1.1                          A bill for an act 
  1.2             relating to insurance; regulating the FAIR plan; 
  1.3             amending Minnesota Statutes 2002, sections 65A.29, 
  1.4             subdivision 4; 65A.32; 65A.33, subdivisions 4, 6, 9, 
  1.5             by adding subdivisions; 65A.34; 65A.35; 65A.36; 
  1.6             65A.37; 65A.375; 65A.38, subdivisions 1, 5; 65A.40; 
  1.7             65A.41; 65A.42; repealing Minnesota Statutes 2002, 
  1.8             section 65A.33, subdivision 5. 
  1.9   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.10     Section 1.  Minnesota Statutes 2002, section 65A.29, 
  1.11  subdivision 4, is amended to read: 
  1.12     Subd. 4.  [FORM REQUIREMENTS.] Any notice or statement 
  1.13  required by subdivisions 1 to 3, or any other notice canceling a 
  1.14  homeowner's insurance policy must be written in language which 
  1.15  is easily readable and understandable by a person of average 
  1.16  intelligence and understanding.  The statement of reason must be 
  1.17  sufficiently specific to convey, clearly and without further 
  1.18  inquiry, the basis for the insurer's refusal to renew or to 
  1.19  write the insurance coverage. 
  1.20     The notice or statement must also inform the insured of: 
  1.21     (1) the possibility of coverage through the Minnesota 
  1.22  ~~property insurance placement facility~~ FAIR plan under sections 
  1.23  65A.31 to 65A.42; 
  1.24     (2) the right to object to the commissioner under 
  1.25  subdivision 9; and 
  1.26     (3) the right to the return of unearned premium in 
  1.27  appropriate situations under subdivision 10. 
  2.1      Sec. 2.  Minnesota Statutes 2002, section 65A.32, is 
  2.2   amended to read: 
  2.3      65A.32 [PURPOSES.] 
  2.4      The purposes of sections 65A.31 to 65A.42 are: 
  2.5      (1) to encourage stability in the property and liability 
  2.6   insurance market for property located in this state; 
  2.7      (2) to encourage maximum use, in obtaining property and 
  2.8   liability insurance, as defined in sections 65A.31 to 65A.42, of 
  2.9   the normal insurance market provided by the private property and 
  2.10  casualty insurance industry; 
  2.11     (3) to encourage the improvement of the condition of 
  2.12  properties located in this state and to further orderly 
  2.13  community development generally; 
  2.14     (4) to provide for an organization known as the Minnesota 
  2.15  ~~property insurance placement facility~~ FAIR plan, which will 
  2.16  assure fair access to insurance requirements ~~(FAIR plan)~~ in 
  2.17  order that no property ~~shall be~~ is denied property or liability 
  2.18  insurance through the FAIR plan due to the condition of the 
  2.19  property, except after a physical inspection of ~~such~~ the 
  2.20  property and a fair evaluation of its individual underwriting 
  2.21  characteristics; 
  2.22     (5) to publicize the purposes and procedures of the FAIR 
  2.23  plan to the end that no one may fail to seek its assistance 
  2.24  through lack of knowledge of its existence; and 
  2.25     (6) to provide for the formulation and administration by 
  2.26  the Minnesota ~~property insurance placement facility~~ FAIR plan of 
  2.27  a reinsurance arrangement whereby property and casualty insurers 
  2.28  ~~shall~~ share equitably the responsibility for insuring insurable 
  2.29  property for which property and liability insurance cannot be 
  2.30  obtained through the normal insurance markets. 
  2.31     Sec. 3.  Minnesota Statutes 2002, section 65A.33, 
  2.32  subdivision 4, is amended to read: 
  2.33     Subd. 4.  "Minnesota ~~property insurance placement~~ 
  2.34  ~~facility~~ FAIR plan," ~~hereinafter referred to as the facility,~~ or 
  2.35  "plan," means the organization formed by insurers to assist 
  2.36  applicants in securing property or liability insurance and to 
  3.1   administer the FAIR plan. 
