HOUSE BILL No. 5224 October 7, 1997, Introduced by Reps. Rison, Wallace, Hanley, Quarles, Kilpatrick, Thomas, Hale, Schauer, Stallworth, Price, Parks, Vaughn, Emerson, Voorhees, Hood, LaForge, Cherry, Murphy and Schermesser and referred to the Committee on Insurance. A bill to amend 1956 PA 218, entitled "The insurance code of 1956," (MCL 500.100 to 500.8302) by adding section 2229. THE PEOPLE OF THE STATE OF MICHIGAN ENACT: 1 SEC. 2229. (1) EXCEPT AS OTHERWISE PROVIDED IN THIS SEC- 2 TION, FOR INSURED REAL PROPERTY LOCATED IN A CITY, VILLAGE, OR 3 TOWNSHIP THAT HAS ELECTED TO APPLY THIS SECTION AS PROVIDED IN 4 SUBSECTION (11), WHEN A CLAIM IS FILED FOR A PHYSICAL DAMAGE LOSS 5 TO INSURED REAL PROPERTY OTHER THAN BY FIRE OR EXPLOSION AND A 6 FINAL SETTLEMENT IS REACHED ON THE LOSS TO THE INSURED REAL PROP- 7 ERTY, AN INSURER SHALL WITHHOLD FROM PAYMENT 15% OF THE ACTUAL 8 CASH VALUE OF THE INSURED REAL PROPERTY AT THE TIME OF THE LOSS 9 OR 15% OF THE FINAL SETTLEMENT, WHICHEVER IS LESS. AT THE TIME 10 THAT 15% OF THE SETTLEMENT OR JUDGMENT IS WITHHELD, THE INSURER 11 SHALL GIVE NOTICE OF THE WITHHOLDING TO THE TREASURER OF THE 03924'97 DKH 2 1 CITY, VILLAGE, OR TOWNSHIP IN WHICH THE INSURED REAL PROPERTY IS 2 LOCATED, TO THE INSURED, AND TO ANY MORTGAGEE HAVING AN EXISTING 3 LIEN OR LIENS AGAINST THE INSURED REAL PROPERTY, IF THE MORTGAGEE 4 IS NAMED ON THE POLICY. IN THE CASE OF A JUDGMENT, NOTICE SHALL 5 ALSO BE PROVIDED TO THE COURT IN WHICH JUDGMENT WAS ENTERED. THE 6 NOTICE SHALL INCLUDE ALL OF THE FOLLOWING: 7 (A) THE IDENTITY AND ADDRESS OF THE INSURER. 8 (B) THE NAME AND ADDRESS OF EACH POLICYHOLDER, INCLUDING ANY 9 MORTGAGEE. 10 (C) LOCATION OF THE INSURED REAL PROPERTY. 11 (D) THE DATE OF LOSS, POLICY NUMBER, AND CLAIM NUMBER. 12 (E) THE AMOUNT OF MONEY WITHHELD. 13 (F) A STATEMENT THAT THE CITY, VILLAGE, OR TOWNSHIP MAY HAVE 14 THE WITHHELD AMOUNT PAID INTO A TRUST OR ESCROW ACCOUNT ESTAB- 15 LISHED FOR THE PURPOSES OF THIS SECTION IF IT SHOWS CAUSE, PURSU- 16 ANT TO SUBSECTION (2), WITHIN 15 DAYS THAT THE MONEY SHOULD BE 17 WITHHELD TO PROTECT THE PUBLIC HEALTH AND SAFETY, OTHERWISE THE 18 WITHHELD AMOUNT SHALL BE PAID TO THE INSURED AT THE EXPIRATION OF 19 15 DAYS. 20 (G) AN EXPLANATION OF THE PROVISIONS OF THIS SECTION. 