SENATE BILL NO. 1297 September 16, 1998, Introduced by Senator PETERS and referred to the Committee on Financial Services. 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 06743'98 DKH 2 1 authority to transact insurance in this state, shall be 2 considered a member of the association, but only for purposes of 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 06743'98 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 06743'98 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 ANNUAL 5 premium OF NOT MORE THAN $10.00 PER CAR. THE TOTAL PREMIUM SHALL 6 BE sufficient to cover the expected losses and expensesof the7association whichTHAT the association will likely incur during 8 the period for which the premium is applicable. IF IT APPEARS TO 9 THE ASSOCIATION THAT THE $10.00 ANNUAL PREMIUM PER CAR IS NOT 10 SUFFICIENT TO COVER THE ASSOCIATION'S EXPECTED LOSSES AND 11 EXPENSES, THE ASSOCIATION SHALL SUBMIT TO THE COMMISSIONER AND 12 THE SENATE AND HOUSE OF REPRESENTATIVES STANDING COMMITTEES ON 13 INSURANCE ISSUES A REQUEST TO INCREASE THE ANNUAL PREMIUM FOR THE 14 YEAR, THE AMOUNT OF THE INCREASE, AND THE REASONS NECESSITATING 15 THE INCREASE. IF THE LEGISLATURE BY CONCURRENT RESOLUTION AND 16 THE COMMISSIONER APPROVE THE INCREASE, THE ASSOCIATION MAY 17 INCREASE THE PREMIUM FOR THE PERIOD THAT IS THE SUBJECT OF THE 18 REQUEST. The premium shall include an amount to cover incurred 19 but not reported losses for the period and may be adjusted for 20 any excess or deficient premiums from previous periods. Excesses 21 or deficiencies from previous periods may be fully adjusted in a 22 single period or may be adjusted over several periods in a manner 23 provided for in the plan of operation. Each member shall be 24 charged an amount equal to that member's total earned car years 25 of insurance providing the security required by section 3101(1) 26 or 3103(1), or both, written in this state during the period to 27 which the premium applies, multiplied by the average premium per 06743'98 5 1 car. The average premium per car shall be the total premium 2 calculated divided by the total earned car years of insurance 3 providing the security required by section 3101(1) or 3103(1) 4 written in this state of all members during the period to which 5 the premium applies. As used in this subdivision, "car" includes 6 a motorcycle. 7 (e) Require and accept the payment of premiums from members 8 of the association as provided for in the plan of operation. The 9 association shall do either of the following: 10 (i) Require payment of the premium in full within 45 days 11 after the premium charge. 12 (ii) Require payment of the premiums to be made periodically 13 to cover the actual cash obligations of the association. 14 (f) Receive and distribute all sums required by the opera- 15 tion of the association. 16 (g) Establish procedures for reviewing claims procedures and 17 practices of members of the association. If the claims proce- 18 dures or practices of a member are considered inadequate to prop- 19 erly service the liabilities of the association, the association 20 may undertake or may contract with another person, including 21 another member, to adjust or assist in the adjustment of claims 22 for the member on claimswhichTHAT create a potential liabil- 23 ity to the association and may charge the cost of the adjustment 24 to the member. 25 (8) In addition to other powers granted to it by this sec- 26 tion, the association may do all of the following: 06743'98 6 1 (a) Sue and be sued in the name of the association. A 2 judgment against the association shall not create any direct 3 liability against the individual members of the association. The 4 association may provide for the indemnification of its members, 5 members of the board of directors of the association, and offi- 6 cers, employees, and other persons lawfully acting on behalf of 7 the association. 8 (b) Reinsure all or any portion of its potential liability 9 with reinsurers licensed to transact insurance in this state or 10 approved by the commissioner. 11 (c) Provide for appropriate housing, equipment, and person- 12 nel as may be necessary to assure the efficient operation of the 13 association. 14 (d) Pursuant to the plan of operation, adopt reasonable 15 rules for the administration of the association, enforce those 16 rules, and delegate authority, as the board considers necessary 17 to assure the proper administration and operation of the associa- 18 tion consistent with the plan of operation. 19 (e) Contract for goods and services, including independent 20 claims management, actuarial, investment, and legal services, 21 from others within or without this state to assure the efficient 22 operation of the association. 23 (f) Hear and determine complaints of a company or other 24 interested party concerning the operation of the association. 25 (g) Perform other acts not specifically enumerated in this 26 sectionwhichTHAT are necessary or proper to accomplish the 06743'98 7 1 purposes of the association andwhichTHAT are not inconsistent 2 with this section or the plan of operation. 3 (9) A board of directors is created, hereinafter referred to 4 as the board, which shall be responsible for the operation of the 5 association consistent with the plan of operation and this 6 section. 7 (10) The plan of operation shall provide for all of the 8 following: 9 (a) The establishment of necessary facilities. 10 (b) The management and operation of the association. 