Section 20-637 - Qualified financial contracts; definitionA. Notwithstanding any other provision of this article, a person shall not be enjoined or prohibited from exercising:1. A contractual right to cause the termination, liquidation, acceleration or close out of obligations under or in connection with any netting agreement or qualified financial contract with an insurer because of either: (a) The insolvency, financial condition or default of the insurer at any time if the right is enforceable under applicable law other than this article.(b) The commencement of a formal delinquency proceeding under this article.2. Any right under a pledge, security, collateral, reimbursement or guarantee agreement or arrangement or any other similar security agreement or arrangement or other credit enhancement relating to one or more netting agreements or qualified financial contracts.3. Subject to section 20-638, subsection B, any right to offset or net out any termination value, payment amount or other transfer obligation arising under or in connection with one or more qualified financial contracts where the counterparty or its guarantor is organized under the laws of the United States or a state or a foreign jurisdiction approved by the securities valuation office of the national association of insurance commissioners as eligible for netting.B. If a counterparty to a master netting agreement or a qualified financial contract with an insurer subject to a proceeding under this article terminates, liquidates, closes out or accelerates the agreement or contract, damages shall be measured as of the date or dates of termination, liquidation, close out or acceleration. The amount of a claim for damages shall be actual direct compensatory damages calculated pursuant to subsection H of this section.C. On termination of a netting agreement or qualified financial contract, the net or settlement amount owed by a nondefaulting party to an insurer against which a proceeding under this article has been commenced shall be transferred to or on the order of the receiver for the insurer, even if the insurer is the defaulting party, notwithstanding any walkaway clause in the netting agreement or qualified financial contract. Any limited two-way payment or first method provision in a netting agreement or qualified financial contract with an insurer that has defaulted shall be deemed to be a full two-way payment or second method provision as against the defaulting insurer. Any such property or amount shall be a general asset of the insurer, except to the extent it is subject to one or more secondary liens or encumbrances or rights of netting or offset. For the purposes of this subsection, "walkaway clause" means a provision in a netting agreement or a qualified financial contract that, after calculation of a value of a party's position or an amount due to or from one of the parties in accordance with its terms on termination, liquidation or acceleration of the netting agreement or qualified financial contract, either does not create a payment obligation of a party or extinguishes a payment obligation of a party in whole or in part solely because of the party's status as a nondefaulting party.D. In making any transfer of a netting agreement or qualified financial contract of an insurer subject to a proceeding under this article, the receiver shall either: 1. Transfer to one party, other than an insurer subject to a proceeding under this article, 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: (a) All rights and obligations of each party under each netting agreement and qualified financial contract.(b) All property, including any guarantees or other credit enhancement, securing any claims of each party under each netting agreement and qualified financial contract.2. Transfer none of the netting agreements, qualified financial contracts, rights, obligations or property referred to in paragraph 1 of this subsection with respect to the counterparty and any affiliate of the counterparty.E. If the receiver makes a transfer of one or more netting agreements or qualified financial contracts, the receiver shall use its best efforts to notify any person who is a party to the netting agreements or qualified financial contracts of the transfer by noon in the receiver's local time on the business day following the transfer. For the purposes of this subsection, "business day" means a day other than a Saturday, Sunday or other day on which either the New York stock exchange or the federal reserve bank of New York is closed.F. Notwithstanding any other provision of this article, the receiver may not avoid a transfer of money or other property arising under or in connection with a netting agreement or qualified financial contract or any pledge, security, collateral or guarantee agreement or any other similar security arrangement or credit support document relating to a netting agreement or qualified financial contract that is made before the commencement of a delinquency proceeding under this article. However, a transfer may be avoided under section 20-636, subsection C 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.G. In disaffirming or repudiating any netting agreement or qualified financial contract to which an insurer is a party, the receiver for the insurer shall either:1. Disaffirm or repudiate 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.2. Disaffirm or repudiate none of the netting agreements and qualified financial contracts referred to in paragraph 1 of this subsection with respect to the person or any affiliate of the person.H. Notwithstanding any other provision of this article, 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 proceeding under this article shall be determined and shall be allowed or disallowed as if the claim had arisen before the date of the commencement of a proceeding under this article. 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. For the purposes of this subsection, "actual direct compensatory damages": 1. Does not include punitive or exemplary damages, damages for lost profit or lost opportunity or damages for pain and suffering.2. Includes normal and reasonable costs of cover or other reasonable measures of damages used in the derivatives, securities or other market for the contract and agreement claims.I. This section does not apply to persons who are affiliates of the insurer that is the subject of the proceeding.J. All rights of counterparties under this article 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.K. Notwithstanding any other provision of this chapter, a federal home loan bank may not be stayed, enjoined or prohibited from exercising or enforcing any right or cause of action against collateral pledged by an insurer member under any federal home loan bank security agreement or any pledge, security, collateral or guarantee agreement or other similar arrangement or credit enhancement relating to a security agreement to which that federal home loan bank is a party.L. For the purposes of this section, "contractual right" includes: 1. Any right set forth: (a) In a rule or bylaw of a derivatives clearing organization as defined in the commodity exchange act, a multilateral clearing organization as defined in the federal deposit insurance corporation improvement act of 1991 (12 United States Code section 4421), a national securities exchange, a national securities association, a securities clearing agency, a contract market designated under the commodity exchange act, a derivatives transaction execution facility registered under the commodity exchange act or a board of trade as defined in the commodity exchange act.(b) In a resolution of the governing board of any entity described in subdivision (a) of this paragraph.2. Any right, whether or not evidenced in writing, arising under statutory or common law, or under law merchant or by reason of normal business practice.Amended by L. 2021, ch. 5,s. 13, eff. 9/29/2021.