Ley 206 del 2007
Resumen
Esta ley enmienda el Capítulo 40 del Código de Seguros de Puerto Rico, que rige los procedimientos de rehabilitación y liquidación de aseguradoras y organizaciones de servicios de salud. Se basa en la Ley Modelo de la Asociación Nacional de Comisionados de Seguros (NAIC) y la experiencia acumulada para mejorar y agilizar estos procesos, protegiendo los intereses de reclamantes, asegurados, acreedores y el público en general. La ley detalla los motivos para la rehabilitación y liquidación, las facultades del rehabilitador y liquidador, el manejo de reclamaciones, la responsabilidad de los reaseguradores, la distribución de activos y los procedimientos para aseguradoras extranjeras y foráneas.
Contenido
(No. 206)
(Approved December 14, 2007)
AN ACT
To amend Chapter 40 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," which comprises the provisions that govern rehabilitation and liquidation proceedings for insurers or health services organizations, based on the changes introduced to the Model Law of the National Association of Insurance Commissioners (NAIC), known as the "Insurer Receivership Model Act," and the experience accumulated with the proceedings existing for the past fifteen (15) years since the approval of said Chapter, for the purposes of improving and expediting said procedures for them to be more effective and to protect more adequately the interests of the claimants, insured parties, and creditors of an insurer or health services organization in rehabilitation or liquidation and of the general public.
STATEMENT OF MOTIVES
Chapter 40 of the "Puerto Rico Insurance Code" (the "Insurance Code") comprises the provisions that govern rehabilitation and liquidation proceedings for insurers and health services organizations in Puerto Rico. The same was incorporated into the Insurance Code since it was adopted through the approval of Act No. 77 of June 19, 1957. Subsequently, said Chapter was repealed and a new chapter was adopted upon the approval of Act No. 72 of August 17, 1991 ("Act No. 72"). Through the aforementioned Act No. 72, Chapters 38 and 39 of the Insurance Code were repealed as well, and were replaced with other chapters equally numbered which contain the
provisions that govern the Miscellaneous Insurance Guaranty Association and the Life and Disability Insurance Guaranty Association, respectively.
The main purpose of "Act No. 72" was to update the provisions of Chapters 38, 39, and 40 to provide more protection to the claimants and insured parties of insolvent insurers and to establish adequate mechanisms to conduct rehabilitation and liquidation proceedings. Said Act likewise had the purpose of reducing the legal conflicts as well as conflicts with the guaranty associations so that the established proceedings were more efficient and economical.
Regardless of the fact that the amendments approved through "Act No. 72" helped to improve the rehabilitation and liquidation proceedings established in Chapter 40 of the Insurance Code, other obstacles still exist which prevent the process from being more agile and effective. For example, the lack of knowledge on the proceedings by the courts-including the courts that supervise said proceedings-as well as the lack of knowledge on the proceedings by the claimants' lawyers and claimants themselves, render proceedings less expedient and increase the administrative and legal expenses incurred by the rehabilitator or liquidator which are defrayed with the estate. This definitely affects the promptness with which the matters are solved before the Receivership Court's consideration and the funds of the estate available for distribution among claimants and creditors.
Considering the above stated and seeing as over 15 years have elapsed since the approval of "Act No. 72," we deem it necessary to revise all the provisions of Chapter 40 to amend some of said provisions, so that we shall be able to count on adequate mechanisms that expedite rehabilitation and liquidation proceedings for insurers and health services organizations in Puerto Rico. For this end, the experience accumulated during these fifteen
(15) years, the experience of other jurisdictions with provisions similar to ours, and the changes introduced to the Model Law of the National Association of Insurance Commissioners (NAIC), known as the "Insurer Receivership Model Act," were taken into account.
The intent of these amendments is to clearly and accurately establish the duties and responsibilities of the court to which the supervision of a rehabilitation or liquidation proceeding for an insurer or health service organization is assigned; to describe the processes with more clarity using a more simple and understandable language; to provide the Insurance Commissioner with greater powers; to establish thoroughly the responsibilities of the reinsurers of insolvent insurers; to provide on the effect of staying judicial, administrative, and extrajudicial proceedings pending upon the initiation of any rehabilitation or liquidation proceedings; and to establish the possibility of reopening a liquidation under particular circumstances, among other matters. All this, for the purpose of expediting the administrative and judicial proceedings regarding rehabilitations and liquidations for insurers and health services organizations, in order for the claims of the claimants, creditors and insured parties to be promptly settled and to timely protect their interests and those of the general public.
BE IT ENACTED BY THE LEGISLATURE OF PUERTO RICO:
Section 1.-Section 40.010 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows: "Section 40.010.—Interpretation and Purpose.—
(2) ... (3) ... (4) ...
(f) The regulation of receivership proceedings and the establishment of substantive rules for said proceedings.
(g) Provide, as part of the oversight of the insurance business, a comprehensive scheme for the rehabilitation and liquidation of insurers pursuant to this Chapter. The proceedings in cases of insolvency and of any noncompliance by an insurer shall constitute integral aspects of the insurance business and as such are vested with public interest. (5) This Chapter and the Chapters covering the Insurance Guaranty Associations of Puerto Rico contain the provisions applicable to rehabilitation and liquidation proceedings for insurers and the same must be construed as a whole in order for them to be consistent. In the event that a conflict arises between the provisions of said Chapters and the provisions of any other law, the provisions of these Chapters shall prevail."
Section 2.-Section 40.020 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to
renumber the second paragraph of subsection (3) as subsection (4) and to renumber subsection (4) as subsection (5). "Section 40.020.—Persons Covered.— The proceedings authorized by this Chapter may be applied to: (1) ... (2) ... (3) ... (4) Any fraternal charitable society or health services organization which has been authorized or is authorized to do business in Puerto Rico. (5) Any other type of insurer created pursuant to the special provisions of this Code."
Section 3.-Section 40.030 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows: "Section 40.030.—Definitions.— For the purposes of this Chapter: (1) 'Creditor or claimant' means... (2) 'General Assets' means all property, real ... (3) 'Administrator' means any liquidator, rehabilitator, receiver, or conservator, as required by the context.
(4) 'Insurer' means any. (5) 'Foreign Insurer' means an insurer incorporated or organized pursuant to the laws of a State of the United States. (6) 'Alien insurer' means an insurer not organized pursuant to the laws of a State, but authorized to do business in one or more of such states. (7) 'Guaranty Association' means ... (8) 'Foreign Guaranty Association' means ... (9) 'State' means ... (10) 'Domiciliary State' means ... (11) 'Reciprocal State' means any State in which provisions similar to those of Sections 40.150 (1), 40.480, 40.490, and 40.510 through 40.530 are substantially and effectively in force, and in which provisions requiring that the Commissioner or an equivalent official be the administrator of an insurer subject to a receivership proceeding are in effect, and in which provisions for the prevention of fraudulent conveyances and preferential transfers are in effect. (12) 'Subsidiary State' means ... (13) 'Insolvency or Insolvent' means... (14) 'Just Cause for a Property or Obligation' exists when:
(a) ...
(b) $\quad ...$ (15) 'Foreign Country' means any nation, territory, place, or region outside of the sovereignty of the United States. (16) 'Person' shall have the same meaning of Section 1.040 of this Code. (17) 'Receivership Proceedings' means any proceeding commenced against an insurer for the purpose of its liquidation, rehabilitation, reorganization or conservation. (18) 'Property of the Insurer or Property of the Estate' means:
(a) Any right, title, and interest of the insurer in a property, whether tangible or intangible, including contractual rights and any other proprietary interest recognized under the Laws of the Commonwealth of Puerto Rico;
(b) Entitlements that existed prior to the entry of a rehabilitation or liquidation order and entitlements that may arise from the provisions of this Chapter or from other provisions of law allowing the liquidator or rehabilitator to void prior transfers or to assert other rights; and
(c) All files, records and information that are otherwise the property of the insurer, in whatever form maintained, including, but
not limited to, claims and claim files, lists of insured parties, application files, litigation files, rate books, underwriting policies, personnel records, or financial records, or similar records within the possession, custody, or control of the general agent, third-party administrator, data processing company, accountant, attorney, affiliate, parent company or subsidiary, or other person. (19) 'Reinsurance' means a transaction or contract whereby a reinsurer agrees to indemnify a ceding insurer against all or part of any loss that the ceding insurer may sustain under a policy that the ceding insurer issues or shall issue. (20) 'Special Deposit Claim' means ... (21) 'Secured Claim' means any claim secured by mortgage, trust deed, pledge, deposit as security, escrow, or otherwise, but does not include a special deposit claim or a claim against general assets. The term also includes claims which more than four (4) months before the commencement of a receivership proceeding have become a lien upon specific assets by reason of judicial process. (22) 'Preferred Claim' means any claim with respect to which this Chapter accords priority of payment from the general assets of the insurer. (23) 'Transfer' shall include ...
(24) 'Receivership Court' means the hall of sessions of the Court of First Instance, San Juan Part, to which rehabilitation and liquidation proceedings are assigned."
Section 4.-Section 40.040 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows: "Section 40.040.—Jurisdiction and Venue.— (1) No receivership proceeding shall be initiated... (2) ... (3) In addition to other grounds for jurisdiction provided for by the Laws of Puerto Rico, a Court of Puerto Rico having jurisdiction over the matter has jurisdiction over a person served pursuant to the Rules of Civil Procedure or other applicable provisions of law in an action brought by the administrator of a domestic insurer or an alien insurer domiciled in Puerto Rico:
(a) If the person served is obligated to the insurer in any way as general agent, authorized representative or proxy by virtue of a contract that may exist or has existed between the insurer and the general agent, or authorized representative or proxy in any action on or incidental to the obligation; or
(b) If the person served is an insurer or reinsurer who at any time has underwritten a reinsurance policy for an insurer against which a liquidation or rehabilitation order exists at the time the action is brought or who is an authorized representative or producer of or for the reinsurer, in any action on or incidental to the reinsurance contract; or
(c) If the person served is or has been an officer, manager, trustee, organizer, promoter, or other person in a position of comparable authority or influence over an insurer against which a rehabilitation or liquidation order is in force at the time the action is brought, in any action resulting from such a relationship with the insurer;
(d) If the person served, at the time of initiating the rehabilitation or liquidation proceedings against the insurer, is or was holding assets in which the liquidator or rehabilitator claims an interest on behalf of the insurer in any action concerning the assets; or
(e) If the person served is obligated to the insurer in any way, in any action on or incidental to the obligation.
