SENATE BILL No. 199

February 13, 2001, Introduced by Senator EMMONS 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 coverages which THAT 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 coverages which THAT provide the security required by

10 section 3103(1) within this state, as a condition of its

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1 authority to transact insurance in this state, shall be

2 considered a member of the association, but only for purposes of

3 assessments PREMIUMS under subsection (7)(d). Except as

4 expressly provided in this section, the association shall IS

5 not be subject to any laws of this state with respect to insur-

6 ers, but in all other respects the association shall be IS

7 subject to the laws of this state to the extent that the associa-

8 tion would be IF IT were it an insurer organized and subsisting

9 under chapter 50.

10 (2) The association shall provide and each member shall

11 accept indemnification for 100% of the amount of ultimate loss

12 sustained under personal protection insurance coverages in excess

13 of $250,000.00 THE FOLLOWING AMOUNTS in each loss occurrence:

14 . As used in this section, "ultimate loss" means the actual

15 loss amounts which a member is obligated to pay and which are

16 paid or payable by the member, and shall not include claim

17 expenses. An ultimate loss is incurred by the association on the

18 date which the loss occurs.

19 (A) FOR A MOTOR VEHICLE ACCIDENT POLICY ISSUED OR RENEWED

20 BEFORE JULY 1, 2002, $250,000.00.

21 (B) FOR A MOTOR VEHICLE ACCIDENT POLICY ISSUED OR RENEWED

22 DURING THE PERIOD JULY 1, 2002 TO JUNE 30, 2003, $300,000.00.

23 (C) FOR A MOTOR VEHICLE ACCIDENT POLICY ISSUED OR RENEWED

24 DURING THE PERIOD JULY 1, 2003 TO JUNE 30, 2004, $325,000.00.

25 (D) FOR A MOTOR VEHICLE ACCIDENT POLICY ISSUED OR RENEWED

26 DURING THE PERIOD JULY 1, 2004 TO JUNE 30, 2005, $350,000.00.

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1 (E) FOR A MOTOR VEHICLE ACCIDENT POLICY ISSUED OR RENEWED

2 DURING THE PERIOD JULY 1, 2005 TO JUNE 30, 2006, $375,000.00.

3 (F) FOR A MOTOR VEHICLE ACCIDENT POLICY ISSUED OR RENEWED

4 DURING THE PERIOD JULY 1, 2006 TO JUNE 30, 2007, $400,000.00.

5 (G) FOR A MOTOR VEHICLE ACCIDENT POLICY ISSUED OR RENEWED

6 DURING THE PERIOD JULY 1, 2007 TO JUNE 30, 2008, $420,000.00.

7 (H) FOR A MOTOR VEHICLE ACCIDENT POLICY ISSUED OR RENEWED

8 DURING THE PERIOD JULY 1, 2008 TO JUNE 30, 2009, $440,000.00.

9 (I) FOR A MOTOR VEHICLE ACCIDENT POLICY ISSUED OR RENEWED

10 DURING THE PERIOD JULY 1, 2009 TO JUNE 30, 2010, $460,000.00.

11 (J) FOR A MOTOR VEHICLE ACCIDENT POLICY ISSUED OR RENEWED

12 DURING THE PERIOD JULY 1, 2010 TO JUNE 30, 2011, $480,000.00.

13 (K) FOR A MOTOR VEHICLE ACCIDENT POLICY ISSUED OR RENEWED

14 DURING THE PERIOD JULY 1, 2011 TO JUNE 30, 2013, $500,000.00.

15 BEGINNING JULY 1, 2013, THIS $500,000.00 AMOUNT SHALL BE

16 INCREASED BIENNIALLY ON JULY 1 OF EACH ODD NUMBERED YEAR, FOR

17 POLICIES ISSUED OR RENEWED BEFORE JULY 1 OF THE FOLLOWING ODD

18 NUMBERED YEAR, BY THE LESSER OF 6% OR THE CONSUMER PRICE INDEX,

19 AND ROUNDED TO THE NEAREST $5,000.00. THIS BIENNIAL ADJUSTMENT

20 SHALL BE CALCULATED BY THE ASSOCIATION BY JANUARY 1 OF THE YEAR

21 OF ITS JULY 1 EFFECTIVE DATE.

22 (3) An insurer may withdraw from the association only upon

23 ceasing to write insurance which THAT provides the security

24 required by section 3101(1) in this state.