21 (2) IN ORDER FOR A CITY, VILLAGE, OR TOWNSHIP TO ESCROW THE 22 AMOUNT WITHHELD BY THE INSURER, AND TO RETAIN THAT AMOUNT, THE 23 FOLLOWING PROCEDURE SHALL BE USED: 24 (A) AN AFFIDAVIT PREPARED BY AN AUTHORIZED REPRESENTATIVE OF 25 THE CITY, VILLAGE, OR TOWNSHIP DESIGNATED BY THE GOVERNING BODY 26 OF THE CITY, VILLAGE, OR TOWNSHIP THAT THE DAMAGED INSURED 27 STRUCTURE VIOLATES EXISTING NAMED HEALTH AND SAFETY STANDARDS 03924'97 3 1 REQUIRING THE ESCROW OF THE WITHHELD AMOUNT AS SURETY FOR THE 2 REPAIR, REPLACEMENT, OR REMOVAL OF THE DAMAGED STRUCTURE CONSTI- 3 TUTES CAUSE FOR THE ESCROWING OF THE WITHHELD AMOUNT. 4 (B) IN THE CASE OF A SETTLEMENT, THE AFFIDAVIT SHALL BE SENT 5 TO THE INSURER, THE INSURED, AND ANY MORTGAGEES. UPON RECEIPT OF 6 THE AFFIDAVIT, THE INSURER SHALL FORWARD THE WITHHELD AMOUNT TO 7 THE TREASURER OF THE CITY, VILLAGE, OR TOWNSHIP, AND SHALL PRO- 8 VIDE NOTICE OF THE FORWARDING TO THE INSURED AND ANY MORTGAGEES. 9 (C) IN THE CASE OF A JUDGMENT, THE AFFIDAVIT SHALL BE SENT 10 TO THE INSURER, THE INSURED, ANY MORTGAGEES, AND THE COURT IN 11 WHICH JUDGMENT WAS ENTERED. UPON THE MOTION OF THE CITY, VIL- 12 LAGE, OR TOWNSHIP, THE COURT SHALL ORDER THE WITHHELD AMOUNT TO 13 BE TRANSMITTED TO THE TREASURER OF THE CITY, VILLAGE, OR 14 TOWNSHIP. 15 (D) WITHIN 30 DAYS AFTER THE ESCROWING OF THE WITHHELD 16 AMOUNT UNDER THIS SECTION, THE CITY, VILLAGE, OR TOWNSHIP MAY 17 APPLY TO THE CIRCUIT COURT FOR DECLARATORY RELIEF IN ORDER TO 18 ESTABLISH ITS RIGHTS TO THE POLICY PROCEEDS HELD IN ESCROW BY THE 19 CITY, VILLAGE, OR TOWNSHIP. THE CITY, VILLAGE, OR TOWNSHIP HAS A 20 RIGHT TO THE PROCEEDS UPON A SHOWING THAT THE HEALTH, SAFETY, AND 21 WELFARE OF THE INHABITANTS OF THE CITY, VILLAGE, OR TOWNSHIP WILL 22 BE JEOPARDIZED UNLESS THE PROCEEDS ARE RETAINED BY THE CITY, VIL- 23 LAGE, OR TOWNSHIP. IF DECLARATORY RELIEF IS GRANTED, THE COURT 24 SHALL ISSUE AN ORDER PERMITTING THE CITY, VILLAGE, OR TOWNSHIP TO 25 RETAIN THE PROCEEDS AS REQUESTED, IN ACCORDANCE WITH THE PROVI- 26 SIONS OF THIS SECTION, TO BE USED AS PROVIDED IN THIS SECTION. 27 IF THE CITY, VILLAGE, OR TOWNSHIP FAILS TO APPLY FOR DECLARATORY 03924'97 4 1 RELIEF WITHIN THE 30-DAY PERIOD, OR IF DECLARATORY RELIEF IS 2 DENIED, THE CITY, VILLAGE, OR TOWNSHIP SHALL IMMEDIATELY RETURN 3 TO THE INSURED THE PROCEEDS HELD IN ESCROW. 