Florida Senate - 2017                                     SB 730
       By Senator Passidomo
       28-00632B-17                                           2017730__
    1                        A bill to be entitled                      
    2         An act relating to insurer insolvency; amending s.
    3         631.015, F.S.; adding the Insurer Receivership Model
    4         Act to a list of acts that extend reciprocity in the
    5         treatment of policyholders in receivership if such act
    6         is enacted in other states; amending s. 631.021, F.S.;
    7         adding the Florida Health Maintenance Organization
    8         Consumer Assistance Plan to a list of entities that
    9         must be given reasonable written notice by the
   10         Department of Financial Services of hearings
   11         pertaining to certain insurers; revising the exclusive
   12         jurisdiction of the Circuit Court of Leon County, upon
   13         issuance of specified orders, of an insurer’s assets
   14         or property in a delinquency proceeding; providing
   15         construction; amending s. 631.031, F.S.; requiring an
   16         insurer to file its response and defenses to a certain
   17         order within a specified timeframe; requiring that a
   18         hearing to determine whether cause exists to appoint
   19         the department as receiver must be commenced by a
   20         specified time; amending s. 631.041, F.S.; providing
   21         an exception for the Office of Insurance Regulation
   22         from applicability of a certain application or
   23         petition operating as an automatic stay; amending s.
   24         631.141, F.S.; authorizing a receiver to assume or
   25         reject an insurer’s executory contract or unexpired
   26         lease; authorizing the department as domiciliary
   27         receiver to pay certain expenses or reject certain
   28         contracts; providing that, under certain
   29         circumstances, certain persons of an insurer that is
   30         under liquidation are permanently discharged and have
   31         no further authority over the affairs or assets of the
   32         insurer; amending s. 631.152, F.S.; conforming a
   33         cross-reference; creating s. 631.1521, F.S.;
   34         prohibiting certain defenses in actions by and against
   35         a receiver; authorizing certain defenses in actions by
   36         and against a receiver; specifying that a principal
   37         under a surety bond or surety undertaking, under
   38         certain circumstances, is entitled to credit for the
   39         value of certain property against a reimbursement
   40         obligation to the receiver; limiting admissibility of
   41         evidence of fraud in the inducement to evidence
   42         contained in insurer records; creating s. 631.1522,
   43         F.S.; prohibiting, in a receiver’s proceeding or
   44         claim, the assertion of defenses or claims by an
   45         affiliate or certain persons of an insurer except
   46         under certain circumstances; providing construction;
   47         amending s. 631.181, F.S.; authorizing a receivership
   48         court to allow alternative procedures and requirements
   49         for filing proofs of claim or allowing or proving
   50         claims; providing construction; prohibiting a
   51         receivership court from waiving certain filing
   52         requirements; authorizing a receiver to petition the
   53         receivership court to set certain deadlines; requiring
   54         a receiver to provide notice of filing a certain
   55         petition to certain claimants; amending s. 631.192,
   56         F.S.; prohibiting specified claims; amending s.
   57         631.271, F.S.; adding and revising claims to a list
   58         that establishes the priority of distribution of
   59         claims from an insurer’s estate; specifying when
   60         interest on claims accrue and the interest rate
   61         calculation; amending s. 631.391, F.S.; specifying
   62         that certain persons in relation to an insurer who
   63         must cooperate with the department or office in
   64         certain proceedings or investigations include present
   65         or former roles; defining the term “person”; amending
   66         s. 631.395, F.S.; requiring an order of liquidation to
   67         authorize the release of certain claims files,
   68         records, documents, or claims, rather than only copies
   69         of the claims files, records, documents, or claims;
   70         amending s. 631.397, F.S.; authorizing the department
   71         as receiver to apply to the court for approval of a
   72         specified proposal, rather than requiring the
   73         department to make such application within a specified
   74         timeframe; deleting a specified notice requirement of
   75         the department; deleting a provision authorizing the
   76         court to take action on the application under certain
   77         circumstances; providing an effective date.
