Senate Bill sb0432

CODING: Words stricken are deletions; words underlined are additions.
    Florida Senate - 2002                                   SB 432

    By Senator Klein





    28-530-02                                           See HB 193

  1                      A bill to be entitled

  2         An act relating to insurer rehabilitation and

  3         liquidation; amending s. 626.9541, F.S.;

  4         conforming a cross-reference; amending s.

  5         631.001, F.S.; providing construction and

  6         purposes; providing a short title; amending s.

  7         631.011, F.S.; providing additional

  8         definitions; creating s. 631.025, F.S.;

  9         specifying application to certain persons and

10         entities; amending s. 631.041, F.S.; limiting

11         application of certain time restrictions;

12         conforming a cross-reference; creating s.

13         631.113, F.S.; providing for tolling certain

14         time limitations in certain actions; amending

15         s. 631.141, F.S.; vesting the Department of

16         Insurance with certain rights as receiver;

17         amending s. 631.154, F.S.; including certain

18         costs and expenses of the department in costs

19         and expenses entitled to be recovered by the

20         receiver under certain circumstances; creating

21         s. 631.156, F.S.; providing for investigations

22         by the department preliminary or incidental to

23         receivership proceedings; providing department

24         powers; authorizing the department to provide

25         certain information in such investigations;

26         granting the department certain discretionary

27         powers; creating s. 631.157, F.S.; imposing

28         liability on certain persons or entities for

29         certain actions; specifying amounts of damages;

30         providing construction; providing costs and

31         expenses entitled to be recovered by the

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    Florida Senate - 2002                                   SB 432
    28-530-02                                           See HB 193




  1         receiver under certain circumstances; providing

  2         a time certain for bringing certain actions;

  3         amending s. 631.193, F.S.; providing an

  4         additional limitation upon the operation of a

  5         release; creating s. 631.3995, F.S.; providing

  6         procedures and requirements for closing an

  7         estate; providing for deposit of certain assets

  8         into the Closed Estate Fund Trust Account;

  9         providing for uses of such account; providing

10         for reopening certain proceedings; amending s.

11         631.54, F.S.; revising a definition; amending

12         s. 631.57, F.S.; specifying additional criteria

13         for absence of certain obligations or

14         liabilities of the Florida Insurance Guaranty

15         Association; amending s. 631.60, F.S.; limiting

16         certain causes of action against the

17         association; specifying absence of creation of

18         additional rights against the association;

19         creating s. 817.2341, F.S.; providing criminal

20         penalties for certain activities; providing an

21         effective date.

22

23  Be It Enacted by the Legislature of the State of Florida:

24

25         Section 1.  Paragraph (w) of subsection (1) of section

26  626.9541, Florida Statutes, is amended to read:

27         626.9541  Unfair methods of competition and unfair or

28  deceptive acts or practices defined.--

29         (1)  UNFAIR METHODS OF COMPETITION AND UNFAIR OR

30  DECEPTIVE ACTS.--The following are defined as unfair methods

31  of competition and unfair or deceptive acts or practices:

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    Florida Senate - 2002                                   SB 432
    28-530-02                                           See HB 193




  1         (w)  Soliciting or accepting new or renewal insurance

  2  risks by insolvent or impaired insurer prohibited; penalty.--

  3         1.  Whether or not delinquency proceedings as to the

  4  insurer have been or are to be initiated, but while such

  5  insolvency or impairment exists, no director or officer of an

  6  insurer, except with the written permission of the Department

  7  of Insurance, shall authorize or permit the insurer to solicit

  8  or accept new or renewal insurance risks in this state after

  9  such director or officer knew, or reasonably should have

10  known, that the insurer was insolvent or impaired. "Impaired"

11  includes impairment for capital or surplus, as defined in s.

12  631.011(12)(9) and (13)(10).

13         2.  Any such director or officer, upon conviction of a

14  violation of this paragraph, is guilty of a felony of the

15  third degree, punishable as provided in s. 775.082, s.

16  775.083, or s. 775.084.

17         Section 2.  Section 631.001, Florida Statutes, is

18  amended to read:

19         (Substantial rewording of section.

20         See s. 631.001, F.S., for present text.)

21         631.001  Construction; purposes.--

22         (1)  The underlying purposes and policies of the

23  provisions of this part, which are integral elements of the

24  regulation of the business of insurance and are of vital

25  public interest and concern, are to:

26         (a)  Protect the interests of insureds, claimants,

27  creditors, and the public.

28         (b)  Provide a comprehensive scheme for the

29  receivership of insurers.

30         (c)  Establish this state as a reciprocal state in

31  those states which, in substance and effect, enact the

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    Florida Senate - 2002                                   SB 432
    28-530-02                                           See HB 193




  1  National Association of Insurance Commissioners Rehabilitation

  2  and Liquidation Model Act or the Uniform Insurers Liquidation

  3  Act.

  4         (d)  Make more efficient the administration of insurer

  5  receiverships on an interstate and international basis.

