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subch. III of ch. 645 SUBCHAPTER III
FORMAL PROCEEDINGS
645.31 645.31 Grounds for rehabilitation. The commissioner may apply by verified petition to the circuit court for Dane County or for the county in which the principal office of the insurer is located for an order directing rehabilitation of a domestic insurer or an alien insurer domiciled in this state on any one or more of the following grounds:
645.31(1) (1) Any ground on which the commissioner may apply for an order of liquidation under s. 645.41, whenever he or she believes that the insurer may be successfully rehabilitated without substantial increase in the risk of loss to creditors of the insurer or to the public;
645.31(2) (2) That the commissioner has reasonable cause to believe that there has been embezzlement from the insurer, wrongful sequestration or diversion of the insurer's assets, forgery or fraud affecting the insurer or other illegal conduct in, by or with respect to the insurer, that if established would endanger assets in an amount threatening the solvency of the insurer;
645.31(3) (3) That information coming into the commissioner's possession has disclosed substantial and not adequately explained discrepancies between the insurer's records and the most recent annual report or other official company reports;
645.31(4) (4) That the insurer has failed to remove any person who in fact has executive authority in the insurer, whether an officer, manager, general agent, employee or other person, if the person has been found by the commissioner after notice and hearing to be dishonest or untrustworthy in a way affecting the insurer's business;
645.31(5) (5) That control of the insurer, whether by stock ownership or otherwise, and whether direct or indirect, is in one or more persons who are dishonest or untrustworthy;
645.31(6) (6) That any person who in fact has executive authority in the insurer, whether an officer, manager, general agent, employee or other person, has refused to be examined under oath by the commissioner concerning its affairs, whether in this state or elsewhere, and after reasonable notice of the fact the insurer has failed promptly and effectively to terminate the employment and status of the person and all his or her influence on management;
645.31(7) (7) That after demand by the commissioner the insurer has failed to submit promptly any of its own property, books, accounts, documents or other records, or those of any subsidiary or other affiliate within the control of the insurer, or those of any person having executive authority in the insurer so far as they pertain to the insurer, to reasonable inspection or examination by the commissioner or the commissioner's authorized representative. If the insurer is unable to submit the property, books, accounts, documents or other records of a person having executive authority in the insurer, it shall be excused from doing so if it promptly and effectively terminates the relationship of the person to the insurer;
645.31(8) (8) That less than 30 days after reporting the proposed action to the commissioner unless it is earlier approved by the commissioner, or after the action has been disapproved by the commissioner, the insurer has transferred, or attempted to transfer, substantially its entire property or business, or has entered into any transaction the effect of which is to merge, consolidate or reinsure substantially its entire property or business in or with the property or business of any other person;
645.31(9) (9) That the insurer or its property has been or is the subject of an application for the appointment of a receiver, trustee, custodian, conservator or sequestrator or similar fiduciary of the insurer or its property otherwise than as authorized under this chapter, and that such appointment has been made or is imminent, and that such appointment might oust the courts of this state of jurisdiction or prejudice orderly delinquency proceedings under this chapter;
645.31(10) (10) That within the previous year the insurer has willfully violated its charter or articles of incorporation or its bylaws or any insurance law or regulation of any state, or of the federal government, or any valid order of the commissioner under s. 645.21, or having become aware within the previous year of an unintentional violation has failed to take all reasonable steps to remedy the situation resulting from the violation and to prevent future violations;
645.31(11) (11) That the directors of the insurer are deadlocked in the management of the insurer's affairs and that the members or shareholders are unable to break the deadlock and that irreparable injury to the insurer, its creditors, its policyholders or the public is threatened by reason thereof;
645.31(12) (12) That the insurer has failed to pay for 60 days after due date any obligation to this state or any political subdivision thereof or any judgment entered in this state, except that such nonpayment shall not be a ground until 60 days after any good faith effort by the insurer to contest the obligation has been terminated, whether it is before the commissioner or in the courts;
645.31(13) (13) That the insurer has failed to file its annual report or other report within the time allowed by law, and after written demand by the commissioner has failed to give an adequate explanation immediately;
645.31(14) (14) That two-thirds of the board of directors, or the holders of a majority of the shares entitled to vote, or a majority of members or policyholders of an insurer subject to control by its members or policyholders, consent to rehabilitation under this chapter.