   79  Be It Enacted by the Legislature of the State of Florida:
   81         Section 1. Section 631.015, Florida Statutes, is amended to
   82  read:
   83         631.015 Reciprocity; treatment of policyholders.
   84  Reciprocity in the treatment of policyholders in receivership is
   85  extended to those states which, in substance and effect, enact
   86  the National Association of Insurance Commissioners
   87  Rehabilitation and Liquidation Model Act, or the Uniform
   88  Insurers Liquidation Act, or the Insurer Receivership Model Act.
   89         Section 2. Section 631.021, Florida Statutes, is amended to
   90  read:
   91         631.021 Jurisdiction of delinquency proceeding; venue;
   92  change of venue; exclusiveness of remedy; appeal; construction.—
   93         (1) The circuit court shall have original jurisdiction of
   94  any delinquency proceeding under this chapter, and any court
   95  with jurisdiction is authorized to make all necessary or proper
   96  orders to carry out the purposes of this chapter. Any
   97  delinquency proceeding in this chapter is in equity.
   98         (2) The venue of a delinquency proceeding or summary
   99  proceeding against a domestic, foreign, or alien insurer shall
  100  be in the Circuit Court of Leon County.
  101         (3) A delinquency proceeding pursuant to this chapter
  102  constitutes the sole and exclusive method of liquidating,
  103  rehabilitating, reorganizing, or conserving an insurer. A No
  104  court may not shall entertain a petition for the commencement of
  105  such a proceeding unless the petition has been filed in the name
  106  of the state on the relation of the department. The Florida
  107  Insurance Guaranty Association, Incorporated, the Florida
  108  Workers’ Compensation Insurance Guaranty Association,
  109  Incorporated, the Florida Health Maintenance Organization
  110  Consumer Assistance Plan, and the Florida Life and Health
  111  Guaranty Association, Incorporated, shall be given reasonable
  112  written notice by the department of all hearings that which
  113  pertain to an adjudication of insolvency of a member insurer.
  114         (4) An appeal shall lie to the District Court of Appeal,
  115  First District, from an order granting or refusing
  116  rehabilitation, liquidation, or conservation and from every
  117  order in a delinquency proceeding having the character of a
  118  final order as to the particular portion of the proceeding
  119  embraced therein.
  120         (5) No service of process against the department in its
  121  capacity as receiver shall be effective unless served upon a
  122  person designated by the receiver and filed with the circuit
  123  court having jurisdiction over the delinquency proceeding. The
  124  designated person shall refuse to accept service if acceptance
  125  would violate a stay against legal proceedings involving an
  126  insurer that is the subject of delinquency proceedings or would
  127  violate any orders of the circuit court governing a delinquency
  128  proceeding. The person denied service may petition the circuit
  129  court having jurisdiction over the delinquency proceeding for
  130  relief from the receiver’s refusal to accept service. This
  131  subsection shall be strictly construed, and any purported
  132  service on the receiver or the department that is not in
  133  accordance with this subsection shall be null and void.
  134         (6) The domiciliary court acquiring jurisdiction over
  135  persons subject to this chapter may exercise exclusive
  136  jurisdiction to the exclusion of all other courts, except as
  137  limited by the provisions of this chapter. Upon the issuance of
  138  an order of conservation, rehabilitation, or liquidation, the
  139  Circuit Court of Leon County has shall have exclusive
  140  jurisdiction over all with respect to assets or property of the
  141  any insurer, wherever located, including property located
  142  outside the territorial limits of the state subject to such
  143  proceedings and claims against said insurer’s assets or
  144  property.
  145         (7) This chapter constitutes this state’s insurer
  146  receivership laws, and these laws must be construed as
  147  consistent with each other. If there is a conflict between this
  148  chapter and any other law, this chapter prevails.
  149         Section 3. Subsections (3) and (4) are added to section
  150  631.031, Florida Statutes, to read:
  151         631.031 Initiation and commencement of delinquency
  152  proceeding.—
  153         (3) An insurer subject to an order to show cause entered
  154  pursuant to this chapter must file its written response to the
  155  order, together with any defenses it may have to the
  156  department’s allegations, no later than 20 days after service of
  157  the order to show cause, but no less than 15 days before the
  158  date of the hearing set by the order to show cause.
