                                 CODE OF VIRGINIA

POWERS AND DUTIES OF ASSOCIATION (§ 38.2-1704)

In addition to the powers and duties enumerated in other sections of this
chapter:

A. If the member insurer is an impaired insurer, the Association may, in its
discretion and subject to any conditions imposed by the Association that do not
impair the contractual obligations of the impaired insurer and that are approved
by the Commission:

   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; and

   2. Provide moneys, pledges, loans, notes, guarantees or other means as are
   proper to effectuate subdivision 1 and assure payment of the contractual
   obligations of the impaired insurer pending action under that subdivision.

B. If the member insurer is an insolvent insurer, the Association shall, in its
discretion and subject to the approval of the Commission, either:

   1. a. Guarantee, assume, reissue, or reinsure or cause to be guaranteed,
   assumed, reissued, or reinsured the covered policies of the insolvent insurer
   or assure payment of the contractual obligations of the insolvent insurer; and
   				b. Provide moneys, pledges, notes, guarantees, or other means reasonably
   necessary to discharge its duties; or

   2. Provide benefits and coverages in accordance with the following provisions:
   				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. With respect to group policies and contracts, not later than the earlier
      of the next renewal date under those policies or contracts or 45 days, but
      in no event less than 30 days, after the date on which the Association
      becomes obligated with respect to the policies and contracts;

      2. 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 in no event less than 30 days, from the date on
      which the Association becomes obligated with respect to the policies or
      contracts;
      					b. Make diligent efforts to provide all known insureds, enrollees, or
      annuitants (for nongroup policies and contracts), or group policy or
      contract owners with respect to group policies and contracts, 30 days&#8217;
      notice of the termination, pursuant to subdivision 2 a, of the benefits
      provided;
      					c. With respect to nongroup policies and contracts covered by the
      Association, make available to each known insured, enrollee, or annuitant,
      or owner if other than the insured, enrollee, or annuitant, and with respect
      to an individual formerly an insured, enrollee, or annuitant under a group
      policy or contract who is not eligible for replacement group coverage, make
      available substitute coverage on an individual basis in accordance with the
      provisions of subdivision 2 d, if the insureds, enrollees, or annuitants had
      a right under law or the terminated policy 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 maintenance 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;
      					d. In providing the substitute coverage required under subdivision 2 c,
      the Association may offer either to reissue the terminated coverage or to
      issue an alternative policy or contract at actuarially justified rates,
      subject to the prior approval of the Commission. Alternative or reissued
      policies shall be offered without requiring evidence of insurability, and
      shall not provide for any waiting period or exclusion that would not have
      applied under the terminated policy or contract. The Association may
      reinsure any alternative or reissued policy or contract;
      					e. Alternative policies or contracts adopted by the Association shall
      be subject to the approval of the Commission. The Association may adopt
      alternative policies or contracts of various types for future issuance
      without regard to any particular impairment or insolvency. Alternative
      policies or contracts shall contain at least the minimum statutory
      provisions required in the Commonwealth and provide benefits that shall not
      be unreasonable in relation to the premium charged. The Association shall
      set the premium in accordance with a table of rates that it 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. Any alternative policy or contract issued by the Association
      shall provide coverage of a type similar to that of the policy or contract
      issued by the impaired or insolvent insurer, as determined by the
      Association;
      					f. If the Association 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 set by the
      Association in accordance with the amount of insurance or coverage provided
      and the age and class of risk, subject to approval of the Commission;
      					g. The Association&#8217;s obligations with respect to coverage under
      any policy or contract of the impaired 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
      Association; and
      					h. When proceeding under subdivision B 2 with respect to a policy or
      contract carrying guaranteed minimum interest rates, the Association shall
      assure the payment or crediting of a rate of interest consistent with
      subdivision C 2 c of &#xA7; 38.2-1700.

