1997 Minnesota Statutes

     65A.50 Trust or escrow accounts; insured real property 
  fire or explosion loss proceeds. 

    Subdivision 1.    Definitions.  (a) "Municipality" means 
 statutory or home rule charter city or town. 

    (b) "Final settlement" means a determination of the amount 
 due and owing to the insured, for a loss to insured real 
 property, by any of the following means: 

    (1) acceptance of a proof of loss by the insurer; 

    (2) execution of a release by the insured; 

    (3) acceptance of an arbitration award by both the insured 
 and the insurer; or 

    (4) judgment of a court of competent jurisdiction. 

    Subd. 2.    Partial withholding from settlement payments; 
 notice.  Except as otherwise provided in this section, with 
 respect to insured real property located in a municipality which 
 has elected to apply this section as provided in subdivision 12, 
 when a claim is filed for a loss to insured real property due to 
 fire or explosion and a final settlement is reached on the loss 
 to the insured real property, an insurer shall withhold from 
 payment 25 percent of the actual cash value of the insured real 
 property at the time of the loss or 25 percent of the final 
 settlement, whichever is less.  At the time that 25 percent of 
 the settlement or judgment is withheld, the insurer shall give 
 notice of the withholding to the treasurer of the municipality 
 in which the insured real property is located, to the insured, 
 and to any mortgagee having an existing lien or liens against 
 the insured real property, if the mortgagee is named on the 
 policy.  In the case of a judgment, notice shall also be 
 provided to the court in which judgment was entered.  The notice 
 shall include all of the following: 

    (1) the identity and address of the insurer; 

    (2) the name and address of each policyholder, including 
 any mortgagee; 

    (3) location of the insured real property; 

    (4) the date of loss, policy number, and claim number; 

    (5) the amount of money withheld; 

    (6) a statement that the municipality may have the withheld 
 amount paid into a trust or escrow account established for the 
 purposes of this section if it shows cause, pursuant to 
 subdivision 3, within 30 days that the money should be withheld 
 to protect the public health and safety, otherwise the withheld 
 amount shall be paid to the insured at the expiration of 30 
 days; and 

    (7) an explanation of the provisions of this section and a 
 verbatim reproduction of subdivision 16. 

    Subd. 3.    Escrow procedure.  In order for a 
 municipality to escrow the amount withheld by the insurer, and 
 to retain that amount, the following procedure shall be used. 

    (a) An affidavit prepared by the chief fire official or 
 another authorized representative of the municipality designated 
 by the governing body of the municipality that the damaged 
 insured structure violates existing named health and safety 
 standards requiring the escrow of the withheld amount as surety 
 for the repair, replacement, or removal of the damaged structure 
 shall constitute cause for the escrowing of the withheld amount. 

    (b) In the case of a settlement, the affidavit shall be 
 sent to the insurer, the insured, and any mortgagees.  Upon 
 receipt of the affidavit, the insurer shall forward the withheld 
 amount to the treasurer of the municipality and shall provide 
 notice of the forwarding to the insured and any mortgagees.  

    (c) In the case of a judgment, the affidavit shall be sent 
 to the insurer, the insured, any mortgagees, and the court in 
 which the judgment was entered.  Upon receipt of the affidavit, 
 the insurer shall forward the withheld amount to the treasurer 
 of the municipality and shall provide notice of the forwarding 
 to the insured, any mortgagees, and the court in which judgment 
 was entered. 

    Subd. 4.    Deposit in trust or escrow account; release of 
 proceeds to mortgagee.  Upon receipt of money and information 
 from an insurer as prescribed in subdivisions 2 and 3, the local 
 treasurer shall record the information and the date of receipt 
 of the money and shall immediately deposit the money in a trust 
 or escrow account established for purposes of this section.  The 
 account may be interest-bearing.  If the mortgage on the insured 
 property is in default, the treasurer of the municipality, upon 
 written request from a first mortgagee of property with respect 
 to which policy proceeds were withheld and placed into a trust 
 or escrow account under subdivisions 2, 3, and this subdivision, 
 shall release to the mortgagee all or any part of the policy 
 proceeds received by the municipality with respect to that 
 property, not later than ten days after receipt of the written 
 request by the mortgagee, to the extent necessary to satisfy any 
 outstanding lien of the mortgagee. 