  6         (e)  Provide prompt corrective measures for any

  7  potentially dangerous condition in an insurer.

  8         (f)  Implement improved methods for rehabilitating

  9  insurers, which methods involve the cooperation and management

10  expertise of the insurance industry.

11         (g)  Enhance the efficiency and economy of liquidation

12  through clarification and specification of the law to minimize

13  legal uncertainty and litigation.

14         (h)  Lessen the problems of interstate rehabilitation

15  and liquidation of an entity subject to the provisions of this

16  part by facilitating cooperation between states in the

17  liquidation process and by extension of the scope of personal

18  jurisdiction over debtors of the insurer outside this state.

19         (i)  Establish a system which equitably apportions any

20  unavoidable loss.

21         (j)  Maximize recovery of assets for the benefit of the

22  insurer and its policyholders, creditors, and estate.

23         (2)  This part shall be liberally construed to effect

24  the purposes stated in subsection (1) and shall specifically

25  authorize the department in its capacity as administrator,

26  conservator, rehabilitator, receiver, liquidator, or similar

27  capacity to pursue any actions for damages or other recoveries

28  on behalf of the insurer and its policyholders, creditors, and

29  estate.

30         (3)  This part may be cited as the "Insurers

31  Rehabilitation and Liquidation Act."

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    Florida Senate - 2002                                   SB 432
    28-530-02                                           See HB 193




  1         Section 3.  Section 631.011, Florida Statutes, is

  2  amended to read:

  3         631.011  Definitions.--For the purpose of this part,

  4  the term:

  5         (1)  "Affiliate" means any entity which exercises

  6  control over or is controlled by the insurer, directly or

  7  indirectly through:

  8         (a)  Equity ownership of voting securities;

  9         (b)  Common managerial control; or

10         (c)  Collusive participation by the management of the

11  insurer and affiliate in the management of the insurer or the

12  affiliate.

13         (2)  "Ancillary state" means, any state other than a

14  domiciliary state.

15         (3)  "Assets," as used in this section subsections

16  (8)-(10), means only allowed assets as defined in chapter 625.

17         (4)  "Bona fide holder for value" means a holder who,

18  while not possessing information that would lead a reasonable

19  person in the holder's position to believe that the insurer is

20  financially impaired, and while unaware of the imminence or

21  pendency of any receivership proceeding against the insurer,

22  has, in the exercise of reasonable business judgment,

23  exchanged his or her own funds, assets, or property for funds,

24  assets, or property of the insurer having an equivalent market

25  value.

26         (5)(4)  "Court" refers to the circuit court in which

27  the receivership proceeding is pending.

28         (6)(5)  "Delinquency proceeding" means any proceeding

29  commenced against an insurer pursuant to this chapter for the

30  purpose of liquidating, rehabilitating, reorganizing, or

31  conserving such insurer.

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    Florida Senate - 2002                                   SB 432
    28-530-02                                           See HB 193




  1         (7)(6)  "Domiciliary state" means the state in which an

  2  insurer is incorporated or organized or, in the case of an

  3  insurer incorporated or organized in a foreign country, the

  4  state in which such insurer, having become authorized to do

  5  business in such state, has, at the commencement of a

  6  delinquency proceeding, the largest amount of its assets held

  7  in trust and assets held on deposit for the benefit of its

  8  policyholders or policyholders and creditors in the United

  9  States; and any such insurer is deemed to be domiciled in such

10  state.

11         (8)  "Fair consideration" means that consideration

12  which is given for property or assets of an insurer when, in

13  exchange for the property or assets and in good faith,

14  property is conveyed, services are rendered, or an enforceable

15  obligation not invalidated by the receivership proceedings is

16  created, having a value to the insurer of not less than the

17  value of the property or assets given in exchange.

18         (9)(7)  "Foreign country" means territory not in any

19  state.

20         (10)(8)  "General assets" means all property, real,

21  personal, or otherwise, not specifically mortgaged, pledged,

22  deposited, or otherwise encumbered for the security or benefit

23  of specified persons or a limited class or classes of persons,

24  and as to such specifically encumbered property the term

25  includes all such property or its proceeds in excess of the

26  amount necessary to discharge the sum or sums secured thereby.

27  Assets held in trust and assets held on deposit for the

28  security or benefit of all policyholders or all policyholders

29  and creditors in the United States shall be deemed general

30  assets.

31

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    Florida Senate - 2002                                   SB 432
    28-530-02                                           See HB 193




  1         (11)  "Good faith," as applied to a transferee or

  2  transferor under this part, means honesty in fact and

  3  intention and includes the exercise of reasonable business

  4  judgment, together with the absence of information that would

  5  lead a reasonable person in the same position to know that the

  6  insurer is financially impaired or insolvent and together with

  7  the absence of knowledge regarding the imminence or pendency

  8  of any receivership proceeding against the insurer.