C. Nonpayment of premiums within 31 days after the date required under the terms
of any guaranteed, assumed, alternative, or reissued policy or contract or
substitute coverage shall terminate the Association&#8217;s obligations under
the policy or contract or coverage under this chapter with respect to the
policy, contract, or coverage, except with respect to any claims incurred or any
net cash surrender value that may be due in accordance with the provisions of
this chapter.

D. Premiums due for coverage after entry of an order of liquidation of an
insolvent insurer shall belong to and be payable at the direction of the
Association. If the liquidator of an insolvent insurer requests, the Association
shall provide a report to the liquidator regarding such premium collected by the
Association. The Association shall be liable for unearned premiums due to policy
or contract owners arising after the entry of the order.

E. The protection provided by this chapter shall not apply where the Commission
has determined that the foreign or alien insurer&#8217;s domiciliary
jurisdiction or state of entry provides substantially similar protection by
statute or regulation for residents of the Commonwealth.

F. In carrying out its duties under subsection B, the Association may:

   1. Subject to approval by the Commission, impose permanent policy contract
   liens in connection with a guarantee, assumption, or reinsurance agreement, if
   the Association finds that the amounts that can be assessed under this chapter
   are less than the amounts needed to assure full and prompt performance of the
   Association&#8217;s duties under this chapter, or that economic or financial
   conditions as they affect member insurers are sufficiently adverse to render
   the imposition of such permanent policy or contract liens to be in the public
   interest; and

   2. Subject to approval by the Commission, impose temporary moratoriums or
   liens on payments of cash values and policy loans or any other right to
   withdraw funds held in conjunction with policies or contracts, in addition to
   any contractual provisions for deferral of cash or policy loan values. In
   addition, in the event of a temporary moratorium or moratorium charge imposed
   by the receivership court on payment of cash values or policy loans, or on any
   other right to withdraw funds held in conjunction with policies or contracts,
   out of the assets of the impaired or insolvent insurer, the Association may
   defer the payment of cash values, policy loans, or other rights by the
   Association for the period of the moratorium or moratorium charge imposed by
   the receivership court, except for claims covered by the Association to be
   paid in accordance with a hardship procedure established by the liquidator or
   rehabilitator and approved by the receivership court.

G. A deposit in the Commonwealth, held pursuant to law or required by the
Commission for the benefit of creditors, including policy or contract owners,
not turned over to the domiciliary liquidator upon the entry of a final order of
liquidation or order approving a rehabilitation plan of a member insurer
domiciled in the Commonwealth or in a reciprocal state, pursuant to Article 7
(&#xA7; 38.2-1045 et seq.) of Chapter 10 shall be promptly paid to the
Association. The Association shall be entitled to retain a portion of any amount
so paid to it equal to the percentage determined by dividing the aggregate
amount of policy or contract owners&#8217; claims related to that insolvency for
which the Association has provided statutory benefits by the aggregate amount of
all policy or contract owners&#8217; claims in the Commonwealth related to that
insolvency and shall remit to the domiciliary receiver the amount so paid to the
Association less the amount retained pursuant to this subsection. Any amount so
paid to the Association and retained by it shall be treated as a distribution of
estate assets pursuant to applicable state receivership law dealing with early
access disbursements.

H. If the Association fails to act within a reasonable period of time with
respect to an insolvent insurer, as provided in subsection B, the Commission
shall have the powers and duties of the Association under this chapter with
respect to the insolvent insurer.

I. The Association may render assistance and advice to the Commission, upon the
Commission&#8217;s request, concerning rehabilitation, payment of claims,
continuation of coverage, or the performance of other contractual obligations of
an impaired or insolvent insurer.

