HOUSE BILL No. 5801 March 14, 2002, Introduced by Reps. Anderson, Jacobs, Schauer, Basham, O'Neil, Bovin, Plakas, Woodward, Minore, Rison, Clark, Garza, Gieleghem, Callahan, Lockwood, Frank, Bogardus, Jamnick, Neumann, Sheltrown, Switalski, Spade, Mans, Pestka, Hale, Rivet, Quarles, Wojno, Williams, Lipsey, Whitmer, Adamini, Phillips, Rich Brown, Bob Brown, Reeves, Hardman, Schermesser, Zelenko, Waters, Daniels, Thomas, Murphy and McConico and referred to the Committee on Insurance and 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 2001 PA 3. 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 coverages that provide the security required 5 by section 3101(1) within this state, as a condition of its 6 authority to transact insurance in this state, shall be a member 7 of the association and shall be bound by the plan of operation of 8 the association. Each insurer engaged in writing insurance 9 coverages that provide the security required by section 3103(1) 10 within this state, as a condition of its authority to transact 06190'01 DKH 2 1 insurance in this state, shall be considered a member of the 2 association, but only for purposes of premiums under subsection 3 (7)(d). Except as expressly provided in this section, the asso- 4 ciation is not subject to any laws of this state with respect to 5 insurers, but in all other respects the association is subject to 6 the laws of this state to the extent that the association would 7 be if it were an insurer organized and subsisting under chapter 8 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 the following amounts in each loss occurrence: 13 (a) For a motor vehicle accident policy issued or renewed 14 before July 1, 2002, $250,000.00. 15 (b) For a motor vehicle accident policy issued or renewed 16 during the period July 1, 2002 to June 30, 2003, $300,000.00. 17 (c) For a motor vehicle accident policy issued or renewed 18 during the period July 1, 2003 to June 30, 2004, $325,000.00. 19 (d) For a motor vehicle accident policy issued or renewed 20 during the period July 1, 2004 to June 30, 2005, $350,000.00. 21 (e) For a motor vehicle accident policy issued or renewed 22 during the period July 1, 2005 to June 30, 2006, $375,000.00. 23 (f) For a motor vehicle accident policy issued or renewed 24 during the period July 1, 2006 to June 30, 2007, $400,000.00. 25 (g) For a motor vehicle accident policy issued or renewed 26 during the period July 1, 2007 to June 30, 2008, $420,000.00. 06190'01 3 1 (h) For a motor vehicle accident policy issued or renewed 2 during the period July 1, 2008 to June 30, 2009, $440,000.00. 3 (i) For a motor vehicle accident policy issued or renewed 4 during the period July 1, 2009 to June 30, 2010, $460,000.00. 5 (j) For a motor vehicle accident policy issued or renewed 6 during the period July 1, 2010 to June 30, 2011, $480,000.00. 7 (k) For a motor vehicle accident policy issued or renewed 8 during the period July 1, 2011 to June 30, 2013, $500,000.00. 9 Beginning July 1, 2013, this $500,000.00 amount shall be 10 increased biennially on July 1 of each odd-numbered year, for 11 policies issued or renewed before July 1 of the following 12 odd-numbered year, by the lesser of 6% or the consumer price 13 index, and rounded to the nearest $5,000.00. This biennial 14 adjustment shall be calculated by the association by January 1 of 15 the year of its July 1 effective date. 16 (3) An insurer may withdraw from the association only upon 17 ceasing to write insurance that provides the security required by 18 section 3101(1) in this state. 19 (4) An insurer whose membership in the association has been 20 terminated by withdrawal shall continue to be bound by the plan 21 of operation, and upon withdrawal, all unpaid premiums that have 22 been charged to the withdrawing member are payable as of the 23 effective date of the withdrawal. 24 (5) An unsatisfied net liability to the association of an 25 insolvent member shall be assumed by and apportioned among the 26 remaining members of the association as provided in the plan of 27 operation. The association has all rights allowed by law on 06190'01 4 1 behalf of the remaining members against the estate or funds of 2 the insolvent member for sums due the association. 3 (6) If a member has been merged or consolidated into another 4 insurer or another insurer has reinsured a member's entire busi- 5 ness that provides the security required by section 3101(1) in 6 this state, the member and successors in interest of the member 7 remain liable for the member's obligations. 8 (7) The association shall do all of the following on behalf 9 of the members of the association: 10 (a) Assume 100% of all liability as provided in subsection 11 (2). 12 (b) Establish procedures by which members shall promptly 13 report to the association each claim that, on the basis of the 14 injuries or damages sustained, may reasonably be anticipated to 15 involve the association if the member is ultimately held legally 16 liable for the injuries or damages. Solely for the purpose of 17 reporting claims, the member shall in all instances consider 18 itself legally liable for the injuries or damages. The member 19 shall also advise the association of subsequent developments 20 likely to materially affect the interest of the association in 21 the claim. 