The Vermont Statutes Online

Title 8: Banking and Insurance

Chapter 145: SUPERVISION, REHABILITATION, AND LIQUIDATION OF INSURERS

 

Sub-Chapter 1: General Provisions

§ 7031. Definitions

As used in this chapter:

(1) "Ancillary state" means any state other than a domiciliary state.

(2) "Commissioner" means the Commissioner of financial regulation.

(3) "Creditor" is a person having any claim, whether matured or unmatured, liquidated or unliquidated, secured or unsecured, absolute, fixed or contingent.

(4) "Delinquency proceeding" means any proceeding instituted against an insurer for the purpose of liquidating, rehabilitating, reorganizing or conserving such insurer, and any summary proceeding under sections 7041 and 7042 of this title. "Formal delinquency proceeding" means any liquidation or rehabilitation proceeding.

(5) "Department" means the Department of Financial Regulation.

(6) "Doing business," as used in this chapter only, includes any of the following acts, whether effected by mail or otherwise:

(A) the issuance or delivery of contracts of insurance to persons resident in this State;

(B) the solicitation of applications for contracts of insurance, or other negotiations preliminary to the execution of contracts of insurance;

(C) the collection of premiums, membership fees, assessments, or other consideration for contracts of insurance;

(D) the transaction of matters subsequent to execution of contracts of insurance and arising out of them; or

(E) operating under a license or certificate of authority, as an insurer, issued by the Commissioner.

(7) "Domiciliary state" means the state in which an insurer is incorporated or organized; or, in the case of an alien insurer, its state of entry.

(8) "Fair consideration" is given for property or obligation:

(A) when in exchange for such property or obligation, as a fair equivalent therefore, and in good faith, property is conveyed or services are rendered or an obligation is incurred or an antecedent debt is satisfied; or

(B) when such property or obligation is received in good faith to secure a present advance or antecedent debt in amount not disproportionately small as compared to the value of the property or obligation obtained.

(9) "Foreign country" means any other jurisdiction not in any state.

(10) "General assets" mean all property, real, personal, or otherwise, not specifically mortgaged, pledged, deposited or otherwise encumbered for the security or benefit of specified persons or classes of persons. As to specifically encumbered property, "general assets" include all such property or its proceeds in excess of the amount necessary to discharge the sum or sums secured thereby. Assets held in trust and on deposit for the security or benefit of all policyholders or all policyholders and creditors, in more than a single state, shall be treated as general assets.

(11) "Guaranty association" means the Vermont Property and Casualty Insurance Guaranty Association created in accordance with the provisions of subchapter 9 of chapter 101 of this title, the Vermont Life and Health Insurance Guaranty Association created in accordance with the provisions of chapter 112 of this title, and any other similar entity now or hereafter created by the Legislature of this State for the payment of claims of insolvent insurers. "Foreign guaranty association" means any similar entities now in existence in or hereafter created by the legislature of any other State.

(12) "Insolvency" or "insolvent" means:

(A) for an insurer issuing only assessable insurance policies:

(i) the inability to pay any obligation within 30 days after it becomes payable; or

(ii) if an assessment be made within 30 days after such date, the inability to pay any obligation 30 days following the date specified in the first assessment notice issued after the date of loss.

(B) for any insurer, other than an insurer described in subdivision (A) of this subdivision, that it is unable to pay its obligations when they are due, or when its assets admitted pursuant to this title do not exceed its liabilities plus the greater of:

(i) any capital and surplus required by law for its organization; or

(ii) the total par or stated value of its authorized and issued capital stock.

(C) for purposes of this subdivision, "liabilities" shall include reserves required by statute or by general regulations of the Department or specific requirements imposed by the Commissioner upon a subject company at the time of admission or subsequent thereto.

(13) "Insurer" means any person who has done, purports to do, is doing or is licensed to do an insurance business, and is or has been subject to the authority of, or to liquidation, rehabilitation, reorganization, supervision, or conservation by, any insurance commissioner. For purposes of this chapter, insurer shall also include:

(A) all insurers who are doing, or have done, an insurance business in this State, and against whom claims arising from that business may exist now or in the future;

(B) all insurers who purport to do an insurance business in this State;

(C) all insurers who have insureds resident in this State;

(D) all other persons organized or in the process of organizing with the intent to do an insurance business in this State;

(E) all nonprofit hospital and medical service plans, subject to the provisions of chapters 123 and 125 of this title;

(F) all fraternal benefit societies subject to the provisions of chapter 121 of this title;

(G) all title insurance companies;

(H) all captive insurance companies, risk retention groups, and other similar entities regulated pursuant to this title;

(I) all mutual workers' compensation insurance associations subject to the provisions of chapter 117 of this title;

(J) all health maintenance organizations and other prepaid health care delivery plans regulated pursuant to this title;

(K) municipal pools, continuing care retirement communities, and other specialty insurers subject to regulation by the department; and

(L) all mutual insurance holding companies and stock insurance holding companies of a reorganized stock insurance company as provided in subchapter 3A of chapter 101 of this title.

(14) "Preferred claim" means any claim with respect to which the terms of this chapter accord priority of payment from the general assets of the insurer.

(15) "Receiver" means receiver, liquidator, rehabilitator, or conservator as the context requires.

(16) "Reciprocal state" means any state other than this State in which in substance and effect subsection 7057(a), and sections 7093, 7094 and 7096 through 7098 of this title are in force, and in which provisions are in force requiring that the commissioner or equivalent official be the receiver of a delinquent insurer, and in which some provision exists for the avoidance of fraudulent conveyances and preferential transfers.

(17) "Secured claim" means any claim secured by mortgage, trust, deed, pledge, deposit as security, escrow, or otherwise; but not including special deposit claims or claims against general assets. The term also includes claims which have become liens upon specific assets by reason of judicial process.

(18) "Special deposit claim" means any claim secured by a deposit made pursuant to statute for the security or benefit of a limited class or classes of persons, but not including any claim secured by general assets.

(19) "State" means any state, district, or territory of the United States and the Panama Canal Zone.

(20) "Transfer" shall include the sale and every other and different mode, direct or indirect, of disposing of or of parting with property or with an interest therein, or with the possession thereof or of fixing a lien upon property or upon an interest therein, absolutely or conditionally, voluntarily, by or without judicial proceedings. The retention of a security title to property delivered to a debtor shall be deemed a transfer suffered by the debtor. (Added 1991, No. 45, § 2, eff. May 29, 1991; amended 1995, No. 180 (Adj. Sess.), § 38; 1999, No. 86 (Adj. Sess.), § 9, eff. April 27, 2000; 2011, No. 78 (Adj. Sess.), § 2, eff. April 2, 2012.)

§ 7032. Jurisdiction and venue

(a) A delinquency proceeding shall not be commenced under this chapter by anyone other than the commissioner and a court shall have no jurisdiction to entertain, hear or determine any proceeding commenced by any other person.

(b) A court of this state shall have no jurisdiction to entertain, hear or determine any complaint praying for the dissolution, liquidation, rehabilitation, sequestration, conservation or receivership of any insurer; or praying for an injunction or restraining order or other relief preliminary to, incidental to or relating to such proceedings other than in accordance with this chapter.

(c) In addition to other grounds for jurisdiction provided by the law of this state, a court of this state having jurisdiction of the subject matter has jurisdiction over a person served pursuant to the Vermont Rules of Civil Procedure or other applicable provisions of law in an action brought by the receiver of a domestic insurer or an alien insurer domiciled in this state:

(1) If the person served is an agent, broker, or other person who has at any time written policies of insurance for or has acted in any manner whatsoever on behalf of an insurer against which a delinquency proceeding has been instituted, in any action resulting from or incident to such a relationship with the insurer; or

(2) if the person served is a reinsurer who has at any time entered into a contract of reinsurance with an insurer against which a delinquency proceeding has been instituted, or is an agent or broker of or for the reinsurer, in any action on or incident to the reinsurance contract; or

(3) if the person served is or has been an officer, director, manager, trustee, organizer, promoter, or person in a position of comparable authority or influence over an insurer against which a delinquency proceeding has been commenced, in any action resulting from such a relationship with the insurer; or

(4) if the person served is or was at the time of the institution of the delinquency proceeding against the insurer holding assets in which the receiver claims an interest on behalf of the insurer, in any action concerning the assets; or

(5) if the person served is obligated to the insurer in any way whatsoever, in any action on or incident to the obligation.

(d) If the court on motion of any party finds that any action should as a matter of substantial justice be tried in a forum outside this state, the court may enter an appropriate order to stay further proceedings on the action in this state.

(e) All actions authorized by this section shall be brought in the superior court of Washington county. (Added 1991, No. 45, § 2, eff. May 29, 1991.)

§ 7033. Injunctions and orders

(a) A receiver appointed in a proceeding under this chapter may at any time apply for, and any court of general jurisdiction may grant, restraining orders, preliminary and permanent injunctions, and other orders as may be deemed necessary and proper to prevent:

(1) the transaction of further business;

(2) the transfer of property;

(3) interference with the receiver or with a proceeding under this chapter;

(4) waste of the insurer's assets;

(5) dissipation and transfer of bank accounts;

(6) the institution or further prosecution of any actions or proceedings;

(7) the obtaining of preferences, judgments, attachments, garnishments or liens against the insurer, its assets or its policyholders;

(8) the levying of execution against the insurer, its assets or its policyholders;

(9) the making of any sale or deed for nonpayment of taxes or assessments that would lessen the value of the assets of the insurer;

(10) the withholding from the receiver of books, accounts, documents, or other records relating to the business of the insurer; or

(11) any other threatened or contemplated action that might lessen the value of the insurer's assets or prejudice the rights of policyholders, creditors or shareholders, or the administration of any proceeding under this chapter.

