HOUSE BILL No. 5344 October 30, 1997, Introduced by Reps. Thomas, Wallace, Stallworth, Schauer, Wojno, Price, DeHart, Schermesser, Hale, Leland, Freeman, Scranton, Richner, Callahan, Kilpatrick, Cherry, Llewellyn and Raczkowski 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 2227; and to repeal acts and parts of acts. THE PEOPLE OF THE STATE OF MICHIGAN ENACT: 1 SEC. 2227. (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 (12), WHEN A CLAIM IS FILED FOR A PHYSICAL DAMAGE LOSS 5 TO INSURED REAL PROPERTY INCLUDING A LOSS DUE TO FIRE, EXPLOSION, 6 VANDALISM, WIND, FLOOD, OR OTHER HAZARD PROVIDED FOR IN THE 7 POLICY AND A FINAL SETTLEMENT IS REACHED ON THE LOSS TO THE 8 INSURED REAL PROPERTY, AN INSURER SHALL WITHHOLD FROM PAYMENT 25% 9 OF THE ACTUAL CASH VALUE OF THE INSURED REAL PROPERTY AT THE TIME 10 OF THE LOSS OR 25% OF THE FINAL SETTLEMENT, WHICHEVER IS 04710'97 DKH 2 1 GREATER. AT THE TIME THAT 25% OF THE SETTLEMENT OR JUDGMENT IS 2 WITHHELD, THE INSURER SHALL GIVE NOTICE OF THE WITHHOLDING TO THE 3 TREASURER OF THE CITY, VILLAGE, OR TOWNSHIP IN WHICH THE INSURED 4 REAL PROPERTY IS LOCATED, TO THE INSURED, AND TO ANY MORTGAGEE 5 HAVING AN EXISTING LIEN OR LIENS AGAINST THE INSURED REAL PROPER- 6 TY, IF THE MORTGAGEE IS NAMED ON THE POLICY. IN THE CASE OF A 7 JUDGMENT, NOTICE SHALL ALSO BE PROVIDED TO THE COURT IN WHICH 8 JUDGMENT WAS ENTERED. THE NOTICE SHALL INCLUDE ALL OF THE 9 FOLLOWING: 10 (A) THE IDENTITY AND ADDRESS OF THE INSURER. 11 (B) THE NAME AND ADDRESS OR FORWARDING ADDRESS OF EACH POLI- 12 CYHOLDER, INCLUDING ANY MORTGAGEE. 13 (C) LOCATION OF THE INSURED REAL PROPERTY. 14 (D) THE DATE OF LOSS, POLICY NUMBER, AND CLAIM NUMBER. 15 (E) THE AMOUNT OF MONEY WITHHELD. 16 (F) A STATEMENT THAT THE CITY, VILLAGE, OR TOWNSHIP MAY HAVE 17 THE WITHHELD AMOUNT PAID INTO A TRUST OR ESCROW ACCOUNT ESTAB- 18 LISHED FOR THE PURPOSES OF THIS SECTION IF IT SHOWS CAUSE, PURSU- 19 ANT TO SUBSECTION (2), WITHIN 30 DAYS THAT THE MONEY SHOULD BE 20 WITHHELD TO PROTECT THE PUBLIC HEALTH AND SAFETY, OTHERWISE THE 21 WITHHELD AMOUNT SHALL BE PAID TO THE INSURED AT THE EXPIRATION OF 22 30 DAYS. 23 (G) AN EXPLANATION OF THE PROVISIONS OF THIS SECTION. 24 (2) FOR A CITY, VILLAGE, OR TOWNSHIP TO ESCROW THE AMOUNT 25 WITHHELD BY THE INSURER, AND TO RETAIN THAT AMOUNT, THE FOLLOWING 26 PROCEDURE SHALL BE USED: 04710'97 3 1 (A) AN AUTHORIZED REPRESENTATIVE OF THE CITY, VILLAGE, OR 2 TOWNSHIP SHALL REQUEST THE INSURER TO PAY THE WITHHELD AMOUNT 3 INTO AN ESCROW ACCOUNT MAINTAINED BY THE TREASURER OF THE CITY, 4 VILLAGE, OR TOWNSHIP. A FINAL SETTLEMENT THAT EXCEEDS 40% OF THE 5 INSURANCE ON THE INSURED REAL PROPERTY IS PRIMA FACIE EVIDENCE 6 THAT THE DAMAGED INSURED STRUCTURE VIOLATES EXISTING HEALTH AND 7 SAFETY STANDARDS OF THE CITY, VILLAGE, OR TOWNSHIP AND REQUIRES 8 THE ESCROW OF THE WITHHELD AMOUNT AS SURETY FOR THE REPAIR, 9 REPLACEMENT, OR REMOVAL OF THE DAMAGED STRUCTURE AND CONSTITUTES 10 CAUSE FOR THE ESCROWING OF THE WITHHELD AMOUNT. 