HB 1451CS

CHAMBER ACTION



1The Commerce Council recommends the following:
2
3     Council/Committee Substitute
4     Remove the entire bill and insert:
5
A bill to be entitled
6An act relating to insurer insolvency; amending s.
7631.181, F.S.; providing an exception to certain
8requirements for a signed statement for certain claims;
9providing requirements; creating s. 631.1915, F.S.;
10providing requirements for policyholder collateral,
11deductible reimbursements, and other policyholder
12obligations; specifying that certain collateral held by an
13insurer or a receiver to secure policyholder obligations
14under a deductible agreement are not an estate asset;
15requiring use of such collateral to secure policyholder
16obligations under such agreement; requiring a receiver to
17use such collateral to pay noncovered claims under certain
18circumstances; providing for certain claims to be claims
19against an insurer's estate under certain circumstances;
20requiring a receiver to allocate collateral among certain
21obligations and administer such collateral; authorizing a
22receiver to continue and enforce certain alternative
23policyholder claim funding contractual agreements;
24specifying certain actions as a bar to certain claims and
25an extinguishment of certain obligations; requiring a
26guaranty association to bill a policyholder for certain
27reimbursement amounts for certain claims; specifying
28policyholder obligation for certain amounts; prohibiting
29certain defenses; requiring a receiver to use certain
30collateral for certain purposes; requiring a receiver to
31prorate certain funds of an estate under certain
32circumstances; authorizing a guaranty association to
33deduct certain expenses; requiring a guaranty association
34to provide a complete accounting of certain billing and
35collection activities; authorizing a guaranty association
36to contract for certain collections; providing for claims
37against an insolvent insurer's estate for certain
38unreimbursed claims payments; requiring a receiver to
39periodically adjust collateral held pursuant to a
40deductible agreement; specifying jurisdiction of a state
41court to resolve disputes; preserving rights of a guaranty
42association to reimbursement for certain claims; providing
43application to certain orders of liquidation; providing
44definitions; providing for nonapplication to certain
45claims; amending s. 631.54, F.S.; revising a definition;
46amending s. 631.56, F.S.; revising the membership of the
47board of directors of the Florida Insurance Guaranty
48Association, Inc.; amending s. 631.57, F.S.; revising
49requirements and limitations for obligations of the
50association for covered claims; authorizing the
51association to contract with counties and municipalities
52to issue revenue bonds for certain purposes; creating s.
53631.695, F.S.; providing legislative findings and
54purposes; providing for issuance of revenue bonds through
55counties and municipalities to fund assistance programs
56for paying covered claims for hurricane damage; providing
57procedures, requirements, and limitations for counties,
58municipalities, and the Florida Insurance Guaranty
59Association, Inc., relating to issuance and validation of
60such bonds; providing for payments on and retirement of
61such bonds from certain assessments; prohibiting pledging
62the funds, credit, property, and taxing power of the
63state, counties, and municipalities for payment of bonds;
64specifying authorized uses of bond proceeds; limiting the
65term of bonds; specifying a state covenant to protect
66bondholders from adverse actions relating to such bonds;
67specifying exemptions for bonds, notes, and other
68obligations of counties and municipalities from certain
69taxes or assessments on property and revenues; authorizing
70counties and municipalities to create a legal entity to
71exercise certain powers; requiring the association to
72issue an annual report on the status of certain uses of
73bond proceeds; providing report requirements; requiring
74the association to provide a copy of the report to the
75Legislature and Chief Financial Officer; prohibiting
76repeal of certain provisions relating to certain bonds
77under certain circumstances; providing severability;
78providing an effective date.
79
80Be It Enacted by the Legislature of the State of Florida:
81
82     Section 1.  Paragraph (f) is added to subsection (2) of
83section 631.181, Florida Statutes, to read:
84     631.181  Filing and proof of claim.--
85     (2)
86     (f)  The signed statement required by this section shall
87not be required on claims for which adequate claims file
88documentation exists within the records of the insolvent
89insurer. Claims for payment of unearned premium shall not be
90required to use the signed statement required by this section if
91the receiver certifies to the guaranty fund that the records of
92the insolvent insurer are sufficient to determine the amount of
93unearned premium owed to each policyholder of the insurer and
94such information is remitted to the guaranty fund by the
95receiver in electronic or other mutually agreed upon format.