22 (c) Maintain relevant loss and expense data relative to all 23 liabilities of the association and require each member to furnish 24 statistics, in connection with liabilities of the association, at 25 the times and in the form and detail as may be required by the 26 plan of operation. 06190'01 5 1 (d) In a manner provided for in the plan of operation, 2 calculate and charge to members of the association a total 3 premium sufficient to cover the expected losses and expenses of 4 the association that the association will likely incur during the 5 period for which the premium is applicable. The premium shall 6 include an amount to cover incurred but not reported losses for 7 the period and may be adjusted for any excess or deficient premi- 8 ums from previous periods. Excesses or deficiencies from previ- 9 ous periods may be fully adjusted in a single period or may be 10 adjusted over several periods in a manner provided for in the 11 plan of operation. Each member shall be charged an amount equal 12 to that member's total written car years of insurance providing 13 the security required by section 3101(1) or 3103(1), or both, 14 written in this state during the period to which the premium 15 applies, multiplied by the average premium per car. The average 16 premium per car shall be the total premium calculated divided by 17 the total written car years of insurance providing the security 18 required by section 3101(1) or 3103(1) written in this state of 19 all members during the period to which the premium applies. As 20 used in this subdivision, "car" includes a motorcycle. 21 (e) Require and accept the payment of premiums from members 22 of the association as provided for in the plan of operation. The 23 association shall do either of the following: 24 (i) Require payment of the premium in full within 45 days 25 after the premium charge. 26 (ii) Require payment of the premiums to be made periodically 27 to cover the actual cash obligations of the association. 06190'01 6 1 (f) Receive and distribute all sums required by the 2 operation of the association. 3 (g) Establish procedures for reviewing claims procedures and 4 practices of members of the association. If the claims proce- 5 dures or practices of a member are considered inadequate to prop- 6 erly service the liabilities of the association, the association 7 may undertake or may contract with another person, including 8 another member, to adjust or assist in the adjustment of claims 9 for the member on claims that create a potential liability to the 10 association and may charge the cost of the adjustment to the 11 member. 12 (8) In addition to other powers granted to it by this sec- 13 tion, the association may do all of the following: 14 (a) Sue and be sued in the name of the association. A judg- 15 ment against the association shall not create any direct liabil- 16 ity against the individual members of the association. The asso- 17 ciation may provide for the indemnification of its members, mem- 18 bers of the board of directors of the association, and officers, 19 employees, and other persons lawfully acting on behalf of the 20 association. 21 (b) Reinsure all or any portion of its potential liability 22 with reinsurers licensed to transact insurance in this state or 23 approved by the commissioner. 24 (c) Provide for appropriate housing, equipment, and person- 25 nel as may be necessary to assure the efficient operation of the 26 association. 06190'01 7 1 (d) Pursuant to the plan of operation, adopt reasonable 2 rules for the administration of the association, enforce those 3 rules, and delegate authority, as the board considers necessary 4 to assure the proper administration and operation of the associa- 5 tion consistent with the plan of operation. 6 (e) Contract for goods and services, including independent 7 claims management, actuarial, investment, and legal services, 8 from others within or without this state to assure the efficient 9 operation of the association. 10 (f) Hear and determine complaints of a company or other 11 interested party concerning the operation of the association. 12 (g) Perform other acts not specifically enumerated in this 13 section that are necessary or proper to accomplish the purposes 14 of the association and that are not inconsistent with this sec- 15 tion or the plan of operation. 16 (9) A board of directors is created, hereinafter referred to 17 as the board, which shall be responsible for the operation of the 18 association consistent with the plan of operation and this 19 section. 20 (10) The plan of operation shall provide for all of the 21 following: 22 (a) The establishment of necessary facilities. 23 (b) The management and operation of the association. 24 (c) Procedures to be utilized in charging premiums, includ- 25 ing adjustments from excess or deficient premiums from prior 26 periods. 06190'01 8 1 (d) Procedures governing the actual payment of premiums to 2 the association. 3 (e) Reimbursement of each member of the board by the associ- 4 ation for actual and necessary expenses incurred on association 5 business. 6 (f) The investment policy of the association. 7 (g) Any other matters required by or necessary to effec- 8 tively implement this section. 