                                 CODE OF VIRGINIA

PURPOSE AND APPLICABILITY OF CHAPTER (§ 38.2-1700)

A. The purpose of this chapter is to protect, subject to certain limitations,
the persons specified in subsection B against failure in the performance of
contractual obligations, under life, accident and sickness insurance, and
annuity policies, plans, or contracts specified in subsection C because of the
impairment or insolvency of the member insurer that issued the policies, plans,
or contracts. This chapter shall be construed to effect this purpose. To provide
this protection, an association of member insurers is created to pay benefits
and to continue coverage as limited by this chapter, and members of the
Association are subject to assessments to provide funds to carry out the purpose
of this chapter.

B. This chapter shall provide coverage for the policies and contracts specified
in subsection C as follows:

   1. This chapter shall provide coverage, for the policies and contracts
   specified in subsection C, to persons who, regardless of where they reside,
   except for nonresident certificate holders under group policies or contracts,
   are the beneficiaries, assignees, or payees, including health care providers
   rendering services covered under accident and sickness insurance policies or
   certificates, of the persons covered under subdivision B 2.

   2. This chapter shall provide coverage, for the policies and contracts
   specified in subsection C, to persons who are owners of or certificate holders
   or enrollees under the policies or contracts, other than unallocated annuity
   contracts and structured settlement annuities, and in each case who:
   				a. Are residents; or
   				b. Are not residents and (i) the member insurer that issued the policies
   or contracts is domiciled in the Commonwealth, (ii) the states in which the
   persons reside have associations similar to the Association, and (iii) the
   persons are not eligible for coverage by an association in any other state due
   to the fact that the insurer or health maintenance organization was not
   licensed in the state at the time specified in the state&#8217;s guaranty
   association law.

   3. For unallocated annuity contracts specified in subsection C, subdivisions B
   1 and B 2 shall not apply, and this chapter, except as provided in
   subdivisions B 5 and B 6, shall provide coverage to persons who are the owners
   of the unallocated annuity contracts if the contracts are issued to or in
   connection with a specific benefit plan whose plan sponsor has its principal
   place of business in the Commonwealth.

   4. For structured settlement annuities specified in subsection C, subdivision
   B 1 and B 2 shall not apply and this chapter, except as provided in
   subdivisions B 5 and B 6, shall provide coverage to a person who is a payee
   under a structured settlement annuity, or beneficiary of a payee if the payee
   is deceased, if the payee:
   				a. Is a resident, regardless of where the contract owner resides; or
   				b. Is not a resident and both (i) the contract owner of the structured
   settlement annuity is (a) a resident or (b) not a resident but the insurer
   that issued the structured settlement annuity is domiciled in the Commonwealth
   and the state in which the contract owner resides has an association similar
   to the Association; and (ii) neither the payee or beneficiary, nor the
   contract owner is eligible for coverage by the association of the state in
   which the payee or contract owner resides.

   5. This chapter shall not provide coverage to:
   				a. A person who is a payee, or beneficiary, of a contract owner resident
   of the Commonwealth if the payee, or beneficiary, is afforded any coverage by
   the association of another state; or
   				b. A person covered under subdivision B 3 if any coverage is provided by
   the association of another state to the person.

   6. This chapter is intended to provide coverage to a person who is a resident
   of the Commonwealth and, in special circumstances, to a nonresident. In order
   to avoid duplicate coverage, if a person who would otherwise receive coverage
   under this chapter is provided coverage under the laws of any other state, the
   person shall not be provided coverage under this chapter. In determining the
   application of the provisions of this subdivision in situations where a person
   could be covered by the association of more than one state, whether as an
   owner, payee, enrollee, beneficiary, or assignee, this chapter shall be
   construed in conjunction with other state laws to result in coverage by only
   one association.

C. This chapter shall:

   1. Provide coverage to the persons specified in subsection B for policies or
   contracts of direct, nongroup life insurance, accident and sickness insurance,
   which for the purposes of this chapter includes health maintenance
   organization subscriber contracts and certificates, or annuities, and
   supplemental contracts to any of these, for certificates under direct group
   policies and contracts, and for unallocated annuity contracts issued by member
   insurers, in each case except as limited by this chapter. Annuity contracts
   and certificates under group annuity contracts include guaranteed investment
   contracts, deposit administration contracts, unallocated funding agreements,
   allocated funding agreements, structured settlement annuities, and any
   immediate or deferred annuity contracts. This chapter shall apply also to
   dental benefit contracts entered into with a dental plan organization as
   provided in Chapter 61 (&#xA7; 38.2-6100 et seq.).