  159         (4)A hearing held pursuant to this chapter to determine
  160  whether cause exists for the department to be appointed receiver
  161  must be commenced within 60 days after an order directing an
  162  insurer to show cause.
  163         Section 4. Subsection (1) of section 631.041, Florida
  164  Statutes, is amended to read:
  165         631.041 Automatic stay; relief from stay; injunctions.—
  166         (1) An application or petition under s. 631.031 operates as
  167  a matter of law as an automatic stay applicable to all persons
  168  and entities, other than the receiver and the office, which
  169  shall be permanent and survive the entry of an order of
  170  conservation, rehabilitation, or liquidation, and which shall
  171  prohibit:
  172         (a) The commencement or continuation of judicial,
  173  administrative, or other action or proceeding against the
  174  insurer or against its assets or any part thereof;
  175         (b) The enforcement of a judgment against the insurer or an
  176  affiliate obtained either before or after the commencement of
  177  the delinquency proceeding;
  178         (c) Any act to obtain possession of property of the
  179  insurer;
  180         (d) Any act to create, perfect, or enforce a lien against
  181  property of the insurer, except that a secured claim as defined
  182  in s. 631.011(21) may proceed under s. 631.191 after the order
  183  of liquidation is entered;
  184         (e) Any act to collect, assess, or recover a claim against
  185  the insurer, except claims as provided for under this chapter;
  186  and
  187         (f) The setoff or offset of any debt owing to the insurer,
  188  except offsets as provided in s. 631.281.
  189         Section 5. Present subsections (3) through (5) and (6)
  190  through (10) of section 631.141, Florida Statutes, are
  191  redesignated as subsections (4) through (6) and (8) through
  192  (12), respectively, new subsections (3) and (7) are added to
  193  that section, and present subsection (8) is amended, to read:
  194         631.141 Conduct of delinquency proceeding; domestic and
  195  alien insurers.—
  196         (3) The receiver may assume or reject any executory
  197  contract or unexpired lease of the insurer.
  198         (7) The department as domiciliary receiver may pay any
  199  expenses under contracts, leases, employment agreements, or
  200  other arrangements entered into by the insurer before
  201  receivership as the department deems necessary for the purposes
  202  of this chapter. The department is not required to pay any such
  203  expenses that it determines are not necessary and may reject any
  204  contract pursuant to subsection (3).
  205         (10)(8) The department as domiciliary receiver may take
  206  such action as it deems necessary or appropriate to reform and
  207  revitalize the insurer. The department shall have all the powers
  208  of the directors, officers, and managers, whose authority shall
  209  be suspended, except as they are redelegated by the receiver.
  210  The receiver shall have full power to direct and manage the
  211  affairs of the insurer, to hire and discharge employees, and to
  212  deal with the property and business of the insurer. In the event
  213  of the liquidation of an insurer domiciled in this state, and
  214  notwithstanding any provision of chapter 605, chapter 607,
  215  chapter 617, chapter 620, or chapter 621, all officers,
  216  directors, and managers of the insurer are permanently
  217  discharged and have no further authority of any kind over the
  218  affairs or assets of the insurer, except as may be redelegated
  219  by the department.
  220         Section 6. Subsection (4) of section 631.152, Florida
  221  Statutes, is amended to read:
  222         631.152 Conduct of delinquency proceeding; foreign
  223  insurers.—
  224         (4) Paragraph 631.141(9)(b) Section 631.141(7)(b) applies
  225  to ancillary delinquency proceedings opened for the purpose of
  226  obtaining records necessary to adjudicate the covered claims of
  227  Florida policyholders.
  228         Section 7. Section 631.1521, Florida Statutes, is created
  229  to read:
  230         631.1521 Actions by and against the receiver.—
  231         (1) An allegation by the receiver of improper or fraudulent
  232  conduct against any person may not be the basis of a defense by
  233  a third party to the enforcement of a contractual obligation
  234  owed to the insurer. This section does not bar a third party
  235  from the right to raise a defense that the conduct was
  236  materially and substantially related to the contractual
  237  obligation for which enforcement is sought.