(5) Any action thus authorized shall be filed at and assigned to the Court of First Instance, San Juan Part, to which a rehabilitation or liquidation proceeding has been assigned. (6) Service shall be made upon the person named in the petition pursuant to the Rules of Civil Procedure in effect. (7) No person may intervene in any liquidation proceeding for the purpose of seeking or obtaining payment of any judgment, lien, or other claim of any kind. The claims procedure set forth in this Chapter constitutes the exclusive means for procuring payment of claims from the liquidation estate. (8) No law, regulation, or resolution that provides for the dismissal of a lawsuit on grounds of inaction, shall apply to the receivership proceedings. (9) The rehabilitator or liquidator shall be exempted from payment of fees, duties, or taxes levied by the Commonwealth or any of its instrumentalities, dependencies or municipalities."
Section 5.-Section 40.050 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows:
"Section 40.050.—Injunctions and Orders.- (1) An administrator appointed in a proceeding in accordance with this Chapter may at any time request, and any Court of general jurisdiction may issue stay orders, preliminary and permanent injunctions, and other orders as may be deemed necessary and proper to carry out the purposes of this Chapter, to prevent among other things:
(a) ...
(b) ...
(c) ...
(d) ...
(e) ...
(f) ...
(g) ...
(h) ...
(i) ...
(j) ...
(k) ... (2) The administrator may appear before any Court, inside or outside of Puerto Rico to achieve the remedies described in subsection (1), or for the purpose of pursuing claims against any person.
(3) Except as provided by subsections (4) and (5) of this Section or as otherwise provided by this Chapter, the commencement of a receivership proceeding operates as a stay, applicable to any person, of:
(a) The commencement or continuation of any judicial, administrative or other proceeding against the insurer, including an arbitration or labor-management proceeding, that was or could have been commenced before the commencement of the receivership proceeding, or to procure payment of a claim that arose before the commencement of this proceeding;
(b) The enforcement against the insurer or against property of the insurer, of a judgment obtained before the commencement of the receivership proceeding;
(c) Any act to obtain or retain possession of property of the insurer or to exercise control over property or records of the insurer;
(d) Any act to collect a claim against the insurer that arose before the commencement of a receivership proceeding;
(e) The commencement or continuation of an action or proceeding against a reinsurer of the insurer, by the holder of a claim against the insurer, seeking to recover from the reinsurer the obligation due by the insurer;
(f) The commencement or continuation of any proceeding conducted by a government entity to cancel or revoke the authorization of an insurer to conduct insurance business;
(g) The termination, non-renewal, declaration of default, requirement of additional or replacement security or any other adverse action with respect to any contract, agreement or lease, including without being limited to policies, insurance and reinsurance contracts, bonds or surety undertakings, whether or not the insurer is a party to the contract, agreement, lease, policy, bond or surety undertaking, if the termination, non-renewal, declaration of default, requirement of additional or replacement security or any other adverse action is based solely on the fact that
(i) the insurer is the subject of a receivership proceeding and/or (ii) one or more of the insurer's authorization certificates have been suspended or revoked because the insurer is the subject of a receivership proceeding. (4) The stay of the actions, as provided in this Section, shall conclude ninety (90) days after the commencement of the receivership proceeding, unless for just cause, the Receivership Court orders to extend the term after notice to any affected party and hearing if deemed necessary. Provided, however, that any prescription term with respect to a claim against
an insured shall be tolled during the stay and any extension as provided for in this Section. No provision of this Section shall affect the period of stay of the proceedings provided for in Sections 38.180 and 39.170, for guaranty associations to take the corresponding legal action with respect to said proceedings. (5) Notwithstanding the provisions of subsection (3) above, the commencement of a receivership proceeding under this Chapter shall not operate as a stay or prohibition of:
(a) Disciplinary actions instituted by a Commissioner of another State, including but not limited to the suspension of a license; except as established in subsection (3f) above;
(b) Criminal proceedings;
(c) Any act to perfect, maintain or continue an interest on a property of the insurer;
(d) Setoffs as permitted by Section 40.270;
(e) Enforcement of non-monetary government claims, judgments and proceedings;
(f) The presentment for collection of a negotiable instrument and notice of a protest proceeding;
(g) Discharge by the guaranty association of the statutory responsibilities under the provisions of Law applicable thereto;
(h) An audit by a government agency to determine tax liability; or
(i) A claim for any type of tax. (6) Except as provided in subsection (8):
(a) The stay of any action against a property of the insurer as established by subsection (3), shall continue until the property is no longer a part of the estate of the insurer;
(b) The stay of any other action under subsection (3) shall continue until the earlier between the following occurs: (1) Closing of the receivership proceeding; or (2) Dismissal of a receivership proceeding. (7) Notwithstanding the provisions of subsection (3), and to the extent that it is not inconsistent with Section 40.270, the claims against the insurer that arose before the commencement of the receivership proceeding established in this Chapter, may be deemed to be counterclaims in any judicial, administrative or other action or proceeding initiated by or on behalf of the rehabilitator or liquidator against the holder of the claim.
(8) By request of an interested party and after notice and hearing, if deemed necessary by the Receivership Court, said Court may grant relief from the stay provided in subsections (1) and (3) by terminating, annulling, modifying, or conditioning the stay:
(a) For cause; or
(b) With respect to any stay of an act against property as established in subsection (3), if: (1) The insurer has no interest in the property; and (2) The property is not necessary to establish an effective plan.
(c) For the purposes of this Section, 'cause' includes, but is not limited to the following situations:
(i) the rehabilitator or liquidator cancels a policy, surety bond or surety undertaking; (ii) the creditor is entitled, by contract or by law, to require the insured party or the principal to have a policy, surety bond, or surety undertaking; and (iii) the insured party or the principal fails to obtain a replacement policy, surety bond, or surety undertaking within the later date between the cancellation and the term allowed by contract or law. (9) In a hearing to determine whether relief from the stay provided in subsections (1) and (3), as provided in subsection (8) above, is in order,
the interested party shall have the burden of proof, which shall be established by clear and convincing evidence. (10) The estate of an insurer that is injured by a willful violation of the provisions of this Section, shall be entitled to actual damages caused including costs and attorney fees and in appropriate circumstances, the Receivership Court may impose additional sanctions. (11) In relation to any stay or injunction granted by the provisions of this Section, a bond shall not be required from the rehabilitator or liquidator."
Section 6.-Section 40.060 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows: "Section 40.060.—Cooperation of Officers, Owners and Employees.- (1) Any officer, manager, director, trustee, owner, employee or authorized representative of an insurer and any other person with authority over...:
(a) ...
(b) ...
(2) No person shall obstruct or interfere with the Commissioner in the course of a receivership proceeding or an investigation preliminary or incidental thereto. (3) This Section shall not be construed to abridge otherwise existing legal rights, including the right to contest a petition for liquidation or other receivership proceedings or other orders. (4) Any person included in subsection (1) of this Section who fails to cooperate with the Commissioner or any person who obstructs or interferes with the Commissioner in the course of a receivership proceeding or any investigation preliminary or incidental thereto, or who violates any order the Commissioner has issued validly under this Chapter may:
(a) Be sanctioned with imprisonment for a fixed term of one (1) year; if there were aggravating circumstances, the fixed penalty may be increased to a maximum of two (2) years; if there were extenuating circumstances, it may be reduced to a minimum of six (6) months and one (1) day.
The court, in its discretion, may impose the established fixed penalty of imprisonment, a penalty of a fine not greater than fifty thousand (50,000) dollars or both, or
(b) After a hearing, be subject to the imposition by the Commissioner of a fine which shall not exceed fifty thousand (50,000) dollars and furthermore be subject to the revocation or suspension of any insurance licenses issued by the Commissioner."
Section 7.-Section 40.070 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby repealed, and a new Section 40.070 is hereby added to read as follows: "Section 40.070.—Immunity.— There shall be no civil liability on the part of, and no cause of action of any nature shall arise against, the Commissioner or his/her representatives for any action or omission by them in the discharge of their powers and duties under this Chapter."
Section 8.-Section 40.080 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows: "Section 40.080.—Continuation of Receivership Proceedings.— (1) The provisions of this Chapter shall not apply to the receivership proceedings commenced before the date of effectiveness of this Act, unless the Receivership Court, by request of the Commissioner, and
after notice and holding of a hearing to show cause, directs that all or part of this Chapter be applicable to such proceedings. (2) No person, director, officer or shareholder of an insurer that has been subject to a receivership proceeding may contract, solicit or accept new businesses on behalf of the insurer."
Section 9.-Section 40.090 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows: "Section 40.090.—Grounds for Rehabilitation.— The Commissioner may request the Court of First Instance, San Juan Part, to issue an order authorizing him/her to rehabilitate a domestic insurer or an alien insurer domiciled in Puerto Rico on any one or more of the following grounds: (1) ... (2) The insurer is in a capital or asset deficit. (3) The insurer or its parent company, subsidiaries or affiliates have misappropriated, squandered or concealed property of the insurer or otherwise have improperly disposed of, used, transferred, sold, assigned, mortgaged, squandered, conveyed or removed the property of the insurer.
(4) The insurer, its parent company, subsidiaries or affiliates have misappropriated, removed, altered, destroyed, or failed to fulfill their duty to establish and maintain books, records, documents, accounts, vouchers, and other pertinent documents and information adequate for the determination of the financial condition of the insurer, or have failed to properly administer claims or adequately maintain claims records for the determination with respect to the same. (5) The Commissioner has ... (6) After having been ... (7) When control ... (8) If a person who in fact has administrative or managerial authority over the insurer, whether an officer, manager, general agent, director, trustee, employee, shareholder, or other person, refuses to be examined under oath by the Commissioner concerning the insurer's affairs, whether conducted in Puerto Rico or elsewhere, or if examined under oath, the person refuses to disclose pertinent information reasonably known to the person, and after reasonable notice of such a fact, the insurer fails to promptly and effectively terminate the person's employment, position and influence over the management or administration of the insurer.
(9) If after required by the Commissioner, the insurer fails to promptly make available for examination any part of its own property, books, accounts, documents or other records, or those of any subsidiary or affiliate company under the control of the insurer, or those of any person having administrative authority over the insurer, provided that they belong to the insurer. (10) The Insurer, without first obtaining the written consent of the Commissioner as required by the provisions of this Code, has transferred or attempted to transfer, in a manner contrary to the provisions of this Code, a substantial part of its property or business, or enters into a transaction, the effect of which is to substantially merge or consolidate its entire property or business with the property or business of any other person. (11) The insurer or its property has been or is the subject of a request for the appointment of an administrator, trustee, judicial conservator or custodian or similar position of the insurer or its property in a manner other than as authorized under this Code, and such an appointment has been made or is imminent and the same might oust the Courts of Puerto Rico jurisdiction or might prejudice orderly receivership proceedings as provided by this Chapter. (12) The insurer ...
