estate.
A. The priority of distribution of claims from the insurer's
estate shall be in accordance with the order in which each class of
claims is set forth in this section. Before the members of the next
class receive any payment, every claim in each class shall be:
1. Paid in full; or
2. Protected by adequate funds retained for such payment.
Once such funds are approved by the court and paid or retained by
the liquidator, the insurer's estate shall have no further liability
to members of that class except to the extent of the retained funds
and any other undistributed funds. Payment of retained funds
pursuant to court order under this section extinguishes the
potential liability of the receiver to the United States or any
other governmental entity. No subclasses shall be established
within any class except as otherwise provided by law. No claim by a
shareholder, policyholder or other creditor shall be permitted to
circumvent the priority classes through the use of equitable
remedies. The order of distribution of claims shall be as provided
in subsection B of this section.
B. 1. Class 1. The reasonable costs and expenses of
administration expressly approved by the receiver, including but not
limited to the following:
a. the actual and necessary costs of preserving or
recovering the assets of the insurer,
b. compensation for all authorized services rendered in
the conservation, rehabilitation or liquidation,
c. any necessary filing or recordation fees,
d. the fees and mileage payable to witnesses, including
experts, and other litigation costs and expenses,
e. authorized reasonable attorney fees and other
professional services rendered in the conservation,
rehabilitation or liquidation, and
f. any reasonable expenses that were incurred in
furtherance of activities that provided a material
economic benefit to the estate.
2. Class 2. The administrative expenses of guaranty
associations. For purposes of this section these expenses shall be
the reasonable expenses incurred by guaranty associations where the
expenses are not payments or expenses which are required to be
incurred as direct policy benefits in fulfillment of the terms of
the insurance contract or policy, and that are of the type and
nature that, but for the activities of the guaranty association
otherwise would have been incurred by the receiver, including but
not limited to evaluations of policy coverage, activities involved
in the adjustment and settlement of claims under policies, including
those of in-house or outside adjusters, and the reasonable expenses
incurred in connection with the arrangements for ongoing coverage
through transfer to other insurers, policy exchanges or maintaining
policies in force. The receiver may in his or her sole discretion
approve as an administrative expense under this section any other
reasonable expenses of the guaranty association if the receiver
finds:
a. the expenses are not expenses required to be paid or
incurred as direct policy benefits by the terms of the
policy, and
b. the expenses were incurred in furtherance of
activities that provided a material economic benefit
to the estate as a whole, irrespective of whether the
activities resulted in additional benefits to covered
claimants.
The court shall approve such expenses unless it finds the receiver
abused his or her discretion in approving the expenses. If the
receiver determines that any administrative expenses of a guaranty
association were not reasonable expenses, but were nevertheless paid
out of a statutory deposit or the proceeds of any bond or other
asset located in another state or foreign country, then the court
shall adjudge the Class 3 claims of that association to have been
paid to the extent of the amount of unreasonable expenses thus paid
from those assets.
If the receiver determines that the assets of the estate will be
sufficient to pay all Class 1 claims in full, Class 2 claims shall
be paid, provided that the liquidator shall secure from each of the
associations receiving disbursements pursuant to this section an
agreement to return to the liquidator such disbursements, together
with investment income actually earned on such disbursements, as may
be required to pay Class 1 claims. No bond shall be required of any
such association.
3. Class 3. All claims under policies including claims of the
federal or any state or local government for losses incurred ("loss
claims") including third-party claims, claims for unearned premiums,
all claims of a guaranty association for payment of covered claims
or covered obligations of the insurer and all claims of a guaranty
association for reasonable expenses other than those included in
Class 2. All claims under life and health insurance and annuity
policies, whether for death proceeds, health benefits, annuity
proceeds, or investment values shall be treated as loss claims.
That portion of any loss, indemnification for which is provided by
other benefits or advantages recovered by the claimant, shall not be
included in this class, other than benefits or advantages recovered
or recoverable in discharge of familial obligation of support or by
way of succession at death or as proceeds of life insurance, or as
gratuities. No payment by an employer to his employee shall be
treated as a gratuity.
Notwithstanding the foregoing, the following claims shall be
excluded from Class 3 priority:
a. obligations of the insolvent insurer arising out of
reinsurance contracts,
b. obligations incurred after the expiration date of the
insurance policy or after the policy has been replaced
by the insured or canceled at the insured's request or
after the policy has been canceled as provided in this
act. Notwithstanding the provisions of this
paragraph, earned premium claims on policies, other
than reinsurance agreements, shall not be excluded,
c. obligations to insurers, insurance pools or
underwriting associations and their claims for
contribution, indemnity or subrogation, equitable or
otherwise,
d. any claim which is in excess of any applicable limits
provided in the insurance policy issued by the
insolvent insurer,
e. any amount accrued as punitive or exemplary damages
unless expressly covered under the terms of the
policy, and
f. tort claims of any kind against the insurer, and
claims against the insurer for bad faith or wrongful
settlement practices.
4. Class 4. Claims of the federal government other than those
claims included in Class 3.
5. Class 5. Debts due employees for services, benefits,
contractual or otherwise due arising out of such reasonable
compensation to employees for services performed to the extent that
they do not exceed two (2) months of monetary compensation and
represent payment for services performed within six (6) months
before the filing of the petition for liquidation or, if
rehabilitation preceded liquidation, within one (1) year before the
filing of the petition for rehabilitation. Principal officers and
directors shall not be entitled to the benefit of this priority
except as otherwise approved by the liquidator and the court. This
priority shall be in lieu of any other similar priority which may be
authorized by law as to wages or compensation of employees.
