Senate committee substitute makes the following changes to the 2nd edition.

Changes the act’s long and short titles. Modifies and adds to the previous provisions.

Part I

Amends GS 58-62-6, providing that the purpose of the North Carolina Life Insurance Guaranty Association Act (Article 62) is to protect covered persons against failure in the performance of contractual obligations under specified life, health, and annuity policies, plans, or contracts due to delinquency of the member insurer that issued the policies, plans, or contracts. Specifies that the North Carolina Life and Health Insurance Guaranty Association (Association) created by the Article is an association of member insurers, as defined by GS 58-62-16, amended below.

Modifies and adds to the defined terms applicable to the Article set forth in GS 58-62-16. Modifies the term member insurer to now include health maintenance organizations governed by Article 67 (Health Maintenance Organization Act) that are licensed to transact any health maintenance organization business in the state for which coverage is provided under GS 58-62-21, including any health maintenance organization whose license has been suspended, revoked, not renewed, or voluntarily withdrawn. Modifies the term covered policy to covered contract or covered policy, and defines the term to mean any policy, contract, or portion of a policy or contract for which coverage is provided under GS 58-62-21, as amended below. Modifies the term person to include an individual, corporation, limited liability company, partnership, association, governmental body or entity, or voluntary organization. Modifies the term premium to exclude premiums in excess of $5 million for certain retirement and life insurance policies, as specified. Additionally, modifies the following existing terms: contractual obligation, health insurance, and resident. Makes conforming changes throughout the Article to reflect and incorporate the modifications to existing terms. Adds the following terms: authorized assessment, benefit plan, called assessment, extra-contractual claims, health benefit plan, owner, plan sponsor, principal place of business, receivership court, state, subaccount, and supplemental contract. Eliminates the term policy.

Amends GS 58-62-21(a), specifying persons covered under the Article for the policies and contracts specified in subsection (b) of the statute. Modifies the existing provisions of subsection (a) to include: (1) nonresidents who are otherwise ineligible for coverage in any other state because the member insurer was not licensed in the state at the time specified in that state’s guaranty association law; (2) the beneficiaries, assignees, or payees of the persons covered under subdivision (a)(2) of health care providers rendering services covered under health insurance policies or certificates; and (3) persons who are owners of unallocated annuity contracts that are issued to or in connection with a specific benefit plan as specified.

Adds new subsection (a1) to GS 58-62-21, prohibiting coverage under the Article for: (1) any payee or beneficiary afforded any coverage by the association in another state, (2) any owner of qualified unallocated annuity contracts under the Article provided coverage by the association of another state, and (3) any person who acquires rights to receive payments through a structured settlement factoring transaction. Adds new subsection (a2), explicitly excluding from coverage persons who are provided coverage under the laws of any other state. Directs the Article be construed in conjunction with other state laws to provide coverage to an eligible owner, payee, enrollee, beneficiary, or assignee by only one association.

Modifies and adds to the exclusions from coverage set out in subsection (c). Specifies that the exclusion set out in subdivision (c)(2) for any policy or contract of reinsurance applies unless assumption of certificates have been issued pursuant to the resinsurance policy or contract. Modifies the exclusion set out in subdivision (c)(3) for any part of a policy or contract whose interest rate is determined by an index or external reference that when calculating returns or changes in value, exceeds the rate of interest determined as specified, to base the interest determination on dates on which the member insurer becomes impaired or insolvent under the Article (was, dates on which the Association becomes obligated with respect to the policy). Adds that this exclusion does not apply to any portion of a policy or contract that provides long-term care or any other health insurance benefits, including a rider. Corrects a federal statutory reference and makes clarifying and technical changes to the exclusion set out in subdivision (c)(4) relating to self-funded or uninsured portions of specified policies and contracts. Modifies the exclusion in (c)(5) to include parts of policies or contracts providing for voting rights in connection with service to or administration of the policy or contract. Clarifies that the exclusion in subdivision (c)(7) for unallocated annuity contracts issued to or in connection with a benefit plan protected under the federal Pension Benefit Guaranty Corporation applies regardless of whether the federal Corporation has become liable to make any payments to the plan. Adds a new exclusion, subdivision (c)(8a), for any part of a policy or contract to the extent that the member insurer assessments required by GS 58-62-41 with respect to the policy or contract are preempted by federal or state law. Adds a new exclusion, subdivision (c)(8b), for obligations that do 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 without limitation the five claims specified by the new exclusion provision. Adds a new exclusion, subdivision (c)(8c), for contractual agreements that establish the member insurer’s obligations to provide a book value account guaranty for defined contribution benefit plan participants. Adds to the exclusion set out in subdivision (c)(9) to exclude policies or contracts providing any hospital, medical, prescription drug, or other health care benefits pursuant to Subchapter XIX, 42 USC 7 (Medicaid). Adds a new exclusion, (c)(11), for structured settlement annuity benefits for which the individual has transferred the benefit rights to others.

