CHAPTER 442.  LIQUIDATION, REHABILITATION, REORGANIZATION, OR

CONSERVATION OF INSURERS

SUBCHAPTER A.  GENERAL PROVISIONS

Revised Law

Sec. 442.001.  DEFINITIONS.  In this chapter:

     (1)  "Assets" means all property, whether specifically mortgaged, pledged, deposited, or otherwise encumbered for the security or benefit of specified persons or a limited class or classes of persons.  The term includes all deposits and funds of a special or trust nature.

     (2)  "Delinquency proceeding" means a proceeding initiated in a court of this state against an insurer to liquidate, rehabilitate, reorganize, or conserve the insurer.

     (3)  "Insurer" means any organization, corporation, or person that engages in the business of insurance, other than an organization, corporation, or person that is specifically made exempt from the application of this chapter by another statute that references this chapter.  The term includes:

          (A)  a capital stock company;

          (B)  a reciprocal or interinsurance exchange;

          (C)  a Lloyd's plan;

          (D)  a fraternal benefit society;

          (E)  a mutual insurance company of any kind, including:

              (i)  a mutual assessment company;

              (ii)  a statewide mutual assessment company;

              (iii)  a local mutual aid association;

              (iv)  a burial association;

              (v)  a county mutual insurance company; and

              (vi)  a farm mutual insurance company; and

          (F)  a fidelity, guaranty, or surety company.

     (4)  "Person" means an individual, association, corporation, partnership, or other private legal entity.

     (5)  "Receiver" means a person required to act as receiver under Section 442.051.  The term includes the commissioner or a person appointed by the commissioner to act as special deputy receiver.  (V.T.I.C. Art. 21.28, Secs. 1(a) (part), (b), (c), (d), (g); New.)

Source Law

Art. 21.28

Sec. 1.  For the purposes of this Article:

     (a)  "Insurer" means and includes capital stock companies, reciprocal or interinsurance exchanges, Lloyd's associations, fraternal benefit societies, mutual and mutual assessment companies of all kinds and types, state-wide assessment associations, local mutual aids, burial associations, county and farm mutual associations, fidelity, guaranty and surety companies, … all other organizations, corporations, or persons transacting an insurance business, unless such insurers are by statute specifically, by naming this Article, exempted from the operation of this Article.

     (b)  "Delinquency proceeding" means any proceeding commenced in any court of this State against an insurer for the purpose of liquidating, rehabilitating, reorganizing or conserving such insurer.

     (c)  "Assets" means all property, real or personal, whether specifically mortgaged, pledged, deposited, or otherwise encumbered for the security or benefit of specified persons, or a limited class or classes of persons.  The word "assets," as used in this Article, includes all deposits and funds of a special or trust nature.

     (d)  "Liquidator" means "receiver."  The term includes the commissioner of insurance or the person designated by the commissioner of insurance to act as special deputy receiver.

     (g)  "Person" means an individual, association, corporation, partnership, or other private legal entity.

Revisor's Note

(1)  Section 1(a), V.T.I.C. Article 21.28, refers to "Lloyd's associations," "mutual and mutual assessment companies," "state-wide assessment associations," "local mutual aids," and "county and farm mutual associations," meaning entities operating under Chapter 941, 882, 883, 881, 886, 912, or 911, respectively, of this code.  The terms most frequently used to refer to those entities are "Lloyd's plan," "mutual insurance company," "mutual assessment company," "statewide mutual assessment company," "local mutual aid association," "county mutual insurance company," and "farm mutual insurance company."  For consistent use of terminology in this code, the revised law substitutes "Lloyd's plan," "mutual insurance company," "mutual assessment company," "statewide mutual assessment company," "local mutual aid association," "county mutual insurance company," and "farm mutual insurance company" for "Lloyd's associations," "mutual and mutual assessment companies," "state-wide assessment associations," "local mutual aids," and "county and farm mutual associations," respectively.

(2)  Section 1(a), V.T.I.C. Article 21.28, defines "insurer" to include "trust companies organized under the provisions of Chapter 7 of Texas Insurance Code of 1951."  The revised law omits the reference to "trust companies" because Section 1, Chapter 388, Acts of the 55th Legislature, Regular Session, 1957, repealed Chapter 7.  The remainder of Chapter 388 enacted new requirements applicable to the creation and organization of trust companies, some of which were added to Vernon's Texas Civil Statutes as Article 1513a.  That article was repealed by Chapter 168, Acts of the 70th Legislature, Regular Session, 1987, which added the substance of Article 1513a to the law on the organization of trust companies contained in Chapter XI, The Texas Banking Code of 1943 (Article 342-1101 et seq., Vernon's Texas Civil Statutes).  That chapter was repealed by Chapter 769, Acts of the 75th Legislature, Regular Session, 1997, which enacted the Texas Trust Company Act (Article 342a-1.001 et seq., Vernon's Texas Civil Statutes).  That act was codified as Subtitle F, Title 3, Finance Code, by Chapter 62, Acts of the 76th Legislature, Regular Session, 1999.  To the extent that any trust companies organized under Chapter 7 of this code still exist and operate as insurers, they are included in the reference under Subdivision (3) of the revised law to "any organization, corporation, or person that engages in the business of insurance."  The omitted law reads:

     (a)  … trust companies organized under the provisions of Chapter 7 of Texas Insurance Code of 1951, and … .

(3)  Section 1(c), V.T.I.C. Article 21.28, defines "assets" to mean "all property, real or personal."  Throughout this chapter, references to "real or personal" are omitted from the revised law in this context because under Section 311.005(4), Government Code (Code Construction Act), "property" includes  both real and personal property.  That definition applies to the revised law.

(4)  Section 1(d), V.T.I.C. Article 21.28, defines "liquidator" to mean "receiver" and provides that the term includes the commissioner of insurance or the person "designated" by the commissioner to act as special deputy receiver.  Former Section 12, V.T.I.C. Article 21.28, provided for the appointment of a liquidator by the State Board of Insurance, and former Section 2 of that article required the liquidator to act as receiver if a court found that a receiver should take charge of the assets of an insurer.  Chapter 12, Acts of the 72nd Legislature, 2nd Called Session, 1991, amended Article 21.28 to require the commissioner of insurance or a person designated by the commissioner to act as receiver if a court finds that a receiver should take charge of the assets of an insurer and to authorize the commissioner to appoint one or more special deputy receivers to act as receiver for the commissioner.  Because the position of liquidator within the Texas Department of Insurance has effectively been abolished, the terms "liquidator" and "receiver" are synonymous, and the source law for this chapter generally uses the term "receiver" rather than "liquidator," the revised law defines the term "receiver" and substitutes "receiver" for "liquidator" throughout this chapter.  In addition, for the convenience of the reader the revised law defines "receiver" to mean a person required to act as receiver under Section 442.051 because the substantive duty giving rise to the defined term is imposed by that section.  Finally, throughout this chapter the revised law substitutes "appointed" for "designated" in the context of the selection of a special deputy receiver by the commissioner for consistency in use of terminology.

(5)  Section 1(e), V.T.I.C. Article 21.28, defines "board" as the State Board of Insurance of the State of Texas or the commissioner of insurance, as applicable.  Chapter 685, Acts of the 73rd Legislature, Regular Session, 1993, abolished the State Board of Insurance and transferred its functions to the commissioner of insurance and the Texas Department of Insurance.  Throughout this chapter, references to the board have been changed appropriately.  For this reason, the revised law omits the definition of "board."  The omitted law reads:

     (e)  "Board" means the State Board of Insurance of the State of Texas, or the Commissioner of Insurance as applicable under Article 1.02 of this code.

Revised Law

Sec. 442.002.  REFERENCES TO COURT.  For purposes of this chapter, "court" means the court in which a delinquency proceeding is pending, unless the context clearly indicates otherwise.  (V.T.I.C. Art. 21.28, Sec. 1(f).)

Source Law

Sec. 1.  For the purposes of this Article:

     (f)  "Court," unless the same clearly appears to the contrary from the text of this article, means the court in which the delinquency proceeding is pending.

Revised Law

Sec. 442.003.  LIQUIDATION OVERSIGHT DIVISION EMPLOYEES.  The employees of the liquidation oversight division of the department are employees of the department for the purposes of:

     (1)  reporting payroll information to the uniform statewide accounting system; and

     (2)  submitting vouchers to the comptroller for the payment of the employees' salaries.  (V.T.I.C. Art. 21.28, Sec. 12A(b).)

Source Law

(b)  The Liquidator and the employees working for the Liquidator or in the liquidation division of the State Board of Insurance are employees of the State Board of Insurance for the purpose of:

     (1)  reporting payroll information to the uniform statewide accounting system;  and

     (2)  submitting vouchers to the comptroller for the payment of the salaries of the Liquidator and the employees.

Revisor's Note

Section 12A(b), V.T.I.C. Article 21.28, provides that the liquidator and the employees working for the liquidator or in the liquidation division of the State Board of Insurance, meaning the Texas Department of Insurance, are employees of the department for certain purposes.  As explained in Revisor's Note (4) to Section 442.001, Chapter 12, Acts of the 72nd Legislature, 2nd Called Session, 1991, abolished the position of liquidator within the department.  The commissioner of insurance or a special deputy receiver appointed by the commissioner acts as a receiver and performs the functions formerly performed by the liquidator.  In general, the revised law codifies "liquidator" as "receiver." However, unlike the former liquidator, neither the commissioner nor the special deputy receivers appointed by the commissioner are department employees for any purpose, including those enumerated by Section 12A(b).  The commissioner is an officer appointed by the governor with the advice and consent of the senate under Subchapter B, Chapter 31, of this code, and a special deputy receiver is appointed by the commissioner under contract under Section 2(a), Article 21.28, revised in pertinent part in this chapter as Section 442.051, and is therefore an independent contractor.  Furthermore, the liquidation division of the department has been redesignated as the liquidation oversight division.  Accordingly, the  revised law omits the reference to the liquidator and the employees working for the liquidator and substitutes a reference to the liquidation oversight division for the reference to the liquidation division.

Revised Law

Sec. 442.004.  OVERSIGHT OF SPECIAL DEPUTY RECEIVERS AND GUARANTY ASSOCIATIONS.  The commissioner shall oversee special deputy receivers and guaranty associations.  (V.T.I.C. Art. 21.28, Sec. 2(a) (part).)

Source Law

(a)  … It is the intent of the legislature that oversight of the special deputy receivers and guaranty associations shall be conducted by the commissioner… .

Revisor's Note

Section 2(a), V.T.I.C. Article 21.28, provides that "[i]t is the intent of the legislature" that oversight of certain persons and entities be conducted by the commissioner of insurance.  The revised law omits the quoted language as unnecessary because it is implied that a statute expresses the intent of the legislature.

Revisor's Note

(End of Subchapter)

Section 12A(a-1), V.T.I.C. Article 21.28, provides that "this Act," meaning Chapter 661, Acts of the 59th Legislature, Regular Session, 1965, which amended V.T.I.C. Article 21.28 by adding Section 12A, is cumulative of existing law, and in the event of a conflict the provisions of the act shall govern.  Similarly, Section 16, V.T.I.C. Article 21.28, provides that in the event of a conflict between a provision of Article 21.28 and a provision of any existing law, the provision of Article 21.28 prevails and that all laws in conflict with Article 21.28 are repealed to the extent of the conflict.  The revised law omits those provisions as unnecessary.  An accepted general principle of statutory construction requires a statute to be given cumulative effect with other statutes unless it provides otherwise or unless the statutes are in conflict.  Another general principle of statutory construction provides that if statutes are in irreconcilable conflict, the statute latest in date of enactment prevails.  In addition, under general rules of statutory construction, a statute automatically has the effect of repealing prior conflicting enactments.  The omitted law reads:

Sec. 12A.  (a-1)  The provisions of this Act are cumulative of existing law and in the event of conflict the provisions of this Act shall govern.

Sec. 16.  In the event of conflict between the provisions of this Article and the provisions of any existing law, the provisions of this Article shall prevail, and all laws, or parts of law, in conflict with the provisions of this Article, are hereby repealed to the extent of such conflict.

[Sections 442.005-442.050 reserved for expansion]

SUBCHAPTER B.  GENERAL PROVISIONS REGARDING RECEIVER

Revised Law

Sec. 442.051.  RECEIVER.  If, under a law of this state, a court of competent jurisdiction finds that a receiver should take charge of the assets of an insurer domiciled in this state, the commissioner or a person appointed as a special deputy receiver by the commissioner under a contract shall act as receiver.  (V.T.I.C. Art. 21.28, Sec. 2(a) (part).)

Source Law

Sec. 2.  (a)  Receiver Taking Charge; Commissioner and Powers and Duties.  Whenever under the law of this State a court of competent jurisdiction finds that a receiver should take charge of the assets of an insurer domiciled in this State, the commissioner of insurance or a person designated by the commissioner under contract shall act as receiver.  …

Revised Law

Sec. 442.052.  APPOINTMENT OF SPECIAL DEPUTY RECEIVER.  (a)  The commissioner may appoint, set the compensation of, and contract with one or more qualified special deputy receivers to act for the commissioner under this code.

(b)  The commissioner shall:

     (1)  specify requirements for the position of special deputy receiver; and

     (2)  use a competitive bidding process to select special deputy receivers.

(c)  In making an appointment under this section, the commissioner shall attempt to reflect the ethnic, racial, and geographic diversity of the state.

(d)  A special deputy receiver serves at the pleasure of the commissioner.  (V.T.I.C. Art. 21.28, Secs. 2(a) (part), 12(b) (part), (h) (part).)

Source Law

[Sec.  2]

(a)  …  The commissioner shall use a competitive bidding process in the selection of special deputy receivers and shall establish specifications for the position of special deputy receiver.  …

[Sec. 12]

(b)  Appointments, Expenses.  The commissioner may appoint, set the compensation of, and contract with one or more qualified special deputy receivers to act for the commissioner under this code.  In making an appointment under this section, the commissioner shall attempt to reflect the ethnic, racial, and geographic diversity of the state.  …

(h)  Authority of Special Deputy Receiver.  A special deputy receiver appointed by the commissioner serves at the pleasure of the commissioner.  …

Revised Law

Sec. 442.053.  PERFORMANCE BOND REQUIRED.  A special deputy receiver must file with the commissioner a bond that is:

     (1)  in an amount established by the commissioner;

     (2)  payable to the commissioner for the benefit of injured parties; and

     (3)  conditioned on:

          (A)  the faithful performance of the special deputy receiver's duties; and

          (B)  the proper accounting for all money and property received or administered by the special deputy receiver.  (V.T.I.C. Art. 21.28, Sec. 12(a).)

Source Law

Sec. 12.  (a)  Special Deputy Receiver, Bond.  A special deputy receiver appointed by the commissioner under this article shall file with the commissioner a bond in an amount established by the commissioner, payable to the commissioner for the benefit of injured parties, and conditioned on the faithful performance of the special deputy receiver's duties and the proper accounting for all moneys and properties received or administered by the special deputy receiver.

Revised Law

Sec. 442.054.  POWERS OF SPECIAL DEPUTY RECEIVER.  (a)  Unless restricted by the commissioner, a special deputy receiver has all the powers of a receiver granted under this code and may perform any act on behalf of the commissioner.

(b)  If expressly authorized by the commissioner, a special deputy receiver may employ employees and agents, legal counsel, actuaries, accountants, appraisers, consultants, and other personnel the special deputy receiver considers necessary to assist in the performance of the receiver's duties.  The expenses of employing those persons are expenses of the receivership payable out of money or other assets of the insurer.  (V.T.I.C. Art. 21.28, Secs. 12(b) (part), (h) (part).)

Source Law

(b)  …  A special deputy receiver has all the powers of the receiver granted by this code, unless limited by the commissioner.  …

(h)  …  Unless restricted by the commissioner, a special deputy receiver may perform any act on behalf of the commissioner.  If expressly authorized by the commissioner, a special deputy receiver may employ employees and agents, legal counsel, actuaries, accountants, appraisers, consultants, and other personnel as the special deputy receiver considers necessary to assist in the performance of the receiver's duties.  The expenses of employing those persons are expenses of the receivership payable out of funds or assets of the insurer.

Revisor's Note

Section 12(h), V.T.I.C. Article 21.28, refers to "funds" of an insurer.  Throughout this chapter, the revised law substitutes "money" for "funds" because, in this context, the terms are synonymous and the former is more commonly used.

Revised Law

Sec. 442.055.  PERFORMANCE STANDARDS APPLICABLE TO SPECIAL DEPUTY RECEIVER.  A person appointed by the commissioner to act as special deputy receiver under contract is subject to the performance standards imposed by Sections 442.104(a) and 442.112.  (V.T.I.C. Art. 21.28, Sec. 2(a) (part).)

Source Law

(a)  …  A person designated by the commissioner to act as special deputy receiver under contract is subject to the performance standards imposed by this subsection.  …

Revisor's Note

Section 2(a), V.T.I.C. Article 21.28, provides that a special deputy receiver is subject to the performance standards imposed by Section 2(a).  The only provisions in Section 2(a) that could be construed as performance standards are revised in this chapter as Sections 442.104(a) and 442.112, and the revised law is drafted accordingly.

Revised Law

Sec. 442.056.  RECEIVER CONSIDERED TO ACT ON BEHALF OF RECEIVERSHIP ESTATE.  (a)  In performing the duties of receiver under this chapter, the commissioner, a special deputy receiver, or an agent or employee of the commissioner or special deputy receiver is considered to act on behalf of the receivership estate.

(b)  Chapter 105, Civil Practice and Remedies Code, does not apply to an action taken under this chapter.  (V.T.I.C. Art. 21.28, Sec. 2(l).)

Source Law

(l)  Actions by Receiver.  When performing the duties of receiver under this Article, the commissioner, a special deputy receiver, or an agent or employee of the commissioner, or a special deputy receiver shall be considered to be acting on behalf of the receivership estate, and the provisions of Chapter 105, Civil Practice and Remedies Code, shall not apply to any actions taken pursuant to this Article.

Revised Law

Sec. 442.057.  IMMUNITY.  (a)  The following persons are not liable for, and a cause of action does not arise against any of the following persons for, a good faith action or failure to act in exercising powers and performing duties under this chapter:

     (1)  the commissioner or an agent or employee of the commissioner; or

     (2)  a special deputy receiver or an agent or employee of the special deputy receiver.

(b)  The attorney general shall defend an action to which Subsection (a) applies that is brought against a person described by that subsection, including an action brought after the defendant's service with the commissioner, a special deputy receiver, or the department has terminated, or after the close of the receivership out of which the action arises.  This subsection does not require the attorney general to defend a person with respect to an issue other than the applicability or effect of the immunity provided by Subsection (a).  (V.T.I.C. Art. 21.28, Secs. 2(j), (k).)

Source Law

(j)  Immunity.  There is no liability on the part of, and a cause of action does not arise against, the receiver, a special deputy receiver, the commissioner, or an agent or employee of the receiver, a special deputy receiver, or the commissioner for a good faith action or failure to act in the performance of powers and duties under this article.

(k)  Representation by Attorney General.  The attorney general shall defend an action to which Subsection (j) of this section applies that is brought against the receiver, a special deputy receiver, the commissioner, or an agent or employee of the receiver, a special deputy receiver, or the commissioner.  This subsection continues to apply to an action that is brought after the defendant's service with the receiver, a special deputy receiver, the commissioner, or the department has terminated or after the close of the receivership out of which the action arises.  This subsection does not require the attorney general to defend any person with respect to an issue other than the applicability or effect of the judicial immunity codified by Subsection (j) of this section.

Revisor's Note

(1)  Sections 2(j) and (k), V.T.I.C. Article 21.28, refer to "the receiver," "a special deputy receiver," and "the commissioner."  The revised law omits the references to "receiver" as unnecessary because under Section 2(a), V.T.I.C. Article 21.28, revised in pertinent part in this chapter as Section 442.051, only the commissioner or a person appointed as a special deputy receiver may act as receiver.

(2)  Section 2(k), V.T.I.C. Article 21.28, refers to the "judicial immunity" in Section 2(j), Article 21.28, revised as Subsection (a) of this section.  Section 2(j) refers to "immunity" rather than "judicial immunity."  Accordingly, the revised law substitutes "immunity" for "judicial immunity" for consistency in use of terminology.

[Sections 442.058-442.100 reserved for expansion]

SUBCHAPTER C.  CONDUCT OF DELINQUENCY PROCEEDINGS: GENERAL PROVISIONS

Revised Law

Sec. 442.101.  VENUE.  Exclusive venue of delinquency proceedings is in Travis County.  (V.T.I.C. Art. 21.28, Sec. 2(i).)

Source Law

(i)  Venue.  Exclusive venue of delinquency proceedings shall be in Travis County, Texas.

Revised Law

Sec. 442.102.  RIGHTS AND LIABILITIES ESTABLISHED AS OF DATE  DELINQUENCY PROCEEDING BEGINS.  Except as otherwise directed by the court or expressly provided by this chapter, the rights and liabilities of an insurer that is the subject of a delinquency proceeding and of all other persons interested in the insurer's estate, including the insurer's creditors, policyholders, members, officers, directors, shareholders, and agents, are fixed as of the date of the commencement of the delinquency proceeding, subject to the provisions of Subchapter F relating to the rights of claimants holding unliquidated or undetermined claims or demands.  (V.T.I.C. Art. 21.28, Sec. 2(c).)