(b) The receiver may apply to a court outside the state for the relief described in subsection (a) of this section. (Added 1991, No. 45, § 2, eff. May 29, 1991.)

§ 7034. Cooperation of officers, owners and employees

(a) An officer, manager, director, trustee, owner, employee or agent of any insurer, or any other persons with authority over or in charge of any segment of the insurer's affairs, shall cooperate with the commissioner in any proceeding under this chapter or any investigation preliminary to the proceeding. The term "person" as used in this section shall include any person who exercises control directly or indirectly over activities of the insurer through any holding company or other affiliate of the insurer. "To cooperate" shall include, but shall not be limited to, the following:

(1) to reply promptly in writing to any inquiry from the commissioner requesting such a reply; and

(2) to make available to the commissioner any books, accounts, documents, or other records or information or property of or pertaining to the insurer and in his or her possession, custody or control.

(b) A person shall not obstruct or interfere with the commissioner in the conduct of any delinquency proceeding or any investigation preliminary or incidental to a delinquency proceeding.

(c) This section shall not be construed to abridge otherwise existing legal rights, including the right to resist a petition for liquidation or other delinquency proceedings, or other orders.

(d) A person described in subsection (a) of this section who fails to cooperate with the commissioner, or any person who obstructs or interferes with the commissioner in the conduct of any delinquency proceeding or any investigation preliminary or incidental to a delinquency proceeding, or who violates any order the commissioner issued validly under this chapter may:

(1) be sentenced to pay a fine not exceeding $10,000.00 or to undergo imprisonment for a term of not more than one year, or both; or

(2) after a hearing, be subject to the imposition by the commissioner of a civil penalty not to exceed $10,000.00 and shall be subject further to the revocation or suspension of any insurance licenses issued by the commissioner. (Added 1991, No. 45, § 2, eff. May 29, 1991.)

§ 7035. Continuation of delinquency proceedings

Every proceeding heretofore commenced under the laws in effect before May 29, 1991, except a liquidation proceeding in which a liquidation order has been entered by the superior court, shall be deemed to have commenced under this chapter for the purpose of conducting the proceeding henceforth, except that in the discretion of the commissioner the proceeding may be continued, in whole or in part, as it would have been continued had this chapter not been enacted. (Added 1991, No. 45, § 2, eff. May 29, 1991.)

§ 7036. Condition on release from delinquency proceedings

An insurer subject to delinquency proceedings, whether formal or informal, shall not:

(1) be released from such proceeding, unless the proceeding is converted into a judicial rehabilitation or liquidation proceeding;

(2) be permitted to solicit or accept new business or request or accept the restoration of any suspended or revoked license or certificate of authority;

(3) be returned to the control of its shareholders or private management; or

(4) have any of its assets returned to the control of its shareholders or private management until all payments of or on account of the insurer's contractual obligations by all guaranty associations, along with all expenses thereof and interest on all such payments and expenses, shall have been repaid to the guaranty associations or a plan of repayment by the insurer shall have been approved by the guaranty association. (Added 1991, No. 45, § 2, eff. May 29, 1991.)

 

Sub-Chapter 2: Summary Proceedings

§ 7041. Commissioner's summary orders and supervision proceedings

(a) Whenever the Commissioner has reasonable cause to believe, and determines after a hearing held under subsection (e) of this section, that any domestic insurer has committed or engaged in, or is about to commit or engage in, any act, practice, or transaction that would subject it to delinquency proceedings under this chapter, he or she may make and serve upon the insurer and any other persons involved, such orders as are reasonably necessary to correct, eliminate, or remedy such conduct, condition or ground.

(b) If upon examination or at any other time the Commissioner has reasonable cause to believe and determines that any domestic insurer is in such condition as to render the continuance of its business hazardous to the public or to holders of its policies or certificates of insurance, or if such domestic insurer gives its consent, then the Commissioner shall:

(1) notify the insurer of the determination; and

(2) furnish to the insurer a written list of the Commissioner's requirements to abate the determination.

(c) If the Commissioner makes a determination to supervise an insurer subject to an order under subsection (a) or (b) of this section, he or she shall notify the insurer that it is under the supervision of the Commissioner. During the period of supervision, the Commissioner may appoint a supervisor to supervise such insurer. The order appointing a supervisor shall direct the supervisor to enforce orders issued under subsections (a) and (b) of this section and may also require that the insurer may not do any of the following things during the period of supervision, without the prior approval of the Commissioner or his or her supervisor:

(1) dispose of, convey or encumber any of the insurer's assets or its business in force;

(2) withdraw from any of the insurer's bank accounts;

(3) lend any of the insurer's funds;

(4) invest any of the insurer's funds;

(5) transfer any of the insurer's property;

(6) incur any debt, obligation or liability;

(7) merge or consolidate with another company;

(8) enter into any new reinsurance contract or treaty; or

(9) restrict the writing of new or renewal business.

(d) An insurer subject to an order under this section shall comply with the lawful requirements of the Commissioner and, if placed under supervision, shall have 60 days from the date the supervision order is served within which to comply with the requirements of the Commissioner. In the event of the insurer's failure to comply with the supervision order, the Commissioner may institute proceedings under section 7051 or 7056 of this title to have a rehabilitator or liquidator appointed, or extend the period of supervision.

(e) The notice of hearing held under subsection (a) of this section and any order issued pursuant to subsection (a) shall be served upon the insurer pursuant to the provisions of 3 V.S.A. chapter 25. The notice of hearing shall state the time and place of hearing, and the conduct, condition or ground upon which the Commissioner may base his or her order. Unless mutually agreed between the Commissioner and the insurer, the hearing shall occur not less than ten days nor more than 30 days after notice is served and shall be held at the offices of the Department of Financial Regulation or in some other place convenient to the parties as determined by the Commissioner. Hearings under subsection (a) of this section shall be private and shall not be subject to the provisions of 1 V.S.A. chapter 5, subchapters 2 and 3 (public information and access to public records), unless the insurer requests a public hearing.

(f)(1) An insurer subject to an order under subsection (b) of this section may request a hearing to review that order. The hearing shall be held as provided in subsection (e) of this section. The request for a hearing shall not stay the effect of the order.

(2) If the Commissioner issues an order under subsection (b) of this section, the insurer may, at any time, waive the opportunity for a hearing before the Commissioner and apply for immediate judicial relief by means of any remedy afforded by law without first exhausting administrative remedies. Subsequent to a hearing before the Commissioner, a party to the proceedings whose interests are substantially affected shall be entitled to judicial review of an order issued by the Commissioner.

(g) During the period of supervision the insurer may request the Commissioner to review an action taken or proposed to be taken by the supervisor, specifying the reasons why the action complained of is believed not to be in the best interest of the insurer.

(h) If a person has violated a supervision order issued under this section which as to him or her was then still in effect, he or she shall be liable to pay a civil penalty imposed by the Superior Court of Washington County not to exceed $10,000.00.

(i) The Commissioner may apply for, and any court of general jurisdiction may grant, restraining orders, preliminary and permanent injunctions, and other orders as may be deemed necessary and proper to enforce a supervision order.

(j) In the event that a person, subject to the provisions of this chapter, including those persons described in subsection 7034(a) of this title, shall knowingly violate a valid order of the Commissioner issued under the provisions of this section and, as a result of the violation, the net worth of the insurer is reduced or the insurer suffers loss it would not otherwise have suffered, such person shall become personally liable to the insurer for the amount of the reduction or loss. The Commissioner or supervisor is authorized to bring an action on behalf of the insurer in the Superior Court of Washington County to recover the amount of the reduction or loss together with costs. (Added 1991, No. 45, § 2, eff. May 29, 1991; amended 1995, No. 180 (Adj. Sess.), § 38(a); 2011, No. 78 (Adj. Sess.), § 2, eff. April 2, 2012.)

§ 7042. Court's seizure order

(a) The commissioner may file in the superior court of Washington County a petition alleging, with respect to a domestic insurer:

(1) that there exist grounds that would justify a court order for a formal delinquency proceeding against an insurer under this chapter;

(2) that the interests of policyholders, creditors or the public will be endangered by delay; and

(3) the contents of an order deemed necessary by the commissioner.

(b) Upon filing a petition under subsection (a) of this section, the court may issue forthwith, ex parte and without a hearing, an order directing the commissioner to take possession and control of all or a part of the property, books, accounts, documents, and other records of an insurer, and of the premises occupied by it for transaction of its business; and enjoining the insurer and its officers, managers, agents, and employees from disposing of its property and from transacting its business except with the written consent of the commissioner.

(c) The court shall specify in the order issued under subsection (b) of this section its duration, which shall be such time as the court deems necessary for the commissioner to ascertain the condition of the insurer. On motion of either party or on its own motion, the court may from time to time hold such hearings as it deems desirable after such notice as it deems appropriate, and may extend, shorten, or modify the terms of the seizure order. The court shall vacate the seizure order if the commissioner fails to commence a formal proceeding under this chapter after having had a reasonable opportunity to do so. An order of the court pursuant to a formal proceeding under this chapter shall vacate the seizure order.

(d) Entry of a seizure order under this section shall not constitute an anticipatory breach of any contract of the insurer.

