1.1                          A bill for an act 
  1.2             relating to real property; authorizing municipalities 
  1.3             to establish trust or escrow accounts for proceeds 
  1.4             from losses arising from fire or explosion of certain 
  1.5             insured real property; authorizing municipalities to 
  1.6             utilize escrowed funds to secure, repair, or demolish 
  1.7             damaged or destroyed structures; proposing coding for 
  1.8             new law in Minnesota Statutes, chapter 65A. 
  1.9   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.10     Section 1.  [65A.50] [TRUST OR ESCROW ACCOUNTS; INSURED 
  1.11  REAL PROPERTY FIRE OR EXPLOSION LOSS PROCEEDS.] 
  1.12     Subdivision 1.  [DEFINITIONS.] (a) "Municipality" means 
  1.13  statutory or home rule charter city or town. 
  1.14     (b) "Final settlement" means a determination of the amount 
  1.15  due and owing to the insured, for a loss to insured real 
  1.16  property, by any of the following means: 
  1.17     (1) acceptance of a proof of loss by the insurer; 
  1.18     (2) execution of a release by the insured; 
  1.19     (3) acceptance of an arbitration award by both the insured 
  1.20  and the insurer; or 
  1.21     (4) judgment of a court of competent jurisdiction. 
  1.22     Subd. 2.  [PARTIAL WITHHOLDING FROM SETTLEMENT PAYMENTS; 
  1.23  NOTICE.] Except as otherwise provided in this section, with 
  1.24  respect to insured real property located in a municipality which 
  1.25  has elected to apply this section as provided in subdivision 12, 
  1.26  when a claim is filed for a loss to insured real property due to 
  1.27  fire or explosion and a final settlement is reached on the loss 
  2.1   to the insured real property, an insurer shall withhold from 
  2.2   payment 15 percent of the actual cash value of the insured real 
  2.3   property at the time of the loss or 15 percent of the final 
  2.4   settlement, whichever is less.  At the time that 15 percent of 
  2.5   the settlement or judgment is withheld, the insurer shall give 
  2.6   notice of the withholding to the treasurer of the municipality 
  2.7   in which the insured real property is located, to the insured, 
  2.8   and to any mortgagee having an existing lien or liens against 
  2.9   the insured real property, if the mortgagee is named on the 
  2.10  policy.  In the case of a judgment, notice shall also be 
  2.11  provided to the court in which judgment was entered.  The notice 
  2.12  shall include all of the following: 
  2.13     (1) the identity and address of the insurer; 
  2.14     (2) the name and address of each policyholder, including 
  2.15  any mortgagee; 
  2.16     (3) location of the insured real property; 
  2.17     (4) the date of loss, policy number, and claim number; 
  2.18     (5) the amount of money withheld; 
  2.19     (6) a statement that the municipality may have the withheld 
  2.20  amount paid into a trust or escrow account established for the 
  2.21  purposes of this section if it shows cause, pursuant to 
  2.22  subdivision 3, within 15 days that the money should be withheld 
  2.23  to protect the public health and safety, otherwise the withheld 
  2.24  amount shall be paid to the insured at the expiration of 15 
  2.25  days; and 
  2.26     (7) an explanation of the provisions of this section. 
  2.27     Subd. 3.  [ESCROW PROCEDURE.] In order for a municipality 
  2.28  to escrow the amount withheld by the insurer, and to retain that 
  2.29  amount, the following procedure shall be used. 
  2.30     (a) An affidavit prepared by the chief fire official or 
  2.31  another authorized representative of the municipality designated 
  2.32  by the governing body of the municipality that the damaged 
  2.33  insured structure violates existing named health and safety 
  2.34  standards requiring the escrow of the withheld amount as surety 
  2.35  for the repair, replacement, or removal of the damaged structure 
  2.36  shall constitute cause for the escrowing of the withheld amount. 
  3.1      (b) In the case of a settlement, the affidavit shall be 
  3.2   sent to the insurer, the insured, and any mortgagees.  Upon 
  3.3   receipt of the affidavit, the insurer shall forward the withheld 
  3.4   amount to the treasurer of the municipality and shall provide 
  3.5   notice of the forwarding to the insured and any mortgagees.  
  3.6      (c) In the case of a judgment, the affidavit shall be sent 
  3.7   to the insurer, the insured, any mortgagees, and the court in 
  3.8   which the judgment was entered.  Upon the motion of the 
  3.9   municipality, the court shall order the withheld amount to be 
  3.10  transmitted to the treasurer of the municipality. 
  3.11     (d) Within 30 days after the escrowing of the withheld 
  3.12  amount under this section, the municipality may apply to the 
  3.13  district court for declaratory relief in order to establish its 
  3.14  rights to the policy proceeds held in escrow by the 
  3.15  municipality.  The municipality shall have such a right to the 
  3.16  proceeds upon a showing that the health, safety, and welfare of 
  3.17  the inhabitants of the municipality will be jeopardized unless 
  3.18  the proceeds are retained by the municipality.  If declaratory 
  3.19  relief is granted, the court shall issue an order permitting the 
  3.20  municipality to retain the proceeds as requested, in accordance 
  3.21  with the provisions of this section, to be used as provided in 
  3.22  this section.  If the municipality fails to apply for 
  3.23  declaratory relief within the 30-day period, or if declaratory 
  3.24  relief is denied, the municipality shall immediately return to 
  3.25  the insured the proceeds held in escrow. 