Amends GS 58-62-21(d), which provides limits for the Association’s liability. Adds new provisions to the subsection to clarify that these existing limitations are on the benefits for which the Association is obligated before taking into account either its subrogation and assignment rights or the extent to which those benefits could be provided out of the assets of the impaired or insolvent insurer attributable to covered policies. Authorizes the costs of the Association’s obligations under the Article to be met by the use of assets attributable to covered policies or reimbursed to the Association pursuant to its subrogation and assignment rights. Explicitly states that benefits provided by a long-term care rider to a life insurance policy or annuity contract are considered the same type of benefits as the base life insurance policy or annuity contract to which they relate.

Further amends GS 58-62-21 to make conforming, technical, and clarifying changes.

Amends GS 58-62-26, which creates the North Carolina Life and Health Insurance Guaranty Association and requires the Association to maintain two accounts for administration and assessment. Requires the life insurance and annuity account to include a subaccount for an unallocated annuity account which excludes contracts owned by a government retirement benefit plan or its trustee established under the specified Internal Revenue Code sections. Requires those specified annuity contracts owned by a governmental retirement plan or its trustee to instead be included in the existing annuity subaccount. Modifies the second required account to be the health account instead of the health insurance account. Subjects the Association to the applicable provisions of the Article rather than the entire Chapter.

Amends GS 58-62-31, increasing the members on the Association’s board of directors (board) from no less than five members and no more than nine members, to no less than seven members and no more than 11 members. Adds that two members must be public representatives appointed by the Commissioner of Insurance. Prohibits a public representative from being an officer, director, or employee of an insurance company or health maintenance organization, or any person engaged in insurance or health maintenance organization business. Requires the Commissioner to ensure that in approving selections or appointing members, that all member insurers are fairly represented between member insurers that write primarily life insurance and annuity contracts and member insurers that write primarily health benefit plans.

Amends GS 58-62-36 concerning the powers and duties of the Association.

Makes organizational and clarifying changes to subsections (a) and (d) concerning the Association’s discretionary powers when a member insurer is impaired or insolvent. Adds that the Association may reissue or cause to be reissued any and all of the policies or contracts of an impaired insurer, and may reissue the policies or contracts of the insolvent insurer. Further provides that the Association can provide loans and notes reasonably necessary to discharge the Association’s duties of a member insurer that is insolvent. Recodifies subsections (e) through (j) of the statute, concerning the Association’s provision of benefits and coverages with respect to only life and health insurance policies when a member is insolvent, as subsubdivisions (d)(5)a. through h., modifying the language to instead apply more generally to benefits and coverages. Modifies subsection (d1), permitting the Association to issue similar substitute coverage in carrying out its duties in connection with guaranteeing, assuming, reissuing, or reinsuring policies or contracts pursuant to the statute without the approval of the receivership court (previously, approval required before issuing substitute coverage as provided). Amends subsection (l), requiring the Association to provide a report to the liquidator regarding premiums collected by the Association following an order of liquidation of an insolvent insurer. In carrying out the duties relating to insolvent member insurers, authorizes the Association, subject to state court approval, to defer the payments of cash values, policy loans, or other rights by the Association regarding assets of the delinquent insurer for the period of a moratorium imposed by the court, but not including claims covered by the Association to be paid in accordance with a hardship procedure established by the liquidator or rehabilitator and approved by the receivership court. Modifies subsection (q), authorizing the Association to appear or intervene before any court or agency in the state with jurisdiction over a delinquent insurer for which the Association is or may become obligated, or with jurisdiction over any person or property against which the Association may have rights through subrogation or otherwise. Modifies subsection (r) to specify that any person receiving benefits under the Article is considered to have assigned the rights and any causes of action against any person for losses arising under, resulting from, or otherwise relating to the covered policy or contract to the Association to the extent of the benefits received because of the Article. Adds that, in the case of a structured settlement annuity, the Association has any rights of the owner, beneficiary, or payee of the annuity to the extent of benefits received pursuant to the Article, against a person originally or by succession responsible for the losses arising from the personal injury resulting to the annuity or payment therefore, however excepting any person responsible solely by reason of serving as an assignee in respect of a qualified assignment. Establishes a new requirement for circumstances where subsection (r)’s provisions are invalid or ineffective to require the amount payable to the Association for related covered obligations be reduced by the amount realized by any other person with respect to the person or claim that is attributable to the policies or contracts or portion thereof covered by the Association, and requiring the person recovering such amount to pay the Association the portion attributable to the policies or contracts covered by the Association.

