Minnesota Session Laws - 1993, Regular Session

  
    Laws of Minnesota 1993 

                        CHAPTER 248-S.F.No. 948 
           An act relating to insurance; property; regulating the 
          FAIR plan; modifying its provisions; making various 
          technical changes; amending Minnesota Statutes 1992, 
          sections 60C.22; 65A.31; 65A.32; 65A.33, subdivisions 
          4, 5, and 6; 65A.34; 65A.35; 65A.36; 65A.37; 65A.375; 
          65A.38; 65A.39; 65A.40; 65A.41; and 65A.42; repealing 
          Minnesota Statutes 1992, sections 65A.33, subdivision 
          8; and 65A.43.  
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
    Section 1.  Minnesota Statutes 1992, section 60C.22, is 
amended to read: 
    60C.22 [NOTICE FOR POLICY OR CONTRACT NOT COVERED.] 
    A policy or contract not covered by the Minnesota Life and 
Health Insurance Guaranty Association or the Minnesota Insurance 
Guaranty Association must contain the following notice in 
10-point type, stamped in red ink on the policy or contract and 
the application: 
 "THIS POLICY OR CONTRACT IS NOT PROTECTED BY THE MINNESOTA 
LIFE AND HEALTH INSURANCE GUARANTY ASSOCIATION OR THE 
MINNESOTA INSURANCE GUARANTY ASSOCIATION.  IN THE CASE OF 
INSOLVENCY, PAYMENT OF CLAIMS IS NOT GUARANTEED.  ONLY THE 
ASSETS OF THIS INSURER WILL BE AVAILABLE TO PAY YOUR CLAIM."
    This section does not apply to fraternal benefit societies 
regulated under chapter 64B. 
    Sec. 2.  Minnesota Statutes 1992, section 65A.31, is 
amended to read: 
    65A.31 [CITATION MINNESOTA FAIR PLAN ACT.] 
    Sections 65A.31 to 65A.43 65A.42 shall be known and may be 
cited as "the Minnesota FAIR plan act."  
    Sec. 3.  Minnesota Statutes 1992, section 65A.32, is 
amended to read: 
    65A.32 [PURPOSES.] 
    The purposes of sections 65A.31 to 65A.43 65A.42 are: 
    (1) To encourage stability in the property and liability 
insurance market for property located in this state; 
    (2) To encourage maximum use, in obtaining property and 
liability insurance, as defined in sections 65A.31 to 65A.43 
65A.42, of the normal insurance market provided by the private 
property and casualty insurance industry; 
    (3) To encourage the improvement of the condition of 
properties located in this state and to further orderly 
community development generally; 
    (4) To provide for the formulation and administration by an 
industry placement facility of a plan assuring an organization 
known as the Minnesota property insurance placement facility, 
which will assure fair access to insurance requirements (FAIR 
plan) in order that no property shall be denied property or 
liability insurance through the normal insurance market provided 
by the private property and casualty insurance industry except 
after a physical inspection of such property and a fair 
evaluation of its individual underwriting characteristics; 
    (5) To publicize the purposes and procedures of the FAIR 
plan to the end that no one may fail to seek its assistance 
through ignorance thereof lack of knowledge of its 
existence; and 
    (6) To provide for the formulation and administration by 
the industry Minnesota property insurance placement facility of 
a reinsurance arrangement whereby property and casualty insurers 
shall share equitably the responsibility for insuring insurable 
property for which property and liability insurance cannot be 
obtained through the normal insurance markets; and 
    (7) To provide a framework for participation by the state 
in a sharing of insured losses resulting from riots and other 
civil disorders occurring in this state as required by section 
1223 of the Housing and Urban Development Act of 1968 (Public 
Law Number 90-448, Ninetieth Congress, August 1, 1968).  
    Sec. 4.  Minnesota Statutes 1992, section 65A.33, 
subdivision 4, is amended to read: 
    Subd. 4.  "Industry Minnesota property insurance placement 
facility," hereinafter referred to as the facility, means the 
organization formed by insurers to assist applicants in securing 
property or liability insurance and to administer the FAIR 
plan and the joint reinsurance association.  