9 (11) Each board shall include 5 members that would contrib- 10 ute a total of not less than 40% of the total premium calculated 11 pursuant to subsection (7)(d), 1 MEMBER REPRESENTING INSURANCE 12 AGENTS, AND 3 MEMBERS REPRESENTING THE GENERAL PUBLIC. Each 13 director shall be entitled to 1 vote. The initial term of office 14 of a director shall be 2 years. 15 (12) As part of the plan of operation, the board shall adopt 16 rules providing for the composition and term of successor boards 17 to the initial board, consistent with the membership composition 18 requirements in subsections (11) and (13). Terms of the direc- 19 tors shall be staggered so that the terms of all the directors do 20 not expire at the same time and so that a director does not serve 21 a term of more than 4 years. 22 (13) The board shall consist of59 directors, and the 23 commissioner shall be an ex officio member of the board without 24 vote. 25 (14) Each director shall be appointed by the commissioner 26 and shall serve until that member's successor is selected and 27 qualified. The chairperson of the board shall be elected by the 06190'01 9 1 board. A vacancy on the board shall be filled by the 2 commissioner consistent with the plan of operation. 3 (15) After the board is appointed, the board shall meet as 4 often as the chairperson, the commissioner, or the plan of opera- 5 tion shall require, or at the request of any35 members of the 6 board. The chairperson shall retain the right to vote on all 7 issues.FourSIX members of the board constitute a quorum. 8 (16) An annual report of the operations of the association 9 in a form and detail as may be determined by the board shall be 10 furnished to each member. 11 (17) Not more than 60 days after the initial organizational 12 meeting of the board, the board shall submit to the commissioner 13 for approval a proposed plan of operation consistent with the 14 objectives and provisions of this section, which shall provide 15 for the economical, fair, and nondiscriminatory administration of 16 the association and for the prompt and efficient provision of 17 indemnity. If a plan is not submitted within this 60-day period, 18 then the commissioner, after consultation with the board, shall 19 formulate and place into effect a plan consistent with this 20 section. 21 (18) The plan of operation, unless approved sooner in writ- 22 ing, shall be considered to meet the requirements of this section 23 if it is not disapproved by written order of the commissioner 24 within 30 days after the date of its submission. Before disap- 25 proval of all or any part of the proposed plan of operation, the 26 commissioner shall notify the board in what respect the plan of 27 operation fails to meet the requirements and objectives of this 06190'01 10 1 section. If the board fails to submit a revised plan of 2 operation that meets the requirements and objectives of this sec- 3 tion within the 30-day period, the commissioner shall enter an 4 order accordingly and shall immediately formulate and place into 5 effect a plan consistent with the requirements and objectives of 6 this section. 7 (19) The proposed plan of operation or amendments to the 8 plan of operation are subject to majority approval by the board, 9 ratified by a majority of the membership having a vote, with 10 voting rights being apportioned according to the premiums charged 11 in subsection (7)(d) and are subject to approval by the 12 commissioner. 13 (20) Upon approval by the commissioner and ratification by 14 the members of the plan submitted, or upon the promulgation of a 15 plan by the commissioner, each insurer authorized to write insur- 16 ance providing the security required by section 3101(1) in this 17 state, as provided in this section, is bound by and shall for- 18 mally subscribe to and participate in the plan approved as a con- 19 dition of maintaining its authority to transact insurance in this 20 state. 21 (21) The association is subject to all the reporting, loss 22 reserve, and investment requirements of the commissioner to the 23 same extent as would a member of the association. 24 (22) Premiums charged members by the association shall be 25 recognized in the rate-making procedures for insurance rates in 26 the same manner that expenses and premium taxes are recognized. 06190'01 11 1 (23) The commissioner or an authorized representative of the 2 commissioner may visit the association at any time and examine 3 any and all the association's affairs. 4 (24) The association does not have liability for losses 5 occurring before July 1, 1978. 6 (25) As used in this section: 7 (a) "Consumer price index" means the percentage of change in 8 the consumer price index for all urban consumers in the United 9 States city average for all items for the 24 months prior to 10 October 1 of the year prior to the July 1 effective date of the 11 biennial adjustment under subsection (2)(k) as reported by the 12 United States department of labor, bureau of labor statistics, 13 and as certified by the commissioner. 14 (b) "Motor vehicle accident policy" means a policy providing 15 the coverages required under section 3101(1). 16 (c) "Ultimate loss" means the actual loss amounts that a 17 member is obligated to pay and that are paid or payable by the 18 member, and do not include claim expenses. An ultimate loss is 19 incurred by the association on the date that the loss occurs. 20 Enacting section 1. This amendatory act takes effect 21 January 1, 2003. 06190'01 Final page. DKH