State of South Dakota
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EIGHTY-SEVENTH SESSION
LEGISLATIVE ASSEMBLY, 2012
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661T0221
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SENATE COMMERCE AND ENERGY
ENGROSSED NO. HB 1071 - 2/14/2012
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Introduced by: Representatives Willadsen, Conzet, Fargen, Greenfield, Hawley, Hickey,
Hubbel, Jones, Kirschman, Moser, Novstrup (David), Scott, and Solum and
Senators Lederman, Adelstein, Buhl, Johnston, Nelson (Tom), Nygaard,
Peters, and Rave
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FOR AN ACT ENTITLED, An Act to increase the benefits that the Insurance Guarantee
Association may become obligated to cover for annuities, to provide for retroactive
application, and to declare an emergency.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF SOUTH DAKOTA:
Section 1. That § 58-29C-46 be amended to read as follows:
58-29C-46. A. This chapter shall provide coverage for the policies and contracts specified
in subpart B:
(1) To persons who, regardless of where they reside (except for nonresident certificate
holders under group policies or contracts), are the beneficiaries, assignees, or payees
of the persons covered under subdivision (2);
(2) To persons who are owners of or certificate holders under the policies or contracts
(other than structured settlement annuities) and in each case who:
(a) Are residents; or
(b) Are not residents, but only under all of the following conditions:
(i) The insurer that issued the policies or contracts is domiciled in this
state;
(ii) The states in which the persons reside have associations similar to the
association created by this chapter;
(iii) The persons are not eligible for coverage by an association in any other
state due to the fact that the insurer was not licensed in the state at the
time specified in the state's guaranty association law;
(3) For structured settlement annuities specified in subpart B, subdivisions (1) and (2)
of this subpart do not apply, and this chapter shall (except as provided in subdivisions
(4) and (5) of this subpart) provide coverage to a person who is a payee under a
structured settlement annuity (or beneficiary of a payee if the payee is deceased), if
the payee:
(a) Is a resident, regardless of where the contract owner resides; or
(b) Is not a resident, but only under both of the following conditions:
(i)(I) The contract owner of the structure settlement annuity is a resident, or
(II) The contract owner of the structured settlement annuity is not a
resident, but the insurer that issued the structured settlement annuity is
domiciled in this state and the state in which the contract owner resides
has an association similar to the association created by this chapter; and
(ii) Neither the payee (or beneficiary) nor the contract owner is eligible for
coverage by the association of the state in which the payee or contract
owner resides;
(4) This chapter does not provide coverage to a person who is a payee (or beneficiary)
of a contract owner resident of this state, if the payee (or beneficiary) is afforded any
coverage by the association of another state;
(5) This chapter is intended to provide coverage to a person who is a resident of this state
and, in special circumstances, to a nonresident. In order to avoid duplicate coverage,
if a person who would otherwise receive coverage under this chapter is provided
coverage under the laws of any other state, the person may not be provided coverage
under this chapter. In determining the application of the provisions of this paragraph
in situations where a person could be covered by the association of more than one
state, whether as an owner, payee, beneficiary, or assignee, this chapter shall be
construed in conjunction with other state laws to result in coverage by only one
association.
B. (1) This chapter shall provide coverage to the persons specified in subpart A for direct,
nongroup life, health, or annuity policies or contracts and supplemental contracts to any of these
and for certificates under direct group policies and contracts, except as limited by this chapter.
Annuity contracts and certificates under group annuity contracts include allocated funding
agreements, structured settlement annuities, and any immediate or deferred annuity contracts.
(2) This chapter may not provide coverage for:
(a) A portion of a policy or contract not guaranteed by the insurer, or under which
the risk is borne by the policy or contract owner;
(b) A policy or contract of reinsurance, unless assumption certificates have been
issued pursuant to the reinsurance policy or contract;
(c) A portion of a policy or contract to the extent that the rate of interest on which
it is based:
(i) Averaged over the period of four years prior to the date on which the
association becomes obligated with respect to the policy or contract,
exceeds a rate of interest determined by subtracting two percentage
points from Moody's Corporate Bond Yield Average averaged for that
same four-year period or for such lesser period if the policy or contract
was issued less than four years before the association became obligated;
and
(ii) On and after the date on which the association becomes obligated with
respect to the policy or contract, exceeds the rate of interest determined
by subtracting three percentage points from Moody's Corporate Bond
Yield Average as most recently available;
(d) A portion of a policy or contract issued to a plan or program of an employer,
association, or other person to provide life, health, or annuity benefits to its
employees, members, or others, to the extent that the plan or program is self-funded or uninsured, including benefits payable by an employer, association,
or other person under:
(i) A multiple employer welfare arrangement as defined in 29 U.S.C.