J. The Association shall have standing to appear or intervene before the
Commission or any court or agency in the Commonwealth with jurisdiction over an
impaired or insolvent insurer concerning which the Association is or may become
obligated under this chapter or with jurisdiction over any person or property
against which the Association may have rights through subrogation or otherwise.
Standing shall extend to all matters germane to the powers and duties of the
Association, including proposals for reinsuring, reissuing, modifying, or
guaranteeing the policies or contracts of the impaired or insolvent insurer and
the determination of the policies or contracts and contractual obligations. The
Association shall also have the right to appear or intervene before a court or
agency in another state with jurisdiction over an impaired or insolvent insurer
for which the Association is or may become obligated or with jurisdiction over
any person or property against whom the Association may have rights through
subrogation or otherwise.

K. 1. Any person receiving benefits under this chapter shall be deemed to have
assigned the 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 Association to the extent of the benefits received
because of this chapter, whether the benefits are payments of or on account of
contractual obligations, continuation of coverage, or provision of substitute or
alternative policies, contracts, or coverages. The Association may require an
assignment to it of such rights and causes of action by any enrollee, payee,
policy or contract owner, beneficiary, insured, or annuitant as a condition
precedent to the receipt of any right or benefits conferred by this chapter upon
the person.

   2. The subrogation rights of the Association under this subsection shall have
   the same priority against the assets of the insolvent insurer as that
   possessed by the person entitled to receive benefits under this chapter.

   3. In addition to the rights provided by subdivisions K 1 and K 2, the
   Association shall have all common law rights of subrogation and any other
   equitable or legal remedy that would have been available to the impaired or
   insolvent insurer or owner, beneficiary, enrollee, or payee of a policy or
   contract with respect to the policy or contract, including, in the case of a
   structured settlement annuity, any rights of the owner, beneficiary, or payee
   of the annuity, to the extent of benefits received pursuant to this chapter,
   against a person originally or by succession responsible for the losses
   arising from the personal injury relating to the annuity or payment therefor,
   excepting any such person responsible solely by reason of serving as an
   assignee in respect of a qualified assignment under &#xA7; 130 of the Internal
   Revenue Code.

   4. If subdivisions K 1, 2, and 3 are invalid or ineffective with respect to
   any person or claim for any reason, the amount payable by the Association with
   respect to the related covered obligations shall be reduced by the amount
   realized by any other person with respect to the person or claim that is
   attributable to the policies or contracts, or portion thereof, covered by the
   Association.

   5. If the Association has provided benefits with respect to a covered
   obligation and a person recovers amounts to which the Association has rights
   as described in subdivisions K 1 through K 4, the person shall pay to the
   Association the portion of the recovery attributable to the policies or
   contracts, or portion thereof, covered by the Association.

L. In addition to the rights and powers granted to it elsewhere in this chapter,
the Association may:

   1. Enter into such contracts as are necessary or proper to carry out the
   provisions and purposes of this chapter;

   2. Sue or be sued, including taking any legal actions necessary or proper to
   recover any unpaid assessments under &#xA7; 38.2-1705 and to settle any claims
   or potential claims against it;

   3. Borrow money to effect the purposes of this chapter. Any notes or other
   evidence of indebtedness of the Association not in default shall be Category 1
   investments, as defined in &#xA7; 38.2-1401, for domestic member insurers;

   4. Employ or retain such persons as are necessary or appropriate to handle the
   financial transactions of the Association, and to perform other functions as
   become necessary or proper under this chapter;

   5. Negotiate and contract with any liquidator, rehabilitator, conservator, or
   ancillary receiver to carry out the powers and duties of the Association;

   6. Take such legal action as may be necessary or appropriate to avoid or
   recover payment of improper claims;

   7. Exercise, for the purposes of this chapter and to the extent approved by
   the Commission, the powers of a domestic life insurer, accident and sickness
   insurer, or health maintenance organization, but in no case may the
   Association issue policies or contracts other than those issued to perform its
   obligations under this chapter;

   8. Organize itself as a corporation or in other legal form permitted by the
   laws of the Commonwealth;

   9. Request information from a person seeking coverage from the Association in
   order to aid the Association in determining its obligations under this chapter
   with respect to the person, and the person shall promptly comply with the
   request;

   10. 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 it provides coverage under this chapter; and

   11. Take other necessary or appropriate action to discharge its duties and
   obligations under this chapter or to exercise its powers under this chapter.