    Sec. 5.  Minnesota Statutes 1992, section 65A.33, 
subdivision 5, is amended to read: 
    Subd. 5.  "Inspection bureau" means the rating organization 
designated by the facility, with the approval of the 
commissioner, to make inspections as required under this program 
sections 65A.31 to 65A.42 and to perform such other duties as 
may be authorized by the facility.  
    Sec. 6.  Minnesota Statutes 1992, section 65A.33, 
subdivision 6, is amended to read: 
    Subd. 6.  "Premiums written" means gross direct premiums, 
excluding that portion of premium on risks ceded to the joint 
reinsurance association, charged during the second preceding 
calendar year with respect to property in this state on all 
policies of property or liability insurance and the property or 
liability insurance premium components of all multiperil 
policies, as computed by the facility, less return premiums, 
dividends paid or credited to policyholders, or the unused or 
unabsorbed portions of premium deposits.  
    Sec. 7.  Minnesota Statutes 1992, section 65A.34, is 
amended to read: 
    65A.34 [FAIR PLAN; INSPECTIONS AND REPORTS APPLICATION FOR 
COVERAGE.] 
    Subdivision 1.  Any person having an insurable interest in 
real or tangible personal property shall be entitled upon oral 
or written application therefor to the facility to a prompt 
inspection of the property by the inspection bureau without cost.
    Subd. 2.  The manner and scope of the inspections of FAIR 
plan business shall be prescribed by the facility with the 
approval of the commissioner.  
    Subd. 3.  An inspection report shall be made for each 
property inspected.  The report shall cover pertinent structural 
and occupancy features as well as the general condition of the 
building and surrounding structures.  A representative 
photograph of the property may be taken during the inspection.  
    Subd. 4.  During the inspection, the inspector shall point 
out features of structure and occupancy to the applicant or the 
applicant's representative and shall indicate those features 
which may result in condition charges if the risk is accepted.  
The inspector shall have no authority to advise whether any 
insurer the facility will provide the coverage.  
    Subd. 5.  Within five business days after the inspection, a 
copy of the completed inspection report, and any photograph, 
indicating the pertinent features of building, construction, 
maintenance, occupancy, and surrounding property shall be sent 
to the facility.  Included with the report shall be a rate 
make-up statement, including any condition charges or 
aftercharges which the inspection reveals to be necessary under 
any substandard conditions which are subject to a condition 
charge under the rating plan approved by the commissioner.  A 
copy of the inspection report shall be made available to the 
applicant or the applicant's agent upon request.  The person 
requesting the inspection report may designate the insurer or 
agency to which the inspection report is to be referred.  
    Subd. 6.  Before any insurer the facility may deny coverage 
or write coverage only at an aftercharged rate with a condition 
charge, it must cause an inspection to be made of any risk 
submitted to it, without cost to the owner.  
    Sec. 8.  Minnesota Statutes 1992, section 65A.35, is 
amended to read: 
    65A.35 [FAIR PLAN BUSINESS; DISTRIBUTION AND PLACEMENT 
ADMINISTRATION.] 
    Subdivision 1.  [MEMBERSHIP.] Each insurer which is 
authorized to write and is engaged in writing within this state, 
on a direct basis, property or liability insurance or any 
component thereof contained in a multiperil policy, including 
homeowners and commercial multiperil policies, shall participate 
in the industry placement facility, as hereinafter described, as 
a condition of its authority to write such kinds of insurance 
within this state.  
    Subd. 2.  [PURPOSES.] The purposes of the facility shall be 
twofold, as more fully set forth in this section: 
    (1) To formulate and administer, subject to the approval of 
the commissioner, a plan assuring fair access to insurance 
requirements in order that no property shall be denied property 
or liability insurance through the normal insurance market 
provided by the private property and casualty insurance 
industry, except after a physical inspection of such property 
and a fair evaluation of its individual underwriting 
characteristics; and 
    (2) To formulate and administer, subject to the approval of 
the commissioner, a reinsurance arrangement whereby the members 
of the facility shall share equitably the responsibility for 
insuring property which is insurable but for which property or 
liability insurance cannot be obtained through normal insurance 
markets.  
