Session of 1999
By Committee on Financial Institutions and Insurance

  9             AN ACT concerning insurance and insurance guaranty association as-
10             sessments; reciprocity under certain conditions of certain amounts;
11             amending K.S.A. 40-2702, 40-3006 and 40-3009 and repealing the ex-
12             isting sections.
14       Be it enacted by the Legislature of the State of Kansas:
15             Section 1.   On July 1, 1999, K.S.A. 40-2702 is hereby amended to
16       read as follows: 40-2702. (a) As used in this act, unless the context oth-
17       erwise requires, the term " insurer" means and includes all corporations,
18       companies, associations, societies, fraternal benefit societies, mutual non-
19       profit hospital service and nonprofit medical service companies, partner-
20       ships and persons engaged as principals in the business of insurance of
21       the kinds enumerated in articles 4, 5, 6, 7, 11, 18, 19, 19a, 19b, 19c, 22,
22       32 and 38 of chapter 40 of the Kansas Statutes Annotated, and any amend-
23       ments thereto, insofar as the business of insurance of the kinds enumer-
24       ated in such articles relate to life and accident or sickness. Whenever in
25       this section there is reference to an act effected or committed by mail,
26       the venue of such act shall be at the point where the matter transmitted
27       by mail is delivered and takes effect.
28             It shall be unlawful for any insurer to transact insurance business in
29       this state, as set forth in subsection (b) of this section, without a certificate
30       of authority from the commissioner of insurance. This section shall not
31       apply to:
32             (1)   The lawful transaction of insurance procured by agents under the
33       authority of K.S.A. 40-246b, 40-246c and 40-246d, and amendments
34       thereto, relating to accident and sickness insurance;
35             (2)   contracts of reinsurance issued by an insurer not organized under
36       the laws of this state;
37             (3)   transactions in this state involving a policy lawfully solicited, writ-
38       ten and delivered outside of this state, covering only subjects of insurance
39       not resident in this state at the time of issuance and which transactions
40       are subsequent to the issuance of such policy;
41             (4)   attorneys acting in the ordinary relation of attorney and client in
42       the adjustment of claims or losses;
43             (5)   transactions in this state involving group life and group sickness

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  1       and accident or blanket sickness and accident insurance or group annui-
  2       ties, where the master policy of such groups was lawfully issued and de-
  3       livered in and pursuant to the laws of a state in which the insurer was
  4       authorized to do an insurance business to a group organized for purposes
  5       other than the procurement of insurance and where the policyholder is
  6       domiciled or otherwise has a bona fide residence;
  7             (6)   transactions in this state involving any policy of life or accident
  8       and health insurance or annuity contract issued prior to the effective date
  9       of this act;
10             (7)   contracts of insurance written by certain lodges, societies, persons
11       and associations specified in K.S.A. 40-202, and amendments thereto, and
12       organizations preempted from state jurisdiction as a result of compliance
13       with both the employees retirement income security act of 1974, as
14       amended, including all bonding provisions, and paragraph (9) of subsec-
15       tion (c) of section 501 of the internal revenue code; and
16             (8)   any life insurance company which is not subject to guaranty fund
17       assessments by the insurance company's state of domicile organized and
18       operated, without profit to any private shareholder or individual, exclu-
19       sively for the purpose of aiding and strengthening educational institutions,
20       organized and operated without profit to any private shareholder or in-
21       dividual, by issuing insurance and annuity contracts directly from the
22       home office of the company, without insurance agents or insurance rep-
23       resentatives in this state, only to or for the benefit of such institutions
24       and individuals engaged in the services of such institutions, but this ex-
25       emption shall be conditioned upon any such company complying with the
26       following requirements:
27             (i)   Payment of an annual registration fee of $500;
28             (ii)   filing a copy of the form of any policy or contract issued to Kansas
29       residents with the commissioner of insurance;
30             (iii)   filing a copy of its annual statement prepared pursuant to the
31       laws of its state of domicile, as well as such other financial material as
32       may be requested, with the commissioner of insurance; and
33             (iv)   providing, in such form as may be prescribed by the commis-
34       sioner of insurance, for the appointment of the commissioner of insurance
35       as its true and lawful attorney upon whom may be served all lawful process
36       in any action or proceeding against such company arising out of any policy
37       or contract it has issued to, or which is currently held by, a Kansas citizen
38       and process so served against such company shall have the same force
39       and validity as if served upon the company.
40             (b)   Any of the following acts in this state effected by mail or otherwise
41       by or on behalf of an unauthorized insurer is deemed to constitute the
42       transaction of an insurance business in this state:
43             (1)   The making of or proposing to make, as an insurer, an insurance