96     Section 2.  Section 631.1915, Florida Statutes, is created
97to read:
98     631.1915  Policyholder collateral; deductible
99reimbursements; other policyholder obligations.--
100     (1)  Any collateral held by or for the benefit of, or
101assigned to, the insurer or subsequently the receiver in order
102to secure the obligations of a policyholder under a deductible
103agreement shall not be considered an asset of the estate and
104shall be maintained and administered by the receiver as provided
105in this section, notwithstanding any other provision of law or
106contract to the contrary.
107     (2)  If the collateral is being held by or for the benefit
108of, or assigned to, the insurer or subsequently the receiver to
109secure obligations under a deductible agreement with a
110policyholder subject to the provisions of this section, the
111collateral shall be used to secure the policyholder's obligation
112to fund or reimburse claims payments within the agreed
113deductible amount.
114     (3)  If a claim is subject to a deductible agreement and
115secured by collateral and is not covered by any guaranty
116association, the receiver shall adjust and pay the noncovered
117claim using the collateral, but only to the extent of the
118available collateral. A claim against the collateral by a third-
119party claimant is not a claim against the insolvent insurer's
120estate for purposes of s. 631.193. If the collateral is
121exhausted and the insured is not able to provide funds to pay
122the remaining claims within the deductible, the remaining claims
123shall be claims against the insurer's estate subject to
124complying with other provisions in this part for the filing and
125allowance of such claims.
126     (4)  To the extent the receiver is holding collateral
127provided by a policyholder that was obtained to secure a
128deductible agreement and to secure other obligations of the
129policyholder, the receiver shall equitably allocate the
130collateral among such obligations and administer the collateral
131allocated to the deductible agreement pursuant to this section.
132The receiver shall inform the guaranty associations of the
133method and details of all the foregoing allocations.
134     (5)  Regardless of whether there is collateral, if the
135insurer has contractually agreed to allow the policyholder to
136fund its own claims within the deductible amount pursuant to a
137deductible agreement, through the policyholder's own
138administration of its claims or through the policyholder
139providing funds directly to a third-party administrator who
140administers the claims, the receiver may allow such funding
141arrangement to continue and, where applicable, shall enforce
142such arrangements. The funding of such claims by the
143policyholder within the deductible amount acts as a bar to any
144claim for such amount in the liquidation proceeding, including,
145but not limited to, any such claim by the policyholder or the
146third-party claimant. The funding extinguishes both the
147obligation, if any, of any guaranty association to pay such
148claims within the deductible amount and the obligations, if any,
149of the policyholder or third-party administrator to reimburse
150the guaranty association. No charge of any kind shall be made
151against any guaranty association on the basis of the
152policyholder's funding of claims payment made pursuant to the
153mechanism set forth in this subsection.
154     (6)  If the insurer has not contractually agreed to allow
155the policyholder to fund the policyholder's own claims within
156the deductible amount, to the extent a guaranty association is
157required by applicable state law to pay any claims for which the
158insurer would have been entitled to reimbursement from the
159policyholder under the terms of the deductible agreement and to
160the extent the claims have not been paid by a policyholder or
161third party, the guaranty association shall bill the
162policyholder for such reimbursement and the policyholder is
163obligated to pay such amount to the guaranty association for the
164benefit of the guaranty associations who paid such claims.
165Neither the insolvency of the insurer nor its inability to
166perform any of its obligations under the deductible agreement
167shall be a defense to the policyholder's reimbursement
168obligation under the deductible agreement. If the policyholder
169fails to pay the amounts due within 60 days after the bill for
170such reimbursements is due, the receiver shall use the
171collateral to the extent necessary to reimburse the guaranty
172association and, at the same time, the guaranty association may
173pursue other collection efforts against the policyholder. If
174more than one guaranty association has a claim against the same
175collateral and the available collateral, after allocation under
176subsection (4), together with billing and collection efforts,
177are together insufficient to pay each guaranty association in
178full, the receiver shall prorate payments to each guaranty
179association based upon the relationship the amount of claims
180each guaranty association has paid bears to the total of all
181claims paid by such guaranty associations.
