31-5405. Powers and duties of the Association.
(a)
If a member insurer is an impaired domestic 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 that are approved by the Mayor, and that are, except in cases of court-ordered conservation or rehabilitation, also approved by the impaired insurer:
(1)
Guarantee, assume, or reinsure, or cause to be guaranteed, assumed, or reinsured, any or all of the policies, contracts, or certificates of the impaired insurer;
(2)
Provide monies, pledges, notes, guarantees, or other proper means to effectuate paragraph (1) of this subsection and assure payment of the contractual obligations of the impaired insurer pending action under paragraph (1) of this subsection; or
(3)
Loan money to the impaired insurer.
(b)
(1)
If a member insurer is an impaired insurer, whether domestic, 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) of this section, 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 for them under claims of emergency or hardship in accordance with standards proposed by the Association and approved by the Mayor.
(2)
The Association shall be subject to the requirements of paragraph (1) of this subsection only:
(A)
If the laws of the member insurer’s state of domicile provide that until all payments of or on account of the impaired insurer’s contractual obligation by all guaranty associations, along with all expenses and interest on all payments and expenses, shall have been repaid to the guaranty associations or a plan of repayment by the impaired insurer shall have been approved by the guaranty associations:
(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
(B)
If the impaired insurer is a domestic insurer, it has been placed under an order of rehabilitation by a court of competent jurisdiction in the District of Columbia; or
(C)
If the impaired insurer is a foreign or alien insurer:
(i)
It has been prohibited from soliciting or accepting new business in the District of Columbia;
(ii)
Its certificate of authority has been suspended or revoked in the District of Columbia; and
(iii)
A petition for rehabilitation or liquidation has been filed in a court of competent jurisdiction in its state of domicile by the commissioner of insurance of the state.
(c)
If a member insurer is an insolvent insurer, the Association shall, in its discretion:
(1)
(A)
Guarantee, assume, or reinsure, or cause to be guaranteed, assumed, or reinsured, the policies, contracts, and certificates of the insolvent insurer; or
(B)
Assure payment of the contractual obligations of the insolvent insurer; and
(C)
Provide the monies, pledges, guarantees, or other means as are reasonably necessary to discharge the duties; or
(2)
With respect only to life and health insurance policies and certificates, provide benefits and coverages in accordance with subsection (d) of this section.
(d)
When proceeding under subsection (b)(1)(B) or (c)(2) of this section, the Association shall, with respect only to life and health insurance policies and certificates:
(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 incurred. The payment of benefits required by this paragraph shall be made:
(A)
With respect to group policies, not later than the earlier of the next renewal date under the policies or 45 days, but in no event less than 30 days after the date on which the Association becomes obligated with respect to the policies; or
(B)
With respect to individual policies, not later than the earlier of the next renewal date, if any, under the policies or 1 year, but in no event less than 30 days from the date on which the Association becomes obligated with respect to the policies;
(2)
Make diligent efforts to provide all known insureds group policy and certificate holders with respect to group policies 30-days notice of the termination of the benefits provided; and
(3)
Make available, with respect to individual policies, to each known insured, or owner if other than the insured; with respect to an individual formerly insured under a group policy who is not eligible for replacement group coverage, make available substitute coverage on an individual basis in accordance with the provisions of subsection (e) of this section, 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.
(e)
(1)
In providing the substitute coverage required under subsection (d)(3) of this section, the Association may offer to reissue the terminated coverage or to issue an alternative policy.
(2)
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 policies.
(3)
The Association may reinsure any alternative or reissued policy.
(f)
(1)
Alternative policies adopted by the Association shall be subject to the approval of the Mayor. The Association may adopt alternative policies of various types for future issuance without regard to any particular impairment or insolvency.
(2)
Alternative policies shall contain at least the minimum statutory provisions required in the District of Columbia 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 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.
(3)
Alternative policies issued and delivered by the Association shall provide coverage of a type similar to that of the policies issued and delivered by the impaired or insolvent insurer, as determined by the Association.
