AB551: Bill Text

LRB-0203/1

PJK:jlg&wlj:jf

1999 - 2000 LEGISLATURE

1999 Assembly BILL 551

October 20, 1999 - Introduced by Representative F. Lasee, cosponsored by Senator Breske, by request of Office of the Commissioner of Insurance. Referred to Committee on Insurance.

AB551,2,7 An Act to repeal 628.77, 632.55, 644.05 (3), 646.31 (2) (d) 2. and 646.31 (2) (d) 3.; to renumber 645.68 (2); to renumber and amend 600.03 (28p), 632.47 (3), 646.13 (1) (b) (intro.), 646.13 (1) (b) 1. and 646.13 (1) (b) 2.; to consolidate, renumber and amend 646.31 (2) (d) (intro.) and 1.; to amend 76.635 (2), 76.635 (3), 76.67 (2), 601.13 (2), 601.43 (3), 601.43 (4), 601.715 (2) (b), 611.26 (1), 611.72 (3) (intro.), 611.78 (1m) (b) (intro.), 628.10 (2) (a), 644.04 (3) (intro.), 644.05 (1), 644.05 (2), 644.05 (4), 644.08, 644.09 (1) (intro.), 644.09 (1) (a), 644.09 (2), 644.09 (3), 644.09 (4), 644.14 (1), 644.16 (1), 644.16 (2), 644.16 (3) (a), 644.16 (4), 644.17, 644.18, 644.19, 644.28 (1), 644.28 (2) (a), 644.28 (3), 644.28 (4), 644.29, 645.68 (intro.), 645.68 (3), 645.68 (5), 645.68 (7), 645.68 (8) (a), 645.68 (8) (b), 645.68 (8) (c), 645.68 (8) (d), 645.68 (8) (e), 645.68 (8) (f), 646.15 (1) (a) 2., 646.31 (1) (a), 646.31 (2) (c), 646.31 (6) (a), 646.60 (1) (a), 646.60 (1) (b) (intro.), 646.60 (1) (b) 1. and 646.60 (1) (b) 2.; to repeal and recreate 644.26; and to create 600.03 (28p) (b), 600.03 (28p) (c), 601.42 (7), 601.465 (3) (e), 601.465 (3) (f), 611.72 (3m), 632.47 (3) (b), 645.68 (3c), 645.68 (3m), 645.68 (3r) (c), 646.13 (2) (e), 646.13 (2) (f), 646.13 (3) (intro.), 646.13 (3) (c), 646.13 (4), 646.31 (1) (cm), 646.31 (13) and 646.51 (9) of the statutes; relating to: priority of claims for distribution in insurance liquidations, the insurance security fund, conforming the mutual insurance holding company provisions to changes made in the nonstock corporation provisions, the certified capital investment credit for insurers and miscellaneous changes to insurance statutes.

Analysis by the Legislative Reference Bureau

Insurer liquidation and the security fund

Current law classifies claims and sets out the priority in which the claim classes are paid when an insolvent insurer is liquidated. This bill makes some minor remedial changes in those liquidation priorities to comply with the ruling of the U.S. supreme court in U.S. Department of the Treasury v. Fabe, 113 S. Ct. 2202 (1993).

Under current law, a $50 deductible applies to all claims except those that are for administration of the liquidation process. The bill provides that this deductible does not apply to any claims of the federal government.

Under current law, wage claims of employes of the insurer have second priority of payment, immediately after administration claims. The bill places these claims fifth but provides that, if there are no claims of the federal government, these claims are paid immediately after administration claims, as under current law.

Under current law, claims under policies for losses incurred, as well as claims that are not under policies and that are against the insurer for bodily injury or destruction of property, are paid third. Claims under this class are reduced by the first $200 of losses. The bill places loss claims under policies second in priority of payment and specifies that any loss claims of the federal government under policies are not subject to the $200 reduction. The bill also establishes at a third priority of payment any claims of the federal government that are not loss claims under policies. In addition, the bill separates out claims that are not under policies and that are against the insurer for bodily injury or destruction of property and places them fourth in priority of payment.

Finally, under current law, interest on claims has its own class of priority of payment that is generally lower than the priority of payment that the claim has. The bill provides that interest on all claims of the federal government, however, has the same priority of payment as claims of the federal government that are not loss claims under policies.

In current law, the insurance security fund, which is funded through assessments paid by insurers, pays claims on behalf of insurers in liquidation. The fund is administered by a board of directors made up of the commissioner of insurance, the attorney general, the state treasurer and representatives of insurers. The board stands in the position of an insurer in liquidation for purposes of not only paying claims but also investigating, settling and denying claims and defending third party claims against insureds. The bill makes a number of changes, many of which are technical in nature, to the provisions relating to the fund and the board.