  9         (12)(9)  "Impairment of capital" means that the minimum

10  surplus required to be maintained in s. 624.408 has been

11  dissipated and the insurer is not possessed of assets at least

12  equal to all its liabilities together with its total issued

13  and outstanding capital stock, if a stock insurer, or the

14  minimum surplus or net trust fund required by s. 624.407, if a

15  mutual, reciprocal, or business trust insurer.

16         (13)(10)  "Impairment of surplus" means that the

17  surplus of a stock insurer, the additional surplus of a mutual

18  or reciprocal insurer, or the additional net trust fund of a

19  business trust insurer does not comply with the requirements

20  of s. 624.408.

21         (14)(11)  "Insolvency" means that all the assets of the

22  insurer, if made immediately available, would not be

23  sufficient to discharge all its liabilities or that the

24  insurer is unable to pay its debts as they become due in the

25  usual course of business. When the context of any provision of

26  this code so indicates, insolvency also includes and is

27  defined as "impairment of surplus," as defined in subsection

28  (13)(9), and "impairment of capital," as defined in subsection

29  (12)(8).

30         (15)(12)  "Insurer," in addition to persons so defined

31  under s. 624.03, also includes persons purporting to be

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    Florida Senate - 2002                                   SB 432
    28-530-02                                           See HB 193




  1  insurers or organizing, or holding themselves out as

  2  organizing, in this state for the purpose of becoming insurers

  3  and all insurers who have insureds resident in this state.

  4         (16)(13)  "Liabilities," as used in subsections (12)

  5  and (14)(8)-(10), means all liabilities, including those

  6  specifically required in s. 625.041.

  7         (17)(14)  "Person" includes natural persons,

  8  corporations, partnerships, trusts, estates, and sole

  9  proprietorships.

10         (18)  "Property," with respect to an insolvent entity,

11  includes all right, title, and interest of the insolvent

12  entity whether legal or equitable, tangible or intangible, or

13  choate or inchoate and includes choses in action, contract

14  rights, and any other interest recognized under the laws of

15  this state.  When an order of conservation, rehabilitation, or

16  liquidation is entered, the term also includes entitlements

17  that existed prior to the entry of the order and those that

18  may arise by operation of the provisions of this chapter or

19  other provisions of law allowing the department to avoid prior

20  transfers or assert other rights in its capacity as receiver.

21  The term also includes all records and data, however stored,

22  including, but not limited to, claims and claim files,

23  application files, litigation files, premium records, rate

24  books, underwriting manuals, personnel records, or financial

25  records, or similar records within the possession, custody, or

26  control of a managing general agent, third-party

27  administrator, management company, accountant, attorney,

28  affiliate, or other person. The term does not include

29  privileged or confidential documents of an insolvent insurer

30  generated by a third party.

31

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    Florida Senate - 2002                                   SB 432
    28-530-02                                           See HB 193




  1         (19)(15)  "Receiver" means a receiver, liquidator,

  2  rehabilitator, or conservator, as the context may require.

  3         (20)(16)  "Reciprocal state" means any state other than

  4  this state in which in substance and effect the provisions of

  5  the Insurers Rehabilitation and Liquidation Act are in force,

  6  including the provisions requiring that the commissioner of

  7  insurance or equivalent insurance supervisory official be the

  8  receiver of a delinquent insurer.

  9         (21)(17)  "Secured claim" means any claim secured by

10  mortgage, trust deed, pledge, deposit as security, escrow, or

11  otherwise but does not include a special deposit claim, a

12  claim against general assets, or a claim based on mere

13  possession.  The term also includes a claim which more than 4

14  months before the commencement of a delinquency proceeding in

15  the state of the insurer's domicile has become a lien upon

16  specific assets by reason of judicial process.

17         (22)(18)  "Special deposit claim" means any claim

18  secured by a deposit made pursuant to statute for the security

19  or benefit of a limited class or classes of persons, but not

20  including any general assets.

21         (23)(19)  "State" is as defined in s. 624.08.

22         Section 4.  Section 631.025, Florida Statutes, is

23  created to read:

24         631.025  Persons and entities subject to this

25  part.--The receivership proceedings authorized by this part

26  may be initiated against, and the receivership court may

27  exercise jurisdiction over, any person who is an insurer and

28  against any person whose inclusion is necessary for the

29  purposes of this part whether or not said person would

30  otherwise be an insurer, including, but not limited to, the

31  following:

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    Florida Senate - 2002                                   SB 432
    28-530-02                                           See HB 193




  1         (1)  A person who is transacting, or has transacted,

  2  insurance business in or from this state, and against whom

  3  claims arising from that business may exist now or in the

  4  future.

  5         (2)  A person who purports to transact an insurance

  6  business in this state, and any person or entity who acts as

  7  an insurer, transacts insurance, or otherwise engages in

  8  insurance activities in or from this state, with or without a

  9  certificate of authority or proper authority from the

10  department.

