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Minnesota Legislature

Office of the Revisor of Statutes

Key: (1) language to be deleted (2) new language

                            CHAPTER 52-S.F.No. 1527 
                  An act relating to insurance; Minnesota Insurance 
                  Guaranty Act; conforming state law to provisions of 
                  the Post-Assessment Property and Liability Insurance 
                  Guaranty Association Model Act of the National 
                  Association of Insurance Commissioners; amending 
                  Minnesota Statutes 1996, sections 60C.02; 60C.03, 
                  subdivisions 6, 8, and by adding a subdivision; 
                  60C.05, subdivision 1; 60C.07, subdivision 2; 60C.09; 
                  60C.11, subdivision 5; 60C.13, subdivision 1; 60C.14, 
                  subdivision 2; 60C.15; 60C.19; and 60C.21, subdivision 
                  2; proposing coding for new law in Minnesota Statutes, 
                  chapter 60C; repealing Minnesota Statutes 1996, 
                  section 60C.06, subdivision 6. 
        BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
           Section 1.  Minnesota Statutes 1996, section 60C.02, is 
        amended to read: 
           60C.02 [SCOPE, PURPOSE AND CONSTRUCTION.] 
           Subdivision 1.  [SCOPE.] This chapter applies to all kinds 
        of direct insurance, except:  
           (1) life,; 
           (2) annuity; 
           (3) title,; 
           (4) accident and sickness,; 
           (5) credit,; 
           (6) vendor's single interest or collateral protection or 
        any similar insurance protecting the interests of a creditor 
        arising out of a creditor debtor transaction; 
           (7) mortgage guaranty,; 
           (8) financial guaranty or other forms of insurance offering 
        protection against investment risks, and; 
           (9) ocean marine.; 
           (10) a transaction or combination of transactions between a 
        person, including affiliates of the person, and an insurer, 
        including affiliates of the insurer, that involves the transfer 
        of investment or credit risk unaccompanied by transfer or 
        insurance risk; or 
           (11) insurance provided by or guaranteed by government. 
           Subd. 2.  [PURPOSES.] The purposes of Laws 1971, chapter 
        145 this chapter are to provide a mechanism for the payment of 
        covered claims under certain insurance policies and surety 
        bonds, to avoid the extent provided in this chapter, minimize 
        excessive delay in payment and to avoid financial loss to 
        claimants or policyholders because of the liquidation of an 
        insurer, to assist in the detection and prevention of insurer 
        insolvencies, and to provide an association to assess the cost 
        of the protection among insurers. 
           Subd. 3.  [CONSTRUCTION.] Laws 1971, chapter 145 This 
        chapter shall be liberally construed to effect the purposes 
        stated in subdivision 2. 
           Sec. 2.  Minnesota Statutes 1996, section 60C.03, 
        subdivision 6, is amended to read: 
           Subd. 6.  [MEMBER INSURER.] "Member insurer" means any 
        person, including reciprocals or interinsurance exchanges 
        operating under chapter 71A, township mutual fire insurance 
        companies operating under sections 67A.01 to 67A.26, and farmers 
        mutual fire insurance companies operating under sections 67A.27 
        to 67A.39, who (a) writes any kind of insurance not excepted 
        from the scope of Laws 1971, chapter 145 by section 60C.02, and 
        (b) is licensed to transact insurance business in this state, 
        except any nonprofit service plan incorporated or operating 
        under sections 62C.01 to 62C.23 and any health plan incorporated 
        under chapter 317A, and includes an insurer whose license or 
        certificate of authority in this state may have been suspended, 
        revoked, not renewed, or voluntarily withdrawn. 
           An insurer ceases to be a member insurer the day following 
        the termination or expiration of its license to transact the 
        kinds of insurance to which this chapter applies.  The insurer 
        remains liable as a member insurer for any and all obligations, 
        including obligations for assessments levied before the 
        termination or expiration with respect to an insurer that became 
        an insolvent insurer before the termination or expiration of the 
        insurer's license. 