  238         (2)A prior wrongful or negligent action of any present or
  239  former officer, manager, director, trustee, owner, employee, or
  240  agent of the insurer may not be asserted as a defense to a claim
  241  by the receiver under a theory of estoppel, comparative fault,
  242  intervening cause, proximate cause, reliance, mitigation of
  243  damages, or otherwise. However, the affirmative defense of fraud
  244  in the inducement may be asserted against the receiver in a
  245  claim based on a contract; and a principal under a surety bond
  246  or a surety undertaking is entitled to credit for the value of
  247  any property pledged to secure the reimbursement obligation
  248  against any reimbursement obligation to the receiver, to the
  249  extent that the receiver has possession or control of the
  250  property, or that the insurer or its agents misappropriated such
  251  property, which includes, but is not limited to, the comingling
  252  of such property. Evidence of fraud in the inducement is
  253  admissible only if it is contained in the records of the
  254  insurer.
  255         (3)An action or inaction by an insurance regulatory
  256  authority may not be asserted as a defense to a claim by the
  257  department.
  258         Section 8. Section 631.1522, Florida Statutes, is created
  259  to read:
  260         631.1522 Unrecorded obligations and defenses and claims of
  261  affiliates.—
  262         (1) In any proceeding or claim by the receiver, an
  263  affiliate, a controlled or controlling person, or a present or
  264  former officer, manager, director, trustee, or shareholder of
  265  the insurer may not assert any defense unless:
  266         (a) Evidence of the defense was recorded in the books and
  267  records of the insurer at or about the time the events giving
  268  rise to the defense occurred; and
  269         (b) If required by statutory accounting practices and
  270  procedures, such events were timely reported on the insurer’s
  271  official financial statements filed with the office.
  272         (2)An affiliate, a controlled or controlling person, or a
  273  present or former officer, manager, director, trustee, or
  274  shareholder of the insurer may not assert any claim unless:
  275         (a) The obligations were recorded in the books and records
  276  of the insurer at or about the time the obligations were
  277  incurred; and
  278         (b) If required by statutory accounting practices and
  279  procedures, the obligations were timely reported on the
  280  insurer’s official financial statements filed with the office.
  281         (3) This section does not bar claims based on unrecorded or
  282  unreported transactions by the receiver against any affiliate,
  283  controlled or controlling person, or present or former officer,
  284  manager, director, trustee, or shareholder of the insurer.
  285         Section 9. Paragraph (g) of subsection (2) and subsections
  286  (4) and (5) are added to section 631.181, Florida Statutes, to
  287  read:
  288         631.181 Filing and proof of claim.—
  289         (2)
  290         (g) Upon application of the receiver:
  291         1. The receivership court may allow alternative procedures
  292  and requirements for the filing of proofs of claim or for
  293  allowing or proving claims.
  294         2. If the receivership court waives the requirements of
  295  filing a proof of claim for a person, class, or group of
  296  persons, a timely proof of claim by such person, class, or group
  297  is deemed to be filed for all purposes. However, the
  298  receivership court may not waive guaranty association or
  299  coverage determination proof of claim filing requirements, to
  300  the extent that the guaranty fund statute or filing requirements
  301  are inconsistent with the receivership court’s waiver of proof.
  302         (4) Notwithstanding any other provision of this chapter,
  303  the receiver may petition the receivership court to set a date
  304  certain after which no further claims may be filed.
  305         (5) The receiver may petition the receivership court to set
  306  a date certain before which all contingent or unliquidated
  307  claims are final. In addition to the notice requirements in this
  308  section, the receiver shall give notice of filing the petition
  309  to all claimants with claims that remain contingent or
  310  unliquidated under this section.
