HOUSE BILL No. 6204 September 24, 1998, Introduced by Rep. Llewellyn 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, and by adding section 3104a. 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 05797'98 DKH 2 1 authority to transact insurance in this state, shall be 2 considered a member of the association, but only for purposes of 3 assessments under subsection (7)(d). Except as expressly pro- 4 vided in this section, the association shall not be subject to 5 any laws of this state with respect to insurers, but in all other 6 respects the association shall be subject to the laws of this 7 state to the extent that the association would be were it an 8 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 COVERED BY A MOTOR VEHICLE 13 ACCIDENT POLICY ISSUED OR RENEWED EFFECTIVE BEFORE JULY 1, 1999, 14 BUT ONLY FOR AN INJURY THAT OCCURS BEFORE THAT POLICY'S NEXT 15 RENEWAL DATE OR THE POLICY'S CANCELLATION. As used in this sec- 16 tion, "ultimate loss" means the actual loss amountswhichTHAT 17 a member is obligated to pay andwhichTHAT are paid or payable 18 by the member, and shall not include claim expenses. An ultimate 19 loss is incurred by the association on the datewhichTHAT the 20 loss occurs. 21 (3) An insurer may withdraw from the association only upon 22 ceasing to write insurancewhichTHAT provides the security 23 required by section 3101(1) in this state. 24 (4) An insurer whose membership in the association has been 25 terminated by withdrawal shall continue to be bound by the plan 26 of operation, and upon withdrawal, all unpaid premiumswhich05797'98 3 1 THAT have been charged to the withdrawing member shall be payable 2 as of the effective date of the withdrawal. 3 (5) An unsatisfied net liability to the association of an 4 insolvent member shall be assumed by and apportioned among the 5 remaining members of the association as provided in the plan of 6 operation. The association shall have all rights allowed by law 7 on behalf of the remaining members against the estate or funds of 8 the insolvent member for sums due the association. 9 (6)WhenIF a member has been merged or consolidated into 10 another insurer or another insurer has reinsured a member's 11 entire businesswhichTHAT provides the security required by 12 section 3101(1) in this state, the member and successors in 13 interest of the member shall remain liable for the member's 14 obligations. 15 (7) The association shall do all of the following on behalf 16 of the members of the association: 17 (a) Assume 100% of all liability as provided in subsection 18 (2). 19 (b) Establish procedures by which members shall promptly 20 report to the association each claimwhichTHAT, on the basis 21 of the injuries or damages sustained, may reasonably be antici- 22 pated to involve the association if the member is ultimately held 23 legally liable for the injuries or damages. Solely for the pur- 24 pose of reporting claims, the member shall in all instances con- 25 sider itself legally liable for the injuries or damages. The 26 member shall also advise the association of subsequent 05797'98 4 1 developments likely to materially affect the interest of the 2 association in the claim. 3 (c) Maintain relevant loss and expense data relative to all 4 liabilities of the association and require each member to furnish 5 statistics, in connection with liabilities of the association, at 6 the times and in the form and detail as may be required by the 7 plan of operation. 