           Sec. 3.  Minnesota Statutes 1996, section 60C.03, 
        subdivision 8, is amended to read: 
           Subd. 8.  [INSOLVENT INSURER.] "Insolvent insurer" means an 
        insurer licensed to transact insurance in this state, either at 
        the time the policy was issued, or when the insured event 
        occurred, and against whom an order of liquidation with a 
        finding of insolvency has been entered after April 30, 1979 by a 
        court of competent jurisdiction, in the insurer's state of 
        domicile or of this state, under the provisions of chapter 60B, 
        and which order of liquidation has not been stayed or been the 
        subject of a writ of supersedeas or other comparable order a 
        final order of liquidation has been entered after April 30, 
        1979, with a finding of insolvency by a court of competent 
        jurisdiction in the insurer's state of domicile.  An insurer 
        placed under administrative supervision under sections 60G.01 to 
        60G.09 or determined to be in hazardous financial condition 
        under sections 60G.20 to 60G.22 is not an insolvent insurer as a 
        result of that placement or determination. 
           Sec. 4.  Minnesota Statutes 1996, section 60C.03, is 
        amended by adding a subdivision to read: 
           Subd. 11.  [OCEAN MARINE INSURANCE.] "Ocean marine 
        insurance" means a form of insurance, regardless of the name, 
        label, or marketing designation of the insurance policy, that 
        insures against maritime perils or risks and other related 
        perils or risks, that are usually insured against by traditional 
        marine insurance, such as hull and machinery, marine builders 
        risk, and marine protection and indemnity.  Perils and risks 
        insured against include without limitation loss, damage, 
        expense, or legal liability of the insured for loss, damage, or 
        expense arising out of or incident to ownership, operation, 
        chartering, maintenance, use, repair, or construction of a 
        vessel, craft, or instrumentality in use in ocean or inland 
        waterways for commercial purposes, including liability of the 
        insured for personal injury, illness, or death or for loss or 
        damage to the property of the insured or another person. 
           Sec. 5.  Minnesota Statutes 1996, section 60C.05, 
        subdivision 1, is amended to read: 
           Subdivision 1.  The association shall: 
           (a) Be deemed the insurer to the extent of its obligation 
        on the covered claims and have the right to pursue and retain 
        salvage and subrogation recoverables on covered claim 
        obligations to the extent paid or acknowledged in writing as an 
        obligation by the association.  The claims found by the board of 
        directors to be covered shall be paid out of available funds 
        after they have been approved or settled under sections 60B.45, 
        subdivision 2, and 60B.58, subdivision 2, or the corresponding 
        laws of another jurisdiction, subject to the board's power to 
        reduce the amount of or reject the award under section 60C.10. 
           (b) Allocate claims paid and expenses incurred among the 
        five accounts and assess member insurers separately for each 
        account the amounts necessary to pay the obligations of the 
        association under clause (a), the expenses of handling claims, 
        the cost of examinations under section 60C.15, and other 
        expenses authorized by this chapter. 
           (c) Notify the persons as the commissioner directs under 
        this chapter claimants in this state as considered necessary by 
        the commissioner, to the extent records are available to the 
        association.  If sufficient information for notification by mail 
        is not available, notice by publication in a newspaper of 
        general circulation is sufficient. 
           (d) Handle claims through its employees or through one or 
        more insurers or other persons designated as servicing 
        facilities.  Designation of a servicing facility is subject to 
        the approval of the commissioner, but the designation may be 
        declined. 
           (e) Reimburse each servicing facility for obligations of 
        the association paid by the facility and for expenses incurred 
        by the facility while handling claims on behalf of the 
        association and shall pay the other expenses of the association 
        authorized by this chapter.  
           (f) Notify each member insurer of its assessment not later 
        than 30 days before it is due.  
           (g) Issue to each insurer paying an assessment under this 
        chapter a certificate of contribution, in a form prescribed by 
        the commissioner, for the amount so paid.  All outstanding 
        certificates shall be of equal dignity and priority without 
        reference to amounts or dates of issue.  A certificate of 
        contribution may be shown by the insurer in its financial 
        statement as an asset in the form and for the amount, if any, 
        and period of time the commissioner approves. 