645.31(15) (15) That the insurer is a health maintenance organization insurer that has violated s. 609.95 or 609.98.
645.31 History History: 1971 c. 260; 1979 c. 93; 1979 c. 102 ss. 201, 236 (13), (14); 1989 a. 23.
645.32 645.32 Rehabilitation orders.
645.32(1) (1) Appointment of rehabilitator. An order to rehabilitate the business of a domestic insurer, or an alien insurer domiciled in this state, shall appoint the commissioner and his or her successors in office rehabilitator and shall direct the rehabilitator to take possession of the assets of the insurer and to administer them under the orders of the court. The recording of the order with any register of deeds in the state imparts the same notice as a deed, bill of sale or other evidence of title recorded with that register of deeds.
645.32(2) (2)Anticipatory breach. Entry of an order of rehabilitation does not constitute an anticipatory breach of any contracts of the insurer.
645.32 History History: 1979 c. 93; 1979 c. 102 s. 236 (13); 1993 a. 301.
645.32 Annotation Under s. 645.32 (1), an order to rehabilitate the business of an insurer "shall appoint the commissioner . . . rehabilitator and shall direct the rehabilitator to take possession of the assets of the insurer and to administer them under the orders of the court." In the context of insurance rehabilitations, a circuit court erroneously exercises its discretion when the circuit court exceeds its statutory authority or the court unreasonably substitutes the rehabilitator's beliefs for its own beliefs. The court will uphold the determinations made by the rehabilitator unless the rehabilitator abused his or her discretion. It is appropriate to afford great weight deference to the commissioner's interpretation and application of the statutes governing the rehabilitation of an insurer and other related statutes the commissioner is charged with administering. Nickel v. Wells Fargo Bank, 2013 WI App 129, 351 Wis. 2d 539, 841 N.W.2d 482, 10-2022.
645.33 645.33 Powers and duties of the rehabilitator.
645.33(1) (1) Special deputy commissioner. The rehabilitator may appoint a special deputy commissioner to rehabilitate the insurer. The special deputy commissioner shall have all of the powers of the rehabilitator granted under this section. Subject to court approval, the rehabilitator shall make such arrangements for compensation as are necessary to obtain a special deputy commissioner of proven ability. The special deputy commissioner shall serve at the pleasure of the rehabilitator.
645.33(2) (2)General power. Subject to court approval, the rehabilitator may take the action he or she deems necessary or expedient to reform and revitalize the insurer. The rehabilitator shall have all the powers of the officers and managers, whose authority shall be suspended, except as they are redelegated by the rehabilitator. The rehabilitator shall have full power to direct and manage, to hire and discharge employees subject to any contract rights they may have, and to deal with the property and business of the insurer.
645.33(3) (3)Advice from experts. The rehabilitator may consult with and obtain formal or informal advice and aid of insurance experts.
645.33(4) (4)Pursuit of insurer's claims against insiders. If the rehabilitator finds that there has been criminal or tortious conduct or breach of any contractual or fiduciary obligation detrimental to the insurer by any person, the rehabilitator may pursue all appropriate legal remedies on behalf of the insurer.
645.33(5) (5)Reorganization plan. The rehabilitator may prepare a plan for the reorganization, consolidation, conversion, reinsurance, merger or other transformation of the insurer. Upon application of the rehabilitator for approval of the plan, and after such notice and hearing as the court prescribes, the court may either approve or disapprove the plan proposed, or may modify it and approve it as modified. If it is approved, the rehabilitator shall carry out the plan. In the case of a life insurer, the plan proposed may include the imposition of liens upon the equities of policyholders of the company, if all rights of shareholders are first relinquished. A plan for a life insurer may also propose imposition of a moratorium upon loan and cash surrender rights under policies, for such period and to such an extent as are necessary.