(e) An insurer subject to an ex parte order under this section may petition the court at any time after the issuance of the order for a hearing and review of the order. The court shall hold a hearing and review the order not more than 30 days after the request. A hearing under this subsection may be held privately in chambers and it shall be so held if the insurer proceeded against so requests.

(f) If, at any time after the issuance of such an order, it appears to the court that a person whose interest is or will be substantially affected by the order did not appear at the hearing and has not been served, the court may order that notice be given. An order that notice be given shall not stay the effect of any order previously issued by the court. (Added 1991, No. 45, § 2, eff. May 29, 1991.)

§ 7043. Confidentiality of hearings

Administrative and judicial proceedings under sections 7041 and 7042 of this title, all records of the insurer, other documents, and all department files and court records and papers, so far as they pertain to or are a part of the record of the proceedings, shall be and remain confidential except as is necessary to obtain compliance with orders of the commissioner or the court, unless the superior court of Washington County, after privately hearing arguments from the parties in chambers, shall order otherwise; or unless the insurer requests that the matter be made public. Until a court order permitting the matter to be made public issues, or the issuer requests that the matter be made public, all papers filed with the superior court of Washington county shall be held in a confidential file. (Added 1991, No. 45, § 2, eff. May 29, 1991.)

 

Sub-Chapter 3: Formal Proceedings

§ 7051. Grounds for rehabilitation

The commissioner may petition the superior court of Washington County for an order authorizing him or her to rehabilitate a domestic insurer or an alien insurer domiciled in this state on one or more of the following grounds:

(1) The insurer is in such condition that the further transaction of business would be hazardous financially to its policyholders, creditors or the public.

(2) There is reasonable cause to believe that there has been embezzlement from the insurer, wrongful sequestration or diversion of the insurer's assets, forgery or fraud affecting the insurer, or other illegal conduct in, by, or with respect to the insurer that if established would endanger assets in an amount threatening the solvency of the insurer.

(3) The insurer has failed to remove any person who in fact has executive authority in the insurer, whether an officer, manager, general agent, employee, or other person; provided that the person has been found after notice and hearing by the commissioner to be dishonest or untrustworthy in a way affecting the insurer's business.

(4) Control of the insurer, whether by stock ownership or otherwise, and whether direct or indirect, is in a person or persons found after notice and hearing by the commissioner to be untrustworthy.

(5) A person who in fact has executive authority in the insurer, whether an officer, manager, general agent, director or trustee, employee, or other person, has refused to be examined under oath by the commissioner concerning the insurer's affairs, whether in this state or elsewhere; and, after reasonable notice of the allegation, the insurer has failed promptly and effectively to terminate the employment and status of the person and all his or her influence on management.

(6) After demand by the commissioner to examine the books and the records of the insurer, the insurer has failed to promptly make available for examination any of its own property, books, accounts, documents, or other records, or those of a subsidiary or related company within the control of the insurer, or those of a person having executive authority in the insurer so far as the records pertain to the insurer.

(7) Without first obtaining the written consent of the commissioner, the insurer has transferred, or attempted to transfer, in a manner contrary to the provisions of chapter 101 of this title or other applicable statute, substantially its entire property or business, or has entered into any transaction the effect of which is to merge, consolidate, or reinsure substantially its entire property or business in or with the property or business of any other person.

(8) The insurer or its property has been or is the subject of an application for the appointment of a receiver, trustee, custodian, conservator or sequestrator or similar fiduciary of the insurer or its property otherwise than as authorized under the insurance laws of this state, and such appointment has been made or is imminent, and such appointment might oust the courts of this state of jurisdiction or might prejudice orderly delinquency proceedings under this chapter.

(9) Within the previous three years the insurer has willfully violated its charter or articles of incorporation, its bylaws, any provisions of this title or a valid order of the commissioner.

(10) The insurer has failed to pay within 60 days after due date any obligation to any state or any subdivision thereof or any judgment entered in any state, if the court in which such judgment was entered had jurisdiction over such subject matter except that nonpayment shall not be a ground until 60 days after a good faith effort by the insurer to contest the obligation has been terminated, whether the contest is before the commissioner or before a court, or the insurer has systematically attempted to compromise or renegotiate previously agreed settlements with its creditors on the ground that it is financially unable to pay its obligations in full.

(11) The insurer has failed to file its annual report or other financial report required by statute within the time allowed by law and, after written demand by the commissioner, has failed to give an adequate explanation immediately.

(12) The board of directors or the holders of a majority of the shares entitled to vote, or a majority of those individuals entitled to the control of an insurer, requests or consents to rehabilitation under this chapter.

(13) The insurer is insolvent. (Added 1991, No. 45, § 2, eff. May 29, 1991.)

§ 7052. Rehabilitation orders

(a) An order to rehabilitate the business of a domestic insurer, or an alien insurer domiciled in this state, shall appoint the commissioner and his or her successors in office the rehabilitator, and shall direct the rehabilitator forthwith to take possession of the assets of the insurer, and to administer them under the general supervision of the court. The filing or recording of the order with the clerk of the superior court of Washington County or town clerk of the town in which the principal business of the company is conducted, or the town in which its principal office or place of business is located, shall impart the same notice as a deed, bill of sale, or other evidence of title duly filed or recorded with that town clerk would have imparted. The order to rehabilitate the insurer shall by operation of law vest title to all assets of the insurer in the rehabilitator.

(b) Any order issued under this section shall require accounting to the court by the rehabilitator. Accountings shall be at such intervals as the court specifies in this order, but no less frequently than semiannually. Each accounting shall include a report concerning the rehabilitator's opinion as to the likelihood that a plan under subsection 7053(d) of this title will be prepared by the rehabilitator and the timetable for doing so.

(c) Entry of an order of rehabilitation shall not constitute an anticipatory breach of any contracts of the insurer nor shall it be grounds for retroactive revocation or retroactive cancellation of any contracts of the insurer, unless such revocation or cancellation is done by the rehabilitator pursuant to section 7053. (Added 1991, No. 45, § 2, eff. May 29, 1991.)

§ 7053. Powers and duties of the Rehabilitator

(a) The Commissioner as Rehabilitator may appoint one or more special deputies, who shall have all the powers and responsibilities of the Rehabilitator granted under this section, and the Commissioner may employ such counsel, clerks, assistants and other personnel as deemed necessary. The compensation of the special deputy, counsel, clerks, and assistants and all expenses of taking possession of the insurer and of conducting the proceedings shall be fixed by the Commissioner, with the approval of the Court and shall be paid out of the funds or assets of the insurer. The persons appointed under this section shall serve at the pleasure of the Commissioner. In the event that the property of the insurer does not contain sufficient cash or liquid assets to defray the administrative costs incurred, the Commissioner may advance the costs so incurred out of any appropriation for the maintenance of the Department. Amounts so advanced for expenses of administration shall be repaid to the Commissioner for the use of the Department out of the first available money of the insurer.

(b) The Rehabilitator may take such action as he or she deems necessary or appropriate to reform and revitalize the insurer. He or she shall have all the powers of the directors, officers, and managers, whose authority shall be suspended, except as they are redelegated by the Rehabilitator. He or she shall have full power to direct and manage, to hire and discharge employees subject to any contract rights they may have, and to deal with the property and business of the insurer.

(c) If it appears to the Rehabilitator that there has been criminal or tortious conduct, or breach of any contractual or fiduciary obligation detrimental to the insurer by any officer, manager, agent, broker, employee or other person, he or she may pursue all appropriate legal remedies on behalf of the insurer.

(d) If the Rehabilitator determines that reorganization, consolidation, conversion, reinsurance, merger or other transformation of the insurer is appropriate, he or she shall prepare a plan to effect such changes. Upon application of the Rehabilitator for approval of the plan, and after such notice and hearings as the Court may prescribe, the Court may either approve or disapprove the plan proposed, or may modify it and approve it as modified. A plan approved under this subsection shall be, in the judgment of the Court, fair and equitable to all parties concerned. If the plan is approved, the Rehabilitator shall carry out the plan. In the case of a life insurer, the plan proposed may include the imposition of liens upon the policies of the company, if all rights of shareholders are first relinquished. A plan for a life insurer may also propose imposition of a moratorium upon loan and cash surrender rights under policies, for such period and to such an extent as may be necessary.

(e) The Rehabilitator shall have the power under sections 7065 and 7066 of this title to avoid fraudulent transfers. (Added 1991, No. 45, § 2, eff. May 29, 1991.)

§ 7054. Actions by and against rehabilitator

(a) A court in this state before which an action or proceeding in which the insurer is a party, or is obligated to defend a party, is pending when a rehabilitation order against the insurer is entered shall stay the action or proceeding for 90 days and such additional time as is necessary for the rehabilitator to obtain proper representation and prepare for further proceedings. The rehabilitator shall take such action respecting the pending litigation as he or she deems necessary in the interests of justice and for the protection of creditors, policyholders, and the public. The rehabilitator shall immediately consider all litigation pending outside this state and shall petition the courts having jurisdiction over that litigation for stays whenever necessary to protect the estate of the insurer.

(b) A statute of limitations or defense of laches shall not run with respect to any action by or against an insurer between the filing of a petition for appointment of a rehabilitator for that insurer and the order granting or denying that petition. An action by or against the insurer that might have been commenced when the petition was filed may be commenced for at least 60 days after the order of rehabilitation is entered or the petition is denied. The rehabilitator may, upon an order for rehabilitation, within one year or such other longer time as applicable law may permit, institute an action or proceeding on behalf of the insurer upon any cause of action against which the period of limitation fixed by applicable law has not expired at the time of the filing of the petition upon which such order is entered. (Added 1991, No. 45, § 2, eff. May 29, 1991.)