           (h) Have the right to appoint or substitute and to direct 
        legal counsel retained under liability insurance policies for 
        the defense of covered claims. 
           Sec. 6.  Minnesota Statutes 1996, section 60C.07, 
        subdivision 2, is amended to read: 
           Subd. 2.  The plan of operation shall: 
           (a) Establish the procedures whereby all the powers and 
        duties of the association under section 60C.05 will be performed.
           (b) Establish procedures for handling assets of the 
        association.  
           (c) Establish the amount and method of reimbursement of 
        members of the board of directors under section 60C.08, 
        subdivision 3.  
           (d) Establish procedures by which claims may be filed with 
        the association.  
           (e) Establish regular places and times for meetings for the 
        board of directors.  
           (f) Establish procedures for records to be kept of all 
        financial transactions of the association, its agents, and the 
        board of directors.  
           (g) Provide that any member insurer aggrieved by any final 
        action or decision of the association may appeal to the 
        commissioner within 30 days after the action or decision.  
           (h) Establish the procedures whereby selections for the 
        board of directors will be submitted to the commissioner.  
           (i) Contain additional provisions necessary or proper for 
        the execution of the powers and duties of the association.  
           (j) Establish procedures for the disposition of liquidating 
        dividends or other money received from the estate of the 
        insolvent insurer. 
           Sec. 7.  Minnesota Statutes 1996, section 60C.09, is 
        amended to read: 
           60C.09 [COVERED CLAIMS.] 
           Subdivision 1.  [DEFINITION.] A covered claim is any unpaid 
        claim, including one for unearned premium, which: 
           (a)(1) Arises out of and is within the coverage of an 
        insurance policy issued by a member insurer if the insurer 
        becomes an insolvent insurer after April 30, 1979; or 
           (2) Would be within the coverage of an extended reporting 
        endorsement to a claims-made insurance policy if insolvency had 
        not prevented the member insurer from fulfilling its obligation 
        to issue the endorsement, if: 
           (i) the claims-made policy contained a provision affording 
        the insured the right to purchase a reporting endorsement; 
           (ii) coverage will be no greater than if a reporting 
        endorsement had been issued; 
           (iii) the insured has not purchased other insurance which 
        applies to the claim; and 
           (iv) the insured's deductible under the policy is increased 
        by an amount equal to the premium for the reporting endorsement, 
        as provided in the insured's claims-made policy, or if not so 
        provided, then as established by a rate service organization. 
           (b) Arises out of a class of business which is not excepted 
        from the scope of this chapter by section 60C.02; and 
           (c) Is made by: 
           (i) A policyholder, or an insured beneficiary under a 
        policy, who, at the time of the insured event, was a resident of 
        this state; or 
           (ii) A person designated in the policy as having an 
        insurable interest in or related to property situated in this 
        state at the time of the insured event; or 
           (iii) An obligee or creditor under any surety bond, who, at 
        the time of default by the principal debtor or obligor, was a 
        resident of this state; or 
           (iv) A third party claimant under a liability policy or 
        surety bond, if:  (a) the insured or the third party claimant 
        was a resident of this state at the time of the insured event; 
        (b) the claim is for bodily or personal injuries suffered in 
        this state by a person who when injured was a resident of this 
        state; or (c) the claim is for damages to real property situated 
        in this state at the time of damage; or 
           (v) A direct or indirect assignee of a person who except 
        for the assignment might have claimed under item (i), (ii), or 
        (iii). 
           For purposes of paragraph (c), item (ii), unit owners of 
        condominiums, townhouses, or cooperatives are considered as 
        having an insurable interest.  