11         (3)  An insurer who has insureds resident in this

12  state.

13         (4)  All other persons organized or in the process of

14  organizing with the intent to transact an insurance business

15  in this state.

16         (5)  Current and former agents and brokers of the

17  insurer; policyholders, excess insurers, and reinsurers of the

18  insurer; current and former officers, directors, managers,

19  trustees, organizers, promoters, and persons in control of the

20  insurer; any third-party administrator; and any person who

21  maintains information for an insurer.

22         (6)  Any corporation that directly or indirectly owns

23  10 percent or more of the stock of a Florida domestic insurer.

24         (7)  Any other person or entity that is made subject to

25  the provisions of this part.

26         Section 5.  Paragraph (d) of subsection (1) of section

27  631.041, Florida Statutes, is amended, and subsection (6) is

28  added to that section, to read:

29         631.041  Automatic stay; relief from stay;

30  injunctions.--

31

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    Florida Senate - 2002                                   SB 432
    28-530-02                                           See HB 193




  1         (1)  An application or petition under s. 631.031

  2  operates as a matter of law as an automatic stay applicable to

  3  all persons and entities, other than the receiver, which shall

  4  be permanent and survive the entry of an order of

  5  conservation, rehabilitation, or liquidation, and which shall

  6  prohibit:

  7         (d)  Any act to create, perfect, or enforce a lien

  8  against property of the insurer, except that a secured claim

  9  as defined in s. 631.011(21)(17) may proceed under s. 631.191

10  after the order of liquidation is entered;

11         (6)  No statute of limitations or defense of laches

12  shall run with respect to any action by or against an insurer

13  between the filing of a petition for conservation,

14  rehabilitation, or liquidation against an insurer and the

15  order granting or denying that petition.  If the petition is

16  denied, any action against the insurer that might have been

17  commenced when the petition was filed may be commenced for at

18  least 60 days after the order denying such relief.

19         Section 6.  Section 631.113, Florida Statutes, is

20  created to read:

21         631.113  Extension of time.--

22         (1)  The running of any unexpired statute of

23  limitations as to any claims brought by the administrator,

24  conservator, rehabilitator, receiver, or liquidator, or an

25  official or agency exercising powers pursuant to this chapter

26  seeking damages or other recoveries on behalf of an insurer,

27  its policyholders, its creditors, or its estate, shall be

28  tolled for a period of 4 years from the entry of an order

29  placing the administrator, conservator, rehabilitator,

30  receiver, liquidator, or similar official or agency over the

31  insurer, provided, if the delinquency proceedings brought

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    Florida Senate - 2002                                   SB 432
    28-530-02                                           See HB 193




  1  pursuant to this chapter against the insurer terminate in less

  2  than 4 years, such tolling shall cease at the time when the

  3  proceedings are finally concluded, including all appeals

  4  therefrom. Further, the right of action does not accrue and

  5  the limitations period for any such action does not run during

  6  the time when the insurer is controlled by parties acting

  7  contrary to the company's interests or when the facts giving

  8  rise to such claim are fraudulently concealed from regulatory

  9  authorities or from any members of company management.  The

10  provisions of chapter 95 shall be construed so as to be

11  consistent with the provisions of this section.  The receiver

12  may institute any action or proceeding on behalf of the estate

13  of the insurer while any statute of limitation is tolled

14  pursuant to this section.  The tolling shall be in addition to

15  any other applicable tolling provision.

16         (2)  For actions not covered by subsection (1), if any

17  unexpired time period is fixed, by any agreement or in any

18  proceeding, for doing any act for the benefit of the estate,

19  the receiver shall have 180 days, or such longer period as the

20  receivership court may allow for good cause shown, from the

21  entry of the order of rehabilitation or liquidation to perform

22  the act.

23         Section 7.  Present subsections (6) through (9) of

24  section 631.141, Florida Statutes, are renumbered as

25  subsections (7) through (10), respectively, and a new

26  subsection (6) is added to that section to read:

27         631.141  Conduct of delinquency proceeding; domestic

28  and alien insurers.--

29         (6)  The department as receiver is vested with and may

30  assert all rights belonging to policyholders, creditors, and

31  the estate as well as all rights of the entity or entities in

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    Florida Senate - 2002                                   SB 432
    28-530-02                                           See HB 193




  1  receivership, except to the extent that an individual claim is

  2  personal and unique to that claimant and recovery thereon

  3  could not inure to the benefit of the estate or to other

  4  claimants.

  5         Section 8.  Paragraph (d) of subsection (6) of section

  6  631.154, Florida Statutes, is amended to read:

  7         631.154  Funds or other property in the possession of

  8  third person.--

  9         (6)  Should the receiver be successful in establishing

10  its claim or any part thereof, the receiver shall be entitled

11  to recover judgment for the following:

12         (d)  All costs, investigative and other expenses, which

13  include the department's in-house staff and staff attorney's

14  expenses, costs, and salaries, expended in necessary to the

15  recovery of the property or funds, and reasonable attorney's

16  fees.