  3.2      Sec. 4.  Minnesota Statutes 2002, section 65A.33, is 
  3.3   amended by adding a subdivision to read: 
  3.4      Subd. 5a.  [MEMBER.] "Member" means any insurer as defined 
  3.5   in subdivision 2. 
  3.6      Sec. 5.  Minnesota Statutes 2002, section 65A.33, 
  3.7   subdivision 6, is amended to read: 
  3.8      Subd. 6.  "Premiums written" means ~~gross~~ direct written 
  3.9   premiums charged during the second preceding calendar year with 
  3.10  respect to property in this state ~~on all policies of property or~~ 
  3.11  ~~liability insurance and the property or liability insurance~~ 
  3.12  ~~premium components of all multiperil policies, as computed by~~ 
  3.13  ~~the facility, less return premiums, dividends paid or credited~~ 
  3.14  ~~to policyholders, or the unused or unabsorbed portions of~~ 
  3.15  ~~premium deposits~~ for fire, allied lines, homeowners, the 
  3.16  nonliability component of farm policies, and the nonliability 
  3.17  component of commercial multiperil policies, as reported by the 
  3.18  members to the NAIC. 
  3.19     Sec. 6.  Minnesota Statutes 2002, section 65A.33, 
  3.20  subdivision 9, is amended to read: 
  3.21     Subd. 9.  [BOARD.] "Board" means the governing board of 
  3.22  directors of the Minnesota ~~property insurance placement facility~~ 
  3.23  FAIR plan. 
  3.24     Sec. 7.  Minnesota Statutes 2002, section 65A.33, is 
  3.25  amended by adding a subdivision to read: 
  3.26     Subd. 10.  [NAIC.] "NAIC" means the National Association of 
  3.27  Insurance Commissioners. 
  3.28     Sec. 8.  Minnesota Statutes 2002, section 65A.34, is 
  3.29  amended to read: 
  3.30     65A.34 [~~APPLICATION FOR~~ PLAN COVERAGE.] 
  3.31     Subdivision 1.  [APPLICATION.] Any person having an 
  3.32  insurable interest in real or tangible personal property who has 
  3.33  been canceled, nonrenewed, or otherwise rejected for coverage in 
  3.34  the private market ~~shall be entitled to~~ may submit an 
  3.35  application for coverage to the ~~facility~~ plan.  If an inspection 
  3.36  of the premises is performed, it must be done at no cost to the 
  4.1   applicant. 
  4.2      Subd. 2.  [INSPECTIONS.] Before the plan may deny coverage 
  4.3   due to the condition of the property or write coverage with a 
  4.4   condition charge, it must first inspect the property for which 
  4.5   coverage has been requested.  The manner and scope of the 
  4.6   inspections of Minnesota FAIR plan business ~~shall~~ must be 
  4.7   prescribed by the ~~facility~~ plan with the approval of the 
  4.8   commissioner.  
  4.9      Subd. 3.  [INITIAL INSPECTION REPORT.] An inspection report 
  4.10  ~~shall~~ must be made for each property inspected.  The 
  4.11  report ~~shall~~ must cover pertinent structural and occupancy 
  4.12  features as well as the general condition of the building and 
  4.13  surrounding structures.  A representative photograph of the 
  4.14  property may be taken during the inspection.  
  4.15     Subd. 4.  [CONDITION CHARGES.] Either during the inspection 
  4.16  or immediately ~~thereafter~~ after the inspection, an employee of 
  4.17  the FAIR plan shall inform the applicant as to the features that 
  4.18  result in a condition charge if the risk is accepted.  No 
  4.19  inspector ~~shall have~~ has the authority to advise whether 
  4.20  the ~~facility~~ plan will provide the coverage.  
  4.21     Subd. 5.  [COMPLETED INSPECTION REPORT.] Within ten 
  4.22  business days after the inspection, the FAIR plan shall prepare 
  4.23  or have prepared a completed inspection report that includes 
  4.24  conditions that are subject to a condition charge under the 
  4.25  rating plan approved by the commissioner.  A copy of the 
  4.26  inspection report must be made available to the applicant or the 
  4.27  applicant's agent upon request. 
