(1) Except as provided in subsection (2), 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 retained for their payment before the members of the next class receive payment. Subclasses shall not be established within a class. The order of distribution of claims is as follows:
  (a) Class 1. The costs and expenses of administration, including, but not limited to, the following:

Terms Used In Michigan Laws 500.8142

  • Annuity: A periodic (usually annual) payment of a fixed sum of money for either the life of the recipient or for a fixed number of years. A series of payments under a contract from an insurance company, a trust company, or an individual. Annuity payments are made at regular intervals over a period of more than one full year.
  • Assets: (1) The property comprising the estate of a deceased person, or (2) the property in a trust account.
  • Contract: A legal written agreement that becomes binding when signed.
  • Foreign guaranty association: means any similar entities now in existence or hereafter created by the legislature of any other state. See Michigan Laws 500.8103
  • Guaranty association: means the Michigan property and casualty guaranty association, the worker's compensation self-insurance security fund, the Michigan life and health insurance guaranty association, and any other similar entity now or hereafter created by the legislature of this state for the payment of claims of insolvent insurers. See Michigan Laws 500.8103
  • Indemnification: In general, a collateral contract or assurance under which one person agrees to secure another person against either anticipated financial losses or potential adverse legal consequences. Source: FDIC
  • insolvent: means :
  (i) For an insurer issuing only assessable fire insurance policies:
  (A) The inability to pay an obligation within 30 days after it becomes payable. See Michigan Laws 500.8103
  • Insurer: means an individual, corporation, association, partnership, reciprocal exchange, inter-insurer, Lloyds organization, fraternal benefit society, or other legal entity, engaged or attempting to engage in the business of making insurance or surety contracts. See Michigan Laws 500.106
  • Obligation: An order placed, contract awarded, service received, or similar transaction during a given period that will require payments during the same or a future period.
  • Remainder: An interest in property that takes effect in the future at a specified time or after the occurrence of some event, such as the death of a life tenant.
  • State: means a state, district, or territory of the United States. See Michigan Laws 500.8103
  • Statute: A law passed by a legislature.
    •   (i) The actual and necessary costs of preserving or recovering the insurer’s assets.
      (ii) Compensation for all services rendered in the liquidation.
      (iii) Any necessary filing fees.
      (iv) The fees and mileage payable to witnesses.
      (v) Reasonable attorney’s fees.
      (vi) The reasonable expenses of a guaranty association or foreign guaranty association in handling claims.
      (vii) Debts due to employees for services performed to the extent that they do not exceed $1,000.00 and represent payment for services performed within 1 year before the filing of the petition for liquidation, if the court determines that the payments are reasonably necessary to an orderly and effective administration for the protection of class 2 claimants. Officers and directors are not entitled to the benefit of this priority. This priority is in lieu of any other similar priority authorized by law as to wages or compensation of employees.
      (viii) Beginning January 3, 1990, the actual and necessary fees of a supervisor appointed pursuant to section 8109 if the liquidation was preceded by supervision pursuant to section 8109 and the fees were not paid at the date of liquidation.
      (b) Class 2. Except as otherwise provided in this section, all claims under policies for losses incurred, including third party claims, and all claims of a guaranty association or foreign guaranty association. However, obligations of an insolvent insurer arising out of reinsurance contracts shall not be included in this class. All claims under life insurance and annuity policies, whether for death proceeds, annuity proceeds, or investment values, shall be treated as loss claims. For purposes of this section, life insurance and annuity policies include, but are not limited to, individual annuities, group annuities, guaranteed investment contracts, and funding agreement contracts, issued by an insurer. 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. A payment by an employer to his or her employee shall not be treated as a gratuity.
      (c) Class 3. Claims of the federal government.
      (d) Class 4. All claims against the insurer for liability for bodily injury or for injury to or destruction of tangible property that are not under policies and, to the extent not included in class 1, debts due to employees for services performed to the extent that they do not exceed $1,000.00 and represent payment for services performed within 1 year before the filing of the petition for liquidation. Officers and directors are not entitled to the benefit of the priority for debts due to employees for services performed. The priority for debts due to employees for services performed is in lieu of any other similar priority authorized by law as to wages or compensation of employees.
      (e) Class 5. Claims under nonassessable policies for unearned premium or other premium refunds and claims of general creditors.
      (f) Class 6. Claims of any state or local government. Claims, including those of any governmental body for a penalty or forfeiture, are 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 incurred. The remainder of the claims shall be postponed to the class of claims under subdivision (i).
      (g) Class 7. Claims filed late or any other claims other than claims under subdivisions (h) and (i).
      (h) Class 8. Surplus or contribution notes, or similar obligations, and premium refunds on assessable policies. Payments to members of domestic mutual insurance companies are limited in accordance with law.
      (i) Class 9. The claims of shareholders or other owners. In paying claims pursuant to this class, disinterested shareholders have priority over interested shareholders who are directors or officers who fail to exercise their duties in accordance with section 5240.
      (2) If it is provided by written agreement, statute, or rule that the assets in a separate account are not chargeable with liabilities arising out of any other business of the insurer, that part of a claim that includes a separate account shall be satisfied out of the assets in the separate account equal to the reserves maintained in the separate account under the separate account agreement. The remainder of the claim shall be treated as a Class 2 claim against the insurer’s estate to the extent that reserves have been established in the insurer’s general account pursuant to statute, rule, or the separate account agreement.
      (3) As used in this section:
      (a) “Separate account” means a separate account authorized under section 925 and established in accordance with the terms of a written agreement or a contract on a variable basis.
      (b) “Insurer’s estate” means all of the assets of the insurer less any assets held in separate accounts. The following assets shall not be considered separate account assets:
      (i) Assets that represent money provided by the insurer initially to fund the separate account.
      (ii) Assets that represent policy reserves that are properly allocable to the general account.
      (iii) General account investments held in the separate account.
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