Arizona Life & Disability Insurance Guaranty Fund

Contact Information

Arizona Life & Disability Insurance Guaranty Fund
100 N. 15th Avenue, Suite 261
Phoenix, AZ 85007-2624
(p) 602.364.3863 (f) 602.364.3872
State Insurance Department: http://www.id.state.az.us/index.html

Law Summaries Report

[ Current as of January 01, 2020 ] ]

Coverages

Covered Contracts

§20-682B. This article provides coverage to the persons specified in subsection A of this section for direct nongroup life, disability or annuity policies or contracts, and for certificates under direct group policies and contracts, and for supplemental contracts to any of these, that are issued by member insurers, except as limited by this article. Annuity contracts and certificates under group annuity contracts include allocated funding agreements, structured settlement annuities and any immediate or deferred annuity contracts. (Amended effective 9/12/2013)

Non-Covered Contracts

§20-682D. Except as otherwise provided in paragraph 14 of this subsection, this article does not provide coverage for: 1. Any policy or contract, or any part of any policy or contract, not guaranteed by the member insurer or under which the risk is borne by the policyholder or contract owner. 2. Any policy or contract, or any part of any policy or contract, assumed by the impaired insurer or insolvent insurer under a contract of reinsurance other than bulk reinsurance or reinsurance for which assumption certificates have been issued. 3. Any policy or contract issued by mutual assessment companies or other persons that operate on an assessment basis, fraternal benefit societies, hospital, medical, dental and optometric service corporations or plans, prepaid dental plan organizations, mandatory state pooling plans, a reciprocal insurance exchange and any entity similar to any of the entities described in this paragraph. 4. A part of a policy or contract to the extent that the rate of interest on which it is based, or the interest rate, crediting rate or similar factor determined by use of an index or other external reference stated in the policy or contract employed in calculating returns or changes in value: (a) Averaged over the period of four years before the date on which the member insurer becomes an impaired insurer or insolvent insurer under this article, whichever is earlier, exceeds the rate of interest determined by subtracting two percentage points from Moody’s corporate bond yield average averaged for that same four-year period or for a lesser period if the policy or contract was issued less than four years before the member insurer becomes an impaired insurer or insolvent insurer under this article, whichever is earlier. (b) On and after the date on which the member insurer becomes an impaired insurer or insolvent insurer under this article, whichever is earlier, exceeds the rate of interest determined by subtracting three percentage points from Moody’s corporate bond yield average as most recently available. 5. A part of a policy or contract issued to a plan or program of an employer, association or other person to provide life, disability or annuity benefits to its employees, members or others, to the extent that the plan or program is self-funded or uninsured, including benefits payable by an employer, association or other person under any of the following: (a) A multiple employer welfare arrangement as defined in section 3(40) of the employee retirement income security act of 1974. (b) A minimum premium group insurance plan. (c) A stop-loss group insurance plan. (d) An administrative services only contract. 6. A part of a policy or contract to the extent that it provides for dividend or experience rating credits, voting rights or payment of any fees or allowances to any person, including the policy or contract owner, in connection with the service or administration of the policy or contract. 7. A policy or contract issued in this state by a member insurer at a time when it did not have a certificate of authority to issue the policy or contract in this state. 8. A part of a policy or contract to the extent that the assessments required by section 20-686 with respect to the policy or contract are preempted or prohibited by federal or state law. 9. An obligation that does not arise under the express written terms of the policy or contract issued by the member insurer to the enrollee, certificate holder, contract owner or policy owner, including: (a) Claims based on marketing materials. (b) Claims based on side letters, riders or other documents that were issued by the member insurer without meeting applicable policy or contract form filing or approval requirements. (c) Misrepresentations of or regarding policy or contract benefits. (d) Extra-contractual claims, including claims relating to bad faith in the payment of claims, punitive or exemplary damages or attorney fees and costs. (e) Claims for penalties or consequential or incidental damages. 10. A contractual agreement that establishes the member insurer’s obligations to provide a book value accounting guaranty for defined contribution benefit plan participants by reference to a portfolio of assets that is owned by the benefit plan or its trustee, which in each case is not an affiliate of the member insurer. 11. An unallocated annuity contract. 12. A part of a policy or contract to the extent it provides for interest or other changes in value to be determined by the use of an index or other external reference stated in the policy or contract, but which have not been credited to the policy or contract, or as to which the policy or contract owner’s rights are subject to forfeiture, as of the date the member insurer becomes an impaired insurer or insolvent insurer under this article, whichever is earlier. If a policy’s or contract’s interest or changes in value are credited less frequently than annually, for purposes of determining the values that have been credited and are not subject to forfeiture under this subsection, the interest or change in value determined by using the procedures defined in the policy or contract will be credited as if the contractual date of crediting interest or changing values was the date of impairment or insolvency, whichever is earlier, and will not be subject to forfeiture. 13. A policy or contract providing any hospital, medical, prescription drug or other health care benefits pursuant to 42 United States Code chapter 7, subchapter XVIII, part C or part D or 42 United States code chapter 7, subchapter XIX, or any applicable regulations. 14. Structured settlement annuity benefits to which a payee or beneficiary has transferred the payee’s or beneficiary’s rights in a structured settlement factoring transaction as defined in 26 United States code section 5891(c)(3)(A), regardless of whether the transaction occurred before or after that section became effective. 15. The exclusion from coverage referenced in paragraph 4 of this subsection does not apply to any portion of a policy or contract, including a rider, that provides long-term care or any other health insurance benefits. (Amended effective 12/31/2018)

