Chapter 645

645.64 645.64 Special provisions for 3rd-party claims.

645.64(1) (1) Third party’s claim. Whenever any 3rd party asserts a cause of action against an insured of an insurer in liquidation, the 3rd party may file a claim with the liquidator. The filing of the claim shall release the insured’s liability to the 3rd party on that cause of action in the amount of the applicable policy limit, but the liquidator shall also insert in any form used for the filing of 3rd-party claims appropriate language to constitute such a release. The release shall be void if the insurance coverage is avoided by the liquidator.

645.64(2) (2) Insured’s claim. Whether or not the 3rd party files a claim, the insured may file a claim on his or her own behalf in the liquidation. If the insured fails to file a claim by the date for filing claims specified in the order of liquidation or within 60 days after mailing of the notice required by s. 645.47 (1) (b), whichever is later, the insured is an unexcused late filer.

645.64(3) (3) Procedure for insured’s claim.

645.64(3)(a) (a) The liquidator shall make recommendations to the court under s. 645.71 for the allowance of an insured’s claim under sub. (2) after consideration of the probable outcome of any pending action against the insured on which the claim is based, the probable damages recoverable in the action and the probable costs and expenses of defense. After allowance by the court, the liquidator shall withhold any dividends payable on the claim, pending the outcome of litigation and negotiation with the insured. Whenever it seems appropriate, the liquidator shall reconsider the claim on the basis of additional information and amend the recommendations to the court. The insured shall be afforded the same notice and opportunity to be heard on all changes in the recommendation as in its initial determination. The court may amend its allowance as it thinks appropriate.

645.64(3)(b) (b) As claims against the insured are settled or barred, the insured shall be paid from the amount withheld the same percentage dividend as was paid on other claims of like priority, based on the lesser of the following:

645.64(3)(b)1. 1. The amount actually recovered from the insured by action or paid by agreement plus the reasonable costs and expenses of defense.

645.64(3)(b)2. 2. The amount allowed on the claims by the court.

645.64(3)(c) (c) After all claims are settled or barred, any sum remaining from the amount withheld shall revert to the undistributed assets of the insurer. Delay in final payment under this subsection shall not be a reason for unreasonable delay of final distribution and discharge of the liquidator.

645.64(4) (4) Multiple claims. If several claims founded upon one policy are filed, whether by 3rd parties or as claims by the insured under this section, and the aggregate allowed amount of the claims to which the same limit of liability in the policy is applicable exceeds that limit, each claim as allowed shall be reduced in the same proportion so that the total equals the policy limit. Claims by the insured shall be evaluated as in sub. (3). If any insured’s claim is subsequently reduced under sub. (3), the amount thus freed shall be apportioned ratably among the claims that have been reduced under this subsection.

645.64 History History: 1979 c. 102; 1995 a. 225; 2005 a. 253.

645.64 Annotation Third parties and insureds are not required to file their claims with the liquidator. Riley v. Heil, 624 F. Supp. 695 (1985)

645.65 645.65 Disputed claims.

645.65(1) (1) Notice of rejection and request for hearing. When a claim is denied in whole or in part by the liquidator, written notice of the determination and of the right to object shall be given promptly to the claimant and the claimant’s attorney by first class mail at the address shown in the proof of claim. Within 60 days from the mailing of the notice, the claimant may file objections with the court. If objections are not filed within that period, the claimant may not further object to the determination.

645.65(2) (2) Notice of hearing. Whenever objections are filed with the court, the liquidator shall ask the court for a hearing as soon as practicable and give notice of the hearing by first class mail to the claimant or the claimant’s attorney and to any other persons directly affected, not less than 10 nor more than 20 days before the date of the hearing. The matter may be heard by the court or by a court-appointed referee.

645.65 History History: 1979 c. 93, 102; 1991 a. 316.

645.66 645.66 Claims of surety. Whenever a creditor whose claim against an insurer is secured in whole or in part by the undertaking of another person fails to prove and file that claim, the other person may do so in the creditor’s name, and is subrogated to the rights of the creditor, whether the claim has been filed by the creditor or by the other person in the creditor’s name, to the extent that the other person discharges the undertaking. In the absence of an agreement with the creditor to the contrary, the other person shall not be entitled to any dividend until the amount paid to the creditor on the undertaking plus the dividends paid on the claim from the insurer’s estate to the creditor equals the amount of the entire claim of the creditor. Any excess received by the creditor shall be held in trust for such other person.

645.66 History History: 1979 c. 93, 102, 177.

645.67 645.67 Secured creditors’ claims.