25 (4) An insurer whose membership in the association has been

26 terminated by withdrawal shall continue to be bound by the plan

27 of operation, and upon withdrawal, all unpaid premiums which

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1 THAT have been charged to the withdrawing member shall be ARE

2 payable 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 HAS all rights allowed

7 by law on behalf of the remaining members against the estate or

8 funds of the insolvent member for sums due the association.

9 (6) When IF a member has been merged or consolidated into

10 another insurer or another insurer has reinsured a member's

11 entire business which THAT 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 claim which THAT, 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

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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) In a manner provided for in the plan of operation, cal-

9 culate and charge to members of the association a total premium

10 sufficient to cover the expected losses and expenses of the asso-

11 ciation which THAT the association will likely incur during the

12 period for which the premium is applicable. The premium shall

13 include an amount to cover incurred but not reported losses for

14 the period and may be adjusted for any excess or deficient premi-

15 ums from previous periods. Excesses or deficiencies from previ-

16 ous periods may be fully adjusted in a single period or may be

17 adjusted over several periods in a manner provided for in the

18 plan of operation. Each member shall be charged an amount equal

19 to that member's total earned WRITTEN car years of insurance

20 providing the security required by section 3101(1) or 3103(1), or

21 both, written in this state during the period to which the pre-

22 mium applies, multiplied by the average premium per car. The

23 average premium per car shall be the total premium calculated

24 divided by the total earned WRITTEN car years of insurance pro-

25 viding the security required by section 3101(1) or 3103(1) writ-

26 ten in this state of all members during the period to which the

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1 premium applies. As used in this subdivision, "car" includes a

2 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 claims which THAT 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

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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 section which THAT are necessary or proper to accomplish the

22 purposes of the association and which THAT 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.

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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-

6 portion to its total first-year premium, for initial expenses

7 necessary 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 this

20 section, the commissioner shall convene an organizational meeting

21 of the board. The board shall be initially composed of 5 members

22 of the association appointed by the commissioner to serve as

23 directors, and the commissioner or a designated representative of

24 the commissioner serving as an ex officio member of the board

25 without vote. The initial board and each successor EACH board

26 shall include members which THAT would contribute a total of

27 not less than 40% of the total premium calculated pursuant to

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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

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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 tion which THAT 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 ARE subject to majority approval by

23 the board, ratified by a majority of the membership having a

24 vote, with voting rights being apportioned according to the pre-

25 miums charged in subsection (7)(d) and shall be ARE subject to

26 approval by the commissioner.

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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, as defined PROVIDED in this section, shall be IS bound

6 by 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 IS subject to all the

10 reporting, loss reserve, and investment requirements of the com-

11 missioner to the same extent as would a member of the

12 association.

13 (22) Premiums charged members by the association shall be

14 recognized in the rate-making procedures for insurance rates in

15 the same manner that expenses and premium taxes are recognized.

16 (23) The commissioner or an authorized representative of the

17 commissioner may visit the association at any time and examine

18 any and all the association's affairs.

19 (24) This section shall take effect on July 1, 1978. The

20 association shall DOES not have liability for losses occurring

21 before the effective date of this section JULY 1, 1978.

22 (25) AS USED IN THIS SECTION:

23 (A) "CONSUMER PRICE INDEX" MEANS THE PERCENTAGE OF CHANGE IN

24 THE CONSUMER PRICE INDEX FOR ALL URBAN CONSUMERS IN THE UNITED

25 STATES CITY AVERAGE FOR ALL ITEMS FOR THE 24 MONTHS PRIOR TO

26 OCTOBER 1 OF THE YEAR PRIOR TO THE JULY 1 EFFECTIVE DATE OF THE

27 BIENNIAL ADJUSTMENT UNDER SUBSECTION (2)(K) AS REPORTED BY THE

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1 UNITED STATES DEPARTMENT OF LABOR, BUREAU OF LABOR STATISTICS,

2 AND AS CERTIFIED BY THE COMMISSIONER.

3 (B) "MOTOR VEHICLE ACCIDENT POLICY" MEANS A POLICY PROVIDING

4 THE COVERAGES REQUIRED UNDER SECTION 3101(1).

5 (C) "ULTIMATE LOSS" MEANS THE ACTUAL LOSS AMOUNTS THAT A

6 MEMBER IS OBLIGATED TO PAY AND THAT ARE PAID OR PAYABLE BY THE

7 MEMBER, AND DO NOT INCLUDE CLAIM EXPENSES. AN ULTIMATE LOSS IS

8 INCURRED BY THE ASSOCIATION ON THE DATE THAT THE LOSS OCCURS.

9 Enacting section 1. This amendatory act takes effect July

10 1, 2002.

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