(13) The insurer ... (14) The insurer has failed to file its annual report or other financial report required by this Code within the term established, and after required in writing by the Commissioner, has failed to immediately provide a satisfactory excuse. (15) The board of directors or the holders of a majority of the voting shares of the insurer, or a majority of those individuals with control over entities specified in Section 40.020, request or consent to rehabilitation under this Chapter; (16) The insurer has systematically engaged in the practice of reaching settlements with and obtaining releases from claimants and subsequently, delays payment unreasonably or fails to pay the agreed-upon settlements, or systematically attempts to compromise with claimants or creditors on the grounds that it is financially unable to pay its claims or debts in full."
Section 10.—Section 40.100 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows:
"Section 40.100.—Rehabilitation Order.— (1) An order to rehabilitate the business of a domestic insurer or a foreign insurer domiciled in Puerto Rico, shall appoint the Commissioner and his/her successors in office as the rehabilitator, and shall direct the rehabilitator forthwith to take possession of the assets of the insurer and to administer them under the exclusive general supervision of the Court. The filing or recording of the order with the Clerk of the Court of First Instance where the main office of the insurer is located or its main business is conducted, and in the case of real estate, with the property registrar where said assets are located, and in the case of personal property, with the registry where they may be recorded or any other registry of personal property, shall have the same effect of public notice as a deed, a bill of sale or any other evidence of title duly filed and recorded with the Property Registry would have upon third parties. The order to rehabilitate the insurer shall vest title in the rehabilitator over all the insurer's assets. (2) Any order issued under this Section shall require the rehabilitator to be accountable solely to the Receivership Court. These reports shall be rendered as frequently as specified by the Court in the order; provided, however, that said reports must be filed at least every six months.
(3) The entry of a rehabilitation order shall not constitute an anticipatory breach of any of the insurer's contracts."
Section 11.-Section 40.110 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows: "Section 40.110.—Powers and Duties of the Rehabilitator.— (1) ... (2) The rehabilitator may take such action as he/she deems necessary or appropriate to reform and revitalize the insurer, including but not limited to the cancellation of policies, insurance and reinsurance contracts, surety bonds, surety undertaking or, with the authorization of the Receivership Court, the transfer of policies to an assuming solvent insurer. Furthermore, he/she shall have all the powers of the directors, officers and managers of the insurer, whose authority shall be suspended, unless they be again delegated by the rehabilitator. He/she shall likewise have full power to direct and administer, hire and discharge employees as well as to deal with the property and business of the insurer. The rehabilitator shall not be liable for policies issued or renewed in good faith while in rehabilitation or by any other action taken by him/her as rehabilitator.
(3) If it is evident to the rehabilitator that there has been criminal or tortious conduct or a breach of any contractual or fiduciary obligation detrimental to the insurer by any officer, manager, employee, general agent, authorized representative, producer, affiliate or other person, the rehabilitator may pursue all appropriate legal remedies on behalf of the insurer. (4) If the rehabilitator determines that a reorganization, consolidation, conversion, reinsurance, merger or other transformation of the insurer is appropriate, he/she shall prepare a plan to execute such changes. Upon request of the rehabilitator for approval of the plan, and after such notices and hearings as the Court may order, the Court may either approve or disapprove the plan proposed, or may modify it and approve it as modified. (5) The rehabilitator may assert all defenses available to the insurer against third parties, including statutes on limitations and fraud. A waiver of a defense by the insurer, while one of the grounds to request rehabilitation is present or after a rehabilitation or liquidation order has been issued, does not bind the rehabilitator. (6) The rehabilitator shall have the power to prevent fraudulent transfers under Sections 40.230 and 40.240.
(7) The enumeration in this Section of the powers and duties of the rehabilitator shall not be construed as a limitation upon the rehabilitator and does not exclude in any manner his/her right to do other acts not specifically enumerated or otherwise established herein, but which may be otherwise provided as may be necessary or appropriate to assist him/her in the rehabilitation process."
Section 12.—Section 40.111 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby added to read as follows: "Section 40.111.—Rehabilitation Plan.— (1) The rehabilitator shall prepare and file a plan to effect rehabilitation with the Receivership Court within one (1) year after the date on which the rehabilitation order is entered or subsequently if the Receivership Court should so allow. After having filed the Plan for approval and after the notice and hearings the Receivership Court may order, the Receivership Court may either approve or disapprove the plan proposed or modify the same and approve it as modified. Every Plan approved under this Section shall comply with the applicable laws and be fair and equitable for all parties involved. If the Plan is approved, the rehabilitator shall carry out the Plan as approved. In the case of a life insurer, the Plan proposed may
include the imposition of a preemptive attachment on policies of the insurer, if all rights of the shareholders are waived. A life insurer plan may also provide for the imposition of a moratorium upon loan and cash advance rights under the policies for a period not to exceed one (1) year from the date on which the order approving the Rehabilitation Plan is entered, unless the Receivership Court, for just cause, extends the moratorium. (2) Once a Plan is filed, any party in interest may object to the Plan. (3) The Plan shall:
(a) Except as provided in subsection (E) of this Section, provide no less a favorable treatment of a claim or class of claims than would occur in liquidation, unless the holder of a particular claim or interest agrees to a less favorable treatment of that particular claim or interest;
(b) Provide adequate means for the implementation of the Plan;
(c) Contain information concerning the financial condition of the insurer and the operation and effect of the Plan, as far as is practicable in light of the nature and history of the insurer, the
condition of the insurer's books and records, and the nature of the Plan; and
(d) Provide for the disposition of books, records, and documents and of any other information relevant to the duties and obligations covered by the Plan. (4) A Plan may include any other provisions not inconsistent with the provisions of this Chapter, including, but not limited to:
(a) Payment of distributions;
(b) Assumption or reinsurance of all or portions of the insurer's remaining liabilities, and transfer of assets, books and records to an authorized insurer or other entity;
(c) To the extent appropriate, application of market conduct standards established for insurers to any entity administering claims on behalf of the rehabilitator or directly assuming the liabilities of the insurer;
(d) Contracting with a guaranty association of a State or any other qualified entity to conduct the administration of claims;
(e) Annual independent financial and compliance audits of any entity administering claims on behalf of the rehabilitator that is
not otherwise subject to examination pursuant to 'Puerto Rico Insurance Code'; and
(f) Termination of the insurer's liabilities, except for those under insurance policies as of a date certain. (5) A Plan may separately designate and treat one or more claim subclasses consisting only of those claims within the classes reduced to de minimis amounts. A de minimis amount shall be an amount equal to or lesser than a maximum de minimis amount approved by the Receivership Court as being reasonable and necessary for appropriate administration."
Section 13.-Section 40.120 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows: "Section 40.120.—Actions By and Against the Rehabilitator.— (1) $\quad ...$ (2) No statute of limitation or defense of laches shall run with respect to any action by or against the insurer between the date of filing a petition for the appointment of a rehabilitator for the insurer and the order granting or denying such a petition. Any action by or against the insurer that might have been commenced when the petition was filed may be
commenced within ninety (90) days after the rehabilitation order is issued or the petition is denied. (3) ...'
Section 14.—Section 40.130 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows: "Section 40.130.—Termination of Rehabilitation.— (1) Whenever the Commissioner believes that further efforts to rehabilitate an insurer would substantially increase the risk of loss to policyholders, creditors or the general public, or that the same would be futile, he/she may petition the Receivership Court for a liquidation order. A petition under this paragraph shall have the same effect as a petition under Section 40.140. The rehabilitator shall coordinate a transition plan for the liquidation with guaranty associations that may be obliged under a liquidation proceeding. (2) The protection of the interests of the insured parties, plaintiffs and the general public requires the efficient and prompt management of all obligations under an insurance policy, reason for which, if the payment of the obligations under the policies of an insurer under rehabilitation is suspended for a period of six (6) months at any time after the rehabilitator is
appointed as such and he/she has not submitted a Plan to the Receivership Court, as provided in Section 40.110 of this Code, the rehabilitator may petition the Receivership Court for a liquidation order or seek an order to extend the suspension period, after showing just cause therefor. (3) The rehabilitator may petition the Receivership Court at any time for an order to terminate the rehabilitation of an insurer. The Receivership Court shall also allow the directors of the insurer to petition an order to terminate the rehabilitation and may order payment from the estate of the insurer of such costs and other expenses related to their petition if the petition is granted. If the Receivership Court finds that rehabilitation has been accomplished and that grounds for rehabilitation under Section 40.090 no longer exist, it shall order that possession of property and control over business be restored to the insurer. The Receivership Court may also reach that conclusion and issue such an order at any time motu proprio."
Section 15.-Section 40.140 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows:
"Section 40.140.—Grounds for Liquidation.— The Commissioner may petition the Court of First Instance for an order authorizing him/her to liquidate a domestic insurer or an alien insurer domiciled in Puerto Rico based on: (1) Any grounds for a rehabilitation order as specified in Section 40.090 of this Chapter, except for subsections (6), (13), (14), and (15) thereof, whether or not there has been a previous order directing the rehabilitation of the insurer. (2) ... (3) ..." Section 16.—Section 40.150 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows: "Section 40.150.—Liquidation Order.— (1) An order to liquidate the business of a domestic insurer shall appoint the Commissioner or any successor in office as the liquidator and authorize him/her to take immediate possession of the assets of the insurer and administer the same under the exclusive general supervision of the Receivership Court. The liquidator shall be legally vested with title to all the property, contracts and rights of action, and to all the books and records of
the insurer ordered to be liquidated, wherever located, as of the date of entry of the final liquidation order. The liquidator shall be empowered to negotiate and reduce to cash, wholly or partially, any assets that may be needed to pay for the administration of the liquidation, provided he/she obtains the maximum yield possible in said negotiation. The filing or recording of the order with the Clerk of the Part of the Court of First Instance where the main office of the insurer is located, or its main business is conducted, and in the case of real estate, with the Property Registrar where said property is located, and in the case of personal property, in the Registry where the same may be recorded, shall have the same effect of notice as a deed, a bill of sale, or any other evidence of title duly filed and recorded with the Property Registry would have upon third parties. (2) ... (3) ... (4) ... (5) Any order issued under this Section shall require the liquidator to be accountable solely to the Court. These reports shall be rendered at such intervals as specified by the Court in its order; provided, however, that said reports shall be rendered at least every six (6) months.