(g)
If the Association elects to reissue terminated coverage 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 prior approval of the Mayor or by a court of competent jurisdiction.
(h)
The Association’s obligations with respect to coverage under policies of the impaired or insolvent insurer or under any reissued or alternative policies shall cease on the date the policies are replaced by other similar policies by either the policyholder, the insured, or the Association.
(i)
When proceeding under subsection (b)(1)(B) or (c) 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 § 31-5402(b)(2)(C).
(j)
Nonpayment of premiums within 31 days after the date required under the terms of any guaranteed, assumed, alternative, or reissued policy or contract or substitute coverage shall terminate the Association’s obligations under the policy 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 chapter.
(k)
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 be liable for unearned premiums due to policy or contract owners arising after the entry of the order.
(l)
The protection provided by this chapter shall not apply where any guaranty protection is provided to residents of the District of Columbia by the laws of the domiciliary state or jurisdiction of the impaired or insolvent insurer, other than the District of Columbia.
(m)
In carrying out its duties under subsections (b) and (c) of this section, the Association may, subject to approval by the court:
(1)
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 chapter are less than the amount needed to assure full and prompt performance of the Association’s duties under this chapter, or that the economic or financial conditions as they affect member insurers are sufficiently adverse to render the imposition of a permanent policy or contract lien, to be in the public interest; or
(2)
Impose temporary moratoriums on 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 deferral of cash or policy loan value. 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.
(m-1)
A deposit in the District held pursuant to law or required by the Commissioner for the benefit of creditors, including policy owners, not turned over to the domiciliary liquidator upon the entry of a final order of liquidation or order approving a rehabilitation plan of an insurer domiciled in the District or in a reciprocal state, pursuant to Chapter 13 of this title [§ 31-1301 et seq.], shall be promptly paid to the Association. The Association 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 owners claims related to that insolvency for which the Association has provided statutory benefits by the aggregate amount of all policy owners’ claims in this state related to that insolvency and shall remit to the domiciliary receiver the amount so paid to the Association less the amount retained pursuant to this subsection. Any amount so paid to the Association and retained by it shall be treated as a distribution of the liquidator’s assets pursuant to Chapter 13 of this title [§ 31-1301 et seq.], dealing with early access disbursements.
(n)
If the Association fails to act within a reasonable period of time under subsections (b)(1)(B), (c), and (d) of this section, the Mayor shall assume the powers and duties of the Association under this chapter with respect to impaired or insolvent insurers.
(o)
The Association may render assistance and advice to the Mayor, upon request, concerning rehabilitation, payment of claims, continuance of coverage, or the performance of other contractual obligations of any impaired or insolvent insurer.
(p)
The Association shall have standing to appear or intervene before any court in the District of Columbia with jurisdiction over an impaired or insolvent insurer for which the Association is or may become obligated under this chapter or with jurisdiction over any person or property against which the Association may have rights through subrogation or otherwise. Standing shall extend to all matters germane to the powers and duties of the Association, including, but not limited to, proposals for reinsuring, modifying, or guaranteeing the policies or contracts of the impaired or insolvent insurer and the determination of the 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 insurer for which the Association is or may become obligated or a court with jurisdiction over any person or property against whom the Association may have rights through subrogation or otherwise of the insurer’s policyholders.
(q)
(1)
Any person receiving benefits under this chapter 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, 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 the rights and causes of action by any payee, policy or contract owner, beneficiary, insured, or annuitant as a condition precedent to the receipt of any rights or benefits conferred by this chapter upon such a 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 chapter.
(3)
In addition to paragraphs (1) and (2) of this subsection, 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 the policy or contracts.
(4)
If the preceding provisions of this subsection are invalid or ineffective with respect to any 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 (or portion thereof) covered by the Association.
(5)
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 (or portion thereof) covered by the Association.