8 (d)InSUBJECT TO SUBSECTIONS (25) AND (26), IN a manner 9 provided for in the plan of operation, calculate and charge to 10 members of the association a total premium sufficient to cover 11 the expected losses and expenses of the associationwhichTHAT 12 the association will likely incur during the period for which the 13 premium is applicable. The premium shall include an amount to 14 cover incurred but not reported losses for the period and may be 15 adjusted for any excess or deficient premiums from previous 16 periods. Excesses or deficiencies from previous periods may be 17 fully adjusted in a single period or may be adjusted over several 18 periods in a manner provided for in the plan of operation. Each 19 member shall be charged an amount equal to that member's total 20 earned car years of insurance providing the security required by 21 section 3101(1) or 3103(1), or both, written in this state during 22 the period to which the premium applies, multiplied by the aver- 23 age premium per car. The average premium per car shall be the 24 total premium calculated divided by the total earned car years of 25 insurance providing the security required by section 3101(1) or 26 3103(1) written in this state of all members during the period to 05797'98 5 1 which the premium applies. As used in this subdivision, "car" 2 includes a motorcycle. 3 (e) Require and accept the payment of premiums from members 4 of the association as provided for in the plan of operation. The 5 association shall do either of the following: 6 (i) Require payment of the premium in full within 45 days 7 after the premium charge. 8 (ii) Require payment of the premiums to be made periodically 9 to cover the actual cash obligations of the association. 10 (f) Receive and distribute all sums required by the opera- 11 tion of the association. 12 (g) Establish procedures for reviewing claims procedures and 13 practices of members of the association. If the claims proce- 14 dures or practices of a member are considered inadequate to prop- 15 erly service the liabilities of the association, the association 16 may undertake or may contract with another person, including 17 another member, to adjust or assist in the adjustment of claims 18 for the member on claimswhichTHAT create a potential liabil- 19 ity to the association and may charge the cost of the adjustment 20 to the member. 21 (8) In addition to other powers granted to it by this sec- 22 tion, the association may do all of the following: 23 (a) Sue and be sued in the name of the association. A judg- 24 ment against the association shall not create any direct liabil- 25 ity against the individual members of the association. The asso- 26 ciation may provide for the indemnification of its members, 27 members of the board of directors of the association, and 05797'98 6 1 officers, employees, and other persons lawfully acting on behalf 2 of the association. 3 (b) Reinsure all or any portion of its potential liability 4 with reinsurers licensed to transact insurance in this state or 5 approved by the commissioner. 6 (c) Provide for appropriate housing, equipment, and person- 7 nel as may be necessary to assure the efficient operation of the 8 association. 9 (d) Pursuant to the plan of operation, adopt reasonable 10 rules for the administration of the association, enforce those 11 rules, and delegate authority, as the board considers necessary 12 to assure the proper administration and operation of the associa- 13 tion consistent with the plan of operation. 14 (e) Contract for goods and services, including independent 15 claims management, actuarial, investment, and legal services, 16 from others within or without this state to assure the efficient 17 operation of the association. 18 (f) Hear and determine complaints of a company or other 19 interested party concerning the operation of the association. 20 (g) Perform other acts not specifically enumerated in this 21 sectionwhichTHAT are necessary or proper to accomplish the 22 purposes of the association andwhichTHAT are not inconsistent 23 with this section or the plan of operation. 24 (9) A board of directors is created, hereinafter referred to 25 as the board, which shall be responsible for the operation of the 26 association consistent with the plan of operation and this 27 section. 