§ 7055. Termination of rehabilitation

(a) Whenever the commissioner believes further attempts to rehabilitate an insurer would substantially increase the risk of loss to creditors, policyholders or the public, or would be futile, the commissioner may petition the superior court of Washington County for an order of liquidation. A petition under this subsection shall have the same effect as a petition under section 7056 of this title. The court shall permit the directors of the insurer to take such actions as are reasonably necessary to defend against the petition but may order payment from the estate of the insurer of costs and other expenses of defense only if the directors make a showing to the satisfaction of the court that they incurred such expenses in good faith and with a reasonable belief that they would prevail.

(b) The protection of the interests of insureds, claimants and the public requires the timely performance of all insurance policy obligations. If the payment of policy obligations is suspended in substantial part for a period of six months at any time after the appointment of the rehabilitator and the rehabilitator has not filed an application for approval of a plan under subsection 7053(d) of this title, the rehabilitator shall petition the court for an order of liquidation on grounds of insolvency.

(c) The rehabilitator may at any time petition the superior court of Washington County for an order terminating rehabilitation of an insurer. The court shall also permit the directors of the insurer to petition the court for an order terminating rehabilitation of the insurer and may order payment from the estate of the insurer of such costs and other expenses of such petition only if the directors make a showing to the satisfaction of the court that they incurred such expenses in good faith and with a reasonable belief that they would prevail. If the court upon a petition or upon its own motion finds that rehabilitation has been accomplished and that grounds for rehabilitation under section 7051 of this title no longer exist, it shall order that the insurer be restored to possession of its property and the control of the business. (Added 1991, No. 45, § 2, eff. May 29, 1991.)

§ 7056. Grounds for liquidation

The commissioner may petition the superior court of Washington County for an order directing the commissioner to liquidate a domestic insurer or an alien insurer domiciled in this state on the basis of one or more of the following grounds:

(1) one or more grounds for an order of rehabilitation under section 7051 of this title exist, whether or not there has been a prior order directing the rehabilitation of the insurer; or

(2) the insurer is in such condition that the further transaction of business would be hazardous, financially or otherwise, to its policyholders, its creditors or the public. (Added 1991, No. 45, § 2, eff. May 29, 1991.)

§ 7057. Liquidation orders

(a) An order to liquidate the business of a domestic insurer shall appoint the commissioner and his or her successors in office liquidator and shall direct the liquidator forthwith to take possession of the assets of the insurer and to administer them under the general supervision of the court. The liquidator shall be vested by operation of law with the title to all the property, contracts and rights of action, and all the books and records of the insurer ordered liquidated, wherever located, as of the entry of the final order of liquidation. The filing or recording of the order with the superior court of Washington County or the town clerk of the town in which its principal office or place of business is located; or, in the case of real estate, with the town clerk of the town where the property is located, shall impart the same notice as a deed, bill of sale or other evidence of title duly filed or recorded with that town clerk would have imparted.

(b) Upon issuance of the order, the rights and liabilities of any such insurer and of its creditors, policyholders, shareholders, members and all other persons interested in its estate shall become fixed as of the date of entry of the order of liquidation, except as provided in sections 7058 and 7076 of this title.

(c) An order to liquidate the business of an alien insurer domiciled in this state shall be in the same terms and have the same legal effect as an order to liquidate a domestic insurer, except that the assets of the United States branch of the alien insurer shall be the only assets and business included therein.

(d) At the time of petitioning for an order of liquidation, or at any time thereafter, the commissioner, after making appropriate findings of an insurer's insolvency, may petition the court for a judicial declaration of such insolvency. After providing such notice and hearing as it deems proper, the court may make the declaration.

(e) Any order issued under this section shall require accounting to the court by the liquidator. Accountings shall include (at a minimum) the assets and liabilities of the insurer and all funds received or disbursed by the liquidator during the current period. Accountings shall be filed within one year of the liquidation order and at least annually thereafter.

(f)(1) No order of liquidation shall be stayed pending appeal unless the persons challenging the order of liquidation on appeal post a bond satisfactory to cover all legal costs of defending the appeal and all loss and expense costs to the estate attributable to the delay by reason of the stay pending appeal.

(2) In the event an order of liquidation is set aside upon any appeal, the company shall not be released from delinquency proceedings unless and until all funds advanced by any guaranty association, including reasonable administrative expenses in connection therewith relating to obligations of the company, shall be repaid in full, together with interest at the judgment rate of interest or unless an arrangement for repayment thereof has been made with the consent of all applicable guaranty associations. (Added 1991, No. 45, § 2, eff. May 29, 1991.)

§ 7058. Continuance of coverage

(a) All policies, including bonds and other noncancellable business, other than life or health insurance or annuities, in effect at the time of issuance of an order of liquidation shall continue in force only for the lesser of:

(1) a period of 30 days from the date of entry of the liquidation orders;

(2) the expiration of the policy coverage;

(3) the date when the insured has replaced the insurance coverage with equivalent insurance in another insurer or otherwise terminated the policy;

(4) the liquidator has effected a transfer of the policy obligation pursuant to subdivision 7060(a)(9) of this title; or

(5) the date proposed by the liquidator and approved by the court to cancel coverage.

(b) An order of liquidation under section 7057 of this title shall terminate coverages at the time specified in subsection (a) of this section for purposes of any other statute.

(c) Policies of life or health insurance or annuities shall continue in force for such period and under such terms as is provided for by any applicable guaranty association or foreign guaranty association.

(d) Policies of life or health insurance or annuities or any period or coverage of such policies not covered by a guaranty association or foreign guaranty association shall terminate under subsections (a) and (b) of this section. (Added 1991, No. 45, § 2, eff. May 29, 1991.)

§ 7059. Dissolution of insurer

The commissioner may petition for an order dissolving the corporate existence of a domestic insurer or the United States branch of an alien insurer domiciled in this state at the time he or she applies for a liquidation order. The court shall order dissolution of the corporation upon petition by the commissioner upon or after the granting of a liquidation order. If the dissolution has not previously been ordered, it shall be effected by operation of law upon the discharge of the liquidator if the insurer is insolvent but may be ordered by the court upon the discharge of the liquidator if the insurer is under a liquidation order for some other reason. (Added 1991, No. 45, § 2, eff. May 29, 1991.)

§ 7060. Powers of liquidator

(a) The liquidator shall have the power to:

(1) Appoint a special deputy to act for him or her and to determine reasonable compensation for the special deputy. The special deputy shall have all powers of the liquidator granted by this section. The special deputy shall serve at the pleasure of the liquidator.

(2) Employ employees and agents, legal counsel, actuaries, accountants, appraisers, consultants, and such other personnel as he or she may deem necessary to assist in the liquidation.

(3) Fix the reasonable compensation of employees and agents, legal counsel, actuaries, accountants, appraisers and consultants with the approval of the court.

(4) Pay reasonable compensation to persons appointed and to defray from the funds or assets of the insurer all expenses of taking possession of, conserving, conducting, liquidating, disposing of, or otherwise dealing with the business and property of the insurer. In the event that the property of the insurer does not contain sufficient cash or liquid assets to defray the costs incurred, the commissioner may advance the costs so incurred out of any appropriation for the maintenance of the department. Any amounts so advanced for expenses of administration shall be repaid to the commissioner for the use of the department out of the first available moneys of the insurer.

(5) Hold hearings, subpoena witnesses to compel their attendance, administer oaths, examine any person under oath, and compel any person to subscribe to testimony after it has been correctly reduced to writing; and in connection with such proceedings, require the production of any books, papers, records or other documents which he or she deems relevant to the inquiry.

(6) Audit the books and records of all agents of the insurer insofar as those records relate to the business activities of the insurer.

(7) Collect all debts and moneys due and claims belonging to the insurer, wherever located, and for this purpose:

(A) institute timely action in other jurisdictions, in order to forestall garnishment and attachment proceedings against such debts;

(B) do such other acts as are necessary or expedient to collect, conserve or protect its assets or property, including the power to sell, compound, compromise or assign debts for purposes of collection upon such terms and conditions as he or she deems best; and

(C) pursue any creditor's remedies available to enforce his or her claims.

(8) Conduct public and private sales of the property of the insurer.

(9) Use assets of the estate of an insurer under a liquidation order to transfer policy obligations to a solvent assuming insurer, if the transfer can be arranged without prejudice to applicable priorities under section 7081 of this title.

(10) Acquire, hypothecate, encumber, lease, improves sell, transfer, abandon, or otherwise dispose of or deal with, any property of the insurer at its market value or upon such terms and conditions as are fair and reasonable. He or she shall also have power to execute, acknowledge, and deliver any and all deeds, assignments, releases and other instruments necessary or proper to effectuate any sale of property or other transaction in connection with the liquidation.

(11) Borrow money on the security of the insurer's assets or without security and execute and deliver all documents necessary to that transaction for the purpose of facilitating the liquidation. Any such funds borrowed may be repaid as an administrative expense and have priority over any other claims in Class 1 of section 7081 of this title under the priority of distribution.

(12) Enter into such contracts as are necessary to carry out the order to liquidate, and affirm or disavow any contracts to which the insurer is a party.

