§ 31–5402. Coverage and limitations.

(a) Coverage shall be provided for the policies and contracts issued to:

(1) Persons who, regardless of where they reside (except for nonresident certificate holders under group policies or contracts), are the beneficiaries, assignees or payees, including health care providers rendering services covered under health insurance policies or certificates, of the persons covered under paragraph (2) of this subsection;

(2) Persons who are owners of, or certificate holders under, such policies or contracts (other than structured settlement annuities), and who:

(A) Are residents; or

(B) Are not residents, subject to the following conditions:

(i) The insurers which issued and delivered the policies or contracts are domiciled in the District of Columbia;

(ii) The state in which the persons reside have associations similar to the Association created by this chapter; and

(iii) The persons are not eligible for coverage by an association in any other state due to the fact that the insurer was not licensed in the state at the time specified in the state's guaranty association law.

(3) For structured settlement annuities specified in subsection (b) of this section, with the exception of subsection (a) of this section, which shall not apply, a person who is a payee under a structured settlement annuity or beneficiary of a payee if the payee is deceased, if the payee:

(A) Is a resident, regardless of where the contract owner resides; or

(B) Is not a resident, but only under the following conditions:

(i) The contract owner of the structured settlement annuity is a resident or the contract owner of the structured settlement annuity is not a resident but the insurer that issued the structured settlement annuity is domiciled in the District and the state in which the contract owner resides has an association similar to the Association established by this chapter; and

(ii) Neither the payee, beneficiary, or contract owner is eligible for coverage by the association of the state in which the payee or contract owner resides;

(4) A person who is a payee or beneficiary of a contract owner that is a resident of the District so long as the payee or beneficiary is not afforded any coverage by the association of another state; and

(5) Any person for whom coverage has been determined, when the application of this chapter could result in coverage by the association of more than one state, whether as an owner, payee, beneficiary, or assignee, and this chapter has been construed in conjunction with the other state’s laws to result in coverage by only one association.

(b)(1) Coverage shall be provided to the persons specified in subsection (a) of this section for policies or contracts of direct, non-group life insurance, health insurance (which for purposes of this chapter shall include health maintenance organization subscriber contracts and certificates) issued by a member insurer, annuities for certificates under direct group policies or contracts issued by a member insurer, and for supplemental contracts issued by a member insurer to any of the foregoing, except as limited by this chapter. Annuity contracts and certificates under group annuity contracts include allocated funding agreements, structured settlement annuities, lottery contracts, and any immediate or deferred annuity contracts.

(2) Coverage shall not be provided for:

(A) Any portion of a policy or contract not guaranteed by the insurer, or under which the risk is borne by the owner of the policy, contract, or certificate;

(B) Any policy or contract of reinsurance, unless assumption certificates have been issued and delivered pursuant to the reinsurance policy or contract;

(C) Any portion of a policy, contract, or certificate, to the extent of the rate of interest on which it is based, or the interest rate, crediting rate, or similar factor determined by the use of an index or other external reference stated in the policy or contract employed in calculating returns or changes in value:

(i) Averaged over the 4-year period prior to the date on which the Association becomes obligated with respect to the policy, contract, or certificate, exceeds a rate of interest determined by subtracting 2 percentage points from Moody’s Corporate Bond Yield Average averaged for that same 4-year period or for a lesser period if the policy, contract, or certificate was issued and delivered less than 4 years before the Association became obligated; and

(ii) On and after the date on which the Association becomes obligated with respect to the policy, contract, or certificate, exceeds the rate of interest determined by subtracting 3 percentage points from the most recent Moody’s Corporate Bond Yield Average;

(D) Any portion of a policy or contract issued to a plan or program of an employer, association, or similar entity to provide life, health, or annuity benefits to its employees or members to the extent that the plan or program is self-funded or uninsured, including, but not limited to, benefits payable by an employer, association, or similar entity under:

(i) A Multiple Employer Welfare Arrangement as defined in section 514 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. § 1144), as amended;

(ii) A minimum premium group insurance plan;

(iii) A stop-loss group insurance plan; or

(iv) An administrative services only contract;

(E) Any portion of a policy or contract that provides for:

(i) Dividends or experience rating credits;

(ii) Voting rights; or

(iii) Payment of fees or allowances to any person, including the policy or contract owner, in connection with the service or administration of the policy or contract;

(F) Any policy, contract, or certificate issued and delivered in the District of Columbia by a member insurer at a time when it was not licensed or did not have a certificate of authority to issue and deliver the policy, contract, or certificates in the District of Columbia;

(G) Any unallocated annuity contract;

(H) Any portion of a policy or contract to the extent the assessments required by § 31-5406 with respect to the policy or contract are preempted by federal or state law;

(I) Any obligation that does not arise under the express written terms of the policy or contract issued by the insurer to the contract owner or policy owner, including:

(i) Claims based on marketing materials;

(ii) Claims based on side letters, riders, or other documents that were issued by the insurer without meeting applicable policy form filing or approval requirements;

(iii) Misrepresentations of or regarding policy benefits;

(iv) Extra-contractual claims; or

(v) A claim for penalties or consequential or incidental damages;

(J) Any contractual agreement that establishes the member insurer’s obligations to provide a book value accounting guaranty for defined contribution benefit plan participants by reference to a portfolio of assets that is owned by the benefit plan or its trustee, which in each case is not an affiliate of the member insurer;

(K) Any portion of a policy or contract that provides for interest or other changes in value to be determined by the use of an index or other external reference stated in the policy or contract, but have not been credited to the policy or contract, or as to which the policy or contract owner’s rights are subject to forfeiture, as of the date the member insurer becomes an impaired or insolvent insurer under this chapter, whichever is earlier. If a policy or contract’s interest or changes in value are credited less frequently than annually, then for purposes of determining the values that has been credited and are not subject to forfeiture under this subsection, the interest or change in value determined by using the procedures defined in the policy or contract shall be credited as if the contractual date of crediting interest or changing values was the date of impairment or insolvency, whichever is earlier, and will not be subject to forfeiture;

(L) Any policy or contract providing any hospital, medical, prescription drug, or other health care benefits pursuant to the Balanced Budget Act of 1997, approved August 11, 1997 (111 Stat. 251; 42 U.S.C. §§ 1395w-21 et seq.), and the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, approved December 8, 2003 (117 Stat. 2066; 42 U.S.C. §§ 1395w-101 et seq.) (commonly known as Medicare Parts C and D), or Title XIX of the Social Security Act, approved February 4, 2009 (123 Stat. 91; 42 U.S.C. § 1396 et seq.) (commonly known as Medicaid), or any regulations issued pursuant to those titles; or

(M) Structured settlement annuity benefits to which a payee (or beneficiary) has transferred his or her rights in a structured settlement factoring transaction as defined in section 115(a) of the Victims of Terrorism Tax Relief Act of 2001, approved January 23, 2002 (115 Stat. 2436; 26 U.S.C. 5891(c)(3)), regardless of whether the transaction occurred before or after such section became effective.

(3) The exclusion from coverage referenced in paragraph (2)(C) of this subsection shall not apply to any portion of a policy or contract, including a rider, that provides long-term care or any other health insurance benefits.

(1) The contractual obligations for which the insurer is liable or would have been liable if it were not an impaired or insolvent insurer; or

(2)(A) With respect to any 1 life, regardless of the number of policies, contracts, or certificates:

(i) $300,000 in life insurance death benefits, but not more than $100,000 in net cash surrender and net cash withdrawal values for life insurance;

(ii) In health insurance benefits:

(I) $ 100,000 for coverage not defined as disability insurance or health benefit plan or long- term care insurance, including any net cash surrender and net cash withdrawal values;

(II) $ 300,000 for disability insurance;

(III) $ 300,000 for long-term care insurance; and

(IV) $ 500,000 for health benefit plans; or

(iii) $300,000 in the present value of annuity benefits, including net cash surrender and net cash withdrawal values.