05797'98 7 1 (10) The plan of operation shall provide for all of the 2 following: 3 (a) The establishment of necessary facilities. 4 (b) The management and operation of the association. 5(c) A preliminary premium, payable by each member in pro-6portion to its total first-year premium, for initial expenses7necessary to commence operation of the association.8 (C)(d)Procedures to be utilized in charging premiums, 9 including adjustments from excess or deficient premiums from 10 prior periods. 11 (D)(e)Procedures governing the actual payment of premi- 12 ums to the association. 13 (E)(f)Reimbursement of each member of the board by the 14 association for actual and necessary expenses incurred on associ- 15 ation business. 16 (F)(g)The investment policy of the association. 17 (G)(h)Any other matters required by or necessary to 18 effectively implement this section. 19 (11)Not more than 30 days after the effective date of this20section, the commissioner shall convene an organizational meeting21of the board. The board shall be initially composed of 5 members22of the association appointed by the commissioner to serve as23directors, and the commissioner or a designated representative of24the commissioner serving as an ex officio member of the board25without vote. The initial board and each successorEACH board 26 shall include memberswhichTHAT would contribute a total of 27 not less than 40% of the total premium calculated pursuant to 05797'98 8 1 subsection (7)(d). Each director shall be entitled to 1 vote. 2 The initial term of office of a director shall be 2 years. 3 (12) As part of the plan of operation, the board shall adopt 4 rules providing for the composition and term of successor boards 5 to the initial board, consistent with the membership composition 6 requirements in subsections (11) and (13). Terms of the direc- 7 tors shall be staggered so that the terms of all the directors do 8 not expire at the same time and so that a director does not serve 9 a term of more than 4 years. 10 (13) The board shall consist of 5 directors and the commis- 11 sioner shall be an ex officio member of the board without vote. 12 (14) Each director shall be appointed by the commissioner 13 and shall serve until that member's successor is selected and 14 qualified. The chairperson of the board shall be elected by the 15 board. A vacancy on the board shall be filled by the commis- 16 sioner consistent with the plan of operation. 17 (15) After the board is appointed, the board shall meet as 18 often as the chairperson, the commissioner, or the plan of opera- 19 tion shall require, or at the request of any 3 members of the 20 board. The chairperson shall retain the right to vote on all 21 issues. Four members of the board shall constitute a quorum. 22 (16) An annual report of the operations of the association 23 in a form and detail as may be determined by the board shall be 24 furnished to each member. 25 (17) Not more than 60 days after the initial organizational 26 meeting of the board, the board shall submit to the commissioner 27 for approval a proposed plan of operation consistent with the 05797'98 9 1 objectives and provisions of this section, which shall provide 2 for the economical, fair, and nondiscriminatory administration of 3 the association and for the prompt and efficient provision of 4 indemnity. If a plan is not submitted within this 60-day period, 5 then the commissioner, after consultation with the board, shall 6 formulate and place into effect a plan consistent with this 7 section. 