   2. Except as otherwise provided in subdivision 3, not provide coverage for:
   				a. A portion of a policy or contract not guaranteed by a member insurer or
   under which the risk is borne by the policy or contract owner;
   				b. A policy or contract of reinsurance, unless assumption certificates
   have been issued pursuant to the reinsurance policy or contract;
   				c. A portion of a policy or contract to the extent that the rate of
   interest on which it is based, or the 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:

      1. Averaged over the period of four years prior to the date on which the
      member insurer becomes an impaired or insolvent insurer under this chapter,
      whichever is earlier, exceeds the rate of interest determined by subtracting
      two percentage points from Moody&#8217;s Corporate Bond Yield Average
      averaged for that same four-year period or for such lesser period if the
      policy or contract was issued less than four years before the member insurer
      becomes an impaired or insolvent insurer under this chapter, whichever is
      earlier; and

      2. On and after the date on which the member insurer becomes an impaired or
      insolvent insurer under this chapter, whichever is earlier, exceeds the rate
      of interest determined by subtracting three percentage points from
      Moody&#8217;s Corporate Bond Yield Average as most recently available;
      					d. A portion of a policy or contract issued to a plan or program of an
      employer, association, or other person to provide life, health, or annuity
      benefits to its employees, members, or others, to the extent that the plan
      or program is self-funded or uninsured, including but not limited to
      benefits payable by an employer, association, or other person under:

      1. A multiple employer welfare arrangement as defined in 29 U.S.C. &#xA7;
      1144;

      2. A minimum premium group insurance plan;

      3. A stop-loss agreement described in subsection B of &#xA7; 38.2-109; or

      4. An administrative services only contract;
      					e. A portion of a policy or contract to the extent that it provides
      for:

      1. Dividends or experience rating credits;

      2. Voting rights; or

      3. Payment of any fees or allowances to any person, including the policy or
      contract owner, in connection with the service to or administration of the
      policy or contract;
      					f. A policy or contract issued in the Commonwealth by a member insurer
      at a time when its license to issue the policy or contract in the
      Commonwealth had been suspended, revoked, not renewed, or voluntarily
      withdrawn;
      					g. An unallocated annuity contract issued to or in connection with a
      benefit plan protected under the federal Pension Benefit Guaranty
      Corporation, regardless of whether the federal Pension Benefit Guaranty
      Corporation has yet become liable to make any payments with respect to the
      benefit plan;
      					h. A portion of an unallocated annuity contract that is not issued to
      or in connection with a specific employee, union, or association of natural
      persons benefit plan;
      					i. A portion of a policy or contract to the extent that the assessments
      required by &#xA7; 38.2-1705 with respect to the policy or contract are
      preempted by federal or state law;
      					j. An obligation that does not arise under the express written terms of
      the policy or contract issued by the member insurer to the enrollee,
      certificate holder, contract owner, or policy owner, including:

      1. Claims based on marketing materials;

      2. Claims based on side letters, riders, or other documents that were issued
      by the member insurer without meeting applicable policy or contract form
      filing or approval requirements;

      3. Misrepresentations of or regarding policy or contract benefits;

      4. Extra-contractual claims; or

      5. A claim for penalties or consequential or incidental damages;
      					k. A contractual agreement that establishes the member insurer&#8217;s
      obligations to provide a book value accounting guaranty for defined
      contribution benefit plan participants by reference to a portfolio of assets
      that is owned by the benefit plan or its trustee, which in each case is not
      an affiliate of the member insurer;
      					l. A portion of a policy or contract to the extent it provides for
      interest or other changes in value to be determined by the use of an index
      or other external reference stated in the policy or contract, but which have
      not been credited to the policy or contract, or as to which the policy or
      contract owner&#8217;s rights are subject to forfeiture, as of the date the
      member insurer becomes an impaired or insolvent insurer under this chapter,
      whichever is earlier. If a policy&#8217;s or contract&#8217;s interest or
      changes in value are credited less frequently than annually, then for
      purposes of determining the values that have been credited and are not
      subject to forfeiture under this subdivision, the interest or change in
      value determined by using the procedures defined in the policy or contract
      will be credited as if the contractual date of crediting interest or
      changing values was the date of impairment or insolvency, whichever is
      earlier, and will not be subject to forfeiture;
      					m. A policy or contract providing any hospital, medical, prescription
      drug, or other health care benefits pursuant to Part C or Part D of
      Subchapter XVIII, Chapter 7 of Title 42 of the United States Code (known as
      Medicare Parts C and D); Subchapter XIX, Chapter 7 of Title 42 of the United
      States Code (known as Medicaid); &#xA7; 32.1-352 (known as FAMIS); or any
      regulations issued pursuant thereto; or
      					n. A charitable gift annuity as defined in &#xA7; 38.2-106.1.