Source Law

(c)  Rights Fixed.  The rights and liabilities of any such insurer and of its creditors, policyholders, members, officers, directors, stockholders, agents, and all other persons interested in its estate, shall, unless otherwise directed by the court, be fixed as of the date of the commencement of the delinquency proceedings, subject, however, to the provisions of Section 3 with respect to the rights of claimants holding unliquidated or undetermined claims or demands, and as otherwise expressly provided in this Article.

Revised Law

Sec. 442.103.  TITLE TO ASSETS; PRIORITY OF RECEIVER'S RIGHTS.  (a)  The assets of an insurer that is the subject of a delinquency proceeding are in the custody of the court as of the date of the commencement of the proceeding.

(b)  The receiver is vested by operation of law with the title to all of the insurer's property, contracts, and rights of action, wherever located, as of the date a court order is entered directing possession to be taken.  The title of the receiver relates back to the date of the commencement of the delinquency proceeding unless the court provides otherwise.

(c)  A contractual lien or statutory landlord's lien under Chapter 54, Property Code, that arises after the date of the commencement of the delinquency proceeding is secondary and inferior to the rights of the receiver.

(d)  The filing or recording of an order described by Subsection (b) in any record office of the state provides the same notice as would be provided by a deed, bill of sale, or other evidence of title filed or recorded by the insurer.  (V.T.I.C. Art. 21.28, Sec. 2(b).)

Source Law

(b)  Title in Receiver.  The property and assets of such insurer shall be in the custody of the court as of the date of the commencement of such delinquency proceedings.  The said receiver and his successors in office shall be vested by operation of law with the title to all of the property, contracts, and rights of action of such insurer, wherever located, as of the date of entry of the order directing possession to be taken.  Such title of the receiver shall relate back to the date of the commencement of the delinquency proceedings unless the court shall otherwise provide. A contractual lien or statutory landlord's lien under Chapter 54, Property Code, that arises after the date of the commencement of the delinquency proceedings is secondary and inferior to the rights of the receiver and his successors in office.  The filing or recording of such an order in any record office of the State shall impart the same notice as would be imparted by a deed, bill of sale, or other evidence of title duly filed or recorded by such insurer.

Revisor's Note

(1)  Section 2(b), V.T.I.C. Article 21.28, refers to the "property and assets" of an insurer.  Throughout this chapter, the reference to "property" is omitted from the revised law in this context because under Section 1(c), V.T.I.C. Article 21.28, revised in this chapter as Section 442.001(1), "assets" is defined to include all property of an insurer.

(2)  Section 2(b), V.T.I.C. Article 21.28, refers to the "receiver and his successors in office."  The references to the receiver's "successors in office" are omitted from the revised law because the receiver's "successors in office" are included within the meaning of "receiver."

(3)  Section 2(b), V.T.I.C. Article 21.28, refers to a deed, bill of sale, or other evidence of title "duly" filed or recorded by an insurer.  The revised law omits "duly" as unnecessary because the term does not add to the clear meaning of the law.  A deed, bill of sale, or other evidence of title is not filed or recorded if it is not duly filed or recorded.

Revised Law

Sec. 442.104.  DUTY OF RECEIVER TO TAKE POSSESSION OF ASSETS; INVENTORY.  (a)  The receiver shall promptly take possession of the assets of an insurer that is the subject of a delinquency proceeding and, as the court directs, manage those assets in the person's own name as receiver or in the name of the insurer.

(b)  The receiver is responsible for all assets coming into the receiver's possession.

(c)  The receiver shall promptly prepare, in duplicate, an inventory of the insurer's assets.  The receiver shall file one copy of the inventory with the department and one copy in the office of the clerk of the court.  The copies of the inventory are open for inspection.  (V.T.I.C. Art. 21.28, Secs. 2(a) (part), (d) (part), (f).)

Source Law

(a)  …  The receiver shall forthwith take possession of the assets of such insurer and deal with the same in the person's own name as receiver or in the name of the insurer as the court may direct.  …

(d)  Bonds.  The receiver shall be responsible for all assets coming into his possession… .

(f)  Inventory.  An inventory in duplicate of the insurer's assets shall be prepared forthwith by the receiver, one of which shall be filed in the office of the Board and one in the office of the clerk of the court having jurisdiction, which inventories shall be open to inspection.

Revisor's Note

(1)  Section 2(a), V.T.I.C. Article 21.28, provides that a receiver has the powers specified by this code.  The revised law omits that provision as unnecessary.  The provisions of this code that specify those powers are sufficient authority for those powers.  The omitted law reads:

(a)  . . . The receiver has the powers specified in this code. . . .

(2)  Section 2(f), V.T.I.C. Article 21.28, refers to "the court having jurisdiction."  The revised law substitutes a reference to "the court" because under Section 1(f), V.T.I.C. Article 21.28, revised in this chapter as Section 442.002, for purposes of this chapter "court" means the court in which a delinquency proceeding is pending, unless the context clearly indicates otherwise, and it is clear from the context that the court to which the reference is made is the court in which the delinquency proceeding is pending.

Revised Law

Sec. 442.105.  AUTHORITY TO REQUIRE BOND TO PROTECT ASSETS.  The court may require:

     (1)  the receiver to provide one or more bonds; and

     (2)  if considered desirable by the court for the protection of the assets, a special deputy receiver or other assistant or employee appointed under this chapter to provide one or more bonds.  (V.T.I.C. Art. 21.28, Sec. 2(d) (part).)

Source Law

(d)  …  The court may require a bond, or bonds, from the said receiver, and, if deemed desirable for the protection of the assets, may require a bond, or bonds, of any special deputy receiver, or other assistant or employee appointed by or under the authority of this Article.

Revised Law

Sec. 442.106.  DELIVERY OF PROPERTY AND RECORDS TO RECEIVER.  (a)  The officers, directors, shareholders, members, trustees, managing general agents, agents, administrators, claims adjusters, managers, attorneys-in-fact, and associate, deputy, or substitute attorneys-in-fact of a delinquent insurer shall immediately deliver to the receiver, without cost to the receiver, all property, books, records, accounts, documents, and other writings of the delinquent insurer or that relate to the business of the delinquent insurer.

(b)  If by contract or otherwise any property, book, record, account, document, or other writing is owned by a person described by Subsection (a), the owner shall copy the item and deliver the copy to the receiver.  The owner shall retain the original until notification that the item is no longer required in the administration of the insurer's estate or until another time as the court, after notice and hearing, directs.  A copy is considered to be a record of the delinquent insurer under Subchapter J.  (V.T.I.C. Art. 21.28, Sec. 4(e).)

Source Law

(e)  Records with Third Parties.  All officers, directors, stockholders, members, trustees, managing general agents, agents, administrators, claims adjusters, managers, attorneys-in-fact, or associate, deputy, or substitute attorneys-in-fact of the delinquent insurer shall immediately deliver to the possession of the receiver all properties, books, records, accounts, documents, and other writings of the delinquent insurer or that relate to the business of the delinquent insurer without cost to the receiver;  however, if by contract or otherwise any of the properties, books, records, accounts, documents, and other writings belong to or are the property of those persons, they shall be copied, the copy delivered to the receiver, and the original retained by the owner until notification that it is no longer required in the administration of the insurer's estate or at any other time as the court, after notice  and hearing, shall direct.  The copies are deemed to be records of the delinquent insurer under Section 11 of this Article.

Revised Law

Sec. 442.107.  DUTY OF RECEIVER TO CONDUCT INSURER'S BUSINESS.  (a)  On taking possession of the assets of a delinquent insurer, the receiver shall, subject to the direction of the court, immediately begin conducting the insurer's business or taking any steps necessary to conserve the assets and protect the rights of policyholders and claimants for the purpose of liquidating, rehabilitating, reinsuring, reorganizing, or conserving the affairs of the insurer.

(b)  Notwithstanding the requirements of Subsection (a) or the terms of any insurance contract issued by a delinquent insurer, the receiver is not required to defend any action against an insured of a delinquent insurer.  (V.T.I.C. Art. 21.28, Sec. 2(e).)

Source Law

(e)  Conducting of Business.  Upon taking possession of the assets of a delinquent insurer the receiver shall, subject to the direction of the court, immediately proceed to conduct the business of the insurer, or to take such steps as may be necessary to conserve the assets and protect the rights of policyholders and claimants for the purpose of liquidating, rehabilitating, reinsuring, reorganizing or conserving the affairs of the insurer.  Notwithstanding the foregoing requirements or the terms of any insurance contract issued by a delinquent insurer, the receiver is not required to defend any action against an insured of a delinquent insurer.

Revised Law

Sec. 442.108.  DISPOSAL OF PROPERTY; SETTLING OF CLAIMS.  (a)  Except as provided by Subsection (b), the receiver may, subject to the approval of the court:

     (1)  sell or otherwise dispose of all or part of the property of an insurer against whom a delinquency proceeding has been brought; and

     (2)  sell or compound all doubtful or uncollectible debts, or claims owed by or to the insurer, including claims based on an assessment levied against a member of a mutual insurance company, a reciprocal or interinsurance exchange, or a Lloyd's plan.

(b)  Without obtaining the approval of the court, the receiver may compromise or compound a debt or claim described by Subsection (a)(2) or sell an item of the insurer's property on terms the receiver considers to be in the best interest of the insurer if the amount of the debt or claim or the value of the item of property does not exceed $10,000, excluding interest.

(c)  The receiver may, subject to the approval of the court, sell, agree to sell, or offer to sell any assets of the insurer to creditors of the insurer who seek to participate in the purchase of the assets, to be paid for wholly or partly out of dividends payable to those creditors.  On application of the receiver, the court may designate representatives to act for those creditors in purchasing, holding, or otherwise managing those assets, and the receiver may, subject to the approval of the court, advance the expenses of those representatives against the security of the claims of those creditors.

(d)  The receiver may, subject to the approval of the court and the commissioner, as required by this code, sell or otherwise dispose of the charter or certificate of authority of the insurer separately from the outstanding liabilities of the insurer.  (V.T.I.C. Art. 21.28, Sec. 2(g).)

Source Law

(g)  Disposal of Property;  Settling Claims.  The receiver may, subject to the approval of the court, (1) sell or otherwise dispose of the real and personal property, or any part thereof, of an insurer against whom a proceeding has been brought under this Article, and (2) sell or compound all doubtful or uncollectible debts, or claims owed by or owing to such insurer, including claims based upon an assessment levied against a member of a mutual insurer, reciprocal exchange, or an underwriter at Lloyds.  Whenever the amount of any such debt or claim owed by or owing to such insurer or the value of any item of property of the insurer does not exceed Ten Thousand Dollars ($10,000), exclusive of interest, the receiver may compromise or compound such debt or claim or sell such property upon such terms as the receiver may deem for the best interests of said insurer without obtaining the approval of the court.  The receiver may, subject to the approval of the court, sell or agree to sell, or offer to sell, any assets of such an insurer to such of its creditors who may desire to participate in the purchase thereof, to be paid for, in all or in part, out of dividends payable to such creditors, and, upon the application of the receiver, the court may designate representatives to act for such creditors in the purchase, holding and/or management of such assets, and the receiver may, subject to the approval of the court, advance the expenses of such representatives against the security of the claims of such creditors.  The receiver may, subject to the approval of the court and the commissioner, as required by this code, sell or otherwise  dispose of the charter or license of the insurer separate and apart from its outstanding liabilities.

Revisor's Note

(1)  Section 2(g), V.T.I.C. Article 21.28, refers to a "proceeding … [brought] under this Article."  Throughout this chapter the revised law substitutes a reference to a "delinquency proceeding" for the quoted language and similar phrases because a delinquency proceeding is the only kind of proceeding authorized by this chapter and that is the term used to describe such a proceeding in Section 1(b), V.T.I.C. Article 21.28, revised as Section 442.001(2).

(2)  Section 2(g), V.T.I.C. Article 21.28, refers to a "mutual insurer," "reciprocal exchange," and "underwriter at Lloyds," meaning entities operating under Chapter 883, 942, or 941, respectively, of this code.  The terms most frequently used to refer to those entities are "mutual insurance company," "reciprocal or interinsurance exchange," and "Lloyd's plan."  For consistent use of terminology in this code, the revised law substitutes "mutual insurance company," "reciprocal or interinsurance exchange," and "Lloyd's plan" for "mutual insurer," "reciprocal exchange," and "underwriter at Lloyds," respectively.

(3)  Section 2(g), V.T.I.C. Article 21.28, refers to the sale or other disposal of the "license" of an insurer.  The revised law substitutes "certificate of authority" for "license" because "certificate of authority" is the term used throughout this code in relation to an entity's authority to engage in business.

(4)  Section 2(g), V.T.I.C. Article 21.28, refers to "separate and apart."  The reference to "apart" is omitted from the revised law because "apart" is included within the meaning of "separate."

Revised Law

Sec. 442.109.  BORROWING ON PLEDGE OF ASSETS.  (a)  To facilitate the rehabilitation, liquidation, conservation, or dissolution of an insurer under this chapter, the receiver may, subject to the approval of the court:

     (1)  borrow money;

     (2)  execute, acknowledge, and deliver a note or other evidence of indebtedness for the loan;

     (3)  secure the repayment of the loan by the mortgage, pledge, assignment, or transfer in trust of any or all of the insurer's property; and

     (4)  take any other action necessary and proper to obtain and provide for the repayment of the loan.

(b)  The receiver is not under any obligation in the person's personal capacity or official capacity as receiver to repay any loan made under this section.  (V.T.I.C. Art. 21.28, Sec. 15.)

Source Law

Sec. 15.  For the purpose of facilitating the rehabilitation, liquidation, conservation or dissolution of an insurer pursuant to this Article the receiver may, subject to the approval of the court, borrow money and execute, acknowledge and deliver notes or other evidences of indebtedness therefor and secure the repayment of the same by the mortgage, pledge, assignment, transfer in trust, or hypothecation of any or all of the property whether real, personal or mixed of such insurer, and the receiver, subject to the approval of the court, shall have power to take any and all other action necessary and proper to consummate any such loans and to provide for the repayment thereof.  The receiver shall be under no obligation personally or in his official capacity as receiver to repay any loan made pursuant to this section.

Revisor's Note

(1)  Section 15, V.T.I.C. Article 21.28, refers to the "pledge" or "hypothecation" of property.  The revised law omits "hypothecation" because "hypothecation" is included within the meaning of "pledge."

(2)  Section 15, V.T.I.C. Article 21.28, refers to "property whether real, personal or mixed."  The revised law omits the reference to "real, personal, or mixed" because under Section 311.005(4), Government Code (Code Construction Act), applicable to the revised law, "property" includes both real and personal property, and "mixed" property is property consisting of both real and personal property.

Revised Law

Sec. 442.110.  DEPOSITORIES; ACCOUNTING.  (a)  Except as otherwise provided by this section, the receiver shall promptly deposit all money collected into the Texas Treasury Safekeeping Trust Company in accordance with procedures established by the comptroller.

(b)  If determined advantageous by the receiver in the receiver's sound financial judgment, the receiver may deposit the money in one or more banks or savings and loan associations in this state insured by a federal agency that provides for deposit insurance.  If the amount deposited exceeds the maximum amount insured by the appropriate federal agency, the receiver shall, without the need for court approval, enter into any contracts and require any security the receiver considers proper to safeguard the deposit.

(c)  The receiver shall account for all money collected or realized from the assets of each insurer for which the receiver has been appointed separately from all other money.  (V.T.I.C. Art. 21.28, Sec. 2(h).)

Source Law

(h)  Depositories.  Except as provided by this subsection, all money collected by the receiver shall be forthwith deposited into the Texas Treasury Safekeeping Trust Company in accordance with procedures established by the comptroller.  The receiver may deposit the money in any bank, banks, or savings and loan association or associations in this State insured by a federal agency that provides for deposit insurance if the receiver, in the exercise of sound financial judgment, determines that it would be advantageous to do so.  The funds collected or realized from the assets of each insurer for which the receiver has been appointed shall be accounted for by the receiver separately from all other funds.  Whenever any account in a bank or savings and loan association exceeds the maximum amount insured by the appropriate federal agency, the receiver is hereby authorized and directed to make such contracts and require such security as it may deem proper for the safeguarding of such deposit without approval of the court.

Revised Law

Sec. 442.111.  REPORTS ON STATUS OF PROCEEDING.  The receiver shall:

     (1)  file with the department on the department's request reports showing the operation, receipts, expenditures, and general condition of any insurer of which the receiver is in charge at that time;

     (2)  on request, file a copy of a report described by Subdivision (1) with the court in which the receivership proceeding is pending; and

     (3)  file a final report regarding each insurer that has been liquidated or handled that:

          (A)  shows and fully explains all receipts and expenditures; and

          (B)  accurately states the disposition of all of the insurer's assets.  (V.T.I.C. Art. 21.28, Sec. 12(c).)

Source Law

(c)  Filing Reports.  The receiver shall file reports with the Board upon its request showing the operation, receipts, expenditures, and general condition of any organization of which the receiver may have charge at that time, and, upon request, shall file a copy of said report with the court in which said receivership proceeding is pending.  The receiver shall also file a final report of each organization which has been liquidated or handled showing all receipts and expenditures, and giving a full explanation of the same and a true statement of the disposition of all of the assets of each organization.

Revisor's Note

Section 12(c), V.T.I.C. Article 21.28, requires the receiver to file reports with the Texas Department of Insurance showing certain information regarding an "organization" of which the receiver is in charge or that has been liquidated or handled.  The revised law substitutes "insurer" for "organization" for consistency with Section 2(a), V.T.I.C. Article 21.28, revised in pertinent part in this chapter as Section 442.051, which requires a receiver to take charge of the assets of an "insurer."

Revised Law

Sec. 442.112.  MONTHLY AND QUARTERLY REPORTS SUBMITTED BY SPECIAL DEPUTY RECEIVER.  (a)  A special deputy receiver shall submit a monthly written report to the court and the commissioner that states the special deputy receiver's business plan for the receivership, including:

     (1)  the expenses incurred in administering the receivership during the preceding month and an estimate of those expenses for the succeeding month;

     (2)  a cost-benefit analysis of the expenditure of money other than money spent to pay claims;

     (3)  a budget of monthly expenses that explains any variation from the original projection; and

     (4)  a list of any lawyers or law firms that offered to represent or represented the special deputy receiver in relation to the special deputy receiver's duties under this chapter, and any hours billed or fees paid to a lawyer or law firm that represented the special deputy receiver.

(b)  The special deputy receiver shall submit the business plan report to the attorney general quarterly, and the attorney general may make recommendations to the commissioner based on the report.

(c)  In addition to the business plan report, the special deputy receiver shall submit to the commissioner a monthly report relating to the special deputy receiver's activities in administering the receivership.

(d)  On written application by the special deputy receiver and with the approval of the commissioner, the court may suspend the requirement for monthly reports, or require less frequent reports, on a showing that the costs of the monthly reports exceed the benefit derived from those reports.  (V.T.I.C. Art. 21.28, Sec. 2(a) (part).)

Source Law

(a)  …  The special deputy receiver shall submit monthly written reports to the court and commissioner that state the special deputy receiver's business plan for the receivership, including expenses incurred in administering the receivership during the preceding month and an estimate of those expenses for the succeeding month.  The report must include a cost-benefit analysis on the expenditure of funds other than funds spent for the payment of claims.  The business plan report must include a budget of monthly expenses that explains any variation from the original projection.  The business plan report must include a list of any lawyers or law firms that offered to or did represent the special deputy receiver in relation to its duties under this article, and any hours billed or fees paid to a lawyer or law firm that represented the special deputy receiver.  The special deputy receiver shall submit the business plan report to the attorney general on a quarterly basis, and the attorney general may make recommendations to the commissioner based on the report.  In addition to the business plan report, the special deputy receiver shall submit a monthly report to the commissioner relating to the special deputy receiver's activities in administering the receivership.  Upon written application by the special deputy receiver and with approval of the commissioner, the court may suspend the requirement for monthly reports or require reports less frequently based upon a showing that the costs of such reports exceed the benefit derived from their filing.

Revised Law

Sec. 442.113.  REPORT TO INSURANCE FRAUD UNIT.  A special deputy receiver shall report to the insurance fraud unit any information discovered in the administration of a receivership relating to possible fraudulent, deceptive, or unlawful conduct by an insurer.  (V.T.I.C. Art. 21.28, Sec. 12(i).)

Source Law

(i)  Reports of Fraudulent Activities.  The special deputy receiver shall report to the insurance fraud unit any information relating to possible fraudulent, deceptive, or unlawful conduct by an insurer discovered in administration of the receivership.

Revised Law

Sec. 442.114.  PAYMENT OF LIQUIDATION EXPENSES; OBJECTION.  (a)  The commissioner or special deputy receiver shall pay the compensation of the special deputy receiver and all other expenses of a liquidation out of the money or other assets of the insurer.

