May 31, 2012, Introduced by Reps. Cotter, Horn, Heise, Somerville, Ananich, Yonker, Johnson, Kowall, Callton, Olson, MacGregor, Damrow and Hughes and referred to the Committee on Insurance.
A bill to amend 1956 PA 218, entitled
"The insurance code of 1956,"
by amending sections 3020 and 3104 (MCL 500.3020 and 500.3104),
section 3020 as amended by 2006 PA 106 and section 3104 as amended
by 2002 PA 662.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 3020. (1) A policy of casualty insurance, except worker's
compensation and mortgage guaranty insurance, including all classes
of motor vehicle coverage, shall not be issued or delivered in this
state by an insurer authorized to do business in this state for
which a premium or advance assessment is charged, unless the policy
contains the following provisions:
(a) That the policy may be canceled at any time at the request
of the insured, in which case the insurer shall refund the excess
of paid premium or assessment above the pro rata rates for the
expired time, except as otherwise provided in subsections (2), (3),
and
(4), and (8).
(b) Except as otherwise provided in subdivision (d), that the
policy may be canceled at any time by the insurer by mailing to the
insured at the insured's address last known to the insurer or an
authorized agent of the insurer, with postage fully prepaid, a not
less than 10 days' written notice of cancellation with or without
tender of the excess of paid premium or assessment above the pro
rata premium for the expired time.
(c) That the minimum earned premium on any policy canceled
pursuant
to under this subsection, other than automobile insurance
as defined in section 2102(2)(a) and (b), shall not be less than
the pro rata premium for the expired time or $25.00, whichever is
greater.
(d) That an insurer may refuse to renew a malpractice
insurance policy only by mailing to the insured at the insured's
address last known to the insurer or an authorized agent of the
insurer, with postage fully prepaid, a not less than 60 days'
written notice of refusal to renew. As used in this subdivision,
"malpractice insurance" means malpractice insurance as described in
section 624(1)(h).
(2) An insurer may file a rule with the commissioner providing
for a minimum retention of premium for automobile insurance as
defined in section 2102(2)(a) and (b). The rule shall describe the
circumstances under which the retention is applied and shall set
forth the amount to be retained, which is subject to the approval
of the commissioner. The rule shall include, but need not be
limited to, the following provisions:
(a) That a minimum retention shall be applied only when the
amount exceeds the amount that would have been retained had the
policy been canceled on a pro rata basis.
(b) That a minimum retention does not apply to renewal
policies.
(c) That a minimum retention does not apply when a policy is
canceled for the following reasons:
(i) The insured is no longer required to maintain security
pursuant
to under section 3101(1).
(ii) The insured has replaced the automobile insurance policy
being canceled with an automobile insurance policy from another
insurer and provides proof of the replacement coverage to the
canceling insurer.
(3) Notwithstanding subsection (1), an insurer may issue a
noncancelable, nonrefundable, 6-month prepaid automobile insurance
policy in order for an insured to meet the registration
requirements of section 227a of the Michigan vehicle code, 1949 PA
300, MCL 257.227a.
(4) An insurer may provide for a short rate premium for
insurance on a motorcycle, watercraft, off-road vehicle, or
snowmobile. As used in this subsection:
(a) "Motorcycle" means that term as defined in section 3101.
(b) "Off-road vehicle" means an ORV as defined in section
81101 of the natural resources and environmental protection act,
1994 PA 451, MCL 324.81101.
(c) "Snowmobile" means that term as defined in section 82101
of the natural resources and environmental protection act, 1994 PA
451, MCL 324.82101.
(d) "Watercraft" means that term as defined in section 80301
of the natural resources and environmental protection act, 1994 PA
451, MCL 324.80301.
(5) Cancellation as prescribed in this section is without
prejudice to any claim originating before the cancellation. The
mailing of notice is prima facie proof of notice. Delivery of
written notice is equivalent to mailing.
(6) A notice of cancellation, including a cancellation notice
under section 3224, shall be accompanied by a statement that the
insured shall not operate or permit the operation of the vehicle to
which notice of cancellation is applicable, or operate any other
vehicle, unless the vehicle is insured as required by law.
