SB-0937, As Passed House, May 30, 2012

HOUSE SUBSTITUTE FOR

SENATE BILL NO. 937

A bill to amend 1956 PA 218, entitled

"The insurance code of 1956,"

by amending section 8115a (MCL 500.8115a), as added by 2004 PA 217.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 8115a. (1) Notwithstanding any other provision of this

act, including section 8141, any ~~other~~ provision of this act

permitting the modification of contracts, or other law of ~~the~~ this

state, a person shall not be stayed or prohibited under this

chapter from exercising any of the following:

(a) A contractual right to terminate, liquidate, or close out

any netting agreement or qualified financial contract with an

insurer because of the commencement of a formal delinquency

proceeding under this chapter or the insolvency, financial

condition, or default of the insurer at any time, provided that the

right is enforceable under applicable law other than this act.

(b) Any right under a any of the following:

(i) A pledge, security, collateral, reimbursement, or guarantee

agreement or any similar security agreement with a bank established

under the authority of the federal home loan bank act, 12 USC 1421

to 1449.

(ii) A pledge, security, collateral, reimbursement, or

guarantee agreement or any ~~other~~ similar security ~~arrangement~~

agreement or credit ~~support document~~ enhancement relating to a at

least 1 netting agreement or qualified financial contract.

out any termination value, payment amount, or other transfer

obligation arising under or in connection with a netting agreement

or qualified financial contract where the counterparty or its

guarantor is organized under the laws of the United States or a

state or foreign jurisdiction approved by the securities valuation

office of the national association of insurance commissioners and

approved by the commissioner as eligible for netting.

(2) Upon termination of a netting agreement, 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 or on the order of the

receiver for the insurer, even if the insurer is the defaulting

party, notwithstanding any provision in the netting agreement that

may provide that the nondefaulting party is not required to pay any

net or settlement amount due to the defaulting party upon

termination. Any limited 2-way payment provision in a netting

agreement with an insurer that has defaulted shall be considered to

be a full 2-way payment provision as against the defaulting

insurer. Any such property or amount shall, except to the extent it

is subject to 1 or more secondary liens or encumbrances, be a

general asset of the insurer.

(3) In making any transfer of a netting agreement or qualified

financial contract of an insurer subject to a proceeding under this

chapter, the receiver shall do either of the following:

(a) Transfer to 1 party, other than an insurer subject to a

proceeding under this chapter, all netting agreements and qualified

financial contracts between a counterparty or any affiliate of the

counterparty and the insurer that is the subject of the proceeding,

including all rights and obligations of each party under each such

netting agreement and qualified financial contract and all

property, including any guarantees or credit support documents,

securing any claims of each party under each such netting agreement

and qualified financial contract.

(b) Transfer none of the netting agreements, qualified

financial contracts, rights, obligations, or property referred to

in subdivision (a) with respect to the counterparty and any

affiliate of the counterparty.

(4) If a receiver for an insurer makes a transfer of 1 or more

netting agreements or qualified financial contracts, ~~then~~ the

receiver shall use its best efforts to notify any person who is

party to the netting agreements or qualified financial contracts of

the transfer by 12 noon of the receiver's local time on the

business day following the transfer. For purposes of this

subsection, "business day" means a day other than a Saturday,

Sunday, or any day on which either the New York stock exchange or

the federal reserve bank of New York is closed.

(5) ~~Notwithstanding~~ Except as provided in subsection (6),

notwithstanding any other provision of this act, a receiver may not

avoid a transfer of money or other property arising ~~under or~~ in

connection with a any of the following that is made before the

commencement of a formal delinquency proceeding under this chapter:

(a) A netting agreement or qualified financial contract. or

~~any~~

(b) A pledge, security, collateral, reimbursement, or

guarantee agreement or similar security agreement with a bank

established under the authority of the federal home loan bank act,

12 USC 1421 to 1449.

guarantee agreement or any ~~other~~ similar security ~~arrangement~~

agreement or credit ~~support document~~ enhancement relating to a

netting agreement or qualified financial contract. ~~that is made~~

~~before the commencement of a formal delinquency proceeding under~~

~~this chapter. However,~~

(6) Notwithstanding subsection (5), a transfer may be avoided

under section 8126 if the transfer was made with actual intent to

hinder, delay, or defraud the insurer, a receiver appointed for the

insurer, or existing or future creditors.

(7) ~~(6)~~ In exercising any of its powers under this chapter to

disaffirm or repudiate a netting agreement or qualified financial

contract, the receiver shall take action with respect to each

netting agreement or qualified financial contract and all

transactions entered into in connection with the netting agreement

or qualified financial contract in its entirety. Notwithstanding

any other provision of this chapter, 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 rehabilitation case shall be determined and

shall be allowed or disallowed as if the claim had arisen before

the date of the filing of the petition for liquidation or, if a

rehabilitation proceeding is converted to a liquidation proceeding,

as if the claim had arisen before the date of the filing of the

petition for rehabilitation. The amount of the claim shall be the

actual direct compensatory damages determined as of the date of the

disaffirmance or repudiation of the netting agreement or qualified

financial contract.

