Ariz. Rev. Stat. § 20-685 – Powers and duties of the fund

A. If a member insurer is an impaired insurer, the fund, subject to any conditions imposed by the fund that do not impair the contractual obligations of the impaired insurer, with the approval of the director, may:
1. 1. Guarantee, assume, reissue or reinsure, or cause to be guaranteed, assumed, reissued or reinsured, any or all of the policies or contracts of the impaired insurer.
2. 2. Provide monies, pledges, loans, notes, guarantees or other means as are proper to effectuate paragraph 1 of this subsection and assure payment of the contractual obligations of the impaired insurer pending action pursuant to paragraph 1 of this subsection.
B. If a member insurer is an insolvent insurer, the fund, with the approval of the director, shall either:
1. 1. Guarantee, assume, reissue or reinsure, or cause to be guaranteed, assumed, reissued or reinsured, the policies or contracts of the insolvent insurer or assure payment of the contractual obligations of the insolvent insurer, and provide monies, pledges, loans, notes, guarantees or other means reasonably necessary to discharge the fund's obligations.
2. 2. Provide benefits and coverage as follows:
  1. (a) With respect to policies and contracts, assure payment of benefits that would have been payable under the policies or contracts of the insolvent insurer, for claims incurred:
    1. (i) With respect to group policies and contracts, not later than the earlier of the next renewal date under those policies or contracts or forty-five days, but not less than thirty days, after the date on which the fund becomes obligated with respect to the policies and contracts.
    2. (ii) With respect to nongroup policies, contracts and annuities, not later than the earlier of the next renewal date, if any, under the policies or contracts or one year, but not less than thirty days, from the date on which the fund becomes obligated with respect to the policies or contracts.
  2. (b) Make diligent efforts to provide thirty days' notice of a termination of benefits under subdivision (a) of this paragraph to all known insureds, enrollees or annuitants for nongroup policies and contracts, and group policy or contract owners with respect to group policies and contracts.
  3. (c) With respect to nongroup policies and contracts covered by the fund, make available to each known insured, enrollee or annuitant, or owner if other than the insured or annuitant, and with respect to an individual who was formerly an insured, enrollee or annuitant under a group policy or contract and who is not eligible for replacement group coverage, substitute coverage on an individual basis in accordance with subdivision (d) of this paragraph, if the insureds, enrollees or annuitants had a right under law or the terminated policy, contract or annuity to convert coverage to individual coverage or to continue an individual policy, contract or annuity in force until a specified age or for a specified time, during which the insurer or health care services organization had no right unilaterally to make changes in any provision of the policy, contract or annuity or had a right only to make changes in premium by class.
  4. (d) In providing substitute coverage under subdivision (c) of this paragraph:
    1. (i) The fund may offer to reissue the terminated coverage or to issue an alternative policy or contract at actuarially justified rates, subject to the prior approval of the director.
    2. (ii) Any alternative or reissued policies or contracts so offered shall be offered without requiring evidence of insurability and without any waiting period or exclusion that would not have applied under the terminated policy or contract.
    3. (iii) The fund may reinsure any alternative or reissued policy or contract.
  5. (e) Any alternative policy or contract adopted by the fund is subject to approval by the director. The fund may adopt alternative policies or contracts of various types for future issuance without regard to any particular impairment or insolvency. Any alternative policy or contract shall:
    1. (i) Contain at least the minimum statutory provisions required in this state and provide benefits that are reasonable in relation to the premium charged. The fund shall set the premium in accordance with a table of rates that the fund shall adopt. The premium shall reflect the amount of insurance to be provided and the age and class of risk of each insured, but shall not reflect any changes in the health of the insured after the original policy or contract was last underwritten.
    2. (ii) Provide coverage of a type similar to that of the policy or contract issued by the impaired insurer or insolvent insurer, as determined by the fund.
  6. (f) If the fund elects to reissue terminated coverage at a premium rate different from that charged under the terminated policy or contract, the premium shall be actuarially justified and shall be set by the fund in accordance with the amount of insurance or coverage provided and the age and class of risk, subject to prior approval of the director.
  7. (g) The fund's obligations with respect to coverage under any policy or contract of the impaired insurer or insolvent insurer or under any reissued or alternative policy or contract shall cease on the date the coverage or policy or contract is replaced by another similar policy or contract by the policy or contract owner, the insured, the enrollee or the fund.
  8. (h) When proceeding under this paragraph with respect to a policy or contract carrying guaranteed minimum interest rates, the fund shall assure the payment or crediting of a rate of interest consistent with subdivision (c) of this paragraph.
C. The fund is not liable pursuant to this section for any covered policy of an impaired insurer or insolvent insurer whose domiciliary jurisdiction or state of entry provides by statute or regulation for residents of this state protection substantially similar to that provided by this article for residents of other states.
D. The fund may render assistance and advice to the director, on the director's request, concerning rehabilitation, payment of claims, continuations of coverage or the performance of other contractual obligations of any impaired insurer or insolvent insurer.
