Section 10-3-541 - Priority of distribution - definitions - repeal(1) The priority of distribution of claims from the insurer's estate shall be in accordance with the order in which each class of claims is set forth in this section. Every claim in each class shall be paid in full, or adequate funds shall be retained for such payment, before the members of the next class receive any payment. No subclasses shall be established within any class. The order of distribution of claims shall be:(a)Class 1.(I) The costs and expenses of administration during rehabilitation and liquidation, including but not limited to the following:(A) The actual and necessary costs of preserving or recovering the assets of the insurer;(B) Compensation for all authorized services rendered in the rehabilitation and liquidation;(C) Any necessary filing fees;(D) The fees and mileage payable to witnesses;(E) Authorized reasonable attorney fees and fees for other professional services rendered in the rehabilitation and liquidation; and(F) The administrative expenses of guaranty associations; and(II) Claims by member insurers for their pro rata share of the risk adjustment program payable by an impaired insurer or insolvent insurer if the commissioner determines that the failure of the impaired insurer or insolvent insurer to pay such risk adjustment program payments would result in the impairment or insolvency of the claimant member insurer and that such impairment or insolvency would be avoided by payment of the claim. The amount of the payment of the claim must not exceed the lesser of: (A) The pro rata amount the claimant member insurer would be entitled to from the risk adjustment program but did not receive because the estate of the impaired or insolvent insurer has not made the full payment; or(B) The amount needed to avoid the claimant member insurer's impairment or insolvency.(b)Class 2. All claims under policies including such claims of the federal or any state or local government including unearned premium claims, third-party claims, and all claims of a guaranty association or foreign guaranty association. That portion of any loss for which indemnification is provided by other benefits or advantages recovered by the claimant, other than benefits or advantages recovered or recoverable in discharge of familial obligation of support or by way of succession at death or as proceeds of life insurance, or as gratuities, shall not be included in this class. No payment by an employer to the employer's employee shall be treated as a gratuity. All claims under life insurance and annuities policies and deposits, whether for death proceeds, annuity proceeds, or values, shall be treated as class 2 claims. For the purpose of this paragraph (b), policies shall include those insurance company products that are authorized under the laws of this state as such laws existed on the date of the issuance of such policies or on the date of the entry of an order of liquidation. Notwithstanding the provisions of this paragraph (b), class 2 claims shall not include: (I) Claims under annuity and deposit contracts issued on or before August 15, 2000, however labeled, including labels such as annuity, deposit, financial guarantee, funding agreement, or guaranteed investment contract, unless the contract is: (A) Issued to, or owned by, an individual or is otherwise an annuity issued in connection with and for the purpose of funding structured settlements of liability; or(B) Issued to, for the benefit of, or in connection with, a specific employee benefit plan or governmental lottery;(II) Claims where the risk is not borne by the insurer, such as the uninsured portion of: (A) A minimum premium group insurance plan;(B) A stop-loss group insurance plan; or(C) An administrative-services only contract and the related uninsured plan liabilities;(III) Claims under an unallocated annuity contract issued to an employee benefit plan protected under the federal pension benefit guaranty corporation; and(IV) Claims for benefits which are exclusively payable or determined by a separate account required by the terms of such contract to be maintained by the insurer or a separate entity.(c)(I)Class 3. Claims of the federal government, except those described in subsection (1)(b) of this section.(II) On and after May 15, 2023, through June 30, 2026, class 3 claims include all claims owed for the risk adjustment program.(d)Class 4. Reasonable compensation to employees for services performed to the extent that they do not exceed two months of monetary compensation and represent payment for services performed within the one-year period immediately preceding the filing of the petition for liquidation. Principal officers and directors shall not be entitled to the benefit of this priority except as otherwise approved by the liquidator and the court. Such priority shall be in lieu of any other similar priority which may be authorized by law as to wages or compensation of employees.