           A covered claim also includes any unpaid claim which arises 
        or exists within 30 days after the time of entry of an a final 
        order of liquidation with a finding of insolvency by a court of 
        competent jurisdiction unless prior thereto the insured replaces 
        the policy or causes its cancellation or the policy expires on 
        its expiration date.  A covered claim does not include claims 
        filed with the guaranty fund after the final date set by the 
        court for the filing of claims except for workers' compensation 
        claims that have met the time limitations and other requirements 
        of chapter 176 and excused late filings permitted under section 
        60B.37. 
           Subd. 2.  [FURTHER DEFINITION.] In addition to subdivision 
        1, a covered claim does not include: 
           (1) claims by an affiliate of the insurer; 
           (2) claims due a reinsurer, insurer, insurance pool, or 
        underwriting association, as subrogation recoveries, reinsurance 
        recoveries, contribution, indemnification, or otherwise.  This 
        clause does not prevent a person from presenting the excluded 
        claim to the insolvent insurer or its liquidator, but the claims 
        shall not be asserted against another person, including the 
        person to whom the benefits were paid or the insured of the 
        insolvent insurer, except to the extent that the claim is 
        outside the coverage of the policy issued by the insolvent 
        insurer; and 
           (3) any first-party claims, resulting from insolvencies 
        which occur after July 31, 1996, by an insured whose net worth 
        exceeds $25,000,000 on December 31 of the year prior to the year 
        in which the insurer becomes an insolvent insurer; provided that 
        an insured's net worth on that date shall be deemed to include 
        the aggregate net worth of the insured and all of its 
        subsidiaries as calculated on a consolidated basis. 
           Subd. 3.  [LIMITATION OF AMOUNT.] Payment of a covered 
        claim, whether upon a single policy or multiple policies of 
        insurance, is limited to the amount by which the allowance on 
        any claim exceeds $100 and is less no more than $300,000.  In 
        the case of claim for unearned premium by a single claimant, the 
        entire claim up to $300,000 shall be allowed.  The limitation on 
        the amount of payment for a covered claim does not apply to 
        claims for workers' compensation insurance.  In no event is the 
        association obligated to the policyholder or claimant in an 
        amount in excess of the obligation of the insurer under the 
        policy from which the claim arises.  For insolvencies occurring 
        on or after October 1, 1985, no deductible applies to claims 
        eligible for payment under the assigned claims plan under 
        sections 65B.63 to 65B.65. 
           Sec. 8.  Minnesota Statutes 1996, section 60C.11, 
        subdivision 5, is amended to read: 
           Subd. 5.  The expenses of the association or similar 
        organization in handling claims are accorded the same priority 
        as the liquidator's expenses.  The association and a similar 
        organization in another state must be recognized as claimants in 
        the liquidation of an insolvent insurer for amounts paid by them 
        on covered claims as determined under this chapter or similar 
        laws in other states and must receive dividends and other 
        distributions at the priority set forth in chapter 60B.  The 
        receiver, liquidator, or statutory successor of an insolvent 
        insurer is bound by determinations of covered claim eligibility 
        under this chapter and by settlements of claims made by the 
        association or a similar organization in another state.  The 
        court having jurisdiction shall grant the claims priority equal 
        to that which the claimant would have been entitled against the 
        assets of the insolvent insurer in the absence of this chapter. 
           Sec. 9.  Minnesota Statutes 1996, section 60C.13, 
        subdivision 1, is amended to read: 
           Subdivision 1.  Any person having a claim under another 
        policy whether or not the policy is a policy of a member 
        insurer, which claim arises out of the same facts which give 
        rise to the covered claim, shall be first required to exhaust 
        the person's right under the other policy.  Any amount payable 
        on a covered claim under this chapter shall be reduced by the 
        amount of any recovery under such insurance policy.  For 
        purposes of this subdivision, another insurance policy does not 
        include a workers' compensation policy. 
           Sec. 10.  Minnesota Statutes 1996, section 60C.14, 
        subdivision 2, is amended to read: 
           Subd. 2.  [OPTIONAL POWERS AND DUTIES.] The commissioner 
        may: 
           (a) Require the association to notify the insureds of any 
        insurer undergoing liquidation and any other interested parties 
        of their possible rights under Laws 1971, chapter 145.  
