HOUSE BILL No. 4002
January 8, 1997, Introduced by Rep. Jelinek 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 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 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. As used in this section,
13 "ultimate loss" means the actual loss amounts which THAT a
14 member is obligated to pay and which THAT are paid or payable
15 by the member, and shall not include claim expenses. An ultimate
16 loss is incurred by the association on the date which THAT the
17 loss occurs.
18 (3) An insurer may withdraw from the association only upon
19 ceasing to write insurance which THAT 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 premiums which
24 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
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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) When IF a member has been merged or consolidated into
6 another insurer or another insurer has reinsured a member's
7 entire business which THAT 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 claim which, on the basis of the
17 injuries or damages sustained, may reasonably be anticipated to
18 involve the association if the member is ultimately held legally
19 liable for the injuries or damages. Solely for the purpose of
20 reporting claims, the member shall in all instances consider
21 itself legally liable for the injuries or damages. The member
22 shall also advise the association of subsequent developments
23 likely to materially affect the interest of the association in
24 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
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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 ciation which THAT 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. A
22 MEMBER SHALL NOT BE CHARGED A PREMIUM FOR A HISTORIC VEHICLE THAT
23 IS INSURED WITH THE MEMBER. As used in this subdivision:
24 ,"car"
25 (i) "CAR" includes a motorcycle BUT DOES NOT INCLUDE A HIS-
26 TORIC VEHICLE.
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1 (ii) "HISTORIC VEHICLE" MEANS A VEHICLE THAT IS A REGISTERED
2 HISTORIC VEHICLE UNDER SECTION 803A OF THE MICHIGAN VEHICLE CODE,
3 1949 PA 300, MCL 257.803A.
4 (e) Require and accept the payment of premiums from members
5 of the association as provided for in the plan of operation. The
6 association shall do either of the following:
7 (i) Require payment of the premium in full within 45 days
8 after the premium charge.
9 (ii) Require payment of the premiums to be made periodically
10 to cover the actual cash obligations of the association.
11 (f) Receive and distribute all sums required by the opera-
12 tion of the association.
13 (g) Establish procedures for reviewing claims procedures and
14 practices of members of the association. If the claims proce-
15 dures or practices of a member are considered inadequate to prop-
16 erly service the liabilities of the association, the association
17 may undertake or may contract with another person, including
18 another member, to adjust or assist in the adjustment of claims
19 for the member on claims which THAT create a potential liabil-
20 ity to the association and may charge the cost of the adjustment
21 to the member.
22 (8) In addition to other powers granted to it by this sec-
23 tion, the association may do all of the following:
24 (a) Sue and be sued in the name of the association. A judg-
25 ment against the association shall not create any direct liabil-
26 ity against the individual members of the association. The
27 association may provide for the indemnification of its members,
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1 members of the board of directors of the association, and
2 officers, employees, and other persons lawfully acting on behalf
3 of the association.
4 (b) Reinsure all or any portion of its potential liability
5 with reinsurers licensed to transact insurance in this state or
6 approved by the commissioner.
7 (c) Provide for appropriate housing, equipment, and person-
8 nel as may be necessary to assure the efficient operation of the
9 association.
10 (d) Pursuant to the plan of operation, adopt reasonable
11 rules for the administration of the association, enforce those
12 rules, and delegate authority, as the board considers necessary
13 to assure the proper administration and operation of the associa-
14 tion consistent with the plan of operation.
15 (e) Contract for goods and services, including independent
16 claims management, actuarial, investment, and legal services,
17 from others within or without this state to assure the efficient
18 operation of the association.
19 (f) Hear and determine complaints of a company or other
20 interested party concerning the operation of the association.
21 (g) Perform other acts not specifically enumerated in this
22 section which THAT are necessary or proper to accomplish the
23 purposes of the association and which THAT are not inconsistent
24 with this section or the plan of operation.
25 (9) A board of directors is created, hereinafter referred to
26 as the board, which shall be responsible for the operation of the
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1 association consistent with the plan of operation and this
2 section.
3 (10) The plan of operation shall provide for all of the
4 following:
5 (a) The establishment of necessary facilities.
6 (b) The management and operation of the association.
7 (c) A preliminary premium, payable by each member in propor-
8 tion to its total first-year premium, for initial expenses neces-
9 sary to commence operation of the association.
10 (d) Procedures to be utilized in charging premiums, includ-
11 ing adjustments from excess or deficient premiums from prior
12 periods.