M. The Association may join an organization of one or more other state
associations of similar purposes, to further the purposes and administer the
powers and duties of the Association.

N. 1. a. At any time within 180 days of the date of the order of liquidation,
the Association may elect to succeed to the rights and obligations of the ceding
member insurer that relate to policies, contracts, or annuities covered, in
whole or in part, by the Association, in each case under any one or more
reinsurance contracts entered into by the insolvent insurer and its reinsurers
and selected by the Association. Any such assumption shall be effective as of
the date of the order of liquidation. The election shall be effected by the
Association or any agent of the Association on the Association&#8217;s behalf
sending written notice, return receipt requested, to the affected reinsurers.
			b. To facilitate the earliest practicable decision about whether to assume
any of the contracts of reinsurance, and in order to protect the financial
position of the estate, the receiver and each reinsurer of the ceding member
insurer shall make available upon request to the Association or to any agent of
the Association on the Association&#8217;s behalf as soon as possible after
commencement of formal delinquency proceedings (i) copies of in-force contracts
of reinsurance and all related files and records relevant to the determination
of whether such contracts should be assumed and (ii) notices of any defaults
under the reinsurance contracts or any known event or condition which with the
passage of time could become a default under the reinsurance contracts.
			c. The following shall apply to reinsurance contracts so assumed by the
Association:

   1. The Association 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 shall be responsible for the performance of all other
   obligations to be performed after the date of the order of liquidation, in
   each case which relate to policies, contracts, or annuities covered, in whole
   or in part, by the Association. The Association may charge policies,
   contracts, or annuities covered in part by the Association, through reasonable
   allocation methods, the costs for reinsurance in excess of the obligations of
   the Association and shall provide notice and an accounting of these charges to
   the liquidator;

   2. The Association shall be entitled to any amounts payable by the reinsurer
   under the reinsurance contracts with respect to losses or events that occur in
   periods after the date of the order of liquidation and that relate to
   policies, contracts, or annuities covered, in whole or in part, by the
   Association, provided that, upon receipt of any such amounts, the Association
   shall be obliged to pay to the beneficiary, under the policy, contract, or
   annuity on account of which the amounts were paid, a portion of the amount
   equal to the lesser of (i) the amount received by the Association and (ii) the
   excess of the amount received by the Association over the amount equal to the
   benefits paid by the Association on account of the policy, contract, or
   annuity less the retention of the insurer applicable to the loss or event;

   3. Within 30 days following the Association&#8217;s election (the election
   date), the Association and each reinsurer under contracts assumed by the
   Association shall calculate the net balance due to or from the Association
   under each reinsurance contract as of the election date with respect to
   policies, contracts, or annuities covered, in whole or in part, by the
   Association, which calculation shall give full credit to all items paid by
   either the member insurer or its receiver or the reinsurer prior to the
   election date. The reinsurer shall pay the receiver any amounts due for losses
   or events prior to the date of the order of liquidation, subject to any
   set-off for premiums unpaid for periods prior to the date, and the Association
   or reinsurer shall pay any remaining balance due the other, in each case
   within five days of the completion of the aforementioned calculation. Any
   disputes over the amounts due to either the Association or the reinsurer shall
   be resolved by arbitration pursuant to the terms of the affected reinsurance
   contract or, if the contract contains no arbitration clause, as otherwise
   provided by law. If the receiver has received any amounts due the Association
   pursuant to subdivision N 1 c (2), the receiver shall remit the same to the
   Association as promptly as practicable; and

   4. If the Association or receiver, on the Association&#8217;s behalf, within
   60 days of the election date, pays the unpaid premiums due for periods both
   before and after the election date that relate to policies, contracts, or
   annuities covered, in whole or in part, by the Association, the reinsurer
   shall not be entitled to terminate the reinsurance contracts for failure to
   pay premium insofar as the reinsurance contracts related to policies,
   contracts, or annuities covered, in whole or in part, by the Association, and
   shall not be entitled to set off any unpaid amounts due under other contracts,
   or unpaid amounts due from parties other than the Association, against amounts
   due the Association.