(13) Continue to prosecute and institute in the name of the insurer or in his or her own name any and all suits and other legal proceedings, in this state or elsewhere, and abandon the prosecution of claims he or she deems unprofitable to pursue further. If the insurer is dissolved under section 7059 of this title, he or she shall have the power to apply to any court in this state or elsewhere for leave to substitute himself or herself for the insurer as plaintiff.

(14) Prosecute any action which may exist in behalf of the creditors, members, policyholders or shareholders of the insurer against any officer of the insurer, or any other person.

(15) Remove any or all records and property of the insurer to the offices of the commissioner or to such other place as may be convenient for the purposes of efficient and orderly execution of the liquidation. Guaranty associations and foreign guaranty associations shall have such reasonable access to the records of the insurer as is necessary for them to carry out their statutory obligations.

(16) Deposit in one or more banks in this state such sums as are required for meeting current administration expenses.

(17) Invest all sums not currently needed, unless the court orders otherwise.

(18) File any necessary documents for record in the office of any recorder of deeds or record office in this state or elsewhere where property of the insurer is located.

(19) Assert all defenses available to the insurer as against third persons, including statutes of limitation, statutes of frauds, and the defense of usury. A waiver of any defense by the insurer after a petition in liquidation has been filed shall not bind the liquidator. Whenever a guaranty association or foreign guaranty association has an obligation to defend any suit, the liquidator shall give precedence to such obligation and may defend only in the absence of a defense by such guaranty associations or if the potential recovery is above the limits covered by the guaranty association or otherwise not covered by such association.

(20) Exercise and enforce all the rights, remedies, and powers of any creditor, shareholder, policyholder, or member; including any power to avoid any transfer or lien that may be given by the general law and that is not provided by the provisions of sections 7065 through 7067 of this title.

(21) Intervene in any proceeding wherever instituted that might lead to the appointment of a receiver or trustee, and act as the receiver or trustee whenever the appointment is offered.

(22) Enter into agreements with any receiver or commissioner of any other state relating to the rehabilitation, liquidation, conservation or dissolution of an insurer doing business in both states.

(23) Exercise all powers now held or hereafter conferred upon receivers by the laws of this state not inconsistent with the provisions of this chapter.

(b)(1) If a company placed in liquidation issued liability policies on a claims' made basis, which provided an option to purchase an extended period to report claims, then the liquidator may make available to holders of such policies, for a charge, an extended period to report claims as stated herein. The extended reporting period shall be made available only to those insureds who have not secured substitute coverage. The extended period made available by the liquidator shall begin upon termination of any extended period to report claims in the basic policy and shall end at the earlier of the final date for filing of claims in the liquidation proceeding or 18 months from the order of liquidation.

(2) The extended period to report claims made available by the liquidator shall be subject to the terms of the policy to which it relates. The liquidator shall make available such extended period within 60 days after the order of liquidation at a charge to be determined by the liquidator subject to approval of the court. Such offer shall be deemed rejected unless it is accepted in writing and the charge is paid within 90 days after the order of liquidation. No commissions, premium taxes, assessments or other fees shall be due on the charge pertaining to the extended period to report claims.

(c) The enumeration, in this section, of the powers and authority of the liquidator shall not be construed as a limitation upon him or her, nor shall it exclude in any manner the liquidator's right to do such other acts not herein specifically enumerated or otherwise provided for, as may be necessary or appropriate for the accomplishment of or in aid of the purpose of liquidation.

(d) Notwithstanding the powers of the liquidator as stated in subsections (a) and (b) of this section, the liquidator shall have no obligation to defend claims or to continue to defend claims subsequent to the entry of a liquidation order. (Added 1991, No. 45, § 2, eff. May 29, 1991.)

§ 7061. Notice to creditors and others

(a) Unless the court otherwise directs, the liquidator shall give or cause to be given notice of the liquidation order as soon as possible:

(1) by first class mail and either by telegram or telephone to the insurance commissioner of each jurisdiction in which the insurer is doing business;

(2) by first class mail to any guaranty association or foreign guaranty association which is or may become obligated as a result of the liquidation;

(3) by first class mail to all insurance agents of the insurer;

(4) by first class mail to all persons known or reasonably expected to have claims against the insurer including all policyholders, at their last known address as indicated by the records of the insurer; and

(5) by publication in a newspaper of general circulation in the county in which the insurer has its principal place of business and in such other locations as the liquidator deems appropriate.

(b) Notice to potential claimants under subsection (a) of this section shall require claimants to file with the liquidator their claims together with proper proofs thereof under section 7075 of this title, on or before a date the liquidator shall specify in the notice. Although an earlier date may be set by the liquidator, the last day to file claims shall be no later than 18 months following the order of liquidation. The liquidator need not require persons claiming cash surrender values or other investment values in life insurance and annuities to file a claim. All claimants shall have a duty to keep the liquidator informed of any changes of address.

(c)(1) Notice under subsection (a) of this section to agents of the insurer and to potential claimants who are policyholders shall include, where applicable, notice that coverage by state guaranty associations may be available for all or part of policy benefits in accordance with applicable state guaranty laws.

(2) The liquidator shall promptly provide to the guaranty associations such information concerning the identities and addresses of such policyholders and their policy coverages as may be within the liquidator's possession or control, and otherwise cooperate with guaranty associations to assist them in providing to such policyholders timely notice of the guaranty associations' coverage of policy benefits, including, as applicable, coverage of claims and continuation or termination of coverages.

(d) If notice is given in accordance with this section, the distribution of assets of the insurer under this chapter shall be conclusive with respect to all claimants, whether or not they received notice. (Added 1991, No. 45, § 2, eff. May 29, 1991.)

§ 7062. Duties of agents

(a) Every person who receives notice in the form prescribed in section 7061 of this title that an insurer which he or she represents as an agent is the subject of a liquidation order, shall within 30 days of such notice provide to the liquidator (in addition to the information he or she may be required to provide pursuant to section 7034 of this title) the information in the agent's records related to any policy issued by the insurer through the agent, and, if the agent is a general agent, the information in the general agent's records related to any policy issued by the insurer through an agent under contract to him or her, including the name and address of such sub-agent. A policy shall be deemed issued through an agent if the agent has a property interest in the expiration of the policy, or if the agent has had in his or her possession a copy of the declarations of the policy at any time during the life of the policy, except where the ownership of the expiration of the policy has been transferred to another.

(b) An agent who fails to give notice or file a report of compliance as required in subsection (a) of this section may be subject to payment of a penalty of not more than $1,000.00 and may have his or her license suspended, after a hearing held by the commissioner. (Added 1991, No. 45, § 2, eff. May, 29, 1991)

§ 7063. Actions by and against liquidator

(a) Upon issuance of an order appointing a liquidator of a domestic insurer or of an alien insurer domiciled in this state, no action shall be brought against the insurer or liquidator, whether in this state or elsewhere, nor shall any such existing actions be maintained or further presented after issuance of such order. The courts of this state shall give full faith and credit to injunctions against actions against the liquidator or the company or the continuation of existing actions against the liquidator or the company, when such injunctions are included in an order to liquidate an insurer issued pursuant to corresponding provisions in other states. Whenever, in the liquidator's judgment, protection of the estate of the insurer necessitates intervention in an action against the insurer that is pending outside this state, he or she may intervene in the action. The liquidator may defend any action in which he or she intervenes under this section at the expense of the estate of the insurer.

(b) The liquidator may, upon or after an order for liquidation, within two years or such time in addition to two years as applicable law may permit, institute an action or proceeding on behalf of the estate of the insurer upon any cause of action against which the period of limitation fixed by applicable law has not expired at the time of the filing of the petition upon which such order is entered. Where, by agreement, a period of limitation is fixed for instituting a suit or proceeding upon any claim, or for filing any claim, proof of claim, proof of loss, demand, notice, or the like, or where in any proceeding, judicial or otherwise, a period of limitation is fixed, either in the proceeding or by applicable law, for taking any action, filing any claim or pleading, or doing any act, and where in any such case the period had not expired at the date of the filing of the petition; the liquidator may, for the benefit of the estate, take any such action or do any such act, required of or permitted to the insurer, within a period of 180 days subsequent to the entry of an order for liquidation, or within such further period as is shown to the satisfaction of the court not to be unfairly prejudicial to the other party.

(c) A statute of limitation or defense of laches shall not run with respect to any action against an insurer between the filing of a petition for liquidation against an insurer and the denial of the petition. An action against the insurer that might have been commenced when the petition was filed may be commenced for at least 60 days after the petition is denied. (Added 1991, No. 45, § 2, eff. May 29, 1991.)

§ 7064. Collection and list of assets

(a) As soon as practicable after the liquidation order but not later than 120 days thereafter, the liquidator shall prepare in duplicate a list of the insurer's assets. The list shall be amended or supplemented from time to time as the liquidator may determine. One copy shall be filed in the superior court of Washington County and one copy shall be retained for the liquidator's files. All amendments and supplements shall be similarly filed.

(b) The liquidator shall reduce the assets to a degree of liquidity that is consistent with the effective execution of the liquidation.

(c) A submission to the court for disbursement of assets in accordance with section 7073 of this title fulfills the requirements of subsection (a) of this section. (Added 1991, No. 45, § 2, eff. May 29, 1991.)

