The act clarifies that structured settlement annuities are covered by the guaranty association and are subject to a cap of $250,000. The act also provides rules for determining how the responsibility for coverage of these types of annuities is allocated among state guaranty associations (Section 376.717.1(3)).

The act expands the list of areas in which the guaranty association will not provide coverage. Under the act, the guaranty association will not provide coverage for:

(1) An obligation that does not arise under the express written terms of the policy or contract issued by the insolvent insurer;

(2) Any portion of a policy or contract to the extent that required assessments are preempted by federal or state law;

(3) Certain contracts which establish benefits by reference to a portfolio of assets not owned by the insurer;

(4) Certain types of indexed policies;

(5) A policy providing any hospital, medical, prescription drug or other health care benefits pursuant to Part C or Part D of Subchapter XVIII, Chapter 7 of Title 42 of the United States Code (commonly known as Medicare Part C & D) or any regulations issued thereunder (Section 376.717.3(7)-(11)).

The act increases the coverage limits on certain insurance policies in which the guaranty association will become obligated to pay. The act increases coverage limits from $100,000 to $300,000 for disability insurance and long term care insurance (current law does not explicitly reference long term care policies), and to $500,000 for basic hospital, medical and surgical insurance and major medical insurance. Under the act, the guaranty association will pay no more than $250,000 in the present value of annuity benefits, including net cash surrender and net cash withdrawal value and no more than $250,000 in the present value per payee with respect to a structured settlement annuity benefits, in the aggregate, including net cash surrender and net cash withdrawal values. The aggregate coverage limit, which currently is $300,000 for any one life, is increased to $500,000 with respect to benefits for major medical insurance and basic hospital, medical and surgical insurance. A cap of $5,000,000 in benefits is added for corporate-owned life insurance policies. The act incorporates the Model Act's recommendation that coverage for a corporation purchasing such corporate policies should be capped at $5,000,000 regardless of how many lives of employees the company may have insured (Section 376.717.5).

The act adds several clarifying definitions, including the definition of an "owner" of a policy, and the standard for determining the "principal place of business" of a corporation (for the purpose of applying the residency test that determines which state guaranty association has coverage responsibility)(Section 376.718).

The act makes a number of technical changes clarifying the guaranty association's options in providing coverage (Section 376.724); how terminated policies are handled (Section 376.725); the guaranty association's standing to appear or intervene in litigation (Section 376.732); the guaranty association's assignment and subrogation rights (Section 376.733); the guaranty association's general powers and how reinsurance contracts are handled (Section 376.734); how assessments of insurers to fund the guaranty association's operations are handled (Section 376.735 and 376.737); requirements for the association's plan of operation (Section 376.740); and clarifying that the amendments made by the act are prospective only and shall not apply to member insurers that are impaired or insolvent prior to August 28, 2010 (Section 376.758).

The provisions contained in this act are similar to SB 900 (2010).

STEPHEN WITTE