(r)
The Association may:
(1)
Enter into contracts necessary or proper to carry out the provisions and purposes of this chapter;
(2)
Sue or be sued, including taking any legal actions necessary or proper to recover any unpaid assessments under § 31-5406 and to settle claims or potential claims against it;
(3)
Borrow money to carry out the purposes of this chapter; 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 persons necessary to handle the financial transactions of the Association, and to perform other functions necessary or proper under this chapter;
(5)
Take legal action necessary to avoid payment of improper claims;
(6)
Exercise, for the purposes of this chapter and to the extent approved by the Mayor, 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 chapter;
(6A)
Unless prohibited by law, in accordance with the terms and conditions of the policy or contract, file for actuarily justified rate or premium increases for any policy or contract for which it provides coverage under this chapter; and
(7)
Take other necessary or appropriate action to discharge its duties and obligations under this chapter or to exercise its powers under this chapter.
(s)
The Association may join an organization of 1 or more other state associations of similar purposes to further the purposes and administration of the powers and duties of the Association.
(t)
(1)
(A)
At any time within 180 days of the date of the order of liquidation, the Association may elect to succeed to the rights and obligations of the ceding member insurer that relate to policies or annuities covered, in whole or in part, by the Association, in each case under any one or more reinsurance contracts entered into by the insolvent insurer and its reinsurers and selected by the Association. Any such assumption shall be effective as of the date of the order of liquidation. The election shall be effected by the Association or the National Organization of Life and Health Insurance Guaranty Associations (“NOLHGA”) on its behalf sending written notice, return receipt requested, to the affected reinsurers.
(B)
To facilitate the earliest practicable decision about whether to assume any of the contracts of reinsurance, and in order to protect the financial position of the estate, the receiver and each reinsurer of the ceding member insurer shall make available upon request to the Association or to NOLHGA on its behalf as soon as possible after commencement of formal delinquency proceedings:
(i)
Copies of in-force contracts of reinsurance and all related files and records relevant to the determination of whether such contracts should be assumed; and
(ii)
Notices of any defaults under the reinsurance contracts or any known event or condition which with the passage of time could become a default under the reinsurance contracts.
(C)
The following provisions shall apply to reinsurance contracts so assumed by the Association:
(i)
The Association shall be responsible for all unpaid premiums due under the reinsurance contracts for periods both before and after the date of the order of liquidation, and shall be responsible for the performance of all other obligations to be performed after the date of the order of liquidation, which relate to policies or annuities covered, in whole or in part, by the Association. The Association may charge policies or annuities covered in part by the Association, through reasonable allocation methods, the costs for reinsurance in excess of the obligations of the Association and shall provide notice and an accounting of these charges to the liquidator.
(ii)
The Association shall be entitled to any amounts payable by the reinsurer under the reinsurance contracts with respect to losses or events that occur in periods after the date of the order of liquidation and that relate to policies or annuities covered, in whole or in part, by the Association; provided, that upon receipt of any such amounts, the Association shall be obliged to pay to the beneficiary under the policy or annuity on account of which the amounts were paid a portion of the amount equal to the lesser of:
(I)
The amount received by the Association; and
(II)
The excess of the amount received by the Association over the amount equal to the benefits paid by the Association on account of the policy or annuity, less the retention of the insurer applicable to the loss or event.
(iii)
Within 30 days following the Association’s election (“election date”), the Association and each reinsurer under contracts assumed by the Association shall calculate the net balance due to or from the Association under each reinsurance contract as of the election date with respect to policies or annuities covered, in whole or in part, by the Association, which calculation shall give full credit to all items paid by either the insurer or its receiver or the reinsurer before the election date. The reinsurer shall pay the receiver any amounts due for losses or events before the date of the order of liquidation, subject to any set-off for premiums unpaid for periods before the date, and the Association or reinsurer shall pay any remaining balance due the other, within 5 days of the completion of the aforementioned calculation. Any disputes over the amounts due to either the Association or the reinsurer shall be resolved by arbitration pursuant to the terms of the affected reinsurance contracts or, if the contract contains no arbitration clause, as otherwise provided by law. If the receiver has received any amounts due the Association pursuant to sub-subparagraph (ii) of this subparagraph, the receiver shall remit the same to the Association as promptly as practicable.