§ 7065. Fraudulent transfers prior to petition

(a) Every transfer made or suffered and every obligation incurred by an insurer within one year prior to the filing of a successful petition for rehabilitation or liquidation under this chapter is fraudulent as to then existing and future creditors if made or incurred without fair consideration, or with actual intent to hinder, delay or defraud either existing or future creditors. A transfer made or an obligation incurred by an insurer ordered to be rehabilitated or liquidated under this chapter, which is fraudulent under this section, may be avoided by the receiver, except as to a person who in good faith is a purchaser, lienor, or obligee, for a present fair equivalent value, and except that a purchaser, lienor, or obligee, who in good faith has given a consideration less than fair for such transfer, lien, or obligation, may retain the property, lien or obligation as security for repayment. The court may, on due notice, order any such transfer or obligation to be preserved for the benefit of the estate, and in that event, the receiver shall succeed to and may enforce the rights of the purchaser, lienor, or obligee.

(b)(1) A transfer of property other than real property shall be deemed to be made or suffered when it becomes so far perfected that no subsequent lien obtainable by legal or equitable proceedings on a simple contract could become superior to the rights of the transferee under subsection 7067(c) of this title.

(2) A transfer of real property shall be deemed to be made or suffered when it becomes so far perfected that no subsequent bona fide purchaser from the insurer could obtain rights superior to the rights of the transferee.

(3) A transfer which creates an equitable lien shall not be deemed to be perfected if there are available means by which a legal lien could be created.

(4) Any transfer not perfected prior to the filing of a petition for liquidation shall be deemed to be made immediately before the filing of the successful petition.

(5) The provisions of this subsection apply whether or not there are or were creditors who might have obtained any liens or persons who might have become bona fide purchasers.

(c) A transaction of the insurer with a reinsurer shall be deemed fraudulent and may be avoided by the receiver under subsection (a) of this section if:

(1) the transaction consists of the termination, adjustment or settlement of a reinsurance contract in which the reinsurer is released from any part of its duty to pay the originally specified share of losses that had occurred prior to the time of the transactions, unless the reinsurer gives a present fair equivalent value for the release; and

(2) any part of the transaction took place within one year prior to the date of filing of the petition through which the receivership was commenced.

(d) Every person receiving any property from the insurer or any benefit thereof which is a fraudulent transfer under subsection (a) of this section shall be personally liable therefore and shall be bound to account to the liquidator. (Added 1991, No. 45, § 2, eff. May 29, 1991.)

§ 7066. Fraudulent transfer after petition

(a) After a petition for rehabilitation or liquidation has been filed, a transfer of any of the real property of the insurer made to a person acting in good faith shall be valid against the receiver if made for a present fair equivalent value; or, if not made for a present fair equivalent value, then to the extent of the present consideration actually paid, for which amount the transferee shall have a lien on the property so transferred. The commencement of a proceeding in rehabilitation or liquidation shall be constructive notice upon the recording of a copy of the petition for or order of rehabilitation or liquidation with the recorder of deeds in the county where any real property in question is located. The exercise by a court of the United States or any state or jurisdiction to authorize or effect a judicial sale of real property of the insurer within any county in any state shall not be impaired by the pendency of such a proceeding unless the copy is recorded in the county prior to the consummation of the judicial sale.

(b) After a petition for rehabilitation or liquidation has been filed and before either the receiver takes possession of the property of the insurer or an order of rehabilitation or liquidation is granted:

(1) A transfer of any of the property of the insurer, other than real property, made to a person acting in good faith shall be valid against the receiver if made for a present fair equivalent value; or, if not made for a present fair equivalent value, then to the extent of the present consideration actually paid, for which amount the transferee shall have a lien on the property so transferred.

(2) A person indebted to the insurer or holding property of the insurer may, if acting in good faith, pay the indebtedness or deliver the property, or any part thereof, to the insurer or upon his or her order, with the same effect as if the petition were not pending.

(3) A person having actual knowledge of the pending rehabilitation or liquidation shall be deemed not to act in good faith.

(4) A person asserting the validity of a transfer under this section shall have the burden of proof. Except as elsewhere provided in this section, no transfer by or on behalf of the insurer after the date of the petition for liquidation by any person other than the liquidator shall be valid against the liquidator.

(c) Every person receiving any property from the insurer or any benefit thereof which is a fraudulent transfer under subsection (a) of this section shall be personally liable therefore and shall be bound to account to the liquidator.

(d) Nothing in this chapter shall impair the negotiability of currency or negotiable instruments. (Added 1991, No. 45, § 2, eff. May 29, 1991.)

§ 7067. Voidable preferences and liens

(a)(1) A preference is a transfer of any of the property of an insurer to or for the benefit of a creditor, for or on account of an antecedent debt, made or suffered by the insurer within one year before the filing of a successful petition for liquidation under this chapter, the effect of which transfer may be to enable the creditor to obtain a greater percentage of this debt than another creditor of the same class would receive. If a liquidation order is entered while the insurer is already subject to a rehabilitation order, then such transfers shall be deemed preferences if made or suffered within one year before the filing of the successful petition for rehabilitation, or within two years before the filing of the successful petition for liquidation, whichever time is shorter.

(2) A preference may be avoided by the liquidator if:

(A) the insurer was insolvent at the time of the transfer of property;

(B) the transfer of property was made within four months before the filing of the petition;

(C) the creditor receiving it or to be benefited thereby or his or her agent acting with reference thereto had, at the time when the transfer of property was made, reasonable cause to believe that the insurer was insolvent or was about to become insolvent; or

(D) the creditor receiving transferred property was an officer, or any employee or attorney or other person who was in fact in a position of comparable influence in the insurer to an officer whether or not he or she held such position, or any shareholder holding directly or indirectly more than five per centum of any class of any equity security issued by the insurer, or any other person, firm, corporation, association, or aggregation of persons with whom the insurer did not deal at arm's length.

(3) Where the preference is voidable, the liquidator may recover the property or, if it has been converted, its value from any person who has received or converted the property; except where a bona fide purchaser or lienor has given less than fair equivalent value, he or she shall have a lien upon the property to the extent of the consideration actually given by him or her. Where a preference by way of lien or security title is voidable, the court may on due notice order the lien or title to be preserved for the benefit of the estate, in which event the lien or title shall pass to the liquidator.

(b)(1) A transfer of property other than real property shall be deemed to be made or suffered when it becomes so far perfected that no subsequent lien obtainable by legal or equitable proceedings on a simple contract could become superior to the rights of the transferee.

(2) A transfer of real property shall be deemed to be made or suffered when it becomes so far perfected that no subsequent bona fide purchaser from the insurer could obtain rights superior to the rights of the transferee.

(3) A transfer which creates an equitable lien shall not be deemed to be perfected if there are available means by which a legal lien could be created.

(4) A transfer not perfected prior to the filing of a petition for liquidation shall be deemed to be made immediately before the filing of the successful petition.

(5) The provisions of this subsection apply whether or not there are or were creditors who might have obtained liens or persons who might have become bona fide purchasers.

(c)(1) A lien obtainable by legal or equitable proceedings upon a simple contract is one arising in the ordinary course of such proceedings upon the entry or docketing of a judgment or decree, or upon attachment, garnishment, execution, or like process, whether before, upon, or after judgment or decree and whether before or upon levy. It does not include liens which under applicable law are given a special priority over other liens which are prior in time.

(2) A lien obtainable by legal or equitable proceedings could become superior to the rights of a transferee, or a purchaser could obtain rights superior to the rights of a transferee within the meaning of subsection (b) of this section, if such consequences would follow only from the lien or purchase itself, or from the lien or purchase followed by any step wholly within the control of the respective lienholder or purchaser, with or without the aid of ministerial action by public officials. Such a lien could not, however, become superior and such a purchase could not create superior rights for the purpose of subsection (b) of this section through any acts subsequent to the obtaining of such a lien or subsequent to such a purchase which requires the agreement or concurrence of any third party or which requires any further judicial action or ruling.

(d) A transfer of property for or on account of a new and contemporaneous consideration which is deemed under subsection (b) of this section to be made or suffered after the transfer because of delay in perfecting it does not thereby become a transfer for or on account of an antecedent debt if any acts required by the applicable law to be performed in order to perfect the transfer as against liens or bona fide purchasers' rights are performed within 21 days or any period expressly allowed by the law, whichever is less. A transfer to secure a future loan, if such a loan is actually made, or a transfer which becomes security for a future loan, shall have the same effect as a transfer for or on account of a new and contemporaneous consideration.

(e) If any lien deemed voidable under subdivision (a)(2) of this section has been dissolved by the furnishing of a bond or other obligation, the surety on which has been indemnified directly or indirectly by the transfer of or the creation of a lien upon any property of an insurer before the filing of a petition under this chapter which results in a liquidation order, the indemnifying transfer or lien shall also be deemed voidable.

(f) The property affected by any lien deemed voidable under subsections (a) and (e) of this section shall be discharged from such lien, and that property and any of the indemnifying property transferred to or for the benefit of a surety shall pass to the liquidator, except that the court may on due notice order any such lien to be preserved for the benefit of the estate and the court may direct that such conveyance be executed as may be proper or adequate to evidence the title of the liquidator.

(g) The superior court of Washington County shall have summary jurisdiction of any proceeding by the liquidator to hear and determine the rights of any parties under this section. Reasonable notice of hearing in the proceeding shall be given to all parties in interest, including the obligee of a releasing bond or other like obligation. Where an order is entered for the recovery of indemnifying property in kind or for the avoidance of an indemnifying lien, the court, upon application of any party in interest, shall in the same proceeding ascertain the value of the property or lien, and if the value is less than the amount for which the property is indemnity or less than the amount of the lien, the transferee or lienholder may elect to retain the property or lien upon payment of its value, as ascertained by the court, to the liquidator, within such reasonable times as the court shall fix.