182     (7)(a)  The guaranty association is entitled to deduct from
183collateral to be returned to a policyholder reasonable actual
184expenses incurred in fulfilling the responsibilities under this
185provision.
186     (b)  With respect to claims payments made by any guaranty
187association, the guaranty association shall provide any other
188guaranty associations and the receiver with a complete
189accounting of the guaranty association's deductible billing and
190collection activities, including copies of the policyholder
191billings when rendered and the reimbursements collected. The
192cost of reports required pursuant to this subsection shall be
193considered part of the expenses of the guaranty association.
194     (c)  The guaranty association may contract with the
195receiver for the direct collection from the policyholders on the
196same basis as the guaranty association and with the same rights
197and remedies. If so assigned, the receiver shall report any
198amounts so collected from each policyholder to the guaranty
199association.
200     (d)  To the extent that guaranty associations pay claims
201within the deductible amount but are not reimbursed by the
202receiver under this section or by policyholder payments from the
203guaranty associations' own collection efforts, the guaranty
204association shall have a claim on the insolvent insurer's estate
205for such unreimbursed claims payments. The priority of such
206claim shall depend upon the nature of the payment that should
207have been reimbursed.
208     (e)  Periodically, but not more than annually, the receiver
209shall adjust the collateral being held pursuant to the
210deductible agreement. The receiver shall maintain adequate
211collateral to secure 110 percent of the entire estimated
212obligation of the policyholder. The receiver shall provide a
213copy of its collateral review to any obligated guaranty
214association. Once all claims covered by the collateral have been
215paid and the receiver is satisfied that no new claims can be
216presented, the receiver may release any remaining collateral.
217     (8)  The state court that has jurisdiction over the
218liquidation proceedings shall have jurisdiction to resolve
219disputes arising under this section.
220     (9)  Nothing in this section limits or adversely affects
221any right the guaranty associations may have under applicable
222state law to obtain reimbursement from certain classes of
223policyholders for claims payments made by such guaranty
224associations under policies of the insolvent insurer or for
225related expenses the guaranty associations incur.
226     (10)  This section applies to all liquidations for which an
227order is entered after July 1, 2005.
228     (11)  For purposes of this section, the term:
229     (a)  "Deductible agreement" means any combination of one or
230more policies, endorsements, contracts, or security agreements
231that provide for the policyholder to bear the risk of loss
232within a specified amount per claim or occurrence covered under
233a policy of insurance and that may be subject to aggregate limit
234of policyholder reimbursement obligations.
235     (b)  "Noncovered claim" means a claim that is subject to a
236deductible agreement, may be secured by collateral, and is not
237covered by a guaranty association.
238     (12)  This section does not apply to first-party claims.
239     Section 3.  Subsection (3) of section 631.54, Florida
240Statutes, is amended to read:
241     631.54  Definitions.--As used in this part:
242     (3)  "Covered claim" means an unpaid claim, including one
243of unearned premiums, which arises out of, and is within the
244coverage, and not in excess of, the applicable limits of an
245insurance policy to which this part applies, issued by an
246insurer, if such insurer becomes an insolvent insurer and the
247claimant or insured is a resident of this state at the time of
248the insured event or the property from which the claim arises is
249permanently located in this state. For entities other than
250individuals, the residence of a claimant, insured, or
251policyholder is the state in which the entity's principal place
252of business is located at the time of the insured event.
253"Covered claim" shall not include:
254     (a)  Any amount due any reinsurer, insurer, insurance pool,
255or underwriting association, sought directly or indirectly
256through a third party, as subrogation, contribution,
257indemnification, or otherwise; or
258     (b)  Any claim that would otherwise be a covered claim
259under this part that has been rejected by any other state
260guaranty fund on the grounds that an insured's net worth is
261greater than that allowed under that state's guaranty law.
262Member insurers shall have no right of subrogation,
263contribution, indemnification, or otherwise, sought directly or
264indirectly through a third party, against the insured of any
265insolvent member.