(iv)
If the Association or receiver, on the Association’s behalf, within 60 days of the election date, pays the unpaid premiums due for periods both before and after the election date that relate to policies or annuities covered, in whole or in part, by the Association, the reinsurer shall not be entitled to terminate the reinsurance contracts for failure to pay the premium insofar as the reinsurance contracts relate to policies or annuities covered, in whole or in part, by the Association, and shall not be entitled to set off any unpaid amounts due under other contracts, or unpaid amounts due from parties other than the Association, against amounts due the Association.
(2)
During the period from the date of the order of liquidation until the election date or, if the election date does not occur, until 180 days after the date of the order of liquidation:
(A)
Neither the Association nor the reinsurer shall have any rights or obligations under reinsurance contracts that the Association has the right to assume under paragraph (1) of this subsection, whether for periods before or after the date of the order of liquidation; provided, that once the Association has elected to assume a reinsurance contract, the parties’ rights and obligations shall be governed by paragraph (1) of this subsection; and
(B)
The reinsurer, the receiver, and the Association shall, to the extent practicable, provide each other data and records reasonably requested.
(3)
If the Association does not elect to assume a reinsurance contract by the election date pursuant to paragraph (1) of this subsection, the Association shall have no rights or obligations, in each case for periods both before and after the date of the order of liquidation, with respect to the reinsurance contract.
(4)
When policies or annuities, or covered obligations with respect thereto, are transferred to an assuming insurer, reinsurance on the policies or annuities may also be transferred by the Association, in the case of contracts assumed under paragraph (1) of this subsection, subject to the following:
(A)
Unless the reinsurer and the assuming insurer agree otherwise, the reinsurance contract transferred shall not cover any new policies of insurance or annuities in addition to those transferred;
(B)
The obligations described in paragraph (1) of this subsection shall no longer apply with respect to matters arising after the effective date of the transfer; and
(C)
Notice shall be given in writing, return receipt requested, by the transferring party to the affected reinsurer not less than 30 days before the effective date of the transfer.
(5)
The provisions of subsection (t) of this section shall supersede the provisions of any District law and any affected reinsurance contract that provides for or requires any payment of reinsurance proceeds, on account of losses or events that occur in periods after the date of the order of liquidation, to the receiver of the insolvent insurer or any other person. The receiver shall remain entitled to any amounts payable by the reinsurer under the reinsurance contracts with respect to losses or events that occur in periods before the date of the order of liquidation, subject to applicable setoff provisions.
(6)
Except as otherwise provided, nothing in this subsection shall:
(A)
Alter or modify the terms and conditions of any reinsurance contract;
(B)
Abrogate or limit any rights of any reinsurer to claim that it is entitled to rescind a reinsurance contract;
(C)
Give a policyholder or beneficiary an independent cause of action against a reinsurer that is not otherwise set forth in the reinsurance contract;
(D)
Limit or affect the Association’s rights as a creditor of the estate against the assets of the estate; or
(E)
Apply to reinsurance agreements covering property or casualty risks.
(u)
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 chapter in an economical and efficient manner.
(v)
Where the Association has arranged or offered to provide the benefits of this chapter to a covered person under a plan or arrangement that fulfills the Association’s obligations under this chapter, the person shall not be entitled to benefits from the Association in addition to or other than those provided under the plan or arrangement.
(w)
Venue in a suit against the Association arising under the chapter shall be in the District. The Association shall not be required to give an appeal bond in an appeal that relates to a cause of action arising under this chapter.
(July 22, 1992, D.C. Law 9-129, § 6, 39 DCR 4036; Mar. 24, 1998, D.C. Law 12-81, § 31(a), 45 DCR 745; July 23, 2014, D.C. Law 20-130, § 2(c), 61 DCR 5900; Mar. 11, 2015, D.C. Law 20-235, § 5, 62 DCR 461; Feb. 15, 2024, D.C. Law 25-122, § 2(d), 70 DCR 16570.)