13 (e) Procedures governing the actual payment of premiums to
14 the association.
15 (f) Reimbursement of each member of the board by the associ-
16 ation for actual and necessary expenses incurred on association
17 business.
18 (g) The investment policy of the association.
19 (h) Any other matters required by or necessary to effec-
20 tively implement this section.
21 (11) Not more than 30 days after the effective date of this
22 section, the commissioner shall convene an organizational meeting
23 of the board. The board shall be initially composed of 5 members
24 of the association appointed by the commissioner to serve as
25 directors, and the commissioner or a designated representative of
26 the commissioner serving as an ex officio member of the board
27 without vote. The initial board and each successor THE board
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1 shall include members which THAT would contribute a total of
2 not less than 40% of the total premium calculated pursuant to
3 subsection (7)(d). Each director shall be entitled to 1 vote.
4 The initial term of office of a director shall be 2 years.
5 (12) As part of the plan of operation, the board shall adopt
6 rules providing for the composition and term of successor boards
7 to the initial board, consistent with the membership composition
8 requirements in subsections (11) and (13). Terms of the direc-
9 tors shall be staggered so that the terms of all the directors do
10 not expire at the same time and so that a director does not serve
11 a term of more than 4 years.
12 (13) The board shall consist of 5 directors and the commis-
13 sioner shall be an ex officio member of the board without vote.
14 (14) Each director shall be appointed by the commissioner
15 and shall serve until that member's successor is selected and
16 qualified. The chairperson of the board shall be elected by the
17 board. A vacancy on the board shall be filled by the commis-
18 sioner consistent with the plan of operation.
19 (15) After the board is appointed, the board shall meet as
20 often as the chairperson, the commissioner, or the plan of opera-
21 tion shall require, or at the request of any 3 members of the
22 board. The chairperson shall retain the right to vote on all
23 issues. Four members of the board shall constitute a quorum.
24 (16) An annual report of the operations of the association
25 in a form and detail as may be determined by the board shall be
26 furnished to each member.
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1 (17) Not more than 60 days after the initial organizational
2 meeting of the board, the board shall submit to the commissioner
3 for approval a proposed plan of operation consistent with the
4 objectives and provisions of this section, which shall provide
5 for the economical, fair, and nondiscriminatory administration of
6 the association and for the prompt and efficient provision of
7 indemnity. If a plan is not submitted within this 60-day period,
8 then the commissioner, after consultation with the board, shall
9 formulate and place into effect a plan consistent with this
10 section.
11 (18) The plan of operation, unless approved sooner in writ-
12 ing, shall be considered to meet the requirements of this section
13 if it is not disapproved by written order of the commissioner
14 within 30 days after the date of its submission. Before disap-
15 proval of all or any part of the proposed plan of operation, the
16 commissioner shall notify the board in what respect the plan of
17 operation fails to meet the requirements and objectives of this
18 section. If the board fails to submit a revised plan of opera-
19 tion which THAT meets the requirements and objectives of this
20 section within the 30-day period, the commissioner shall enter an
21 order accordingly and shall immediately formulate and place into
22 effect a plan consistent with the requirements and objectives of
23 this section.
24 (19) The proposed plan of operation or amendments to the
25 plan of operation shall be subject to majority approval by the
26 board, ratified by a majority of the membership having a vote,
27 with voting rights being apportioned according to the premiums
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1 charged in subsection (7)(d) and shall be subject to approval by
2 the commissioner.
3 (20) Upon approval by the commissioner and ratification by
4 the members of the plan submitted, or upon the promulgation of a
5 plan by the commissioner, each insurer authorized to write insur-
6 ance providing the security required by section 3101(1) in this
7 state, as defined in this section, shall be bound by and shall
8 formally subscribe to and participate in the plan approved as a
9 condition of maintaining its authority to transact insurance in
10 this state.
11 (21) The association shall be subject to all the reporting,
12 loss reserve, and investment requirements of the commissioner to
13 the same extent as would a member of the association.
14 (22) Premiums charged members by the association shall be
15 recognized in the rate-making procedures for insurance rates in
16 the same manner that expenses and premium taxes are recognized.
17 (23) The commissioner or an authorized representative of the
18 commissioner may visit the association at any time and examine
19 any and all the association's affairs.
20 (24) This section shall take effect on July 1, 1978. The
21 association shall not have liability for losses occurring before
22 the effective date of this section JULY 1, 1978.
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