6. Class 6. Claims of any person, including claims of state or
local governments, except those specifically classified elsewhere in
this section.
7. Class 7. Claims for commissions and service fees, and
claims of attorneys for fees and expenses owed them by a person for
services rendered in opposing a formal delinquency proceeding. In
order to prove the claim, the claimant must show that the insurer
which is the subject of the delinquency proceeding incurred such
fees and expenses based on its best knowledge, information and
belief, formed after reasonable inquiry indicating opposition was in
the best interests of the person, was well grounded in fact and was
warranted by existing law or a good-faith argument for the
extension, modification or reversal of existing law, and that
opposition was not pursued for any improper purpose, such as to
harass or to cause unnecessary delay or needless increase in the
cost of the litigation.
8. Class 8. Claims of any state or local government for a
penalty or forfeiture, but only to the extent of the pecuniary loss
sustained from the act, transaction or proceeding out of which the
penalty or forfeiture arose, with reasonable and actual costs
occasioned thereby. The remainder of such claims shall be postponed
to the class of claims under paragraph 9 of this subsection.
9. Class 9. Surplus or contribution notes or similar
obligations, premium refunds on assessable policies, interest on
claims of Classes 1 through 8 and any other claims specifically
subordinated to this class.
10. Class 10.
a. Claims of shareholders or other owners arising out of
their capacity as shareholders or other owners, or
arising in any other capacity or facts except as they
may be qualified in Class 3 or 4 above; provided,
however, that no shareholder, member or other owner
shall be entitled to, or receive, any distribution
from the insolvent insurer's estate under this
paragraph, if:
(1) the intentional wrongdoing, fraud, gross
negligence, negligence or other act, failure to
act, transaction or proceeding of such
shareholder, member or owner, alone or in concert
with others, or of a director or officer of the
insolvent insurer, is found by a court of
competent jurisdiction or by the receiver in his
or her reasonable discretion, to have caused, or
to have been a contributing factor to, the
insolvency of the insolvent insurer,
(2) funds were collected from the shareholder, member
or other owner, either directly or through an
insurance carrier, fidelity bond issuer or other
entity, as a consequence of, or related to, a
claim made or brought by the receiver of said
insurer, or
(3) any of the funds available for distribution
consist of punitive damages recovered by the
receiver of said estate from any source based
upon any claim made or brought by the receiver.
In the event there is no eligible shareholder, member
or other owner entitled to distribution in accordance
with this paragraph, the remaining funds and other
property of the insolvent insurer's estate, if any,
shall be distributed to a fund established and held in
the name of, and for the use and benefit of, the
receiver, through the Oklahoma Receivership Office or
any similar entity established by the receiver, which
shall be used in the administration of other insurers
in rehabilitation or liquidation.
b. All funds distributed to the receiver under this
paragraph shall be utilized by the receiver's staff
engaged in the rehabilitation or liquidation of
insolvent insurance business companies for the
following purposes:
(1) the administration of liquidations of estates
which temporarily or permanently do not have the
financial capability to administer the
liquidation, including the prosecution of claims
of the receiver, or
(2) the prosecution of petitions to place insurers in
rehabilitation or liquidation.
In the event such funds are distributed to or for an
insolvent insurer, the receiver shall obtain from the
insurer a promissory note or other evidence of
indebtedness, secured by collateral if possible, for
the amount distributed, which shall be treated as a
Class 1 expense under paragraph 1 of this subsection.
The receiver shall make good-faith efforts to collect
reimbursement of any such loans. No funds distributed
to the receiver under this paragraph shall be used to
pay claims other than Class 1 claims under paragraph 1
of this subsection. The funds are not funds of the
State of Oklahoma and are not funds of the Oklahoma
Insurance Department or any other agency of the State
of Oklahoma.
This paragraph shall apply to the administration of all receivership
estates open and ongoing as of November 1, 2014, and to all
receivership proceedings commenced after November 1, 2014.
C. If any claimant of this state, another state or foreign
country shall be entitled to or shall receive a dividend upon his or
her claim out of a statutory deposit or the proceeds of any bond or
other asset located in another state or foreign country, unless such
deposit or proceeds shall have been delivered to the domiciliary
liquidator, then the claimants shall not be entitled to any further
dividend from the receiver until and unless all other claimants of
the same class, irrespective of residence or place of the acts or
contracts upon which their claims are based, shall have received an
equal dividend upon their claims, and after such equalization, such
claimants shall be 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.
D. Upon the declaration of a dividend, the receiver shall apply
the amount of the dividend against any indebtedness owed to the
insurer by the person entitled to the dividend. There shall be no
claim allowed for any deductible charged by a guaranty association
or entity performing a similar function.
E. This section shall apply to pending and future claims in
existing delinquency proceedings as well as to claims in delinquency
proceedings arising after the effective date of this section.
F. If any provision of this section or the application thereof
to any person or circumstances is held invalid, such invalidity
shall not affect other provisions or application of this section to
the extent such other provisions or application can be given effect
without the invalid provision or application.
Added by Laws 1996, c. 246, § 7, eff. July 1, 1996. Amended by Laws
1997, c. 418, § 90, eff. Nov. 1, 1997; Laws 2014, c. 386, § 1, eff.
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