  4.28     ~~Subd. 6.  Before the facility may deny coverage or write~~ 
  4.29  ~~coverage with a condition charge, it must cause an inspection to~~ 
  4.30  ~~be made of any risk submitted to it, without cost to the owner.~~ 
  4.31     Sec. 9.  Minnesota Statutes 2002, section 65A.35, is 
  4.32  amended to read: 
  4.33     65A.35 [ADMINISTRATION.] 
  4.34     Subdivision 1.  [MEMBERSHIP.] Each insurer ~~which is~~ 
  4.35  authorized to write and ~~is~~ engaged in writing within this state, 
  4.36  on a direct basis, property or liability insurance or any 
  5.1   component ~~thereof~~ of this insurance contained in a multiperil 
  5.2   policy, including homeowners and commercial multiperil policies, 
  5.3   shall participate in the ~~facility, as hereinafter~~ 
  5.4   ~~described,~~ plan as a condition of its authority to write such 
  5.5   kinds of insurance within this state.  
  5.6      Subd. 2.  [PURPOSES.] The purposes of the ~~facility shall be~~ 
  5.7   ~~twofold, as more fully set forth in this section~~ Minnesota FAIR 
  5.8   plan are: 
  5.9      (1) to formulate and administer, subject to the approval of 
  5.10  the commissioner, a plan assuring fair access to insurance 
  5.11  requirements in order that no property ~~shall be~~ is denied 
  5.12  property or liability insurance through the ~~normal insurance~~ 
  5.13  ~~market provided by the private property and casualty insurance~~ 
  5.14  ~~industry~~ FAIR plan due to the condition of the property, except 
  5.15  after a physical inspection of ~~such~~ the property and a fair 
  5.16  evaluation of its individual underwriting characteristics; and 
  5.17     (2) to formulate and administer, subject to the approval of 
  5.18  the commissioner, a reinsurance arrangement whereby the members 
  5.19  of the ~~facility shall~~ Minnesota FAIR plan share equitably the 
  5.20  responsibility for insuring property which is insurable but for 
  5.21  which property or liability insurance cannot be obtained through 
  5.22  normal insurance markets.  
  5.23     Subd. 3.  [PLAN OF OPERATION.] The plan of operation of the 
  5.24  ~~facility~~ Minnesota FAIR plan, consistent with the provisions of 
  5.25  sections 65A.31 to 65A.42 and the purpose of the ~~facility, which~~ 
  5.26  ~~shall~~ plan must provide for the FAIR plan, the reinsurance 
  5.27  arrangement, and the economical and efficient administration of 
  5.28  the ~~facility~~ Minnesota FAIR plan, including, but not limited to, 
  5.29  management of the ~~facility~~ plan, establishment of necessary 
  5.30  facilities within this state, assessment of members to defray 
  5.31  losses and expenses, commission arrangements, reasonable 
  5.32  underwriting standards, acceptance and cession of reinsurance, 
  5.33  and procedures for determining amounts of insurance to be 
  5.34  provided.  
  5.35     The plan of operation ~~shall be~~ is subject to approval by 
  5.36  the commissioner. 
  6.1      Subd. 4.  [AMENDMENT OF THE PLAN OF OPERATION.] The 
  6.2   ~~facility~~ Minnesota FAIR plan shall~~,~~ amend the plan of operation 
  6.3   on its own initiative, subject to prior approval by the 
  6.4   commissioner, or at the direction of the commissioner~~, amend the~~ 
  6.5   ~~Plan of Operation~~.  
  6.6      Subd. 5.  [ADMINISTRATION.] (1) The ~~facility shall be~~ 
  6.7   Minnesota FAIR plan is administered by a board of nine 
  6.8   directors, five of whom are elected by the members of 
  6.9   the ~~facility~~ plan and four who represent the public.  Public 
  6.10  directors may include licensed insurance agents.  Public 
  6.11  directors are appointed by the commissioner.  ~~At least one~~ 
  6.12  ~~elected director shall be a domestic stock insurer, and at least~~ 
  6.13  ~~one director shall be a domestic nonstock insurer.~~  No less than 
  6.14  two elected directors must be domestic insurers.  In the 
  6.15  election of directors, each member of the ~~facility shall be~~ 
  6.16  Minnesota FAIR plan is allotted votes bearing the same ratio to 
  6.17  the total number of votes to be cast as its degree of 
  6.18  participation in the ~~facility~~ plan bears to the total 
  6.19  participation.  