11(c) A preliminary premium, payable by each member in pro-12portion to its total first-year premium, for initial expenses13necessary to commence operation of the association.14 (C)(d)Procedures to be utilized in charging premiums, 15 including adjustments from excess or deficient premiums from 16 prior periods. 17 (D)(e)Procedures governing the actual payment of premi- 18 ums to the association. 19 (E)(f)Reimbursement of each member of the board by the 20 association for actual and necessary expenses incurred on associ- 21 ation business. 22 (F)(g)The investment policy of the association. 23 (G)(h)Any other matters required by or necessary to 24 effectively implement this section. 25 (11)Not more than 30 days after the effective date of this26section, the commissioner shall convene an organizational meeting27of the board. The board shall be initially composed of 5 members06743'98 8 1of the association appointed by the commissioner to serve as2directors, and the commissioner or a designated representative of3the commissioner serving as an ex officio member of the board4without vote. The initial board and each successorEACH board 5 shall include 5 memberswhichTHAT would contribute a total of 6 not less than 40% of the total premium calculated pursuant to 7 subsection (7)(d). Each director shall be entitled to 1 vote. 8 The initial term of office of a director shall be 2 years. 9 (12) As part of the plan of operation, the board shall adopt 10 rules providing for the composition and term of successor boards 11 to the initial board, consistent with the membership composition 12 requirements in subsections (11) and (13). Terms of the direc- 13 tors shall be staggered so that the terms of all the directors do 14 not expire at the same time and so that a director does not serve 15 a term of more than 4 years. 16 (13) The board shall consist of 5 directors and the commis- 17 sioner shall be an ex officio member of the board without vote. 18 (14) Each director shall be appointed by the commissioner 19 and shall serve until that member's successor is selected and 20 qualified. The chairperson of the board shall be elected by the 21 board. A vacancy on the board shall be filled by the commis- 22 sioner consistent with the plan of operation. 23 (15) After the board is appointed, the board shall meet as 24 often as the chairperson, the commissioner, or the plan of opera- 25 tion shall require, or at the request of any 3 members of the 26 board. The chairperson shall retain the right to vote on all 27 issues. Four members of the board shall constitute a quorum. 06743'98 9 1 (16) An annual report of the operations of the association 2 in a form and detail as may be determined by the board shall be 3 furnished to each member. 4 (17) Not more than 60 days after the initial organizational 5 meeting of the board, the board shall submit to the commissioner 6 for approval a proposed plan of operation consistent with the 7 objectives and provisions of this section, which shall provide 8 for the economical, fair, and nondiscriminatory administration of 9 the association and for the prompt and efficient provision of 10 indemnity. If a plan is not submitted within this 60-day period, 11 then the commissioner, after consultation with the board, shall 12 formulate and place into effect a plan consistent with this 13 section. 14 (18) The plan of operation, unless approved sooner in writ- 15 ing, shall be considered to meet the requirements of this section 16 if it is not disapproved by written order of the commissioner 17 within 30 days after the date of its submission. Before disap- 18 proval of all or any part of the proposed plan of operation, the 19 commissioner shall notify the board in what respect the plan of 20 operation fails to meet the requirements and objectives of this 21 section. If the board fails to submit a revised plan of opera- 22 tionwhichTHAT meets the requirements and objectives of this 23 section within the 30-day period, the commissioner shall enter an 24 order accordingly and shall immediately formulate and place into 25 effect a plan consistent with the requirements and objectives of 26 this section. 06743'98 10 1 (19) The proposed plan of operation or amendments to the 2 plan of operation shall be subject to majority approval by the 3 board, ratified by a majority of the membership having a vote, 4 with voting rights being apportioned according to the premiums 5 charged in subsection (7)(d) and shall be subject to approval by 6 the commissioner. 7 (20) Upon approval by the commissioner and ratification by 8 the members of the plan submitted, or upon the promulgation of a 9 plan by the commissioner, each insurer authorized to write insur- 10 ance providing the security required by section 3101(1) in this 11 state, asdefinedPROVIDED in this section, shall be bound by 12 and shall formally subscribe to and participate in the plan 13 approved as a condition of maintaining its authority to transact 14 insurance in this state. 15 (21) The association shall be subject to all the reporting, 16 loss reserve, and investment requirements of the commissioner to 17 the same extent as would a member of the association. 18 (22) Premiums charged members by the association shall be 19 recognized in the rate-making procedures for insurance rates in 20 the same manner that expenses and premium taxes are recognized. 21 (23) The commissioner or an authorized representative of the 22 commissioner may visit the association at any time and examine 23 any and all the association's affairs. 24 (24)This section shall take effect on July 1, 1978.The 25 association shall not have liability for losses occurring before 26the effective date of this sectionJULY 1, 1978. 06743'98 Final page. 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