17         Section 9.  Section 631.156, Florida Statutes, is

18  created to read:

19         631.156  Investigation by the department.--

20         (1)  Preliminary or incidental to a petition for

21  receivership proceedings, the department may, and if appointed

22  receiver shall, undertake a full investigation to determine

23  the causes and reasons for the insolvency, the discovery and

24  location of assets to be recovered, the recovery of such

25  assets, whether the filing of false statements with the

26  department contributed to the insolvency, and, in conjunction

27  with the department's Division of Insurance Fraud or any other

28  appropriate agency of state or federal government, whether any

29  law of this state, any other state, or the Federal Government

30  relating to the solvency of the insurer has been violated.  In

31  the furtherance of such investigation, the department may:

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    Florida Senate - 2002                                   SB 432
    28-530-02                                           See HB 193




  1         (a)  Examine and review any and all documents that are

  2  reasonably calculated to disclose or lead to the disclosure of

  3  the causes and reasons for the insolvency, the discovery and

  4  location of assets to be recovered, the recovery of such

  5  assets, the truth or falsity of statements filed with the

  6  department, and whether any law of this state, any other

  7  state, or the Federal Government has been violated.

  8         (b)  Take statements or depositions under oath of any

  9  person whose testimony is reasonably calculated to disclose or

10  lead to the disclosure of the causes and reasons for the

11  insolvency, the discovery of and location of assets to be

12  recovered, the recovery of such assets, the truth or falsity

13  of statements filed with the department, and whether any law

14  of this state, any other state, or the Federal Government has

15  been violated.

16         (c)  Request the court having jurisdiction over the

17  receivership proceedings to issue any necessary subpoenas.

18         (d)  Examine and review the books, records, and

19  documents of any affiliate, controlling person, officer,

20  director, manager, trustee, agent, adjuster, employee, or

21  independent contractor of any insurer or affiliate and any

22  other person who possesses any executive authority over, or

23  who exercises or has exercised any control over, any segment

24  of the affairs of the insurer or affiliate, to the extent such

25  examination is reasonably calculated to disclose or lead to

26  the disclosure of the causes and reasons for the insolvency,

27  the discovery and location of assets to be recovered, the

28  recovery of such assets, the truth or falsity of statements

29  filed with the department, and whether any law of this state,

30  any other state, or the Federal Government has been violated.

31

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    Florida Senate - 2002                                   SB 432
    28-530-02                                           See HB 193




  1         (2)  In its capacity as receiver, the department may

  2  provide documents, books and records, other investigative

  3  products, work product, and analysis, including copies of any

  4  or all of the foregoing items, to the Division of Insurance

  5  Fraud or any other appropriate agency of state or federal

  6  government.  The sharing of information, investigative

  7  products, or analysis shall not waive any work product or

  8  other privilege that would otherwise apply under common law,

  9  chapter 119, or any other law.

10         (3)  The department, as the court's receiver, is

11  granted the discretion to determine what books, records,

12  documents, or testimony would be reasonably calculated to

13  disclose or lead to the disclosure of the causes and reasons

14  for the insolvency, the discovery and location of assets to be

15  recovered, the recovery of the assets, the truth or falsity of

16  statements filed with the department, and whether any law of

17  this state or of the United States has been violated, subject

18  to the court's power to review such determination or appoint a

19  general master to review such determination.  A party

20  asserting that any documents requested by the department under

21  this section are not subject to review, or that any particular

22  testimony may not be obtained, shall present such contention

23  by written motion to the receivership court within 10 days

24  after receipt of the request and shall be fully responsible

25  for the loss of any evidence which occurs after the department

26  first informs said party of its request therefor.  The court

27  shall, as expeditiously as possible, determine whether the

28  department has abused its discretion in seeking such evidence

29  or testimony, with the objecting party having the burden of

30  proof.  A party who fails to produce the requested evidence or

31  testimony without filing a proper timely objection, or who

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    Florida Senate - 2002                                   SB 432
    28-530-02                                           See HB 193




  1  having unsuccessfully asserted such objection fails thereafter

  2  to furnish the evidence or testimony, within the time provided

  3  by the court or the department, shall be subject to the

  4  contempt powers of the court, in addition to any other

  5  applicable penalties which may be provided in the Florida

  6  Insurance Code or other law.

  7         Section 10.  Section 631.157, Florida Statutes, is

  8  created to read:

  9         631.157  Civil action by the receiver.--

10         (1)  Any person who is engaged in the business of

11  insurance or who acts as or is an officer, director, agent, or

12  employee of any person engaged in the business of insurance,

13  or is involved, other than as an insured or beneficiary under

14  a policy of insurance, in a transaction relating to the

15  conduct of affairs of such a business, and who willfully

16  embezzles, abstracts, purloins, converts, or misappropriates

17  any asset or property, including, but not limited to, moneys,

18  funds, premiums, credits, or other property of an insurer,

19  shall be liable to the department as receiver for the use and

20  benefit of an insolvent insurer's estate, creditors, and

21  policyholders, as follows:

22         (a)  If such embezzlement, abstraction, purloining,

23  conversion, or misappropriation did not jeopardize the safety

24  and soundness of an insurer and was not a significant cause of

25  such insurer's being placed in conservation, rehabilitation,

26  or liquidation, such person shall be liable only for the full

27  amount of any asset embezzled, abstracted, purloined, or

28  misappropriated, plus prejudgment interest provided by law.