645.33(6) (6)Fraudulent transfers. The rehabilitator shall have the power to avoid fraudulent transfers under ss. 645.52 and 645.53.
645.33 History History: 1979 c. 93, 102; 2009 a. 342.
645.33 Annotation Under s. 645.32 (1), an order to rehabilitate the business of an insurer "shall appoint the commissioner . . . rehabilitator and shall direct the rehabilitator to take possession of the assets of the insurer and to administer them under the orders of the court." In the context of insurance rehabilitations, a circuit court erroneously exercises its discretion when the circuit court exceeds its statutory authority or the court unreasonably substitutes the rehabilitator's beliefs for its own beliefs. The court will uphold the determinations made by the rehabilitator unless the rehabilitator abused his or her discretion. It is appropriate to afford great weight deference to the commissioner's interpretation and application of the statutes governing the rehabilitation of an insurer and other related statutes the commissioner is charged with administering. Nickel v. Wells Fargo Bank, 2013 WI App 129, 351 Wis. 2d 539, 841 N.W.2d 482, 10-2022.
645.33 Annotation The legislature intended for rehabilitation proceedings to be informal and without cumbersome procedures. There is no statutory requirement in ch. 645 providing that a court must specify the facts upon which it relied in approving a rehabilitation plan. Upon submission of a plan for approval, a court "may either approve or disapprove the plan proposed, or may modify it and approve it as modified." Nothing more is required. Nickel v. Wells Fargo Bank, 2013 WI App 129, 351 Wis. 2d 539, 841 N.W.2d 482, 10-2022.
645.33 Annotation Wisconsin's rehabilitation statutory scheme does not require that policyholders fare as well in rehabilitation as they would in liquidation. The statutory scheme provides the commissioner with minimal guidance as to how to structure a rehabilitation plan and certainly no requirement that each plan must provide policyholders the liquidation value of their claims or the right to opt out and receive the liquidation value of their claims. Nickel v. Wells Fargo Bank, 2013 WI App 129, 351 Wis. 2d 539, 841 N.W.2d 482, 10-2022.
645.33 Annotation The rules of civil procedure, including the rules pertaining to discovery, do not apply to rehabilitation proceedings. Chapter 645 prescribes its own rules of procedure in insurer delinquency proceedings. The legislature did not intend to bind the court to the rules of civil procedure when applying these rules would transform an informal management task into a formal and cumbersome legal task. Nickel v. Wells Fargo Bank, 2013 WI App 129, 351 Wis. 2d 539, 841 N.W.2d 482, 10-2022.
645.33 Annotation Sub. (5) provides in broad and liberal terms that after a rehabilitation plan is filed with the circuit court for approval, the court may approve or disapprove the proposed plan, or modify it and approve it as modified after providing "notice and hearing as the court prescribes." This language permits the circuit court to establish procedures that are tailored to the procedural necessities presented by the circumstances of each rehabilitation proceeding. That means that the rehabilitation court has the discretion to grant or deny a motion to intervene. Nickel v. Wells Fargo Bank, 2013 WI App 129, 351 Wis. 2d 539, 841 N.W.2d 482, 10-2022.
645.34 645.34 Actions by and against rehabilitator.
645.34(1) (1) Stays in pending litigation. On request of the rehabilitator, any court in this state before which any action or proceeding by or against an insurer is pending when a rehabilitation order against the insurer is entered shall stay the action or proceeding for such time as is necessary for the rehabilitator to obtain proper representation and prepare for further proceedings. The court that entered the rehabilitation order shall order the rehabilitator to take such action respecting the pending litigation as the court deems necessary in the interests of justice and for the protection of creditors, policyholders and the public. The rehabilitator shall immediately consider all litigation pending outside this state and shall petition the courts having jurisdiction over that litigation for stays whenever necessary to protect the estate of the insurer.