8 (18) The plan of operation, unless approved sooner in writ- 9 ing, shall be considered to meet the requirements of this section 10 if it is not disapproved by written order of the commissioner 11 within 30 days after the date of its submission. Before disap- 12 proval of all or any part of the proposed plan of operation, the 13 commissioner shall notify the board in what respect the plan of 14 operation fails to meet the requirements and objectives of this 15 section. If the board fails to submit a revised plan of opera- 16 tionwhichTHAT meets the requirements and objectives of this 17 section within the 30-day period, the commissioner shall enter an 18 order accordingly and shall immediately formulate and place into 19 effect a plan consistent with the requirements and objectives of 20 this section. 21 (19) The proposed plan of operation or amendments to the 22 plan of operation shall be subject to majority approval by the 23 board, ratified by a majority of the membership having a vote, 24 with voting rights being apportioned according to the premiums 25 charged in subsection (7)(d) and shall be subject to approval by 26 the commissioner. 05797'98 10 1 (20) Upon approval by the commissioner and ratification by 2 the members of the plan submitted, or upon the promulgation of a 3 plan by the commissioner, each insurer authorized to write insur- 4 ance providing the security required by section 3101(1) in this 5 state, asdefinedPROVIDED in this section, shall be bound by 6 and shall formally subscribe to and participate in the plan 7 approved as a condition of maintaining its authority to transact 8 insurance in this state. 9 (21) The association shall be subject to all the reporting, 10 loss reserve, and investment requirements of the commissioner to 11 the same extent as would a member of the association. 12 (22) Premiums charged members by the association shall be 13 recognized in the rate-making procedures for insurance rates in 14 the same manner that expenses and premium taxes are recognized. 15 (23) The commissioner or an authorized representative of the 16 commissioner may visit the association at any time and examine 17 any and all the association's affairs. 18 (24)This section shall take effect on July 1, 1978.The 19 association shall not have liability for losses occurring before 20the effective date of this sectionJULY 1, 1978. THE ASSOCIA- 21 TION SHALL NOT HAVE LIABILITY FOR ULTIMATE LOSS ARISING OUT OF AN 22 INJURY THAT OCCURS UNDER A POLICY ISSUED OR RENEWED BY A MEMBER 23 EFFECTIVE ON AND AFTER JULY 1, 1999. THE ASSOCIATION SHALL CON- 24 TINUE TO HAVE LIABILITY FOR ULTIMATE LOSS ARISING OUT OF AN 25 INJURY THAT OCCURS UNDER A POLICY ISSUED OR RENEWED BY A MEMBER 26 EFFECTIVE BEFORE JULY 1, 1999 BUT ONLY FOR AN INJURY THAT OCCURS 05797'98 11 1 BEFORE THAT POLICY'S NEXT RENEWAL DATE OR THE POLICY'S 2 CANCELLATION. 3 (25) NOTWITHSTANDING ANY OTHER PROVISIONS OF THIS SECTION, 4 ON AND AFTER JULY 1, 1999 THE ASSOCIATION IS ONLY AUTHORIZED TO 5 ASSESS MEMBERS TO RECOUP DEFICIENCIES AS PROVIDED IN 6 SUBSECTION (26). 7 (26) THE ASSOCIATION SHALL EVALUATE ANNUALLY THE ASSETS AND 8 LIABILITIES OF THE ASSOCIATION AND DETERMINE IF A DEFICIENCY 9 EXISTS. IF A DEFICIENCY DOES EXIST, THE ASSOCIATION, IN ACCORD- 10 ANCE WITH THE PLAN OF OPERATION, SHALL ASSESS MEMBERS ANNUALLY AS 11 FOLLOWS: 12 (A) IF THE DEFICIENCY IS LESS THAN $100,000,000.00, THE FULL 13 AMOUNT OF THE DEFICIENCY. 14 (B) IF THE DEFICIENCY IS GREATER THAN OR EQUAL TO 15 $100,000,000.00, THE GREATER OF $100,000,000.00 OR 12% OF THE 16 DEFICIENCY. 17 (C) IF AN ASSESSMENT UNDER SUBDIVISION (A) OR (B) IS INSUF- 18 FICIENT TO PERMIT THE ASSOCIATION TO MEET ITS PAYMENTS, THEN THE 19 ASSESSMENT SHALL BE INCREASED TO AN AMOUNT SUFFICIENT TO MEET 20 THOSE PAYMENTS. 21 (27) THE ASSOCIATION SHALL REPORT TO THE COMMISSIONER AND TO 22 THE SENATE AND HOUSE OF REPRESENTATIVES STANDING COMMITTEES ON 23 INSURANCE ISSUES BY OCTOBER 1, 2005 ON THE NUMBER OF EXISTING 24 CLAIMS, THE PROJECTED COST ASSOCIATED WITH THOSE CLAIMS, AND THE 25 AMOUNT OF RESERVES. 26 SEC. 3104A. (1) A NONPROFIT MUTUAL INSURANCE CORPORATION TO 27 BE KNOWN AS THE MICHIGAN ACCESS CATASTROPHIC MUTUAL INSURANCE 05797'98 12 1 COMPANY IS CREATED UNDER THIS ACT TO REINSURE PERSONAL PROTECTION 2 INSURANCE CLAIMS THAT ARE FOR $500,000.00 OR MORE FOR POLICIES 3 ISSUED OR RENEWED EFFECTIVE ON AND AFTER JULY 1, 1999. 