Non-Resident Coverage

§20-682A(2)(b) Yes. Covers nonresidents if all of the following conditions are met: (i) The member insurer that issued the policy or contract is domiciled in this state. (ii) The state in which the person resides has a fund similar to the fund established under this article. (iii) The person is not eligible for coverage by a fund in any other state because the insurer or health care services organization was not licensed in that state at the time required by the applicable law. (Amended effective 12/31/2018)

Benefit Limits

§20-682 E. The benefits that the fund becomes or may become obligated to cover shall not exceed the lesser of: 1. The contractual obligations for which the impaired insurer or insolvent insurer is liable or would have been liable if it were not an impaired insurer or insolvent insurer. 2. With respect to one life, regardless of the number of policies or contracts: (a) three hundred thousand dollars in life insurance death benefits, but not more than one hundred thousand dollars in net cash surrender and net cash withdrawal values for life insurance. (b) in disability insurance benefits: (i) one hundred thousand dollars for coverages not defined as disability income insurance or basic hospital, medical and surgical insurance or major medical insurance or long-term care insurance. (ii) three hundred thousand dollars for disability income insurance and three hundred thousand dollars for long-term care insurance. (iii) five hundred thousand dollars for basic hospital medical and surgical insurance or major medical insurance. (c) two hundred fifty thousand dollars in the present value of annuity benefits, including net cash surrender and net cash withdrawal values. 3. With respect to each payee of a structured settlement annuity, or the beneficiary of a deceased payee, an aggregate of two hundred fifty thousand dollars in present value annuity benefits, including net cash surrender and net cash withdrawal values, if any. F. Notwithstanding subsection E of this section, the fund is not obligated to cover more than either: 1. An aggregate of three hundred thousand dollars in benefits with respect to any one individual under subsection E of this section except with respect to benefits for basic hospital, medical and surgical insurance and major medical insurance under subsection E, paragraph 2, subdivision (b) of this section, in which case the aggregate liability of the fund shall not exceed five hundred thousand dollars with respect to any one individual. 2. With respect to one owner of multiple nongroup policies of life insurance, whether the policy owner is an individual, firm, corporation or other person, and whether the persons insured are officers, managers, employees or other persons, more than five million dollars in benefits, regardless of the number of policies and contracts held by the owner. (Amended effective 9/12/13).

Triggers

Discretionary Triggers

§20-685A. If a member insurer is an impaired insurer. (Amended effective 9/12/2013)

Mandatory Triggers

§20-685B. If a member insurer is an insolvent insurer. (Amended effective 9/12/2013)

Foreign Triggers

No separate provision. (Amended effective 9/12/2013)

"Impaired Insurer"

§20-681(8) “Impaired insurer” means a member insurer that is not an insolvent insurer and that is placed under an order of rehabilitation or conservation by a court of competent jurisdiction. Amended effective 9/12/13.

"Insolvent Insurer"

§20-681(9) “Insolvent insurer” means a member insurer that is placed under an order of liquidation with a finding of insolvency by a court of competent jurisdiction. Amended effective 9/12/13.