   3. The exclusion from coverage referenced in subdivision 2 c shall not apply
   to any portion of a policy or contract, including a rider, that provides
   long-term care or any other accident and sickness insurance benefits.

D. The benefits that the Association may become obligated to cover shall in no
event exceed the lesser of:

   1. The contractual obligations for which the insurer is liable or would have
   been liable if it were not an impaired or insolvent insurer; or

   2. With respect to:
   				a. One life, regardless of the number of policies or contracts:

      1. $300,000 in life insurance death benefits, but not more than $100,000 in
      net cash surrender and net cash withdrawal values for life insurance;

      2. For accident and sickness insurance benefits, (i) $100,000 for coverage
      not defined as disability income insurance, health benefit plans, or
      long-term care insurance including any net cash surrender and net cash
      withdrawal values; (ii) $300,000 for disability income insurance and
      $300,000 for long-term care insurance; and (iii) $500,000 for health benefit
      plans; and

      3. $250,000 in the present value of annuity benefits, including net cash
      surrender and net cash withdrawal values;
      					b. Each individual participating in a benefit plan established under
      Section 401, 403(b) or 457 of the U.S. Internal Revenue Code who (i)
      selected an investment option that includes investment in unallocated
      annuity contracts and (ii) is covered by such an unallocated annuity
      contract, including the beneficiaries of each such individual if deceased,
      in the aggregate, $250,000 in present value of annuity benefits, including
      net cash surrender and net cash withdrawal values;
      					c. Each payee of a structured settlement annuity (or beneficiary or
      beneficiaries of the payee if deceased), $250,000 in present value annuity
      benefits, in the aggregate, including net cash surrender and net cash
      withdrawal values, if any; and
      					d. One plan sponsor whose plans own directly or in trust one or more
      unallocated annuity contracts part or all of any of which is not included in
      subdivision 2 b, $5 million in benefits, irrespective of the number of
      contracts with respect to the plan sponsor. However, in the case where one
      or more unallocated annuity contracts are covered contracts under this
      chapter and are owned by a trust or other entity for the benefit or two or
      more plan sponsors, coverage shall be afforded by the Association if the
      largest interest in the trust or entity owning the contract or contracts is
      held by a plan sponsor whose principal place of business is in the
      Commonwealth and in no event shall the Association be obligated to cover
      more than $5 million in benefits with respect to all such unallocated
      contracts.
      					e. In no event shall the Association be obligated to cover (i) more
      than an aggregate of $350,000 in benefits with respect to any one life under
      subdivisions D 2 a, b, and c except with respect to benefits for health
      benefit plans under subdivision D 2 a (2), in which case the aggregate
      liability of the Association shall not exceed $500,000 with respect to any
      one individual, or (ii) with respect to one owner of multiple nongroup
      policies of life insurance, whether the policy or contract owner is an
      individual, firm, corporation, or other person, and whether the persons
      insured are officers, managers, employees, or other persons, more than $5
      million in benefits, regardless of the number of policies and contracts held
      by the owner.
      					f. The limitations set forth in this subsection are limitations on the
      benefits for which the Association is obligated before taking into account
      either its subrogation and assignment rights or the extent to which those
      benefits could be provided out of the assets of the impaired or insolvent
      insurer attributable to covered policies. The costs of the
      Association&#8217;s obligations under this chapter may be met by the use of
      assets attributable to covered policies or reimbursed to the Association
      pursuant to its subrogation and assignment rights.
      					g. For purposes of this chapter, benefits provided by a long-term care
      rider to a life insurance policy or annuity contract shall be considered the
      same type of benefits as the base life insurance policy or annuity contract
      to which such rider relates.

E. In performing its obligations to provide coverage under &#xA7; 38.2-1704, the
Association shall not be required to guarantee, assume, reinsure, reissue, or
perform, or cause to be guaranteed, assumed, reinsured, reissued, or performed,
the contractual obligations of the insolvent or impaired insurer under a covered
policy or contract that the Association has determined, with the concurrence of
the Commission, do not materially affect the economic values or economic
benefits of the covered policy or contract.

HISTORY: 1976, c. 330, § 38.1-482.18; 1986, c. 562; 1988, c. 178; 1991, c. 340;
1992, c. 299; 2000, c. 206; 2004, c. 668; 2010, c. 510; 2018, c. 706.