(6) In the event that a liquidation order is rendered ineffective, the insurer shall not be released from the liquidation proceeding until the insurer complies with the conditions provided in Section 40.421."
Section 17.—Section 40.160 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows: "Section 40.160.—Continuance of Coverage.— (1) ...
(a) ...
(b) ...
(c) ...
(d) ...
(e) The date proposed by the liquidator and approved by the
Receivership Court to cancel coverage. (2) ... (3) ... (4) ... (5) The cancellation of any bond or surety undertaking shall not release any cosurety or guarantor.
(6) Except as otherwise provided in this Chapter, the obligations of the insolvent insurer's reinsurers shall not cease by the termination of policies ceded to reinsurers."
Section 18.-Section 40.180 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows: "Section 40.180.—Powers of the Liquidator.— (1) The liquidator shall be empowered to:
(a) Appoint an Assistant Liquidator to act for him/her under this Chapter. The Assistant Liquidator shall have all the powers granted by this Section to the liquidator. The Assistant Liquidator shall serve for as long as the liquidator may wish.
(b) $\qquad$
(c) Set fair compensation for the Assistant Liquidator and the employees and agents, legal counsel, actuaries, accountants, appraisers and consultants, with the approval of the Receivership Court.
(d) $\qquad$
(e) $\qquad$
(f) $\qquad$
(1) ... (2) ... (3) ...
(g) Conduct public and private sales of the property of the insurer with the approval of the Receivership Court.
(h) (1) Use assets of an insurer under a liquidation order to transfer obligations to an assuming solvent insurer if the transfer can be arranged without prejudice to applicable priorities pursuant to Section 40.390 (2) Use the assets of an insurer under liquidation to transfer the insurer's obligations under a surety bond or surety undertaking contract as well as collateral held by the insurer to secure reimbursement obligations of the principals under the surety bond or surety undertaking to an assuming solvent insurer, if the transfer can be arranged without prejudice to applicable priorities under Section 40.390. Furthermore, if all insurers, principals, third party claimants, and creditors under the policies, or surety bond or surety undertaking contracts agree, or if the Receivership Court so orders, the estate of the
insurer shall no longer be liable for policies or surety bond or surety undertaking contracts after the transfer is completed.
(i) Acquire, mortgage, encumber, lease, improve, sell, transfer, abandon, or otherwise dispose of or deal with, with the approval of the Receivership Court, ...
(j) Borrow money, whether or not secured by the assets of the insurer, and execute and deliver, with the approval of the Receivership Court, all documents needed for such a transaction with the purpose of expediting the liquidation. Any money borrowed may be repaid as an administrative expense and shall have priority over any other Class 1 claim.
(k) ...
(l) ...
(m) ...
(n) Take possession and transfer any records and property of the insurer to the offices of the Commissioner or to any other place as may be convenient for the efficient and orderly execution of the liquidation. The guaranty associations and the foreign guaranty associations shall have reasonable access to the records of the insurer,
as may be necessary, so that they can carry out their statutory obligations.
(o) ...
(p) Invest prudently and in accordance to Chapter 6 of this Code, the amounts not currently needed, unless the Receivership Court orders otherwise.
(q) ...
(r) Assert all defenses available to the insurer against third parties, including statutes of limitations, fraud and usury. A waiver of any defense by the insurer after a petition for liquidation has been filed shall not bind the liquidator. Whenever a guaranty association or a foreign guaranty association has an obligation to assume the defense in a lawsuit, the liquidator shall give precedence to such an obligation and may only assume it in the absence of a defense by such guaranty associations.
(s) $\quad ...$
(t) ...
(u) ...
(v) The liquidator shall not be obligated to defend the insurer in any action against the insurer or an insured party. Any insured party
not defended by a guaranty association may provide for his/her own defense and include the cost thereof as part of his/her claim, if such a defense was part of the obligation of the insurer. The right of the liquidator to contest coverage on a particular claim shall be preserved with no need for an express reservation of rights.
(w) The liquidator is hereby vested with all the rights of the entity or entities in liquidation. (2) The enumeration of the powers and authority of the liquidator in this Section shall not be construed as a limitation upon the liquidator and does not exclude in any manner the right to take other actions or engage in other acts not specifically enumerated or otherwise provided for to the extent necessary or appropriate for the accomplishment of or in aid of liquidation purposes."
Section 19.—Section 40.190 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows: "Section 40.190.—Notice to Creditors and Other Persons.- (1) Unless the Receivership Court otherwise directs, the liquidator shall give or cause to be given notice of the liquidation order as soon as possible:
(a) By first-class mail or other speedy printed means of communication, by telephone or electronic mail to the Insurance Commissioner of every jurisdiction where the insurer is doing insurance business;
(b) By first-class mail or electronic mail to any guaranty association or foreign guaranty association which is or may be obligated as a result of the liquidation;
(c) By first-class mail or electronic mail to all general agents, authorized representatives and producers who have placed insurance business with the insurer and all others the liquidator deems appropriate to their last known address; and
(d) By certified mail or electronic mail to any person known to have or reasonably expected to have claims against the insurer, including all policyholders, to their last known address as shown in the records of the insurer and also, through the publication of a notice once a week for three consecutive weeks in two newspapers of general circulation in Puerto Rico and other public places deemed appropriate by the liquidator. (2) The notice to potential claimants pursuant to subsection (1) shall require that they file with the liquidator their claims together with the
corresponding proofs, as established in Section 40.330, on or before the date fixed by the Receivership Court for the filing of claims. Said term shall not exceed a period of six months from the date of issue of the liquidation order or any extension thereof that the Receivership Court may set for just cause. The liquidator need not require persons claiming cash surrender values or other investment values in life insurance and annuities to file a claim. All claimants shall have the obligation of keeping the liquidator informed of any change of address. (3) If notice is given according to this Section, the distribution of the assets of the insurer pursuant to this Chapter shall be final with respect to all claimants, whether or not they have received the notice. (4) The liquidation order notice shall contain the following information:
(a) A statement that the insurer has been placed in liquidation;
(b) A statement explaining that certain actions are stayed under Section 40.050 and, if deemed necessary by the liquidator, describing any other relief ordered by the Receivership Court;
(c) A statement on the continuation of coverage of the policies in effect and on the date of termination;
(d) To the extent applicable, a statement of the coverage provided by guaranty associations for all or part of the policy benefits in accordance with the provisions governing guaranty associations;
(e) A statement of the deadline for filing claims and the requirements for filing the claims form pursuant to Section 40.330;
(f) A statement of the date, time, and location of any status hearing scheduled at the time the notice is sent;
(g) A description of the process for obtaining notice of matters before the Receivership Court; and
(h) Other information as the liquidator or the Receivership Court deems appropriate. (5) Notwithstanding the established above, the liquidator shall not be bound to locate a person or entity whose address does not appear on the records of the insurer, or if the notice is returned to the liquidator because its delivery at the address that appears on the books and records of the insurer was unsuccessful. In said cases, a notification through a notice in the newspaper, as required in this Chapter, or a received notice shall be sufficient. The written certification of the liquidator, or of any other person acting on his/her behalf, attesting that the notices were deposited in the mail or transmitted electronically, shall be prima facie evidence that they were
sent and received. It shall be the obligation of every claimant to keep the liquidator informed of any changes of address. (6) Notwithstanding the provisions of subsection (1) of this Section, by request of the liquidator, the Receivership Court may establish that the publication of the notice required by this Section shall be sufficient notice to those persons who have an occurrence policy that matured more than four years before the liquidation order was issued, and under which no claims are pending; or the Receivership Court may order a new notice to those persons as it may deem appropriate."
Section 20.—Section 40.200 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows: "Section 40.200.—Obligations by General Agents, Authorized Representatives and Producers.- (1) Any person who receives a notice in the manner prescribed in Section 40.190(1)(c) to the effect that an insurer with which he/she placed business as a general agent, authorized representative or producer is subject to a liquidation order, shall give notice of the liquidation order within thirty (30) days following the notice. The notice shall be sent by first-class mail, evidenced through a certificate of mailing, to every policyholder or any
other person named in every policy issued by the insurer through the general agent, authorized representative or producer to the last address that appears on the corresponding records. A policy shall be deemed issued through a general agent, authorized representative or producer if any of the latter has proprietary interest on the maturity of the policy or if the authorized representative has had in his/her power a copy of the policy at any time during the life thereof, except when the ownership on the maturity of the policy has been transferred to another person. The written notice shall include the name and address of the insured party and of the general agent, authorized representative or producer, the identification of the affected policy and the nature of the liquidation proceeding, including the termination of coverage as described in Section 40.160. Any general agent, authorized representative or producer who is bound to give notice pursuant to this Section shall render to the liquidator a sworn report of compliance not later than forty-five (45) days as of the date of the notification of the order. (2) Any general agent, authorized representative or producer who fails to give notice of having rendered a compliance report, as required by subsection (1), may be subject to a fine that shall not exceed five thousand (5,000) dollars and the suspension of his/her license, after a hearing before the Commissioner.
Regardless of the proprietary interest of the authorized representative, if any, on the maturity of the policy, the liquidator shall have the sole power to determine when and under what terms and conditions the policy is cancelled or transferred."
Section 21.—Section 40.210 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows: "Section 40.210.—Actions By and Against the Liquidator.— (1) $\quad ...$ (2) The liquidator may, upon or after the issuance of a liquidation order, within four (4) years or within the period of time additional to those four (4) years as applicable laws may allow, file suit or institute a proceeding on behalf of the estate of the insurer upon any cause of action in which the prescriptive term established by the applicable laws has not expired at the time of filing the petition for such an order. When, by any agreement, a prescriptive term is fixed for filing a suit or institute a proceeding upon any claim, or for filing any claim, proof of claim, proof of loss, lawsuit, notice or like action or when during any proceeding, judicial or otherwise, a prescriptive term is fixed, either in the proceeding or by applicable laws, to take any action, file any claim or plea or engage in any
act, and when in such a case the term has expired at the date of filing the petition, the liquidator may, for the benefit of the estate of the insurer, take the action required of or allowed to the insurer within a period of one hundred and eighty (180) days after filing a liquidation order or within such additional time, as is shown to the satisfaction of the Court not to be unfairly prejudicial to the other party. (3) No prescriptive term or defense of laches shall run with respect to any action against the insurer during the period between the date of filing a petition for the liquidation order and the denial thereof. Any action against the insurer that might have been commenced when the petition was filed may be filed for at least sixty (60) days after the petition is denied. (4) ...'