29         (b)  If such embezzlement, abstraction, purloining,

30  conversion, or misappropriation jeopardized the safety and

31  soundness of an insurer or was a significant cause of such

                                  16

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    Florida Senate - 2002                                   SB 432
    28-530-02                                           See HB 193




  1  insurer's being placed in conservation, rehabilitation, or

  2  liquidation, such person shall be liable for triple the full

  3  amount of any asset embezzled, abstracted, purloined,

  4  converted, or misappropriated, plus prejudgment interest

  5  provided by law on the original amount.

  6         (2)  Any person who is engaged in the business of

  7  insurance or who acts as or is an officer, director, agent, or

  8  employee of any person engaged in the business of insurance,

  9  or is involved, other than as an insured or beneficiary under

10  a policy of insurance, in a transaction relating to the

11  conduct of affairs of such a business, and who, while having

12  actual knowledge or such constructive knowledge as should have

13  been obtained through reasonable inquiry by a person in such

14  position, knew of the falsity thereof, misreports, or makes

15  any false entry of material fact in any book, report, or

16  statement of an insurer with intent to deceive such insurer,

17  including any officer, employee, or agent of such insurer, the

18  department, or any agent or examiner appointed by the

19  department to examine the affairs of such person or of the

20  insurer, concerning the financial condition or solvency of

21  such business, shall be liable to the department as receiver

22  for the use and benefit of an insolvent insurer's estate,

23  creditors, and policyholders, as follows:

24         (a)  If such misreporting did not jeopardize the safety

25  and soundness of an insurer and was not a significant cause of

26  such insurer's being placed in conservation, rehabilitation,

27  or liquidation, such person shall be liable only for the full

28  amount of any asset misreported.

29         (b)  If such misreporting jeopardized the safety and

30  soundness of an insurer or was a significant cause of such

31  insurer's being placed in conservation, rehabilitation, or

                                  17

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    Florida Senate - 2002                                   SB 432
    28-530-02                                           See HB 193




  1  liquidation, such person shall be liable for triple the full

  2  amount of any asset misreported.

  3         (3)  If the asset or property which has been

  4  misreported, embezzled, abstracted, purloined, converted, or

  5  misappropriated was reported to the department as being

  6  available to the insurer as an admitted asset and such asset

  7  is unavailable to the receiver for payment of the obligations

  8  of the insurer at the time when a receivership proceeding is

  9  instituted, the misreporting, embezzlement, abstraction,

10  purloining, conversion, or misappropriation shall be presumed

11  to have jeopardized the safety and soundness of the insurer

12  and to have been a significant cause of such insurer's being

13  placed in conservation, rehabilitation, or liquidation, with

14  the burden of proof on the defendants to show otherwise.

15         (4)  If the receiver is successful in establishing a

16  claim under this section, the receiver shall be entitled to

17  recover all of its costs, investigative and other expenses,

18  which shall include the department's in-house staff and staff

19  attorney's expenses, costs, and salaries, expended in the

20  prosecution of the action, and reasonable attorney's fees.

21  The receiver shall be exempt from the provisions of s. 57.111.

22         (5)  An action under this section may be brought at any

23  time before the expiration of 4 years after the entry of the

24  initial order of rehabilitation or liquidation under this part

25  but shall be filed before the time the receivership proceeding

26  is closed or dismissed.

27         Section 11.  Section 631.193, Florida Statutes, is

28  amended to read:

29         631.193  Releases.--The filing of a claim constitutes a

30  release of the insured from liability to the claimant to the

31  extent of the coverage or policy limits provided by the

                                  18

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    Florida Senate - 2002                                   SB 432
    28-530-02                                           See HB 193




  1  insolvent insurer.  The release is conditioned upon the

  2  cooperation of the insured with the receiver and the Florida

  3  Insurance Guaranty Association and any other guaranty

  4  association in defense of the claim.  This release does not

  5  operate to discharge the Florida Insurance Guaranty

  6  Association or any other guaranty association from any of its

  7  responsibilities and duties set out in this chapter, nor does

  8  it operate to impose any liability on any such guaranty

  9  association which would not have existed absent the filing of

10  a claim in the receivership.

