necessary to avoid payment of
improper claims; or

      (6) exercise, for the purposes of this act and to the extent approved
by the commissioner, the powers of a domestic life or health insurer, but
in no case may the association issue insurance policies or annuity contracts
other than those issued to perform its obligations under this act.

      (q) The association may join an organization of one or more other
state associations of similar purposes to further the purposes and admin-
ister the powers and duties of the association.

      (r) The association shall pay any and all persons who, as a provider,
may have claims as a result of a member insurer being found insolvent
between March 1, 1999 and June 1, 1999.

 Sec.  4. K.S.A. 40-3003, 40-3005 and 40-3008 are hereby repealed.
 Sec.  5. This act shall take effect and be in force from and after its
publication in the Kansas register.

Approved March 15, 2001.
 Published in the Kansas Register March 22, 2001.
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