  311         Section 10. Subsections (5) and (6) are added to section
  312  631.192, Florida Statutes, to read:
  313         631.192 Allowance of certain claims.—
  314         (5) A claim under a policy of insurance may not be allowed
  315  for an amount in excess of the applicable policy limits.
  316         (6) A claim may not be allowed for postjudgment interest
  317  accrued after the date of liquidation.
  318         Section 11. Paragraphs (a), (b), (f), and (j) of subsection
  319  (1) of section 631.271, Florida Statutes, are amended to read:
  320         631.271 Priority of claims.—
  321         (1) The priority of distribution of claims from the
  322  insurer’s estate shall be in accordance with the order in which
  323  each class of claims is set forth in this subsection. Every
  324  claim in each class shall be paid in full or adequate funds
  325  shall be retained for such payment before the members of the
  326  next class may receive any payment. No subclasses may be
  327  established within any class. The order of distribution of
  328  claims shall be:
  329         (a) Class 1.—
  330         1. All of the receiver’s costs and expenses of
  331  administration.
  332         2. All of the expenses of a guaranty association or foreign
  333  guaranty association in handling claims.
  334         3. All of the deputy supervisor’s costs and expenses of
  335  administration incurred as a result of administrative
  336  supervision under part VI of chapter 624.
  337         (b) Class 2.—All claims under policies for losses incurred,
  338  including third-party claims, all claims against the insurer for
  339  liability for bodily injury or for injury to or destruction of
  340  tangible property which claims are not under policies, and all
  341  claims of a guaranty association or foreign guaranty
  342  association, all claims related to a patient’s healthcare
  343  coverage by physicians, hospitals, and other providers of a
  344  health insurer or health maintenance organization, and all
  345  claims of residents arising out of a continuing care contract
  346  under chapter 651. All claims under life insurance and annuity
  347  policies, whether for death proceeds, annuity proceeds, or
  348  investment values, shall be treated as loss claims. That portion
  349  of any loss, indemnification for which is provided by other
  350  benefits or advantages recovered by the claimant, may not be
  351  included in this class, other than benefits or advantages
  352  recovered or recoverable in discharge of familial obligations of
  353  support or by way of succession at death or as proceeds of life
  354  insurance, or as gratuities. No payment by an employer to her or
  355  his employee may be treated as a gratuity.
  356         (f) Class 6.—Claims of general and other unsecured
  357  creditors, including claims against the insurer for punitive
  358  damages, bad faith, or wrongful settlement practices.
  359         (j) Class 10.—Interest on allowed claims of Classes 1
  360  through 9. The rate of interest payable on an allowed claim must
  361  accrue from the date of liquidation until such claims are
  362  adjudicated. The interest rate must be calculated in accordance
  363  with s. 55.03, according to the terms of a plan to pay interest
  364  on allowed claims proposed by the liquidator and approved by the
  365  receivership court.
  366         Section 12. Section 631.391, Florida Statutes, is amended
  367  to read:
  368         631.391 Cooperation of officers and employees.—
  369         (1) Any present or former officer, director, manager,
  370  trustee, agent, adjuster, employee, or independent contractor of
  371  any insurer or affiliate and any other person who possesses any
  372  executive authority over, or who exercises any control over, any
  373  segment of the affairs of the insurer or affiliate shall fully
  374  cooperate with the department and office in any proceeding under
  375  this chapter or any investigation preliminary or incidental to
  376  the proceeding. An order of rehabilitation or liquidation which
  377  results in the discharge or suspension of any of the persons
  378  listed above does not operate to release such person from the
  379  duty to cooperate with the department and office as set out
  380  herein. As used in this section, the term “person” includes any
  381  person who directly or indirectly exercises control over
  382  activities of the insurer through any holding company or other
  383  affiliate of the insurer. The term To “cooperate” includes, but
  384  is not limited to, the following:
  385         (a) To reply promptly in writing to any inquiry from the
  386  department or office requesting such a reply;
  387         (b) Promptly to make available and deliver to the
  388  department or office any books, accounts, documents, other
  389  records, information, data processing software, or property of
  390  or pertaining to the insurer and in her or his possession,
  391  custody, or control; or
  392         (c) Promptly to provide access to all data processing
  393  records in hard copy and in electronic form and to data
  394  processing facilities and services.