4 (3) UPON RECEIPT OF MONEY AND INFORMATION FROM AN INSURER AS 5 PRESCRIBED IN SUBSECTIONS (1) AND (2), THE LOCAL TREASURER SHALL 6 RECORD THE INFORMATION AND THE DATE OF RECEIPT OF THE MONEY AND 7 SHALL IMMEDIATELY DEPOSIT THE MONEY IN A TRUST OR ESCROW ACCOUNT 8 ESTABLISHED FOR PURPOSES OF THIS SECTION. THE ACCOUNT MAY BE 9 INTEREST-BEARING. IF THE MORTGAGE ON THE INSURED PROPERTY IS IN 10 DEFAULT, THE TREASURER OF THE CITY, VILLAGE, OR TOWNSHIP, UPON 11 WRITTEN REQUEST FROM A FIRST MORTGAGEE OF PROPERTY WITH RESPECT 12 TO WHICH POLICY PROCEEDS WERE WITHHELD AND PLACED INTO A TRUST OR 13 ESCROW ACCOUNT UNDER SUBSECTIONS (1) AND (2), SHALL RELEASE TO 14 THE MORTGAGEE ALL OR ANY PART OF THE POLICY PROCEEDS RECEIVED BY 15 THE CITY, VILLAGE, OR TOWNSHIP WITH RESPECT TO THAT PROPERTY, NOT 16 LATER THAN 10 DAYS AFTER RECEIPT OF THE WRITTEN REQUEST BY THE 17 MORTGAGEE, TO THE EXTENT NECESSARY TO SATISFY ANY OUTSTANDING 18 LIEN OF THE MORTGAGEE. 19 (4) EXCEPT AS PROVIDED IN SUBSECTION (7), MONEY DEPOSITED IN 20 AN ACCOUNT PURSUANT TO SUBSECTION (3) SHALL NOT BE COMMINGLED 21 WITH CITY, VILLAGE, OR TOWNSHIP FUNDS. ANY INTEREST EARNED ON 22 MONEY PLACED IN A TRUST OR ESCROW ACCOUNT SHALL BE RETAINED BY 23 THE CITY, VILLAGE, OR TOWNSHIP TO DEFRAY EXPENSES INCURRED UNDER 24 THIS SECTION. 25 (5) EXCEPT AS PROVIDED IN SUBDIVISION (C), THE POLICY PRO- 26 CEEDS DEPOSITED UNDER SUBSECTION (3) SHALL IMMEDIATELY BE 27 FORWARDED TO THE INSURED WHEN THE AUTHORIZED REPRESENTATIVE OF 03924'97 5 1 THE CITY, VILLAGE, OR TOWNSHIP DESIGNATED BY THE GOVERNING BODY 2 OF THE CITY, VILLAGE, OR TOWNSHIP RECEIVES OR IS SHOWN REASONABLE 3 PROOF OF ANY OF THE FOLLOWING: 4 (A) THAT THE DAMAGED OR DESTROYED PORTIONS OF THE INSURED 5 STRUCTURE HAVE BEEN REPAIRED OR REPLACED, EXCEPT TO THE EXTENT 6 THAT THE AMOUNT WITHHELD UNDER THIS SUBSECTION IS NEEDED TO COM- 7 PLETE REPAIR OR REPLACEMENT. 8 (B) THAT THE DAMAGED OR DESTROYED STRUCTURE AND ALL REMNANTS 9 OF THE STRUCTURE HAVE BEEN REMOVED FROM THE LAND ON WHICH THE 10 STRUCTURE OR THE REMNANTS OF THE STRUCTURE WERE SITUATED, IN COM- 11 PLIANCE WITH THE LOCAL CODE REQUIREMENTS OF THE CITY, VILLAGE, OR 12 TOWNSHIP IN WHICH THE STRUCTURE WAS LOCATED. 13 (C) THAT THE INSURED HAS ENTERED INTO A CONTRACT TO PERFORM 14 REPAIR, REPLACEMENT, OR REMOVAL SERVICES WITH RESPECT TO THE 15 INSURED REAL PROPERTY AND THAT THE INSURED CONSENTS TO PAYMENT OF 16 FUNDS DIRECTLY TO THE CONTRACTOR PERFORMING THE SERVICES. FUNDS 17 RELEASED UNDER THIS SUBDIVISION MAY BE FORWARDED ONLY TO A CON- 18 TRACTOR PERFORMING SERVICES ON THE INSURED PROPERTY. 