645.67(1) (1) The value of any security held by a secured creditor shall be determined in one of the following ways, as the court directs:

645.67(1)(a) (a) By converting the same into money according to the terms of the agreement pursuant to which the security was delivered to such creditor;

645.67(1)(b) (b) By agreement, arbitration, compromise or litigation between the creditor and the liquidator.

645.67(2) (2) The determination shall be under the supervision and control of the court. The amount so determined shall be credited upon the secured claim, and any deficiency shall be treated as an unsecured claim. If the claimant surrenders his or her security to the liquidator, the entire claim shall be allowed as if unsecured.

645.67 History History: 1979 c. 102 s. 236 (13).

645.675 645.675 Qualified financial contracts.

645.675(1) (1) In this section:

645.675(1)(a) (a) “Actual direct compensatory damages” includes normal and reasonable costs of cover or other reasonable measures of damages used in the derivatives, securities, or other markets for the contract and agreement claims. “Actual direct compensatory damages” does not include punitive or exemplary damages, damages for lost profit or lost opportunity, or damages for pain and suffering.

645.675(1)(b) (b) “Business day” means any day other than a Saturday, a Sunday, or a day on which the New York Stock Exchange, or the Federal Reserve Bank of New York is closed.

645.675(1)(c) (c) “Commodity contract” means any of the following:

645.675(1)(c)1. 1. A contract for the purchase or sale of a commodity for future delivery on, or subject to the rules of, a board of trade or contract market under the federal Commodity Exchange Act, 7 USC 1, et seq., or a board of trade outside the United States.

645.675(1)(c)2. 2. An agreement that is subject to regulation under the federal Commodity Exchange Act, 7 USC 23, and that is commonly known to the commodities trade as a margin account, margin contract, leverage account, or leverage contract.

645.675(1)(c)3. 3. An agreement or transaction that is subject to regulation under the federal Commodity Exchange Act, 7 USC 6c, and that is commonly known to the commodities trade as a commodity option.

645.675(1)(c)4. 4. Any combination of agreements or transactions specified in subds. 1. to 3.

645.675(1)(c)5. 5. Any option to enter into an agreement or transaction specified in subds. 1. to 3.

645.675(1)(d) (d) “Contractual right” includes any right established in a rule or bylaw, or in a resolution, of the governing board of a derivatives clearing organization or board of trade as defined in the federal Commodity Exchange Act, 7 USC 1, et seq.; a multilateral clearing organization, as defined in the federal Deposit Insurance Corporation Improvement Act of 1991, 12 USC 4402; a national securities exchange, a national securities association, a securities clearing agency, or a control market designated under the federal Commodity Exchange Act, 7 USC 1, et seq.; or a derivatives transaction execution facility registered under the federal Commodity Exchange Act, 7 USC 1, et seq., or any right, regardless whether it is in writing, arising under statutory or common law, or under the uniform commercial code, or by reason of normal business practice.

645.675(1)(e) (e) “Counterparty” means a person who enters into a qualified financial contract with an insurer.

645.675(1)(f) (f) “Credit insurance” means insurance against loss arising from failure of debtors to meet financial obligations to creditors, except mortgage guaranty insurance.

645.675(1)(g) (g) “Credit life insurance” means insurance on the lives of borrowers or purchasers of goods in connection with specific loans or credit transactions when all or a portion of the insurance is payable to the creditor to reduce or extinguish the debt.

645.675(1)(h) (h) “Disability insurance” means insurance covering injury or death of persons caused by accident or insurance covering the health of persons.

645.675(1)(i) (i) “Financial guaranty insurance” means a surety bond, insurance policy, indemnity contract, or any similar guarantee issued by an insurer under which a loss is payable upon proof of occurrence of financial loss to an insured claimant. “Financial guaranty insurance” does not include credit insurance, credit life insurance, disability insurance, mortgage guaranty insurance, or long-term care insurance.

645.675(1)(j) (j) “First-method provision” means a contract provision in which the nondefaulting party is not required to pay if a net or settlement amount is owed to the defaulting party.

645.675(1)(k) (k) “Forward contract” has the meaning given in 12 USC 1821 (e) (8) (D).

645.675(1)(L) (L) “Mortgage guaranty insurance” means insurance against loss arising from any of the following:

645.675(1)(L)1. 1. Debtors to meet financial obligations to creditors under evidences of indebtedness that are secured by any of the following:

645.675(1)(L)1.a. a. A first lien or charge on residential real estate designed for occupancy by not more than 4 families.

645.675(1)(L)1.b. b. A first lien of charge on residential real estate designed for occupancy by 5 or more families.

645.675(1)(L)1.c. c. A first lien or charge on real estate designed for industrial or commercial purposes.

645.675(1)(L)1.d. d. A junior lien or charge on residential real estate.

