Report Title:

Hurricane Reserve Trust Fund; Hawaii Insurance Guaranty Association

 

Description:

Authorizes the transfer of moneys from the hurricane reserve trust fund to the Hawaii insurance guaranty association for the payment of covered claims against an insolvent insurer when (1) the insolvency was caused by a hurricane and (2) the Hawaii hurricane relief fund has no hurricane insurance policy in force.

 


HOUSE OF REPRESENTATIVES

H.B. NO.

515

TWENTY-FIFTH LEGISLATURE, 2009

 

STATE OF HAWAII

 

 

 

 

 

 

A BILL FOR AN ACT


 

 

RELATING TO INSURANCE.

 

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 


     SECTION 1.  The purpose of this Act is to address the transfer of moneys from the hurricane reserve trust fund to the Hawaii insurance guaranty association for the payment of covered claims against an insolvent insurer, the insolvency of which was caused by a hurricane.  Under this Act, such a transfer may be authorized by the board of directors of the Hawaii hurricane relief fund only when the fund has no policy of hurricane property insurance in force.

     SECTION 2.  Section 431:16-108, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

     "(a)  The association shall:

     (1)  Be obligated to the extent of the covered claims existing prior to the order of liquidation and arising within thirty days after the order of liquidation, or before the policy expiration date if less than thirty days after the order of liquidation, or before the insured replaces the policy or causes its cancellation, if the insured does so within thirty days of the order of liquidation.  The obligation shall be satisfied by paying to the claimant an amount as follows:

         (A)  The full amount of a covered claim for benefits under a workers' compensation insurance coverage;

         (B)  An amount not exceeding $10,000 per policy for a covered claim for the return of unearned premium; or

         (C)  An amount not exceeding $300,000 per claim for all other covered claims.

          In no event shall the association be obligated to a policyholder or claimant in an amount in excess of the stated policy limit of the insolvent insurer under the policy from which the claim arises.  Notwithstanding any other provisions of this part, a covered claim shall not include a claim filed with the association after the final date set by the court for the filing of claims against the liquidator or receiver of an insolvent insurer.  Any obligation of the association to defend an insured shall cease upon the association's payment or tender of an amount equal to the lesser of the association's covered claim obligation limit or the applicable policy limit[;].  The association may pay the obligations with funds from the assessments pursuant to paragraph (3), transferred moneys from the hurricane reserve trust fund, and other revenues received by the association;

     (2)  Be deemed the insurer, but only to the extent of its obligation on covered claims and to that extent shall have all rights, duties, and obligations of the insolvent insurer as if the insurer had not become insolvent, including but not limited to the right to pursue and retain salvage and subrogation recoverable on covered claim obligations to the extent paid by the association;

     (3)  Assess insurers amounts necessary to pay the obligations of the association under paragraph (1) subsequent to an insolvency, the expenses of handling covered claims subsequent to an insolvency, and the cost of examinations under section 431:l6-113, and other expenses authorized by this part.  The assessments of each member insurer shall be in the proportion that the net direct written premiums of the member insurer for the preceding calendar year bears to the net direct written premiums of all member insurers for the preceding calendar year.  Each member insurer shall be notified of the assessment not later than thirty days before it is due.  No member insurer may be assessed in any year an amount greater than two per cent of that member insurer's net direct written premiums for the preceding calendar year.  If the maximum assessment, together with the other assets of the association, does not provide in any one year an amount sufficient to make all necessary payments, the funds available shall be prorated and the unpaid portion shall be paid as soon thereafter as funds become available.  The association shall pay claims in any order that it may deem reasonable, including the payment of claims as they are received from the claimants or in groups or categories of claims.  The association may exempt or defer, in whole or in part, the assessment of any member insurer, if the assessment would cause the member insurer's financial statement to reflect amounts of capital or surplus less than the minimum amounts required for a certificate of authority by any jurisdiction in which the member insurer is authorized to transact insurance.  However, during the period of deferment, no dividends shall be paid to shareholders or policyholders.  Deferred assessments shall be paid when the payment will not reduce capital or surplus below required minimums.  Payments shall be refunded to those companies receiving larger assessments by virtue of the deferment, or at the election of the companies, credited against future assessments.  Each member insurer may set off against any assessment payments authorized by the administrator of the association to be made on covered claims and expenses incurred in the payment of the claims by the member insurer;

     (4)  Investigate claims brought against the association and adjust, compromise, settle, and pay covered claims to the extent of the association's obligation and deny all other claims and may review settlements, releases, and judgments to which the insolvent insurer or its insureds were parties to determine the extent to which the settlements, releases, and judgments may be properly contested.  The association may appoint or substitute and direct legal counsel retained under liability insurance policies for the defense of covered claims;

     (5)  Notify the persons as the commissioner directs under section 431:16-ll0(b)(l);