Section 22.—Section 40.220 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows: "Section 40.220.—Collection and List of Assets.- (1) As soon as feasible, after a liquidation order, but not later than one hundred and eighty (180) days thereafter, the liquidator shall prepare in duplicate a financial report of the Insurer which includes at least a balance sheet and an income and expense report. This report shall be continually
submitted to the Receivership Court at intervals specified by the Receivership Court in the liquidation order; provided, that this report shall be submitted at least every six (6) months. The Receivership Court may request any other information it deems appropriate. (2) The Guaranty Association shall submit a report to the Liquidator within one hundred and twenty (120) days after the liquidation order is issued and subsequently every four (4) months. The report shall be submitted using the format provided therefor by the National Association of Insurance Commissioners. Said Report shall also be submitted to the Receivership Court. (3) The liquidator shall reduce the assets, with the authorization of the Receivership Court, to a degree of liquidity consistent with the effective execution of the liquidation, except as provided in Section 40.150(1). (4) A petition to the Court for the distribution of assets under Section 40.310 meets the requirements of subsection (1) of this Section."
Section 23.—Section 40.230 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows:
"Section 40.230.—Fraudulent Transfers Prior to Petition.- (1) Any transfer made and completed and any obligation incurred by an insurer within two (2) years prior to successfully filing a petition for rehabilitation or liquidation pursuant to this Chapter, is fraudulent as to then existing and future creditors if made or incurred without just cause or with an actual intent to hinder, delay or defraud either existing or future creditors... (2) $\qquad$
(a) $\qquad$
(b) $\qquad$
(c) $\qquad$
(d) $\qquad$ (3) $\qquad$
(a) $\qquad$
(b) $\qquad$ Section 24.—Section 40.250 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows:
"Section 40.250.—Voidable Preferences and Liens.— (1)
(a) A preference is the transfer of any property or interest on a property of an insurer to or for the benefit of a creditor, for or on account of an antecedent debt made or accepted by the insurer within one (1) year prior to filing a successful petition for liquidation pursuant to this Chapter, whose effect may be to enable the creditor to obtain a greater percentage of this debt than another creditor of the same class would have received. If a liquidation order is filed while the insurer is already subject to a rehabilitation order, then these transfers shall be deemed to be preferences if completed or accepted within one (1) year prior to filing the successful petition for rehabilitation or within the two (2) years prior to filing the successful petition for liquidation, whichever time is shorter.
(b) The liquidator may annul a preference if: (1) The insurer was insolvent at the time of the transfer; or (2) The transfer was made within one hundred and twenty (120) days prior to filing the petition; or (3) The creditor receiving the same or to be benefited thereby or his/her agent in the transaction had, at the time of the
transaction, reasonable cause to believe that the insurer was insolvent or was about to become insolvent; or (4) The creditor receiving the same was an officer, employee or attorney or other person who, in fact, was in a position of influence over the insurer comparable to that of an officer, regardless of whether or not he/she held such a position, or an affiliate corporation, or a shareholder directly or indirectly holding more than five percent of any type of stock issued by the insurer or any other person, firm, corporation, partnership or group of persons with whom the insurer conducted business on a regular basis.
(c) ... (2) ... (3)
(a) ...
(b) A lien obtained by legal or equitable proceedings could become superior to the rights of a transferee, or a buyer could obtain rights superior to those of a transferee within the context of subsection (2), if such consequences would ensue only from the lien or the purchase itself, or from the lien or the sale followed by any action wholly under the control of the respective lienholder or buyer, with or
without the aid of ministerial action by public officers. Such a lien, however, cannot become superior and such sale could not create superior rights for the purposes of subsection (2), through any actions subsequent to the obtaining of such a lien or subsequent to such a purchase which requires the agreement or concurrence of any third party, or which requires any further judicial action or ruling. (4) ... (5) ... (6) ... (7) The Receivership Court shall have summary jurisdiction over any proceeding by the liquidator to hold hearings and determine the rights of the parties under this Section. Reasonable notice of the hearings in the proceeding shall be given to all parties in interest, including the obligee of a releasing bond or other like obligation. When an order is issued for the recovery of indemnifying property in kind or for the voiding of an indemnifying lien, the Court, by petition of any interested party, shall determine in the same proceeding the value of the property or lien, and if the value were lesser than the amount for which the property is indemnity or lesser than the amount of the lien, the transferee or lienholder may elect to
retain the property or lien upon payment of its value to the liquidator, as ascertained by the Court, on the reasonable dates set by the Court. (8) ... (9) ... (10) If an insurer, within one hundred and twenty (120) days before filing a successful petition for liquidation pursuant to this Chapter or at any time, in contemplation of a proceeding for liquidation, directly or indirectly pays an amount of money or transfers property to an attorney-at-law for services rendered or to be rendered, the Court may examine the transaction on its own motion or by petition of the liquidator and it shall be held valid only to the extent of a reasonable amount to be determined by the Court, and the excess may be recovered by the liquidator for the benefit of the estate. When the attorney holds a position of influence over the insurer or over an affiliate thereof, payment of any amount of money or the transfer to the attorney-at-law of any property for services rendered or to be rendered shall be governed by the provisions of subsection (1)(b)(4). (11) ...'
Section 25.-Section 40.260 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows:
"Section 40.260.—Claims of Holders of Void or Voidable Rights.— (1) No claim of a creditor who has received or acquired a preference, lien, transfer, assignment or encumbrance which is voidable under this Chapter shall be allowed, unless said creditor surrenders such a preference, lien, transfer, assignment or encumbrance. If the voidance is effected by a proceeding in which a final judgment has been entered, the claim shall not be allowed, unless the money is paid or the property returned to the liquidator within thirty (30) days as of the date of entering the final judgment, except that the Receivership Court may grant additional time if there is an appeal or any other continuation of the proceeding. (2) ..."
Section 26.—Section 40.270 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows: "Section 40.270.—Setoffs and Counterclaims.— (1) ... (2) No setoff or counterclaim shall be allowed in favor of any person where:
(a) ...
(b) ...
(c) The obligation of the insurer is owed to an affiliate or entity, and there is no written assignment of the obligation executed more than one hundred and twenty (120) days before the date on which the petition for liquidation is filed;
(d) The obligation of the person is owed to an affiliate or entity other than the insurer, and there is no written assignment of the obligation executed more than one hundred and twenty (120) days before the date on which the petition for liquidation is filed;
(e) The obligation of the person is to pay an assessment imposed on members or subscribers of the insurer, or to pay the balance on a subscription to the capital stock of the insurer, or the same is in any other way in the nature of a capital contribution; or
(f) The obligation of the person is to pay premiums to the insurer, whether earned or not."
Section 27.-Section 40.280 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows: "Section 40.280.—Assessments.— (1) $\quad ...$
(2)
(a) Based on the report provided in subsection (1), including any supplements or amendments to the report, the Receivership Court may impose one or more assessments on the members of the insurer who are subject to assessment.
(b) ... (3) ... (4) The liquidator shall give notice of the order to show cause by publication and by first-class mail to each affected member to his/her last known address as it appears on the insurer's records at least twenty (20) days before the date of return of the order to show cause, or by such other method of notification as the Receivership Court may authorize. Failure to receive the notice or the order within the time specified therein shall not be used as defense in any proceeding to collect the assessment. (5) ... (6) ..." Section 28.—Section 40.290 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows:
"Section 40.290.—Liability of the Reinsurer.— (1) The amounts that are to be recovered by the liquidator from the reinsurers shall not be reduced as a result of the receivership proceedings, notwithstanding the fact that it be so provided in the reinsurance contract or in any other agreement, or that nothing was provided on the matter. A payment made directly by the reinsurer to an insured party or other creditor shall not diminish the obligation of the reinsurer with respect to the estate of the insurer. This Section shall apply to all reinsurance contracts of the insurer, including but not limited to treaty reinsurance, quota share reinsurance, facultative reinsurance or a fronting or captive reinsurance arrangements. (2) Except as otherwise provided in subsection (1) of this Section, the amount recoverable by the liquidator from a reinsurer shall be paid by the reinsurer under one or more reinsurance contracts based on:
(a) Proof of payment of the insured claim by a guaranty association, the insurer, or the liquidator or rehabilitator, to the extent of the amount paid; or
(b) The allowance of the claim pursuant to Section 40.400, or according to a liquidation order or Rehabilitation Plan.
(3) If an insurer takes credit for a reinsurance contract in a filing or submission made to the Commissioner and the reinsurance contract does not contain the provisions required with respect to the obligations of reinsurers in the event of insolvency of the reinsured parties, said reinsurance contract shall be considered to contain the provisions required with respect to the obligations of reinsurers in the event of insolvency of the reinsured parties in order to be able to obtain credit for reinsurance, or other applicable statutes. (4) Any reinsurance contract that under subsection (3) above is presumed or inferred to contain certain provisions, shall be considered to contain the following provision: 'In the event of insolvency and the appointment of a liquidator or rehabilitator, the reinsurer's obligation shall be payable to the ceding insurer or to the liquidator or rehabilitator without any diminution whatsoever due to insolvency or failure of the liquidator or rehabilitator to pay all or a portion of the claim. Payment shall be made upon either:
(a) Proof of payment of the claim by the guaranty association, the insurer, or the liquidator or rehabilitator up to the sum paid; or
(b) Allowance of the claim under Section 40.400 or according to a Rehabilitation Plan or liquidation order.'
(5) The liquidator or rehabilitator, in accordance with the terms of the contract, shall give written notice to each reinsurer obligated in relation to each pending claim against the reinsured party. The liquidator or rehabilitator's failure to give notice of pending claims pursuant to the provisions of the reinsurance contract, shall not excuse the obligation of the reinsurer under the contract, unless the reinsurer is prejudiced by the receiver's failure, in which case, the reinsurer's obligations shall be reduced only to the extent of the prejudice. A reinsurer may assert, at its own expense, in a proceeding in which a claim is to be adjudicated, any defense or defenses available to the reinsured party, liquidator or rehabilitator. (6) The entry of a rehabilitation or liquidation order shall not be construed as a breach or an anticipatory breach of a reinsurance contract, nor shall the same be grounds for retroactive revocation or cancellation of any reinsurance contract by the reinsurer. (7) In the event that a reinsurer's payment to a rehabilitator or liquidator of a ceding insurer is later determined to be a payment in excess of the amounts owed to the insurer, said excess shall be credited against future payments owed to the liquidator or rehabilitator, or shall be repaid to the reinsurer as an administrative expense pursuant to Section 40.390. Any repayment shall be limited to the remainder of the estate."