266     Section 4.  Subsection (1) of section 631.56, Florida
267Statutes, is amended to read:
268     631.56  Board of directors.--
269     (1)  The board of directors of the association shall
270consist of not less than six five or more than ten nine persons
271serving terms as established in the plan of operation. The
272department shall approve and appoint to the board up to nine
273persons recommended by the member insurers. The department shall
274select one Florida-licensed insurance agent to serve as a
275nonvoting member. In the event the department finds that any
276recommended person does not meet the qualifications for service
277on the board, the department shall request the member insurers
278to recommend another person. Each member shall serve for a 4-
279year term and may be reappointed. Vacancies on the board shall
280be filled for the remaining period of the term in the same
281manner as initial appointments.
282     Section 5.  Paragraph (a) of subsection (1), paragraph (d)
283of subsection (2), and paragraph (a) of subsection (3) of
284section 631.57, Florida Statutes, are amended to read:
285     631.57  Powers and duties of the association.--
286     (1)  The association shall:
287     (a)1.  Be obligated to the extent of the covered claims
288existing:
289     a.  Prior to adjudication of insolvency and arising within
29030 days after the determination of insolvency;
291     b.  Before the policy expiration date if less than 30 days
292after the determination; or
293     c.  Before the insured replaces the policy or causes its
294cancellation, if she or he does so within 30 days of the
295determination.
296     2.a.  The obligation under subparagraph 1. shall include
297only that amount of each covered claim which is in excess of
298$100 and is less than $300,000, except with respect to policies
299covering condominium associations or homeowners' associations,
300which associations have a responsibility to provide insurance
301coverage on residential units within the association, the
302obligation shall include that amount of each covered property
303insurance claim which is less than $100,000 multiplied by the
304number of condominium units or other residential units; however,
305as to homeowners' associations, this sub-subparagraph
306subparagraph applies only to claims for damage or loss to
307residential units and structures attached to residential units.
308     b.  Notwithstanding sub-subparagraph a., the association
309has no obligation to pay covered claims that are to be paid from
310the proceeds of bonds issued under s. 631.695. However, the
311association shall assign and pledge the first available moneys
312from all or part of the assessments to be made under paragraph
313(3)(a) to or on behalf of the issuer of such bonds for the
314benefit of the holders of such bonds. The association shall
315administer any such covered claims and present valid covered
316claims for payment in accordance with the provisions of the
317assistance program in connection with which such bonds have been
318issued.
319     3.  In no event shall the association be obligated to a
320policyholder or claimant in an amount in excess of the
321obligation of the insolvent insurer under the policy from which
322the claim arises.
323     (2)  The association may:
324     (d)  Negotiate and become a party to such contracts as are
325necessary to carry out the purpose of this part. Additionally,
326the association may enter into such contracts with a
327municipality or county or such legal entity created pursuant to
328s. 163.01(7)(g) as are necessary in order for the municipality
329or county or such legal entity to issue bonds under s. 631.695.
330In connection with the issuance of any such bonds and the
331entering into of any such necessary contracts, the association
332may agree to such terms and conditions as the association deems
333necessary and proper.
334     (3)(a)  To the extent necessary to secure the funds for the
335respective accounts for the payment of covered claims, and also
336to pay the reasonable costs to administer the same, and to the
337extent necessary to secure the funds for the account specified
338in s. 631.55(2)(c), or to retire indebtedness, including,
339without limitation, the principal, redemption premium, if any,
340and interest on, and related costs of issuance of, bonds issued
341under s. 631.695, and the funding of any reserves and other
342payments required under the bond resolution or trust indenture
343pursuant to which such bonds have been issued, the office, upon
344certification of the board of directors, shall levy assessments
345in the proportion that each insurer's net direct written
346premiums in this state in the classes protected by the account
347bears to the total of said net direct written premiums received
348in this state by all such insurers for the preceding calendar
349year for the kinds of insurance included within such account.
350Assessments shall be remitted to and administered by the board
351of directors in the manner specified by the approved plan. Each
352insurer so assessed shall have at least 30 days' written notice
353as to the date the assessment is due and payable. Every
354assessment shall be made as a uniform percentage applicable to
355the net direct written premiums of each insurer in the kinds of
356insurance included within the account in which the assessment is
357made. The assessments levied against any insurer shall not
358exceed in any one year more than 2 percent of that insurer's net
359direct written premiums in this state for the kinds of insurance
360included within such account during the calendar year next
361preceding the date of such assessments.