(b)  Each month, the receiver shall present to the court an itemized accounting, sworn to by the receiver, of the expenses.  The court shall approve the accounting unless a party at interest files an objection on or before the 10th day after the date the accounting is presented.  The objection must specify each item to which the party objects and the ground for that objection.

(c)  The court shall set a hearing on an objection filed under Subsection (b) and shall notify the parties of the hearing.  The objecting party has the burden of proof to show that an item to which the party objected is improper, unnecessary, or excessive.  (V.T.I.C. Art. 21.28, Sec. 12(b) (part).)

Source Law

(b)  [The commissioner may … set the compensation of … special deputy receivers] … . The payment of such compensation and all expenses of liquidation shall be made by the commissioner or special deputy receiver out of funds or assets of the insurer.  An itemized report of such expenses, sworn to by the commissioner or a special deputy receiver, shall be presented on a monthly basis to the court, which account shall be approved by the court unless objection is filed thereto within ten (10) days after the presentation of the account.  The objection, if any, must be made by a party at interest and shall specify the item or items objected to and the ground of such objection.  The court shall set the objection down for hearing, notifying the parties of the setting.  The burden of proof shall be upon the party objecting to show that the items objected to are improper, unnecessary or excessive.

[Sections 442.115-442.150 reserved for expansion]

SUBCHAPTER D.  CONDUCT OF DELINQUENCY PROCEEDINGS:  COURT ACTIONS

Revised Law

Sec. 442.151.  INJUNCTIONS AND OTHER ORDERS.  (a)  On application by the receiver, the receivership court, with or without notice, may issue:

     (1)  an injunction restraining the insurer named in the order, the insurer's officers, directors, shareholders, members, trustees, agents, employees, policyholders, attorneys, managers, attorneys-in-fact, including associate, deputy, and substitute attorneys-in-fact, and all other persons from:

          (A)  engaging in the insurer's business; or

          (B)  wasting or disposing of the insurer's property; or

     (2)  an order requiring the delivery of the insurer's assets to the receiver.

(b)  At any time during a delinquency proceeding, the receivership court may issue an injunction or order considered necessary to prevent:

     (1)  interference with the receiver or the proceeding;

     (2)  waste of the insurer's assets;

     (3)  the initiation or prosecution of an action;

     (4)  the obtaining of a preference, judgment, attachment, garnishment, or other lien; or

     (5)  the levy of an assessment against the insurer or against all or part of the insurer's assets.  (V.T.I.C. Art. 21.28, Secs. 4(a), (b).)

Source Law

Sec. 4.  (a)  Injunctions.  Upon an application by the receiver, the receivership court may, with or without notice, issue an injunction restraining the insurer named in the order, its officers, directors, stockholders, members, trustees, agents, servants, employees, policyholders, attorneys, managers, attorneys-in-fact, associate, deputy, substitute attorneys-in-fact, and all other persons from the transaction of its business or the waste or disposition of its property, or requiring the delivery of its property and/or assets to the receiver subject to the further order of the court.

(b)  Other Orders.  Such court may at any time during a proceeding under this Article issue such other injunctions or orders as may be deemed necessary to prevent interference with the receiver or the proceeding, or waste of the assets of the insurer, or the commencement or prosecution of any actions, or the obtaining of preferences, judgments, attachments, garnishments, or other liens, or the making of any levy against the insurer or against its assets or any part thereof.

Revisor's Note

(1)  Section 4(a), V.T.I.C. Article 21.28, refers to an insurer's "agents, servants, [and] employees."  The revised law omits the reference to "servants" because "servants" is included within the meaning of "agents" or "employees."

(2)  Section 4(a), V.T.I.C. Article 21.28, provides that a receivership court may issue certain orders "subject to the further order of the court."  The revised law omits the quoted language as unnecessary because an order issued by a court is subject to a subsequent order of the court without an express statement to that effect.

Revised Law

Sec. 442.152.  EFFECT OF INJUNCTION OR ORDER:  DENIAL OF CLAIMS AND OTHER DEMANDS.  The receiver for an insurer may deny a claim, judgment, lien, preference, or demand made or obtained against the insurer or the receiver after the date of receivership in derogation of the terms of an injunction or order under Section 442.151 until:

     (1)  proof of the justness of the claim, judgment, lien, preference, or demand is made before the receivership court; and

     (2)  the court approves the claim, judgment, lien, preference, or demand.  (V.T.I.C. Art. 21.28, Sec. 4(c).)

Source Law

(c)  No Preferences.  Any claim, judgment, lien or preference against the insurer or its receiver obtained, after the date of receivership, in derogation of the terms of any such injunction or order of the receivership court may be denied by the receiver until proof of the justness of such claim, judgment, lien, preference or demand is made before and approved by the receivership court.

Revised Law

Sec. 442.153.  OTHER PENDING ACTIONS; IMMUNITY WITH RESPECT TO OTHER ACTIONS.  (a)  A judgment or order of a court of this state or of another jurisdiction in an action pending by or against a delinquent insurer that is rendered after the commencement of the delinquency proceeding is not binding on the receiver unless the receiver was made a party to the action.

(b)  A receiver and the receiver's agents and employees are not liable for, and a cause of action does not arise against the receiver or the receiver's agents or employees for, an act or failure to act by the person that relates to the adjustment, negotiation, or settlement of a claim.  (V.T.I.C. Art. 21.28, Sec. 4(f).)

Source Law

(f)  Pending Lawsuits.  No judgment or order rendered by any court of this State or of any other jurisdiction in any action pending by or against the delinquent insurer after the commencement of delinquency proceedings shall be binding upon the receiver unless the receiver shall have been made a party to such suit.

A receiver and his agents and employees are not liable for and a cause of action may not be brought against any of them for an action taken or not taken by them relating to the adjustment, negotiation, or settlement of claims.

Revised Law

Sec. 442.154.  EXTENSION OF TIME FOR PLEADING; INAPPLICABILITY OF CERTAIN LAWS.  (a)  The receiver is not required to plead to any action in which the receiver is a proper plaintiff or defendant in any court in this state until the first anniversary of the date the receiver is appointed.

(b)  Sections 64.033, 64.052, 64.053, and 64.056, Civil Practice and Remedies Code, do not apply to an insolvent insurer being administered under this chapter.  (V.T.I.C. Art. 21.28, Sec. 4(g).)

Source Law

(g)  One Year Extension.  The receiver shall not be required to plead to any suit in which he may be a proper party plaintiff or defendant, in any of the courts in this State until one (1) year after the date of his appointment as receiver, and the provisions of Sections 64.033, 64.052, 64.053, and 64.076, Civil Practice and Remedies Code, as amended, shall not apply to insolvent insurance companies being administered under this Article.

Revisor's Note

(1)  Section 4(g), V.T.I.C. Article 21.28, provides in part that Section 64.076, Civil Practice and Remedies Code, does not apply to an insolvent insurer being administered under V.T.I.C. Article 21.28.  Section 64.076 pertains to actions against receivers of  railroad companies.  The cross-reference to that section appears to be incorrect.  The correct cross-reference appears to be to Section 64.056, Civil Practice and Remedies Code, which pertains to the liability of persons receiving receivership property.  Section 64.056 is also cited in Sections 36.210(c) and 186.210(c), Finance Code, which are similar to Section 4(g), V.T.I.C. Article 21.28.  The revised law is drafted accordingly.

(2)  Section 4(g), V.T.I.C. Article 21.28, refers to certain sections of the Civil Practice and Remedies Code "as amended."  The revised law omits "as amended" because under Section 311.027, Government Code (Code Construction Act), applicable to the revised law, unless expressly provided otherwise, a reference to a statute applies to an amendment of the statute.

Revised Law

Sec. 442.155.  EXCLUSIVE JURISDICTION OF OTHER ACTIONS.  The court of competent jurisdiction of the county in which the delinquency proceeding is pending has exclusive venue to hear and determine all actions or proceedings instituted by or against the insurer or receiver after the commencement of the delinquency proceeding.  (V.T.I.C. Art. 21.28, Sec. 4(h).)

Source Law

(h)  New Lawsuits.  The court of competent jurisdiction of the county in which the delinquency proceedings are pending under this Article shall have exclusive venue to hear and determine all actions or proceedings instituted after the commencement of delinquency proceedings by or against the insurer or receiver.

Revisor's Note

(End of Subchapter)

In 1989, Section 4, V.T.I.C. Article 21.28, was amended by Section 6.07, Chapter 1082, Acts of the 71st Legislature, Regular Session, to add Subsection (i) pertaining to criminal history information.  That subsection was repealed by Section 46(18), Chapter 790, Acts of the 73rd Legislature, Regular Session, 1993.  Accordingly, the revised law omits the portion of that subsection that is being printed.  The omitted provision reads:

(i)  …  All criminal history information records obtained by the receiver are privileged information and are for the exclusive use of the receiver.  Except on court order or with the consent of the person being investigated, the records may not be released to any other person or agency.  The receiver may destroy the criminal history information records after the records are used for the purposes authorized by this subsection.  A person commits an offense if the person releases or discloses any information received under this subsection without the authorization provided by this subsection.  An offense under this subsection is a Class A misdemeanor.

[Sections 442.156-442.200 reserved for expansion]

SUBCHAPTER E.  GENERAL SUBPOENA POWERS; WITNESSES

AND PRODUCTION OF RECORDS

Revised Law

Sec. 442.201.  SUBPOENA AUTHORITY.  The receiver may request the court to issue ex parte a subpoena to compel the attendance and testimony of a witness before the receiver and the production of any book, account, paper, correspondence, or other record relating to a matter that pertains to the receivership estate.  For that purpose:

     (1)  the court has statewide subpoena power and may compel attendance of witnesses and production of records before the receiver at the receiver's offices in Austin; and

     (2)  the receiver or the receiver's designated representative may administer oaths, examine witnesses, and receive evidence.  (V.T.I.C. Art. 21.28, Sec. 4(d) (part).)

Source Law

(d)  … the receiver may request the court ex parte to issue a subpoena to compel the attendance and testimony of witnesses before the receiver and the production of any books, accounts, records, papers, and correspondence or other records relating to any matter that pertains to a receivership estate, and for this purpose the receiver or his designated representative may administer oaths and affirmations, examine witnesses, and receive evidence.  In this connection the court has statewide subpoena power and may compel attendance and production of records before the receiver at his offices in Austin, Texas.  …

Revisor's Note

(1)  Section 4(d), V.T.I.C. Article 21.28, provides that certain authority of the receiver relating to the issuance of subpoenas is in addition to the authority granted by law to the receiver relating to the taking of depositions of witnesses in civil actions.  An accepted general principle of statutory construction requires a statute to be given cumulative effect with other statutes unless it provides otherwise or unless the statutes are in conflict.  The revised law omits the provision as unnecessary because the general principle applies to the revision.  The omitted law reads:

(d)  Subpoenas.  In addition to the authority granted by law to the receiver relating to the taking of depositions of witnesses in civil actions, … .

(2)  Section 4(d), V.T.I.C. Article 21.28, refers to "oaths and affirmations."  The revised law omits the reference to "affirmations" because Section 311.005(1), Government Code (Code Construction Act), applicable to the revised law, states that an oath includes an affirmation.

Revised Law

Sec. 442.202.  SERVICE OF SUBPOENA.  A subpoena issued under this subchapter may be served, at the receiver's discretion, by the receiver, the receiver's authorized agent, a sheriff, or a constable.  The sheriff's or constable's fee for serving the subpoena is the same as the fee paid the sheriff or constable for similar services.  (V.T.I.C. Art. 21.28, Sec. 4(d) (part).)

Source Law

(d)  …  The sheriff's or constable's fee for serving the subpoena shall be the same as those paid the sheriff or constable for similar services.  Any subpoena issued under this subsection may be served, at the receiver's discretion, by the receiver, his authorized agent, a sheriff, or a constable.

…

Revised Law

Sec. 442.203.  ENFORCEMENT OF SUBPOENA.  (a)  On application of the receiver in the case of disobedience of a subpoena or the contumacy of a witness appearing before the receiver or the receiver's designated representative, the court may issue an order requiring the person subpoenaed to obey the subpoena, give evidence, or produce any book, account, paper, correspondence, or other record relating to the matter in question.

(b)  The court may punish as contempt the failure to obey an order under this section.  (V.T.I.C. Art. 21.28, Sec. 4(d) (part).)

Source Law

(d)  …  In a case of disobedience of a subpoena, or of the contumacy of a witness appearing before the receiver or his designated representative, the receiver may invoke the aid of the court, and the court may issue an order requiring the person subpoenaed to obey the subpoena or give evidence or produce books, accounts, records, papers, and correspondence or other records respecting the matter in question.  Any failure to obey such an order of the court may be punished as contempt by the court.

…

Revisor's Note

Section 4(d), V.T.I.C. Article 21.28, states that a receiver may "invoke the aid of" a court.  The revised law substitutes "[o]n application of the receiver" for the quoted phrase because, in context, the phrases are synonymous and "on application of the receiver" is more commonly used.

Revised Law

Sec. 442.204.  COMPENSATION FOR ATTENDANCE.  (a)  A witness who is not a party and who is required to appear before the receiver is entitled to receive:

     (1)  reimbursement for mileage for traveling to or from the place where the witness's presence is required, if the place is more than 25 miles from the witness's place of residence, in the same amount for each mile as the mileage travel allowance for a state employee; and

     (2)  a fee for each day or part of a day the witness is required to be present as a witness that is equal to the greater of:

          (A)  $10; or

          (B)  the per diem travel allowance of a state employee.

(b)  Each disbursement made to pay a fee under Subsection (a) shall be included and paid in the manner provided for the payment of other expenses under Sections 442.054, 442.111, and 442.114 and Subchapter K.  (V.T.I.C. Art. 21.28, Sec. 4(d) (part).)

Source Law

(d)  …  Each witness who is not a party and who is required to attend before the receiver is entitled to receive:

     (1)  reimbursement for travel in the same amount per mile as the mileage travel allowance for state employees for going to and returning from the place where his presence is required, if the place is more than 25 miles from the witness's place of residence; and

     (2)  a fee of not less than Ten Dollars ($10) a day for each day or part of a day the witness is necessarily present as a witness, but in lieu of such Ten Dollar ($10) fee, a witness will receive a fee equal to the per diem travel allowance of a state employee if the amount exceeds Ten Dollars ($10).  All disbursements made in the payment of these fees shall be included and paid in the same manner as provided for the payment of other expenses in Section 12 of this Article.

…

Revised Law

Sec. 442.205.  USE AS EVIDENCE.  (a)  On certification by the receiver or commissioner under official seal, any book, account, paper, correspondence, document, or other record produced or testimony taken under this chapter and held by the receiver is admissible in evidence in a case without:

     (1)  prior proof of correctness; or

     (2)  other proof except the certificate of the receiver or commissioner that the book, account, paper, correspondence, document, or other record or the testimony was received from the person producing the material or testifying.

(b)  The certified book, account, paper, correspondence, document, or other record, or a certified copy of the book, account, paper, correspondence, document, or other record, is prima facie evidence of the facts disclosed by that item.

(c)  This section does not limit any other provision of this chapter or any law that provides for the admission or evidentiary value of evidence.  (V.T.I.C. Art. 21.28, Sec. 4(d) (part).)

Source Law

(d)  …  On certification by the receiver or the State Board of Insurance under official seal, any books, accounts, records, papers, correspondence, and other records and documents produced or testimony taken pursuant to this Article and held by the receiver are admissible in evidence in all cases without prior proof of their correctness and without other proof except the certificate of the receiver or the State Board of Insurance that the books, accounts, records, papers, correspondence, documents, and testimony were received from the person producing the material or testifying.  The certified books, accounts, records, papers, correspondence, and other records and documents or certified copies of them are prima facie evidence of the facts they disclose.  This section may not be construed to limit any other provision of this Article or any law that provides for the admission of evidence or for its evidentiary value.

Revisor's Note

Section 4(d), V.T.I.C. Article 21.28, provides that "[t]his section" may not be construed to limit any other provision of Article 21.28 or any law that provides for the admission of evidence or for its evidentiary value.  The pertinent part of Section 4, V.T.I.C. Article 21.28, to which "[t]his section" refers appears to be the paragraph of Section 4(d) that includes that provision, rather than the entire section.  That paragraph is revised as this section, and the revised law is drafted accordingly.

Revised Law

Sec. 442.206.  PROTECTIVE ORDERS.  A person served with a subpoena under this subchapter may file a motion for a protective order as provided by Rule 192.6, Texas Rules of Civil Procedure.  (V.T.I.C. Art. 21.28, Sec. 4(d) (part).)

Source Law

(d)  …  Any person served with a subpoena under this subsection may file a motion with the court for a protective order as provided by Rule 166b of the Texas Rules of Civil Procedure.  …

Revisor's Note

Section 4(d), V.T.I.C. Article 21.28, authorizes a person served with a subpoena under that section to file a motion "with the court" for a protective order under Rule 166b, Texas Rules of Civil Procedure.  That rule was repealed in 1998 and replaced in pertinent part by Rule 192.6, Texas Rules of Civil Procedure.  The revised law is drafted accordingly.  In addition, the revised law omits the reference to filing the motion "with the court."  Since only a court has the authority to issue such an order, it is clear from the context that the motion must be filed with a court without an express statement to that effect.

[Sections 442.207-442.250 reserved for expansion]

SUBCHAPTER F.  CLAIMS AGAINST RECEIVERSHIP ESTATE

Revised Law

Sec. 442.251.  PROOF OF CLAIM REQUIRED; DEADLINE.  (a)  If a liquidation, rehabilitation, or conservation order has been entered in a delinquency proceeding, each person who may have a claim against the insurer as provided by Section 442.601, including a claimant with a secured claim or a claim based on trust or escrow funds, must present a proof of claim to the receiver:

     (1)  at a place specified by the receiver; and

     (2)  not later than the date specified by the court, which may not be before the 90th day after the date the order specifying the date is entered.

(b)  The receiver shall notify all persons who may have a claim against the insurer, as disclosed by the insurer's books and records, regarding the requirement to present a proof of claim to the receiver.  The notice must:

     (1)  specify the last day for presenting a proof of claim; and

     (2)  be given in a manner determined by the court.

(c)  The receiver must receive the required proof of claim before paying a claim.

(d)  If a proof of claim is not presented as required by Subsection (a), the claim may not share in any distribution of the insurer's assets by the receiver, except that, subject to court approval, the receiver may accept a claim presented not later than the 90th day after the date notice is mailed to the person under Subsection (b).  (V.T.I.C. Art. 21.28, Secs. 3(a), (b).)

Source Law

Sec. 3.  (a)  Time for Filing.  Where a liquidation, rehabilitation, or conservation order has been entered in a proceeding against an insurer under this Article, all persons who may have claims against such insurer as set out in Subsection (a) of Section 8 of this Article, including claimants with secured claims and claims based on trust or escrow funds, shall present proof of the same to the receiver at a place specified by him within a period of time to be specified by the court, in no event, however, less than ninety (90) days after the date of the entry of the order specifying such time.  The receiver shall notify all persons who may have claims against such insurer as disclosed by its books and records, to present proof of the same to him within the time as fixed.  The last day for the filing of proofs of claim shall be specified in the notice.  Such notice shall be given in a manner determined by the court.  Receipt of the required proof of claim by the receiver is a condition precedent to the payment of any claim, and except as provided by Subsection (b) of this section, claims that are not filed within the time specified by the court shall not participate in any distribution of the assets by the receiver.

(b)  Late Filing.  Subject to court approval, the receiver may accept claims filed after the date specified by the court if the claims are filed with the receiver not later than the ninetieth (90th) day after the date notice of the claimant's right to file a proof of claim is mailed to the claimant.

Revised Law

Sec. 442.252.  FORM AND CONTENT OF PROOF OF CLAIM.  (a)  A proof of claim must be in writing and signed by the claimant and must include:

     (1)  a statement of the claim;

     (2)  a description of the consideration for the claim;

     (3)  a statement of whether securities are held as consideration for the claim and, if so, a description of the securities;

     (4)  a statement of any right of priority of payment for the claim or other specific right asserted by the claimant;

     (5)  a statement of whether a payment has been made on the claim and, if so, a description of the payment made and the source of the payment;

     (6)  a statement that the amount claimed is justly owed by the insurer to the claimant; and

     (7)  any other matter that is required by the court in which the receivership is pending.

(b)  A proof of claim must be in a form prescribed by the receiver, except that the receiver may accept a proof of claim on a form:

     (1)  used for proof of claim by the insurer before the receivership; or

     (2)  prepared or accepted by a receiver or a guaranty fund in another state, if the receiver in this state is an ancillary receiver.

(c)  A proof of claim must be made under oath, unless the receiver waives the oath.

(d)  A written instrument on which a claim is based must be presented with a proof of claim unless lost or destroyed.  After the instrument is presented and until final disposition of the claim, the receiver may permit the claimant to substitute a copy of the instrument.  If the instrument is lost or destroyed, a statement of that fact and of the circumstances of the loss or destruction must be made under oath and presented with the claim.

(e)  The receiver may accept from each authorized guaranty association a single proof of claim combining all claims and related administrative expenses assigned to that association.  A proof of claim presented by a guaranty association must contain any other information the receiver requires.  (V.T.I.C. Art. 21.28, Sec. 3(c).)