Under current law, the board of directors of the insurance security fund has no duty or liability with respect to any claim that is filed with the liquidator after the date for filing specified by the liquidator in the notice of the liquidation unless, for reasons specified in the statutes, the late filing is excused. The bill adds that, except for excused late filings and claims under life insurance policies, annuities and noncancelable or guaranteed renewable disability insurance policies, the board has no duty or liability with respect to claims that are filed after the earlier of the date for filing specified by the liquidator or 18 months after the order of liquidation is entered. The effect of the change is to place a maximum time on filing extensions that may be granted by the liquidator or a court.

Among the powers that the board of directors has under current law are the power to review settlements and judgments to which an insurer or its insureds were parties to determine whether they should be contested and the power to appear in any liquidation proceeding in this state involving an insurer in liquidation. The bill adds the power to pursue salvage or subrogation with respect to paid covered claim obligations and to retain any amounts recovered and the power to appoint and direct legal counsel for the defense of covered claims under insurance policies.

The bill provides that the duty of the board to defend an insured ceases upon the board's payment of an amount equal to its covered claim obligation limit or the applicable policy limit. In addition to the requirements in current law related to whether a claim is eligible for payment, the bill adds that, except for claims under life insurance policies, annuities and noncancelable or guaranteed renewable disability insurance policies, a claim must have arisen within 30 days after the liquidation order was entered or before the policy expires or is replaced or canceled by the insured, if the policy expires or is replaced or canceled less than 30 days after the liquidation order was entered. The bill also provides that an insurer's obligation to pay assessments to the insurance security fund terminates if the insurer's license or certificate of authority to do business in this state terminates or expires. Such an insurer remains liable, however, to pay assessments that were made or called before the insurer's license or certificate terminated or expired and assessments that were made or called after the insurer's license or certificate of authority terminated or expired but that relate to a liquidation order entered before the license or certificate of authority terminated or expired.

Mutual insurance holding company provisions

Current law specifies procedures for a mutual insurance company to restructure by forming a mutual insurance holding company and becoming a stock insurance company that is owned by the mutual insurance holding company. The statutes also set out various requirements related to the structure and operation of the mutual insurance holding company that is formed in the restructuring. Because many of these requirements are identical with the requirements in the statutes for nonstock corporations, there are many cross-references to the chapter governing nonstock corporations in the chapter governing the formation of mutual insurance holding companies.

The act that created the chapter in the statutes that governs the formation of mutual insurance holding companies was passed in the 1997-98 session of the legislature. During that same session, the chapter governing nonstock corporations was completely revised. As a consequence, the cross-references in the chapter governing the formation of mutual insurance holding companies are no longer valid. This bill changes those cross-references to conform to the changes that were made in the chapter governing nonstock corporations, sometimes incorporating substantive changes that were made in the law governing nonstock corporations. For example, a provision in current law that governs the bylaws of a mutual insurance holding company specifies that the statutory provision governing the bylaws of a nonstock corporation applies to the bylaws of a mutual insurance holding company. When the chapter governing nonstock corporations was revised, provisions governing bylaws were created to include not only the former provision, which addressed adoption of bylaws, but also provisions on contents of bylaws, adopting emergency bylaws and amendment of bylaws by a corporation's board of directors and members. In changing the cross-references to conform to the current law on nonstock corporations, the bill applies the additional provisions on contents of bylaws, adopting emergency bylaws and amendment of bylaws by the board of directors and members to mutual insurance holding companies.

In addition, the bill makes a technical correction to a provision in the statutes related to a mutual insurance company. The statutes make a distinction between the way in which a sale, lease or exchange of less than all of the property and assets of a mutual may be authorized and the way in which a sale, lease or exchange of all or substantially all of the property and assets may be authorized, but incorrectly attribute both ways to the sale, lease or exchange of less than all of the property and assets. The bill specifies that the methods for authorizing the sale, lease or exchange of all or substantially all of the property and assets of a mutual apply to the sale, lease or exchange of all or substantially all of the property and assets.

Miscellaneous changes to insurance statutes

The bill makes a number of miscellaneous changes to the insurance statutes. Under current law, a group life insurance policy may be issued only to a group that is formed for purposes other than to obtain insurance. The bill eliminates this provision. Current law places no such limitation on any other type of group insurance.

Under current law, an insurer may change its registered agent for service of process no more than once per year, and any change takes effect on January 1 of the year following the delivery to the commissioner of insurance (commissioner) of the statement changing the registered agent. The bill still limits a change of registered agent to once per year, but any change takes effect immediately with the delivery of the statement.

The bill authorizes the commissioner to employ experts to assist the commissioner with examinations and reviews of insurers and insurance transactions, and provides that the subject of an examination or a person involved in a transaction under review will be responsible for the costs of the expert and related expenses.

Under current law, a life insurer is prohibited from providing any bonus, prize, award or similar additional compensation on insurance business in this state as a result of a competition among insurance intermediaries. Awards may be given as recognition of merit, however, as long as the cost of any such award does not exceed $150 and the aggregate cost of such awards in a calendar year does not exceed 1.5% of the insurer's total first year life insurance premium income derived from sales in this state. The bill eliminates this provision related to bonuses and awards.