(7) An insurer who wishes to provide for a short rate premium
under subsection (4) shall file with the commissioner pursuant to
chapter 24 or 26 a rule establishing a short rate premium. The rule
shall describe the circumstances under which the short rate is
applied and shall set forth the amount or percentage to be
retained.
(8) The portion of a paid premium that reflects an assessment
of the catastrophic claims association under section 3104 shall not
be refunded to the insured on cancellation of the policy to which
the premium applies.
Sec. 3104. (1) An unincorporated, nonprofit association to be
known
as the catastrophic claims association
, hereinafter referred
to
as the association, is created.
Each insurer engaged in writing
insurance coverages that provide the security required by section
3101(1) within this state, as a condition of its authority to
transact insurance in this state, shall be a member of the
association and shall be bound by the plan of operation of the
association. Each insurer engaged in writing insurance coverages
that provide the security required by section 3103(1) within this
state, as a condition of its authority to transact insurance in
this state, shall be considered a member of the association, but
only for purposes of premiums under subsection (7)(d). Except as
expressly provided in this section, the association is not subject
to any laws of this state with respect to insurers, but in all
other respects the association is subject to the laws of this state
to the extent that the association would be if it were an insurer
organized and subsisting under chapter 50.
(2) The association shall provide and each member shall accept
indemnification for 100% of the amount of ultimate loss sustained
under personal protection insurance coverages in excess of the
following amounts in each loss occurrence:
(a) For a motor vehicle accident policy issued or renewed
before July 1, 2002, $250,000.00.
(b) For a motor vehicle accident policy issued or renewed
during the period July 1, 2002 to June 30, 2003, $300,000.00.
(c) For a motor vehicle accident policy issued or renewed
during the period July 1, 2003 to June 30, 2004, $325,000.00.
(d) For a motor vehicle accident policy issued or renewed
during the period July 1, 2004 to June 30, 2005, $350,000.00.
(e) For a motor vehicle accident policy issued or renewed
during the period July 1, 2005 to June 30, 2006, $375,000.00.
(f) For a motor vehicle accident policy issued or renewed
during the period July 1, 2006 to June 30, 2007, $400,000.00.
(g) For a motor vehicle accident policy issued or renewed
during the period July 1, 2007 to June 30, 2008, $420,000.00.
(h) For a motor vehicle accident policy issued or renewed
during the period July 1, 2008 to June 30, 2009, $440,000.00.
(i) For a motor vehicle accident policy issued or renewed
during the period July 1, 2009 to June 30, 2010, $460,000.00.
(j) For a motor vehicle accident policy issued or renewed
during the period July 1, 2010 to June 30, 2011, $480,000.00.
(k) For a motor vehicle accident policy issued or renewed
during the period July 1, 2011 to June 30, 2013, $500,000.00.
Beginning July 1, 2013, this $500,000.00 amount shall be increased
biennially on July 1 of each odd-numbered year, for policies issued
or renewed before July 1 of the following odd-numbered year, by the
lesser of 6% or the consumer price index, and rounded to the
nearest $5,000.00. This biennial adjustment shall be calculated by
the association by January 1 of the year of its July 1 effective
date.
(3) An insurer may withdraw from the association only upon
ceasing to write insurance that provides the security required by
section 3101(1) in this state.
(4) An insurer whose membership in the association has been
terminated by withdrawal shall continue to be bound by the plan of
operation, and upon withdrawal, all unpaid premiums that have been
charged to the withdrawing member are payable as of the effective
date of the withdrawal.
(5) An unsatisfied net liability to the association of an
insolvent member shall be assumed by and apportioned among the
remaining members of the association as provided in the plan of
operation. The association has all rights allowed by law on behalf
of the remaining members against the estate or funds of the
insolvent
member for sums money due to
the association.
(6) If a member has been merged or consolidated into another
insurer or another insurer has reinsured a member's entire business
that provides the security required by section 3101(1) in this
state, the member and successors in interest of the member remain
liable for the member's obligations.
(7) The association shall do all of the following on behalf of
the members of the association:
(a) Assume 100% of all liability as provided in subsection
(2).
(b) Establish procedures by which members shall promptly
report to the association each claim that, on the basis of the
injuries or damages sustained, may reasonably be anticipated to
involve the association if the member is ultimately held legally
liable for the injuries or damages. Solely for the purpose of
reporting claims, the member shall in all instances consider itself
legally liable for the injuries or damages. The member shall also
advise the association of subsequent developments likely to
materially affect the interest of the association in the claim.