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  1       contract;
  2             (2)   the taking or receiving of any application for insurance;
  3             (3)   the receiving or collection of any premium, commission, mem-
  4       bership fees, assessments, dues or other consideration for any insurance
  5       or any part thereof;
  6             (4)   the issuance or delivery of contracts of insurance to residents of
  7       this state or to persons authorized to do business in this state;
  8             (5)   directly or indirectly acting as an agent for or otherwise repre-
  9       senting or aiding on behalf of another any person or insurer in the solic-
10       itation, negotiation, procurement or effectuation of insurance or renewals
11       thereof or in the dissemination of information as to coverage or rates, or
12       forwarding of applications or delivery of policies or contracts or investi-
13       gation or adjustment of claims or losses or in the transaction of matters
14       subsequent to effectuation of the contract and rising out of it or in any
15       other manner representing or assisting a person or insurer in the trans-
16       action of insurance with respect to subjects of insurance resident in this
17       state. Nothing herein shall be construed to prohibit full-time salaried
18       employees of a corporate insured from acting in the capacity of an insur-
19       ance manager or buyer in placing insurance in behalf of such employer;
20             (6)   the transaction of any kind of insurance business specifically rec-
21       ognized as transacting an insurance business within the meaning of the
22       statutes relating to insurance; or
23             (7)   the transacting of or proposing to transact any insurance business,
24       in substance equivalent to any of the foregoing, in a manner designed to
25       evade the provisions of this act.
26             (c) (1)   The failure of an insurer transacting insurance business in this
27       state to obtain a certificate of authority from the commissioner of insur-
28       ance shall not impair the validity of any act or contract of such insurer
29       and shall not prevent such insurer from defending any action at law or
30       suit in equity in any court of this state, but no insurer transacting insur-
31       ance business in this state without a certificate of authority shall be per-
32       mitted to maintain an action in any court of this state to enforce any right,
33       claim or demand arising out of the transaction of such business until such
34       insurer shall have obtained a certificate of authority.
35             (2)   In the event of failure of any such unauthorized insurer to pay
36       any claim or loss within the provisions of such insurance contract, any
37       person who assisted or in any manner aided, directly or indirectly, in the
38       procurement of such insurance contract shall be liable to the insured for
39       the full amount of the claim or loss in the manner provided by the pro-
40       visions of such insurance contract.
41             Sec. 2.   July 1, 2000, K.S.A. 40-3006 is hereby amended to read as
42       follows: 40-3006. (a) There is hereby created a nonprofit legal entity to
43       be known as the Kansas life and health insurance guaranty association.

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  1       All member insurers shall be and remain members of the association as
  2       a condition of their authority to transact insurance in this state. The as-
  3       sociation shall perform its functions under the plan of operation estab-
  4       lished and approved under K.S.A. 40-3010 and amendments thereto and
  5       shall exercise its powers through a board of directors established under
  6       K.S.A. 40-3007 and amendments thereto. For purposes of administration
  7       and assessment, the association shall maintain three two accounts: (1) The
  8       health insurance account; and
  9             (2)   the life insurance account; and
10             (3)   the annuity account, excluding unallocated annuities.
11             (2)   the life insurance and annuity account which includes the follow-
12       ing subaccounts:
13             (A)   Life insurance subaccount;
14             (B)   annuity subaccount, excluding unallocated annuities; and
15             (C)   contracts qualified under section 403(b) of the United States in-
16       ternal revenue code.
17             (b)   The association shall come under the immediate supervision of
18       the commissioner and shall be subject to the applicable provisions of the
19       insurance laws of this state. Meetings or records of the association may
20       be opened upon majority vote of the board of directors of the association.
21             Sec. 3.   On January 1, 2000, K.S.A. 40-3009 is hereby amended to
22       read as follows: 40-3009. (a) For the purpose of providing the funds nec-
23       essary to carry out the powers and duties of the association, the board of
24       directors shall assess the member insurers, separately for each account,
25       at such time and for such amounts as the board finds necessary. Assess-
26       ments shall be due not less than 30 days after prior written notice to the
27       member insurers and shall accrue interest at 15% per annum on and after
28       the due date.
29             (b)   There shall be two classes of assessments, as follows: (1) Class A
30       assessments shall be made for the purpose of meeting administrative and
31       legal costs and other expenses and examinations conducted under the
32       authority of subsection (e) of K.S.A. 40-3012 and amendments thereto.
33       Class A assessments may be made whether or not related to a particular
34       impaired or insolvent insurer.
35             (2)   Class B assessments shall be made to the extent necessary to carry
36       out the powers and duties of the association under K.S.A. 40-3008 and
37       amendments thereto with regard to an impaired or an insolvent insurer.
38             (c) (1)   The amount of any class A assessment shall be determined by
39       the board and may be made on a pro rata or non-pro rata basis. If pro
40       rata, the board may provide that it be credited against future class B
41       assessments. A non-pro rata assessment shall not exceed $150 per mem-
42       ber insurer in any one calendar year. The amount of any class B assess-
43       ment shall be allocated for assessment purposes among the accounts pur-