Section 29.—A new Section 40.291 is hereby added to Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," to read as follows: "Section 40.291.—Life and Health Reinsurance.— (1) A contract reinsuring a life, physical disability or long-term care insurance policy or annuities issued by a ceding insurer subject to a rehabilitation proceeding under this Chapter shall be continued or terminated pursuant to their terms and conditions as well as to the provisions of this subsection. (2) A contract reinsuring a life, physical disability or long-term care insurance policy or an annuity issued by a ceding insurer subject to a liquidation proceeding pursuant to this Chapter shall remain in effect, subject to the provisions of this Chapter, unless said contracts have been terminated pursuant to their terms prior to the date of the liquidation order or to the date on which said contracts have been terminated pursuant to the liquidation order, in which case, the provisions of the preceding subsection (1) should apply. (3)
(a) At any time within one hundred and eighty (180) days from the date of the liquidation order, any guaranty association covering in whole or in part a life insurance policy, physical disability
insurance policy, long-term care insurance policy or an annuity, may elect to assume the rights and obligations of the ceding insurer that relate to the policy or annuity covered in whole or in part by the guaranty association, in each case, under one or more reinsurance contracts between the insolvent insurer and its reinsurers, as determined by the guarantee association. Said assumption shall be effective as of the coverage date. The election shall be made by the guaranty association or by the National Organization of Life and Health Insurance Guaranty Associations (NOLHGA) in its behalf by sending written notice, return receipt requested, to the affected reinsurers.
(b) To facilitate the earliest decision possible about whether to assume any of the reinsurance contracts and in order to protect the financial position of the estate, the liquidator and each reinsurer of the ceding insurer shall make available, at the request of the affected guaranty associations or the National Organization of Life and Health Insurance Guaranty Associations (NOLHGA) in representation of the same, as soon as possible after commencement of receivership proceedings, copies of the reinsurance contracts in force as well as of all records related thereto and other documents relevant to the
determination of whether said contracts should be assumed and notice of any default under the reinsurance contracts or any known event or condition that with the passing of time could become a default reinsurance contract.
(c) The following subsections shall apply to those reinsurance contracts assumed by any guarantee association:
(i) The guaranty association shall be responsible for all unpaid premiums due under reinsurance contracts, for the periods both before and after the liquidation order, and shall be responsible for complying with any other obligations after the date of the liquidation order in every case related to life insurance policies, physical disability insurance policies, longterm care insurance policies or annuities covered in whole or in part by guarantee associations. Any costs for reinsurance in excess of the obligation of the guaranty association in policies or annuities, on account of these being covered in part by a guarantee association, may be charged by the guarantee association through reasonable allocation methods. The guarantee association shall provide notice and justify said charges to the liquidator.
(ii) The guaranty association shall be entitled to any amounts payable by the reinsurer under reinsurance contracts with respect to losses or events that occur in a period subsequent to the date of the liquidation order and related to life insurance policies, physical disability insurance policies, longterm care insurance policy or annuities covered in whole or in part by the association; provided, that upon receipt of said amounts, the guaranty association shall be obliged to pay to the beneficiary under the policy or annuity against which the amounts were paid, a portion of said amount equal to the lesser of:
(a) The amount received by the guaranty association; and
(b) The excess of the amount received by the guaranty association over the amount equal to the benefits paid by the guaranty association on account of the policy or annuity, subtracting the retention of the insurer applicable to the loss or event. (iii) Within thirty (30) days following the election of the guarantee association, the guaranty association and each
reinsurer under contracts assumed by the guaranty association shall compute the net balance to be paid by the guaranty association or which the guaranty association is to pay under each reinsurance contract as of the date of the election and with respect to policies or annuities covered, in whole or in part, by the guaranty association. Such computation shall give full credit to all payments made by the insurer or the liquidator or the reinsurer before the date of the election. The reinsurer shall pay the liquidator any amounts payable for claims or events before the date of coverage, subject to any setoff for premiums unpaid for periods before the date of coverage, and the guaranty association or reinsurer shall pay any pending balance due to the other party within five (5) days of the completion of said computation. Any dispute over amounts payable to either party shall be resolved by arbitration pursuant to the terms of the applicable reinsurance contract, or if the contract contains no arbitration clause, as provided in subsection 9(d). If the liquidator has received any amounts due to the guaranty association pursuant to subsection (3)(c)(ii) above, the
liquidator shall remit the same to the guaranty association as promptly as practicable. (iv) If the association or the liquidator, on behalf of the guaranty association, within sixty (60) days of the date of the election, pays the premiums due for periods both before and after the date of the election that relate to life insurance policies, physical disability insurance policies, long-term care insurance policies or annuities covered, in whole or in part, by the guaranty association, the reinsurer shall not be entitled to terminate the reinsurance contracts for failure to pay premiums, insofar as the reinsurance contracts relate to life insurance policies, physical disability insurance policies, long-term care insurance policies or annuities covered, in whole or in part, by the guaranty association, and shall not be entitled to any setoff on any unpaid amounts under other contracts or unpaid amounts due from parties other than the guaranty association, against amounts due the guaranty association. (4) If pursuant to Receivership Court approval under Section 40.160 of this Code, the liquidator continues certain life insurance policies, physical disability insurance policies, long-term care insurance policies or
annuities in force after a liquidation order has been issued, and said policies or annuities are not covered in whole or in part by one or more guaranty associations, the liquidator may, within one hundred and eighty (180) days following the date of coverage, elect to assume the rights and obligations of the ceding insurer under one or more of the reinsurance contracts that relate to the policies or annuities, provided the contracts have not been terminated as set forth in subsection (2). The election shall be made by sending written notice, return receipt requested, to the affected reinsurers. In such a case, payment of premiums on the reinsurance contracts for the policies or annuities, for periods both before and after the date of coverage, shall be chargeable against the estate as Class 1 administrative expenses. The amounts paid by the reinsurer on account of losses on the policies and annuities shall be paid to the estate of the insolvent insurer. (5) During the period beginning on the date of coverage and ending on the date of the election,
(a) (i) Neither the guaranty association nor the reinsurer shall have any rights or obligations under reinsurance contracts that the guaranty association has the right to assume under subsection (3), whether for a period before or after the date of coverage;
(ii) Neither the liquidator nor the reinsurer shall have any rights or obligations under reinsurance contracts that the liquidator has the right to assume under subsection (4) with respect to the period after the date of coverage, but their respective rights and obligations for the period preceding the date of coverage shall remain unchanged; and (iii) The reinsurer, the liquidator, and the guaranty association shall, to the extent practicable, provide each other with information and records reasonably requested.
(b) Once the guaranty association or the liquidator, as the case may be, elects or declines to elect to assume a reinsurance contract, the parties' rights and obligations shall be governed by subsection (3), (4) or (9), as applicable. (6)
(a) If a guaranty association does not elect to assume a reinsurance contract by the date of the election as provided under subsection (3), the guaranty association shall have no rights or obligations, in each case for periods both before and after the date of coverage, with respect to the reinsurance contract.
(b) If the liquidator does not elect to assume a reinsurance contract by the date of the election pursuant to subsection (4), the
liquidator and the reinsurer shall retain their respective rights and obligations with respect to the reinsurance contract for the period preceding the date of coverage, but shall have no rights or obligations to each other for the period after the date of coverage, except as provided in subsection (9).
(c) In the event that the guaranty association or the liquidator, as the case may be, does not elect to assume a reinsurance contract by the date of the election, the reinsurance contract shall terminate retroactively, effective on the date of coverage. Reinsurance contracts covering life insurance policies, physical disability insurance policies, long-term care insurance policies or annuities that are terminated pursuant to Section 40.160, shall terminate on the date of coverage. In both cases, subsection (9) shall apply. (7) When life insurance policies, physical disability insurance policies, long-term care insurance policies, annuities, or guaranty association obligations with respect to them are transferred to an assuming insurer, reinsurance on the policies or annuities may also be transferred by the guaranty association, in the case of contracts assumed under subsection (3), or by the liquidator, in the case of contracts assumed under subsection (4), as the case may be, but subject to the following:
(a) Unless the reinsurer and the assuming insurer agree otherwise, the reinsurance contract transferred shall not cover any new insurance policy or annuity in addition to those transferred;
(b) The obligations described in subsections (3) and (4) of this Section shall not 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 thirty (30) days before the effective date of the transfer. (8) The provisions of this Section shall supersede the provisions of any law or of any affected insurance contract that provides for or requires any payment of reinsurance proceeds on account of losses or events that occur in a period after the date of coverage, to the liquidator or to any other person. The liquidator shall remain entitled to any amounts payable by the reinsurer under the reinsurance contracts with respect to losses or events that occur in a period before the date of coverage, subject to the provisions of this Chapter, including applicable setoff provisions. (9) If a contract reinsuring a life insurance policy, physical disability insurance policy, long-term care insurance policy, or an annuity is terminated pursuant to this Chapter, the following provisions shall apply:
(a) The reinsurer and the liquidator shall, upon being notified in writing by the other party to the reinsurance contract, not later than thirty (30) days after the receipt by the reinsurer of notice of termination, commence a mandatory negotiation or an arbitration proceeding in accordance with this subsection.
(b) Each party shall appoint an actuary to determine an estimated sum payable as a result of the termination of the reinsurance contract, computed in a way expected to render the parties financially indifferent as to whether the contract is continued or terminated, giving due regard to the financial effects of insolvency. Said sum shall take into account the present value of future cash flows expected under the reinsurance contract and shall be based on a gross premium valuation of net liability using current assumptions that reflect post-liquidation experience expectations, without taking into account additional margins and net margins of any amounts payable and receivable, and with a market value adjustment to reflect premature sale of assets to fund the settlement.
(c) Within ninety (90) days from the date on which the written request pursuant to clause
(a) above is made, each party shall provide the other party with its estimate of the sum due as a result of
the termination of the reinsurance contract and all relevant documents and any other information supporting the estimate. The parties shall make a good faith effort to reach an agreement on the sum due.