§ 1144;
(ii) A minimum premium group insurance plan;
(iii) A stop-loss group insurance plan; or
(iv) An administrative services only contract;
(e) A portion of a policy or contract to the extent that it provides for:
(i) Dividends or experience rating credits;
(ii) Voting rights; or
(iii) Payment of any fees or allowances to any person, including the policy
or contract owner, in connection with the service to or administration
of the policy or contract;
(f) A policy or contract issued in this state by a member insurer at a time when it
was not licensed or did not have a certificate of authority to issue the policy
or contract in this state;
(g) A portion of a policy or contract to the extent that the assessments required by
58-29C-52 with respect to the policy or contract are preempted by federal or
state law;
(h) An obligation that does not arise under the express written terms of the policy
or contract issued by the insurer to the contract owner or policy owner,
including without limitation:
(i) Claims based on marketing materials;
(ii) Claims based on side letters, riders, or other documents that were issued
by the insurer without meeting applicable policy form filing or approval
requirements;
(iii) Misrepresentations of or regarding policy benefits;
(iv) Extra-contractual claims; or
(v) A claim for penalties or consequential or incidental damages;
(i) A contractual agreement that establishes the member insurer's obligations to
provide a book value accounting guaranty for defined contribution benefit plan
participants by reference to a portfolio of assets that is owned by the benefit
plan or its trustee, which in each case is not an affiliate of the member insurer;
(j) An unallocated annuity contract; and
(k) A portion of a policy or contract to the extent it provides for interest or other
changes in value to be determined by the use of an index or other external
reference stated in the policy or contract, but which have not been credited to
the policy or contract, or as to which the policy or contract owner's rights are
subject to forfeiture, as of the date the member insurer becomes an impaired
or insolvent insurer under this chapter, whichever is earlier. If a policy's or
contract's interest or changes in value are credited less frequently than
annually, then for purposes of determining the values that have been credited
and are not subject to forfeiture under this subsection, the interest or change
in value determined by using the procedures defined in the policy or contract
will be credited as if the contractual date of crediting interest or changing
values was the date of impairment or insolvency, whichever is earlier, and will
not be subject to forfeiture.
C. The benefits that the association may become obligated to cover may in no event exceed
the lesser of:
(1) The contractual obligations for which the insurer is liable or would have been liable
if it were not an impaired or insolvent insurer; or
(2)(a) With respect to one life, regardless of the number of policies or contracts:
(i) Three hundred thousand dollars in life insurance death benefits, but not
more than one hundred thousand dollars in net cash surrender and net
cash withdrawal values for life insurance;
(ii) In health insurance benefits:
(I) One hundred thousand dollars for coverages not described in clauses
(II) and (III) below, including any net cash surrender and net cash
withdrawal values;
(II) Three hundred thousand dollars for disability income insurance as
defined in § 58-17-108, and three hundred thousand dollars for long-term care insurance as defined in subdivision 58-17B-2(6);
(III) Five hundred thousand dollars for basic hospital, medical and surgical
insurance, or major medical insurance as defined in the National
Association of Insurance Commissioners Health Insurance Shoppers'
Guide, as of January 1, 2003; or
(iii) One hundred Two hundred fifty thousand dollars in the present value
of annuity benefits, including net cash surrender and net cash
withdrawal values;
(b) With respect to each payee of a structured settlement annuity (or beneficiary
or beneficiaries of the payee if deceased), one hundred two hundred fifty
thousand dollars in present value annuity benefits, in the aggregate, including
net cash surrender and net cash withdrawal values;
(c) However, in no event may the association be obligated to cover more than (i)
an aggregate of three hundred thousand dollars in benefits with respect to any
one life under subsections 2(a), 2(b), and 2(c) of subpart C of this section
except with respect to benefits for basic hospital, medical and surgical
insurance, and major medical insurance under subsection 2(a)(ii) of this
section, in which case the aggregate liability of the association may not exceed
five hundred thousand dollars with respect to any one individual, or (ii) with
respect to one owner of multiple nongroup policies of life insurance, whether
the policy owner is an individual, firm, corporation, or other person, and
whether the persons insured are officers, managers, employees, or other
persons, more than five million dollars in benefits, regardless of the number
of policies and contracts held by the owner;
(d) The limitations set forth in this section are limitations on the benefits for
which the association is obligated before taking into account either its
subrogation and assignment rights or the extent to which those benefits could
be provided out of the assets of the impaired or insolvent insurer attributable
to covered policies. The costs of the association's obligations under this
chapter may be met by the use of assets attributable to covered policies or
reimbursed to the association pursuant to its subrogation and assignment
rights.
D. In performing its obligations to provide coverage under § 58-29C-51, the association may
not be required to guarantee, assume, reinsure, or perform, or cause to be guaranteed, assumed,
reinsured, or performed, the contractual obligations of the insolvent or impaired insurer under
a covered policy or contract that do not materially affect the economic values or economic
benefits of the covered policy or contract.
Section 2. The provisions of this Act apply to coverage the guaranty association provides
in connection with a member insurer that is placed under an order of liquidation with a finding
of insolvency on or after January 1, 2012.
Section 3. Whereas, this Act is necessary for the immediate preservation of the public peace,
health, or safety, an emergency is hereby declared to exist, and this Act shall be in full force and
effect from and after its passage and approval retroactive to January 1, 2012.