19 (6) REASONABLE PROOF REQUIRED UNDER SUBSECTION (5) INCLUDES 20 ANY OF THE FOLLOWING: 21 (A) ORIGINALS OR COPIES OF PERTINENT CONTRACTS, INVOICES, 22 RECEIPTS, AND OTHER SIMILAR PAPERS EVIDENCING BOTH THE WORK PER- 23 FORMED OR TO BE PERFORMED AND THE MATERIALS USED OR TO BE USED BY 24 ALL CONTRACTORS PERFORMING REPAIR, REPLACEMENT, OR REMOVAL SERV- 25 ICES WITH RESPECT TO THE INSURED REAL PROPERTY, OTHER THAN A CON- 26 TRACTOR SUBJECT TO SUBDIVISION (B). 03924'97 6 1 (B) AN AFFIDAVIT EXECUTED BY THE CONTRACTOR THAT HAS 2 PERFORMED THE GREATEST AMOUNT OF REPAIR OR REPLACEMENT WORK ON 3 THE STRUCTURE, OR THAT HAS DONE MOST OF THE CLEARING AND REMOVAL 4 WORK IF STRUCTURE REPAIR OR REPLACEMENT IS NOT TO BE PERFORMED. 5 THE CONTRACTOR SHALL ATTACH TO THE AFFIDAVIT ALL PERTINENT CON- 6 TRACTS, INVOICES, AND RECEIPTS AND SHALL SWEAR THAT THESE 7 ATTACHED PAPERS CORRECTLY INDICATE THE NATURE AND EXTENT OF THE 8 WORK PERFORMED TO DATE BY THE CONTRACTOR AND THE MATERIALS USED. 9 (C) AN INSPECTION OF THE INSURED REAL PROPERTY TO VERIFY 10 THAT REPAIR, REPLACEMENT, OR CLEARING HAS BEEN COMPLETED IN 11 ACCORDANCE WITH SUBSECTION (5). 12 (7) IF WITH RESPECT TO A LOSS, REASONABLE PROOF IS NOT 13 RECEIVED BY OR SHOWN TO AN AUTHORIZED REPRESENTATIVE OF THE CITY, 14 VILLAGE, OR TOWNSHIP DESIGNATED BY THE GOVERNING BODY OF THE 15 CITY, VILLAGE, OR TOWNSHIP WITHIN 45 DAYS AFTER THE POLICY PRO- 16 CEEDS PORTION WAS RECEIVED BY THE TREASURER, THE CITY, VILLAGE, 17 OR TOWNSHIP SHALL USE THE RETAINED PROCEEDS TO SECURE, REPAIR, OR 18 DEMOLISH THE DAMAGED OR DESTROYED STRUCTURE AND CLEAR THE PROP- 19 ERTY IN QUESTION, SO THAT THE STRUCTURE AND PROPERTY ARE IN COM- 20 PLIANCE WITH LOCAL CODE REQUIREMENTS AND APPLICABLE ORDINANCES OF 21 THE CITY, VILLAGE, OR TOWNSHIP. ANY UNUSED PORTION OF THE 22 RETAINED PROCEEDS SHALL BE RETURNED TO THE INSURED. 23 (8) A FINAL SETTLEMENT SHALL NOT INCLUDE THE PAYMENT OF 24 POLICY PROCEEDS FOR PERSONAL PROPERTY OR CONTENTS DAMAGE OR FOR 25 ADDITIONAL COVERAGE NOT CONTAINED IN THE FIRE COVERAGE PORTION OF 26 THE FIRE INSURANCE POLICY. 03924'97 7 1 (9) THERE IS NO LIABILITY ON THE PART OF, AND A CAUSE OF 2 ACTION SHALL NOT ARISE AGAINST, AN INSURER OR AN AGENT OR 3 EMPLOYEE OF AN INSURER FOR WITHHOLDING OR TRANSFERRING MONEY IN 4 THE COURSE OF COMPLYING OR ATTEMPTING TO COMPLY WITH THIS 5 SECTION. 