Source Law

(c)  Proof Necessary. (1) A proof of claim shall consist of a written statement signed by the claimant that includes the following:

          (A)  the claim;

          (B)  the consideration for the claim;  and whether any, and if so, what securities are held for the consideration for that claim;

          (C)  any right of priority of payment for the claim or other specific rights asserted by the claimant;

          (D)  whether any payments have been made on the claim, and if so, what payments have been made on the claim and from what sources;

          (E)  a statement that the sum claimed is justly owed by the insurer to the claimant;  and

          (F)  any other matters that are required by the court in which the receivership is pending.

     (2)  A proof of claim shall be in a form designated by the receiver, except that the receiver may accept a proof of claim on a form:

          (A)  used for proof of claim by the insurer before the receivership; or

          (B)  prepared or accepted by a receiver or a guaranty fund in another state, if the receiver in this state is an ancillary receiver.

     (3)  A proof of claim shall be filed under oath, unless the oath is waived by the receiver.

     (4)  If a claim is founded upon an instrument in writing, such instrument, unless lost or destroyed, shall be filed with the proof of claim.  After the instrument is filed, the receiver may in his discretion permit the claimant to substitute a true copy of the instrument, until the final disposition of the claim.  If the instrument is lost or destroyed, a statement of that fact and of the circumstances of the loss or destruction shall be filed under oath with the claim.

     (5)  The receiver may accept a single proof of claim from each properly authorized insurance guaranty association combining all claims and related administrative expenses assigned to that association.  A proof of claim submitted by a guaranty association must set forth any other information the receiver may require.

Revisor's Note

(1)  Section 3(c)(4), V.T.I.C. Article 21.28, refers to a "true" copy of an instrument.  The revised law omits the quoted language as unnecessary because "true" is included in the meaning of "copy."  For example, the absence of "true" before "copy" does not imply that one can make a fraudulent copy of a document required by a statute.

(2)  Section 3(c)(5), V.T.I.C. Article 21.28, refers to a "properly authorized insurance guaranty association."  The revised law omits "properly" as unnecessary because the term does not add to the clear meaning of the law.  A guaranty association is not authorized if it is not properly authorized.  Throughout this chapter, the revised law omits "insurance" in this context for consistency in use of terminology in this code.

Revised Law

Sec. 442.253.  UNLIQUIDATED OR UNDETERMINED CLAIM OR DEMAND.  (a)  A claim based on an unliquidated or undetermined demand must be presented within the time limit provided by this chapter for presenting a claim.  The claim may not share in any distribution to claimants until the claim is definitely liquidated, determined, and allowed.  After the claim is liquidated, determined, and allowed, the claim shares ratably with the claims of the same class in all subsequent distributions.

(b)  For the purposes of this chapter, a claim or demand is considered unliquidated or undetermined if:

     (1)  a right of action on the claim or demand accrued as of the date:

          (A)  the delinquency proceeding was commenced; or

          (B)  the insurance policy was canceled, if applicable; and

     (2)  the liability on the claim or demand has not been determined or the amount of the claim or demand has not been liquidated.

(c)  If the receiver is otherwise able to close the receivership proceeding, the proposed closing is a sufficient ground to reject any remaining unliquidated or undetermined claim or demand.  The receiver shall notify the claimant of the receiver's intention to close the proceeding and shall allow liquidation or determination of those claims during the 60 days after the date of the notice.  If a remaining claim is not liquidated or determined on or before the 60th day after the date of the notice, the receiver may reject the claim.  (V.T.I.C. Art. 21.28, Sec. 3(d).)

Source Law

(d)  Unliquidated or Undetermined Claims or Demands.  Claims based on unliquidated or undetermined demands must be filed within the time limit provided in this Article for the filing of claims, but claims based on those demands shall not share in any distribution to claimants until those claims are definitely liquidated, determined, and allowed.  Thereafter, the claims shall share ratably with the claims of the same class in all subsequent distributions.  An unliquidated or undetermined claim or demand under this Article is any claim or demand on which a right of action has accrued at the date of the commencement of the delinquency proceedings, or the insurance policy cancellation date if applicable, and on which the liability has not been determined or the amount of the claim or demand liquidated.  If the receiver in all other respects is in a position to close the receivership proceedings, the proposed closing is sufficient grounds for the rejection of any remaining unliquidated or undetermined claim or demand.  The receiver shall notify those claimants of his intention to close the proceedings and shall allow a 60-day period for liquidation and determination of those claims.  If the remaining claims are not liquidated or determined within the 60-day period, the receiver may reject the claims and the provisions of Subsection (h) of this section apply.

Revisor's Note

Section 3(d), V.T.I.C. Article 21.28, authorizes the receiver to reject certain claims and demands and states that the provisions of Section 3(h), Article 21.28, apply.  That section is revised in this chapter as Sections 442.256-442.258.  The revised law omits the reference to the applicability of Section 3(h) because that section applies by its terms to the approval or rejection of claims filed against an insurer, and an express reference to the section's applicability is unnecessary.

Revised Law

Sec. 442.254.  THIRD-PARTY CLAIMS AND DEMANDS.  (a)  If a court has entered a liquidation, rehabilitation, or conservation order in a delinquency proceeding, a person who has a cause of action against an insured of the insurer under a liability insurance policy issued by the insurer is entitled to file a claim with the receiver, regardless of whether the claim is unliquidated or undetermined.

(b)  A claim described by Subsection (a) may be approved if:

     (1)  it may be reasonably inferred from the proof presented on the claim that the person would be able to obtain a judgment on the cause of action against the insured;

     (2)  the person provides suitable proof that, other than those already presented, no additional valid claims against the insurer arising out of the person's cause of action may be made; and

     (3)  the total liability of the insurer to all claimants arising out of the same act of the insured is not greater than the total liability of the insurer would be if the insurer were not in liquidation, rehabilitation, or conservation.

(c)  A judgment entered against an insured or insurer before the date of the commencement of the delinquency proceeding may not be given a priority higher than Class 3 under Section 442.601 unless the judgment creditor proves to the receiver's satisfaction the allegations supporting the judgment.

(d)  A judgment against an insured taken after the date of the commencement of a delinquency proceeding with respect to the insurer may not be considered in the proceeding as evidence of liability or of the amount of damages.  A judgment against an insured taken by default or by collusion before the commencement of the delinquency proceeding may not be considered in the proceeding as conclusive evidence of the liability of the insured on the cause of action or of the amount of damages to which the person is entitled.  (V.T.I.C. Art. 21.28, Sec. 3(e).)

Source Law

(e)  Third Party Claims.  Where a liquidation, rehabilitation or conservation order has been entered in a proceeding against an insurer under this Article, any person who has a cause of action against an insured of such insurer under a liability insurance policy issued by such insurer, shall have the right to file a claim with the receiver, regardless of the fact that such claim may be unliquidated or undetermined, and such claim may be approved (1) if it may be reasonably inferred from the proof presented upon such claim that such person would be able to obtain a judgment upon such cause of action against such insured;  and (2) if such persons shall furnish suitable proof that no further valid claims against such insurer arising out of his cause of action other than those already presented can be made; and (3) if the total liability of such insurer to all claimants arising out of the same act of its insured  shall be no greater than its total liability would be were it not in liquidation, rehabilitation or conservation.  A judgment entered against an insured or insurer before the date on which the delinquency proceedings commenced may not be accorded higher than a Class 3 priority under Subsection (a) of Section 8 of this Article unless the judgment creditor proves to the receiver's satisfaction the allegations supporting the judgment. No judgment against an insured taken after the date of the commencement of the delinquency proceedings shall be considered in the proceedings as evidence of liability, or of the amount of damages, and no judgment against an insured taken by default or by collusion prior to the commencement of the delinquency proceedings shall be considered as conclusive evidence in the proceeding, either of the liability of such insured to such person upon such cause of action, or of the amount of damages to which such person is therein entitled.

Revised Law

Sec. 442.255.  OFFSETS.  (a)  Except as provided by Subsection (b), the receiver shall set off mutual debts and mutual credits arising out of one or more contracts between the insurer and another person in connection with a claim or delinquency proceeding, and the receiver may allow or pay only the balance.

(b)  The receiver may not allow an offset in favor of a person if:

     (1)  the obligation of the insurer to the person would not, on the date of the commencement of the delinquency proceeding or as otherwise provided by Section 442.102, entitle the person to share as a claimant in the assets of the insurer;

     (2)  the obligation of the insurer to the person was purchased by or transferred to the person after the commencement of the delinquency proceeding or for the purpose of increasing offset rights;

     (3)  the obligation of the person is to pay:

          (A)  an assessment levied against the members of a mutual insurance company, a reciprocal or interinsurance exchange, or a Lloyd's plan; or

          (B)  a balance on a subscription to the capital stock of a stock insurance corporation;

     (4)  the obligation of the person is as a trustee or fiduciary; or

     (5)  the obligation between the person and the insurer arises from a reinsurance transaction in which the person or the insurer assumed risks and obligations from the other party and then  ceded to that party substantially the same risks and obligations.

(c)  The receiver shall provide a person with an accounting statement identifying each debt that is due and payable.  A person shall promptly pay to the receiver any amount due and payable to the insurer against which the person asserts an offset of mutual credits that may become due and payable from the insurer in the future.  Notwithstanding Subchapter M or any other provision of this chapter, the receiver shall promptly and fully refund, to the extent of the person's prior payment, any mutual credits that become due and payable to the person by the insurer.  (V.T.I.C. Art. 21.28, Secs. 3(f), (g).)

Source Law

(f)  Offsets.  In all cases of mutual debts or mutual credits, whether arising out of one or more contracts between the insurer and another person in connection with any claim or proceeding under this Article, such credits and debts shall be set off and the balance only shall be allowed or paid, except as provided in subsection (g).

(g)  No Offsets.  No offsets shall be allowed in favor of any person where (1) the obligation of the insurer to such person would not at the date of the commencement of the delinquency proceedings or as otherwise provided in Section 2(c), entitle him to share as a claimant in the assets of such insurer, or (2) the obligation of the insurer to such person was purchased by or transferred to such person subsequent to the commencement of the delinquency proceedings or for the purpose of increasing offset rights, or (3) the obligation of such person is to pay an assessment levied against the members of a mutual insurer, or reciprocal exchange, or underwriters at Lloyds, or to pay a balance upon a subscription to the capital stock of a stock insurance corporation, or (4) the obligation of such person is as a trustee or fiduciary, or (5) the obligations between the person and the insurer arise from reinsurance transactions in which either the person or the insurer has assumed risks and obligations from the other party and then has ceded back to that party substantially the same risks and obligations.  The receiver shall provide persons with accounting statements identifying all debts that are due and payable.  If a person owes the insurer amounts that are due and payable, against which the person asserts offset of mutual credits that may become due and payable from the insurer in the future, the person shall promptly pay to the receiver the amounts due and payable.  Notwithstanding Section 8, or any other provision of this Article, the receiver shall promptly and fully refund, to the extent of the person's prior payments, any mutual credits that become due and payable to the person by the insurer.

Revisor's Note

Section 3(g), V.T.I.C. Article 21.28, refers to a "mutual insurer," "reciprocal exchange," and "underwriters at Lloyds."  The revised law substitutes "mutual insurance company," "reciprocal or interinsurance exchange," and "Lloyd's plan" for "mutual insurer," "reciprocal exchange," and "underwriters at Lloyds," respectively, for the reason stated in Revisor's Note (2) to Section 442.108.

Revised Law

Sec. 442.256.  APPROVAL OR REJECTION OF CLAIM.  (a)  The receiver may approve or reject a claim filed against the insurer.

(b)  On a rejection of a claim in whole or in part, the receiver shall notify the claimant in writing of the rejection.  (V.T.I.C. Art. 21.28, Sec. 3(h) (part).)

Source Law

(h)  Action on Claims.  The receiver shall have the discretion to approve or reject any claim filed against the insurer. …  Upon the rejection of each claim either in whole or in part, the receiver shall notify the claimant of such rejection by written notice. …

Revised Law

Sec. 442.257.  APPEAL OF RECEIVER'S REJECTION OF CLAIM.  (a)  The receiver's rejection of a claim may be appealed in the court.  The appeal must be brought within three months after the date of service of notice of the rejection.

(b)  If the receiver's action is appealed within the time prescribed by Subsection (a), review is de novo as if originally filed in the court and is subject to the rules of procedure and appeal applicable to civil cases.  The appeal is separate from the delinquency proceeding, and an attempt to appeal the receiver's action by intervening in the delinquency proceeding does not comply with this subsection.

(c)  If the receiver's action is not appealed within the time prescribed by Subsection (a), the action is final and not subject to judicial review.  (V.T.I.C. Art. 21.28, Sec. 3(h) (part).)

Source Law

(h)  …  Action upon a claim so rejected must be brought in the court in which the delinquency proceeding is pending within three (3) months after service of notice;  otherwise, the action of the receiver shall be final and not subject to review.  Such action shall be de novo as if originally filed in said court and subject to the rules of procedure and appeal applicable to civil cases.  This action shall be a separate action from the delinquency proceeding, and a claimant's attempt to appeal the action of the receiver by way of intervening in the delinquency proceeding does not comply with this subsection.

Revisor's Note

Section 3(h), V.T.I.C. Article 21.28, refers to the court "in which the delinquency proceeding is pending."  The revised law omits the quoted language as unnecessary because under Section 1(f), V.T.I.C. Article 21.28, revised in this chapter as Section 442.002, for purposes of this chapter, "court" means the court in which a delinquency proceeding is pending, unless the context clearly indicates otherwise.

Revised Law

Sec. 442.258.  OBJECTION TO CLAIM BY INTERESTED PARTY.  (a)  An interested party may object to a claim not rejected by the receiver by filing an objection with the receiver.

(b)  The receiver shall promptly present the objection to the court for a determination after notice and hearing.  (V.T.I.C. Art. 21.28, Sec. 3(h) (part).)

Source Law

(h)  …  Objections to any claim not rejected may be made by any party interested, by filing the objections with the receiver, who shall forthwith present them to the court for determination after notice and hearing… .

Revised Law

Sec. 442.259.  REFERRAL OF CLAIM TO GUARANTY ASSOCIATION.  Notwithstanding any other provision of this chapter, the receiver shall refer a claim covered by a guaranty fund created under Chapter ____ [[[V.T.I.C. Article 21.28-C]]], ____ [[[V.T.I.C. Article 21.28-D]]], or 2602 to the appropriate guaranty association for processing.  (V.T.I.C. Art. 21.28, Sec. 3(i).)

Source Law

(i)  Notwithstanding any other provision of this article, if a claim is covered by a guaranty fund created under Article 9.48, 21.28-C, or 21.28-D of this code, the receiver shall refer the claim to the appropriate guaranty association for processing.

Revised Law

Sec. 442.260.  WORKERS' COMPENSATION CLAIMS.  (a)  The receiver shall notify the Texas Workers' Compensation Commission immediately on a finding of insolvency or impairment with regard to an insurance company that has in force any workers' compensation coverage in this state.

(b)  On receipt of the notice under Subsection (a), the Texas Workers' Compensation Commission shall submit to the receiver a list of active cases pending before the commission in which:

     (1)  the insurance company has accepted liability;

     (2)  it appears that a bona fide dispute does not exist;

     (3)  payments were begun before the finding of insolvency or impairment; and

     (4)  payment of future or past workers' compensation benefits is due.

(c)  Notwithstanding the other provisions of this subchapter, the receiver may begin or continue the payment of claims on cases included in the list submitted under Subsection (b).

(d)  Files and other information delivered by the Texas Workers' Compensation Commission to the receiver may be delivered to the Texas Property and Casualty Insurance Guaranty Association.

(e)  The Texas Workers' Compensation Commission shall report to the department any act of a workers' compensation insurance company that may indicate that the company is financially impaired, delinquent, or insolvent.  (V.T.I.C. Art. 21.28, Secs. 3A(a), (b), (c), (d) (part), (e).)

Source Law

Sec. 3A.  (a)  The liquidator shall notify the Texas Workers' Compensation Commission immediately upon a finding of insolvency or impairment upon any insurance company which has in force any workers' compensation coverage in Texas.

(b)  The Texas Workers' Compensation Commission shall, upon said notice, submit to the liquidator a list of active cases pending before the Texas Workers' Compensation Commission in which there has been an acceptance of liability by the carrier, where it appears that no bona fide dispute exists and where payments were commenced prior to the finding of insolvency or impairment and where future or past indemnity or medical payments are due.

(c)  Notwithstanding the provisions of Section 3 of this Article, the liquidator is authorized to commence or continue the payment of claims based upon the list submitted in Subsection (b) above.

(d)  …  Files and information delivered by the Texas Workers' Compensation Commission to the liquidator may be delivered to the Texas Workers' Compensation Pool or … .

(e)  The Texas Workers' Compensation Commission shall report to the State Board of Insurance any occasion when a workers' compensation insurer has committed acts that may indicate insurer financial impairment, delinquency or insolvency.

Revisor's Note

(1)  Section 3A(b), V.T.I.C. Article 21.28, refers to a "carrier" and to "future or past indemnity or medical payments."  Section 3A(e), Article 21.28, refers to an "insurer."  The revised law substitutes "insurance company" for "carrier" and "insurer" and substitutes "payment of future or past workers' compensation benefits" for "future and past indemnity or medical payments" for consistency with the terminology used in the Labor Code with respect to workers' compensation insurance and benefits.

(2)  Section 3A(d), V.T.I.C. Article 21.28, requires the receiver to "contract with the Texas Workers' Compensation Pool or any other qualified organization for claims adjusting" services and authorizes the receiver to deliver files and other information received from the Texas Workers' Compensation Commission to that pool or organization.  The reference to the "Texas Workers' Compensation Pool" is a reference to the Texas workers' compensation assigned risk pool, which was created under former V.T.I.C. Article 5.76.  That article was repealed by Chapter 1, Acts of the 71st Legislature, 2nd Called Session, 1989, which amended this code by adding V.T.I.C. Article 5.76-2 and took effect January 1, 1991.  Article 5.76-2 revised, amended, and continued the Texas workers' compensation assigned risk pool as the Texas workers' compensation insurance facility.  Article 5.76-2 was repealed by Chapter 594, Acts of the 75th Legislature, Regular Session, 1997. Section 1.03 of that act directed that the facility be converted to a Texas stock property and casualty insurance company or, in specified circumstances, the operation of the facility be transferred to the Texas Property and Casualty Insurance Guaranty Association.  However, following enactment of Chapter 594 in 1997, the facility was transferred to a private stock insurance company.

The revised law omits the requirement that the receiver contract with the "Texas Workers' Compensation Pool" or any other qualified organization for claims adjusting services because that provision has been impliedly repealed.  Section 3A, V.T.I.C. Article 21.28, was added by Chapter 904, Acts of the 69th Legislature, Regular Session, 1985.  At that time, the receiver was the entity charged with processing and paying workers' compensation claims.  V.T.I.C. Article 21.28-C, which regulates the Texas Property and Casualty Insurance Guaranty Association and is revised in this code as Chapter ____, required the receiver to process covered claims under that article, which included claims under workers' compensation insurance policies, in the same manner as other claims as provided by V.T.I.C. Article 21.28.  To permit the receiver to pay all covered claims, the Texas Property and Casualty Insurance Guaranty Association was required to pay the receiver the amount determined by the receiver to be necessary to supplement the assets of the impaired insurer.

In 1991, Section 3, V.T.I.C. Article 21.28, was amended by Chapter 12, Acts of the 72nd Legislature, 2nd Called Session, to add Subsection (i).  That subsection, revised in this chapter as Section 442.259, provides that, notwithstanding any other provision of the article, if a claim is covered by a guaranty fund created under V.T.I.C. Article 9.48, 21.28-C, or 21.28-D, the receiver is required to refer the claim to the appropriate guaranty association for processing.  Chapter 12 also amended V.T.I.C. Article 21.28-C in its entirety.  Section 8(d), V.T.I.C. Article 21.28-C, revised in this code as Section ____, now requires the Texas Property and Casualty Insurance Guaranty Association to investigate and adjust, compromise, settle, and pay covered claims to the extent of the association's obligation.  That article does not require the association to enter into a contract with the receiver, nor does it authorize the receiver to contract with another organization to process workers' compensation insurance claims.  Furthermore, in 1993, V.T.I.C. Article 21.28-C was amended by Chapter 685, Acts of the 73rd Legislature, Regular Session, to add Section 25(a), revised in this code as Section ____, which provides that if a conflict exists between that article and any other statutory provision relating to the association, that article controls.

Since workers' compensation insurance claims are now required to be referred to the Texas Property and Casualty Insurance Guaranty Association for processing and since the association is required to adjust those claims, the revised law omits as impliedly repealed the requirement that the receiver contract with the "Texas Workers' Compensation Pool" or any other qualified organization for claims adjusting.