  395         (2) No person shall obstruct or interfere with the
  396  department or office in the conduct of any delinquency
  397  proceeding or any investigation preliminary or incidental
  398  thereto.
  399         (3) This section does not prohibit any person from seeking
  400  legal relief from a court when aggrieved by the petition for
  401  liquidation or other delinquency proceeding or by other orders.
  402         (4) Any person referred to in subsection (1) who fails to
  403  cooperate with the department or office, or any other person who
  404  obstructs or interferes with the department or office, in the
  405  conduct of any delinquency proceeding or any investigation
  406  preliminary or incidental thereto, is guilty of a misdemeanor of
  407  the first degree, punishable as provided in s. 775.082 or by
  408  fine of not more than $10,000.
  409         (5) Refusal by any person referred to in subsection (1) to
  410  provide records upon the request of the department or office is
  411  grounds for revocation of any insurance-related license,
  412  including, but not limited to, agent and third-party
  413  administrator licenses.
  414         (6) Any person referred to in subsection (1) who refuses to
  415  cooperate in providing records upon the request of the
  416  department or office is liable for any penalties, fines, or
  417  other costs assessed against the guaranty association or the
  418  receiver that result from the refusal or delay to provide
  419  records.
  420         Section 13. Section 631.395, Florida Statutes, is amended
  421  to read:
  422         631.395 Guaranty fund; orders of court.—Any order of
  423  liquidation issued pursuant to s. 631.111 or s. 631.131 must
  424  shall authorize and direct the department as receiver to
  425  coordinate the operation of the receivership with the operation
  426  of any insurance guaranty fund authorized to operate in this
  427  state and may authorize the department to provide data
  428  processing services for any appropriate guaranty fund. Such
  429  authorization must shall include, but not be limited to, release
  430  of copies of any of the following:
  431         (1) Claims files, records, or documents pertaining to
  432  claims on file with the insolvent insurer; and
  433         (2) Insurance claims filed with the receiver.
  434         Section 14. Subsections (1), (4), and (5) of section
  435  631.397, Florida Statutes, are amended to read:
  436         631.397 Use of certain marshaled assets.—
  437         (1) Within 120 days of a final determination of insolvency
  438  of an insurer by a court of competent jurisdiction of this
  439  state, The department, as receiver, may shall apply to the court
  440  for approval of a proposal to disburse assets out of such
  441  insurer’s marshaled assets, as such assets become available, to
  442  each association entitled thereto or, if there are no assets
  443  available for such disbursement, then for approval of such
  444  proposal as the receiver deems appropriate. For the purposes of
  445  this section, the term “association” includes the Florida
  446  Insurance Guaranty Association, Incorporated, the Florida
  447  Workers’ Compensation Insurance Guaranty Association, and any
  448  entity or person performing a function in another state similar
  449  to that performed in this state by the Florida Insurance
  450  Guaranty Association, Incorporated, or the Florida Workers’
  451  Compensation Insurance Guaranty Association, provided the
  452  Florida Insurance Guaranty Association, Incorporated, or the
  453  Florida Workers’ Compensation Insurance Guaranty Association, is
  454  entitled to like payment under the laws of the association’s
  455  state of domicile in respect to insolvent companies doing
  456  business in that state.
  457         (4) Notice of such application shall be given by the
  458  department to the associations in, and to the commissioners of
  459  insurance of, each of the states to which disbursement may be
  460  made. Such notice shall be made by certified mail, first-class
  461  postage prepaid, at least 15 days prior to submission of such
  462  application to the court. Such notice shall be deemed to have
  463  been made when deposited in the mail.
  464         (5) Action on the application may be taken by the court if
  465  notice has been given pursuant to subsection (4) and the
  466  department’s proposal complies with subsection (2).
  467         Section 15. This act shall take effect July 1, 2017.