E. The fund shall have standing to appear or intervene before any court with jurisdiction over an impaired insurer or insolvent insurer concerning which the fund is or may become obligated, or over any person or property against which the fund may have rights, pursuant to this article. Such standing shall extend to all matters germane to the powers and duties of the fund, including proposals for reinsuring, reissuing, modifying or guaranteeing the covered policies or contracts of the impaired insurer or insolvent insurer and the determination of the covered policies or contracts and contractual obligations.
F. Any persons receiving benefits pursuant to this article shall be deemed to have assigned their rights under, and any causes of action against any person for losses arising under, resulting from or otherwise relating to, the covered policy or contract to the fund to the extent of the benefits received whether the benefits are payments of contractual obligations, continuation of coverage or provision of substitute or alternative policies, contracts or coverages. The fund may require an assignment to the fund of such rights by any enrollee, payee, policy or contract owner, beneficiary, insured or annuitant as a condition precedent to the receipt of any rights or benefits conferred on such person pursuant to this article. The subrogation rights of the fund under this subsection shall have the same priority against the assets of any impaired insurer or insolvent insurer as that possessed by the person who is entitled to receive the benefits under this article. The fund shall have all common law rights of subrogation and any other equitable or legal remedy that would have been available to the impaired insurer or insolvent insurer or owner, beneficiary, enrollee or payee of a policy or contract with respect to the policy or contract. If the preceding provisions of this subsection are ineffective with respect to any person or claim for any reason, the amount payable by the fund with respect to the related covered obligations shall be reduced by the amount attributable to the policies or contracts, or any part of the policies or contracts, covered by the fund that is realized by any other person with respect to the person or claim. If the fund has provided benefits with respect to a covered obligation and a person recovers amounts as to which the fund has rights under this subsection, the person shall pay to the fund the part of the recovery attributable to the policies or contracts, or any part of the policies or contracts, covered by the fund.
G. Notwithstanding any other law, the fund is not obligated to pay any amount that does not constitute a payment of a contractual obligation, including taxable costs or attorney fees that could be awarded or any additional liabilities or obligations as might otherwise exist or accrue against the impaired insurer if the insurer had not become impaired.
H. The fund may:
1. 1. Enter into such contracts as are necessary or proper to carry out the provisions and purposes of this article.
2. 2. Sue and be sued, including taking any legal actions that are necessary and proper for recovery of any unpaid assessments pursuant to section 20-686.
3. 3. Borrow money to effect the purposes of this article. Any notes or other evidence of indebtedness of the fund that are not in default shall be legal investments for domestic member insurers and may be carried as admitted assets.
4. 4. Employ and retain such persons as are necessary to handle the financial transactions of the fund and perform such other functions as become necessary or proper.
5. 5. Negotiate and contract with any liquidator, rehabilitator, conservator or ancillary receiver to carry out the powers and duties of the fund.
6. 6. Join an organization comprised of one or more other similar state funds in order to further the administration of the fund's powers and duties under this article.
7. 7. Take such legal action as may be necessary to avoid payment of improper claims.
8. 8. Exercise, for the purposes of this article and to the extent approved by the director, the powers of a domestic life insurer, disability insurer or health care services organization. In no case may the fund issue policies or contracts other than those issued to perform the contractual obligations of the impaired insurer or insolvent insurer.
9. 9. Unless prohibited by law, in accordance with the terms and conditions of the policy or contract, file for actuarially justified rate or premium increases for any policy or contract for which the fund provides coverage under this article.
I. At any time within one hundred eighty days after the date of the order of liquidation, the fund, by written notice to the affected reinsurers, may elect to assume the rights and obligations of a ceding member insurer that relate to policies or annuities covered in whole or in part by the fund under any one or more reinsurance contracts entered into by the insolvent insurer, subject to the following:
1. 1. The assumption shall be effective as of the date of the order of liquidation.
2. 2. The receiver and each reinsurer of the ceding member insurer shall make available on request to the fund after commencement of formal delinquency proceedings:
  1. (a) Copies of in-force reinsurance contracts and all related records relevant to the determination whether to assume such contracts.
  2. (b) Notices of any defaults under the reinsurance contracts or any known event or condition that may presently or subsequently constitute a default under the reinsurance contracts.
3. 3. With respect to reinsurance contracts assumed by the fund under this subsection:
  1. (a) The fund shall be responsible for all unpaid premiums due under the reinsurance contracts for periods both before and after the date of the order of liquidation, and for performance of all other obligations after the date of the order of liquidation that relate to policies, contracts or annuities covered in whole or in part by the fund. The fund may charge policies, contracts or annuities covered in part by the fund, through reasonable allocation methods, for the costs for reinsurance in excess of the fund's obligations and shall provide notice and an accounting of these charges to the receiver.
  2. (b) The fund shall be entitled to any amounts payable by the reinsurer under the reinsurance contracts with respect to losses or events that occur after the date of the order of liquidation and that relate to policies, contracts or annuities covered in whole or in part by the fund, provided that on receipt of any such amounts, the fund shall pay to the beneficiary under the policy, contract or annuity an amount equal to the lesser of:
    1. (i) The amount received by the fund.