Section 3A(d), V.T.I.C. Article 21.28, also authorizes the receiver to deliver files and other information received from the Texas Workers' Compensation Commission to the "Texas Workers' Compensation Pool" or any organization with which the receiver has contracted for claims adjusting services.  For the reasons provided above, the revised law substitutes a reference to the association for the reference to the pool and omits the reference regarding the delivery of files and other information to an organization providing claims adjusting services.  The omitted law reads:

(d)  In order to avoid undue delay in the payment of covered workers' compensation claims, the liquidator shall contract with the Texas Workers' Compensation Pool or any other qualified organization for claims adjusting.  [Files and information delivered by the Texas Workers' Compensation Commission to the liquidator may be delivered to the Texas Workers' Compensation Pool or] any organization with which the liquidator has contracted for claims adjusting services.

[Sections 442.261-442.300 reserved for expansion]

SUBCHAPTER G.  VOIDABLE TRANSFERS OR LIENS

Revised Law

Sec. 442.301.  CERTAIN TRANSFERS OR LIENS VOIDABLE.  A transfer of or lien on the assets of an insurer is voidable if the transfer or lien was:

     (1)  made or created:

          (A)  within four months before the date of the commencement of the delinquency proceeding; and

          (B)  with the intent of giving to a creditor or enabling the creditor to obtain a greater percentage of the creditor's debt than is to be given to or obtained by another creditor of the same class; and

     (2)  accepted by the creditor having reasonable cause to believe that a preference described by Subdivision (1)(B) would occur.  (V.T.I.C. Art. 21.28, Sec. 5(a).)

Source Law

Sec. 5.  (a)  Transfers or Liens Voidable.  Any transfer or lien upon the property or assets of an insurer which is made or created within four (4) months prior to the commencement of delinquency proceedings under this Article, with the intent of giving to any creditor or enabling him to obtain a greater percentage of his debt than of any other creditor of the same class, and which is accepted by such creditor, having reasonable cause to believe that such preference will occur, shall be voidable.

Revised Law

Sec. 442.302.  PERSONAL LIABILITY FOR VOIDABLE TRANSFER OR LIEN.  (a)  The following persons are personally liable for the property of the insurer or the benefit of that property received as a result of a transfer or lien described by Section 442.301:

     (1)  each director, officer, agent, employee, shareholder, member, attorney-in-fact, including an associate, substitute, or deputy attorney-in-fact, underwriter, subscriber, or other person acting on behalf of the insurer who is concerned in the transfer or lien; and

     (2)  each person who, as a result of the transfer or lien, receives the property of the insurer or the benefit of that property.

(b)  A person who is personally liable under Subsection (a) shall account to the receiver for the benefit of the creditors of the insurer.  (V.T.I.C. Art. 21.28, Sec. 5(b).)

Source Law

(b)  Personal Liability.  Every director, officer, agent, employee, stockholder, member, attorney-in-fact, associate, substitute or deputy attorney-in-fact, underwriter, subscriber, and any other person acting on behalf of such insurer, who shall be concerned in any such prohibited act or deed, and every person receiving thereby property of such insurer, or the benefit thereof, shall be personally liable therefor, and shall be bound to account to the receiver for the benefit of the creditors of the insurer.

Revisor's Note

Section 5(b), V.T.I.C. Article 21.28, refers to "such prohibited act or deed," meaning an act or deed prohibited by Section 5(a) of that article, revised in this chapter as Section 442.301.  Section 5(a) does not contain a prohibition per se.  That provision states that certain transfers and liens are voidable.  Accordingly, the revised law refers to a transfer or lien "described" by Section 442.301.

Revised Law

Sec. 442.303.  AVOIDANCE OF TRANSFER OR LIEN; RECOVERY OF PROPERTY.  The receiver may:

     (1)  avoid a transfer of or lien on the assets of an insurer that a creditor, shareholder, or member of the insurer might have avoided; and

     (2)  recover the transferred property or the value of that property from the person to whom the property was transferred or from a person who received the property, unless the transferee or recipient was a bona fide holder for value before the date of the commencement of the proceeding.  (V.T.I.C. Art. 21.28, Sec. 5(c).)

Source Law

(c)  Avoiding and Recovery.  The receiver in any proceeding under this Article, may avoid any transfer of, or lien upon the property or assets of an insurer which any creditor, stockholder or member of such insurer might have avoided, and may recover the property so transferred or its value from the person to whom it was transferred, unless he was a bona fide holder for value prior to the date of the commencement of proceedings under this Article.  Such property or its value may be recovered from anyone who has received it, except a bona fide holder for value as above specified.

[Sections 442.304-442.350 reserved for expansion]

SUBCHAPTER H.  ASSESSMENTS

Revised Law

Sec. 442.351.  APPLICATION FOR ASSESSMENT.  (a)  Not later than the fourth anniversary of the date of an order of rehabilitation or liquidation of a domestic insurer, the receiver may apply to the court to levy an assessment against the members of a mutual insurance company, the members of a reciprocal or interinsurance exchange, or the insureds of a Lloyd's plan who have been issued an insurance policy that expressly provides that the policy is subject to assessment.

(b)  The application must state:

     (1)  the reasonable value of the insurer's assets;

     (2)  the insurer's probable liabilities; and

     (3)  the probable assessment, if any, necessary to pay all possible claims and expenses in full, including expenses of administration and collection.  (V.T.I.C. Art. 21.28, Sec. 7(a).)

Source Law

Sec. 7.  (a)  Application.  Within four (4) years from the date of an order of rehabilitation, or liquidation, of a domestic insurer, the receiver may make an application to the court to levy an assessment against the members of a mutual insurer, members of a reciprocal exchange, or the insureds of a Lloyds who have been issued an insurance policy that provides that the policy is subject to assessment.  Such application shall set forth the reasonable value of the assets of such insurer, its probable liabilities, and the probable necessary assessment, if any, to pay all possible claims and expenses in full, including expenses of administration and collection.

Revisor's Note

(1)  Section 7(a), V.T.I.C. Article 21.28, refers to a "mutual insurer," "reciprocal exchange," and "Lloyds."  The revised law substitutes "mutual insurance company," "reciprocal or interinsurance exchange," and "Lloyd's plan" for "mutual insurer," "reciprocal exchange," and "Lloyds" for the reason stated in Revisor's Note (2) to Section 442.108.

(2)  Section 7(a), V.T.I.C. Article 21.28, authorizes the receiver to apply to the court to levy an assessment against certain members or insureds who have been issued an insurance policy that provides that the policy is subject to assessment.  The revised law refers to an insurance policy that "expressly" provides that the policy is subject to assessment to conform to Section 7(b), Article 21.28, revised in this chapter as Section 442.352, which provides that the court may not levy an assessment against a member or insured with regard to an insurance policy that does not expressly provide that the policy is subject to assessment.

Revised Law

Sec. 442.352.  LEVY.  (a)  After giving notice in the manner designated by the court to each member or insured described by Section 442.351, the court shall consider the application made under that section and may levy one or more assessments, subject to Subsection (c).

(b)  The assessment or assessments must cover the excess of the insurer's probable liabilities over the reasonable value of the insurer's assets, together with the estimated cost of collection and percentage of uncollectibility of the assessments.

(c)  The court may not levy an assessment against a member or insured with regard to an insurance policy that does not expressly provide that the policy is subject to assessment.  (V.T.I.C. Art. 21.28, Sec. 7(b).)

Source Law

(b)  Levy.  After notice to each member or insured in the manner designated by the court, the court shall proceed to consider such report and may levy one or more assessments.  Such assessment or assessments shall cover the excess of the probable liabilities over the reasonable value of the assets, together with the estimated cost of collection and percentage of uncollectibility thereof.  An assessment shall not be levied against any such member or insured with respect to a policy that does not contain an express provision that the policy is an assessable policy.

Revisor's Note

Section 7(b), V.T.I.C. Article 21.28, requires the court to consider "such report," meaning a report on a requested assessment.  The revised law substitutes "the application made under [Section 442.351]" for "such report" because Section 7(a), V.T.I.C. Article 21.28, revised in this chapter as Section 442.351, authorizes the receiver to submit an application for an assessment to the court.

Revised Law

Sec. 442.353.  COLLECTION.  After the court enters an order of assessment under Section 442.352 and after the time for appeal expires, the receiver shall collect the assessments.  The receiver may bring an action in a court of competent jurisdiction in the county in which the delinquency proceeding is pending to collect an assessment.  (V.T.I.C. Art. 21.28, Sec. 7(c).)

Source Law

(c)  Collection.  After the entry of such an order of assessment and the expiration of the time for appeal, the receiver shall proceed to collect such assessments, and for the purpose of such collection may bring suit for the same in any court of competent jurisdiction in the county in which such delinquency proceeding is pending.

Revised Law

Sec. 442.354.  SUBCHAPTER NOT EXCLUSIVE.    The provisions of this subchapter are in addition to any other remedies for the levy and collection of assessments.  (V.T.I.C. Art. 21.28, Sec. 7(d).)

Source Law

(d)  Provisions Cumulative.  The provisions of this Section are cumulative of any other remedies for the levy and collection of assessments.

[Sections 442.355-442.400 reserved for expansion]

SUBCHAPTER I.  REINSURANCE

Revised Law

Sec. 442.401.  REINSURER'S LIABILITY.  (a)  If the receiver has a claim under an insurance policy covered by reinsurance, the liability of the reinsurer to the receiver under the reinsured contract may not be reduced because of the delinquency proceeding against the delinquent insurer, regardless of any contrary provision in the reinsurance contract, unless:

     (1)  the reinsurance contract or other written agreement was entered into before the delinquency proceeding, is otherwise permitted by law, and specifically provides another payee of the reinsurance if the ceding insurer becomes insolvent; or

     (2)  the assuming insurer, with the consent of the direct insured, has assumed in accordance with an assumption reinsurance agreement the policy obligations of the ceding insurer:

          (A)  as direct obligations of the assuming insurer to the payees under the policy; and

          (B)  in substitution for the obligations of the ceding insurer to the payees.

(b)  Except as provided by Subsection (a), any reinsurance is payable to the receiver under a reinsured contract by the assuming insurer on the basis of:

     (1)  an approved claim under Section 442.256; or

     (2)  a claim paid by a guaranty association under Chapter ____ [[[V.T.I.C. Article 21.28-C]]], ____ [[[V.T.I.C. Article 21.28-D]]], or 2602 or by the guaranty association of another state.  (V.T.I.C. Art. 21.28, Sec. 10(a).)

Source Law

Sec. 10.  (a)  Reinsurer's Liability.  If the receiver has claims under policies covered by reinsurance, there shall be no diminution of the liability of the reinsurer to the receiver under the contracts reinsured because of the delinquency proceeding against the delinquent company, regardless of any provisions in the reinsurance contract to the contrary, except:  (i) where the contract or other written agreement entered into prior to the delinquency proceeding and otherwise permitted by law specifically provides another payee of such reinsurance in the event of the insolvency of the ceding insurer; or (ii) where the assuming insurer, with the consent of the direct insured, has assumed such policy obligations of the ceding insurer pursuant to an assumption reinsurance agreement as direct obligations of the assuming insurer to the payees under policies and in substitution for the obligations of the ceding insurer to such payees.  With the sole exception of (i) and (ii) above, any reinsurance shall be payable to the receiver under a contract reinsured by the assuming insurer on the basis of approved claims under Section 3(h) of this Article and claims paid under Articles 9.48, 21.28-C, and 21.28-D of this code or the guaranty associations of other states.

Revisor's Note

Section 10(a), V.T.I.C. Article 21.28, provides that, with the "sole" exception of certain referenced provisions, any reinsurance is payable to the receiver under a contract reinsured by the assuming insurer on the basis of certain claims.  The revised law omits "sole" as unnecessary because the word does not add to the clear meaning of the law.  A reference to provisions that state an exception to a general rule is sufficient to limit the exception to only those provisions.

Revised Law

Sec. 442.402.  NOTICE OF CLAIM TO REINSURER; INTERPOSITION OF DEFENSE.  (a)  Within a reasonable time after a claim against the receiver under an insurance policy covered by reinsurance is filed in the delinquency proceeding, the receiver shall give written notice of the pendency of the claim to each affected reinsurer.

(b)  While the claim is pending, an affected reinsurer may, at the reinsurer's expense, investigate the claim and interpose in the proceeding in which the claim is to be adjusted any defense the reinsurer considers available to the delinquent insurer or the receiver.

(c)  Subject to court approval, the expense incurred by an assuming insurer under Subsection (b) is chargeable against the delinquent insurer as part of the expense of liquidation to the extent of a proportionate share of any benefit that may accrue to the delinquent insurer solely as a result of the defense undertaken by the assuming insurer.  If two or more assuming insurers are involved in the same claim and a majority in interest elect to interpose a defense to the claim, the expense shall be apportioned in accordance with the terms of the reinsurance agreement as if the expense had been incurred by the ceding insurer.  (V.T.I.C. Art. 21.28, Sec. 10(b).)

Source Law

(b)  Notice to Reinsurer.  The liquidator or receiver shall give written notice to the affected reinsurers of the pendency of a claim against the receiver under a policy covered by reinsurance within a reasonable time after such claim is filed in the delinquency proceeding.  During the pendency of such claim any affected reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where the claim is to be adjusted any defense or defenses which it may deem available to the delinquent company, the liquidator or the receiver.  Subject to court approval, the expense thus incurred shall be chargeable against the delinquent company as part of the expense of liquidation to the extent of a proportionate share of the benefit which may accrue to the delinquent company solely as a result of the defense undertaken by the assuming insurer.  Where two or more assuming insurers are involved in the same claim and a majority in interest elect to interpose a defense to such claim, the expense shall be apportioned in accordance with the terms of the reinsurance agreement as though such expense had been incurred by the ceding insurer.

Revisor's Note

(End of Subchapter)

Section 10(c), V.T.I.C. Article 21.28, provides that V.T.I.C. Article 6.16 remains in full force and effect and governs as to insurance companies affected by that article.  As enacted by Chapter 491, Acts of the 52nd Legislature, Regular Session, 1951, Article 6.16 contained provisions governing diminution of the liability of an assuming insurer because of the insolvency of the ceding insurer, notice by the receiver of the insolvent ceding insurer regarding the pendency of a claim against the insolvent ceding insurer, investigation and defense of the claim by the assuming insurer, and recovery of the expenses incurred by the assuming insurer.   Chapter 267, Acts of the 54th Legislature, Regular Session, 1955, amended Article 21.28 by adding Section 10.  As added, that section contained provisions that were similar to, but not the same as, the provisions of Article 6.16 described above.  Chapter 88, Acts of the 68th Legislature, Regular Session, 1983, amended Article 6.16 by striking the provisions of the article described above.  Article 6.16 was revised in this code in 2001 as Section 862.101, which took effect June 1, 2003.  However, since that section no longer contains any provisions that conflict with Section 10, the statement of the continued applicability of that section is omitted.  The omitted law reads:

(c)  Provided, however, that Article 6.16 of the Insurance Code of 1951, Acts Regular Session of the Fifty-second Legislature, 1951, Chapter 491, page 868, shall remain in full force and effect and shall govern as to those insurance companies affected thereby.

[Sections 442.403-442.450 reserved for expansion]

SUBCHAPTER J.  RECORDS AND OTHER INFORMATION

Revised Law

Sec. 442.451.  USE OF RECORDS AND OTHER INFORMATION AS EVIDENCE.  (a)  A book, paper, document, or record of a delinquent insurer received by the receiver and held in the course of the delinquency proceeding or a certified copy of the book, paper, document, or record signed and under the official seal of the commissioner or receiver is admissible in evidence in a case without proof of correctness or other proof except the certificate of the commissioner or receiver that the book, paper, document, or record was received from the custody of the delinquent insurer or found among the insurer's effects.

(b)  The certified original or a certified copy of a book, paper, document, or record described by this section or Section 442.452 is prima facie evidence of the facts disclosed by the book, paper, document, or record.  (V.T.I.C. Art. 21.28, Secs. 11(a), (c).)

Source Law

Sec. 11.  (a)  Records Admitted.  All books, records, documents and papers of any delinquent insurer received by the receiver and held in the course of the delinquency proceedings, or certified copies thereof, under the hand and official seal of the Board and/or receiver, shall be received in evidence in all cases without proof of the correctness of the same and without other proof, except the certificate of the Board and/or receiver that the same was received from the custody of the delinquent insurer or found among its effects.

(c)  Prima-facie Evidence.  Such original books, records, documents and papers, or certified copies thereof, or any part thereof, when received in evidence shall be prima-facie evidence of the facts disclosed thereby.

Revised Law

Sec. 442.452.  CERTIFICATES BY RECEIVER.  (a)  The receiver may:

     (1)  certify to the correctness of a book, paper, document, or record of the receiver's office, including a book, paper, document, or record described by Section 442.451; and

     (2)  certify under seal of the commissioner to a fact contained in a book, paper, document, or record of the department.

(b)  A book, paper, document, or record certified as described by Subsection (a) is admissible in evidence in any case in which the original would be evidence.  (V.T.I.C. Art. 21.28, Sec. 11(b).)

Source Law

(b)  Certificates.  The receiver shall have the authority to certify to the correctness of any paper, document or record of the receiver's office, including those described in (a) of this section, and to make certificates under seal of the Board and certified by the receiver certifying to any fact contained in the papers, documents or records of the Texas Department of Insurance; and the same shall be received in evidence in all cases in which the originals would be evidence.

Revisor's Note

(1)  Section 11(b), V.T.I.C. Article 21.28, refers to a "paper, document or record" and to "papers, documents or records."  The revised law adds references to a "book" for consistency with Sections 11(a) and (c), Article 21.28, revised in this chapter as Section 442.451, which refer to "books, records, documents and papers."

(2)  Section 11(b), V.T.I.C. Article 21.28, refers to the "Texas Department of Insurance."  Section 31.001 of this code defines "department" for purposes of this code and the other insurance laws of this state to mean the Texas Department of Insurance.  The revised law is drafted accordingly.

Revised Law

Sec. 442.453.  MAINTENANCE OF RECORDS.  (a)  The receiver may devise a method for the effective, efficient, and economical maintenance of the records of the delinquent insurer and of the receiver's office.  The method may include maintaining those records on any medium approved by the records management division of the Texas State Library.

(b)  A copy of an original record or another record that is maintained within the scope of this subchapter on a medium approved by the records management division of the Texas State Library and that is produced by the receiver or the receiver's authorized representative under this chapter:

     (1)  has the same effect as the original record; and

     (2)  may be used in the same manner as the original record in a judicial or administrative proceeding in this state.

(c)  The receiver may reserve the estate assets for deposit in an account to be used for the specific purpose of maintenance, storage, and disposal of records in closed receivership estates.  (V.T.I.C. Art. 21.28, Sec. 11(d).)

Source Law

(d)  Maintenance of Records.  The receiver may devise a method for the effective, efficient, and economical maintenance of the records of the delinquent insurer and of the liquidator's office including maintaining those records on any medium approved by the Records Management Division of the Texas State Library.  A copy of an original record or any other record that is maintained on any medium approved by the Records Management Division of the Texas State Library within the scope of this section that is produced by the receiver or his authorized representative under this Article shall have the same force and effect as the original record and may be used the same as the original record in any judicial or administrative proceeding in this state.  In order to maintain the records of delinquent insurers after the closing of the receivership proceedings, the receiver may reserve assets of an estate to be deposited in an account to be used for the specific purpose of maintenance, storage, and disposal of records in closed receivership estates.

Revisor's Note

Section 11(d), V.T.I.C. Article 21.28, provides that a copy of a record maintained in a certain manner has the same "force and effect" as the original record.  The reference to "force" is omitted from the revised law because "force" is included within the meaning of "effect."

Revised Law

Sec. 442.454.  DISPOSAL OF RECORDS.  On approval by the court, the receiver may dispose of any records of the delinquent insurer that are obsolete and unnecessary to the continued administration of the receivership proceeding.  (V.T.I.C. Art. 21.28, Sec. 11(e).)

Source Law

(e)  Disposition of Records.  On approval by the court, the receiver may dispose of any records of the delinquent insurer that are obsolete and unnecessary to the continued administration of the receivership proceedings.

Revised Law

Sec. 442.455.  INAPPLICABILITY OF PUBLIC INFORMATION LAW.  Chapter 552, Government Code, does not apply to any record of a receivership estate, or to any record of an insurer before the insurer's receivership, held by the receiver or a special deputy receiver under this chapter.  (V.T.I.C. Art. 21.28, Sec. 11(f).)

Source Law

(f)  Open Records.  Chapter 552, Government Code, shall not apply to any records of a receivership estate, or to the records of an insurance company prior to its receivership, held by the receiver or by a special deputy receiver under this Article.

[Sections 442.456-442.500 reserved for expansion]

SUBCHAPTER K.  AUDITS

Revised Law

Sec. 442.501.  AUDITS OR INVESTIGATIONS OF RECEIVER, SPECIAL DEPUTY RECEIVER, OR GUARANTY ASSOCIATION.  (a)  The commissioner shall adopt rules, after submitting the rules to the state auditor for review and comment, prescribing the audits required for the receiver, each special deputy receiver, and each guaranty association established under Chapter ____ [[[V.T.I.C. Article 21.28-C]]], ____ [[[V.T.I.C. Article 21.28-D]]], or 2602.  The rules must include provisions relating to the scope, frequency, reporting requirements, and cost of audits.

