(a)

1. (1) Upon the recommendation of the superintendent, and under the direction of the court, distribution payments shall be made in a manner that will assure the proper recognition of priorities and a reasonable balance between the expeditious completion of the liquidation and the protection of unliquidated and undetermined claims. The priority of distribution of claims from an insolvent insurer other than a life insurer in any proceeding subject to this article shall be in accordance with the order in which each class of claims is set forth in this paragraph and as provided in this paragraph. Every claim in each class shall be paid in full or adequate funds retained for such payment before the members of the next class receive any payment. No subclasses shall be established within any class. 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:

   1. (A) Class one. Claims with respect to the actual and necessary costs and expenses of administration, incurred by the liquidator, rehabilitator or conservator under this article.
   2. (B) Class two. All claims under policies including such claims of the federal or any state or local government for losses incurred, third party claims, claims for unearned premiums, and all claims of a security fund, guaranty association or the equivalent except claims arising under reinsurance contracts.
   3. (C) Class three. Claims of the federal government except those under class two above.
   4. (D) Class four. Claims for wages owing to employees of an insurer against whom a proceeding under this article is commenced for services rendered within one year before commencement of the proceeding, not exceeding one thousand two hundred dollars to each employee, and claims for unemployment insurance contributions required by article eighteen of the labor law. Such priority shall be in lieu of any other similar priority which may be authorized by law.
   5. (E) Class five. Claims of state and local governments except those under class two above.
   6. (F) Class six. Claims of general creditors including, but not limited to, claims arising under reinsurance contracts.
   7. (G) Class seven. Claims filed late or any other claims other than claims under class eight or class nine below.
   8. (H) Class eight. Claims for advanced or borrowed funds made pursuant to section one thousand three hundred seven of this chapter.
   9. (I) Class nine. Claims of shareholders or other owners in their capacity as shareholders.
2. (2) Severability. If any classification or priority provided for in paragraph one of this subsection is held to be unconstitutional or otherwise invalid, the remaining classifications and priorities shall continue in effect.