HOUSE BILL No. 4994 June 26, 1997, Introduced by Reps. Bogardus, Gubow and Scott and referred to the Committee on Insurance. A bill to amend 1956 PA 218, entitled "The insurance code of 1956," by amending section 3104 (MCL 500.3104), as amended by 1980 PA 445. THE PEOPLE OF THE STATE OF MICHIGAN ENACT: 1 Sec. 3104. (1) An unincorporated, nonprofit association to 2 be known as the catastrophic claims association, hereinafter 3 referred to as the association, is created. Each insurer engaged 4 in writing insurance coverageswhichTHAT provide the security 5 required by section 3101(1) within this state, as a condition of 6 its authority to transact insurance in this state, shall be a 7 member of the association and shall be bound by the plan of oper- 8 ation of the association. Each insurer engaged in writing 9 insurance coverageswhichTHAT provide the security required by 10 section 3103(1) within this state, as a condition of its 02411'97 DKH 2 1 authority to transact insurance in this state, shall be 2 considered a member of the association, but only for purposes of 3assessmentsPREMIUMS under subsection (7)(d). Except as 4 expressly provided in this section, the association shall not be 5 subject to any laws of this state with respect to insurers, but 6 in all other respects the association shall be subject to the 7 laws of this state to the extent that the association would be 8 were it an insurer organized and subsisting under chapter 50. 9 (2) The association shall provide and each member shall 10 accept indemnification for 100% of the amount of ultimate loss 11 sustained under personal protection insurance coverages in excess 12 of $250,000.00 in each loss occurrence. As used in this section, 13 "ultimate loss" means the actual loss amountswhichTHAT a 14 member is obligated to pay and which are paid or payable by the 15 member, and shall not include claim expenses. An ultimate loss 16 is incurred by the association on the date which the loss 17 occurs. 18 (3) An insurer may withdraw from the association only upon 19 ceasing to write insurancewhichTHAT provides the security 20 required by section 3101(1) in this state. 21 (4) An insurer whose membership in the association has been 22 terminated by withdrawal shall continue to be bound by the plan 23 of operation, and upon withdrawal, all unpaid premiumswhich24 THAT have been charged to the withdrawing member shall be payable 25 as of the effective date of the withdrawal. 26 (5) An unsatisfied net liability to the association of an 27 insolvent member shall be assumed by and apportioned among the 02411'97 3 1 remaining members of the association as provided in the plan of 2 operation. The association shall have all rights allowed by law 3 on behalf of the remaining members against the estate or funds of 4 the insolvent member for sums due the association. 5 (6)WhenIF a member has been merged or consolidated into 6 another insurer or another insurer has reinsured a member's 7 entire businesswhichTHAT provides the security required by 8 section 3101(1) in this state, the member and successors in 9 interest of the member shall remain liable for the member's 10 obligations. 11 (7) The association shall do all of the following on behalf 12 of the members of the association: 13 (a) Assume 100% of all liability as provided in subsection 14 (2). 15 (b) Establish procedures by which members shall promptly 16 report to the association each claimwhichTHAT, on the basis 17 of the injuries or damages sustained, may reasonably be antici- 18 pated to involve the association if the member is ultimately held 19 legally liable for the injuries or damages. Solely for the pur- 20 pose of reporting claims, the member shall in all instances con- 21 sider itself legally liable for the injuries or damages. The 22 member shall also advise the association of subsequent develop- 23 ments likely to materially affect the interest of the association 24 in the claim. 25 (c) Maintain relevant loss and expense data relative to all 26 liabilities of the association and require each member to furnish 27 statistics, in connection with liabilities of the association, at 02411'97 4 1 the times and in the form and detail as may be required by the 2 plan of operation. 3 (d) In a manner provided for in the plan of operation, cal- 4 culate and charge to members of the association a total premium 5 sufficient to cover the expected losses and expenses of the asso- 6 ciationwhichTHAT the association will likely incur during the 7 period for which the premium is applicable. The premium shall 8 include an amount to cover incurred but not reported losses for 9 the period and may be adjusted for any excess or deficient premi- 10 ums from previous periods. Excesses or deficiencies from previ- 11 ous periods may be fully adjusted in a single period or may be 12 adjusted over several periods in a manner provided for in the 13 plan of operation. Each member shall be charged an amount equal 14 to that member's total earned car years of insurance providing 15 the security required by section 3101(1) or 3103(1), or both, 16 written in this state during the period to which the premium 17 applies, multiplied by the average premium per car. The average 18 premium per car shall be the total premium calculated divided by 19 the total earned car years of insurance providing the security 20 required by section 3101(1) or 3103(1) written in this state of 21 all members during the period to which the premium applies. As 22 used in this subdivision, "car" includes a motorcycle. 