(h) The liability of the surety under a releasing bond or other like obligation shall be discharged to the extent of the value of the indemnifying property recovered or the indemnifying lien nullified and avoided by the liquidator, or where the property is retained under subsection (g) of this section to the extent of the amount paid to the liquidator.

(i) If a creditor has been preferred, and afterward in good faith gives the insurer further credit without security of any kind, for property which becomes a part of the insurer's estate, the amount of the new credit remaining unpaid at the time of the petition may be set off against the preference which would otherwise be recoverable.

(j) If an insurer shall, directly or indirectly, within four months before the filing of a successful petition for liquidation under this chapter, or at any time in contemplation of a proceeding to liquidate it, pay money or transfer property to an attorney for services rendered or to be rendered, the transactions may be examined by the court on its own motion or shall be examined by the court on petition of the liquidator and shall be held valid only to the extent of a reasonable amount to be determined by the court, and the excess may be recovered by the liquidator for the benefits of the estate provided that where the attorney is in a position of influence in the insurer or an affiliate thereof payment of any money or the transfer of any property to the attorney for services rendered or to be rendered shall be governed by the provision of subdivision (a)(2)(D) of this section.

(k)(1) Every officer, manager, employee, shareholder, member, subscriber, attorney or any other person acting on behalf of the insurer who knowingly participates in giving any preference when he or she has reasonable cause to believe the insurer is or is about to become insolvent at the time of the preference shall be personally liable to the liquidator for the amount  of the preference. It is permissible to infer that there is a reasonable cause to so believe if the transfer was made within four months before the date of filing of this successful petition for liquidation.

(2) Every person receiving any property from the insurer or the benefit thereof as a preference voidable under subsection (a) of this section shall be personally liable therefor and shall be bound to account to the liquidator.

(3) Nothing in this subsection shall prejudice any other claim by the liquidator against any person. (Added 1991, No. 45, § 2, eff. May 29, 1991.)

§ 7068. Claims of holders of void or voidable rights

(a) No claims of a creditor who has received or acquired a preference, lien, conveyance, transfer, assignment or encumbrance voidable under this chapter shall be allowed unless he or she surrenders the preference, lien, conveyance, transfer, assignment or encumbrance. If the avoidance is effected by a proceeding in which a final judgment has been entered, the claim shall not be allowed unless the money is paid or the property is delivered to the liquidator within 30 days from the date of the entering of the final judgment, except that the court having jurisdiction over the liquidation may allow further time if there is an appeal or other continuation of the proceeding.

(b) A claim allowable under subsection (a) of this section by reason of the avoidance, whether voluntary or involuntary, of a preference, lien, conveyance, transfer, assignment or encumbrance, may be filed as an excused late filing under section 7074 of this title if filed within 30 days from the date of the avoidance, or within the further time allowed by the court under subsection (a) of this section. (Added 1991, No. 45, § 2, eff. May 29, 1991.)

§ 7069. Setoffs

(a) Mutual debts or mutual credits whether arising out of one or more contracts between the insurer and another person in connection with any action or proceeding under this chapter shall be set off and the balance only shall be allowed or paid, except as provided in subsections (b) and (c) of this section and section 7072 of this title.

(b) No setoff or counterclaim shall be allowed in favor of any person where:

(1) the obligation of the insurer to the person would not at the date of the filing of a petition for liquidation 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 with a view to its being used as a setoff;

(3) the obligation of the insurer is owed to an affiliate of such person, or any other entity or association other than the person;

(4) the obligation of the person is owed to an affiliate of the insurer, or any other entity or association other than the insurer;

(5) the obligation of the person is to pay an assessment levied against the members or subscribers of the insurer, or is to pay a balance upon a subscription to the capital stock of the insurer, or is in any other way in the nature of a capital contribution;

(6) the obligation of the person is to pay to the insurer sums held in a fiduciary capacity for the insurer; or

(7) the person alone or together with any other member of its insurance company holding system owns 50 percent or more of the voting stock of the insurer.

(c) The receiver shall provide persons with accounting statements identifying debts which are currently due and payable. Where a person owes to the insurer currently due and payable balances, against which the person asserts setoff of mutual credits which may become due and payable from the insurer in the future, the person shall promptly pay to the receiver the currently due and payable amount, provided that, notwithstanding section 7081 of this title, 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. (Added 1991, No. 45, § 2, eff. date, see note set below.)

§ 7070. Assessments

(a) As soon as practicable but not more than two years from the date of an order of liquidation under section 7057 of this title of an insurer issuing assessable policies, the liquidator shall make a report to the court setting forth:

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

(2) the insurer's probable total liabilities;

(3) the probable aggregate amount of the assessment necessary to pay all claims of creditors and expenses in full, including expenses of administration and costs of collecting the assessment; and

(4) a recommendation as to whether or not an assessment should be made and in what amount.

(b)(1) Upon the basis of the report provided in subsection (a) of this section, including any supplements and amendments, the superior court of Washington County may levy one or more assessments against all members of the insurer who are subject to assessment.

(2) Subject to any applicable legal limits on assessability, the aggregate assessment shall be for the amount that the sum of the probable liabilities, the expenses of administration, and the estimated cost of collection of the assessment, exceeds the value of existing assets, with due regard being given to assessments that cannot be collected economically.

(c) After levy of assessment under subsection (b) of this section, the liquidator shall issue an order directing each member who has not paid the assessment pursuant to the order, to show cause why the liquidator should not pursue a judgment therefor.

(d) The liquidator shall give notice of the order to show cause by publication and by first class mail to each member liable thereunder mailed to his or her last known address as it appears on the insurer's records, at least 20 days before the return day of the order to show cause.

(e)(1) If a member does not appear and serve duly verified objections upon the liquidator on or before the return day of the order to show cause under subsection (c) of this section, the court shall make an order adjudging the member liable for the amount of the assessment against him or her pursuant to subsection (c) of this section, together with costs, and the liquidator shall have a judgment against the member therefor.

(2) If on or before such return day, the member appears and serves duly verified objections upon the liquidator, the commissioner may hear and determine the matter or may appoint a referee to hear it and make such order as the facts warrant. In the event that the commissioner determines that such objections do not warrant relief from assessment, the member may request the court to review the matter and vacate the order to show cause.

(f) The liquidator may enforce any order or collect any judgment under subsection (e) of this section by any lawful means. (Added 1991, No. 45, § 2, eff. May 29, 1991.)

§ 7071. Reinsurer's liability

The amount recoverable by the liquidator from reinsurers shall not be reduced as a result of the delinquency proceedings, regardless of any provision in the reinsurance contract or other agreement. Payment made directly to an insured or other creditor shall not diminish the reinsurer's obligation to the insurer's estate except when the reinsurance contract provided for direct coverage of a named insured and the payment was made in discharge of that obligation. (Added 1991, No. 45, § 2, eff. May 29, 1991.)

§ 7072. Recovery of premiums owed

(a)(1) An agent, broker, premium finance company, or any other person, other than the insured, responsible for the payment of a premium shall be obligated to pay any unpaid premium for the full policy term due the insurer at the time of the declaration of insolvency, or the inception of the receivership, whichever is sooner, whether earned or unearned, as shown on the records of the insurer. The liquidator shall also have the right to recover from such person any part of an unearned premium that represents commission of such person. Credits or setoffs or both shall not be allowed to an agent, broker, or premium finance company for any amounts advanced to the insurer by the agent, broker, or premium finance company on behalf of, but in the absence of a payment by, the insured.

(2) An insured shall be obligated to pay any unpaid earned premium due the insurer at the time of the declaration of insolvency, or the inception of the receivership, whichever is sooner, as shown on the records of the insurer.

(b) Upon satisfactory evidence of a violation of this section, the commissioner may pursue either one or both of the following courses of action:

(1) Suspend or revoke or refuse to renew the licenses of such offending party or parties.

(2) Impose a penalty of not more than $1,000.00 for each and every act in violation of this section by said party or parties.

(c) Before the commissioner shall take any action as set forth in subsection (b) of this section, he or she shall give written notice to the person, company, association or exchange accused of violating the law, stating specifically the nature of the alleged violation; and fixing a time and place, at least ten days thereafter, when a hearing on the matter shall be held. After hearing, or upon failure of the accused to appear at the hearings, the commissioner, if he or she shall find a violation, shall impose one or both of the penalties provided by subsection (b) of this section as he or she deems advisable.

(d) When the commissioner shall take action in any or all of the ways set out in subsection (b) of this section, the party aggrieved may appeal the commissioner's decision to the supreme court. (Added 1991, No. 45, § 2, eff. May 29, 1991.)

§ 7073. Domiciliary liquidator's proposal to distribute assets

(a) Within 120 days of a final determination of insolvency of an insurer by a court of competent jurisdiction of this state, the liquidator shall make application to the court for approval of a proposal to disburse assets out of marshalled assets, from time to time as such assets become available, to a guaranty association or foreign guaranty association having obligations because of such insolvency. If the liquidator determine that there are insufficient assets to disburse, the application required by this section shall be considered satisfied by a filing by the liquidator stating the reasons for this determination.

