20-629. Priority of distribution; definition

A. In a delinquency proceeding against an insurer domiciled in this state, the priority of distribution of claims from the general assets of the insurer shall be determined pursuant to this section. Every claim in each class shall be paid in full or adequate funds shall be reserved for the payment before the members of the next class may receive any payment.  Subclasses may not be established within any class. The order of distribution is as follows:

1. The costs and expenses of administration incurred in connection with the delinquency proceedings.

2. Claims of the Arizona property and casualty insurance guaranty fund established pursuant to section 20-662 and the life and disability insurance guaranty fund established pursuant to section 20-683 or a similar organization in another state to the extent the organization provides substantially similar protection with respect to the same kinds of insurance, including claims for unallocated loss adjustment expenses and general administrative costs and expenses.

3. Claims under insurance policies and contracts and guaranteed investment contracts except reinsurance, including claims under nonassessable policies for unearned premiums, claims under annuity contracts, third-party claims against insureds who are covered under liability insurance policies and, in a delinquency proceeding of a health care services organization that is domiciled in this state, claims of enrollees and enrollees' beneficiaries and any claim of a provider for services that are provided pursuant to and covered by a health care plan.

4. Claims of the federal government, except those claims under paragraph 3 of this subsection and claims that are treated as secured claims.

5. Claims for compensation actually owing to employees of the insurer, other than its officers, for services rendered to the insurer.  This priority is in lieu of any other similar priority authorized by law as to wages or compensation of employees.

6. Claims of any state or local government, except those claims under paragraph 3 of this subsection and claims that are treated as secured claims.

7. Claims of other general creditors that do not fall within any other priority under this section.

8. Claims that are filed after the date specified for filing proofs of claim pursuant to section 20-640.

9. Claims of surplus note or certificate of contribution holders or other similar obligations and for premium refunds on assessable policies.

10. Claims of shareholders, members or other owners in that capacity.

B. In a delinquency proceeding against an insurer domiciled in this state, the priority of claims against the general assets of the insurer shall be determined pursuant to this section regardless of where the claimant resides or where the assets are located.

C. In a delinquency proceeding against an insurer domiciled in a reciprocal state, claims owing to residents of this state shall be preferred if like claims are preferred by the laws of that state.

D. The owners of special deposit claims against an insurer for which a receiver is appointed in this or any other state shall be given priority against their several special deposits, including without limitation assets comprising the applicable separate account, in accordance with the provisions of the statutes governing the creation and maintenance of such deposits. If there is a deficiency in any such deposit so that the claims secured are not fully discharged, the claimants may share in the general assets, but such sharing shall be deferred until general creditors, all other persons who are entitled to priority under subsection A, paragraph 3 of this section, and also claimants against other special deposits who have received smaller percentages from their respective special deposits have been paid percentages of their claims equal to the percentage paid from the special deposit, subject to the applicable terms of any variable life contract, variable annuity contract or guaranteed investment contract that is supported by a separate account to the extent it is guaranteed by the general account. This subsection shall not be applied in a manner that would reduce the value of any general account guaranty.

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

F. For the purposes of this section, "health care plan" has the same meaning prescribed in section 20-1051.