23 (e) Require and accept the payment of premiums from members 24 of the association as provided for in the plan of operation. The 25 association shall do either of the following: 26 (i) Require payment of the premium in full within 45 days 27 after the premium charge. 02411'97 5 1 (ii) Require payment of the premiums to be made periodically 2 to cover the actual cash obligations of the association. 3 (f) Receive and distribute all sums required by the opera- 4 tion of the association. 5 (g) Establish procedures for reviewing claims procedures and 6 practices of members of the association. If the claims proce- 7 dures or practices of a member are considered inadequate to prop- 8 erly service the liabilities of the association, the association 9 may undertake or may contract with another person, including 10 another member, to adjust or assist in the adjustment of claims 11 for the member on claimswhichTHAT create a potential liabil- 12 ity to the association and may charge the cost of the adjustment 13 to the member. 14 (8) In addition to other powers granted to it by this sec- 15 tion, the association may do all of the following: 16 (a) Sue and be sued in the name of the association. A judg- 17 ment against the association shall not create any direct liabil- 18 ity against the individual members of the association. The asso- 19 ciation may provide for the indemnification of its members, mem- 20 bers of the board of directors of the association, and officers, 21 employees, and other persons lawfully acting on behalf of the 22 association. 23 (b) Reinsure all or any portion of its potential liability 24 with reinsurers licensed to transact insurance in this state or 25 approved by the commissioner. 02411'97 6 1 (c) Provide for appropriate housing, equipment, and 2 personnel as may be necessary to assure the efficient operation 3 of the association. 4 (d) Pursuant to the plan of operation, adopt reasonable 5 rules for the administration of the association, enforce those 6 rules, and delegate authority, as the board considers necessary 7 to assure the proper administration and operation of the associa- 8 tion consistent with the plan of operation. 9 (e) Contract for goods and services, including independent 10 claims management, actuarial, investment, and legal services, 11 from others within or without this state to assure the efficient 12 operation of the association. 13 (f) Hear and determine complaints of a company or other 14 interested party concerning the operation of the association. 15 (g) Perform other acts not specifically enumerated in this 16 sectionwhichTHAT are necessary or proper to accomplish the 17 purposes of the association andwhichTHAT are not inconsistent 18 with this section or the plan of operation. 19 (9) A board of directors is created, hereinafter referred to 20 as the board, which shall be responsible for the operation of the 21 association consistent with the plan of operation and this 22 section. 23 (10) The plan of operation shall provide for all of the 24 following: 25 (a) The establishment of necessary facilities. 26 (b) The management and operation of the association. 02411'97 7 1(c) A preliminary premium, payable by each member in2proportion to its total first-year premium, for initial expenses3necessary to commence operation of the association.4 (C)(d)Procedures to be utilized in charging premiums, 5 including adjustments from excess or deficient premiums from 6 prior periods. 7 (D)(e)Procedures governing the actual payment of premi- 8 ums to the association. 9 (E)(f)Reimbursement of each member of the board by the 10 association for actual and necessary expenses incurred on associ- 11 ation business. 12 (F)(g)The investment policy of the association. 13 (G)(h)Any other matters required by or necessary to 14 effectively implement this section. 15 (11)Not more than 30 days after the effective date of this16section, the commissioner shall convene an organizational meeting17of the board. The board shall be initially composed of 5 members18of the association appointed by the commissioner to serve as19directors, and the commissioner or a designated representative of20the commissioner serving as an ex officio member of the board21without vote. The initial board and each successorEACH board 22 shall include 5 memberswhichTHAT would contribute a total of 23 not less than 40% of the total premium calculated pursuant to 24 subsection (7)(d). Each director shall be entitled to 1 vote. 25 The initial term of office of a director shall be 2 years. 