(c) Maintain relevant loss and expense data relative to all
liabilities of the association and require each member to furnish
statistics, in connection with liabilities of the association, at
the times and in the form and detail as may be required by the plan
of operation.
(d) In a manner provided for in the plan of operation,
calculate and charge to members of the association a total premium
sufficient to cover the expected losses and expenses of the
association that the association will likely incur during the
period for which the premium is applicable. The premium shall
include an amount to cover incurred but not reported losses for the
period and may be adjusted for any excess or deficient premiums
from previous periods. Excesses or deficiencies from previous
periods may be fully adjusted in a single period or may be adjusted
over several periods in a manner provided for in the plan of
operation. Each member shall be charged an amount equal to that
member's total written car years of insurance providing the
security required by section 3101(1) or 3103(1), or both, written
in this state during the period to which the premium applies,
multiplied by the average premium per car. The average premium per
car shall be the total premium calculated divided by the total
written car years of insurance providing the security required by
section 3101(1) or 3103(1) written in this state of all members
during the period to which the premium applies. A member shall be
charged a premium for a historic vehicle that is insured with the
member of 20% of the premium charged for a car insured with the
member. As used in this subdivision:
(i) "Car" includes a motorcycle but does not include a historic
vehicle.
(ii) "Historic vehicle" means a vehicle that is a registered
historic vehicle under section 803a or 803p of the Michigan vehicle
code, 1949 PA 300, MCL 257.803a and 257.803p.
(e) Require and accept the payment of premiums from members of
the association as provided for in the plan of operation. The
association shall do either of the following:
(i) Require payment of the premium in full within 45 days after
the premium charge.
(ii) Require payment of the premiums to be made periodically to
cover the actual cash obligations of the association.
(f)
Receive and distribute all sums money
required by the
operation of the association.
(g) Establish procedures for reviewing claims procedures and
practices of members of the association. If the claims procedures
or practices of a member are considered inadequate to properly
service the liabilities of the association, the association may
undertake or may contract with another person, including another
member, to adjust or assist in the adjustment of claims for the
member on claims that create a potential liability to the
association and may charge the cost of the adjustment to the
member.
(8) In addition to other powers granted to it by this section,
the association may do all of the following:
(a) Sue and be sued in the name of the association. A judgment
against the association shall not create any direct liability
against the individual members of the association. The association
may provide for the indemnification of its members, members of the
board of directors of the association, and officers, employees, and
other persons lawfully acting on behalf of the association.
(b) Reinsure all or any portion of its potential liability
with reinsurers licensed to transact insurance in this state or
approved by the commissioner.
(c) Provide for appropriate housing, equipment, and personnel
as may be necessary to assure the efficient operation of the
association.
(d) Pursuant to the plan of operation, adopt reasonable rules
for the administration of the association, enforce those rules, and
delegate authority, as the board considers necessary to assure the
proper administration and operation of the association consistent
with the plan of operation.
(e) Contract for goods and services, including independent
claims management, actuarial, investment, and legal services, from
others within or without this state to assure the efficient
operation of the association.
(f) Hear and determine complaints of a company or other
interested party concerning the operation of the association.
(g) Perform other acts not specifically enumerated in this
section that are necessary or proper to accomplish the purposes of
the association and that are not inconsistent with this section or
the plan of operation.
(9)
A board of directors is created , hereinafter referred to
as
the board, which shall be that
is responsible for the operation
of the association consistent with the plan of operation and this
section.
(10) The plan of operation shall provide for all of the
following:
(a) The establishment of necessary facilities.
(b) The management and operation of the association.
(c) Procedures to be utilized in charging premiums, including
adjustments from excess or deficient premiums from prior periods.
(d) Procedures governing the actual payment of premiums to the
association.
(e) Reimbursement of each member of the board by the
association for actual and necessary expenses incurred on
association business.
(f) The investment policy of the association.
(g) Any other matters required by or necessary to effectively
implement this section.
(11) Each board shall include members that would contribute a
total of not less than 40% of the total premium calculated pursuant
to
subsection (7)(d). Each director shall be is entitled to 1 vote.