362     Section 6.  Section 631.695, Florida Statutes, is created
363to read:
364     631.695  Revenue bond issuance through counties or
365municipalities.--
366     (1)  The Legislature finds:
367     (a)  The potential for widespread and massive damage to
368persons and property caused by hurricanes making landfall in
369this state can generate insurance claims of such a number as to
370render numerous insurers operating within this state insolvent
371and therefore unable to satisfy covered claims.
372     (b)  The inability of insureds within this state to receive
373payment of covered claims or to timely receive such payment
374creates financial and other hardships for such insureds and
375places undue burdens on the state, the affected units of local
376government, and the community at large.
377     (c)  In addition, the failure of insurers to pay covered
378claims or to timely pay such claims due to the insolvency of
379such insurers can undermine the public's confidence in insurers
380operating within this state, thereby adversely affecting the
381stability of the insurance industry in this state.
382     (d)  The state has previously taken action to address these
383problems by adopting the Florida Insurance Guaranty Association
384Act, which, among other things, provides a mechanism for the
385payment of covered claims under certain insurance policies to
386avoid excessive delay in payment and to avoid financial loss to
387claimants or policyholders because of the insolvency of an
388insurer.
389     (e)  In the wake of the unprecedented destruction caused by
390various hurricanes that have made landfall in this state, the
391resultant covered claims, and the number of insurers rendered
392insolvent thereby, it is evident that alternative programs must
393be developed to allow the Florida Insurance Guaranty
394Association, Inc., to more expeditiously and effectively provide
395for the payment of covered claims.
396     (f)  It is therefore determined to be in the best interests
397of, and necessary for, the protection of the public health,
398safety, and general welfare of the residents of this state, and
399for the protection and preservation of the economic stability of
400insurers operating in this state, and it is declared to be an
401essential public purpose, to permit certain municipalities and
402counties to take such actions as will provide relief to
403claimants and policyholders having covered claims against
404insolvent insurers operating in this state by expediting the
405handling and payment of covered claims.
406     (g)  To achieve the foregoing purposes, it is proper to
407authorize municipalities and counties of this state
408substantially affected by the landfall of a category 1 or
409greater hurricane to issue bonds to assist the Florida Insurance
410Guaranty Association, Inc., in expediting the handling and
411payment of covered claims of insolvent insurers.
412     (h)  In order to avoid the needless and indiscriminate
413proliferation, duplication, and fragmentation of such assistance
414programs, it is in the best interests of the residents of this
415state to authorize municipalities and counties severely affected
416by a category 1 or greater hurricane to provide for the payment
417of covered claims beyond their territorial limits in the
418implementation of such programs.
419     (i)  It is a paramount public purpose for municipalities
420and counties substantially affected by the landfall of a
421category 1 or greater hurricane to be able to issue bonds for
422the purposes described in this section. Such issuance shall
423provide assistance to residents of those municipalities and
424counties as well as to other residents of this state.
425     (2)  The governing body of any municipality or county the
426residents of which have been substantially affected by a
427category 1 or greater hurricane may issue bonds to fund an
428assistance program in conjunction with, and with the consent of,
429the Florida Insurance Guaranty Association, Inc., for the
430purpose of paying claimants' or policyholders' covered claims as
431defined in s. 631.54 arising through the insolvency of an
432insurer, which insolvency is determined by the Florida Insurance
433Guaranty Association, Inc., to have been a result of a category
4341 or greater hurricane, regardless of whether such claimants or
435policyholders are residents of such municipality or county or
436the property to which such claim relates is located within or
437outside the territorial jurisdiction of such municipality or
438county. The power of a municipality or county to issue bonds as
439described in this section is in addition to any powers granted
440by law and may not be abrogated or restricted by any provisions
441in such municipality's or county's charter. A municipality or
442county issuing bonds for this purpose shall enter into such
443contracts with the Florida Insurance Guaranty Association, Inc.,
444or any entity acting on behalf of the Florida Insurance Guaranty
445Association, Inc., as are necessary to implement the assistance
446program. Any bonds issued by a municipality or county or
447combination thereof under this subsection shall be payable from
448and secured by moneys received by or on behalf of the
449municipality or county from assessments levied under s.