  6.20     (2) Any vacancy among the elected directors ~~shall~~ must be 
  6.21  filled by a vote of the other elected directors. 
  6.22     (3) If at any time the members fail to elect the required 
  6.23  number of directors to the board, or a vacancy remains unfilled 
  6.24  for more than 15 days, the commissioner may appoint the 
  6.25  directors necessary to constitute a full board of directors. 
  6.26     (4) Vacancies among directors appointed by the commissioner 
  6.27  ~~shall~~ must be filled by appointment by the commissioner.  A 
  6.28  person so appointed serves until the end of the term of the 
  6.29  director the person is replacing.  
  6.30     (5) All public directors serve for a period of two years.  
  6.31  The terms of all public directors begin on ~~January~~ July 1 of the 
  6.32  year their appointments begin.  
  6.33     (6) The plan of operation must provide for adequate 
  6.34  compensation of public directors.  A per diem amount and a 
  6.35  procedure for reimbursement of expenses incurred in the 
  6.36  discharge of their duties must be included in the plan.  Private 
  7.1   directors ~~whose employers compensate them while serving on the~~ 
  7.2   ~~board or who would submit their compensation to their employers~~ 
  7.3   are not eligible for compensation ~~under the plan~~. 
  7.4      Subd. 6.  [PARTICIPATION.] All members of the 
  7.5   ~~facility~~ Minnesota FAIR plan shall participate in its expenses, 
  7.6   losses, and equity distribution in the proportion that the 
  7.7   premiums written as ~~herein~~ defined in this subdivision, but 
  7.8   excluding that portion, if any, of premiums ~~which is~~ 
  7.9   attributable to the reinsurance arrangement maintained by the 
  7.10  facility, by each such member during the second preceding 
  7.11  calendar year bear to the aggregate premiums written in this 
  7.12  state by all members of the ~~facility~~ plan.  ~~Such~~ Participation 
  7.13  by each member in the ~~facility shall be~~ plan is determined 
  7.14  annually by the ~~facility~~ plan on the basis of such premiums 
  7.15  written during the second preceding calendar year as disclosed 
  7.16  in the annual statements and other reports filed by the member 
  7.17  with the ~~commissioner~~ NAIC.  
  7.18     Sec. 10.  Minnesota Statutes 2002, section 65A.36, is 
  7.19  amended to read: 
  7.20     65A.36 [UNDERWRITING.] 
  7.21     Subdivision 1.  [EVALUATION OF RISK.] Agents are not 
  7.22  permitted to bind coverage.  The ~~facility~~ Minnesota FAIR plan 
  7.23  shall issue a policy if the risk meets preliminary underwriting 
  7.24  requirements.  The ~~facility~~ plan may request an inspection 
  7.25  report to obtain further underwriting information.  If the 
  7.26  inspection reveals that the applicant is not eligible for the 
  7.27  coverage applied for, the ~~facility~~ plan shall inform the 
  7.28  applicant within 59 days of the inception of the policy that the 
  7.29  policy will be rescinded under section 65A.01, subdivision 3, 
  7.30  paragraph (b), or canceled under section 65A.38.  If the 
  7.31  applicant is eligible for other coverage provided by 
  7.32  the ~~facility~~ plan, the ~~facility~~ plan will offer to replace the 
  7.33  rescinded or canceled policy with a policy providing coverage 
  7.34  for which the applicant is eligible. 