The
initial term of office of a director shall be is 2
years.
(12) As part of the plan of operation, the board shall adopt
rules providing for the composition and term of successor boards to
the initial board, consistent with the membership composition
requirements in subsections (11) and (13). Terms of the directors
shall be staggered so that the terms of all the directors do not
expire at the same time and so that a director does not serve a
term of more than 4 years.
(13) The board shall consist of 5 directors, and the
commissioner shall be an ex officio member of the board without
vote.
(14) Each director shall be appointed by the commissioner and
shall serve until that member's successor is selected and
qualified. The chairperson of the board shall be elected by the
board. A vacancy on the board shall be filled by the commissioner
consistent with the plan of operation.
(15) After the board is appointed, the board shall meet as
often as the chairperson, the commissioner, or the plan of
operation shall require, or at the request of any 3 members of the
board. The chairperson shall retain the right to vote on all
issues. Four members of the board constitute a quorum.
(16) An annual report of the operations of the association in
a
form and detail as may be determined by the board shall be
furnished to each member.
(17) Not more than 60 days after the initial organizational
meeting of the board, the board shall submit to the commissioner
for approval a proposed plan of operation consistent with the
objectives and provisions of this section, which shall provide for
the economical, fair, and nondiscriminatory administration of the
association and for the prompt and efficient provision of
indemnity. If a plan is not submitted within this 60-day period,
then the commissioner, after consultation with the board, shall
formulate and place into effect a plan consistent with this
section.
(18) The plan of operation, unless approved sooner in writing,
shall be considered to meet the requirements of this section if it
is not disapproved by written order of the commissioner within 30
days after the date of its submission. Before disapproval of all or
any part of the proposed plan of operation, the commissioner shall
notify the board in what respect the plan of operation fails to
meet the requirements and objectives of this section. If the board
fails to submit a revised plan of operation that meets the
requirements and objectives of this section within the 30-day
period, the commissioner shall enter an order accordingly and shall
immediately formulate and place into effect a plan consistent with
the requirements and objectives of this section.
(19) The proposed plan of operation or amendments to the plan
of operation are subject to majority approval by the board,
ratified by a majority of the membership having a vote, with voting
rights being apportioned according to the premiums charged in
subsection (7)(d) and are subject to approval by the commissioner.
(20) Upon approval by the commissioner and ratification by the
members of the plan submitted, or upon the promulgation of a plan
by the commissioner, each insurer authorized to write insurance
providing the security required by section 3101(1) in this state,
as provided in this section, is bound by and shall formally
subscribe to and participate in the plan approved as a condition of
maintaining its authority to transact insurance in this state.
(21) The association is subject to all the reporting, loss
reserve, and investment requirements of the commissioner to the
same
extent as would is a member of the association.
(22) Premiums charged members by the association shall be
recognized in the rate-making procedures for insurance rates in the
same manner that expenses and premium taxes are recognized.
However, all of the following apply to the portion of a premium
charged to an insured that reflects an amount for a premium charged
to a member by the association:
(a) The entire portion shall be included in the first billing
provided to the insured under a new or renewed policy.
(b) The insurer shall not allow the portion to be paid in
installments or financed.
(c) After payment, the portion shall not be refunded on
cancellation of the policy.
(d) The insurer shall pay the portion to the association.
(23) The commissioner or an authorized representative of the
commissioner may visit the association at any time and examine any
and all the association's affairs.
(24) The association does not have liability for losses
occurring before July 1, 1978.
(25) As used in this section:
(a) "Association" means the catastrophic claims association
created in subsection (1).
(b) "Board" means the board of directors created in subsection
(9).
(c) (a)
"Consumer price index"
means the percentage of change
in the consumer price index for all urban consumers in the United
States city average for all items for the 24 months prior to
October 1 of the year prior to the July 1 effective date of the
biennial adjustment under subsection (2)(k) as reported by the
United States department of labor, bureau of labor statistics, and
as certified by the commissioner.
(d) (b)
"Motor vehicle accident
policy" means a policy
providing the coverages required under section 3101(1).
(e) (c)
"Ultimate loss" means the
actual loss amounts that a
member is obligated to pay and that are paid or payable by the
member, and do not include claim expenses. An ultimate loss is
incurred by the association on the date that the loss occurs.