Modifies and adds to the additional powers of the Association set out in subsection (s), authorizing the Association to: (1) take legal action necessary to recover payment of improper claims, (2) organize itself as a corporation or other legal form permitted by state law, (3) request information and receive prompt compliance from a person seeking coverage from the Association, (4) file for actuarially justified rate or premium increases for any policy or contract for which it provides coverage under the Article unless prohibited by law, and (5) take other necessary and appropriate action to discharge its duties and obligations or exercise its powers under the Article.

Adds new subsection (u), providing for the Association’s option to elect to assume reinsurance contracts held by insolvent member insurers. Allows the Association to make the election as specified at any time within 180 days of the date of the order of liquidation and details the Association’s responsibilities upon election, including payment of all unpaid premiums and calculation of the net balance due to or from the Association under the reinsurance contracts. Establishes that if the Association or receiver on the Association’s behalf pays the unpaid premiums due within 60 days of election, the reinsurer cannot terminate the reinsurance contracts for failure to pay. Authorizes the Association to transfer reinsurance policies, contracts, or annuities when the Association transfers policies, contracts, or annuities, or related covered obligations, to an assuming insurer. Establishes that: (1) the provisions of new subsection (u) supersede other provisions of state law or any affected reinsurance contracts; (2) the receiver remains entitled to any amounts payable by the reinsurer under the reinsurance contracts with respect to losses or events that occur in periods prior to the date of the order of liquidation, subject to applicable setoff provisions; (3) subsection (u) does not alter or modify terms and conditions of reinsurance contracts except as provided, does not abrogate or limit any rights of any reinsurer to rescind a reinsurance contract, does not establish an independent cause of action against a reinsurer not set forth in the contract, does not limit the Association’s right as a creditor of the estate against the assets of the estate, and does not apply to reinsurance contracts covering property or casualty risks.

Adds new subsection (v), explicitly stating the board’s discretion in the Association’s provision of benefits under the Article in exercising reasonable business judgement. Adds new subsection (w), providing that a person is not entitled to deviate from the benefits the Association has provided under a plan or arrangement that meets its obligations under the Article. Adds new subsection (x), setting the Superior Court of Wake County as the venue for a suit against the Association arising under the Article, and excusing the Association from being required to give an appeal bond.

Makes further conforming, clarifying, and technical changes to GS 58-62-36.