  7.35     Before the 60th day after the inception of the policy, the 
  7.36  ~~facility~~ FAIR plan shall advise the applicant that: 
  8.1      ~~(a)~~ (1) the risk is acceptable with or without a condition 
  8.2   charge or adjustment of policy limits.  If a condition charge 
  8.3   applies, the ~~facility~~ plan will tell the insured what 
  8.4   improvements are necessary in order to remove the charge; 
  8.5      ~~(b)~~ (2) the risk is not acceptable unless improvements 
  8.6   noted by the ~~facility~~ plan are made by the applicant and 
  8.7   confirmed by the ~~facility~~ plan; or 
  8.8      ~~(c)~~ (3) the risk is not acceptable for the reasons stated 
  8.9   by the ~~facility~~ plan.  
  8.10     Subd. 2.  [PREMIUM INVOICE.] If the risk is accepted, an 
  8.11  invoice will be delivered to the applicant requiring ~~payment~~ 
  8.12  remittance of the appropriate premium ~~amount~~.  ~~After receipt of~~ 
  8.13  ~~the invoiced premium, the facility shall issue an insurance~~ 
  8.14  ~~policy to the applicant within five business days.~~  
  8.15     Subd. 3.  [DECLINING A RISK.] In the event a risk is 
  8.16  declined because it fails to meet reasonable underwriting 
  8.17  standards, the applicant ~~shall~~ must be so notified.  Reasonable 
  8.18  underwriting standards ~~shall~~ include, but are not ~~be~~ limited to~~,~~ 
  8.19  ~~the following~~: 
  8.20     ~~(a)~~ (1) the physical condition of the property, such as its 
  8.21  construction, heating, wiring, evidence of previous 
  8.22  fires, significant unrepaired damage, or general deterioration; 
  8.23     ~~(b) its~~ (2) the present use or housekeeping of the property 
  8.24  such as vacancy, overcrowding, storage of rubbish, or flammable 
  8.25  materials; or 
  8.26     ~~(c)~~ (3) other specific characteristics of ownership, 
  8.27  condition, occupancy, or maintenance which are violative of 
  8.28  public policy and result in increased exposure to loss.  
  8.29     Neighborhood or area location or any environmental hazard 
  8.30  beyond the control of the property owner ~~shall~~ are not ~~be deemed~~ 
  8.31  ~~to be~~ acceptable criteria for declining a risk.  
  8.32     Subd. 4.  [APPEAL OF PLAN DECISION.] In the event that a 
  8.33  risk is declined on the basis that it does not meet reasonable 
  8.34  underwriting standards, or the coverage will be written on 
  8.35  condition that the property be improved, the ~~facility~~ plan 
  8.36  shall, within five business days, send copies of the inspection 
  9.1   report to the applicant and the commissioner, and shall advise 
  9.2   the applicant of the right to and the procedure for an appeal to 
  9.3   the governing board and to the commissioner.  
  9.4      Subd. 5.  [ACTION ON COMPLETED APPLICATION.] The ~~facility~~ 
  9.5   plan must within five business days of the receipt of a 
  9.6   completed application advise the applicant that the risk has 
  9.7   been declined, the risk has been accepted, or that the ~~risk~~ 
  9.8   ~~meets preliminary underwriting standards and a policy has been~~ 
  9.9   ~~issued~~ limit of coverage has been adjusted to reflect the 
  9.10  insurable value of the subject property. 
  9.11     Sec. 11.  Minnesota Statutes 2002, section 65A.37, is 
  9.12  amended to read: 
  9.13     65A.37 [POLICY FORMS.] 
  9.14     All policies ~~shall~~ must be on standard policy forms ~~at loss~~ 
  9.15  ~~costs~~ published by Insurance Services Office, issued for a term 
  9.16  of one year, and approved by the commissioner.  ~~All homeowners,~~ 
  9.17  ~~cooperative housing insurance, and condominium unit owners~~ 
  9.18  ~~insurance policies must be on forms published by Insurance~~ 
  9.19  ~~Services Office and approved by the commissioner.~~ 
  9.20     Sec. 12.  Minnesota Statutes 2002, section 65A.375, is 
  9.21  amended to read: 
  9.22     65A.375 [RATES ~~FOR COOPERATIVE HOUSING AND NEIGHBORHOOD~~ 
  9.23  ~~REAL ESTATE TRUSTS~~.] 