645.675(1)(L)2. 2. Lessees to make payment on rentals under leases of real estate in which the lease extends for 3 years or longer.

645.675(1)(m) (m) “Netting agreement” means any of the following:

645.675(1)(m)1. 1. A contract or agreement, or terms and conditions in a contract or agreement, including a master agreement together with all schedules, confirmations, definitions, and addenda, that documents one or more transactions between the parties to the agreement for, or involving, one or more qualified financial contracts and that provides for either the netting, liquidation, setoff, termination, acceleration, or close-out under, or in connection with, one or more qualified financial contracts or present or future payment or delivery obligations or entitlements, including related liquidation or close-out values, among the parties to the netting agreement.

645.675(1)(m)2. 2. Any master agreement or bridge agreement for one or more master agreements described in subd. 1.

645.675(1)(m)3. 3. Any security agreement or arrangement or other credit enhancement or guarantee or reimbursement obligation related to any contract or agreement described in subd. 1. or 2.

645.675(1)(n) (n) “Qualified financial contract” means a commodity contract, forward contract, repurchase agreement, securities contract, swap agreement, or any similar agreement that the commissioner determines by rule or order to be a qualified financial contract.

645.675(1)(o) (o) “Repurchase agreement” has the meaning given in 12 USC 1821 (e) (8) (D).

645.675(1)(p) (p) “Second-method provision” means a contract provision requiring a nondefaulting party to pay if a net or settlement amount is owed to the defaulting party.

645.675(1)(q) (q) “Securities contract” has the meaning given in 12 USC 1821 (e) (8) (D).

645.675(1)(r) (r) “Swap agreement” has the meaning given in 12 USC 1821 (e) (8) (D).

645.675(1)(s) (s) “Two-way payment provision” means a contract provision under which both parties to the contract may have payment obligations to each other.

645.675(1)(t) (t) “Walkaway clause” means a provision in a netting agreement or a qualified financial contract that, after calculation of a value of a party’s position or an amount due to or from one of the parties in accordance with its terms upon termination, liquidation, or acceleration of the netting agreement or qualified financial contract, either does not create a payment obligation of a party or extinguishes a payment obligation of a party, in whole or in part, solely because of the party’s status as a nondefaulting party.

645.675(2) (2) 

645.675(2)(a) (a) Notwithstanding any other provision of this chapter, including any other provision permitting the modification of contracts, no person may be stayed or prohibited from exercising any of the following rights:

645.675(2)(a)1. 1. A contractual right to cause the termination, liquidation, acceleration, or close-out of obligations under, or in connection with, any netting agreement or qualified financial contract with an insurer on account of any of the following:

645.675(2)(a)1.a. a. The insolvency, financial condition, or default of the insurer at any time, if the right is enforceable under applicable law other than this chapter.

645.675(2)(a)1.b. b. The commencement of a formal delinquency proceeding under this chapter.

645.675(2)(a)2. 2. Any right under a pledge, security, collateral, reimbursement, or guarantee agreement or arrangement, or any other similar security agreement or arrangement or other credit enhancement, relating to one or more netting agreements or qualified financial contracts.

645.675(2)(a)3. 3. Subject to s. 645.56 (2), any right to set-off or net-out any termination value, payment amount, or other transfer obligation arising under, or in connection with, one or more qualified financial contracts in which the counterparty or its guarantor is organized under the laws of the United States or a state or foreign jurisdiction approved by the National Association of Insurance Commissioners office responsible for securities validation as eligible for netting.

645.675(2)(b) (b) If a counterparty to a master netting agreement or a qualified financial contract with an insurer subject to a proceeding under this chapter terminates, liquidates, closes-out, or accelerates the agreement or contract, damages will be measured as of the date of the termination, liquidation, close-out, or acceleration. The amount of a claim for damages is the actual direct compensatory damages calculated in accordance with sub. (6).

645.675(3) (3) Upon termination of a netting agreement or qualified financial contract, notwithstanding any walkaway clause in the netting agreement or qualified financial contract, the net or settlement amount, if any, owed by a nondefaulting party to an insurer against which an application or petition has been filed under this chapter shall be transferred to the receiver of the insurer or as directed by the receiver of the insurer, even if the insurer is the defaulting party. Any limited 2-way payment provision or first-method provision in a netting agreement or qualified financial contract with an insurer that has defaulted shall be considered to be a full 2-way payment provision or 2nd-method provision as against the defaulting insurer. Any such property or amount is a general asset of the insurer, except to the extent that it is subject to one or more secondary liens or encumbrances or rights of netting or setoff.