Modifies GS 58-62-41 relating to the board’s assessment of member insurers for the purpose of providing the funding necessary for the Association to discharge its duties under the Article. Provides for the board to authorize and call two classes of assessments: administrative and legal costs (Class A), and delinquent insurer costs (Class B). Removes from Class A costs for examinations conducted under GS 58-62-56(e). Removes the $500 per member cap on non-prorated Class A assessments. Adds a new provision to require the amount of the Class B assessments for long-term care insurance written by the impaired or insolvent insurer to be allocated according to a methodology included in the Association’s Plan of Operation and approved by the Commissioner, which must provide for 50% of the assessment to be allocated to accident and health member insurers and 50% to be allocated to life and annuity member insurers. Adds a new provision requiring the Association to notify each member insurer of its anticipated pro rata share of an authorized assessment not yet called within 180 days after the assessment is authorized. In cases where the board finds payment of an assessment would endanger the member insurer’s ability to fulfill its contractual obligations and the Association either abates or defers the assessment in whole or in part, mandates the member pay all assessments deferred pursuant to a repayment plan approved by the Association once the causal condition has been removed or rectified. With respect to members that become impaired or insolvent in different calendar years and two or more assessments are authorized in one calendar year, sets the average annual premiums for purposes of aggregate assessment percentage limitations to be equal and limited to the higher of the three-year average annual premiums for the applicable subaccount or account calculated pursuant to the existing provisions of subsection (g). Allows the board to assess the other subaccounts of the life and annuity account if the maximum assessment (was, 1% assessment) for a subaccount of the life and annuity account in any one year does not provide sufficient funding to carry out the Association’s responsibilities. Allows a certificate of contribution issued by the Association be shown by the member insurer in its financial statement as an asset as described.

Add a new provision allowing for member insurers to protest assessments. Requires a member insurer wishing to protest the assessment to pay the full amount set out in the assessment notice and include with the payment a brief statement of the grounds for protest. Details the requirements of the Association concerning assessments protests, and requires the Association to notify the member insurer of its final determination within 30 days after a final decision is made. Provides for the member insurer to appeal the final decision within 60 days of receipt of notice. Allows the Association to defer protest determinations to the Commissioner. Provides for refund for protests or appeals upheld. Adds new explicit authorization for the Association to request information from, and require prompt compliance from, member insurers in order to aid in the exercise of its assessment power. Makes clarifying, conforming, and technical changes.

Amends GS 58-62-46(d), requiring the Association’s Plan of Operation to establish (1) procedures whereby a director can be removed for cause, including where a member insurer director becomes a delinquent insurer and (2) policies and procedures for the Board to address conflicts of interest. Makes clarifying and technical changes.

Makes conforming, clarifying, and technical changes to GS 58-62-51, regarding the duties and powers of the Commissioner. Specifies that any action of the board or the Association can be appealed to the Commissioner by any member insurer within 60 days of its receipt of notice of the final action being appealed (currently, within 60 days of the final action being appealed). Authorizes the liquidator, rehabilitator, or conservator of any insolvent insurer to notify all interested parties of the effect of the Article (currently, only specifies those of any impaired insurer).

Amends GS 58-62-56, concerning the prevention of member insurer delinquencies. Requires the Commissioner to notify insurance regulators of all other states, US territories, and D.C. within 30 days when revoking or suspending a member insurer’s license or making any formal disciplinary order(s) of the member insurer. Removes the requirement that this notice be sent electronically and mailed. Removes the board’s ability to request the Commissioner conduct an examination of a member insurer believed to be delinquent. Eliminates the requirement that the board prepare a report to the Commissioner after an insurer insolvency. Makes conforming and technical changes.

Makes conforming changes to GS 58-62-61 (miscellaneous provisions).

Amends GS 58-62-66, requiring the Association to provide a member insurer with a copy of the Association’s annual financial report that the Association is required to submit to the Commissioner pursuant to the statute upon request of the member insurer.

Amends GS 58-62-81, increasing the length of stay on proceedings in which the insolvent insurer is a party in any state court from 60 to 180 days from the order of liquidation, rehabilitation, or conservation is final in order to permit proper legal action by the Association on any matters germane to its powers and duties.

Amends GS 58-62-86, which prohibits the advertisement of the existence of the Association or the Article for the purpose of sale or solicitation or inducement to purchase any kind of insurance or other coverage covered under the Article. Adds to the content of the disclaimer prescribed by the Commissioner that must be included in the Association’s summary document giving notice to policyholders of the purpose of and provisions of the Article: (1) the types of policies or contracts for which guaranty funds will provide coverage; (2) explanation rights available and procedures for filing a complaint to allege a violation of the Article’s provisions; and (3) as directed by the Commissioner, sources of information about the financial condition of member insurers, provided that the information is not proprietary and is subject to disclosure under public records law. Makes conforming, clarifying, and technical changes.