        Notification shall be by mail at their last known address, where 
        available, but if sufficient information for notification by 
        mail is not available, notice by publication in a newspaper of 
        general circulation shall be sufficient. 
           (b) Suspend or revoke, after notice and hearing, the 
        certificate of authority to transact insurance or to execute 
        surety bonds in this state of any member insurer which fails to 
        pay an assessment when due or fails to comply with the plan of 
        operation.  As an alternative, the commissioner may levy a fine 
        on any member insurer which fails to pay an assessment when 
        due.  The fine shall not exceed five percent of the unpaid 
        assessment per month, except that no fine shall be less than 
        $100 per month. 
           (c) (b) Revoke the designation of any servicing facility if 
        the commissioner finds claims are being handled unsatisfactorily.
           (d) (c) Disclose to the board of directors information 
        regarding any member insurer, or any company seeking admission 
        to transact insurance business in this state, whose financial 
        condition may be hazardous to policyholders or to the public.  
        This disclosure does not violate any data privacy requirement or 
        any obligation to treat the information as privileged.  This 
        disclosure does not change the data privacy or privileged status 
        of the information.  Board members shall not disclose the 
        information to anyone else or use the information for any 
        purpose other than their duties as board members. 
           Sec. 11.  Minnesota Statutes 1996, section 60C.15, is 
        amended to read: 
           60C.15 [PREVENTION OF INSOLVENCIES.] 
           To aid in the detection and prevention of insurer 
        insolvencies: 
           (1) The board of directors:  (a) may, upon majority vote, 
        make recommendations to the commissioner for the detection and 
        prevention of insurer insolvencies; and (b) shall respond to 
        requests by the commissioner to discuss and make recommendations 
        regarding the status of any member insurer whose financial 
        condition may be hazardous to policyholders or the public.  
        These recommendations are classified as nonpublic data under 
        section 13.02. 
           (1) The board of directors may upon majority vote make 
        recommendations to the commissioner on matters generally related 
        to improving or enhancing regulation for solvency. 
           (2) The board of directors may, at the conclusion of any 
        domestic insurer insolvency in which the association was 
        obligated to pay covered claims, prepare and submit to the 
        commissioner a report on the history and causes of the 
        insolvency, based on the information available to the 
        association. 
           Sec. 12.  Minnesota Statutes 1996, section 60C.19, is 
        amended to read: 
           60C.19 [IMMUNITY.] 
           There shall be no liability on the part of and no cause of 
        action of any nature shall arise against any member insurer, the 
        association or its agents or employees, the board of directors, 
        or a person serving as an alternative or substitute 
        representative of a director, or the commissioner, or the 
        commissioner's representatives for action taken or a failure to 
        act by them in the ordinary performance of their powers and 
        duties under Laws 1971, chapter 145 this chapter.  
           Sec. 13.  [60C.195] [STAY OF PROCEEDINGS.] 
           All proceedings in which the insolvent insurer is a party 
        or is obligated to defend a party in a court in this state 
        shall, subject to waiver by the association in specific cases 
        involving covered claims, be stayed for six months and 
        additional time that may be determined by the court.  The stay 
        must run from the date of the final order of liquidation with a 
        finding of insolvency is entered or an ancillary proceeding is 
        instituted in the state, whichever is later.  The proceedings 
        are stayed to permit proper defense by the association of all 
        pending causes of action.  As to covered claims arising from a 
        judgment under decision, verdict, or finding based on the 
        default of the insolvent insurer or its failure to defend an 
        insured, the association, either on its own behalf or on behalf 
        of an insured, may apply to have the judgment, order, decision, 
        verdict, or finding set aside by the same court or administrator 
        that made the judgment, order, decision, verdict, or finding and 
        must be permitted to defend the claim on the merits. 