645.34(2) (2)Statutes of limitations on claims by insurer. The time between the filing of a petition for rehabilitation against an insurer and denial of the petition or an order of rehabilitation shall not be considered to be a part of the time within which any action may be commenced by the insurer. Any action by the insurer that might have been commenced when the petition was filed may be commenced for at least 60 days after the order of rehabilitation is entered.
645.34(3) (3)Statutes of limitations on claims against insurer. The time between the filing of a petition for rehabilitation against an insurer and the denial of the petition or an order of rehabilitation shall not be considered to be a part of the time within which any action may be commenced against the insurer. Any action against the insurer that might have been commenced when the petition was filed may be commenced for at least 60 days after the order of rehabilitation is entered or the petition is denied.
645.35 645.35 Termination of rehabilitation.
645.35(1) (1) Transformation to liquidation. Whenever the rehabilitator believes that further attempts to rehabilitate an insurer would substantially increase the risk of loss to creditors, policyholders, or the public, or would be futile, the rehabilitator may petition the court for an order of liquidation. A petition under this subsection shall have the same effect as a petition under s. 645.41. The court shall permit the directors to defend against the petition and shall order payment from the estate of the insurer of such costs and other expenses of defense as justice requires.
645.35(2) (2)Order to return to company. The rehabilitator may at any time petition the court for an order terminating rehabilitation of an insurer. If the court finds that rehabilitation has been accomplished and that grounds for rehabilitation under s. 645.31 no longer exist, it shall order that the insurer be restored to possession of its property and the control of its business. The court may also make that finding and issue that order at any time upon its own motion.
645.35 History History: 1979 c. 102 s. 236 (10).
645.41 645.41 Grounds for liquidation. The commissioner may apply by verified petition to the circuit court for Dane County or for the county in which the principal office of the insurer is located for an order directing him or her to liquidate a domestic insurer or an alien insurer domiciled in this state on any one or more of the following grounds:
645.41(1) (1) Any ground on which the commissioner may apply for an order of rehabilitation under s. 645.31, whenever the commissioner believes that attempts to rehabilitate the insurer would substantially increase the risk of loss to its creditors, its policyholders or the public, or would be futile, or that rehabilitation would serve no useful purpose;
645.41(2) (2) That the insurer is or is about to become insolvent;
645.41(3) (3) That the insurer is engaging in a systematic practice of reaching settlements with and obtaining releases from policyholders or 3rd-party claimants and then unreasonably delaying payment of or failing to pay the agreed upon settlements;
645.41(4) (4) That the insurer is in such condition that the further transaction of business would be hazardous, financially or otherwise, to its policyholders, its creditors or the public;
645.41(5) (5) That the insurer has not transacted the business of insurance during the previous 12 months or has transacted only a token insurance business during that period, although authorized to do so throughout that period, or that more than 12 months after incorporation it has failed to become authorized to do an insurance business;
645.41(6) (6) That within any part of the previous 12 months the insurer has systematically attempted to compromise with its creditors on the ground that it is financially unable to pay its claims in full;
645.41(7) (7) That the insurer has commenced, or within the previous year has attempted to commence, voluntary liquidation otherwise than under chs. 600 to 646;
645.41(8) (8) That the insurer has concealed records or assets from the commissioner or improperly removed them from the jurisdiction;
645.41(9) (9) That the insurer does not satisfy the requirements that would be applicable if it were seeking initial authorization to do an insurance business in this state, except for:
645.41(9)(a) (a) Requirements that are intended to apply only at the time the initial authorization to do business is obtained, and not thereafter; and
645.41(9)(b) (b) Requirements that are expressly made inapplicable by the laws establishing the requirements;
645.41(10) (10) That the holders of two-thirds of the shares entitled to vote, or two-thirds of the members or policyholders entitled to vote in an insurer controlled by its members or policyholders, have consented to a petition.
