Office of the Revisor of Statutes
Minnesota Session Laws - 1995, Regular Session
Key: (1) language to be deleted (2) new language
CHAPTER 170-H.F.No. 1159
An act relating to real property; authorizing
municipalities to establish trust or escrow accounts
for proceeds from losses arising from fire or
explosion of certain insured real property;
authorizing municipalities to utilize escrowed funds
to secure, repair, or demolish damaged or destroyed
structures; proposing coding for new law in Minnesota
Statutes, chapter 65A.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:
Section 1. [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 15 percent of the actual cash value of the insured real
property at the time of the loss or 15 percent of the final
settlement, whichever is less. At the time that 15 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 15 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 15
days; and
(7) an explanation of the provisions of this section.
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 the motion of the
municipality, the court shall order the withheld amount to be
transmitted to the treasurer of the municipality.
(d) Within 30 days after the escrowing of the withheld
amount under this section, the municipality may apply to the
district court for declaratory relief in order to establish its
rights to the policy proceeds held in escrow by the
municipality. The municipality shall have such a right to the
proceeds upon a showing that the health, safety, and welfare of
the inhabitants of the municipality will be jeopardized unless
the proceeds are retained by the municipality. If declaratory
relief is granted, the court shall issue an order permitting the
municipality to retain the proceeds as requested, in accordance
with the provisions of this section, to be used as provided in
this section. If the municipality fails to apply for
declaratory relief within the 30-day period, or if declaratory
relief is denied, the municipality shall immediately return to
the insured the proceeds held in escrow.
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. 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 municipality shall remain
on the list until a written request for deletion has been
received by the commissioner and the amended list has been
prepared pursuant to this subdivision.
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 15 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) 15 percent of the actual cash value of the insured real
property at the time of loss; or
(3) 15 percent of the final settlement of the insured real
property claim.
Sec. 2. [EFFECTIVE DATE.]
This act is effective January 1, 1996.
Presented to the governor May 15, 1995
Signed by the governor May 17, 1995, 1:56 p.m.
Official Publication of the State of Minnesota
Revisor of Statutes