  3.26     Subd. 4.  [DEPOSIT IN TRUST OR ESCROW ACCOUNT; RELEASE OF 
  3.27  PROCEEDS TO MORTGAGEE.] Upon receipt of money and information 
  3.28  from an insurer as prescribed in subdivisions 2 and 3, the local 
  3.29  treasurer shall record the information and the date of receipt 
  3.30  of the money and shall immediately deposit the money in a trust 
  3.31  or escrow account established for purposes of this section.  The 
  3.32  account may be interest-bearing.  If the mortgage on the insured 
  3.33  property is in default, the treasurer of the municipality, upon 
  3.34  written request from a first mortgagee of property with respect 
  3.35  to which policy proceeds were withheld and placed into a trust 
  3.36  or escrow account under subdivisions 2, 3, and this subdivision, 
  4.1   shall release to the mortgagee all or any part of the policy 
  4.2   proceeds received by the municipality with respect to that 
  4.3   property, not later than ten days after receipt of the written 
  4.4   request by the mortgagee, to the extent necessary to satisfy any 
  4.5   outstanding lien of the mortgagee. 
  4.6      Subd. 5.  [COMMINGLING OF FUNDS; RETENTION OF 
  4.7   INTEREST.] Except as provided in subdivision 8, money deposited 
  4.8   in an account pursuant to subdivision 4 shall not be commingled 
  4.9   with municipal funds.  Any interest earned on money placed in a 
  4.10  trust or escrow account shall be retained by the municipality to 
  4.11  defray expenses incurred under this section.  
  4.12     Subd. 6.  [RELEASE OF DEPOSITED PROCEEDS TO 
  4.13  INSURED.] Except as provided in clause (3), the policy proceeds 
  4.14  deposited under subdivision 4 shall immediately be forwarded to 
  4.15  the insured when the chief fire official or another authorized 
  4.16  representative of the municipality designated by the governing 
  4.17  body of the municipality receives or is shown reasonable proof 
  4.18  of any of the following: 
  4.19     (1) that the damaged or destroyed portions of the insured 
  4.20  structure have been repaired or replaced, except to the extent 
  4.21  that the amount withheld under this subdivision is needed to 
  4.22  complete repair or replacement; 
  4.23     (2) that the damaged or destroyed structure and any and all 
  4.24  remnants of the structure have been removed from the land on 
  4.25  which the structure or the remnants of the structure were 
  4.26  situated, by the owner or by any other person, in compliance 
  4.27  with the local code requirements of the municipality in which 
  4.28  the structure was located; or 
  4.29     (3) that the insured has entered into a contract to perform 
  4.30  repair, replacement, or removal services with respect to the 
  4.31  insured real property and that the insured consents to payment 
  4.32  of funds directly to the contractor performing the services.  
  4.33  Funds released under this clause may be forwarded only to a 
  4.34  contractor performing services on the insured property. 
  4.35     Subd. 7.  [REASONABLE PROOF.] Reasonable proof required 
  4.36  under subdivision 6 shall include any of the following: 
  5.1      (1) originals or copies of pertinent contracts, invoices, 
  5.2   receipts, and other similar papers evidencing both the work 
  5.3   performed or to be performed and the materials used or to be 
  5.4   used by all contractors performing repair, replacement, or 
  5.5   removal services with respect to the insured real property, 
  5.6   other than a contractor subject to clause (2); 
  5.7      (2) an affidavit executed by the contractor which has 
  5.8   performed the greatest amount of repair or replacement work on 
  5.9   the structure, or which has done most of the clearing and 
  5.10  removal work if structure repair or replacement is not to be 
  5.11  performed.  The contractor shall attach to the affidavit all 
  5.12  pertinent contracts, invoices, and receipts and shall swear that 
  5.13  these attached papers correctly indicate the nature and extent 
  5.14  of the work performed to date by the contractor and the 
  5.15  materials used; or 
  5.16     (3) an inspection of the insured real property to verify 
  5.17  that repair, replacement, or clearing has been completed in 
  5.18  accordance with subdivision 6.  
  5.19     Subd. 8.  [USE OF RETAINED PROCEEDS.] If with respect to a 
  5.20  loss, reasonable proof is not received by or shown to a fire 
  5.21  official or another authorized representative of the 
  5.22  municipality designated by the governing body of the 
  5.23  municipality within 45 days after the policy proceeds portion 
  5.24  was received by the treasurer, the municipality shall use the 
  5.25  retained proceeds to secure, repair, or demolish the damaged or 
  5.26  destroyed structure and clear the property in question, so that 
  5.27  the structure and property are in compliance with local code 
  5.28  requirements and applicable ordinances of the municipality.  Any 
  5.29  unused portion of the retained proceeds shall be returned to the 
  5.30  insured. 