645.41 History History: 1975 c. 373; 1977 c. 339 s. 43; 1979 c. 89, 93; 1979 c. 102 s. 236 (6), (20); 1983 a. 215; 2005 a. 253.
645.42 645.42 Liquidation orders.
645.42(1)(1) Order to liquidate. An order to liquidate the business of a domestic insurer shall appoint the commissioner and his or her successors in office liquidator and shall direct the liquidator to take possession of the assets of the insurer and to administer them under the orders of the court. The liquidator is vested by operation of law with the title to all of the property, contracts, rights of action and books and records, wherever located, of the insurer ordered liquidated, and with all of the stock issued by the insurer and any cause of action that has or subsequently accrues to the holder of the stock, as of the date of the filing of the petition for liquidation. The liquidator may recover and reduce the same to possession except that ancillary receivers in reciprocal states shall have, as to assets located in their respective states, the rights and powers which are prescribed in s. 645.84 (3) for ancillary receivers appointed in this state as to assets located in this state. The recording of the order with any register of deeds in this state imparts the same notice as a deed, bill of sale or other evidence of title recorded with that register of deeds.
645.42(2) (2)Fixing of rights. Upon issuance of the order, the rights and liabilities of any such insurer and of its creditors, policyholders, shareholders, members and all other persons interested in its estate are fixed as of the date of filing of the petition for liquidation, except as provided in ss. 645.43 and 645.63.
645.42(3) (3)Alien insurer. An order to liquidate the business of an alien insurer domiciled in this state shall be in the same terms and have the same legal effect as an order to liquidate a domestic insurer, except that the assets and the business in the United States shall be the only assets and business included under the order.
645.42(4) (4)Declaration of insolvency. At the time of petitioning for an order of liquidation, or at any time thereafter, the commissioner may petition the court to declare the insurer insolvent, and after such notice and hearing as it deems proper, the court may make the declaration.
645.42 History History: 1979 c. 102; 1989 a. 23; 1993 a. 301.
645.43 645.43 Continuance of coverage.
645.43(1) (1) All insurance policies issued by the insurer shall continue in force:
645.43(1)(a) (a) For a period of 15 days from the date of entry of the liquidation order;
645.43(1)(b) (b) Until the normal expiration of the policy coverage;
645.43(1)(c) (c) Until the insured has replaced the insurance coverage with equivalent insurance in another insurer; or
645.43(1)(d) (d) Until the liquidator has effected a transfer of the policy obligation pursuant to s. 645.46 (8); whichever time is less.
645.43(2) (2) If the coverage continued under this section is replaced by insurance that is not equivalent, the coverage continued under this section shall be excess coverage over the replacement policy to the extent of the deficiency. Claims arising during the continuation of coverage shall be treated as if they arose immediately before the petition for liquidation. Coverage under this subsection shall not satisfy any legal obligation of the insured to carry insurance protection, whether the obligation is created by law or by contract.
645.44 645.44 Dissolution of insurer. The commissioner may petition for an order dissolving the corporate existence of a domestic insurer or the U.S. branch of an alien insurer domiciled in this state at the time of the application for a liquidation order. If the court issues a liquidation order, it also shall order dissolution if the commissioner has petitioned for it. The court shall order dissolution of the corporation upon petition by the commissioner at any time after a liquidation order has been granted. If the dissolution has not previously occurred, it shall be effected by operation of law upon the discharge of the liquidator.
645.44 History History: 1979 c. 102.
645.45 645.45 Federal receivership.
645.45(1) (1) Petition for federal receiver. Whenever in the commissioner's opinion, liquidation of a domestic insurer or an alien insurer domiciled in this state would be facilitated by a federal receivership, and when any ground exists upon which the commissioner might petition the court for an order of rehabilitation or liquidation under s. 645.31 or 645.41, or if an order of rehabilitation or liquidation has already been entered, the commissioner may request another commissioner or other willing resident of another state to petition any appropriate federal district court for the appointment of a federal receiver. The commissioner may intervene in any such action to support or oppose the petition, and may accept appointment as the receiver if he or she is so designated. So much of this chapter shall apply to the receivership as can be made applicable and is appropriate. Upon motion of the commissioner, the courts of this state shall relinquish all jurisdiction over the insurer for purposes of rehabilitation or liquidation.