    Subd. 3.  [ORGANIZATION PLAN OF OPERATION.] Within 45 days 
following August 1, 1968, the industry placement facility shall 
submit to the commissioner for review a proposed The plan of 
operation of the facility, consistent with the provisions of 
sections 65A.31 to 65A.43 65A.42 and the purpose of the 
facility, which shall provide for the FAIR plan, the reinsurance 
arrangement, and the economical and efficient administration of 
the facility, including, but not limited to, management of the 
facility, preliminary assessment of all members for initial 
expenses necessary to commence operations, establishment of 
necessary facilities within this state, assessment of members to 
defray losses and expenses, commission arrangements, reasonable 
underwriting standards, acceptance and cession of reinsurance, 
and procedures for determining amounts of insurance to be 
provided.  
    The plan of operation shall be subject to approval by the 
commissioner and shall take effect ten days after having been 
approved.  If the commissioner disapproves the proposed plan of 
operation, the facility shall within 15 days submit for review 
an appropriately revised plan of operation and, if the facility 
fails to do so, or if the revised plan so filed is unacceptable, 
the commissioner shall promulgate a plan of operation.  
    Subd. 4.  [AMENDMENT OF THE PLAN OR OF OPERATION OF 
FACILITY.] The facility shall, on its own initiative, subject to 
prior approval by the commissioner, or at the direction of the 
commissioner, amend the plan of operation.  
    Subd. 5.  [ADMINISTRATION.] (1) The facility shall be 
administered by a governing board of nine directors, five of 
whom are elected by the members of the facility and four who 
represent the public.  Public directors may include licensed 
insurance agents.  Public directors are appointed by the 
commissioner.  At least one elected director shall be a domestic 
stock insurer, and at least one director shall be a domestic 
nonstock insurer.  In the election of directors, each member of 
the facility shall be allotted votes bearing the same ratio to 
the total number of votes to be cast as its degree of 
participation in the facility bears to the total participation.  
    (2) Any vacancy among the elected directors shall be filled 
by a vote of the other elected directors. 
    (3) If at any time the members fail to elect the required 
number of directors to the board, or a vacancy remains unfilled 
for more than 15 days, the commissioner may appoint the 
directors necessary to constitute a full board of directors. 
    (4) Vacancies among directors appointed by the commissioner 
shall be filled by appointment by the commissioner.  A person so 
appointed serves until the end of the term of the director they 
are the person is replacing.  
    (5) All directors serve for a period of two years.  The 
terms of all directors begin on January 1 of the year their 
appointment begins appointments begin.  
    (6) The plan of operation must provide for adequate 
compensation of directors.  A per diem amount and a procedure 
for reimbursement of expenses incurred in the discharge of their 
duties must be included in the plan.  Directors whose employers 
compensate them while serving on the board or who would submit 
their compensation to their employer employers are not eligible 
for compensation under the plan. 
    Subd. 6.  [PARTICIPATION.] All members of the facility 
shall participate in its expenses and in its profits and, 
losses, and equity distribution in the proportion that the 
premiums written as herein defined, but excluding that portion, 
if any, of premiums which is attributable to the reinsurance 
arrangement maintained by the facility, by each such member 
during the second preceding calendar year bear to the aggregate 
premiums written in this state by all members of the facility.  
Such participation by each member in the facility shall be 
determined annually by the facility on the basis of such 
premiums written during the second preceding calendar year as 
disclosed in the annual statements and other reports filed by 
the member with the commissioner.  
    Sec. 9.  Minnesota Statutes 1992, section 65A.36, is 
amended to read: 
    65A.36 [PROCEDURE AFTER INSPECTION AND SUBMISSION 
UNDERWRITING.] 