           The liquidator, receiver, or statutory successor of an 
        insolvent insurer covered by this chapter must permit access by 
        the board or its authorized representative to the insolvent 
        insurer's records that are necessary for the board in carrying 
        out its functions under this chapter with regard to covered 
        claims.  In addition, the liquidator, receiver, or statutory 
        successor must provide the board or its representative with 
        copies of those records upon request by the board and at the 
        expense of the board. 
           Sec. 14.  Minnesota Statutes 1996, section 60C.21, 
        subdivision 2, is amended to read: 
           Subd. 2.  [FORM.] The notice required under subdivision 1 
        must be in the following form: 
                  "NOTICE CONCERNING POLICYHOLDER RIGHTS IN AN
                    INSOLVENCY UNDER THE MINNESOTA INSURANCE
                            GUARANTY ASSOCIATION LAW
           The financial strength of your insurer is one of the most 
        important things for you to consider when determining from whom 
        to purchase a property or liability insurance policy.  It is 
        your best assurance that you will receive the protection for 
        which you purchased the policy.  If your insurer becomes 
        insolvent, you may have protection from the Minnesota Insurance 
        Guaranty Association as described below but to the extent that 
        your policy is not protected by the Minnesota Insurance Guaranty 
        Association or if it exceeds the guaranty association's limits, 
        you will only have the assets, if any, of the insolvent insurer 
        to satisfy your claim. 
           Residents of Minnesota who purchase property and casualty 
        or liability insurance from insurance companies licensed to do 
        business in Minnesota are protected, SUBJECT TO LIMITS AND 
        EXCLUSIONS, in the event the insurer becomes insolvent.  This 
        protection is provided by the Minnesota Insurance Guaranty 
        Association. 
                    Minnesota Insurance Guaranty Association
                (insert current address and telephone number)
           The maximum amount that the Minnesota Insurance Guaranty 
        Association will pay in regard to a claim under all policies 
        issued by the same insurer is limited to $300,000.  This limit 
        does not apply to workers' compensation insurance.  Protection 
        by the guaranty association is subject to other substantial 
        limitations and exclusions.  If your claim exceeds the guaranty 
        association's limits, you may still recover a part or all of 
        that amount from the proceeds from the liquidation of the 
        insolvent insurer, if any exist.  Funds to pay claims may not be 
        immediately available.  The guaranty association assesses 
        insurers licensed to sell property and casualty or liability 
        insurance in Minnesota after the insolvency occurs.  Claims are 
        paid from the assessment. 
           THE PROTECTION PROVIDED BY THE GUARANTY ASSOCIATION IS NOT 
        A SUBSTITUTE FOR USING CARE IN SELECTING INSURANCE COMPANIES 
        THAT ARE WELL MANAGED AND FINANCIALLY STABLE.  IN SELECTING AN 
        INSURANCE COMPANY OR POLICY, YOU SHOULD NOT RELY ON PROTECTION 
        BY THE GUARANTY ASSOCIATION. 
           THIS NOTICE IS REQUIRED BY MINNESOTA STATE LAW TO ADVISE 
        POLICYHOLDERS OF PROPERTY AND CASUALTY INSURANCE POLICIES OF 
        THEIR RIGHTS IN THE EVENT THEIR INSURANCE CARRIER BECOMES 
        INSOLVENT.  THIS NOTICE IN NO WAY IMPLIES THAT THE COMPANY 
        CURRENTLY HAS ANY TYPE OF FINANCIAL PROBLEMS.  ALL PROPERTY AND 
        CASUALTY INSURANCE POLICIES ARE REQUIRED TO PROVIDE THIS NOTICE."
           Additional language may be added to the notice if approved 
        by the commissioner prior to its use in the form. 
           Sec. 15.  [REPEALER.] 
           Minnesota Statutes 1996, section 60C.06, subdivision 6, is 
        repealed. 
           Sec. 16.  [EFFECTIVE DATE.] 
           Sections 1 to 15 are effective the day following final 
        enactment and apply to all matters arising out of any past or 
        future insolvency. 
           Presented to the governor April 21, 1997 
           Signed by the governor April 23, 1997, 1:27 p.m.