645.45(2) (2)Compliance with federal requirements. If the commissioner is appointed receiver under this section, the commissioner shall comply with any requirements necessary to give him or her title to and control over the assets and affairs of the insurer.
645.45 History History: 1979 c. 102 ss. 205, 236 (5).
645.46 645.46 Powers of liquidator. The liquidator shall report to the court monthly, or at other intervals specified by the court, on the progress of the liquidation in whatever detail the court orders. Subject to the court's control, the liquidator may:
645.46(1) (1) Appoint a special deputy to act for the liquidator under this chapter, and determine the special deputy's compensation. The special deputy shall have all powers of the liquidator granted by this section. The special deputy shall serve at the pleasure of the liquidator.
645.46(2) (2) Appoint or engage employees and agents, legal counsel, actuaries, accountants, appraisers, consultants and other personnel deemed necessary to assist in the liquidation. Chapter 230 does not apply to such persons.
645.46(3) (3) Fix the compensation of persons under sub. (2), subject to the control of the court.
645.46(4) (4) Defray all expenses of taking possession of, conserving, conducting, liquidating, disposing of, or otherwise dealing with the business and property of the insurer. If the property of the insurer does not contain sufficient cash or liquid assets to defray the costs incurred, the liquidator may advance the costs so incurred out of the appropriation under s. 20.145 (1) (g) 1. Any amounts so paid shall be deemed expense of administration and shall be repaid for the credit of the office of the commissioner of insurance out of the first available moneys of the insurer.
645.46(5) (5) Hold hearings, subpoena witnesses and compel their attendance, administer oaths, examine any person under oath and compel any person to subscribe to his or her testimony after it has been correctly reduced to writing, and in connection therewith require the production of any books, papers, records or other documents which the liquidator deems relevant to the inquiry.
645.46(6) (6) Collect all debts and moneys due and claims belonging to the insurer, wherever located, and for this purpose institute timely action in other jurisdictions, in order to forestall garnishment and attachment proceedings against such debts; perform any other acts necessary or expedient to collect, conserve or protect its assets or property, including sell, compound, compromise or assign for purposes of collection, upon such terms and conditions as he or she deems best, any bad or doubtful debts; and pursue any creditor's remedies available to enforce his or her claims.
645.46(7) (7) Conduct public and private sales of the property of the insurer in a manner prescribed by the court.
645.46(8) (8) Cooperate with the fund created under ch. 646 in using assets of the estate to transfer policy obligations to a solid assuming insurer, if the transfer can be arranged without prejudice to applicable priorities under s. 645.68.
645.46(9) (9) Acquire, hypothecate, encumber, lease, improve, sell, transfer, abandon or otherwise dispose of or deal with any property of the insurer at its market value or upon fair and reasonable terms and conditions, except that no transaction involving property the market value of which exceeds $10,000 shall be concluded without express permission of the court. The liquidator also may execute, acknowledge and deliver any deeds, assignments, releases and other instruments necessary or proper to effectuate any sale of property or other transaction in connection with the liquidation. In cases where real property sold by the liquidator is located other than in the county where the liquidation is pending, the liquidator shall cause to be recorded with the register of deeds for the county in which the property is located the order of appointment.
645.46(10) (10) Borrow money on the security of the insurer's assets or without security and execute and deliver all documents necessary to that transaction for the purpose of facilitating the liquidation.
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2011-12 Wisconsin Statutes updated though 2013 Wis. Act 380 and all Supreme Court Orders entered before June 30, 2014. Published and certified under s. 35.18. Changes effective after July 1, 2014 are designated by NOTES. (Published 7-1-14)