6 (10) THIS SECTION APPLIES ONLY TO FINAL SETTLEMENTS THAT 7 EXCEED 49% OF THE INSURANCE ON THE INSURED REAL PROPERTY. 8 (11) THIS SECTION APPLIES ONLY TO PROPERTY LOCATED IN A 9 CITY, VILLAGE, OR TOWNSHIP IF THE CITY, VILLAGE, OR TOWNSHIP PUR- 10 SUANT TO A RESOLUTION BY THE GOVERNING BODY NOTIFIES THE COMMIS- 11 SIONER IN WRITING THAT THE CITY, VILLAGE, OR TOWNSHIP HAS ESTAB- 12 LISHED A TRUST OR ESCROW ACCOUNT TO BE USED AS PRESCRIBED IN THIS 13 SECTION AND INTENDS TO UNIFORMLY APPLY THIS SECTION WITH RESPECT 14 TO ALL PROPERTY LOCATED WITHIN THE CITY, VILLAGE, OR TOWNSHIP 15 FOLLOWING WRITTEN NOTIFICATION TO THE COMMISSIONER. THE COMMIS- 16 SIONER SHALL PREPARE AND DISTRIBUTE A LIST OF ALL CITIES, VIL- 17 LAGES, AND TOWNSHIPS THAT HAVE ELECTED TO APPLY THIS SECTION TO 18 ALL INSURANCE COMPANIES TRANSACTING PROPERTY INSURANCE IN THIS 19 STATE. 20 (12) A CITY, VILLAGE, OR TOWNSHIP SHALL REMAIN ON THE LIST 21 UNTIL A WRITTEN REQUEST FOR DELETION HAS BEEN RECEIVED BY THE 22 COMMISSIONER AND THE AMENDED LIST HAS BEEN PREPARED PURSUANT TO 23 THIS SUBSECTION. 24 (13) A CITY, VILLAGE, OR TOWNSHIP MAY APPLY TO BE ADDED TO 25 THE LIST BY MAKING A WRITTEN REQUEST FOR ADDITION TO THE 26 COMMISSIONER. WHEN A WRITTEN REQUEST FOR ADDITION FROM A CITY, 27 VILLAGE, OR TOWNSHIP HAS BEEN RECEIVED BY THE COMMISSIONER, AN 03924'97 8 1 AMENDED LIST SHALL BE PREPARED AND DISTRIBUTED INDICATING THE 2 ADDITION. THE ADDITION SHALL BE EFFECTIVE ON THE DATE SPECIFIED 3 BY THE COMMISSIONER IN THE AMENDMENT. THE COMMISSIONER SHALL 4 NOTIFY THE CITY, VILLAGE, TOWNSHIP, AND INSURANCE COMPANIES OF 5 THE EFFECTIVE DATE OF THE ADDITION WHICH SHALL BE EFFECTIVE NOT 6 LESS THAN 30 DAYS AFTER RECEIPT OF NOTICE BY THE INSURANCE 7 COMPANY. A CITY, VILLAGE, OR TOWNSHIP SHALL NOT APPLY THIS SEC- 8 TION FOR ANY LOSS THAT OCCURRED BEFORE THE EFFECTIVE DATE OF THE 9 ADDITION. 10 (14) A CITY, VILLAGE, OR TOWNSHIP MAY CEASE TO APPLY THIS 11 SECTION FOR A PERIOD OF NOT LESS THAN 6 MONTHS UPON NOT LESS THAN 12 30 DAYS' WRITTEN NOTICE TO THE COMMISSIONER. AFTER RECEIPT OF 13 REQUEST TO BE DELETED FROM THE LIST, THE COMMISSIONER SHALL PRE- 14 PARE AND DISTRIBUTE AN AMENDMENT TO THE LIST INDICATING THE 15 DELETION. THE DELETION SHALL BE EFFECTIVE ON THE DATE SPECIFIED 16 BY THE COMMISSIONER IN THE AMENDMENT. THE COMMISSIONER SHALL 17 NOTIFY THE CITY, VILLAGE, TOWNSHIP, AND INSURANCE COMPANIES OF 18 THE EFFECTIVE DATE OF THE DELETION WHICH SHALL BE EFFECTIVE NOT 19 LESS THAN 30 DAYS AFTER RECEIPT OF THE NOTICE BY THE INSURANCE 20 COMPANY. A CITY, VILLAGE, OR TOWNSHIP SHALL CONTINUE TO APPLY 21 THIS SECTION FOR ANY LOSS THAT OCCURRED BEFORE THE EFFECTIVE DATE 22 OF THE DELETION, NOTWITHSTANDING THE DELETION. 