To repeal sections 375.700 and 375.1218, RSMo 1994, relating to the distribution of assets of dissolved insurers, and to enact in lieu thereof two new sections relating to the same subject.

Be it enacted by the General Assembly of the State of Missouri, as follows:

Section A. Sections 375.700 and 375.1218, RSMo 1994, are repealed and two new sections enacted in lieu thereof to be known as sections 375.700 and 375.1218, to read as follows:

375.700. 1. Unless reinsurance of a dissolved insurer is effected and its assets conveyed to the reinsuring company as provided by law, and unless such insurer is being rehabilitated under other provisions of sections 375.010 to 375.1246, the receiver, under the direction of the court, shall apply the sums realized from the assets of such insurer in hereafter making any partial or final distribution, in the following order:

(1) To payment of all the expenses of closing the business and disposing of the assets of such insurer;

(2) To the payment of all lawful taxes and debts due the state [and the United States] and the counties and municipalities of this state;

(3) To the payment of policy claims;

(4) To the payment of debts due the United States;

(5) To the payment of the other debts and claims allowed against such insurer, and the unearned premiums and the surrendered value of its policies, in proportion to their respective amounts.

2. A guaranty association which has paid a claim because of insurance coverage afforded by the insurer in receivership may in addition to its reimbursement claim for the amount it paid to a claimant also claim from the receivership and have allowed reasonable allocated loss adjustment expenses incurred and paid by it with respect to such claim on or after January 1, 1986. The receiver and the court shall have authority, however, to inquire into the reasonableness of the allocated loss adjustment expenses claimed and such claim shall not be allowed if it is found to be unreasonable. Any claim amount allowed to a guaranty association as allocated loss adjustment expense reimbursement shall be assigned the same priority under subsection 1 of this section as the claim to which it relates would be entitled had the claim been allowed. A guaranty association shall only be entitled to an allowance for reimbursement of its allocated loss adjustment expenses and shall not be allowed reimbursement for its general administrative expenses.

3. The court shall have authority from time to time upon application of the receiver to make partial distributions upon allowed claims to guaranty associations or other claimants prior to a final distribution from the receivership estate. Prior to doing so, the court shall hold an evidentiary hearing at which time the condition of the receivership estate shall be considered and there shall be presented evidence as to projected claims, projected expenses of administration and projected assets which may be available for ultimate distribution. Before making any such partial distribution the court shall find that such will not prejudice the rights of any other claimants, that such will not hinder the administration of the receivership, and that the distribution being allowed is fair and reasonable. The court may condition any partial distribution upon such terms or conditions as it believes to be in the best interests of the receivership as a whole.

4. If the insurer is a life insurance company and has deposits for policyholders or for the security of registered policies or annuity bonds, such deposits shall be disposed of as provided in sections 375.010 to 375.1246.

5. This section shall apply only to proceedings instituted before August 28, 1991.

375.1218. 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 herein set forth. Every claim in each class shall be paid in full or adequate funds retained for such payment before the members of the next class receive any payment. No subclasses shall be established within any class. No claim by a shareholder, policyholder or other creditor shall be permitted to circumvent the priority class through the use of equitable remedies. 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:

(1) The actual and necessary costs of preserving or recovering the assets of the insurer, and costs necessary to store records required to be preserved pursuant to section 375.1228;

(2) Compensation for all authorized services rendered in the rehabilitation and liquidation;

(3) Any necessary filing fees;

(4) The fees and mileage payable to witnesses;

(5) Authorized reasonable attorney s fees and other professional services rendered in the rehabilitation and liquidation.

2. Class 2. All claims under policies including such claims of the federal or any state or local government for losses incurred ( loss claims ) including third party claims and all claims of a guaranty association or foreign guaranty association including reasonable allocated loss adjustment expenses and all claims of a life and health insurance guaranty association or foreign guaranty association which covers claims of life and health insurance policies, relating to the handling of such claims. All claims under life insurance and annuity policies and funding agreements, whether for death proceeds, annuity proceeds or investment values shall be treated as loss claims. 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. Early distributions to guaranty associations and foreign guaranty associations may be made in the manner provided in section 375.1205, provided that such guaranty associations and foreign guaranty associations agree to indemnify the liquidator if a shortage occurs in the insurer s estate of property necessary to settle claims as provided by this section. Any early distributions shall not increase the proportionate share of such guaranty associations and foreign guaranty associations, of distributions of the insurer s estate. The liquidator shall have authority to inquire into the reasonableness of any allocated loss adjustment expenses claimed by a guaranty association or foreign guaranty association and such claim shall not be allowed if it is found to be unreasonable.

3. Class 3. Claims of the United States government other than those claims included in class 2.

4. 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 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.

[4. Class 4.] 5. Class 5. Claims under nonassessable policies for unearned premiums or other premium refunds and claims of general creditors including claims of ceding and assuming companies in their capacity as such.

[5. Class 5.] 6. Class 6. Claims of [the federal or] any state or local government except those under class 2 above. 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 as class 8 claims.

[6. Class 6.] 7. Class 7. Claims filed late or any other claims other than class 7 or 8 claims.

[7. Class 7.] 8. Class 8. 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.] 9. Class 9. The claims of shareholders or other owners in their capacity as shareholders.