26 (12) As part of the plan of operation, the board shall adopt 27 rules providing for the composition and term of successor boards 02411'97 8 1 to the initial board, consistent with the membership composition 2 requirements in subsections (11) and (13). Terms of the direc- 3 tors shall be staggered so that the terms of all the directors do 4 not expire at the same time and so that a director does not serve 5 a term of more than 4 years. 6 (13) The board shall consist of 5 directors and the commis- 7 sioner shall be an ex officio member of the board without vote. 8 (14) Each director shall be appointed by the commissioner 9 and shall serve until that member's successor is selected and 10 qualified. The chairperson of the board shall be elected by the 11 board. A vacancy on the board shall be filled by the commis- 12 sioner consistent with the plan of operation. 13 (15) After the board is appointed, the board shall meet as 14 often as the chairperson, the commissioner, or the plan of opera- 15 tion shall require, or at the request of any 3 members of the 16 board. The chairperson shall retain the right to vote on all 17 issues. Four members of the board shall constitute a quorum. 18 (16) An annual report of the operations of the association 19 in a form and detail as may be determined by the board shall be 20 furnished to each member. 21 (17) Not more than 60 days after the initial organizational 22 meeting of the board, the board shall submit to the commissioner 23 for approval a proposed plan of operation consistent with the 24 objectives and provisions of this section, which shall provide 25 for the economical, fair, and nondiscriminatory administration of 26 the association and for the prompt and efficient provision of 27 indemnity. If a plan is not submitted within this 60-day period, 02411'97 9 1 then the commissioner, after consultation with the board, shall 2 formulate and place into effect a plan consistent with this 3 section. 4 (18) The plan of operation, unless approved sooner in writ- 5 ing, shall be considered to meet the requirements of this section 6 if it is not disapproved by written order of the commissioner 7 within 30 days after the date of its submission. Before disap- 8 proval of all or any part of the proposed plan of operation, the 9 commissioner shall notify the board in what respect the plan of 10 operation fails to meet the requirements and objectives of this 11 section. If the board fails to submit a revised plan of opera- 12 tionwhichTHAT meets the requirements and objectives of this 13 section within the 30-day period, the commissioner shall enter an 14 order accordingly and shall immediately formulate and place into 15 effect a plan consistent with the requirements and objectives of 16 this section. 17 (19) The proposed plan of operation or amendments to the 18 plan of operation shall be subject to majority approval by the 19 board, ratified by a majority of the membership having a vote, 20 with voting rights being apportioned according to the premiums 21 charged in subsection (7)(d) and shall be subject to approval by 22 the commissioner. 23 (20) Upon approval by the commissioner and ratification by 24 the members of the plan submitted, or upon the promulgation of a 25 plan by the commissioner, each insurer authorized to write insur- 26 ance providing the security required by section 3101(1) in this 27 state, asdefinedPROVIDED in this section, shall be bound by 02411'97 10 1 and shall formally subscribe to and participate in the plan 2 approved as a condition of maintaining its authority to transact 3 insurance in this state. 4 (21) The association shall be subject to all the reporting, 5 loss reserve, and investment requirements of the commissioner to 6 the same extent as would a member of the association. 7 (22) Premiums charged members by the association shall be 8 recognized in the rate-making procedures for insurance rates in 9 the same manner that expenses and premium taxes are recognized. 10 (23) The commissioner or an authorized representative of the 11 commissioner may visit the association at any time and examine 12 any and all the association's affairs. 13 (24) THE AUDITOR GENERAL OR A CERTIFIED PUBLIC ACCOUNTANT 14 APPOINTED BY THE AUDITOR GENERAL ANNUALLY SHALL CONDUCT AND REMIT 15 TO THE SENATE AND HOUSE OF REPRESENTATIVES STANDING COMMITTEES ON 16 INSURANCE ISSUES AN AUDIT OF THE ASSOCIATION. IN CONDUCTING THE 17 AUDIT, THE AUDITOR GENERAL OR APPOINTED CERTIFIED PUBLIC ACCOUN- 18 TANT SHALL HAVE ACCESS TO ALL RECORDS OF THE ASSOCIATION. EACH 19 AUDIT REQUIRED BY THIS SUBSECTION SHALL INCLUDE A DETERMINATION 20 OF WHETHER THE ASSOCIATION IS LIKELY TO BE ABLE TO CONTINUE TO 21 MEET ITS OBLIGATIONS. 22 (25)(24) This section shall take effect on July 1, 1978.23 The association shall not have liability for losses occurring 24 beforethe effective date of this sectionJULY 1, 1978. 02411'97 Final page. DKH