23 (15) THE COMMISSIONER SHALL PROMULGATE RULES TO IMPLEMENT 24 AND ADMINISTER THIS SECTION PURSUANT TO THE ADMINISTRATIVE PROCE- 25 DURES ACT OF 1969, 1969 PA 306, MCL 24.201 TO 24.328. 26 (16) THE WITHHOLDING REQUIREMENTS OF THIS SECTION SHALL NOT 27 APPLY IF ALL OF THE FOLLOWING OCCUR: 03924'97 9 1 (A) WITHIN 15 DAYS AFTER AGREEMENT ON A FINAL SETTLEMENT 2 BETWEEN THE INSURED AND THE INSURER, THE INSURED HAS FILED WITH 3 THE INSURER EVIDENCE OF A CONTRACT TO REPAIR AS DESCRIBED IN SUB- 4 SECTION (6). 5 (B) THE INSURED CONSENTS TO THE PAYMENT OF FUNDS DIRECTLY TO 6 THE CONTRACTOR PERFORMING THE REPAIR SERVICES. FUNDS RELEASED 7 UNDER THIS SUBDIVISION MAY BE FORWARDED ONLY TO A CONTRACTOR PER- 8 FORMING THE REPAIR SERVICES ON THE INSURED PROPERTY. 9 (C) ON RECEIPT OF THE CONTRACT TO REPAIR, THE INSURER GIVES 10 NOTICE TO THE CITY, VILLAGE, OR TOWNSHIP IN WHICH THE PROPERTY IS 11 SITUATED THAT THERE WILL NOT BE A WITHHOLDING UNDER THIS SECTION 12 BECAUSE OF THE REPAIR CONTRACT. 13 (17) IF THE INSURED AND THE INSURER HAVE AGREED ON THE DEMO- 14 LITION COSTS OR THE DEBRIS REMOVAL COSTS AS PART OF THE FINAL 15 SETTLEMENT OF THE REAL PROPERTY INSURED CLAIM, THE INSURER SHALL 16 WITHHOLD 1 OF THE FOLLOWING SUMS, WHICHEVER SUM IS THE LARGEST, 17 AND SHALL PAY THAT SUM IN ACCORDANCE WITH THIS SECTION: 18 (A) THE AGREED COST OF DEMOLITION OR DEBRIS REMOVAL. 19 (B) FIFTEEN PERCENT OF THE ACTUAL CASH VALUE OF THE INSURED 20 REAL PROPERTY AT THE TIME OF LOSS. 21 (C) FIFTEEN PERCENT OF THE FINAL SETTLEMENT OF THE INSURED 22 REAL PROPERTY CLAIM. 23 (18) AS USED IN THIS SECTION, "FINAL SETTLEMENT" MEANS A 24 DETERMINATION OF THE AMOUNT DUE AND OWING TO THE INSURED, FOR A 25 LOSS TO INSURED REAL PROPERTY, BY ANY OF THE FOLLOWING MEANS: 26 (A) ACCEPTANCE OF A PROOF OF LOSS BY THE INSURER. 03924'97 10 1 (B) EXECUTION OF A RELEASE BY THE INSURED. 2 (C) ACCEPTANCE OF AN ARBITRATION AWARD BY BOTH THE INSURED 3 AND THE INSURER. 4 (D) JUDGMENT OF A COURT OF COMPETENT JURISDICTION. 03924'97 Final page. 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