(e)Class 5. Claims of any state or local government except those under paragraph (b) of this subsection (1). Claims in this paragraph (e), including those of any governmental body for a penalty or forfeiture, shall be allowed only to the extent of the pecuniary loss sustained from the act, transaction, or proceeding out of which the penalty or forfeiture arose and for the reasonable and actual costs occasioned thereby. The remainder of such claims shall be postponed to class 7.(f)Class 6. Claims filed late and any other claims other than claims described in paragraph (h) of this subsection (1).(g)Class 7. Surplus or contribution notes or similar obligations, and premium refunds on assessable policies. Payments to members of domestic mutual insurance companies shall be limited in accordance with law.(h)Class 8. Claims of shareholders or other owners in their capacity as shareholders.(2)(a) (Deleted by amendment, L. 2003, p. 2045, § 2, effective May 22, 2003.)(b) Every claim under a separate account contract providing, in effect, that the assets in the separate account shall not be chargeable with liabilities arising out of any other business of the insurer shall be satisfied out of the assets in the separate account equal to the reserves and other contract liabilities maintained in such account for such contract. To the extent, if any, that the separate account assets are not sufficient to discharge such claims due to fraud, error, or other malfeasance on the part of the insurer or if unsatisfied claims arise from a contractual guarantee made to a contract holder by the insurer's general account, such unsatisfied claims shall be treated as a class 2 claim against the insurer's estate. Any such class 2 claim shall be subject to the applicable exceptions for this class, excluding the exception for separate accounts under subparagraph (IV) of paragraph (b) of subsection (1) of this section.(2.5) The commissioner shall order a member insurer that received payments pursuant to subsection (1)(a)(II) of this section to refund to the estate of an impaired insurer or insolvent insurer any amounts received pursuant to subsection (1)(a)(II) of this section that duplicate payments the member insurer received from the risk adjustment program.(3) As used in this section: (a) "Impaired insurer" has the same meaning as set forth in section 10-20-103 (6.7).(b) "Insolvent insurer" has the same meaning as set forth in section 10-20-103 (7).(c) "Insurer's estate" or "estate" means the general assets of such insurer less any assets held in separate accounts that, pursuant to section 10-7-402, are not chargeable with liabilities arising out of any other business of the insurer. To the extent, if any, assets maintained in the separate account are in excess of the amounts needed to satisfy claims under the separate account contracts, the excess shall be treated as part of the insurer's estate.(d) "Member insurer" has the same meaning as set forth in section 10-20-103 (8).(e) "Risk adjustment program" means the program established pursuant to section 1343 of the federal "Patient Protection and Affordable Care Act", Pub.L. 111-148, as amended by the federal "Health Care and Education Reconciliation Act of 2010", Pub.L. 111-152, and as may be further amended, 42 U.S.C. sec. 18063, to provide payments to health insurance carriers that cover high-risk populations and to more evenly distribute the financial risk borne by carriers.(f) "Separate account contract" means any life policy or contract, annuity contract, funding agreement, or guaranteed investment contract providing for the allocation of amounts received in connection with such policy, contract, or agreement to a separate account authorized by section 10-7-402.(4) Subsections (1)(a)(II), (1)(c)(II), (2.5), (3)(a), (3)(b), (3)(d), and (3)(e) of this section and this subsection (4) are repealed, effective July 1, 2026.Amended by 2023 Ch. 195,§ 1, eff. 5/15/2023.L. 92: (1)(c) amended, p. 1552, § 48, effective May 20; entire part R&RE, p. 1474, § 14, effective July 1. L. 96: Entire section amended, p. 174, § 1, effective April 8. L. 97: (1)(b)(I)(A) amended and (2) added, p. 360, § 1, effective August 6. L. 2000: IP(1)(b) and IP(1)(b)(I) amended, p. 1733, § 6, effective August 15. L. 2003: (2)(a) amended and (3) added, p. 2045, § 2, effective May 22.Although the effective date for the repeal and reenactment of this part 5 was July 1, 1992, the act further amending subsection (1)(c) was effective May 20, 1992.