(d) If the parties are unable to reach an agreement within ninety (90) days following the date on which the documents required in clause
(c) above are submitted, either party may initiate arbitration proceedings as provided in the reinsurance contract. In the event that the reinsurance contract does not contain an arbitration clause, either party may commence the arbitration proceeding pursuant to this subsection (9) by providing the other party with a written demand for arbitration. Said arbitration shall be conducted pursuant to the following procedures:
(i) The venue for the arbitration proceeding shall be that which is agreed to by the parties. (ii) Thirty (30) days from the date either party receives the arbitration demand, each party shall appoint an impartial arbitrator who is a disinterested active officer or executive or a retired officer of a life insurance or reinsurance company, or other professional with not less than ten (10) years of experience in or relating to the field of life insurance or
reinsurance. The two arbitrators, in turn, shall appoint an independent, impartial umpire who is an active or retired officer or executive of a life insurance or reinsurance company or other professional with not less than ten (10) years of experience in the field of life insurance or reinsurance. If the arbitrators are unable to agree on an umpire, each arbitrator shall provide the other with the names of three (3) qualified individuals. Each arbitrator shall strike two names from the three submitted by the other arbitrator and the umpire shall be randomly chosen from the two remaining candidates. (iii) Except as otherwise ordered by the arbitration panel and within sixty (60) days following the date on which the umpire is appointed, the parties shall submit to the panel their estimates of the sum due as a result of the termination of the reinsurance contract, together with all relevant documents and other information supporting each estimate. (iv) The terms set forth herein may be extended upon mutual agreement of the parties.
(v) The panel shall have all powers necessary to conduct the arbitration proceedings in a fair and appropriate
manner, including the power to request additional information from the parties, to authorize discovery, to hold hearings and to hear testimony. Furthermore, the panel may, if the same considers it convenient, appoint independent actuaries, the expense of which shall be shared equally between the parties.
(e) An arbitration panel considering the matters set forth in this clause shall apply the standards set forth in subsection 9(b) and shall issue a written award specifying a net settlement amount due from one party or the other as a result of the termination of the reinsurance contract. The Receivership Court shall confirm the award in the absence of proof of statutory grounds for modifying or repealing the award as established by the Federal Arbitration Act.
(f) If the net settlement amount agreed upon or awarded pursuant to this clause should be payable by the reinsurer, the latter shall pay the amount due to the estate, but subject to any applicable setoff under Section 40.270. If the net settlement amount agreed upon or awarded pursuant to this clause is payable by the insurer, the reinsurer shall be considered to have a timely filed claim for that amount, which claim shall be paid pursuant to the priority established in Section 40.390(4). The guaranty association shall not be entitled to
receive the net settlement amount, except to the extent it is entitled to share in the estate assets as creditors thereof, and shall have no responsibility for the amount agreed upon. (10) Except as otherwise provided in this Section, none of the provisions herein shall alter or modify the terms and conditions of any reinsurance contract nor shall abrogate or abridge any rights of a reinsurer to rescind a reinsurance contract. Nothing in this Section shall give any policyholder or beneficiary an independent cause of action against the reinsurer that is not otherwise set forth in the reinsurance contract. None of the provisions herein shall either abridge or affect the rights of any guaranty association as a creditor of the estate against the assets of the estate. None of these provisions shall apply to reinsurance agreements covering property or casualty risks."
Section 30.—Section 40.300 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows: "Section 40.300.—Recovery of Premiums Owed.— (1)
(a) Every general agent, authorized representative, producer, proxy, premium financing company or any other person other than the insured party responsible for the payment of a premium, shall be
obligated to pay to the liquidator any amount due to the insurer on account of the portion of the premiums earned at the time of the liquidation declaration, as shown on the records of the insurer. Regarding any part of the unearned premium that has been collected, the general agent, authorized representative, producer or proxy shall be governed by the provisions of Section 9.380 of this Code. Neither credits, nor setoffs, or both, shall be allowed to a general agent, authorized representative, producer, proxy or premium financing company for any amounts that the general agent, authorized representative, producer, proxy or premium financing company has advanced to the insurer on behalf of, but in the absence of payment by, the insured party.
(b) The general agent, authorized representative, producer or proxy shall be obligated to return to the liquidator the unearned commissions of the premiums remitted to the insurer.
(c) ... (2) ..." Section 31.—Section 40.310 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows:
"Section 40.310.—Proposal of the Domiciled Liquidator for Distributing Assets.— (1) Within one hundred and twenty days of a final determination of insolvency of an insurer by the Receivership Court, the liquidator shall petition the Court to approve a proposal to disburse assets, from time to time, out of marshalled accrued assets as they become available, to a guaranty association or a foreign guaranty association having obligations because of such insolvency. The liquidator shall have the right to petition the Receivership Court for an extension of up to one hundred and twenty (120) days to make this petition. If at that time, the liquidator determines that there are not sufficient assets to disburse, the petition required by this Section shall be deemed to be satisfied in full if the liquidator files a motion stating the reasons for such a determination. (2) The proposal shall at least include provisions for:
(a) The establishment of reserves for the payment of administrative expenses and the payment of claims of secured creditors, up to the amount of the value of the security, and of claims included in the priorities established in Section 40.390, Classes 1 and 2;
(b) ...
(c) $\quad ...$
(d) The obtainment by the liquidator of an agreement with each of the associations entitled to disbursements, pursuant to this Section, to the effect that such assets shall be returned to the liquidator, together with the proceeds earned by virtue of the provisions of Section 40.330, the assets previously disbursed, as required to pay claims of secured creditors, and those claims that fall within the priorities established in Section 40.390, in accordance with such priorities. No bond whatsoever shall be required from any of the aforesaid associations for this purpose; and
(e) $\quad ...$ (3) $\quad ...$ (4) The proposal of the liquidator shall provide, with respect to an insolvent insurer underwriting life or disability insurance, for the disbursement of assets to any guaranty association or foreign guaranty association in the field of life or disability insurance or annuities, or to any other organization or entity which reinsures, assumes or secures insurance policies or contracts pursuant to the laws that create such associations.
Section 32.—Section 40.320 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows: "Section 40.320.—Filing of Claims.— (1) ... (2) ...
(a) The existence of the claim was not known to the claimant and he/she filed the same ninety (90) days after learning about it;
(b) ...
(c) ... (3) ... (4) ..."
Section 33.—Section 40.330 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows: "Section 40.330.—Claims Form.— (1) The Claims Form shall consist of a statement sworn to and signed by the claimant which includes all of the following when applicable:
(a) ...
(b) ...
(c) ... (2) ... (3) The liquidator may require at any time that the claimant submit information or evidence supplementary to that which is required by subsection (1) and may take testimony under oath or pledge, require the production of statements, or otherwise obtain additional information or evidence. (4) ... (5) ..." Section 34.-Section 40.340 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows: "Section 40.340.—Special Claims.— (1) ... (2) ... (3) Claims which are not payable because their due date has not expired, shall be treated as payable claims, except that their future value may be discounted at the legal rate of interest.
Section 35.—Section 40.350 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows: "Section 40.350.—Special Provisions for Third Party Claimants.— (1) When a third party claimant asserts a cause of action against an insured party of an insurer in liquidation, the third party claimant may file a claim with the liquidator. (2) ... (3) The liquidator shall make his/her recommendations to the
Receivership Court, pursuant to Section 40.390... (4) ... (5) ... (6) A claimant may withdraw a claim with the approval of the liquidator. The liquidator may approve the withdrawal of the claim after giving notice to the insured party and only upon showing just cause. (7) The filing of a claims form in connection with a claim against an insured party shall have the following effect on the rights of the claimant and the insured party:
(a) The claimant waives any right to claim the assets of the insured party to the extent of the coverage or policy limits provided by
the insurer and agrees that, to the extent of said coverage or limit, his/her claim against the insured party shall be satisfied solely from distributions paid by the liquidator on the claim and any payment that the guaranty association may pay on account of the claim, except as provided in this Section.
(b) The waiver provided for in this Section is conditioned upon the cooperation of the insured party with the liquidator or with any guaranty association in defense of the claim. This waiver shall not discharge the guaranty association from any of its responsibilities and duties or the insured party with respect to any claim in excess of the coverage or limits of the policy issued by the insurer or any other responsible party.
(c) The waiver provided for under this Section is void if: i. A claimant withdraws the claims form under subsection (6) of this Section; or ii. The liquidator denies a claim, because there is no coverage."
Section 36.—Section 40.360 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows:
"Section 40.360.—Evaluation of Claims.— (1) When a claim is denied in whole or in part by the liquidator, written notice of the determination shall be given to the claimant or his/her representative by first-class mail at the address shown in the claims form. Within thirty (30) days after the notice has been mailed, the claimant may file his/her objections with the liquidator. If no such filing is made, the claimant may not further object to the determination. (2) Regarding the determination of the liquidator, the claimant may resort to the Receivership Court for a review. (3) The provisions of this Section shall not apply to disputes with respect to determinations of coverage by a guaranty association as part of its statutory obligations."
Section 37.—Section 40.380 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows: "Section 40.380.—Secured Creditors' Claims.— (1) ... (2) ... (3)
(a) A surety has paid any losses and adjustment expenses under a surety bond contract before any petition for liquidation and
the principal posts collaterals to the surety that have not been used to reimburse said losses and adjustment expenses and at the time of the petition said collaterals have not been credited against the payments made, the liquidator shall have first priority over any other person to use collateral to reimburse losses and adjustment expenses incurred by a surety before the petition for liquidation.
(b) If the principal under a surety bond or contract pledges any collateral to secure his/her obligation of reimbursing to the insurer any claim of a creditor under the surety bond or contract, such a claim shall be satisfied first out of the collateral or the collateral's proceeds.
(c) When paying a claim to a creditor under a bond or surety contract secured by collateral, the liquidator shall retain a sufficient sum to pay for any other potential claim against the collateral.
(d) If the collateral is insufficient to pay in full all possible claims under subsection 3(b), the claims shall be paid on a pro rata basis and creditors shall have a claim for any deficiency, subject to the provisions of Section 40.320 .
(e) If the term to file a claim against a bond or surety has expired and all claims have been satisfied in full, the remaining collateral shall be returned to the principal.
(3) The liquidator may recover from any property securing a covered claim, the reasonable, necessary costs and expenses of preserving, or disposing of, said property, up to the total sum of the claim."
