§ 27-14.3-46 - Priority of distribution. - Rhode Island Statutes

SECTION 27-14.3-46

   § 27-14.3-46  Priority of distribution.– (a) The priority of distribution of claims from the insurer's estate shall bein accordance with the order in which each class of claims is set forth in thissection. Every claim in each class shall be paid in full or adequate fundsretained for such payment before the members of the next class receive anypayment. Once such funds are retained by the liquidator and approved by thecourt, the insurer's estate shall have no further liability to members of thatclass except to the extent of the retained funds and any other undistributedfunds. No subclasses shall be established within any class except as providedin § 27-14.3-25(a)(12). No claim by a shareholder, policyholder, or othercreditor shall be permitted to circumvent the priority classes through the useof equitable remedies. The order of distribution of claims shall be:

   (1) Class 1. The costs and expenses of administrationexpressly approved by the receiver, including, but not limited to, thefollowing:

   (i) The actual and necessary costs of preserving orrecovering the assets of the insurer;

   (ii) Compensation for all authorized services rendered in theconservation, rehabilitation or liquidation;

   (iii) Any necessary filing fees;

   (iv) The fees and mileage payable to witnesses; and

   (v) Authorized reasonable attorney's fees and otherprofessional services rendered in the conservation, rehabilitation orliquidation.

   (2) Class 2. The administrative expenses of guarantyassociations. For purposes of this section these expenses shall be thereasonable expenses incurred by guaranty associations where the expenses arenot payments or expenses which are required to be incurred as direct policybenefits in fulfillment of the terms of the insurance contract or policy, andthat are of the type and nature that, but for the activities of the guarantyassociation otherwise would have been incurred by the receiver, including, butnot limited to, evaluations of policy coverage, activities involved in theadjustment and settlement of claims under policies, including those of in-houseor outside adjusters, and the reasonable expenses incurred in connection withthe arrangements for ongoing coverage through transfer to other insurers,policy exchanges or maintaining policies in force. The receiver may in his orher sole discretion approve as an administrative expense under this section anyother reasonable expenses of the guaranty association if the receiver finds:

   (i) The expenses are not expenses required to be paid orincurred as direct policy benefits by the terms of the policy; and

   (ii) The expenses were incurred in furtherance of activitiesthat provided a material economic benefit to the estate as a whole,irrespective of whether the activities resulted in additional benefits tocovered claimants. The court shall approve such expenses unless it finds thereceiver abused his or her discretion in approving the expenses.

   If the receiver determines that the assets of the estate willbe sufficient to pay all Class 1 claims in full, Class 2 claims shall be paidcurrently, provided that the liquidator shall secure from each of theassociations receiving disbursements pursuant to this section and agreement toreturn to the liquidator such disbursements, together with investment incomeactually earned on such disbursements, as may be required to pay Class 1claims. No bond shall be required of any such association.

   (i) All claims under policies including claims of the federalor any state or local government for losses incurred, ("loss claims") includingthird party claims, claims for unearned premiums, and all claims of guarantyassociation for reasonable expenses other than those included in Class 2. Allclaims under life and health insurance and annuity policies, whether for deathproceeds, health benefits, annuity proceeds, or investment values shall betreated as loss claims. That portion of any loss, indemnification for which isprovided by other benefits or advantages recovered by the claimant, shall notbe included in this class, other than benefits or advantages recovered orrecoverable in discharge of familial obligation of support or by way ofsuccession at death or as proceeds of life insurance, or as gratuities. Nopayment by an employer to his or her employee shall be treated as a gratuity;

   (ii) Notwithstanding the foregoing, the following claimsshall be excluded from Class 3 priority:

   (A) Obligations of the insolvent insurer arising out ofreinsurance contracts;

   (B) Obligations incurred after the expiration date of theinsurance policy or after the policy has been replaced by the insured orcanceled at the insured's request or after the policy has been canceled asprovided in this chapter;

   (C) Obligations to insurers, insurance pools or underwritingassociations and their claims for contribution, indemnity or subrogation,equitable or otherwise;

   (D) Any claim which is in excess of any applicable limitsprovided in the insurance policy issued by the insolvent insurer;

   (E) Any amount accrued as punitive or exemplary damagesunless expressly covered under the terms of the policy; and

   (F) Tort claims of any kind against the insurer, and claimsagainst the insurer for bad faith or wrongful settlement practices.

   (4) Class 4. Claims of the federal government otherthan those claims included in Class 3.

   (5) Class 5. Debts due to employees for services,benefits, contractual or otherwise due arising out of such reasonablecompensation to employees for services performed to the extent that they do notexceed two (2) months of monetary compensation and represent payment forservices performed within six (6) months before the filing of the petition forliquidation or, if rehabilitation preceded liquidation within one year beforethe filing of the petition for rehabilitation. Principal officers and directorsshall not be entitled to the benefit of this priority except as otherwiseapproved by the liquidator and the court. This priority shall be in lieu of anyother similar priority which may be authorized by law as to wages orcompensation of employees.

   (6) Class 6. Claims of any person, including claims ofstate or local governments, except those specifically classified elsewhere inthis section. Claims of attorneys for fees and expenses owed them by a personfor services rendered in opposing a formal delinquency proceeding. In order toprove the claim, the claimant must show that the insurer which is the subjectof the delinquency proceeding incurred such fees and expenses based on its bestknowledge, information and belief, formed after reasonable inquiry indicatingopposition was in the best interests of the person, was well grounded in factand was warranted by existing law or a good faith argument for the extension,modification or reversal of existing law, and that opposition was not pursuedfor any improper purpose, such as to harass or to cause unnecessary delay orneedless increase in the cost of the litigation.

   (7) Class 7. Surplus claims of any state or localgovernment for a penalty or forfeiture, but only to the extent of the pecuniaryloss sustained from the act, transaction or proceeding out of which the penaltyor forfeiture arose with reasonable and actual costs occasioned thereby. Theremainder of such claims shall be postponed to the class of claims undersubdivision 8.

   (8) Class 8. Surplus or contribution notes or similarobligations, premium refunds on assessable policies, interest on claims ofClasses 1 through 7 and any other claims specifically subordinated to thisclass.

   (9) Class 9. Claims of shareholders or other ownersarising out of their capacity as shareholders or other owners, or any othercapacity except as they may be qualified in Class 3 or 6 above.

   (b) If any claimant of this state, another state or foreigncountry shall be entitled to or shall receive a dividend upon his or her claimout of a statutory deposit or the proceeds of any bond or other asset locatedin another state or foreign country, unless such deposit or proceeds shall havebeen delivered to the domiciliary liquidator, then the claimants shall not beentitled to any further dividend from the receiver until and unless all otherclaimants of the same class, irrespective of residence or place of the acts orcontracts upon which their claims are based, shall have received an equaldividend upon their claims, and after such equalization, such claimants shallbe entitled to share in the distribution of further dividends by the receiver,along with and like all other creditors of the same class, wheresoever residing.

   (c) Upon the declaration of a dividend, the receiver shallapply the amount of the dividend against any indebtedness owed to the insurerby the person entitled to the dividend. There shall be no claim allowed for anydeductible charged by a guaranty association or entity performing a similarfunction.