450631.57(3)(a) and assigned and pledged to or on behalf of the
451municipality or county for the benefit of the holders of such
452bonds in connection with such assistance program. The funds,
453credit, property, and taxing power of the state or any
454municipality or county shall not be pledged for the payment of
455such bonds.
456     (3)  Bonds may be validated by such municipality or county
457pursuant to chapter 75. The proceeds of such bonds may be used
458to pay covered claims of insolvent insurers; to refinance or
459replace previously existing borrowings or financial
460arrangements; to pay interest on bonds; to fund reserves for the
461bonds; to pay expenses incident to the issuance or sale of any
462bond issued under this section, including costs of validating,
463printing, and delivering the bonds, costs of printing the
464official statement, costs of publishing notices of sale of the
465bonds, costs of obtaining credit enhancement or liquidity
466support, and related administrative expenses; or for such other
467purposes related to the financial obligations of the fund as the
468association may determine. The term of the bonds may not exceed
46930 years.
470     (4)  The state covenants with holders of bonds of the
471assistance program that the state will not take any action which
472will have a material adverse affect on such holders and will not
473repeal or abrogate the power of the board of directors of the
474association to direct the Office of Insurance Regulation to levy
475the assessments and to collect the proceeds of the revenues
476pledged to the payment of such bonds as long as any such bonds
477remain outstanding unless adequate provision has been made for
478the payment of such bonds pursuant to the documents authorizing
479the issuance of such bonds.
480     (5)  The accomplishment of the authorized purposes of such
481municipality or county under this section is in all respects for
482the benefit of the people of the state, for the increase of
483their commerce and prosperity, and for the improvement of their
484health and living conditions. Such municipality or county, in
485performing essential governmental functions in accomplishing its
486purposes, is not required to pay any taxes or assessments of any
487kind whatsoever upon any property acquired or used by the county
488or municipality for such purposes or upon any revenues at any
489time received by the county or municipality. The bonds, notes,
490and other obligations of such municipality or county, and the
491transfer of and income from such bonds, notes, and other
492obligations, including any profits made on the sale of such
493bonds, notes, and other obligations, are exempt from taxation of
494any kind by the state or by any political subdivision or other
495agency or instrumentality of the state. The exemption granted in
496this subsection is not applicable to any tax imposed by chapter
497220 on interest, income, or profits on debt obligations owned by
498corporations.
499     (6)  Two or more municipalities or counties the residents
500of which have been substantially affected by a category 1 or
501greater hurricane may create a legal entity pursuant to s.
502163.01(7)(g) to exercise the powers described in this section as
503well as those powers granted in s. 163.01(7)(g). Reference in
504this section to a municipality or county includes such legal
505entity.
506     (7)  The association shall issue an annual report on the
507status of the use of bond proceeds as related to insolvencies
508caused by hurricanes. The report must contain the number and
509amount of claims paid. The association shall also include an
510analysis of the revenue generated from the assessment levied
511under s. 631.57(3)(a) to pay such bonds. The association shall
512submit a copy of the report to the President of the Senate, the
513Speaker of the House of Representatives, and the Chief Financial
514Officer within 90 days after the end of each calendar year in
515which bonds were outstanding.
516     Section 7.  No provision of s. 631.57 or s. 631.695,
517Florida Statutes, shall be repealed until such time as the
518principal, redemption premium, if any, and interest on all bonds
519issued under s. 631.695, Florida Statutes, payable and secured
520from assessments levied under s. 631.57(3)(a), Florida Statutes,
521have been paid in full or adequate provision for such payment
522has been made in accordance with the bond resolution or trust
523indenture pursuant to which such bonds were issued.
524     Section 8.  If any provision of this act or the application
525thereof to any person or circumstance is held invalid, the
526invalidity shall not affect other provisions or applications of
527the act which can be given effect without the invalid provision
528or application, and to this end the provisions of this act are
529declared severable.
530     Section 9.  This act shall take effect upon becoming a law.


CODING: Words stricken are deletions; words underlined are additions.