(b)  As determined necessary by the commissioner or the state auditor to supplement audits conducted under rules adopted under Subsection (a), the state auditor may conduct audits or investigations, as defined by Sections 321.0131-321.0136, Government Code, of the receiver, each special deputy receiver, and each guaranty association described by Subsection (a).  The audited or investigated entity shall reimburse the state auditor for costs associated with the audit or investigation.  (V.T.I.C. Art. 21.28, Secs. 12(j), (k).)

Source Law

(j)  The Board shall adopt rules prescribing the audit coverage required for the receiver, each special deputy receiver appointed under this section, and each guaranty association established under Article 9.48, 21.28-C, or 21.28-D of this code.  Such rules shall include, but not be limited to, provisions relating to the scope, frequency, reporting requirements, and cost of audits, and shall be submitted to the state auditor for review and comment prior to adoption.

(k)  The state auditor is authorized to conduct audits, as defined by Sections 321.0131 through 321.0136, Government Code, of the receiver, each special deputy receiver appointed under this section, and each guaranty association established under Article 9.48, 21.28-C, or 21.28-D of this code, as the commissioner or the state auditor determines to be necessary to supplement audits conducted under Subsection (j) of this section.  Costs associated with any such audit shall be reimbursed to the state auditor by the audited entity.

Revisor's Note

(1)  Section 12(j), V.T.I.C. Article 21.28, refers to "include, but not be limited to."  The revised law omits "but not be limited to" as unnecessary because Section 311.005(13), Government Code (Code Construction Act), applicable to the revised law, and Section 312.011(19), Government Code, provide that "includes" and "including" are terms of enlargement and not of limitation and do not create a presumption that components not expressed are excluded.

(2)  Section 12(k), V.T.I.C. Article 21.28, refers to "audits, as defined by Sections 321.0131 through 321.0136, Government Code."  Section 321.0136, Government Code, defines "investigation."  Accordingly, the revised law refers to "audits or investigations" as defined by those sections.

Revised Law

Sec. 442.502.  PLAN AND REPORT REGARDING AUDIT OF RECEIVER.  (a)  The state auditor may conduct an audit of the receiver in accordance with the audit plan under Chapter 321, Government Code.  The state auditor shall conduct the audit in the manner provided by that chapter.

(b)  The state auditor's report of an audit under this section may include:

     (1)  an analysis of:

          (A)  the overall performance of the receiver;

          (B)  the receiver's financial operations and condition;

          (C)  the receipts and expenditures made in connection with each audited receivership;

          (D)  the adequacy of the receiver's bond in relation to assets, receipts, and expenditures; and

          (E)  the feasibility of using attorneys employed by the receiver in all litigation;

     (2)  the amount of money made available to the receiver by a guaranty association in connection with each audited receivership and a detail of the purpose and manner of expenditure of the money;

     (3)  the ratio of the total amount of paid claims to the total costs incurred in connection with each audited receivership; and

     (4)  the ratio of the receiver's administrative expenses to the total costs incurred in connection with each audited receivership.

(c)  The state auditor shall file:

     (1)  copies of the auditor's report in the manner required by Section 321.014, Government Code; and

     (2)  an additional copy of the report with the department. (V.T.I.C. Art. 21.28, Secs. 12(d), (e), (f).)

Source Law

(d)  Audit.  The state auditor may conduct an audit of the liquidator in accordance with the audit plan reviewed and approved by the legislative audit committee.  The audits authorized by this subsection shall be conducted in the manner provided by Chapter 321, Government Code.

(e)  Contents of Auditor's Report.  The state auditor's report of the audit authorized by Subsection (d) of this section may include:

     (1)  an analysis of the overall performance of the liquidator;

     (2)  an analysis of the liquidator's financial operations and condition;

     (3)  an analysis of receipts and expenditures made in connection with each audited receivership and an analysis of the adequacy of the receiver's bond in relation to assets, receipts, and expenditures;

     (4)  the amount of funds made available to the liquidator by a guaranty association in connection with each audited receivership and a detail of the purpose and manner of expenditure of such funds;

     (5)  the ratio of the total amount of claims paid to the total costs incurred in connection with each audited receivership;

     (6)  the ratio of the liquidator's administrative expenses to the total costs incurred in connection with each audited receivership; or

     (7)  an analysis of the feasibility of using attorneys who are employees of the liquidator in all litigation.

(f)  Filing of Auditor's Reports.  Copies of the auditor's report shall be filed in the manner required by Section 321.014, Government Code.  An additional copy of the report shall be filed with the board and the commissioner.

Revisor's Note

Section 12(d), V.T.I.C. Article 21.28, authorizes the state auditor to conduct an audit of the receiver in accordance with the audit plan "reviewed and approved by the legislative audit committee" and also requires the state auditor to conduct the audit in the manner provided by Chapter 321, Government Code.  The revised law substitutes a reference to Chapter 321, Government Code, for the quoted language because the audit is required to be conducted under that chapter and Section 321.013(c), Government Code, requires that the audit plan be reviewed and approved by the legislative audit committee.

Revised Law

Sec. 442.503.  COURT-ORDERED AUDIT.  (a)  A court in which a receivership action is pending may order an audit of the books and records of the receiver relating to the receivership.  The receiver shall make the books and records available to the auditor as required by the court order.

(b)  A report of an audit conducted under this section shall be filed with the department and the appropriate guaranty association.

(c)  The receiver shall pay the expenses of an audit conducted under this section.  (V.T.I.C. Art. 21.28, Sec. 12(g).)

Source Law

(g)  Court-Ordered Audit.  A court in which a receivership action is pending may order an audit of the books and records of the liquidator as they relate to the receivership.  A report of an audit ordered under this subsection shall be filed with the board, the commissioner, and the appropriate guaranty association.  The liquidator shall make the books and records relating to the receivership available to the auditor as required in the court order.  The liquidator shall pay the expenses of an audit ordered under this subsection.

[Sections 442.504-442.550 reserved for expansion]

SUBCHAPTER L.  DISTRIBUTION OF ASSETS:  EARLY ACCESS

Revised Law

Sec. 442.551.  APPLICATION FOR APPROVAL OF PROPOSAL TO DISTRIBUTE ASSETS.  (a)  Not later than the 120th day after the date of the commencement of an insolvency proceeding against an impaired insurer, the receiver or a special deputy receiver may apply to the court for approval of a proposal to distribute assets out of marshaled assets as they become available to a guaranty association or foreign guaranty association with a Class 1 or Class 2 claim under this chapter.

(b)  If the receiver or special deputy receiver fails to apply for approval within the period prescribed by Subsection (a), a guaranty association may apply to the court and request that the receiver or special deputy receiver submit a proposal to distribute assets.

(c)  If the receiver or special deputy receiver determines that there are insufficient assets to distribute, the receiver or special deputy receiver may file a statement of the reasons for that determination instead of filing an application under this section.  A statement under this subsection is considered to be an application by the receiver or special deputy receiver for purposes of this section.  (V.T.I.C. Art. 21.28, Sec. 7A(a).)

Source Law

Sec. 7A.  (a)  Within 120 days of the commencement of the insolvency proceeding against an impaired insurer, the liquidator or a special deputy receiver appointed under this Article may make application to the court for approval of a proposal to disburse assets out of marshaled assets, from time to time as such assets become available, to a guaranty association or foreign guaranty association having Class 1 or Class 2 claims against the estate of the impaired insurer because of such insolvency.  If the receiver or special deputy receiver fails to make such application within 120 days, the guaranty association may submit an application to the court requesting that the receiver or special deputy receiver submit a proposal to disburse assets.  If the liquidator or special deputy receiver determines that there are insufficient assets to disburse, the application required by this section shall be considered satisfied by a filing by the liquidator or special deputy receiver stating the reasons for this determination.

Revisor's Note

(1)  Section 7A(a), V.T.I.C. Article 21.28, authorizes the receiver to "disburse" assets.  Other sections of Article 21.28 refer to the "disbursement" of assets and use other similar phrases.  The revised law substitutes "distribute" for "disburse" in this context for consistency in use of terminology.  Similar changes are made throughout this chapter.

(2)  Section 7A(a), V.T.I.C. Article 21.28, refers to Class 1 or Class 2 claims "against the estate of the impaired insurer because of such insolvency."  The revised law omits the quoted language as unnecessary because Class 1 and Class 2 claims under this chapter are categories of claims established under Section 442.601 and are brought against the estate of an impaired insurer.  Claims are brought against an insurer under this chapter because of the insurer's insolvency.  Therefore, a Class 1 or Class 2 claim could not be brought against anything other than the impaired insurer's estate because of the insolvency.

Revised Law

Sec. 442.552.  CONTENTS OF PROPOSAL TO DISTRIBUTE ASSETS.  (a)  A proposal to distribute assets under Section 442.551 must include provisions for:

     (1)  reserving amounts sufficient to allow the payment of Class 1 claims;

     (2)  to the extent the assets of the insolvent insurer allow any payment of Class 2 claims, reserving amounts sufficient to provide equal pro rata distributions to the Class 2 claimants other than the guaranty associations;

     (3)  distributing the assets marshaled as of the date of the proposal and distributing other assets as they become available;

     (4)  equitably allocating distributions among guaranty associations and foreign guaranty associations entitled to distributions, including providing for:

          (A)  distributions to the associations in amounts estimated to be at least equal to the claim payments made or to be made by the associations for which the associations could assert a claim against the receiver; and

          (B)  distributions for the pro rata amount of the associations' Class 2 claims if the assets, as they become available for distribution, do not equal or exceed the amount of the claim payments made or to be made by the associations; and

     (5)  with regard to an insolvent insurer writing life or health insurance or annuities, distributing the assets to:

          (A)  a guaranty association or foreign guaranty association covering life or health insurance or annuities; or

          (B)  any other entity or organization reinsuring, assuming, or guaranteeing insurance policies or contracts under the laws creating an association described by Paragraph (A).

(b)  The proposal to distribute assets must also include provisions that require:

     (1)  the receiver or special deputy receiver to obtain from each guaranty association described by Subsection (a)(4) an agreement to return to the receiver on request and on approval by the court any previously distributed assets, together with income on the assets, required to pay Class 1 claimants and any federal claimants asserting priority claims; and

     (2)  each guaranty association or foreign guaranty association to make a full report to the receiver or special deputy receiver, as requested by the receiver or special deputy receiver but not more frequently than quarterly, accounting for:

          (A)  the assets distributed to the association;

          (B)  all distributions made from those assets;

          (C)  any interest earned by the association on those assets; and

          (D)  any other matter as the court directs.

(c)  A guaranty association or foreign guaranty association is not required to provide a bond under Subsection (b)(1).  (V.T.I.C. Art. 21.28, Secs. 7A(b), (c), (d).)

Source Law

(b)  Such proposal shall, at a minimum, include provisions for:

     (1)  reserving amounts sufficient to allow the payment of Class 1 claims, and to the extent the assets of the insolvent insurer will allow any payment to be made on Class 2 claims, reserving amounts sufficient to provide equal pro-rata distributions to the Class 2 claimants other than the guaranty associations;

     (2)  disbursement of the assets marshaled to date and the subsequent distribution of assets as they become available;

     (3)  equitable allocation of disbursements to each of the guaranty associations and foreign guaranty associations entitled thereto;

     (4)  the securing of the liquidator or special deputy receiver from each of the associations entitled to disbursements pursuant to this section of an agreement to return to the liquidator upon request and approval by the court such assets, together with income on assets previously disbursed, as may be required to pay Class 1 claimants and any federal claimants asserting priority claims.  No bond shall be required of any such association; and

     (5)  a full report to be made by each association to the liquidator or special deputy receiver, as requested by the liquidator or special deputy receiver, but no more frequently than quarterly, accounting for the assets so disbursed to the association, all disbursements made therefrom, any interest earned by the association on such assets and any other matter as the court may direct.

(c)  The proposal submitted by the liquidator or special deputy receiver shall provide for disbursements to the associations in amounts estimated at least equal to the claim payments made or to be made thereby for which such associations could assert a claim against the liquidator, and shall further provide that if the assets available for disbursement from time to time do not equal or exceed the amount of such claim payments made or to be made by the association, then disbursements shall be made for the pro-rata amount of the association's Class 2 claim.

(d)  The proposal submitted by the liquidator or special deputy receiver shall, with respect to an insolvent insurer writing life or health insurance or annuities, provide for disbursement of assets to any guaranty association or foreign guaranty association covering life or health insurance or annuities or to any other entity or organization reinsuring, assuming, or guaranteeing policies or contracts of insurance under the acts creating such associations.

Revised Law

Sec. 442.553.  NOTICE OF APPLICATION.  (a)  The receiver shall give notice of an application for approval of a proposal to distribute assets to a guaranty association or foreign guaranty association in, and to the commissioner of insurance of, each of the states.  Notice under this subsection must be deposited in the United States certified mail, first class postage prepaid, at least 30 days before the date the application is submitted to the court.

(b)  The receiver shall also give notice of the application to reasonably identifiable Class 1 and Class 2 claimants.  Notice under this subsection must be given in a manner the court considers appropriate, including notice by publication.

(c)  The court may act on the application if:

     (1)  notice has been given as provided by this section; and

     (2)  the receiver's or special deputy receiver's proposal to distribute assets complies with this subchapter.  (V.T.I.C. Art. 21.28, Sec. 7A(e).)

Source Law

(e)  Notice of the application shall be given to the association in and to the commissioners of insurance of each of the states.  Notice shall be considered to have been given when deposited in the United States certified mail, first class postage prepaid, at least 30 days prior to the submission of the application to the court.  Action of the application may be taken by the court if notice has been given and if the liquidator's or special deputy receiver's proposal complies with the requirements of this section.  Notice of the application shall be given to those Class 1 and Class 2 claimants that are reasonably ascertainable in a manner deemed appropriate by the court, including notice by publication.

[Sections 442.554-442.600 reserved for expansion]

SUBCHAPTER M.  DISTRIBUTION OF ASSETS

Revised Law

Sec. 442.601.  PRIORITY OF CLAIMS FOR DISTRIBUTION OF ASSETS.  (a)  The priorities provided by this section are established to:

     (1)  provide for the orderly liquidation of a receivership estate; and

     (2)  further the protection of policyholders and persons making claims under insurance policies.

(b)  The priority of distribution of assets from the insurer's estate must be in accordance with:

     (1)  the distribution plan approved by the court under Subchapter L; and

     (2)  the order of each class as provided by this section.

(c)  Each claim in each class must be paid in full, or an adequate amount of money must be retained for that payment, before a payment is made for a claim in the next class.

(d)  Subclasses may not be established within a class.

(e)  The classes of claims are as follows:

     (1)  Class 1:

          (A)  all of the receiver's, conservator's, and supervisor's costs and expenses of administration, including repayment of any money spent by the receiver under Section 442.657;

          (B)  all of a guaranty association's or foreign guaranty association's costs and expenses of administration related to a receivership estate and all of the expenses of that association in handling claims; and

          (C)  claims of secured creditors to the extent of the value of the security as provided by Section 442.604;

     (2)  Class 2:

          (A)  all claims by policyholders, beneficiaries, and insureds, and liability claims against insureds covered under insurance policies and contracts issued by the insurer; and

          (B)  all claims by a guaranty association or a foreign guaranty association that are payments of proper policyholder claims;

     (3)  Class 3:  claims of the federal government that are not included in Class 2;

     (4)  Class 4:  all other claims of general creditors not falling within a higher priority under this subchapter, including claims for taxes and debts due a state or local government that are unsecured; and

     (5)  Class 5:  claims of surplus or contribution note holders, debenture holders, or holders of similar obligations and proprietary claims of shareholders, members, or other owners according to the terms of the instruments.

(f)  For the purpose of Subsection (e)(1)(B), attorney's fees incurred by a guaranty association or foreign guaranty association in the defense of an insured under an insurance policy issued by an impaired insurer are an expense incurred in handling a claim.  (V.T.I.C. Art. 21.28, Secs. 8(a)(1), (2).)

Source Law

Sec. 8.  (a)  Priority of Distribution of Assets.  (1) In order to provide for the orderly liquidation of a receivership estate and to further the protection of policyholders and those making claims under insurance policies, the following priorities are established.  The priority of distribution of assets from the insurer's estate shall be in accordance with the disbursement plan approved by the court under Section 7A of this Article, and in accordance with the order of each class as provided by this subsection.  Every claim in each class shall be paid in full or adequate funds retained for such payment before the members of the next class receive any payment.  No subclasses shall be established within any class.

     (2)  Classes of claims:

          (A)  Class 1:

              (i)  All of the receiver's, conservator's, and supervisor's costs and expenses of administration, including repayment of funds advanced to the receiver from the abandoned property fund of the department.

              (ii)  All of an insurance guaranty association's or foreign insurance guaranty association's costs and expenses of administration related to a receivership estate and all of the expenses of an insurance guaranty association or foreign insurance guaranty association in handling claims.  For the purpose of this subparagraph, attorney's fees incurred by an insurance guaranty association or foreign insurance guaranty association in the defense of an insured under a policy issued by an impaired insurer constitute an expense incurred in handling claims.

              (iii)  Secured creditors to the extent of the value of the security as provided by Section 8(c) of this Article.

          (B)  Class 2:

              (i)  All claims by policyholders, beneficiaries, insureds, and liability claims against insureds covered under insurance policies and insurance contracts issued by the insurer.

              (ii)  All claims by an insurance guaranty association or a foreign insurance guaranty association that are payments of proper policyholder claims.

          (C)  Class 3:  Claims of the federal government not included in Class 2, above.

          (D)  Class 4:  All other claims of general creditors not falling within any other priority under this section including claims for taxes and debts due any state or local government which are not secured claims.

          (E)  Class 5:  Claims of surplus or contribution note holders, holders of debentures or holders of similar obligations and proprietary claims of shareholders, members, or other owners according to the terms of the instruments.

Revisor's Note

(1)  Section 8(a)(2)(A)(i), V.T.I.C. Article 21.28, defines Class 1 claims to include the receiver's, conservator's, and supervisor's costs and expenses of administration, including "repayment of funds advanced to the receiver from the abandoned property fund of the department."  Sections 8(g) and (i), Article 21.28, revised in this chapter as Sections 442.651, 442.653, and 442.654, provide a procedure for declaring that certain unclaimed money is abandoned and is the property of the Texas Department of Insurance.  Section 8(i), Article 21.28, revised in pertinent part in this chapter as Section 442.654, requires the department to deposit the abandoned money in accordance with Section 2(h), Article 21.28, revised in this chapter as Section 442.110, and Section 8(j), Article 21.28, revised in this chapter as Section 442.657, authorizes the receiver to spend the abandoned money.  In addition, Section 8A, V.T.I.C. Article 21.28, revised in this chapter as Sections 442.655-442.657, provides a similar procedure for declaring that proceeds derived from certain unclaimed assets are abandoned and are the property of the department.  Section 8A also requires the department to deposit the proceeds in accordance with Section 2(h), Article 21.28, revised in this chapter as Section 442.110, and states that "[s]uch funds may be used as provided in Section 8(j) of this Article."  Because Section 8(j), Article 21.28, revised in this chapter in Section 442.657, provides the authority for the receiver to spend abandoned money, and because the described provisions of Article 21.28 do not refer to an "abandoned property fund of the department," the revised law substitutes a cross-reference to Section 442.657 for the reference to the "abandoned property fund of the department."

(2)  Section 8(a)(3), V.T.I.C. Article 21.28, states that the provisions of Section 8(a), Article 21.28, are severable from each other.  The revised law omits that provision because it duplicates Section 311.032, Government Code (Code Construction Act), applicable to the revised law.  That provision states that a provision of a statute is severable from each other provision of the statute that can be given effect.  The omitted law reads:

     (3)  If any provision of this subsection or the application of any provision of this subsection to any person or circumstance is held invalid, that invalidity does not affect the other provisions or applications of this subsection.

Revised Law

Sec. 442.602.  PAYMENT OF WAGES OF EMPLOYEES OF INSURER SUBJECT TO TEMPORARY RESTRAINING ORDER.  (a)  The receiver shall pay as a Class 1 claim under Section 442.601 wages owed to employees of an insurer against which a temporary restraining order has been issued under this chapter for services rendered during the period covered by the order.

(b)  The receiver shall pay for services under Subsection (a) at the rate and in the same manner as if paid by the insurer.  (V.T.I.C. Art. 21.28, Sec. 6 (part).)

Source Law

Sec. 6.  The receiver shall pay wages actually owed to employees of an insurer against whom a temporary restraining order has been issued under this Article for services rendered during the period covered by the temporary restraining order as a Class 1 claim as provided by Section 8(a) of this Article.  Payment for those services must be made at the rate and in the same manner as if paid by the insurer… . 

Revised Law

Sec. 442.603.  PAYMENT OF WAGES OF EMPLOYEES OF INSURER SUBJECT TO TEMPORARY INJUNCTION.  (a)  The receiver may pay wages owed to employees of an insurer against which a temporary injunction has been issued under this chapter for services rendered after the issuance of the injunction.

(b)  Payment for services under Subsection (a) is an expense of administration.  (V.T.I.C. Art. 21.28, Sec. 6 (part).)

Source Law

Sec. 6.  …  The receiver may pay wages actually owed to employees of an insurer against whom a temporary injunction has been issued under this Article for services rendered after the issuance of the temporary injunction.  Payment for those services is made at the discretion of the receiver and as an expense of administration.