    Subdivision 1.  The facility shall, within three business 
days after receipt of an inspection report and application, 
complete an action report, advising may bind coverage following 
receipt of the completed application if the risk meets the 
preliminary underwriting requirements of the facility and if the 
appropriate binder fee accompanies the application.  Agents are 
not permitted to bind coverage. 
    Before the expiration of the binder, the facility may 
request an inspection report to obtain further underwriting 
information.  At least 15 days before the expiration of the 
binder, the facility shall advise the applicant that: 
    (a) The risk is acceptable and if aftercharged, the 
improvements that will be necessary for the removal of each 
aftercharge, or with or without a condition charge.  If a 
condition charge applies, the facility will tell the insured 
what improvements are necessary in order to remove the charge; 
    (b) The risk will be acceptable if the is not acceptable 
unless improvements noted in the action report by the facility 
are made by the applicant and confirmed by reinspection, the 
facility; or 
    (c) The risk is not acceptable for the reasons stated in 
the action report by the facility.  
    Subd. 2.  If the risk is accepted, the policy or binder 
shall an invoice will be delivered to the applicant requiring 
payment of the premium amount.  After receipt of the invoiced 
premium, the facility shall issue an insurance policy to the 
applicant within five business days of such acceptance, 
conditioned upon payment of the premium therefor.  
    Subd. 3.  In the event a risk is declined because it fails 
to meet reasonable underwriting standards, the applicant shall 
be so notified.  Reasonable underwriting standards shall 
include, but not be limited to, the following: 
    (a) Physical condition of the property, such as its 
construction, heating, wiring, evidence of previous fires, or 
general deterioration; 
    (b) Its present use or housekeeping such as vacancy, 
overcrowding, storage of rubbish, or flammable materials; 
    (c) Other specific characteristics of ownership, condition, 
occupancy, or maintenance which are violative of public policy 
and result in increased exposure to loss.  
    Neighborhood or area location or any environmental hazard 
beyond the control of the property owner shall not be deemed to 
be acceptable criteria for declining a risk.  
    Subd. 4.  In the event that a risk is declined on the basis 
that it does not meet reasonable underwriting standards, or the 
coverage will be written on condition that the property be 
improved, the insurer or facility shall, within five business 
days, send copies of the inspection and action reports report to 
the property owner applicant and the commissioner, and shall 
advise the property owner applicant of the right to and the 
procedure for an appeal to the governing committee board and to 
the commissioner.  
    Subd. 5.  If the inspection of the property reveals that 
there are one or more substandard conditions, aftercharges may 
be imposed in conformity with the substandard rating plan 
approved by the commissioner.  The facility must within five 
business days of the receipt of a completed application advise 
the applicant that the risk has been declined, the risk has been 
accepted, or that the risk meets preliminary underwriting 
standards and a binder has been issued. 
    Sec. 10.  Minnesota Statutes 1992, section 65A.37, is 
amended to read: 
    65A.37 [STANDARD POLICY COVERAGE FORMS.] 
    All policies, except homeowners policies, shall be on 
standard policy forms at rates published by Insurance Services 
Office and shall be issued for a term of one year.  All 
homeowners, cooperative housing insurance, and condominium 
insurance policies must be on forms published by Insurance 
Services Office and approved by the commissioner. 
    Sec. 11.  Minnesota Statutes 1992, section 65A.375, is 
amended to read: 
    65A.375 [RATES FOR COOPERATIVE HOUSING AND NEIGHBORHOOD 
REAL ESTATE TRUST INSURANCE TRUSTS.] 
    The commissioner shall set the insurance rates for 
cooperative housing, organized under chapter 308A, and for 
neighborhood real estate trusts, characterized as nonprofit 
ownership of real estate with resident control.  The rates must 
be actuarially sound. 
    Sec. 12.  Minnesota Statutes 1992, section 65A.38, is 
amended to read: 
    65A.38 [POLICY CANCELLATION.] 