    Subd. 5.    Commingling of funds; retention of interest. 
  Except as provided in subdivision 8, money deposited in an 
 account pursuant to subdivision 4 shall not be commingled with 
 municipal funds.  Any interest earned on money placed in a trust 
 or escrow account shall be retained by the municipality to 
 defray expenses incurred under this section.  

    Subd. 6.    Release of deposited proceeds to insured.  
 Except as provided in clause (3), the policy proceeds deposited 
 under subdivision 4 shall immediately be forwarded to the 
 insured when the chief fire official or another authorized 
 representative of the municipality designated by the governing 
 body of the municipality receives or is shown reasonable proof 
 of any of the following: 

    (1) that the damaged or destroyed portions of the insured 
 structure have been repaired or replaced, except to the extent 
 that the amount withheld under this subdivision is needed to 
 complete repair or replacement; 

    (2) that the damaged or destroyed structure and any and all 
 remnants of the structure have been removed from the land on 
 which the structure or the remnants of the structure were 
 situated, by the owner or by any other person, in compliance 
 with the local code requirements of the municipality in which 
 the structure was located; or 

    (3) that the insured has entered into a contract to perform 
 repair, replacement, or removal services with respect to the 
 insured real property and that the insured consents to payment 
 of funds directly to the contractor performing the services.  
 Funds released under this clause may be forwarded only to a 
 contractor performing services on the insured property. 

    Subd. 7.    Reasonable proof.  Reasonable proof required 
 under subdivision 6 shall include any of the following: 

    (1) originals or copies of pertinent contracts, invoices, 
 receipts, and other similar papers evidencing both the work 
 performed or to be performed and the materials used or to be 
 used by all contractors performing repair, replacement, or 
 removal services with respect to the insured real property, 
 other than a contractor subject to clause (2); 

    (2) an affidavit executed by the contractor which has 
 performed the greatest amount of repair or replacement work on 
 the structure, or which has done most of the clearing and 
 removal work if structure repair or replacement is not to be 
 performed.  The contractor shall attach to the affidavit all 
 pertinent contracts, invoices, and receipts and shall swear that 
 these attached papers correctly indicate the nature and extent 
 of the work performed to date by the contractor and the 
 materials used; or 

    (3) an inspection of the insured real property to verify 
 that repair, replacement, or clearing has been completed in 
 accordance with subdivision 6.  

    Subd. 8.    Use of retained proceeds.  If with respect 
 to a loss, reasonable proof is not received by or shown to a 
 fire official or another authorized representative of the 
 municipality designated by the governing body of the 
 municipality within 45 days after the policy proceeds portion 
 was received by the treasurer, the municipality shall use the 
 retained proceeds to secure, repair, or demolish the damaged or 
 destroyed structure and clear the property in question, so that 
 the structure and property are in compliance with local code 
 requirements and applicable ordinances of the municipality.  If, 
 before the lapse of the 45 days after the proceeds portion was 
 received by the treasurer, the municipality has secured, 
 repaired, or demolished the damaged or destroyed structure under 
 chapter 299F or 463 or other applicable law or ordinance, once 
 the 45 days lapse, the municipality may release the special 
 assessment placed on the property, if any, and reimburse itself 
 from the retained funds.  No more than 15 percent of the policy 
 proceeds used by the municipality under this subdivision may be 
 attributed to the municipality's administrative expenses, which 
 must be directly related to the actions authorized under this 
 subdivision.  Any unused portion of the retained proceeds shall 
 be returned to the insured. 

    Subd. 9.    Proceeds not included.  A final settlement 
 shall not include the payment of policy proceeds for personal 
 property or contents damage or for additional coverage not 
 contained in the fire coverage portion of the fire insurance 
 policy. 

    Subd. 10.    Immunity from liability.  There shall not 
 be liability on the part of, and a cause of action shall not 
 arise against, an insurer or an agent or employee of an insurer 
 for withholding or transferring money in the course of complying 
 or attempting to comply with this section.  

    Subd. 11.    Application of section; amount of settlement. 
  This section applies only to final settlements which exceed 
 49 percent of the insurance on the insured real property. 