    2. (ii) The excess of the amount received by the fund over the amount equal to the benefits paid by the fund on account of the policy, contract or annuity less the retention of the impaired insurer or insolvent insurer applicable to the loss or event.
  3. (c) Within thirty days after the fund's election, the fund and each reinsurer under contracts assumed by the fund shall calculate the net balance due to or from the fund under each reinsurance contract as of the date of the fund's election with respect to policies, contracts or annuities covered in whole or in part by the fund, giving full credit to all items paid by the member insurer or its receiver or the reinsurer before the date of the fund's election. The reinsurer shall pay the receiver any amounts due for losses or events before the date of the order of liquidation, subject to any setoff for premiums unpaid for periods before the date of the order of liquidation, and the fund or reinsurer shall pay any remaining balance due the other within five days after the completion of the calculation. Any disputes over the amounts due shall be resolved in accordance with the reinsurance contract. If the receiver has received any amounts due to the fund pursuant to subdivision (b) of this paragraph, the receiver shall promptly remit the amount to the fund.
  4. (d) If the fund or receiver, within sixty days after the election, pays the unpaid premiums due for periods both before and after the election date that relate to policies, contracts and annuities covered in whole or in part by the fund, the reinsurer shall not be entitled to terminate the reinsurance contracts for failure to pay premium to the extent the reinsurance contracts related to policies, contracts or annuities covered in whole or in part by the fund, and shall not be entitled to set off any unpaid amounts due under other contracts or due from parties other than the fund, against amounts payable to the fund.
4. 4. Provided that the parties rights and obligations shall be governed by paragraph 3 of this subsection, if the fund elects to assume a reinsurance contract, during the period from the date of the order of liquidation until the earlier of the election date or one hundred eighty days after the date of the order of liquidation:
  1. (a) The fund and the reinsurer shall not have any rights or obligations under reinsurance contracts that the fund has the right to assume under paragraph 3 of this subsection, whether for periods before or after the date of the order of liquidation.
  2. (b) The reinsurer, receiver and fund shall provide each other data and records reasonably requested, to the extent practicable.
5. 5. If the fund does not elect to assume a reinsurance contract by the election date pursuant to paragraph 3 of this subsection, the fund shall have no rights or obligations with respect to the reinsurance contract for periods before and after the date of the order of liquidation.
6. 6. If the fund transfers policies, contracts or annuities, or covered obligations with respect to policies, contracts or annuities, to an assuming insurer, reinsurance on the transferred policies, contracts or annuities may also be transferred by the fund, in the case of contracts assumed under paragraph 3 of this subsection, subject to the following:
  1. (a) Unless the reinsurer and the assuming insurer agree otherwise, the reinsurance contract transferred shall not cover any policies, contracts or annuities other than those transferred.
  2. (b) The obligations described in paragraph 3 of this subsection do not apply with respect to matters arising after the date of the transfer.
  3. (c) The transferring party shall provide written notice to the affected reinsurer not less than thirty days before the effective date of the transfer.
J. Subsection I of this section supersedes any provision of state law or of any affected reinsurance contract that provides for or requires any payment of reinsurance proceeds, on account of losses or events that occur in periods after the date of the order of liquidation, to the receiver of the insolvent insurer or any other person. The receiver shall remain entitled to any amounts payable by the reinsurer under the reinsurance contracts with respect to losses or events that occur in periods before the date of the order of liquidation, subject to any applicable setoff provisions.
K. Except as otherwise provided in subsection I of this section, this section does not:
1. 1. Alter or modify the terms and conditions of any reinsurance contract.
2. 2. Limit any rights of any reinsurer to claim that it is entitled to rescind a reinsurance contract.
3. 3. Provide a policy owner, contract owner, enrollee, certificate holder or beneficiary an independent cause of action against a reinsurer that is not otherwise set forth in the reinsurance contract.
4. 4. Limit or affect the fund's rights as a creditor of the estate.
5. 5. Apply to reinsurance contracts covering property or casualty risks.
L. In carrying out its duties in connection with guaranteeing, assuming, reissuing or reinsuring policies or contracts under subsection A or B of this section, the fund may issue substitute coverage for a policy or contract that provides an 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 by issuing an alternative policy or contract in accordance with the following provisions:
1. 1. In lieu of the index or other external reference provided for in the original policy or contract, the alternative policy or contract provides for a fixed interest rate, or payment of dividends with minimum guarantees, or a different method for calculating interest or changes in value.
2. 2. There is no requirement for evidence of insurability, waiting period or other exclusion that would not have applied under the replaced policy or contract.
3. 3. The alternative policy or contract is substantially similar to the replaced policy or contract in all other material terms.
M. If the fund offers to provide the benefits of this article to a covered person under a plan or arrangement that fulfills the fund's obligations under this article, the person shall not be entitled to benefits from the fund in addition or as an alternative to those offered under the plan or arrangement.
N. Venue in a suit against the fund arising under this article shall be in the superior court of Maricopa county. The fund shall not be required to give a bond in an appeal that relates to a cause of action arising under this article.