     (6)  Handle claims through its employees or through one or more insurers or other persons designated as servicing facilities.  Designation of a servicing facility is subject to the approval of the commissioner, but the designation may be declined by a member insurer;

     (7)  Reimburse each servicing facility for obligations of the association paid by the facility and for expenses incurred by the facility while handling claims on behalf of the association and pay the other expenses of the association authorized by this part; and

     (8)  Have the authority, notwithstanding sections 43l:10C-ll0 and 43l:10C-111, to cancel all policies issued by an insolvent insurer.  Covered claims under these policies shall be paid by the association in an amount not to exceed the stated policy limit of the insolvent insurer under the policy from which the claim arises, or as provided under paragraph (1)(A) to (C), whichever is less.

     (b)  The association may:

     (1)  Employ or retain the persons as are necessary to handle claims and perform other duties of the association;

     (2)  Borrow funds necessary to effect the purposes of this part in accord with the plan of operation;

     (3)  Sue or be sued;

     (4)  Negotiate and become a party to the contracts as are necessary to carry out the purpose of this part; and

     (5)  Perform all other acts as are necessary or proper to effectuate the purpose of this part."

     SECTION 3.  Section 431P-5, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

     "(b)  In addition to the general powers under subsection (a), the fund shall have the specific power to:

     (1)  Adopt and administer a plan of operation in accordance with section 431P-7, and a manual of rules and rates to provide persons having an insurable interest in eligible property with insurance coverage provided by the fund;

     (2)  Authorize the provision of hurricane coverage by the fund for real property and tangible personal property located in or on real property and establish limits of liability for specific coverages within the range of authorized coverage;

     (3)  Adopt actuarially sound rates based on reasonable assumptions relative to expectations of hurricane frequency and severity for all coverage provided under policies or endorsements issued by the fund.  Rates adopted shall be subject to approval by the commissioner pursuant to article 14 of chapter 431.  Rates adopted shall provide for classification of risks and shall include past and prospective losses and expense experience in this State;

     (4)  Adopt procedures, guidelines, and surcharges applicable to policies of hurricane property insurance issued in connection with an underlying property policy issued by an unauthorized insurer;

     (5)  Adopt any form of insurance policy necessary for providing policies of hurricane property insurance by the fund, with the approval of the commissioner;

     (6)  Issue policies of hurricane property insurance and pay claims for coverage over the mandatory deductible or other deductible provided in the plan of operation or any manual of rules and rates adopted under the plan of operation;

     (7)  Require every licensed property and casualty insurer transacting direct property insurance business in this State to act as a servicing facility, and by contract with that insurer authorize the insurer to inspect eligible properties, service policies and policyholders of hurricane property insurance, provide claim services, and perform any other duties as authorized by the fund for applicants to the fund and those insured by it;

     (8)  (A)  Assess all licensed property and casualty insurers the amounts which, together with the other assets of the fund, are sufficient to meet all necessary obligations of the fund.  The assessment shall be made on the insurer's gross direct written premiums for property and casualty insurance in this State for the preceding calendar year.  The rate of assessment in a year in which a covered event has not occurred shall be 3.75 per cent and shall not include the insurer's gross direct written premiums for motor vehicle insurance in this State; provided that following a covered event, the rate of assessment may be increased to an amount not to exceed five per cent and may include the insurer's gross direct written premiums for motor vehicle insurance in this State.  This increase shall remain in effect until such time as all claims and other obligations, including but not limited to bonds and notes, arising out of a covered event shall have been fully discharged.  An insurer authorized to provide comparable coverage under section 431P-10(b) and which is providing hurricane property insurance in the State shall be assessed an amount that excludes gross direct written premiums for property insurance in this State.  The assessment for a year in which a covered event has not occurred shall be collected quarterly during each calendar year;

         (B)  In the event of a loss from a covered event the fund, in addition to the assessment in subparagraph (A), shall assess those insurers which acted as servicing facilities during the twelve months ending at the start of the month preceding the month in which the covered event occurs.  The total assessment shall be a fixed percentage of the total coverage provided by the fund under its policies of hurricane property insurance during the month preceding the month in which the covered event occurs.  The percentage to be used in calculating the total assessment shall be as follows:

              (i)  For calendar year 1998, a percentage as fixed by the board in the plan of operation, but in no event shall the total assessment exceed $500,000,000;

             (ii)  For calendar year 1999, 1.125 per cent;

            (iii)  For calendar year 2000, 1.25 per cent; and

             (iv)  For calendar year 2001, and each calendar year thereafter, 1.5 per cent.