Amends GS 58-62-95 to make the existing language concerning the use of deposits made by impaired member insurers also applicable to insolvent member insurers. Makes conforming changes.

Amends GS 58-67-145 and GS 58-67-171, making conforming changes to reflect the governance of health maintenance organizations by the provisions of Article 62, as amended by the act.

Establishes that the above provisions do not apply to any member insurer that is insolvent or unable to fulfill its obligations on the date the act becomes law.

Part II

Enacts new GS 58-21-21 to allow a domestic insurer possessing minimum capital and surplus of at least $15 million, pursuant to a resolution by its board of directors, on the Commissioner of Insurance's (Commissioner) approval, to be designated as a nonadmitted domestic surplus lines insurer (now defined in GS 58-21-10 as an insurer that is domiciled in and authorized to transact surplus lines insurance in the state). Provides that a nonadmitted domestic surplus lines insurer must only write surplus lines insurance in this state procured pursuant to the requirements of Article 21 (Surplus Lines Act) and allows a nonadmitted domestic surplus lines insurer to write such insurance in any other jurisdiction where eligible to do so if the insurer complies with that jurisdiction's requirements. Makes insurance written by a nonadmitted domestic surplus lines insurer subject to the premium receipts tax. Exempts such policies from the protection or provisions of GS 58-48 (appears to intend GS Chapter 58, Article 48, Postassessment Insurance Guaranty Association) and GS 58-62 (appears to intend GS Chapter 58, Article 62, North Carolina Life and Health Insurance Guaranty Association), and from statutory requirements relating to insurance rating and rating plans, policy forms, policy cancellation, and nonrenewal in the same manner and extent as surplus lines insurers domiciled in another state. Provides that all financial and solvency requirements imposed on domestic admitted insurers, including 46 specified statutes, articles, and parts, apply to nonadmitted domestic surplus lines insurers unless specifically exempted.

Amends GS 58-21-2 to exempt nonadmitted domestic surplus lines insurers from GS Chapter 58, with the exception of Article 21, unless specifically referenced in the Chapter.

Makes conforming changes to GS 58-21-5 (concerning the purpose of Article 21 and the need for regulation), and GS 58-21-10 (defining terms as they are used in Article 21).

Amends GS 58-21-16 by adding nonadmitted domestic surplus lines insurers to the insurers that an exempt commercial purchaser can request when applying to use the streamlined application process.

Amends GS 58-21-20 to require a surplus lines licensee to verify that the insurer is a nonadmitted domestic surplus lines insurer before a surplus lines licensee can place coverage with a nonadmitted domestic surplus lines insurer.

Makes additional technical changes to GS 58-21-40.

Amends GS 58-21-45 and GS 58-21-50 to add language that nonadmitted domestic surplus lines insurers must include in policies.

Further amends GS 58-21-65 to provide that for insureds whose home state is North Carolina, no agent or broker must directly procure any contract of surplus lines insurance with any nonadmitted domestic surplus lines insurer or nonadmitted insurer unless they possess a current surplus lines insurance lines insurance license. Makes additional technical changes.

Makes additional technical changes to GS 58-21-75.

Amends GS 58-21-105 to make it a Class 1 misdemeanor for any surplus lines licensee in this state to represent or aid a nonadmitted domestic surplus lines insurer in violation of Article 21.

Part III

Amends GS 58-36-30, concerning rate deviations, as follows. Clarifies that subsection (b) applies to automobile insurance. Amends the provisions related to automobile insurance and homeowners insurance by no longer requiring that the insurer obtain written consent from the insured before using consent to rate. Adds notice language that must be used by an insurer when disclosing that the rates used to calculate the premium are greater than those that apply in the state. Requires that the disclosure be included on any renewal of or endorsement to the policy when the rates exceed the approved manual rate (was, specific insurer not required to obtain the written consent of the insured on any renewal of or endorsement to the policy if the renewal or endorsement says that the rates are greater than those that are applicable in the state). Amends the language that must be included in the homeowners insurance policy notifying the insured that the rates used to calculate the premium are greater than those applied in the state. Deletes the required 30 days' notice to the insured for all written consent to rate and notices required for homeowner's insurance renewals and endorsements. Requires the Commissioner to collect annually and publish on the Department of Insurance's website the percentage of homeowner's insurance policies for which a consent to rate has been obtained, and the average difference between the approved premium and the consented premium. Requires insurers to collect consent to rate data for nonfleet private passenger motor vehicle physical damage and homeowners residential property with no more than four housing units to electronically transmit the 13 specified types of data to the Commissioner semiannually. Effective January 1, 2019, and applies to policies issued, renewed, or amended on or after that date.