  5.31     Subd. 9.  [PROCEEDS NOT INCLUDED.] A final settlement shall 
  5.32  not include the payment of policy proceeds for personal property 
  5.33  or contents damage or for additional coverage not contained in 
  5.34  the fire coverage portion of the fire insurance policy. 
  5.35     Subd. 10.  [IMMUNITY FROM LIABILITY.] There shall not be 
  5.36  liability on the part of, and a cause of action shall not arise 
  6.1   against, an insurer or an agent or employee of an insurer for 
  6.2   withholding or transferring money in the course of complying or 
  6.3   attempting to comply with this section.  
  6.4      Subd. 11.  [APPLICATION OF SECTION; AMOUNT OF 
  6.5   SETTLEMENT.] This section applies only to final settlements 
  6.6   which exceed 49 percent of the insurance on the insured real 
  6.7   property. 
  6.8      Subd. 12.  [APPLICATION OF SECTION; ELECTION; LIST OF 
  6.9   ELECTING MUNICIPALITIES.] This section applies only to property 
  6.10  located in a municipality if the municipality, pursuant to a 
  6.11  resolution by the governing body, notifies the commissioner in 
  6.12  writing that the municipality has established a trust or escrow 
  6.13  account to be used as prescribed in this section and intends to 
  6.14  uniformly apply this section with respect to all property 
  6.15  located within the municipality following written notification 
  6.16  to the commissioner.  The commissioner shall prepare and 
  6.17  distribute a list of all municipalities which have elected to 
  6.18  apply this section to all insurance companies transacting 
  6.19  property insurance in this state. 
  6.20     Subd. 13.  [RETENTION ON LIST.] A municipality shall remain 
  6.21  on the list until a written request for deletion has been 
  6.22  received by the commissioner and the amended list has been 
  6.23  prepared pursuant to this subdivision. 
  6.24     Subd. 14.  [ADDITION TO LIST.] A municipality may apply to 
  6.25  be added to the list by making a written request for addition to 
  6.26  the commissioner.  When a written request for addition from a 
  6.27  municipality has been received by the commissioner, an amended 
  6.28  list shall be prepared and distributed indicating the addition.  
  6.29  The addition shall be effective on the date specified by the 
  6.30  commissioner in the amendment.  The commissioner shall notify 
  6.31  the municipality and insurance companies of the effective date 
  6.32  of the addition which shall be effective not less than 30 days 
  6.33  after receipt of notice by the insurance company.  A 
  6.34  municipality shall not apply this section with respect to any 
  6.35  loss which occurred before the effective date of the addition. 
  6.36     Subd. 15.  [DELETION FROM LIST.] A municipality may cease 
  7.1   to apply this section for a period of not less than six months 
  7.2   upon not less than 30 days' written notice to the commissioner.  
  7.3   After receipt of request to be deleted from the list, the 
  7.4   commissioner shall prepare and distribute an amendment to the 
  7.5   list indicating the deletion.  The deletion shall be effective 
  7.6   on the date specified by the commissioner in the amendment.  The 
  7.7   commissioner shall notify the municipality and insurance 
  7.8   companies of the effective date of the deletion which shall be 
  7.9   effective not less than 30 days after receipt of the notice by 
  7.10  the insurance company.  A municipality shall continue to apply 
  7.11  this section with respect to any loss which occurred before the 
  7.12  effective date of the deletion, notwithstanding the deletion. 
  7.13     Subd. 16.  [EXCEPTIONS TO WITHHOLDING REQUIREMENTS.] The 
  7.14  withholding requirements of this section do not apply if all of 
  7.15  the following occur: 
  7.16     (1) within 15 days after agreement on a final settlement 
  7.17  between the insured and the insurer, the insured has filed with 
  7.18  the insurer evidence of a contract to repair as described in 
  7.19  subdivision 7; 
  7.20     (2) the insured consents to the payment of funds directly 
  7.21  to the contractor performing the repair services.  Funds 
  7.22  released under this clause may be forwarded only to a contractor 
  7.23  performing the repair services on the insured property; and 
  7.24     (3) on receipt of the contract to repair, the insurer gives 
  7.25  notice to the municipality in which the property is situated 
  7.26  that there will not be a withholding under this section because 
  7.27  of the repair contract. 
  7.28     Subd. 17.  [DEMOLITION COSTS OR DEBRIS REMOVAL COSTS AS 
  7.29  PART OF FINAL SETTLEMENT; WITHHOLDING.] If the insured and the 
  7.30  insurer have agreed on the demolition costs or the debris 
  7.31  removal costs as part of the final settlement of the real 
  7.32  property insured claim, the insurer shall withhold one of the 
  7.33  following sums, whichever sum is the largest, and shall pay that 
  7.34  sum in accordance with this section: 
  7.35     (1) the agreed cost of demolition or debris removal; 
  7.36     (2) 15 percent of the actual cash value of the insured real 
  8.1   property at the time of loss; or 
  8.2      (3) 15 percent of the final settlement of the insured real 
  8.3   property claim. 
  8.4      Sec. 2.  [EFFECTIVE DATE.] 
  8.5      This act is effective January 1, 1996.