11         Section 12.  Section 631.3995, Florida Statutes, is

12  created to read:

13         631.3995  Closing of estate; Closed Estate Fund Trust

14  Account.--

15         (1)  When all assets justifying the expense of

16  collection and distribution have been marshaled and

17  distributed under this part, the department shall petition the

18  court to terminate the liquidation proceedings and to close

19  the estate. The court may grant such other relief as may be

20  appropriate, including, but not limited to, a full discharge

21  of all liability and responsibility of the liquidator, the

22  reservation of assets for administrative expenses incurred in

23  the closing of the estate, and any other actions the

24  department feels necessary or appropriate for closing the

25  estate.

26         (2)  Any remaining reserved assets that are provided

27  for in subsection (1) and that may not be practicably or

28  economically distributed to claimants shall be deposited into

29  a segregated account to be known as the Closed Estate Fund

30  Trust Account, if created by law.  The department may use

31  moneys held in the account for paying the administrative

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    Florida Senate - 2002                                   SB 432
    28-530-02                                           See HB 193




  1  expenses of companies subject to this part that lack

  2  sufficient assets to allow the department to perform its

  3  duties and obligations under this part. An annual audit of the

  4  Closed Estate Fund Trust Account shall be performed regardless

  5  of its balance.

  6         (3)  The department may petition the court to reopen

  7  the proceedings for good cause shown, including the marshaling

  8  of additional assets, and the court may enter such other

  9  orders as may be deemed appropriate.

10         Section 13.  Subsection (3) of section 631.54, Florida

11  Statutes, is amended to read:

12         631.54  Definitions.--As used in this part:

13         (3)  "Covered claim" means an unpaid claim, including

14  one of unearned premiums, which arises out of, and is within

15  the coverage, and not in excess of, the applicable limits of

16  an insurance policy to which this part applies, issued by an

17  insurer, if such insurer becomes an insolvent insurer after

18  October 1, 1970, and the claimant or insured is a resident of

19  this state at the time of the insured event or the property

20  from which the claim arises is permanently located in this

21  state. "Covered claim" shall not include any amount due any

22  reinsurer, insurer, insurance pool, or underwriting

23  association, as subrogation, contribution, indemnification,

24  recoveries or otherwise.  Member insurers shall have no right

25  of subrogation against the insured of any insolvent member.

26         Section 14.  Subsection (1) of section 631.57, Florida

27  Statutes, is amended to read:

28         631.57  Powers and duties of the association.--

29         (1)  The association shall:

30         (a)1.  Be obligated to the extent of the covered claims

31  existing:

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    Florida Senate - 2002                                   SB 432
    28-530-02                                           See HB 193




  1         a.  Prior to adjudication of insolvency and arising

  2  within 30 days after the determination of insolvency;

  3         b.  Before the policy expiration date if less than 30

  4  days after the determination; or

  5         c.  Before the insured replaces the policy or causes

  6  its cancellation, if she or he does so within 30 days of the

  7  determination.

  8         2.  The obligation under subparagraph 1. shall include

  9  only that amount of each covered claim which is in excess of

10  $100 and is less than $300,000, except with respect to

11  policies covering condominium associations or homeowners'

12  associations, which associations have a responsibility to

13  provide insurance coverage on residential units within the

14  association, the obligation shall include that amount of each

15  covered property insurance claim which is less than $100,000

16  multiplied by the number of condominium units or other

17  residential units; however, as to homeowners' associations,

18  this subparagraph applies only to claims for damage or loss to

19  residential units and structures attached to residential

20  units.

21         3.  In no event shall the association be obligated to a

22  policyholder or claimant in an amount in excess of the

23  obligation of the insolvent insurer under the policy from

24  which the claim arises or under circumstances in which the

25  insolvent insurer could not have been compelled to pay the

26  claim.

27

28  The foregoing notwithstanding, the association shall have no

29  obligation to pay covered claims to be paid from the proceeds

30  of bonds issued under s. 166.111(2).  However, the association

31  shall cause assessments to be made under paragraph (3)(e) for

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    Florida Senate - 2002                                   SB 432
    28-530-02                                           See HB 193




  1  such covered claims, and such assessments shall be assigned

  2  and pledged under paragraph (3)(e) to or on behalf of the

  3  issuer of such bonds for the benefit of the holders of such

  4  bonds.  The association shall administer any such covered

  5  claims and present valid covered claims for payment in

  6  accordance with the provisions of the assistance program in

  7  connection with which such bonds have been issued.

  8         (b)  Be deemed the insurer to the extent of its

  9  obligation on the covered claims, and, to such extent, shall

10  have all rights, duties, defenses, and obligations of the

11  insolvent insurer as if the insurer had not become insolvent.

12  In no event shall the association be liable for any penalties

13  or interest or any amount in excess of the limits set forth in

14  paragraph (a) and the other limitations on liability also set

15  forth in this chapter.