(A-i) With respect to each payee of a structured settlement annuity (or beneficiary or beneficiaries of the payee if deceased), $ 300,000 in present value annuity benefits, in the aggregate, including net cash surrender and net cash withdrawal values, if any.

(A-ii) The Association shall not be obligated to cover:

(i) More than an aggregate of $ 300,000 in benefits with respect to any one life under subparagraphs (A) and (A-i) of this paragraph except with respect to benefits for health benefit plans under subparagraph (A)(ii) of this paragraph, in which case the aggregate liability of the Association shall not exceed $ 500,000 with respect to any one individual; or

(ii) With respect to one owner of multiple non-group policies of life insurance, whether the policy owner is an individual, firm, corporation, or other person, and whether the persons insured are officers, managers, employees, or other persons, more than $ 5,000,000 in benefits, regardless of the number of policies and contracts held by the owner;

(A-iii)(i) The limitations set forth in this subsection are limitations 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.

(ii) The costs of the Association’s obligations under this chapter may be met by the use of assets attributable to covered policies or reimbursed to the Association pursuant to its subrogation and assignment rights.

(B) The liability of the Association shall be limited strictly by the express terms of the policies or contracts and by this chapter, and shall not be affected by the contents of any brochures, illustrations, advertisements in print or electronic media, or other advertising material used in connection with the sale of the policies or contracts, or by oral statements made by agents or other sales representatives in connection with the sale of the policies or contracts. The Association shall not be liable for extra-contractual damages, punitive damages, attorney fees, or interest other than as provided for by the terms of the policies or contracts as limited by this chapter, that might be awarded by any court or governmental agency in connection with the policies or contracts.

(C) For the purposes of this chapter, benefits provided by a long-term care rider to a life insurance policy or annuity contract shall be considered the same type of benefits as the base life insurance policy or annuity contract to which it relates.

(c-1) In performing its obligations to provide coverage under § 31-5405, the Association shall not be required to guarantee, assume, reinsure, or perform, or cause to be guaranteed, assumed, reinsured, or performed, the contractual obligations of the insolvent or impaired insurer under a covered policy or contract that do not materially affect the economic values or economic benefits of the covered policy or contract.

(d) Repealed.

(July 22, 1992, D.C. Law 9-129, § 3, 39 DCR 4036; July 23, 2014, D.C. Law 20-130, § 2(b), 61 DCR 5900; Feb. 15, 2024, D.C. Law 25-122, § 2(b), 70 DCR 16570.)

Prior Codifications

1981 Ed., § 35-1942.

Section References

This section is referenced in § 31-5401, § 31-5405, and § 31-5416.

Effect of Amendments

The 2014 amendment by D.C. Law 20-130 deleted “and” at the end of (a)(1); added “other than structured settlement annuities” in the introductory language of (a)(2); rewrote (a)(2)(B)(ii) and (a)(2)(B)(iii); added (a)(3), (a)(4), and (a)(5); substituted “structured settlement annuities” for “structured settlement agreements” in (b)(1); substituted “owner” for “holder” in (b)(2)(A); added “pursuant to the reinsurance policy or Contract” in (b)(2)(B); rewrote the introductory language of (b)(2)(C); substituted “Any portion of a policy or contract issued to a” for “Any” in (b)(2)(D); rewrote (b)(2)(E); made minor stylistic changes in (b)(2)(F) and (b)(2)(G); added (b)(2)(H)-(b)(2)(L); rewrote (c)(2)(A)(ii); added (c)(2)(A-i), (c)(2)(A-ii), and (c)(2)(A-iii); added (c-1); and repealed (d).