  9.24     The commissioner shall set the insurance rates for 
  9.25  cooperative housing, organized under chapter 308A, and for 
  9.26  neighborhood real estate trusts, characterized as nonprofit 
  9.27  ownership of real estate with resident control.  The rates must 
  9.28  be actuarially sound.  All other rates used by the Minnesota 
  9.29  FAIR plan must be approved by the commissioner prior to use. 
  9.30     Sec. 13.  Minnesota Statutes 2002, section 65A.38, 
  9.31  subdivision 1, is amended to read: 
  9.32     Subdivision 1.  The ~~facility~~ Minnesota FAIR plan shall not 
  9.33  cancel a policy issued under sections 65A.31 to 65A.42 except 
  9.34  ~~for~~: 
  9.35     ~~(a)~~ (1) for cause which would have been grounds for 
  9.36  nonacceptance of the risk under the program had the cause been 
 10.1   known to the ~~facility~~ plan at the time of acceptance; 
 10.2      ~~(b)~~ (2) for nonpayment of premium; or 
 10.3      ~~(c)~~ (3) with the approval of the governing board. 
 10.4      Sec. 14.  Minnesota Statutes 2002, section 65A.38, 
 10.5   subdivision 5, is amended to read: 
 10.6      Subd. 5.  Cancellation of a commercial property insurance 
 10.7   policy issued by the ~~facility~~ Minnesota FAIR plan must comply 
 10.8   with sections 60A.35 to 60A.38.  
 10.9      Sec. 15.  Minnesota Statutes 2002, section 65A.40, is 
 10.10  amended to read: 
 10.11     65A.40 [EDUCATION PROGRAMS.] 
 10.12     The ~~facility~~ plan will undertake a continuing public 
 10.13  education program, in cooperation with producers and others, to 
 10.14  assure that the Minnesota FAIR Plan Act receives adequate public 
 10.15  attention.  
 10.16     Sec. 16.  Minnesota Statutes 2002, section 65A.41, is 
 10.17  amended to read: 
 10.18     65A.41 [AGENTS.] 
 10.19     Subdivision 1.  [GENERALLY.] A person licensed under 
 10.20  chapter 60K may submit an application for coverage to 
 10.21  the ~~facility~~ Minnesota FAIR plan and receive a commission from 
 10.22  the ~~facility~~ plan for ~~submitting the application~~ premiums paid 
 10.23  for coverage.  However, the licensee is not an agent of 
 10.24  the ~~facility~~ Minnesota FAIR plan for purposes of state law.  All 
 10.25  checks or similar instruments submitted in payment of ~~facility~~ 
 10.26  plan premiums must be made payable to the ~~facility~~ Minnesota 
 10.27  FAIR plan and not the agent.  
 10.28     Subd. 2.  [DUTY TO SUBMIT APPLICATION.] An agent or broker 
 10.29  shall not refuse to submit an application for basic property 
 10.30  insurance coverage to the ~~facility~~ Minnesota FAIR plan if 
 10.31  licensed to write and actively engaged in writing such insurance.
 10.32     Sec. 17.  Minnesota Statutes 2002, section 65A.42, is 
 10.33  amended to read: 
 10.34     65A.42 [IMMUNITY FROM LIABILITY.] 
 10.35     There ~~shall be~~ is no civil or criminal liability on the 
 10.36  part of, and no cause of action of any nature ~~shall arise~~ arises 
 11.1   against insurers, the ~~facility~~ Minnesota FAIR plan, the 
 11.2   governing board, or employees of the ~~facility~~ plan or the 
 11.3   commissioner or the commissioner's authorized representatives, 
 11.4   for any acts or omissions by them if the acts or omissions were 
 11.5   in good faith and within the scope of their responsibilities 
 11.6   under sections 65A.31 to 65A.42.  The inspection reports and 
 11.7   communications of the inspection vendors and the ~~facility~~ 
 11.8   Minnesota FAIR plan are not public documents. 
 11.9      Sec. 18.  [REPEALER.] 
 11.10     Minnesota Statutes 2002, section 65A.33, subdivision 5, is 
 11.11  repealed.