    Subdivision 1.  No insurer The facility shall not cancel a 
policy or binder issued under this program sections 65A.31 to 
65A.42 except for: 
    (a) Cause which would have been grounds for nonacceptance 
of the risk under the program had such the cause been known to 
the insurer facility at the time of acceptance; or 
    (b) For Nonpayment of premium; or 
    (c) With the approval of the governing committee. 
    Subd. 2.  Except as otherwise required under subdivision 4 
or 5, at least 15 days notice of cancellation together with a 
statement of the reason therefor, shall be sent to the insured 
with a copy sent to the facility commissioner.  
    Subd. 3.  Any cancellation notice or notice of refusal to 
renew to the insured shall be accompanied by a statement that 
the insured has a right of appeal as hereinafter provided.  
    Subd. 4.  Cancellation of homeowner's insurance, as defined 
in sections 65A.27 to 65A.29 is subject to the provisions of 
those sections.  
    Subd. 5.  Cancellation of a commercial property insurance 
policy issued by the facility must comply with sections 60A.30 
to 60A.31 and 60A.35 to 60A.38.  
    Sec. 13.  Minnesota Statutes 1992, section 65A.39, is 
amended to read: 
    65A.39 [RIGHT OF APPEAL APPEALS.] 
    (a) Any applicant or participating insurer shall have the 
right of appeal to the board of directors, which shall promptly 
determine the appeal.  A decision of the board may be appealed 
to the commissioner within 30 days from notice of the action or 
decision.  The commissioner shall promptly determine the 
appeal.  Each denial of insurance shall be accompanied by a 
statement that the applicant has the right of appeal to the 
board and the commissioner and setting forth the procedures to 
be followed for the appeal.  A final action of the commissioner 
is subject to judicial review as provided in chapter 14.  
    (b) In lieu of the appeal to the commissioner under 
paragraph (a), an applicant or insurer may seek judicial review 
of the board's action. 
    Sec. 14.  Minnesota Statutes 1992, section 65A.40, is 
amended to read: 
    65A.40 [PUBLIC EDUCATION PROGRAMS.] 
    All insurers agree to The facility will undertake a 
continuing public education program, in cooperation with 
producers and others, to assure that the basic property 
insurance inspection and placement program Minnesota FAIR plan 
act receives adequate public attention.  
    Sec. 15.  Minnesota Statutes 1992, section 65A.41, is 
amended to read: 
    65A.41 [AGENT'S COOPERATION AGENTS.] 
    Subdivision 1.  A person licensed under chapter 60K may 
submit an application for coverage to the facility and receive a 
commission from the facility for submitting the application.  
However, the licensee is not an agent of the facility for 
purposes of state law.  All checks or similar instruments 
submitted in payment of facility premiums must be made payable 
to the facility and not the agent.  
    Subd. 2.  No An agent or broker shall be permitted to not 
refuse to submit an application for basic property 
insurance within an urban area coverage to the facility if 
licensed to write and actively engaged in writing such insurance.
    Sec. 16.  Minnesota Statutes 1992, section 65A.42, is 
amended to read: 
    65A.42 [PRIVILEGED COMMUNICATIONS IMMUNITY FROM LIABILITY.] 
    There shall be no liability on the part of, and no cause of 
action of any nature shall arise against insurers, the 
inspection bureau, the industry placement facility, or their 
agents or employees or the commissioner or the commissioner's 
authorized representatives, for any statements made in good 
faith by them in any reports or communications concerning the 
property to be insured, or at the time of any hearings conducted 
in connection therewith, or in the findings required by the 
provisions of sections 65A.31 to 65A.43 65A.42.  The inspection 
reports and communications of the inspection bureau and 
the industry placement facility shall are not be considered 
public documents.  
    Sec. 17.  [REPEALER.] 
    Minnesota Statutes 1992, sections 65A.33, subdivision 8, 
and 65A.43, are repealed. 
    Presented to the governor May 14, 1993 
    Signed by the governor May 17, 1993, 3:13 p.m.