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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