Revised Law

Sec. 442.604.  SECURED CREDITOR.  (a)  The owner of a secured claim against an insurer for which a receiver has been appointed in any state may surrender the owner's security and file a claim as a general creditor, or the claim may be discharged by resort to the security.

(b)  If a claim described by Subsection (a) is discharged by resort to the security, any deficiency shall be treated as a claim against the general assets of the insurer on the same basis as a claim of an unsecured creditor.  If the amount of the deficiency was adjudicated in an ancillary delinquency proceeding as provided by Subchapter P or by a court of competent jurisdiction in a proceeding in which the domiciliary receiver was provided with notice and an opportunity for hearing, the amount is conclusive.  If the amount was not adjudicated as provided by this subsection, the amount shall be determined in the delinquency proceeding in the domiciliary state.

(c)  The value of any security held by a secured creditor shall be determined under supervision of the court by:

     (1)  conversion of the security into money according to the terms of the agreement under which the security was delivered to the creditor; or

     (2)  agreement, arbitration, compromise, or litigation between the creditor and the receiver.  (V.T.I.C. Art. 21.28, Sec. 8(c).)

Source Law

(c)  Secured Creditor.  (1)  The owner of a secured claim against an insurer for which a receiver has been appointed in this or any other state may surrender his security and file his claim as a general creditor, or the claim may be discharged by resort to the security, in which case the deficiency, if any, shall be treated as a claim against the general assets of the insurer on the same basis as claims of unsecured creditors.  If the amount of the deficiency has been adjudicated in ancillary proceedings as provided in this chapter, or if it has been adjudicated by a court of competent jurisdiction in a proceeding in which the domiciliary receiver has had notice and an opportunity to be heard, such amount shall be conclusive; otherwise the amount shall be determined in the delinquency proceeding in the domiciliary state.

     (2)  The value of any security held by a secured creditor shall be determined under supervision of the court by:

          (A)  converting the security into money according to the terms of the agreement pursuant to which the security was delivered to the creditor; or

          (B)  by agreement, arbitration, compromise, or litigation between the creditor and the receiver.

Revisor's Note

Section 8(c)(1), V.T.I.C. Article 21.28, refers to the adjudication of a deficiency in an ancillary proceeding as provided "in this chapter," meaning V.T.I.C. Chapter 21.  Section 13, V.T.I.C. Article 21.28, revised in this chapter as Subchapter P, is included in Chapter 21 and governs ancillary delinquency proceedings.  The revised law is drafted accordingly.

Revised Law

Sec. 442.605.  DIVIDEND PAYMENTS.  (a)  On the direction and approval of the court and in accordance with the priorities provided by this subchapter, the receiver may make periodic dividend payments, including payments of policyholder claims, to facilitate the rehabilitation, liquidation, conservation, or dissolution of an insurer.

(b)  The receiver at all times shall reserve sufficient assets to pay the expenses of administration.  (V.T.I.C. Art. 21.28, Sec. 8(b).)

Source Law

(b)  Dividend Payments.  On the direction and approval of the court and pursuant to the priorities provided by this section, the receiver may make periodic dividend payments, including payments of policyholder claims, for the purpose of facilitating the rehabilitation, liquidation, conservation, or dissolution of an insurer.  The receiver at all times shall reserve sufficient assets for the payment of the expenses of administration.

Revised Law

Sec. 442.606.  CLAIMANTS OF OTHER STATES OR FOREIGN COUNTRIES.  (a)  If a claimant of another state or of a foreign country is entitled to or receives a dividend on the claim out of a statutory deposit or the proceeds of a bond or other asset located in that state or foreign country, the claimant is not entitled to share in the distribution of any additional dividend from the receiver until all other claimants of the same class receive an equal dividend on their claims, regardless of their residence or the location of the acts or contracts on which the claims are based.

(b)  After the other claimants of the same class receive an equal dividend on their claims, the claimant of the other state or of the foreign country is entitled to share in the distribution of additional dividends by the receiver, along with and in the same manner as all other creditors of the same class, regardless of their residence.  (V.T.I.C. Art. 21.28, Sec. 8(e).)

Source Law

(e)  Foreign Claimants.  If any claimant of another state or foreign country shall be entitled to or shall receive a dividend upon his claim out of a statutory deposit or the proceeds of any bond or other asset located in such other state or foreign country, then such claimants shall not be entitled to any further dividend from the receiver until and unless all other claimants of the same class, irrespective of residence or place of the acts or contracts upon which their claims are based, shall have received an equal dividend upon their claims; and after such equalization, such claimants shall be entitled to share in the distribution of further dividends by the receiver, along with and like all other creditors of the same class, wheresoever residing.

Revised Law

Sec. 442.607.  SETOFF OF DIVIDEND AMOUNT.  On the declaration of a dividend, the receiver shall apply the amount of the dividend against any debt owed to the insurer by the person entitled to the dividend.  (V.T.I.C. Art. 21.28, Sec. 8(f).)

Source Law

(f)  Setoff by Receiver.  Upon the declaration of a dividend, the receiver shall apply the amount of such dividend against any indebtedness owed to the insurer by the person entitled to such dividend.

Revised Law

Sec. 442.608.  CLAIMS UNDER SEPARATE ACCOUNTS ESTABLISHED BY DOMESTIC LIFE INSURANCE COMPANIES.  (a)  Each claim under a separate account established under Chapter 1152 shall be satisfied out of the portion of the assets in the separate account that is equal to the reserves maintained in the account for the applicable contracts.

(b)  To the extent reserves maintained in a separate account exceed the amounts needed to satisfy claims under the applicable contracts, the excess shall be treated as general assets of the domestic life insurance company.  (V.T.I.C. Art. 21.28, Sec. 8(k) (part).)

Source Law

(k)  Every claim under a separate account established under Article 3.75 of this code, providing that the income, gains, and losses, realized and unrealized, from assets allocated to the separate account shall be credited to or charged against the account, without regard to other income, gains, or losses of the life insurance company, shall be satisfied out of the assets in the separate account equal to the reserves maintained in such account for the contracts. …  To the extent, if any, reserves maintained in the separate account are in excess of the amounts needed to satisfy claims under the separate account contracts, the excess shall be treated as general assets of the life insurance company.

Revisor's Note

(1)  Section 8(k), V.T.I.C. Article 21.28, refers to a separate account established under V.T.I.C. Article 3.75, "providing that the income, gains, and losses, realized and unrealized, from assets allocated to the separate account shall be credited to or charged against the account, without regard to other income, gains, or losses of the life insurance company."  Article 3.75 is revised in this code as Chapter 1152.  The revised law omits the quoted language as unnecessary because it duplicates Section 1152.057 of this code, which requires a life insurance company to credit to or charge against a separate account the income, gain, or loss, realized or unrealized, from an asset allocated to the account without regard to other income, gains, or losses of the company.

(2)  Section 8(k), V.T.I.C. Article 21.28, provides that to the extent reserves maintained in a separate account established under V.T.I.C. Article 3.75 exceed the amounts needed to satisfy claims under the applicable contracts, the excess is treated as general assets of the "life insurance company."  The revised law substitutes "domestic life insurance company" for "life insurance company" because Article 3.75, which is revised in this code as Chapter 1152, applies only to domestic life insurance companies.

(3)  Section 8(k), V.T.I.C. Article 21.28, provides that to the extent provided under contracts established under V.T.I.C. Article 3.75, the portion of the assets of a separate account equal to the reserves and other contract liabilities for the separate account is not chargeable with liabilities arising out of any other business of the life insurance company that owns the account.  The revised law omits that provision as unnecessary because it duplicates Section 1152.059 of this code, which provides that to the extent provided under the applicable contracts, the portion of a separate account's assets equal to the reserves and other contract liabilities regarding that account is not chargeable with a liability arising out of any other business of the life insurance company.  The omitted law reads:

(k)  …  To the extent provided under contracts established under Article 3.75 of this code, that portion of the assets of any separate account equal to the reserves and other contract liabilities for the separate account is not chargeable with liabilities arising out of any other business of the company. …

Revised Law

Sec. 442.609.  INTEREST.  Interest does not accrue on a claim after the date of the commencement of a delinquency proceeding.  (V.T.I.C. Art. 21.28, Sec. 8(d).)

Source Law

(d)  Interest.  Interest shall not accrue on any claim subsequent to the date of the commencement of delinquency proceedings.

[Sections 442.610-442.650 reserved for expansion]

SUBCHAPTER N.  UNCLAIMED ASSETS

Revised Law

Sec. 442.651.  DELIVERY OF UNCLAIMED MONEY TO DEPARTMENT.  (a)  Except as provided by Subsection (b), any unclaimed dividend on an approved claim, unclaimed returned assessment, or other unclaimed money that is subject to distribution to a claimant, policyholder, or other person and that remains in the possession of the receiver after payment of the final dividend shall be delivered to the department at the time the receivership is closed.

(b)  If a final dividend is paid less than 90 days before the date the receivership is closed, the receiver may continue, for a period not to exceed 90 days from the date the receivership is closed, any bank account of the receivership from which any unclaimed dividend might be paid, before the receiver delivers the unclaimed dividend to the department.

(c)  The department shall deposit the money in trust in an  account to be maintained with the comptroller.  (V.T.I.C. Art. 21.28, Sec. 8(g).)

Source Law

(g)  Unclaimed Funds.  Unclaimed dividends on approved claims, unclaimed returned assessments, and all other unclaimed funds subject to distribution to claimants, policyholders or other persons, remaining in the receiver's hands after payment of the final dividend shall be delivered to the Board at the time the receivership is closed, or in the event a final dividend is paid less than ninety (90) days prior to the closing of the receivership, the receiver may continue the bank account or accounts of such receivership from which such funds might be paid, for a period of time not to exceed ninety (90) days from the date of the closing of said receivership, before the same are so delivered to the Board.  Such funds shall be deposited by the Board in trust in a special account to be maintained with the comptroller.

Revisor's Note

Section 8(g), V.T.I.C. Article 21.28, refers to a "special" account.  The revised law omits the designation of the account as being "special" because that designation is unnecessary.  The designation of an account as a special account has no legal effect.

Revised Law

Sec. 442.652.  RECOVERY OF UNCLAIMED MONEY BY OWNER.  (a)  On receipt of satisfactory written and verified proof of ownership not later than the second anniversary of the date money is deposited with the comptroller under Section 442.651, the department shall certify that fact to the comptroller.

(b)  On certification under Subsection (a), the comptroller shall issue a warrant drawn on the state treasury for the money in favor of each person entitled to the money.  (V.T.I.C. Art. 21.28, Sec. 8(h).)

Source Law

(h)  Recovery by Owner.  On receipt of satisfactory written and verified proof of ownership within two (2) years from the date such funds are so deposited with the comptroller, the Board shall certify such facts to the Comptroller, who shall issue proper warrant therefor in favor of the parties respectively entitled thereto, drawn on the State Treasury.

Revisor's Note

Section 8(h), V.T.I.C. Article 21.28, refers to a "proper" warrant.  Throughout this chapter, the revised law omits "proper" in this context as unnecessary because the term does not add to the clear meaning of the law.  A document is not a warrant if it is not a proper warrant.

Revised Law

Sec. 442.653.  APPLICATION FOR DECLARATION OF ABANDONMENT OF MONEY; NOTICE.  (a)  After money deposited with the comptroller under Section 442.651 has remained unclaimed for two years, the receiver may initiate an action to declare the money abandoned and that the money is the property of the department by filing in the court of competent jurisdiction in the county in which the delinquency proceeding is or was pending a notice that the receiver intends to declare the money abandoned and claim the money as the property of the department.  The action may be for all or part of the money accumulated in any particular receivership.

(b)  The notice must state:

     (1)  the name of each person entitled to the money;

     (2)  the person's last known address; and

     (3)  the nature or source and amount of the money.

(c)  On the filing of the notice by the receiver, the court shall set a date for the hearing on the application that is at least 20 days after the date the notice was filed and shall make a notation of the date of the hearing on the notice.

(d)  A copy of the notice with the judge's notation of the date of the hearing must be posted on the courthouse door for at least 20 days before the date a hearing is held on the application.  At least 10 days before the date set for the hearing, notice of the filing of the application must be published in a newspaper of general circulation in the county in which the application is pending.  The notice must be addressed to the owners of unclaimed money in the particular receivership involved in the application and must state generally that a hearing will be held on the specified date to declare the money abandoned and that the money is the property of the department.  (V.T.I.C. Art. 21.28, Sec. 8(i) (part).)

Source Law

(i)  Declaration of Abandonment.  After such funds have remained unclaimed for two (2) years, the Liquidator may initiate action to have them declared to be abandoned, and the property of the State Board of Insurance.  Such action shall be commenced by the filing by the Liquidator, in the court of competent jurisdiction in the county in which the delinquency proceeding is, or was pending, of a notice of his intention to declare such funds to be abandoned, and that he is claiming the same as the property of the State Board of Insurance.  Such action may be for all or any part of such funds accumulated in any one particular receivership.  Such notice shall state the name or names of the person or persons entitled thereto, his or their last known address, and the nature or source and amount of the fund or funds.  Upon the filing of such notice by the Liquidator, the court shall set a date for the hearing of the application, and shall make notation thereon of the date of such hearing, which date shall be at least twenty (20) days subsequent to the date of the filing of said notice.  A copy of said notice, with the judge's notation thereon shall be posted on the courthouse door of said court for at least twenty (20) days before a hearing is had thereon.  Notice of the filing of the application shall be published at least once, and at least ten (10) days prior to the date set for such hearing, in a newspaper of general circulation in the county where the application is pending.  Such notice shall be addressed to the true owners of unclaimed funds in the particular receivership involved in the application and shall state generally that a hearing shall be had on the date specified for the purpose of declaring such funds to be abandoned and the property of the State Board of Insurance… .

Revisor's Note

(1)  Section 8(i), V.T.I.C. Article 21.28, requires that notice of the filing of an application be published "at least once."  The revised law omits the quoted language as unnecessary because a requirement that notice be published necessarily implies that the notice be published at least once.

(2)  Section 8(i), V.T.I.C. Article 21.28, refers to the "true" owners of unclaimed money.  The revised law omits "true" as unnecessary because the word does not add to the clear meaning of the law.  A person who is an owner of unclaimed money is necessarily a "true" owner of the money.

Revised Law

Sec. 442.654.  HEARING ON APPLICATION FOR DECLARATION OF ABANDONMENT OF MONEY; JUDGMENT.  (a)  At a hearing on an application filed under Section 442.653, proof to the satisfaction of the court of the following is prima facie evidence that each person entitled to money deposited with the comptroller under Section 442.651 intends to abandon the money and that the department is the owner of the money:

     (1)  the money, or a check for the money, was sent by the receiver to the last known address of each person entitled to the money;

     (2)  the money, or a check for the money, was returned unclaimed or the check for the money was not cashed;

     (3)  the money was delivered to the department as required by Section 442.651;

     (4)  the money has remained unclaimed for two years; and

     (5)  notice of the filing of the application was published as required by Section 442.653.

(b)  On a finding by the court under Subsection (a), the court may render judgment accordingly.  On receipt of the judgment, the department shall certify that fact to the comptroller.

(c)  On certification under Subsection (b), the comptroller shall issue a warrant for the money in favor of the department.  The department shall promptly deposit the money in accordance with Section 442.110, except that the money derived from one insurer is not required to be kept separate from money derived from another insurer.  (V.T.I.C. Art. 21.28, Sec. 8(i) (part).)

Source Law

(i)  …  Upon the hearing on such application of  the Liquidator, proof to the satisfaction of the court:

     (1)  That such funds, or the checks therefor, had previously been sent by the Receiver to the last known address of the person or persons entitled thereto;

     (2)  That such funds, or the checks therefor, had been returned unclaimed or that the check or checks therefor had not been cashed;

     (3)  That the funds had been delivered to the Board as required by Subsection (g) above;

     (4)  That such money remained unclaimed with the Board for two (2) years; and

     (5)  That notice of the filing of the application has been published as herein provided, shall be prima facie evidence of the intention of the person or persons entitled thereto to abandon the same, and that the Board is the rightful owner thereof.  Upon such finding by the court, the court shall be authorized to render judgment accordingly.  Upon receipt of such judgment, the Board shall certify such fact to the Comptroller of Public Accounts, who shall issue proper warrant therefor to the State Board of Insurance.  The Board shall forthwith deposit such funds in accordance with the provisions of Section 2(h) of this Article, except that such funds derived through any one insurer need not be kept separate from such funds derived through any other insurer.

Revisor's Note

(1)  Section 8(i)(5), V.T.I.C. Article 21.28, refers to the "rightful" owner of unclaimed money.  The revised law omits "rightful" as unnecessary because the word does not add to the clear meaning of the law.  A person who is an owner of unclaimed money is necessarily a "rightful" owner of the money.

(2)  Section 8(i)(5), V.T.I.C. Article 21.28, refers to the "Comptroller of Public Accounts."  The revised law substitutes the term "comptroller" because Section 403.001, Government Code, defines "comptroller" in any state statute to mean the comptroller of public accounts.

Revised Law

Sec. 442.655.  USE OF UNCLAIMED ASSETS OTHER THAN CASH; DEPOSIT OF PROCEEDS IN TRUST.  (a)  Any assets other than cash that remain in the possession of the receiver after payment of the final dividend in a receivership estate may be conveyed, transferred, or assigned to the commissioner to be handled as a trust.

(b)  The commissioner may convey, transfer, and assign any assets, including causes of action, judgments, and claims, and settle or release causes of action, judgments, claims, and liens on terms and for amounts the commissioner considers to be in the best interest of the trust, regardless of whether the assets have previously or may subsequently come into the commissioner's possession.

(c)  From proceeds derived from any assets described by Subsection (b), the commissioner or the special deputy receiver shall defray the costs incident to the sale, settlement, release, or other transaction by which the proceeds are obtained and deliver the remainder to the department.  The department shall deposit the money in trust in an account to be maintained with the comptroller and to be handled, disposed of, and used as provided by Sections 442.656 and 442.657.  (V.T.I.C. Art. 21.28, Sec. 8A (part).)

Source Law

Sec. 8A.  Any and all assets other than cash remaining in the receiver's hands after payment of the final dividend may be conveyed, transferred or assigned to the commissioner to be handled as a trust.  The commissioner shall have authority to convey, transfer, and assign any assets, including causes of action, judgments, and claims, and to settle or release causes of action, judgments, claims, and liens on such terms and for such amounts as he deems for the best interest of such trust, whether such assets have heretofore or may hereafter come into his hands.  From proceeds derived from any such assets the commissioner or the special deputy receiver shall defray the costs incident to the sale, settlement, release or other transaction whereby such proceeds are obtained, and deliver the remainder to the Board to be deposited by it in trust  in a special account to be maintained with the comptroller to be handled, disposed of and used as follows:

…

Revisor's Note

Section 8A, V.T.I.C. Article 21.28, refers to a "special" account.  The revised law omits the designation of the account as being "special" for the reason stated in the revisor's note to Section 442.651.

Revised Law

Sec. 442.656.  APPLICATION FOR DECLARATION OF ABANDONMENT OF PROCEEDS IN TRUST; NOTICE AND HEARING.  (a)  On application by the commissioner and after notice and hearing, a court of competent jurisdiction of Travis County may make an order directing disposition of money deposited in a trust account under Section 442.655(c).

(b)  The notice must be addressed to all persons having an interest, as claimants or otherwise, in the assets of the particular receivership involved in the application and must state:

     (1)  the amount of the money and the receivership from which the money was derived; and

     (2)  generally that a hearing will be held on the specified date to determine the disposition of the money, including a declaration that the money is abandoned and is the property of the department.

(c)  The notice required by Subsection (a) must be:

     (1)  posted on the courthouse door for at least 20 days before the date the hearing is held; and

     (2)  published at least 10 days before the date set for the hearing in a newspaper of general circulation in Travis County.

(d)  If the court finds that money derived from a receivership is sufficient to justify the reopening of the receivership and the payment of a dividend, the court may enter an order to that effect.  If the money is insufficient for that purpose, the court may declare the money abandoned.

(e)  A certified copy of a judgment declaring the money abandoned is sufficient authority for the comptroller to issue a warrant for the money in favor of the department.  On issuance of the warrant, the department shall promptly deposit the money in accordance with Section 442.110, except that money derived from one insurer is not required to be kept separate from money derived from another insurer.  (V.T.I.C. Art. 21.28, Sec. 8A (part).)

Source Law

Sec. 8A.  … An order directing disposition of such funds may be made by a court of competent jurisdiction of Travis County, Texas, upon application of the commissioner, after notice and hearing.  Notice shall be posted on the courthouse door of said court for at least twenty (20) days before a hearing is had on the commissioner's application, and notice shall be published at least once, and at least ten (10) days prior to the date set for such hearing, in a newspaper of general circulation in Travis County.  Such notice shall state the amount of the funds and the receivership from which they were derived.  It shall be addressed to all persons having an interest, as claimant or otherwise, in the assets of the particular receivership involved in the application, and shall state generally that a hearing shall be had on the date specified for the purpose of determining the disposition to be made of such funds, including a declaration that such funds are abandoned and the property of the State Board of Insurance.