"Member Insurer"

§20-681(10) “Member insurer” means an insurer or health care services organization that holds a certificate of authority to transact in this state any kind of insurance or health care services organization business to which this article applies and includes an insurer or health care services organization whose license or certificate of authority in this state may have been suspended, revoked, not renewed or voluntarily withdrawn. Member insurer does not include: (a) A fraternal benefit society licensed under chapter 4, article 4 of this title. (b) A hospital, medical, dental or optometric service corporation licensed under chapter 4, article 3 of this title. (c) A prepaid dental plan organization licensed under chapter 4, article 7 of this title. (d) A mandatory state pooling plan. (e) A mutual assessment company or other person that operates on an assessment basis. (f) A reciprocal insurance exchange licensed under chapter 4, article 2 of this title. (g) An entity that is similar to any of the entities described in this paragraph. (Amended effective 12/31/18)

Account Structure

§20-683A. Three accounts: 1. The disability insurance account. 2. The life insurance account. 3. The annuity account.

Assessments

Assessment Limits

§20-686C(5) 5. The total of all assessments on a member insurer for each account shall not in any one calendar year exceed two percent of that member insurer’s average annual premiums received in this state on the policies and contracts covered by the account during the three calendar years preceding the year in which the member insurer became an impaired insurer or insolvent insurer. If two or more assessments are authorized in one calendar year with respect to member insurers that become impaired or insolvent in different calendar years, the average annual premiums for purposes of the aggregate assessment percentage limitation shall be limited to the greater of the three year average annual premiums for the applicable account as calculated pursuant to this subsection. (Amended effective 12/31/2018)

Assessment Classes

§20-686B. Two classes of assessments: Class A for administrative costs and general expenses; and Class B to carry out the powers and duties of the fund with regard to an impaired insurer or insolvent insurer. (Amended effective 9/12/2013)

Interest Rate Adjustments

§ 20–682 D.4. Guaranty Association excludes from coverage: A part of a policy or contract to the extent that the rate of interest on which it is based, or the interest rate, crediting rate or similar factor determined by use of an index or other external reference stated in the policy or contract employed in calculating returns or changes in value: (a) averaged over the period of four years before the date on which the member insurer becomes an impaired insurer or insolvent insurer under this article, whichever is earlier, exceeds the rate of interest determined by subtracting two percentage points from moody's corporate bond yield average averaged for that same four-year period or for a lesser period if the policy or contract was issued less than four years before the member insurer becomes an impaired insurer or insolvent insurer under this article, whichever is earlier. (b) on and after the date on which the member insurer becomes an impaired insurer or insolvent insurer under this article, whichever is earlier, exceeds the rate of interest determined by subtracting three percentage points from moody's corporate bond yield average as most recently available. (Added effective 9/12/13).

Tax Offsets

§20-692. Yes. Beginning in 1995 (see statute for pre-1995 guidance), member insurers may offset 20% of the assessment for the year of assessment, and 20% of the assessment per year for the succeeding four years. The total amount of the offset may not exceed 100% of the assessment.

Definition of Premium

§ 20-681.12. "Premiums": (a) Means amounts or considerations by whatever name called that are received on covered policies or con-tracts less returned premiums, considerations and deposits and less dividends and experience credits. (b) Does not include: (i) Amounts or consideration received for policies or contracts or for parts of policies or contracts for which coverage is not provided under section 20-682, subsection C, except that assessable premium shall not be reduced under section 20-682, subsection D, paragraph 4, relating to interest limitations, and section 20-682, subsection E, paragraph 2, relating to limitations with respect to one individual, one participant and one contract owner. (ii) Amounts in excess of five million dollars with respect to multiple nongroup policies of life insurance owned by one owner, regardless of the number of policies or contracts held by the owner. (Amended effective 9/12/13)

Advertising Prohibition

§20-443 “Misrepresentations and false advertising of policies” A person shall not make, issue or circulate, or cause to be made, issued or circulated, any estimate, illustration, circular, sales material or statement: …(6) Referring to the coverage or any of the provisions of chapter 3, article 6 or 7 of this title (guaranty association statutes) in connection with the sale or attempted sale of any policy of insurance, except in connection with the notice prescribed in § 20-400.10 (industrial insureds), subsection E, § 20-410, subsection B (surplus lines) and § 20-422, subsection C (alien insurance for coverage in Mexico).

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