Section 38.-Section 40.410 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows: "Section 40.410.—Distribution of Assets.- Under the supervision of the Receivership Court, the liquidator shall pay the distributions in such a way that they will ensure the proper acknowledgement of priorities and create a reasonable balance between the prompt completion of the liquidation and the protection of unliquidated and undetermined claims, including third party claims. All claims approved within the same class shall be paid at the same percent."
Section 39.-Section 40.420 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby repealed and a new Section 40.420 is hereby created to read as follows: "Section 40.420.—Unclaimed and Withheld Funds.— (1) Unclaimed funds subject to distribution remaining in possession of the liquidator after the final distribution, shall be deposited in an unclaimed fund account under the custody of the Commissioner. If the
person entitled to said funds presents satisfactory proof of ownership of said right within two years after the liquidation, the Commissioner shall remit the funds to him/her. The interest earned on unclaimed funds may be used to pay administrative expenses related to the handling of the return of said funds. (2) The Commissioner may file a motion requesting that the
Receivership Court issue an order to dispose of the withheld funds that remain unclaimed after two years, as set forth in subsection (1) above. Any costs incurred in carrying out said disposal shall be paid from the unclaimed funds. The motion shall specify the name of the insurer, the names and last known addresses of the persons entitled to the unclaimed funds, if known, and the amount of the funds. Notice of said motion shall be given as provided by the Court. Upon a finding by the Court that the funds have not been claimed within two years after the liquidation proceeding has been completed, the Court shall rule that any claim for unclaimed funds and any interest earned thereon have been abandoned, and shall provide for the distribution of the funds under any of the following methods:
(a) To be deposited in the general liquidation expense account as provided by subsection (3) of this Section;
(b) To be transferred to the Secretary of the Treasury; or
(c) To be used to reopen the liquidation proceeding and conduct a new distribution among the known claimants as provided in Section 40.431 . (3) The Commissioner may open a bank account to deposit the unclaimed funds and use said funds:
(a) To pay general expenses related to the administration of liquidations; and
(b) To advance funds to any other liquidation that does not have sufficient funds to pay for its operating expenses. (4) Any advance to an insurer in liquidation, as allowed under subsection (3)(b), may be deemed to be a Class 1 claim within the distribution order established in Section 40.390 . (4) If the Commissioner determines that the funds in the account exceed the amount needed for the purposes specified in subsection (3) above, the Commissioner may transfer said funds to the Secretary of the Treasury, chargeable to the General Fund."
Section 40.-A new Section 40.421 is hereby added to Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," to read as follows:
"Section 40.421.—Conditions for Release from Receivership Proceedings.—
Unless otherwise provided in a plan approved by a guaranty association, until all payments on account of the insurer's contractual obligations are repaid to the guaranty associations, plus expenses and interest incurred by the same, the insurer that is subject to a receivership proceeding may not: (1) Solicit or accept new business or accept the restoration of any suspended or revoked license. (2) Have its control of shareholders or private management restored. (3) Have any of its assets returned to its shareholders or administrators."
Section 41.—A new Section 40.431 is hereby added to Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," to read as follows: "Section 40.431.—Reopening Liquidation.— After liquidation proceedings are completed and the Receivership Court grants the discharge of the liquidation, the Commissioner may petition the Receivership Court to reopen the liquidation proceedings for just cause,
including for the fact that additional property belonging to said estate has been discovered. If the Court deems that that there is justification for reopening the liquidation proceedings, it shall issue an order to such effects."
Section 42.-Section 40.440 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows: "Section 40.440.—Disposition of Records During and After Termination of Liquidation Proceedings.- (1) When the Commissioner, acting as liquidator ... (2) If the liquidator determines that certain documents, records, and books of the insurer under a liquidation proceeding should be maintained after the closing of the liquidation, an amount of the estate of the insurer shall be reserved for the maintenance thereof. The amount reserved shall be deemed to be an administrative expense of the estate. The records, documents, and books retained pursuant to this Section shall be transferred to the Commissioner, who shall retain and dispose of the same at his/her discretion. These records, documents, and books shall not be deemed to be official documents of the Office of the Insurance Commissioner, reason for which they shall not be subject to applicable laws regarding public documents."
Section 43.-Section 40.450 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows: "Section 40.450.—External Audit of the Administrator's Books.— The Receivership Court may order audits to be conducted on the books of the rehabilitation and liquidation proceedings established pursuant to this Chapter and a copy of the audit report shall be filed with the Commissioner and another with the Receivership Court. The books, records and other documents of the administration shall be made available to the auditor at any time without prior notice. The expenses of each audit shall be deemed to be costs of the administration of the rehabilitation or liquidation proceeding."
Section 44.-Section 40.460 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows: "Section 40.460.—Custody of Property of Foreign or Alien Insurers Domiciled in Puerto Rico.- (1) If a domiciliary liquidator has not been appointed, the Commissioner may request by verified petition that the Court of First Instance issue an order for the Commissioner to act as conservator of the
property in Puerto Rico of an alien insurer not domiciled in Puerto Rico or a foreign insurer on one or more of the following grounds:
(a) ...
(b) ...
(c) ...
(d) ... (2) When an order is requested pursuant to subsection (1), the Court shall cause the insurer to be given notice and shall grant it ten (10) days to respond. (3) The Court may issue the order in the terms it deems appropriate. The recording of the order with the Clerk of the Court of First Instance in the area where the main office of the insurer is located, or where the main business of the aforesaid is conducted, and in the case of real estate, with the Property Registrar where the same is located, shall have the same effect of notice as a deed, bill of sale or any other evidence of title duly filed and recorded with the Property Registrar would have on third parties. (4) ... (5) The conservator may at any time petition the Court for an order terminating the conservation of an insurer. If the Court determines that the conservation is no longer necessary, it shall order that possession of property
and control of business be restored to the insurer and may order the insurer to reimburse the conservator the expenses incurred by him/her during the proceeding for the conservation of the property of the insurer. The Court may also arrive at this conclusion and issue such an order on the motion of any interested party, but if such a motion is denied, the petitioner shall pay all costs that may be imposed. (6) The conservator may liquidate property of the insurer, if necessary, in order to defray the expenses incurred in the initiation of the proceedings and the administration of the property of the insurer, as provided by this Section."
Section 45.-Section 40.470 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows: "Section 40.470.—Liquidation of Property Located in Puerto Rico of Foreign or Alien Insurers.- (1) If no domiciliary administrator has been appointed, the Commissioner may petition to the Court of First Instance, by verified petition, to issue an order directing him/her to liquidate the assets located in Puerto Rico of a foreign insurer or an alien insurer not domiciled in Puerto Rico, on any of the following grounds:
(a) ...
(b) ... (2) When an order is requested under subsection (1), the Court may order that the insurer be given notice and grant the same a term of ten (10) days to respond. (3) If the Court should determine that the best interests of the policyholders, creditors and the public so require, it may issue a liquidation order under the terms it shall deem appropriate. The filing or recording of the order with the Clerk of the Court of First Instance, or in the case of real estate, with the Property Registry of the area where such property is located, shall have the same effect of notice as a deed, bill of sale or other evidence of title duly filed and recorded with the Property Registry would have on third parties. (4) ... (5) ... (6) ..." Section 46.—Section 40.480 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows:
"Section 40.480.—Liquidators Domiciled in Other States.— (1) The domiciliary liquidator of an insurer domiciled in a reciprocal state shall be vested, except regarding special deposits and security on secured claims pursuant to Section 40.490(3), with the title to all the assets, property, contracts, rights of action, balances of authorized representatives and all the books, accounts and other records of the insurer located in Puerto Rico. The date of vesting shall be the date of filing the petition, if that is the date specified in the domiciliary law for the vesting of property title in the domiciliary state. Otherwise, the date of vesting shall be the date of issue of the order to take possession of the property. The domiciliary liquidator shall have the immediate right to recover balances due from authorized representatives and obtain possession of the books, accounts and other records of the insurer located in Puerto Rico. He/she shall also have the right to recover all other assets of the insurer located in Puerto Rico, subject to the provisions of Section 40.490. (2) Full faith and credit shall be given to all statutory provisions of reciprocal states and to orders issued by Courts of competent jurisdiction in relation to the appointment of a rehabilitator, liquidator or administrator of an insurer, and any related proceeding.
(3) If a domiciliary liquidator is appointed for an insurer not domiciled in a reciprocal state, the Commissioner of that state shall be vested, by operation of law, with the title to all the property, contracts and rights of action, and over all the books, accounts and other records of the insurer located in Puerto Rico, at the same time that the domiciliary liquidator is vested with the title in the domicile. The Commissioner of Puerto Rico may request a conservation or liquidation order pursuant to Section 40.460 or 40.470 , or for an ancillary administration under Section 40.490 or may, with the approval of the Court of First Instance, transfer title to the domiciliary liquidator, as the interests of justice and the equitable distribution of the assets require. (4) Claimants residing in Puerto Rico may file claims with the liquidator or the ancillary administrator, if any, in Puerto Rico, or with the domiciliary liquidator, if allowed under the domiciliary law. The claims shall be filed on or prior to the last date fixed for filing claims in the domiciliary liquidation proceedings."
Section 47.-Section 40.490 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," is hereby amended to read as follows:
"Section 40.490.—Formal Ancillary Proceeding.— (1) If a domiciliary liquidator has been appointed for an insurer not domiciled in Puerto Rico, the Commissioner may request that the Court of First Instance appoint him/her as Ancillary Administrator in Puerto Rico:
(a) ...
(b) ... (2) ... (3) ..." Section 48.-Effectiveness.-This Act shall take effect immediately after its approval.
CERTIFICATION
I hereby certify to the Secretary of State that the following Act No. 206 (H.B. 3639) of the $6^{ ext {th }}$ Session of the $15^{ ext {th }}$ Legislature of Puerto Rico:
AN ACT to amend Chapter 40 of Act No. 77 of June 19, 1957, as amended, known as the "Puerto Rico Insurance Code," which comprises the provisions that govern rehabilitation and liquidation proceedings for insurers or health services organizations, based on the changes introduced to the Model Law of the National Association of Insurance Commissioners (NAIC), known as the "Insurer Receivership Model Act," and the experience accumulated with the proceedings existing for the past fifteen (15) years since the approval of said Chapter, for the purposes of improving and expediting said procedures for them to be more effective and to protect more adequately the interests of the claimants, insured parties, and creditors of an insurer or health services organization in rehabilitation or liquidation and of the general public, has been translated from Spanish to English and that the English version is correct.
In San Juan, Puerto Rico, today $15^{ ext {th }}$ of September of 2008.
Francisco J. Domenech Director