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  1       suant to an allocation formula which may be based on the premiums or
  2       reserves of the impaired or insolvent insurer or any other standard
  3       deemed by the board in its sole discretion as being fair and reasonable
  4       under the circumstances.
  5             (2)   Class B assessments against member insurers for each account
  6       shall be in the proportion that the premiums received on business in this
  7       state by each assessed member insurer on policies or contracts covered
  8       by each account for the three most recent calendar years for which in-
  9       formation is available preceding the year in which the insurer became
10       impaired or insolvent, as the case may be, bears to such premiums re-
11       ceived on business in this state for such calendar years by all assessed
12       member insurers.
13             (3)   Assessments for funds to meet the requirements of the association
14       with respect to an impaired or insolvent insurer shall not be made until
15       necessary to implement the purposes of this act. Classification of assess-
16       ments under subsection (b) and computation of assessments under this
17       subsection shall be made with a reasonable degree of accuracy, recogniz-
18       ing that exact determinations may not always be possible.
19             (d)   The association may abate or defer, in whole or in part, the as-
20       sessment of a member insurer if, in the opinion of the board, payment
21       of the assessment would endanger the ability of the member insurer to
22       fulfill its contractual obligations. In the event an assessment against a
23       member insurer is abated, or deferred in whole or in part, the amount
24       by which such assessment is abated or deferred may be assessed against
25       the other member insurers in a manner consistent with the basis for
26       assessments set forth in this section.
27             (e)   The total of all assessments upon a member insurer for each ac-
28       count shall not in any one calendar year exceed 2% of such insurer's
29       average premiums received in this state on the policies and contracts
30       covered by the account during the three calendar years preceding the
31       years in which the insurer became an impaired or insolvent insurer. The
32       total of all assessments upon a member insurer for the life and annuity
33       account and for each subaccount thereunder may not in any one calendar
34       year exceed 2% and for the health account may not in any one calendar
35       year exceed 2% of such insurer's average premiums received in this state
36       on the policies and contracts covered by the account during the three
37       calendar years preceding the year in which the insurer became an im-
38       paired and insolvent insurer. If a 1% assessment for any subaccount of
39       the life and annuity account in any one year does not provide an amount
40       sufficient to carry out the responsibilities of the association, then pursuant
41       to subsection (c)(1), the board shall assess all subaccounts of the life and
42       annuity account for the necessary additional amount, subject to the max-
43       imum stated in this subsection.

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  1             If the maximum assessment, together with the other assets of the as-
  2       sociation in any account does not provide in any one year in either account
  3       an amount sufficient to carry out the responsibilities of the association,
  4       the necessary additional funds shall be assessed as soon thereafter as
  5       permitted by this act.
  6             The board may provide in the plan of operation a method of allocating
  7       funds among claims, whether relating to one or more impaired or insol-
  8       vent insurers, when the maximum assessment will be insufficient to cover
  9       anticipated claims.
10             (f)   The board, by an equitable method as established in the plan of
11       operation, may refund to member insurers, in proportion to the contri-
12       bution of each insurer to that account, the amount by which the assets of
13       the account exceed the amount the board finds is necessary to carry out
14       during the coming year the obligations of the association with regard to
15       that account, including assets accruing from assignment, subrogation, net
16       realized gains and income from investments. A reasonable amount may
17       be retained in any account to provide funds for the continuing expenses
18       of the association and for future losses.
19             (g)   It shall be proper for any member insurer, in determining its
20       premium rates and policyowner dividends as to any kind of insurance
21       within the scope of this act, to consider the amount reasonably necessary
22       to meet its assessment obligations under this act.
23             (h)   The association shall issue to each insurer paying an assessment
24       under this act, other than a class A assessment, a certificate of contribu-
25       tion, in a form prescribed by the commissioner, for the amount of the
26       assessment paid. All outstanding certificates shall be of equal dignity and
27       priority without reference to amounts or dates of issue. A certificate of
28       contribution may be shown by the insurer in its financial statement as an
29       asset in such form and for such amount, if any, and period of time as the
30       commissioner may approve. 
31       Sec. 4.   On July 1, 1999, K.S.A. 40-2702 is hereby repealed.
32             Sec. 5.   On January 1, 2000, K.S.A. 40-3009 is hereby repealed.
33             Sec. 6.   On July 1, 2000, K.S.A. 40-3006 is hereby repealed.
34        Sec. 7.   This act shall take effect and be in force from and after its
35       publication in the statute book.