Part IV

Amends GS 58-7-163 by amending the items not allowed as assets in any determination of the financial condition of an insurer to specify that any assets used as collateral to secure access to advances from a federal home loan bank is not disallowed (was, the amount of the asset's par value exceeding the par value amount of any outstanding obligations to the federal home loan bank are considered an unencumbered admitted asset).

Deletes proposed amendments to GS 58-7-179(c)(1) and instead amends (c)(1), which is one of the three amounts that a mortgage loan or loan made or acquired by an insurer on any one property must not exceed the larger of, to be 95% of the value of the real property or leasehold securing the real property in the case of a mortgage on a dwelling primarily intended for occupancy by not more than four families if they insure down to 80% with a licensed mortgage insurance company, or 80% of the value in the case of other real estate mortgages.

Amends GS 58-33-30 by amending the requirements for licensing nonresident agents by adding that if a nonresident licensee's license in the licensee's home state is no longer in good standing, the license issued by the Commissioner automatically lapses 30 days after the loss of the home state license. Specifies conditions under which the lapsed license may be reinstated.

Changes the effective date of proposed GS 58-44A-10(e) from September 1, 2017, to when the act becomes law.

Amends GS 58-50-56 by amending the definition of preferred provider to mean a health care provider who has agreed to accept special reimbursement or other terms for health care services from an insurer for health care services (was, for health care services on a fee-for-service basis). Allows the Department to adopt temporary rules to implement this change. Repeals GS 58-50-56(e), which provided that except where specifically prohibited either by the statute or by rules adopted by the Commissioner, the contractual terms and conditions for special reimbursements are those that the parties find mutually agreeable. Makes a conforming deletion in GS 58-65-1.

Amends GS 58-36-65 by adding that before a new automobile insurance policy is sold, the Bureau must obtain records of conviction for moving traffic violations, in accordance with rules established by the Bureau that must allow a reasonable period for underwriting review after the binding of coverage in the event that access to conviction records are unavailable at the time of sale or if the applicant has provided incorrect or incomplete information. Effective January 1, 2019, and applies to policies issued, renewed, or amended on or after that date.

Amends GS 58-2-164, which lists items that can be used to prove residence under the rate evasion statute by adding the following items: (1) valid NC driver's license of an owner of an applicant that is a corporation or an LLC if the person holds at least 20% ownership interest and (2) if the principal place of business of a corporation or LLC is the primary residence of the sole owner, any of the other specified documents, whether in the name of the corporation or LLC or in the name of the sole owner. Adds that for the purposes of these two newly added forms of identification, on polices to be ceded to the North Carolina Reinsurnace Facility, proof of ownership is established through the execution by the owner of the corporation or LLC, on a form created by the Facility. Specifies that the execution of the form constitutes a written statement in support of an application for insurance or amendment to an automobile insurance policy.

Amends GS 58-68-25 by specifying that excepted benefits are not subject to requirements under GS Chapter 58 regarding coverage of a specific person, provider, treatment, service, condition, or disease unless that coverage is expressly required by law.

Part VI

Amends GS 15A-544.5, setting out the reasons for which a bail bond forfeiture can be set aside, to include when the defendant was incarcerated within the United States at any time between the failure to appear and the final judgement date and the district attorney was notified of the incarceration while the defendant was still incarcerated and the defendant remains incarcerated for a period of 10 days following the district attorney's receipt of the notice if the defendant was released before the time the motion to set aside was filed. Effective October 1, 2018, and applies to hearings held on or after that date.

Deletes proposed changes to GS 58-19-10 concerning the insurance holding company system regulatory act.

Except as otherwise provided, the act is effective when it becomes law.