(8) ~~(7)~~ This section does not apply to persons who are

affiliates of the insurer that is the subject of the proceeding.

(9) ~~(8)~~ All rights of counterparties under this act apply to

netting agreements and qualified financial contracts entered into

on behalf of the general account or separate accounts if the assets

of each separate account are available only to counterparties to

netting agreements and qualified financial contracts entered into

on behalf of that separate account.

(10) ~~(9)~~ As used in this section:

(a) "Actual direct compensatory damages" includes normal and

reasonable costs of cover or other reasonable measures of damages

utilized in the derivatives market for the contract and agreement

claims, but does not include punitive and exemplary damages,

damages for lost profit or lost opportunity, or damages for pain

and suffering.

(b) "Commodity contract" means any of the following:

(i) A contract for the purchase or sale of a commodity for

future delivery on, or subject to the rules of, a board of trade

designated as a contract market by the commodity futures trading

commission under the commodity exchange act, 7 USC 1 to 27f, or

board of trade outside the United States.

(ii) An agreement that is subject to regulation under section

23 of the 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.

(iii) An agreement or transaction that is subject to regulation

under section 6c of the commodity exchange act, 7 USC 6c, and that

is commonly known to the commodities trade as a commodity option.

evidenced in writing, arising under statutory or common law, a rule

or bylaw of a national securities exchange, national securities

clearing organization, or securities clearing agency, a rule or

bylaw, or a resolution of the governing body, of a contract market

or its clearing organization, or under law merchant.

(d) "Forward contract" means a contract for the purchase,

sale, or transfer of a commodity, as defined in section 1a of the

commodity exchange act, 7 USC 1a, or any similar good, article,

service, right, or interest that is presently or in the future

becomes the subject of dealing in the forward contract trade, or

product or by-product thereof, with a maturity date more than 2

days after the date the contract is entered into, including, but

not limited to, a repurchase transaction, reverse repurchase

transaction, consignment, lease, swap, hedge transaction, deposit,

loan, option, allocated transaction, unallocated transaction, or a

combination of these or option on any of them. Forward contract

does not include a commodity contract.

(e) "Netting agreement" means a contract or agreement,

including terms and conditions incorporated by reference in the

contract or agreement, that documents 1 or more transactions

between the parties to the agreement for or involving 1 or more

qualified financial contracts and that provides for the netting or

liquidation of qualified financial contracts or present or future

payment obligations or payment entitlements thereunder, including

liquidation or close-out values relating to those obligations or

entitlements, among the parties to the netting agreement. Netting

agreement includes a master agreement that otherwise meets this

definition. A master agreement includes all schedules,

confirmations, definitions, and addenda to it and transactions

under it, which shall be treated as 1 netting agreement.

(f) "Qualified financial contract" means a commodity contract,

forward contract, repurchase agreement, securities contract, swap

agreement, and any similar agreement that the commissioner

determines by regulation, resolution, or order to be a qualified

financial contract for the purposes of this chapter.

(g) "Repurchase agreement", including a reverse repurchase

agreement, means an agreement, including related terms, that

provides for the transfer of certificates of deposit, eligible

bankers' acceptances, or securities that are direct obligations of,

or that are fully guaranteed as to principal and interest by, the

United States or an agency of the United States against the

transfer of funds by the transferee of the certificates of deposit,

eligible bankers' acceptances, or securities with a simultaneous

agreement by the transferee to transfer to the transferor

certificates of deposit, eligible bankers' acceptances, or

securities as described above, at a date certain not later than 1

year after the transfers or on demand, against the transfer of

funds. For the purposes of this definition, the items that may be

subject to an agreement include mortgage-related securities, a

mortgage loan, and an interest in a mortgage loan, and shall not

include any participation in a commercial mortgage loan, unless the

commissioner determines by regulation, resolution, or order to

include the participation within the meaning of the term.

(h) "Securities contract" means a contract for the purchase,

sale, or loan of a security, including an option for the repurchase

or sale of a security, certificate of deposit, or group or index of

securities, including an interest therein or based on the value

thereof, or an option entered into on a national securities

exchange relating to foreign currencies, or the guarantee of a

settlement of cash or securities by or to a securities clearing

agency. As used in this definition, "security" includes a mortgage

loan, mortgage-related securities, and an interest in any mortgage

loan or mortgage-related security.

(i) "Swap agreement" means an agreement, including the terms

and conditions incorporated by reference in an agreement, that is a

rate swap agreement, basis swap, commodity swap, forward rate

agreement, interest rate future, interest rate option, forward

foreign exchange agreement, spot foreign exchange agreement, rate

cap agreement, rate floor agreement, rate collar agreement,

currency swap agreement, cross-currency rate swap agreement,

currency future, or currency option or any other similar agreement,

and includes any combination of agreements and an option to enter

into an agreement.