    Subd. 12.    Application of section; election; list of 
 electing municipalities.  This section applies only to 
 property located in a municipality if the municipality, pursuant 
 to a resolution by the governing body, notifies the commissioner 
 in writing that the municipality has established a trust or 
 escrow account to be used as prescribed in this section and 
 intends to uniformly apply this section with respect to all 
 property located within the municipality following written 
 notification to the commissioner.  The commissioner shall 
 prepare and distribute a list of all municipalities which have 
 elected to apply this section to all insurance companies 
 transacting property insurance in this state. 

    Subd. 13.    Retention on list.  (a) A municipality 
 shall remain on the list until a written request for deletion 
 has been received by the commissioner, or until the municipality 
 has failed to comply with paragraph (b), and the amended list 
 has been prepared pursuant to this subdivision. 

    (b) Municipalities on the list shall report every two years 
 to the commissioner in writing regarding the extent of the 
 municipality's use of this section and the effect of this 
 section on arson fires in that municipality.  The report must be 
 filed with the commissioner no later than 90 days after the 
 two-year anniversary of the municipality's placement on the list 
 and thereafter no later than 90 days after each subsequent 
 two-year period.  If the commissioner has not received a report 
 required under this paragraph, the commissioner shall promptly 
 provide the municipality a written reminder notice.  If the 
 commissioner has not received the report within 30 days after 
 providing the written notice, the municipality shall be treated 
 as having made a written request for deletion under paragraph 
 (a). 

    Subd. 14.    Addition to list.  A municipality may apply 
 to be added to the list by making a written request for addition 
 to the commissioner.  When a written request for addition from a 
 municipality has been received by the commissioner, an amended 
 list shall be prepared and distributed indicating the addition.  
 The addition shall be effective on the date specified by the 
 commissioner in the amendment.  The commissioner shall notify 
 the municipality and insurance companies of the effective date 
 of the addition which shall be effective not less than 30 days 
 after receipt of notice by the insurance company.  A 
 municipality shall not apply this section with respect to any 
 loss which occurred before the effective date of the addition. 

    Subd. 15.    Deletion from list.  A municipality may 
 cease to apply this section for a period of not less than six 
 months upon not less than 30 days' written notice to the 
 commissioner.  After receipt of request to be deleted from the 
 list, the commissioner shall prepare and distribute an amendment 
 to the list indicating the deletion.  The deletion shall be 
 effective on the date specified by the commissioner in the 
 amendment.  The commissioner shall notify the municipality and 
 insurance companies of the effective date of the deletion which 
 shall be effective not less than 30 days after receipt of the 
 notice by the insurance company.  A municipality shall continue 
 to apply this section with respect to any loss which occurred 
 before the effective date of the deletion, notwithstanding the 
 deletion. 

    Subd. 16.    Exceptions to withholding requirements.  
 The withholding requirements of this section do not apply if all 
 of the following occur: 

    (1) within 30 days after agreement on a final settlement 
 between the insured and the insurer, the insured has filed with 
 the insurer evidence of a contract to repair as described in 
 subdivision 7; 

    (2) the insured consents to the payment of funds directly 
 to the contractor performing the repair services.  Funds 
 released under this clause may be forwarded only to a contractor 
 performing the repair services on the insured property; and 

    (3) on receipt of the contract to repair, the insurer gives 
 notice to the municipality in which the property is situated 
 that there will not be a withholding under this section because 
 of the repair contract. 

    Subd. 17.    Demolition costs or debris removal costs as 
 part of final settlement; withholding.  If the insured and the 
 insurer have agreed on the demolition costs or the debris 
 removal costs as part of the final settlement of the real 
 property insured claim, the insurer shall withhold one of the 
 following sums, whichever sum is the largest, and shall pay that 
 sum in accordance with this section: 

    (1) the agreed cost of demolition or debris removal; 

    (2) 25 percent of the actual cash value of the insured real 
 property at the time of loss; or 

    (3) 25 percent of the final settlement of the insured real 
 property claim. 

    HIST: 1995 c 170 s 1; 1997 c 47 s 1-5; 1997 c 77 s 2