              A separate total assessment shall be made for each covered event.  The total assessment shall be allocated to each servicing facility based on the proportion of the total amount of the fund's gross direct written premiums for policies of hurricane property insurance serviced by each servicing facility to the total amount of the fund's gross direct written premiums for policies of hurricane property insurance, in each case, during the twelve months ending at the start of the month preceding the month in which the covered event occurs.  Assessments made under this subparagraph and those under subparagraph (A) in a year in which a covered event has occurred are due from each insurer based on assessment procedures established by the fund to meet its obligations to policyholders in a timely manner; and

         (C)  The fund may exempt or defer, in whole or in part, the assessment of any insurer if the assessment would cause the insurer's financial statement to reflect amounts of capital or surplus less than the minimum amounts required for a certificate of authority in this State;

     (9)  Develop a program of incentives to encourage insurers to provide policies of hurricane property insurance in the event the commissioner authorizes the provision of comparable insurance pursuant to section 431P-10(b) which may include but are not limited to exemption of the insurer's gross direct written premium for property insurance from the assessment pursuant to paragraph (8)(A);

    (10)  Develop a credit based on the difference between premiums written in 1993 and the premiums written in 1992 by each property insurer against the assessment for gross direct written premiums written in 1993;

    (11)  Develop procedures regarding policies written by unauthorized insurers comparable to the assessments, surcharges, and other contributions made by insurers authorized to do business in this State;

    (12)  Accumulate reserves or funds, including the investment income thereon, to be used for paying expenses, making or repaying loans or other obligations of the fund, providing loss mitigation incentives, and paying valid claims for covered events insured by the fund;

    (13)  Collect and maintain statistical and other data as may be required by the commissioner;

    (14)  Exempt mortgage transactions from payments of the special mortgage recording fee and provide for maximum limits on or, uniform reduction of the special mortgage recording fee, pursuant to rules adopted by the board;

    (15)  Suspend or reactivate the special mortgage recording fee pursuant to resolution of the board;

    (16)  Impose fines for each incident of nonpayment of amounts due to the fund under this chapter; provided that the fines shall not exceed twenty-five per cent of the amount then due;

    (17)  Create loss mitigation incentives, including but not limited to premium credits, premium rebates, loans, or cash payments;

    (18)  Enter into claims financing transactions, including but not limited to reinsurance transactions, debt transactions, and other transactions incorporating elements of reinsurance, insurance, debt, or equity;

    (19)  Authorize the transfer of moneys from the hurricane reserve trust fund to the Hawaii insurance guaranty association to pay in accordance with chapter 431, article 16, the obligations of covered claims of an insolvent insurer when:

         (A)  The insolvency was caused by actual or expected losses resulting from a hurricane; and

         (B)  The Hawaii hurricane relief fund has no policy of hurricane property insurance in force;

   [(19)] (20) Establish business and corporate entities or organizations pursuant to the purposes of this chapter; and

   [(20)] (21) Perform any and all acts reasonably necessary to carry out the purposes of this chapter."

     SECTION 4.  Section 431P-16, Hawaii Revised Statutes, is amended by amending subsection (i) to read as follows:

     "(i)  Moneys in the hurricane reserve trust fund may be:

     (1)  Disbursed upon dissolution of the Hawaii hurricane relief fund; provided that:

         (A)  The net moneys in the hurricane reserve trust fund shall revert to the state general fund after payments by the fund on behalf of licensed property and casualty insurers or the State that are required to be made pursuant to any federal disaster insurance program enacted to provide insurance or reinsurance for hurricane risks are completed; and

         (B)  If such moneys are paid on behalf of licensed property and casualty insurers, payment shall be made in proportion to the premiums from policies of hurricane property insurance serviced by the insurers in the twelve months prior to dissolution of the fund; [or]

     (2)  Deposited to the loss mitigation grant fund established under section 431:22-102; or

     (3)  Transferred to the Hawaii insurance guaranty association in accordance with section 431P-5(b)(19);

provided that all interest earned from the principal in the hurricane reserve trust fund shall be transferred and deposited into the general fund each year that the hurricane reserve trust fund remains in existence."

     SECTION 5.  Section 431P-16.5, Hawaii Revised Statutes, is amended to read as follows:

     "[[]§431P-16.5[]]  Transfer of funds; immunity.  There shall be no cause of action, claim for damages or relief, charge, or any other liability of any kind whatsoever created against the State, the Hawaii hurricane relief fund, the commissioner, or their respective agents, employees, or board[, by,]:

     (1)  By, or relating to, the transfer of any moneys from the hurricane reserve trust fund to the loss mitigation grant fund or from the loss mitigation grant fund to the hurricane reserve trust fund or involving the loss mitigation grant program[.]; or

     (2)  Relating to the transfer of any moneys from the hurricane reserve trust fund to the Hawaii insurance guaranty association in accordance with section 431P-5(b)(19)."

     SECTION 6.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 7.  This Act shall take effect on July 1, 2009.

 

INTRODUCED BY:

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