Certified capital investment credit

Under current law, rather than pay an income tax or a franchise tax, certain insurers pay a license fee that is based on a percentage of an insurer's gross premiums. Such an insurer, however, may claim as a credit against the license fee an amount that is based on the amount the insurer paid as an investment in a capital company that is certified as a capital company by the department of commerce.

Under current law, if an in-state insurer is licensed to conduct business in another state, this state may not require a similar insurer from the other state who is licensed to conduct business in this state to pay more in license fees to this state than the in-state insurer pays to the other state. Under this bill, this state may not require a similar insurer from the other state who is licensed to conduct business in this state to pay to this state a greater amount for license fees than the amount which an in-state insurer pays to the other state, less the amount of the credits it receives from this state for investments in capital companies.

For further information see the state and local fiscal estimate, which will be printed as an appendix to this bill.

The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:

AB551, s. 1 Section 1. 76.635 (2) of the statutes, as created by 1997 Wisconsin Act 215, is amended to read:

AB551,6,2 76.635 (2) Credit. An insurer that makes a certified capital investment may credit against the fees due under s. 76.60, 76.63, 76.65 or , 76.66 or 76.67, for 10 years beginning with the year of the investment, either 10% of that investment or the amount by which the sum of the insurer's certified capital investments and the insurer's qualified investments exceeds the insurer's qualified investments in the taxable year before the insurer first claimed the credit under this section, whichever is less.

AB551, s. 2 Section 2. 76.635 (3) of the statutes, as created by 1997 Wisconsin Act 215, is amended to read:

AB551,6,10 76.635 (3) Carry-forward. If the credit under sub. (2) is not entirely offset against the fees under s. 76.60, 76.63, 76.65 or, 76.66 or 76.67 otherwise due, the unused balance may be carried forward and credited against those fees in the following years to the extent that it is not offset by those fees otherwise due in all the years between the year in which the investment was made and the year in which the carry-forward credit is claimed.

AB551, s. 3 Section 3. 76.67 (2) of the statutes is amended to read:

AB551,6,20 76.67 (2) If any domestic insurer is licensed to transact insurance business in another state, this state may not require similar insurers domiciled in that other state to pay taxes greater in the aggregate than the aggregate amount of taxes that a domestic insurer is required to pay to that other state for the same year less the credit under s. 76.635, except that the amount imposed shall not be less than the total of the amounts due under ss. 76.65 (2) and 601.93 and, if the insurer is subject to s. 76.60, 0.375% of its gross premiums, as calculated under s. 76.62, less offsets allowed under s. 646.51 (7) or under s. 76.635 against that total, and except that the amount imposed shall not be less than the amount due under s. 601.93.

AB551, s. 4 Section 4. 600.03 (28p) of the statutes is renumbered 600.03 (28p) (intro.) and amended to read:

AB551,6,24 600.03 (28p) (intro.) "Medicare replacement policy" means a, to the extent permitted under federal law, any of the following:

AB551,7,5 (a) A disability insurance policy or certificate issued to a resident of this state pursuant to a contract between the federal health care financing administration and a federally qualified health maintenance organization or a federally certified competitive medical plan to provide health care benefits to persons eligible for medicare under 42 USC 1395f, 1395x and 1395mm.

AB551, s. 5 Section 5. 600.03 (28p) (b) of the statutes is created to read:

AB551,7,9 600.03 (28p) (b) A medicare+choice plan, as defined in 42 USC 1395w-28 (b) (1), or a contract with a medicare+choice organization, as defined in 42 USC 1395w-28 (a) (1).

AB551, s. 6 Section 6. 600.03 (28p) (c) of the statutes is created to read:

AB551,7,13 600.03 (28p) (c) A plan, contract or policy that the commissioner by rule determines is similar to, or supplements or replaces, a program described in par. (a) or (b).

AB551, s. 7 Section 7. 601.13 (2) of the statutes is amended to read:

AB551,7,21 601.13 (2) Terms of deposit. Unless otherwise provided by the law requiring or permitting the deposit, each deposit shall be held in trust: first, for the claimants under s. 645.68 (3); 2nd, for the claimants under s. 645.68 (3c); 3rd, for the claimants under s. 645.68 (3m); 4th, for the claimants under s. 645.68 (4); and thereafter, for all other creditors in the order of priority established by s. 645.68. No claim may be made against the deposit of an alien insurer unless the claim arises out of a transaction in the United States.

AB551, s. 8 Section 8. 601.42 (7) of the statutes is created to read:

AB551,8,3 601.42 (7) Experts. The commissioner may employ experts to assist the commissioner in an examination or in the review of any transaction subject to approval under chs. 600 to 646. The person that is the subject of the examination, or that is a party to a transaction under review, including the person acquiring, controlling or attempting to acquire the insurer, shall pay the reasonable costs incurred by the commissioner for the expert and related expenses.

AB551, s. 9 Section 9. 601.43 (3) of the statutes is amended to read: