20-682. Coverage; limitations

A. This article provides coverage for the policies and contracts specified in subsection B of this section to:

1. A person who, regardless of the state where the person resides, is a beneficiary, assignee or payee, including health care providers rendering services covered under the health insurance policies or certificates, of a person covered under paragraph 2 of this subsection, except for a nonresident certificate holder under a group policy or contract.

2. A person who is the owner or enrollee of, or a certificate holder under, a policy or contract other than a structured settlement annuity and who is either:

(a) A resident.

(b) Not a resident and all of the following apply:

(i) The member insurer that issued the policy or contract is domiciled in this state.

(ii) The state in which the person resides has a fund similar to the fund established under this article.

(iii) The person is not eligible for coverage by a fund in any other state because the insurer or health care services organization was not licensed in that state at the time required by the applicable law.

3. Subject to any other limitations provided by this section, a person who is a payee or a beneficiary of a deceased payee under a structured settlement annuity specified in subsection B of this section if the payee is either:

(a) A resident, regardless of where the contract owner resides.

(b) Not a resident and all of the following apply:

(i) The contract owner of the structured settlement annuity is a resident, or 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 a fund similar to the fund established by this article.

(ii) The payee, the beneficiary and the contract owner are not eligible for coverage by the fund of the state in which they reside.

B. This article provides coverage to the persons specified in subsection A of this section for policies or contracts of direct nongroup life insurance, disability insurance, which for the purposes of this article includes health care services organization subscriber contracts and certificates, or annuities, and for certificates under direct group policies and contracts, and for supplemental contracts to any of these, that are issued by member insurers, except as limited by this article. Annuity contracts and certificates under group annuity contracts include allocated funding agreements, structured settlement annuities and any immediate or deferred annuity contracts.

C. This article does not provide coverage to:

1. A person who is a payee or beneficiary of a contract owner who is a resident of this state if the payee is afforded coverage by the fund of another state.

2. A person who would otherwise receive coverage under this article but who is provided coverage under the laws of any other state.  This article shall be construed to avoid duplicate coverage and to result in coverage by only one state.

3. A person who acquires rights to receive payments through a structured settlement factoring transaction as defined in 26 United States Code section 5891(c)(3)(A), regardless of whether the transaction occurred before or after that section became effective.

D. Except as otherwise provided in paragraph 14 of this subsection, this article does not provide coverage for:

1. Any policy or contract, or any part of any policy or contract, not guaranteed by the member insurer or under which the risk is borne by the policyholder or contract owner.

2. Any policy or contract, or any part of any policy or contract, assumed by the impaired insurer or insolvent insurer under a contract of reinsurance other than bulk reinsurance or reinsurance for which assumption certificates have been issued.

3. Any policy or contract issued by mutual assessment companies or other persons that operate on an assessment basis, fraternal benefit societies, hospital, medical, dental and optometric service corporations or plans, prepaid dental plan organizations, mandatory state pooling plans, a reciprocal insurance exchange and any entity similar to any of the entities described in this paragraph.

4. A part of a policy or contract to the extent that the rate of interest on which it is based, or the interest rate, crediting rate or similar factor determined by use of an index or other external reference stated in the policy or contract employed in calculating returns or changes in value:

(a) Averaged over the period of four years before the date on which the member insurer becomes an impaired insurer or insolvent insurer under this article, whichever is earlier, exceeds the 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 a lesser period if the policy or contract was issued less than four years before the member insurer becomes an impaired insurer or insolvent insurer under this article, whichever is earlier.

(b) On and after the date on which the member insurer becomes an impaired insurer or insolvent insurer under this article, whichever is earlier, exceeds the rate of interest determined by subtracting three percentage points from Moody's corporate bond yield average as most recently available.

5. A part of a policy or contract issued to a plan or program of an employer, association or other person to provide life, disability 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 any of the following:

(a) A multiple employer welfare arrangement as defined in section 3(40) of the employee retirement income security act of 1974.

(b) A minimum premium group insurance plan.

(c) A stop-loss group insurance plan.

(d) An administrative services only contract.

6. A part of a policy or contract to the extent that it provides for dividend or experience rating credits, voting rights or payment of any fees or allowances to any person, including the policy or contract owner, in connection with the service or administration of the policy or contract.

7. A policy or contract issued in this state by a member insurer at a time when it did not have a certificate of authority to issue the policy or contract in this state.

8. A part of a policy or contract to the extent that the assessments required by section 20-686 with respect to the policy or contract are preempted or prohibited by federal or state law.

9. An obligation that does not arise under the express written terms of the policy or contract issued by the member insurer to the enrollee, certificate holder, contract owner or policy owner, including:

(a) Claims based on marketing materials.

(b) Claims based on side letters, riders or other documents that were issued by the member insurer without meeting applicable policy or contract form filing or approval requirements.

(c) Misrepresentations of or regarding policy or contract benefits.

(d) Extra-contractual claims, including claims relating to bad faith in the payment of claims, punitive or exemplary damages or attorney fees and costs.

(e) Claims for penalties or consequential or incidental damages.

10. 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.

11. An unallocated annuity contract.

12. A part 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 insurer or insolvent insurer under this article, whichever is earlier.  If a policy's or contract's interest or changes in value are credited less frequently than annually, 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.

13. A policy or contract providing any hospital, medical, prescription drug or other health care benefits pursuant to 42 United States Code chapter 7, subchapter XVIII, part C or part D or 42 United States Code chapter 7, subchapter XIX, or any applicable regulations.

14. Structured settlement annuity benefits to which a payee or beneficiary has transferred the payee's or beneficiary's rights in a structured settlement factoring transaction as defined in 26 United States Code section 5891(c)(3)(A), regardless of whether the transaction occurred before or after that section became effective.

15. The exclusion from coverage referenced in paragraph 4 of this subsection does not apply to any portion of a policy or contract, including a rider, that provides long-term care or any other health insurance benefits.

E. The benefits that the fund becomes or may become obligated to cover shall not exceed the lesser of:

1. The contractual obligations for which the member insurer is liable or would have been liable if it were not an impaired insurer or insolvent insurer.

2. With respect to one life, regardless of the number of policies or contracts:

(a) 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.

(b) For disability insurance benefits:

(i) One hundred thousand dollars for coverages not defined as disability income insurance or health benefit plans or long-term care insurance.

(ii) Three hundred thousand dollars for disability income insurance and three hundred thousand dollars for long-term care insurance.

(iii) Five hundred thousand dollars for health benefit plans.

(c) Two hundred fifty thousand dollars in the present value of annuity benefits, including net cash surrender and net cash withdrawal values.

3. With respect to each payee of a structured settlement annuity, or the beneficiary of a deceased payee, an aggregate of two hundred fifty thousand dollars in present value annuity benefits, including net cash surrender and net cash withdrawal values, if any.

F. Notwithstanding subsection E of this section, the fund is not obligated to cover more than either:

1. An aggregate of three hundred thousand dollars in benefits with respect to any one individual under subsection E of this section except with respect to benefits for health benefit plans under subsection E, paragraph 2, subdivision (b) of this section, in which case the aggregate liability of the fund shall not exceed five hundred thousand dollars with respect to any one individual.

2. With respect to one owner of multiple nongroup policies of life insurance, whether the policy or contract 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.

G. The limitations set forth in this section are limitations on the benefits for which the fund 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 insurer or insolvent insurer attributable to covered policies.  The costs of the fund's obligations under this article may be met by the use of assets attributable to covered policies or reimbursed to the fund pursuant to its subrogation and assignment rights.

H. For the purposes of this article, benefits provided by a long-term care rider to a life insurance policy or annuity contract shall be considered the same type of benefits as the base life insurance policy or annuity contract to which it relates.