If the court finds that funds derived from any receivership are sufficient to justify re-opening of the receivership and payment of a dividend, then such may be ordered, but otherwise, if such funds  are insufficient for that purpose, the court may declare such funds abandoned and a certified copy of such judgment will be authority for the comptroller to issue a Warrant therefor to the State Board of Insurance.  The Board shall forthwith deposit such funds in accordance with the provisions of Section 2(h) of this Article, except that funds derived from one insurer need not be kept separate from funds derived through any other insurer.

…

Revisor's Note

Section 8A, V.T.I.C. Article 21.28, requires that notice of an application be published "at least once."  The revised law omits the quoted language for the reason stated in Revisor's Note (1) to Section 442.653.

Revised Law

Sec. 442.657.  USE OF ABANDONED MONEY.  (a)  The receiver, with the consent of the department, may spend money deposited by the department under Sections 442.654 and 442.656 to:

     (1)  pay expenses of the office of the receiver that are not properly chargeable to any one receivership or conservatorship estate; and

     (2)  continue the administration of a receivership or conservatorship by the receiver as receiver or conservator, if the department considers the continuation to be in the best interest of the receivership or conservatorship estate.

(b)  Any money applied under Subsection (a)(2) to a receivership estate must be repaid from the assets of that estate before the payment of any additional dividends in that receivership, including policyholder claims and other claims.

(c)  Any money applied under Subsection (a)(2) to a conservatorship estate must be repaid from the assets of that estate before the release of that conservatorship for continued operation.  (V.T.I.C. Art. 21.28, Secs. 8(j), 8A (part).)

Source Law

[Sec. 8]

(j)  Use of Abandoned Funds.  Such funds so deposited by the Board in accordance with Subsection (i) above may be expended by the Liquidator, with the consent of the Board, for the purpose of paying expenses of the office of the Liquidator and/or Receiver that are not properly chargeable to any one receivership or conservatorship estate, and for the purpose of financing continued operation of any receivership or conservatorship then being administered by the Liquidator as Receiver or Conservator, when in the discretion of the Board it appears to be in the best interest of such receivership or conservatorship estate that it not be closed, and that additional administration be had thereon.  Any funds so applied from this source to another receivership or conservatorship estate are to be repaid from the assets of the receivership or conservatorship estate to which they were applied before additional dividends, including policyholder and other claims, are paid in any such receivership, or before the conservatorship is released for continued operation.

Sec. 8A.  … [funds derived from any receivership] … .

Such funds may be used as provided in Section 8(j) of this Article.

[Sections 442.658-442.700 reserved for expansion]

SUBCHAPTER O.  CLOSING OF RECEIVERSHIP

Revised Law

Sec. 442.701.  TRANSFER OF REMAINING ASSETS OF STOCK INSURANCE COMPANY TO AGENT.  (a)  After the receiver has provided for unclaimed dividends and all of the liabilities of a stock insurance company, the receiver shall call a meeting of the shareholders of the insurer by:

     (1)  publishing notice of the meeting in one or more newspapers in the county in which the principal office of the insurer was located; and

     (2)  giving written notice of the meeting to each shareholder of record at the shareholder's last known address.

(b)  At the meeting, the shareholders shall appoint one or more agents to take over the liquidation of the insurer for the benefit of the shareholders.  Voting privileges are governed by the insurer's bylaws.  A majority of the shares must be represented at the agent's appointment.  The agent or agents shall execute and file with the court one or more bonds as approved by the court, conditioned on the faithful performance of all the duties of the trust.

(c)  Under order of the court, the receiver shall transfer and deliver to the agent or agents for continued liquidation under the court's supervision all assets of the insurer remaining in the possession of the receiver.  After the transfer and delivery, the receiver and the department, and each employee of the receiver or the department, are discharged from any further liability to the insurer and the creditors and shareholders of the insurer.

(d)  This section does not permit the insurer to continue engaging in the business of insurance.  The charter of the insurer and each certificate of authority or other permit issued under or in connection with the charter are ipso facto revoked by the order of the court directing the receiver to transfer and deliver the remaining assets of the insurer to the agent or agents.  (V.T.I.C. Art. 21.28, Sec. 9(a).)

Source Law

Sec. 9.  (a)  Excess Assets--Stock Companies.  When the receiver shall have made provision for unclaimed dividends and all of the liabilities of a stock insurance company, he shall call a meeting of the stockholders of the insurer by giving notice thereof in one (1) or more newspapers in the county where the principal office of the insurer was located, and by written notice to the stockholders of record at their last known address.  At such meeting, the stockholders shall appoint an agent or agents to take over the affairs to continue the liquidation for benefit of the stockholders.  Voting privileges shall be governed by the insurer's bylaws.  A majority of the stock shall be represented at the agent's appointment.  Such agent or agents shall execute and file with the court such bond or bonds as shall be approved by it, conditioned on the faithful performance of all the duties of the trust.  Under order of the court the receiver shall then transfer and deliver to such agent or agents for continued liquidation under the court's supervision all assets of insurer remaining in his hands, whereupon the receiver and the Board, and each member and employee thereof, shall be discharged from any further liability to such insurer and its creditors and stockholders; provided, however, that nothing herein contained shall be so construed as to permit the insurer to continue in business as such, but the charter of such insurer and all permits and licenses issued thereunder or in connection therewith shall be ipso facto revoked and annulled by such order of the court directing the receiver to transfer and deliver the remaining assets of such insurer to such agent or agents.

Revisor's Note

(1)  Section 9(a), V.T.I.C. Article 21.28, refers to the "Board," meaning the State Board of Insurance, and each "member and employee" of the board.  The revised law substitutes "department" for "Board" for the reason stated in Revisor's Note (5) to Section 442.001.  Because the State Board of Insurance has been abolished as explained in that revisor's note, the revised law omits the reference to each "member" of the board.

(2)  Section 9(a), V.T.I.C. Article 21.28, provides that under certain circumstances the charter of an insurer and the permits and "licenses" issued to the insurer are "revoked and annulled."  The revised law substitutes "certificate of authority" for "licenses" for the reason stated in Revisor's Note (3) to Section 442.108.  Also, the revised law omits "annulled" as unnecessary because, in context, "annulled" is included within the meaning of "revoked."

Revised Law

Sec. 442.702.  DISPOSAL OF REMAINING ASSETS OF INSURER OTHER THAN STOCK INSURANCE COMPANY.  After the receiver has provided for unclaimed dividends and all of the liabilities of an insurer other than a stock insurance company, the receiver shall dispose of any remaining assets as directed by the receivership court.  (V.T.I.C. Art. 21.28, Sec. 9(b).)

Source Law

(b)  Excess Assets--Other Companies.  After the receiver shall have made provision for unclaimed dividends and all of the liabilities of any insurer other than a stock insurance company, he shall dispose of any remaining assets as directed by the receivership court.

Revised Law

Sec. 442.703.  TRANSFER OF REMAINING ASSETS OF INSURER TO GUARANTY ASSOCIATION.  (a)  Notwithstanding any other provision of this chapter, in closing a receivership estate, a special deputy receiver, on approval of the court, may transfer any remaining asset, cause of action asserted on behalf of the impaired insurer, judgment, claim, or lien to the appropriate guaranty association.

(b)  A transfer under Subsection (a):

     (1)  is not a preference or voidable transfer; and

     (2)  is considered a distribution under Sections 442.601(a)-(d).

(c)  If the amount realized by the guaranty association is materially greater than the amount loaned by the guaranty association to the receivership estate, the court may order the reopening of the receivership to distribute the excess money.

(d)  This subchapter does not transfer any liability of an impaired insurer to the guaranty association that would not constitute a claim payable under Chapter ____ [[[V.T.I.C. Article 21.28-C]]], ____ [[[V.T.I.C. Article 21.28-D]]], or 2602.  (V.T.I.C. Art. 21.28, Sec. 9(c).)

Source Law

(c)  Excess Assets--Guaranty Associations.  Notwithstanding any other provisions of this article in closing an estate, a special deputy receiver, on approval of the court, may transfer any remaining assets, causes of action asserted on behalf of the impaired insurer, judgment, claims, or liens to the appropriate guaranty association and this transfer shall not be a preference or voidable transfer but shall be considered a distribution under Section 8(a)(1) of this article.  In the event the sum realized by the guaranty association is materially larger than the amount loaned to the estate by the guaranty association, the court may order reopening of the estate to disburse the excess funds.  Nothing in this section shall be construed as a transfer of any liability of an impaired insurer to the guaranty association that would not constitute a claim payable under Articles 9.48, 21.28-C, or 21.28-D of this code.

Revised Law

Sec. 442.704.  LIMITATION ON DURATION OF RECEIVERSHIP.  (a)  Except as otherwise provided by this section, each receivership or other delinquency proceeding prescribed by this chapter shall be administered in accordance with Section 64.072, Civil Practice and Remedies Code.

(b)  To the extent the proceeding applies to claims against a workers' compensation insurance policy or a title insurance policy, a receivership or other delinquency proceeding shall be administered continuously for any period necessary to effect the receivership's or proceeding's purposes, and any arbitrary limitation on that period provided by another law of this state with regard to the administration of receiverships or of corporate affairs generally does not apply to the proceeding.

(c)  Instead of the winding up and distribution of a receivership estate of an insurer without capital stock, the court shall order revival and reinstatement of the charter, certificates of authority or other permits, franchises, and management contracts or other control instruments of the insurer if the insurer's remaining cash on hand and on deposit, less any outstanding enforceable liabilities, exceeds the minimum amount of capital and surplus prescribed for that insurer under Section 822.054, 822.202, 822.210, or 841.054.  (V.T.I.C. Art. 21.28, Sec. 9(d).)

Source Law

(d)  Limitation.  Except as otherwise provided by this subsection, each receivership or other delinquency proceeding prescribed by this Article shall be administered in accordance with Section 64.072, Civil Practice and Remedies Code.  To the extent a receivership or delinquency proceeding initiated against an insurer applies to claims against a workers' compensation insurance policy or a title insurance policy, the receivership or delinquency proceeding shall be administered continuously for whatever length of time is necessary to effectuate its purposes, and no arbitrary period prescribed elsewhere by the laws of Texas limiting the time for the administration of receiverships or of corporate affairs generally shall be applicable thereto.  Instead of the winding up and distribution of a receivership estate of an insurer without capital stock, the court shall order revival and reinstatement of the charter, permits, licenses, franchises, and management contracts or other control instruments of the insurer if the insurer's remaining cash on hand and on deposit, less any outstanding valid and enforceable liabilities, exceeds the minimum amount of capital and surplus prescribed for that insurer under Article 2.02 or Section 1 of Article 3.02 of this code.

Revisor's Note

(1)  Section 9(d), V.T.I.C. Article 21.28, refers to a receivership or delinquency proceeding "initiated against an insurer."  The revised law omits the quoted language as unnecessary because a receivership is a form of delinquency proceeding and under Section 1(b), V.T.I.C. Article 21.28, revised in this chapter as Section 442.001(2), a delinquency proceeding is defined as a proceeding "commenced … against an insurer" for certain purposes.

(2)  Section 9(d), V.T.I.C. Article 21.28, refers to the "licenses" of an insurer.  The revised law substitutes "certificates of authority" for "licenses" for the reason stated in Revisor's Note (3) to Section 442.108.

(3)  Section 9(d), V.T.I.C. Article 21.28, refers to "valid and enforceable" liabilities.  The revised law omits the reference to "valid" because the term is included within the meaning of "enforceable."

(4)  Section 9(d), V.T.I.C. Article 21.28, refers to V.T.I.C. Article 2.02 and Section 1, V.T.I.C. Article 3.02.  Those provisions are revised in various places in this code, but the pertinent provisions are revised as Sections 822.054, 822.202, 822.210, and 841.054 of this code.  The revised law is drafted accordingly.

Revised Law

Sec. 442.705.  REOPENING OF RECEIVERSHIP.  (a)  If after the receivership has been closed by final order of the court the receiver discovers assets not known to the receiver during the receivership, the receiver shall report the receiver's findings to the court.

(b)  The court may reopen the receivership for continued liquidation if the court finds that the value of the discovered assets justifies the reopening.  (V.T.I.C. Art. 21.28, Sec. 9(e).)

Source Law

(e)  Reopening.  If after the receivership shall have been closed by final order of the court, the liquidator shall discover assets not known to him during receivership, he shall report his findings to the court.  It shall be within the discretion of the court as to whether the value of the after-discovered assets shall justify the reopening of the receivership for continued liquidation.

[Sections 442.706-442.750 reserved for expansion]

SUBCHAPTER P.  ANCILLARY DELINQUENCY PROCEEDINGS

Revised Law

Sec. 442.751.  APPOINTMENT OF ANCILLARY RECEIVER.  (a)  On the petition of the department, a court of competent jurisdiction in this state shall appoint the receiver as ancillary receiver in this state for an insurer domiciled in another jurisdiction if a receiver should be appointed for that insurer under the laws of this state.

(b)  The department:

     (1)  may file the petition on the department's own initiative; and

     (2)  shall file the petition if at least 10 residents of this state who have claims against the insurer file one or more petitions in writing with the department requesting the appointment of an ancillary receiver.  (V.T.I.C. Art. 21.28, Sec. 13 (part).)

Source Law

Sec. 13.  A court of competent jurisdiction in this State shall, on the petition of the State Board of Insurance, appoint the liquidator herein provided as ancillary receiver in this State of an insurer domiciliary in another state or jurisdiction when under the laws of this State a receiver should be appointed.  The Board shall file such petition on its own initiative or if ten (10) or more persons resident in this State, having claims against such insurer, file a petition or petitions in writing with the Board, requesting the appointment of such ancillary receiver. …

Revisor's Note

(1)  Section 13, V.T.I.C. Article 21.28, refers to "another state or jurisdiction."  The revised law omits the reference to "state" because "state" is included within the meaning of "another … jurisdiction."

(2)  Section 13, V.T.I.C. Article 21.28, provides that the Texas Department of Insurance "shall" file a petition with a court requesting the appointment of an ancillary receiver "on its own initiative" or if at least 10 resident claimants file a similar petition with the department.  The revised law provides that the department "may" file a petition with the court "on the department's own initiative" and "shall" file a petition if at least 10 resident claimants file a petition with the department because the reference to the department's initiative implies that the department has discretion whether to file a petition with a court unless at least 10 resident claimants file a petition with the department.

Revised Law

Sec. 442.752.  POWERS AND DUTIES OF ANCILLARY RECEIVER.  (a)  The ancillary receiver is entitled to sue for and possess the assets of the insurer in this state and has the same powers and duties with regard to those assets as a receiver of an insurer domiciled in this state.

(b)  On commencement of the delinquency proceeding in this state, the ancillary receiver is immediately entitled to possession and control of any special or statutory deposits of the insurer that are located in this state.  The ancillary receiver may use those deposits:

     (1)  to pay expenses of the administration of the receivership proceeding; and

     (2)  after paying the expenses under Subdivision (1), to pay approved claims against the deposits.  (V.T.I.C. Art. 21.28, Sec. 13 (part).)

Source Law

Sec. 13.  …  Such ancillary receiver shall have the right to sue for and reduce to possession the assets of such insurer in this State, and shall have the same powers and be subject to the same duties with respect to such assets, as are possessed by a receiver of a domiciliary insurer under the laws of this State.  On commencement of the delinquency proceedings in this State, the ancillary receiver in this State immediately is entitled to possession and control of any special or statutory deposits of the delinquent insurer located within this State.  The ancillary receiver may use those special or statutory deposits first towards the payment of expenses of the administration of the receivership proceedings then towards the payment of approved claims against the deposits. …

Revised Law

Sec. 442.753.  COORDINATION WITH RECEIVER IN OTHER STATE.  If a receiver of a delinquent insurer has been appointed both in this state and in another state, the receiver in this state may, under supervision of the receivership court in this state and regardless of whether the receiver in this state is an ancillary receiver, contract with the receiver in the other state to coordinate the administration of the receiverships in the interest of efficiency and economy in any manner consistent with this chapter.  (V.T.I.C. Art. 21.28, Sec. 14.)

Source Law

Sec. 14.  In cases where a receiver of any delinquent insurer has been appointed both in Texas and in some other state, the Texas receiver, either domiciliary or ancillary, may, under supervision of the Texas receivership court, contract with the receiver in such other state for the administration of the affairs of their respective receiverships in any manner consistent with this Article which will enable the respective receivers to coordinate their activities in the interest of efficiency and economy.

Revised Law

Sec. 442.754.  APPLICABILITY OF CHAPTER TO ANCILLARY DELINQUENCY PROCEEDINGS.  The conduct of ancillary delinquency proceedings under this subchapter is subject to the other provisions of this chapter.  (V.T.I.C. Art. 21.28, Sec. 13 (part).)

Source Law

Sec. 13.  …  The remaining provisions of this Article shall be applicable to the conduct of such ancillary proceedings.

[Sections 442.755-442.800 reserved for expansion]

SUBCHAPTER Q.  AGENCY CONTRACTS WITH CERTAIN INSOLVENT INSURERS

Revised Law

Sec. 442.801.  REQUIRED CONTRACT PROVISION.  An agency contract entered into on or after August 27, 1973, by an insurer writing fire and casualty insurance in this state must contain, or shall be construed to contain, the following provision:

Notwithstanding any other provision of this contract, the obligation of the agent to remit written premiums to the insurer shall be changed on the commencement of a delinquency proceeding as defined by Chapter 442, Insurance Code, as amended.  After the commencement of the delinquency proceeding, the obligation of the agent to remit premiums is limited to premiums earned before the cancellation date of insurance policies stated in the order of a court of competent jurisdiction under Chapter 442, Insurance Code, canceling the policies.  The agent does not owe and may not be required to remit to the insurer or to the receiver any premiums that are unearned as of the cancellation date stated in the order.

(V.T.I.C. Art. 21.11-2, Sec. 1.)

Source Law

Art. 21.11-2

Sec. 1.  Every agency contract entered into on and after the effective date of this Act by an insurance company writing fire and casualty insurance in Texas shall contain, or shall be construed to contain, the following provision:

Notwithstanding any other provision of this contract, the obligation of the agent to remit written premiums to the company shall be changed upon the commencement of delinquency proceedings as defined in Article 21.28, Insurance Code of Texas of 1951, as amended.  Subsequent to the commencement of delinquency proceedings, the obligation of the agent to remit premiums shall be confined to premiums earned prior to the date of cancellation of policies stated in the order of a court of competent jurisdiction under Article 21.28 of this code canceling the policies.  The agent shall not owe or remit to the company or to the Liquidator-Receiver any premiums that are unearned as of the date of the cancellation stated in the order canceling the policies.

Revisor's Note

Section 1, V.T.I.C. Article 21.11-2, refers to "the effective date of this Act," meaning the effective date of V.T.I.C. Article 21.11-2.  That article took effect August 27, 1973.  The revised law is drafted accordingly.

Revised Law

Sec. 442.802.  DISPOSITION OF PREMIUMS.  (a)  On or after the cancellation date of insurance policies as stated in the court's order canceling the policies, the agent shall promptly account to the receiver for:

     (1)  all unearned premiums to be returned to the insured or the replacement coverage to be obtained for the insured; and

     (2)  the earned premiums to be paid to the receiver.

(b)  The agent shall:

     (1)  promptly return to an insured who paid the premiums any unearned premiums in the possession of the agent on the cancellation date of the policy; or

     (2)  with the approval of the insured, use the unearned premiums to purchase new coverage for the insured with a different insurer.

(c)  The agent shall promptly remit to the receiver any earned premiums in the possession of the agent.  (V.T.I.C. Art. 21.11-2, Sec. 2.)

Source Law

Sec. 2.  On or after the effective date of the cancellation of policies stated in the court's order canceling policies, the agent shall promptly account to the receiver for all premiums to be returned to the insured or the replacement coverage to be obtained and the earned premiums to be paid to the receiver.  Any of those unearned premiums in the hands of the agent on the effective date of the policy cancellations shall be returned promptly by the agent to the insured who paid them or, with the approval of the insured, shall be used to purchase new coverage for the insured with a different insurer.  Any of the earned premiums in the hands of the agent shall be remitted promptly to the receiver.

Revised Law

Sec. 442.803.  EFFECT OF SUBCHAPTER ON ACTION BY RECEIVER AGAINST AGENT.  This subchapter does not prejudice a cause of action by the receiver against an agent to recover:

     (1)  unearned premiums that were not returned to policyholders; or

     (2)  earned premiums that were not promptly remitted to the receiver.  (V.T.I.C. Art. 21.11-2, Sec. 3.)

Source Law

Sec. 3.  This article does not prejudice any cause of action by the receiver against any agent for the recovery of unearned premiums that were not returned to policyholders and earned premiums that were not promptly remitted to the receiver.

Revised Law

Sec. 442.804.  AGENT NOT RECEIVER'S AGENT.  This subchapter does not render the agent an agent of the receiver for earned or unearned premiums.  (V.T.I.C. Art. 21.11-2, Sec. 4.)

Source Law

Sec. 4.  This article may not be construed to render the agent an agent of the receiver for earned or unearned premiums.