645.675(4) (4) 

645.675(4)(a) (a) With respect to transferring a netting agreement or qualified financial contract of an insurer that is the subject of a proceeding under this chapter, the receiver of the insurer shall do one of the following:

645.675(4)(a)1. 1. Transfer to one party, other than an insurer subject to a proceeding under this chapter, all netting agreements and qualified financial contracts between the counterparty and the insurer that is subject to a proceeding under this chapter, including all of the following:

645.675(4)(a)1.a. a. All rights and obligations of each party under each netting agreement and qualified financial contract.

645.675(4)(a)1.b. b. All property, including any guarantee or other credit enhancement, securing any claims of each party under each netting agreement and qualified financial contract.

645.675(4)(a)2. 2. Transfer none of the netting agreements, qualified financial contracts, rights, obligations, or property referred to in subd. 1. with respect to the counterparty.

645.675(4)(b) (b) If a receiver of an insurer transfers a netting agreement or qualified financial contract, the receiver shall use its best efforts to notify any person who is a party to the netting agreement or qualified financial contract of the transfer by noon, central time, on the business day following the transfer.

645.675(5) (5) Notwithstanding s. 645.52 or 645.54, a receiver may not avoid a transfer of money or other property arising under or in connection with a netting agreement or qualified financial contract, or any pledge, security, collateral, or guarantee agreement or any other similar security arrangement or credit support document relating to a netting agreement or qualified financial contract, that is made before the commencement of a formal delinquency proceeding under this chapter.

645.675(6) (6) 

645.675(6)(a) (a) In exercising the rights of disaffirmance or repudiation with respect to a netting agreement or qualified financial contract between a counterparty and an insurer that is the subject of a proceeding under this chapter, the receiver of the insurer shall do one of the following:

645.675(6)(a)1. 1. Disaffirm or repudiate all netting agreements and qualified financial contracts between the counterparty and the insurer.

645.675(6)(a)2. 2. Disaffirm or repudiate none of the netting agreements or qualified financial contracts between the counterparty and the insurer.

645.675(6)(b) (b) Notwithstanding any provision of this section to the contrary, any claim of a counterparty against the estate arising from the receiver’s disaffirmance or repudiation of a netting agreement or qualified financial contract that has not been previously affirmed in the liquidation or immediately preceding conservation or rehabilitation case shall be determined and shall be allowed or disallowed as if the claim had arisen before the date on which the petition for liquidation was filed or, if a conservation or rehabilitation proceeding is converted to a liquidation proceeding, as if the claim had arisen before the date on which the petition for conservation or rehabilitation was filed. The amount of the claim is the actual direct compensatory damages determined as of the date of the disaffirmance or repudiation of the netting agreement or qualified financial contract.

645.675(7) (7) All rights of counterparties under this chapter that apply to netting agreements and qualified financial contracts entered into on behalf of a general account are available only to counterparties of netting agreements and qualified financial contracts entered into on behalf of that general account. All rights of counterparties under this chapter that apply to netting agreements and qualified financial contracts entered into on behalf of a separate account are available only to counterparties of netting agreements and qualified financial contracts entered into on behalf of that separate account.

645.675(8) (8) 

645.675(8)(a) (a) This section does not apply to persons who are affiliates of an insurer subject to a proceeding under this chapter.

645.675(8)(b) (b) This section does not apply to qualified financial contracts entered into with an insurer authorized to write financial guaranty insurance.

645.675 History History: 2015 a. 90, 326.

645.68 645.68 Order of distribution. The order of distribution of claims from the insurer’s estate shall be as stated in this section. The first $50 of the amount allowed on each claim in the classes under subs. (3) to (6), except for claims of the federal government under subs. (3) and (3c), shall be deducted from the claim and included in the class under sub. (8). Claims may not be cumulated by assignment to avoid application of the $50 deductible provision. Subject to the $50 deductible provision, every claim in each class shall be paid in full or adequate funds retained for the payment before the members of the next class receive any payment. No subclasses shall be established within any class. That portion of any loss for which indemnification is provided by other benefits or advantages recovered or recoverable by the claimant shall not be included in the classes under subs. (3) and (3m), other than benefits or advantages recovered or recoverable in discharge of familial obligations of support or by way of succession at death or as proceeds of life insurance, or as gratuities. No payment made by an employer to an employee shall be treated as a gratuity. The claims described in s. 645.69 are among the claims not subject to subs. (3) and (3m).

645.68(1) (1) Administration costs. The costs and expenses of administration, including but not limited to the following: the actual and necessary costs of preserving or recovering the assets of the insurer; compensation for all services rendered in the liquidation; any necessary filing fees; the fees and mileage payable to witnesses; and reasonable attorney fees.