16         Section 15.  Subsection (1) of section 631.60, Florida

17  Statutes, is amended to read:

18         631.60  Effect of paid claims.--

19         (1)  Any person recovering under this part shall be

20  deemed to have assigned her or his rights under the policy to

21  the association to the extent of the person's recovery from

22  the association, regardless of whether such recovery is

23  received directly from the association or through payments

24  made from the proceeds of bonds issued under s. 166.111(2).

25  Every insured or claimant seeking the protection of this part

26  shall cooperate with the association to the same extent as

27  such person would have been required to cooperate with the

28  insolvent insurer.  The association shall have no cause of

29  action against the insured of the insolvent insurer for any

30  sums it has paid out except such causes of action as the

31  insolvent insurer would have had if such sums had been paid by

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    Florida Senate - 2002                                   SB 432
    28-530-02                                           See HB 193




  1  the insolvent insurer.  In the case of an insolvent insurer

  2  operating on a plan with assessment liability, payments of

  3  claims of the association shall not operate to reduce the

  4  liability of insureds to the receiver, liquidator, or

  5  statutory successor for unpaid assessments. Under no

  6  circumstances shall any person have any cause of action

  7  against the association which that person would not have had

  8  against the insolvent insurer, nor shall this chapter be

  9  construed as creating any additional rights against the

10  association which would not have existed against the insolvent

11  insurer.

12         Section 16.  Section 817.2341, Florida Statutes, is

13  created to read:

14         817.2341  Crimes by or affecting persons engaged in the

15  administration of any insurer or entity organized pursuant to

16  chapter 624 or chapter 641.--

17         (1)(a)  Any person who makes a false entry of a

18  material fact in any book, report, or statement relating to a

19  transaction of an insurer or entity organized pursuant to

20  chapter 624 or chapter 641, intending thereby to deceive any

21  person about the financial condition or solvency of such

22  insurer or entity, commits a felony of the third degree,

23  punishable as provided in s. 775.082, s. 775.083, or s.

24  775.084.

25         (b)  If such false entry of a material fact is made

26  with the intent to deceive any person as to the impairment of

27  capital, as defined in s. 631.011(12), of such insurer or

28  entity or is the significant cause of such insurer or entity

29  being placed in conservation, rehabilitation, or liquidation

30  by a court, the offense is a felony of the first degree,

31

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    Florida Senate - 2002                                   SB 432
    28-530-02                                           See HB 193




  1  punishable as provided in s. 775.082, s. 775.083, or s.

  2  775.084.

  3         (2)(a) Any person who knowingly makes a material false

  4  statement or report to the department or any agent of the

  5  department, or who knowingly and materially overvalues any

  6  property in any document or report prepared to be presented to

  7  the department or any agent of the department, commits a

  8  felony of the third degree, punishable as provided in s.

  9  775.082, s. 775.083, or s. 775.084.

10         (b)  If such material false statement or report or such

11  material overvaluation is made with the intent to deceive any

12  person as to the impairment of capital, as defined in s.

13  631.011(12), of an insurer or entity organized pursuant to

14  chapter 624 or chapter 641, or is the significant cause of

15  such insurer or entity being placed in conservation,

16  rehabilitation, or liquidation by a court, the offense is a

17  felony of the first degree, punishable as provided in s.

18  775.082, s. 775.083, or s. 775.084.

19         Section 17.  This act shall take effect July 1, 2002.

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    Florida Senate - 2002                                   SB 432
    28-530-02                                           See HB 193




  1            *****************************************

  2                       LEGISLATIVE SUMMARY

  3
      Creates the "Insurers Rehabilitation and Liquidation
  4    Act." Specifies application of receivership proceedings
      to specified persons and entities. Provides for tolling
  5    time limitations in conservation, liquidation,
      rehabilitation, or receivership actions. Vests the
  6    Department of Insurance with rights as receiver in
      receivership proceedings. Includes the department's
  7    in-house staff and staff attorney's expenses, costs, and
      salaries in costs and expenses entitled to be recovered
  8    by a receiver who is successful in establishing a claim.
      Provides for investigations by the department preliminary
  9    or incidental to receivership proceedings, authorizes the
      department to provide information in such investigations,
10    and grants the department discretionary powers in
      determining information necessary to such investigations.
11    Imposes liability on persons or entities engaged in
      insurance business for willfully embezzling, abstracting,
12    purloining, converting, or misappropriating assets or
      property and specifies amounts of damages. Provides an
13    additional limitation on the operation of a release.
      Provides procedures and requirements for closing an
14    estate, provides for depositing estate assets into the
      Closed Estate Fund Trust Account, and provides for uses
15    of such account. Revises obligations and liabilities of
      the Florida Insurance Guaranty Association and limits
16    causes of action and creation of additional rights
      against the association. Provides criminal penalties for
17    making false entries of a material fact in books,
      reports, or statements relating to insurer transactions
18    or knowingly making a material false statement or report
      to the Department of Insurance or knowingly and
19    materially overvaluing property in a document or report
      provided to the department. (See bill for details.)
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