(b) A proposal under subsection (a) of this section shall at least include provisions for:

(1) reserving amounts for the payment of expenses of administration and the payment of claims of secured creditors, to the extent of the value of the security held, and claims falling within the priorities established in Classes 1 and 2 of section 7081 of this title;

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

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

(4) securing by the liquidator from each of the associations entitled to disbursements pursuant to this section of an agreement to return to the liquidator such assets, together with income earned on assets previously disbursed, as may be required to pay claims of secured creditors and claims falling within the priorities established in section 7081 of this title in accordance with such priorities. A bond shall not be required of any such association; and

(5) a full report to be made by each association to the liquidator accounting for all 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 liquidator's proposal 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 in the amount of available assets.

(d) The liquidator's proposal shall, with respect to an insolvent insurer writing life or health insurance or annuities, provide for disbursements of assets to any guaranty association or any 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.

(e) Notice of an application under this section shall be given to the association in and to the commissioners of insurance of each of the states. Notice shall be deemed to have been given when deposited in the United States certified mails, first class postage prepaid, at least 30 days prior to submission of such application to the court. Action on the application may be taken by the court provided the notice required by this subsection has been given and provided further that the liquidator's proposal complies with the provisions of subdivisions (b)(1) and (b)(2) of this section. (Added 1991, No. 45, § 2, eff. May 29, 1991.)

§ 7074. Filing of claims

(a) Proof of all claims shall be filed with the liquidator in the form required by section 7075 of this title on or before the last day for filing specified in the notice required under section 7061 of this title, except that proof of claims for cash surrender values or other investment values in life insurance and annuities need not be filed unless the liquidator expressly so requires.

(b) The liquidator may permit a claimant making a late filing to share in distributions, whether past or future, as if he or she were not late, to the extent that any such payment will not prejudice the orderly administration of the liquidation, under the following circumstances:

(1) the existence of the claim was not known to the claimant and he or she filed the claim as promptly thereafter as reasonably possible after learning of it;

(2) a transfer to a creditor was avoided under sections 7065 through 7067 of this title, or was voluntarily surrendered under section 7068 of this title, and the filing satisfies the conditions of section 7068; or

(3) the valuation under section 7080 of this title, of security held by a secured creditor shows a deficiency, which is filed within 30 days after the valuation.

(c) The liquidator shall permit late filing claims to share in distributions, whether past or future, as if they were not late, if such claims are claims of a guaranty association or foreign guaranty association for reimbursement of covered claims paid or expenses incurred, or both, subsequent to the last day for filing where such payments were made and expenses incurred as provided by law.

(d) The liquidator may consider any claim filed late which is not covered by subsection (b) of this section, and permit it to receive distributions which are subsequently declared on any claims of the same or lower priority if the payment does not prejudice the orderly administration of the liquidation. The late-filing claimant shall receive, at each distribution, the same percentage of the amount allowed on his or her claim as is then being paid to claimants of any lower priority. This shall continue until his or her claim has been paid in full. (Added 1991, No. 45, § 2, eff. May 29, 1991.)

§ 7075. Proof of claim

(a) Proof of claim shall consist of a statement signed by the claimant that includes all the following that are applicable:

(1) the particulars of the claim including the consideration given for it;

(2) the identity and amount of the security on the claim;

(3) the payments made on the debt, if any;

(4) that the sum claimed is justly owing and that there is no setoff, counterclaim or defense to the claim;

(5) any right of priority of payment or other specific right asserted by the claimants;

(6) a copy of the written instrument which is the foundation of the claim; and

(7) the name and address of the claimant and his or her attorney.

(b) No claim need be considered or allowed if it does not contain all the information in subsection (a) of this section. The liquidator may require that a prescribed form be used, and may require that other information and documents be included.

(c) At any time the liquidator may request the claimant to present information or evidence supplementary to that required under subsection (a) of this section and may take testimony under oath, require production of affidavits or depositions, or otherwise obtain additional information or evidence.

(d) No judgment or order against an insured or the insurer entered after the date of filing of a successful petition for liquidation, and no judgment or order against an insured or the insurer entered at any time by default or by collusion need be considered as evidence of liability or of quantum of damages. No judgment or order against an insured or the insurer entered within four months before the filing of the petition need be considered as evidence of liability or of the quantum of damages.

(e) All claims of a guaranty association or foreign guaranty association shall be in such form and contain such substantiation as may be agreed to by the association and the liquidator. (Added 1991, No. 45, § 2, eff. May 29, 1991.)

§ 7076. Special claims

(a) The claim of a third party which is contingent only on his or her first obtaining a judgment against the insured shall be considered and allowed as if there were no such contingency.

(b) A claim may be allowed even if contingent, if it is filed in accordance with section 7074 of this title. It may be allowed and the claimant may participate in all distributions declared after it is filed to the extent that it does not prejudice the orderly administration of the liquidation.

(c) Claims that are due except for the passage of time shall be treated as absolute claims are treated, except that such claims may be discounted at the legal rate of interest.

(d) Claims made under employment contracts by directors, principal officers, or persons in fact performing similar functions or having similar functions or having similar powers are limited to payment for services rendered prior to the issuance of any order of rehabilitation or liquidation under section 7052 or 7057 of this title. (Added 1991, No. 45, § 2, eff. May 29, 1991.)

§ 7077. Special provisions for third party claims

(a) Whenever any third party asserts a cause of action against an insured of an insurer in liquidation, the third party may file a claim with the liquidator.

(b) Whether or not the third party files a claim, the insured may file a claim on his or her own behalf in the liquidation. If the insured fails to file a claim by the date for filing claims specified in the order of liquidation or within 60 days after mailing of the notice required by section 7061 of this title, whichever is later, the insured is an unexcused late filer.

(c)(1) The liquidator shall make recommendations to the court under section 7082 of this title, for the allowance of an insured's claim under subsection (b) of this section after consideration of the probable outcome of any pending action against the insured on which the claim is based, the probable damages recoverable in the action and the probable costs and expenses of defense. After allowance by the court, the liquidator shall withhold any dividends payable on the claim, pending the outcome of litigation and negotiation with the insured. Whenever it seems appropriate, he or she shall reconsider the claim on the basis of additional information and amend his or her recommendations to the court. The insured shall be afforded the same notice and opportunity to be heard on all changes in the recommendation as in its initial determination. The court may amend its allowance as it thinks appropriate. As claims against the insured are settled or barred, the insured shall be paid from the amount withheld the same percentage dividend as was paid on other claims of like property, based on the lesser of:

(A) the amount actually recovered from the insured by action or paid by agreement plus the reasonable costs and expense of defense; or

(B) the amount allowed on the claims by the court.

(2) After all claims are settled or barred, any sum remaining from the amount withheld shall revert to the undistributed assets of the insurer. Delay in final payment under this subsection shall not be a reason for unreasonable delay of final distribution and discharge of the liquidator.

(d) If several claims founded upon one policy are filed, whether by third parties or as claims by the insured under this section, and the aggregate allowed amount of the claims to which the same limit of liability in the policy is applicable exceeds that limit, each claim as allowed shall be reduced in the same proportion so that the total equals the policy limit. Claims by the insured shall be evaluated as under subsection (c) of this section. If any insured's claim is subsequently reduced under subsection (c) of this section, the amount thus freed shall be apportioned ratably among the claims which have been reduced under this subsection.

(e) No claim may be presented under this section if it is or may be covered by any guaranty association or foreign guaranty association. (Added 1991, No. 45, § 2, eff. May 29, 1991.)

§ 7078. Disputed claims

(a) When a claim is denied in whole or in part by the liquidator, written notice of the determination shall be given to the claimant or the claimant's attorney by first class mail at the address shown in the proof of claim. Within 60 days from the mailing of the notice, the claimant may file objections with the liquidator. If no such filing is made, the claimant may not further object to the determination.

(b) Whenever objections are filed with the liquidator and the liquidator does not alter his or her denial of the claim as a result of the objections, the liquidator shall ask the court for a hearing as soon as practicable and give notice of the hearing by first class mail to the claimant or the claimant's attorney and to any other persons directly affected, not less than ten nor more than 30 days before the date of the hearing. The matter may be heard by the court or by a court-appointed referee who shall submit findings of fact along with a recommendation. (Added 1991, No. 45, § 2, eff. May 29, 1991.)

§ 7079. Claims of surety

Whenever a creditor whose claim against an insurer is secured, in whole or in part, by the undertaking of another person, fails to prove and file that claim, the other person may do so in the creditor's name, and shall be subrogated to the rights of the creditor, whether the claim has been filed by the creditor or by the other person in the creditor's name, to the extent that he or she discharges the undertaking. In the absence of an agreement with the creditor to the contrary, the other person shall not be entitled to any distribution, until the amount paid to the creditor on the undertaking plus the distributions paid on the claim from the insurer's estate to the creditor equals the amount of the entire claim of the creditor. Any excess received by the creditor shall be held by him or her in trust for such other person. The term "other person," as used in this section, does not apply to a guaranty association or foreign guaranty association. (Added 1991, No. 45, § 2, eff. May 29, 1991.)

§ 7080. Secured creditor's claims

(a) The value of any security held by a secured creditor shall be determined in one of the following ways, as the court may direct:

(1) by converting the same into money according to the terms of the agreement pursuant to which the security was delivered to such creditors; or

(2) by agreement, arbitration, compromise or litigation between the creditor and the liquidator.

(b) The determination made under subsection (a) of this section shall be under the supervision and control of the court with due regard for the recommendation of the liquidator. The amount so determined shall be credited upon the secured claim, and any deficiency shall be treated as an unsecured claim. If the claimant shall surrender his or her security to the liquidator, the entire claim shall be allowed as if unsecured. (Added 1991, No. 45, § 2, eff. May 29, 1991.)