4 (2) AN AUTOMOBILE INSURER SHALL RETAIN INDEMNIFICATION FOR 5 100% OF THE AMOUNT OF ULTIMATE LOSS SUSTAINED UNDER PERSONAL PRO- 6 TECTION INSURANCE CLAIMS THAT ARE FOR UNDER $500,000.00 IN EACH 7 LOSS OCCURRENCE. THE MICHIGAN ACCESS CATASTROPHIC MUTUAL INSUR- 8 ANCE COMPANY SHALL PROVIDE AND EACH INSURED SHALL ACCEPT COVERAGE 9 FOR 100% OF THE AMOUNT OF ULTIMATE LOSS SUSTAINED UNDER PERSONAL 10 PROTECTION INSURANCE CLAIMS THAT ARE FOR $500,000.00 OR MORE IN 11 EACH LOSS OCCURRENCE. AS USED IN THIS SECTION, "ULTIMATE LOSS" 12 MEANS THE ACTUAL LOSS AMOUNTS THAT ARE OBLIGATED TO BE PAID UNDER 13 AN AUTOMOBILE INSURANCE POLICY AND THIS ACT. AN ULTIMATE LOSS IS 14 INCURRED BY THE MICHIGAN ACCESS CATASTROPHIC MUTUAL INSURANCE 15 COMPANY ON THE DATE THAT THE LOSS OCCURS. 16 (3) AN INSURED MAY WITHDRAW FROM COVERAGE FROM THE MICHIGAN 17 ACCESS CATASTROPHIC MUTUAL INSURANCE COMPANY ONLY IF THE INDIVID- 18 UAL DOES NOT HAVE INSURANCE THAT PROVIDES THE SECURITY REQUIRED 19 BY SECTION 3101(1) OR 3103(1) IN THIS STATE. 20 (4) THE MICHIGAN ACCESS CATASTROPHIC MUTUAL INSURANCE COM- 21 PANY SHALL DO ALL OF THE FOLLOWING IN ADDITION TO OTHER DUTIES 22 AND RESPONSIBILITIES REQUIRED BY THIS ACT: 23 (A) ASSUME 100% OF ALL LIABILITY AS PROVIDED IN 24 SUBSECTION (2). 25 (B) ESTABLISH PROCEDURES BY WHICH INSURERS SHALL PROMPTLY 26 REPORT TO THE MICHIGAN ACCESS CATASTROPHIC MUTUAL INSURANCE 27 COMPANY EACH CLAIM WHICH, ON THE BASIS OF THE INJURIES OR DAMAGES 05797'98 13 1 SUSTAINED, MAY REASONABLY BE ANTICIPATED TO INVOLVE THE MICHIGAN 2 ACCESS CATASTROPHIC MUTUAL INSURANCE COMPANY IF THE INSURER IS 3 ULTIMATELY HELD LEGALLY LIABLE FOR THE INJURIES OR DAMAGES. 4 SOLELY FOR THE PURPOSE OF REPORTING CLAIMS, THE INSURER SHALL IN 5 ALL INSTANCES CONSIDER ITSELF LEGALLY LIABLE FOR THE INJURIES OR 6 DAMAGES. THE INSURER SHALL ALSO ADVISE THE MICHIGAN ACCESS CATA- 7 STROPHIC MUTUAL INSURANCE COMPANY OF SUBSEQUENT DEVELOPMENTS 8 LIKELY TO MATERIALLY AFFECT THE INTEREST OF THE MICHIGAN ACCESS 9 CATASTROPHIC MUTUAL INSURANCE COMPANY IN THE CLAIM. 10 (C) MAINTAIN RELEVANT LOSS AND EXPENSE DATA RELATIVE TO ALL 11 LIABILITIES OF THE MICHIGAN ACCESS CATASTROPHIC MUTUAL INSURANCE 12 COMPANY AND REQUIRE EACH INSURER TO FURNISH STATISTICS, IN CON- 13 NECTION WITH LIABILITIES OF THE MICHIGAN ACCESS CATASTROPHIC 14 MUTUAL INSURANCE COMPANY. 15 (D) IN A MANNER PROVIDED FOR IN THE ARTICLES OF INCORPORA- 16 TION, CALCULATE AND CHARGE TO INSUREDS A TOTAL PREMIUM SUFFICIENT 17 TO COVER THE EXPECTED LOSSES AND EXPENSES OF THE MICHIGAN ACCESS 18 CATASTROPHIC MUTUAL INSURANCE COMPANY THAT THE MICHIGAN ACCESS 19 CATASTROPHIC MUTUAL INSURANCE COMPANY WILL LIKELY INCUR DURING 20 THE PERIOD FOR WHICH THE PREMIUM IS APPLICABLE. THE PREMIUM 21 SHALL INCLUDE AN AMOUNT TO COVER INCURRED BUT NOT REPORTED LOSSES 22 FOR THE PERIOD AND MAY BE ADJUSTED FOR ANY EXCESS OR DEFICIENT 23 PREMIUMS FROM PREVIOUS PERIODS. EXCESSES OR DEFICIENCIES FROM 24 PREVIOUS PERIODS MAY BE FULLY ADJUSTED IN A SINGLE PERIOD OR MAY 25 BE ADJUSTED OVER SEVERAL PERIODS IN A MANNER PROVIDED FOR IN THE 26 ARTICLES OF INCORPORATION. 05797'98 14 1 (5) AN AUTOMOBILE INSURER SHALL COLLECT FROM ITS INSUREDS 2 THE PREMIUM ASSESSED BY THE MICHIGAN ACCESS CATASTROPHIC MUTUAL 3 INSURANCE COMPANY AND SHALL FORWARD THE PREMIUM PAYMENT ASSESSED 4 BY THE MICHIGAN ACCESS CATASTROPHIC MUTUAL INSURANCE COMPANY TO 5 THE MICHIGAN ACCESS CATASTROPHIC MUTUAL INSURANCE COMPANY. 6 (6) THE MICHIGAN ACCESS CATASTROPHIC MUTUAL INSURANCE COM- 7 PANY MAY REINSURE ALL OR ANY PORTION OF ITS POTENTIAL LIABILITY 8 WITH REINSURERS LICENSED TO TRANSACT INSURANCE IN THIS STATE OR 9 APPROVED BY THE COMMISSIONER AND SHALL ACHIEVE AND RETAIN A 10 RATING OF NOT LESS THAN "A" WITH A.M. BEST COMPANY, INC. 05797'98 Final page. DKH