17B:32-71. Priority of distribution of claims

41. a. 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 or other assets 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:

(1) Class 1. 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's fees and other professional services rendered in the rehabilitation and liquidation;

(f) The reasonable expenses of a guaranty association or foreign guaranty association for unallocated loss adjustment expenses. For purposes of this subparagraph, "unallocated loss adjustment expenses" means expenses associated with claims settlement due to the insolvency of a member insurer that cannot be assigned to an individual claim.

(2) Class 2. 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 one year before the filing of the petition for liquidation or, if rehabilitation preceded liquidation, within one year before the filing of the petition for rehabilitation. 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.

(3) Class 3. All claims under policies, including claims of the federal or any state or local government for losses incurred and including third party claims and all claims of a guaranty association or foreign guaranty association, but excluding amounts recoverable under Class 1 claims pursuant to paragraph (1) of this subsection. All claims under life insurance and annuity policies, whether for death proceeds, annuity proceeds, or investment values, shall be treated as loss claims. For the purpose of this section, life insurance and annuity policies shall include, but not be limited to, any and all individual and group annuity and investment contracts issued by an insurer under or in connection with an employee benefit plan or program to which section 401, 403(b), 408 or 457 of the federal Internal Revenue Code of 1986 (26 U.S.C. s.401, 403(b), 408 or 457) relates, to whomever or whatever persons or entities such contracts are issued, together with all individual annuities issued pursuant to any such contracts. That portion of any loss, indemnification for which is provided by other benefits or advantages recovered by the claimant, shall not be included in this class, 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. No payment by an employer to his employee shall be treated as a gratuity. Claims of enrollees, members or subscribers, and their beneficiaries, of a fraternal benefit society, mutual benefit association, hospital service corporation, medical service corporation, health service corporation, dental service corporation, dental plan organization or health maintenance organization, as the case may be, shall have the same priority established by this section for policyholders and beneficiaries of insurers. Any provider of health care services to an enrollee, member or subscriber shall have a priority of distribution of general assets immediately following that of enrollees, members or subscribers and their beneficiaries, and immediately preceding Class 4 claims under paragraph (4) of this subsection.

(4) Class 4. Claims under nonassessable policies for unearned premium or other premium refunds and claims of general creditors including claims of ceding and assuming companies in their capacity as such.

(5) Class 5. Claims of the federal or any state or local government except those under Class 3 claims pursuant to paragraph (3) of subsection a. of this section. Claims, including those of any governmental body for a penalty or forfeiture, shall be allowed in this class only to the extent of the pecuniary loss sustained from the act, transaction or proceeding out of which the penalty or forfeiture arose, with reasonable and actual costs occasioned thereby. The remainder of such claims shall be postponed to the Class 8 claims under paragraph (8) of this subsection.

(6) Class 6. Claims filed late or any other claims other than Class 7 and Class 8 claims under paragraphs (7) and (8) of this subsection.

(7) 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.

(8) Class 8. The claims of shareholders or other owners in their capacity as shareholders.

b. Every claim under a separate account agreement 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 maintained in that account for that agreement. To the extent, if any, that a claim under a separate account agreement is not fully discharged by such assets, such claim shall be treated as a Class 3 claim pursuant to paragraph (3) of subsection a. of this section against the estate of the insurer.

L.1992,c.65,s.41.