   2. During the period from the date of the order of liquidation until the
   election date (or, if the election date does not occur, until 180 days after
   the date of the order of liquidation),
   				a. Neither the Association nor the reinsurer shall have any rights or
   obligations under reinsurance contracts that the Association has the right to
   assume under subdivision N 1, whether for periods prior to or after the date
   of the order of liquidation; and the reinsurer, the receiver, and the
   Association shall, to the extent practicable, provide each other data and
   records reasonably requested;
   				b. Provided that once the Association has elected to assume a reinsurance
   contract, the parties&#8217; rights and obligations shall be governed by
   subdivision N 1.

   3. If the Association does not elect to assume a reinsurance contract by the
   election date pursuant to subdivision N 1, the Association shall have no
   rights or obligations, in each case for periods both before and after the date
   of the order of liquidation, with respect to the reinsurance contract.

   4. When policies, contracts, or annuities, or covered obligations with respect
   thereto, are transferred to an assuming insurer, reinsurance on the policies,
   contracts, or annuities may also be transferred by the Association, in the
   case of contracts assumed under subdivision N 1, subject to the following:
   				a. Unless the reinsurer and the assuming insurer agree otherwise, the
   reinsurance contract transferred shall not cover any new policies of
   insurance, contracts, or annuities in addition to those transferred;
   				b. The obligations described in subdivision N 1 shall no longer apply with
   respect to matters arising after the effective date of the transfer; and
   				c. Notice shall be given in writing, return receipt requested, by the
   transferring party to the affected reinsurer not less than 30 days prior to
   the effective date of the transfer.

   5. The provisions of this subsection shall supersede the provisions of any
   Commonwealth 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 prior to the
   date of the order of liquidation, subject to applicable setoff provisions.

   6. Except as otherwise provided in this section, nothing in this subsection
   shall alter or modify the terms and conditions of any reinsurance contract.
   Nothing in this section shall abrogate or limit any rights of any reinsurer to
   claim that it is entitled to rescind a reinsurance contract. Nothing in this
   section shall give a policy holder, 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. Nothing in this
   section shall limit or affect the Association&#8217;s rights as a creditor of
   the estate against the assets of the estate. Nothing in this section shall
   apply to reinsurance agreements covering property or casualty risks.

O. The board of directors of the Association shall have discretion and may
exercise good faith business judgment to determine the means by which the
Association is to provide the benefits of this chapter in an economical and
efficient manner.

P. Where the Association has arranged or offered to provide the benefits of this
chapter to a covered person under a plan or arrangement that fulfills the
Association&#8217;s obligations under this chapter, the person shall not be
entitled to benefits from the Association in addition to or other than those
provided under the plan or arrangement.

Q. Venue in a suit against the Association arising under this chapter shall be
in the circuit court of the city or county in which the Association has its
principal place of business except that any suit to which the Commission is a
party shall be brought before the Commission. The Association shall not be
required to give an appeal bond in an appeal that relates to a cause of action
arising under this chapter.

R. In carrying out its duties in connection with guaranteeing, assuming,
reissuing, or reinsuring policies or contracts under subsection A or B, the
Association 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. In lieu of the index or other external reference provided for in the
   original policy or contract, the alternative policy or contract provides for
   (i) a fixed interest rate, (ii) payment of dividends with minimum guarantees,
   or (iii) a different method for calculating interest or changes in value;

   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; and

   3. The alternative policy or contract is similar to the replaced policy or
   contract in all other material terms.

HISTORY: 1976, c. 330, § 38.1-482.22; 1986, c. 562; 1991, c. 340; 1993, c. 142;
2007, c. 482; 2010, c. 510; 2018, c. 706.