11 (B) IN THE CASE OF A SETTLEMENT, THE REQUEST UNDER 12 SUBDIVISION (A) SHALL BE SENT TO THE INSURER WITH A COPY TO THE 13 INSURED AND ANY MORTGAGEES. UPON RECEIPT OF THE REQUEST, THE 14 INSURER SHALL FORWARD THE WITHHELD AMOUNT TO THE TREASURER OF THE 15 CITY, VILLAGE, OR TOWNSHIP, AND SHALL PROVIDE NOTICE OF THE FOR- 16 WARDING TO THE INSURED AND ANY MORTGAGEES. 17 (C) IN THE CASE OF A JUDGMENT, THE REQUEST SHALL BE SENT TO 18 THE INSURER WITH A COPY TO THE INSURED, ANY MORTGAGEES, AND THE 19 COURT IN WHICH JUDGMENT WAS ENTERED. UPON THE MOTION OF THE 20 CITY, VILLAGE, OR TOWNSHIP, THE COURT SHALL ORDER THE WITHHELD 21 AMOUNT TO BE TRANSMITTED TO THE TREASURER OF THE CITY, VILLAGE, 22 OR TOWNSHIP. 23 (3) ANY OBJECTION BY THE INSURED TO A WITHHOLDING UNDER THIS 24 SECTION SHALL BE DIRECTED TO THE REPRESENTATIVE OF THE CITY, VIL- 25 LAGE, OR TOWNSHIP DESIGNATED TO RECEIVE AND RESOLVE THOSE 26 OBJECTIONS. IF AN INSURED IS NOT SATISFIED WITH THE RESOLUTION 04710'97 4 1 REACHED BY THE CITY, VILLAGE, OR TOWNSHIP REPRESENTATIVE, THE 2 INSURED MAY SEEK RELIEF IN THE CIRCUIT COURT. 3 (4) UPON RECEIPT OF MONEY AND INFORMATION FROM AN INSURER AS 4 PRESCRIBED IN SUBSECTIONS (1) AND (2), THE LOCAL TREASURER SHALL 5 RECORD THE INFORMATION AND THE DATE OF RECEIPT OF THE MONEY AND 6 SHALL IMMEDIATELY DEPOSIT THE MONEY IN A TRUST OR ESCROW ACCOUNT 7 ESTABLISHED FOR PURPOSES OF THIS SECTION. THE ACCOUNT MAY BE 8 INTEREST-BEARING. UPON PROOF THAT THE MORTGAGE ON THE INSURED 9 PROPERTY HAS BEEN LEGALLY FORECLOSED, THE TREASURER OF THE CITY, 10 VILLAGE, OR TOWNSHIP, UPON WRITTEN REQUEST FROM A FIRST MORTGAGEE 11 OF PROPERTY WITH RESPECT TO WHICH POLICY PROCEEDS WERE WITHHELD 12 AND PLACED INTO A TRUST OR ESCROW ACCOUNT UNDER SUBSECTIONS (1) 13 AND (2), SHALL SUBSTITUTE THE MORTGAGEE OR ITS ASSIGNS IN THE 14 PLACE AND STEAD OF THE INSURED. UPON PROPER NOTIFICATION OF THE 15 FORECLOSURE, THE MORTGAGEE OR ITS ASSIGNS ASSUME ALL THE RIGHTS 16 AND RESPONSIBILITIES OF THE INSURED TO THE INSURED STRUCTURE AND 17 WITHHELD AMOUNT. 18 (5) EXCEPT AS PROVIDED IN SUBSECTION (8), MONEY DEPOSITED IN 19 AN ACCOUNT PURSUANT TO SUBSECTION (4) SHALL NOT BE COMMINGLED 20 WITH CITY, VILLAGE, OR TOWNSHIP FUNDS. ANY INTEREST EARNED ON 21 MONEY PLACED IN A TRUST OR ESCROW ACCOUNT SHALL BE RETAINED BY 22 THE CITY, VILLAGE, OR TOWNSHIP TO DEFRAY EXPENSES INCURRED UNDER 23 THIS SECTION. 24 (6) EXCEPT AS PROVIDED IN SUBDIVISION (C), THE POLICY PRO- 25 CEEDS DEPOSITED UNDER SUBSECTION (4) SHALL IMMEDIATELY BE FOR- 26 WARDED TO THE INSURED WHEN THE AUTHORIZED REPRESENTATIVE OF THE 27 CITY, VILLAGE, OR TOWNSHIP DESIGNATED BY THE GOVERNING BODY OF 04710'97 5 1 THE CITY, VILLAGE, OR TOWNSHIP RECEIVES OR IS SHOWN REASONABLE 2 PROOF OF ANY OF THE FOLLOWING: 3 (A) THAT THE DAMAGED OR DESTROYED PORTIONS OF THE INSURED 4 STRUCTURE HAVE BEEN REPAIRED OR REPLACED, EXCEPT TO THE EXTENT 5 THAT THE AMOUNT WITHHELD UNDER THIS SUBSECTION IS NEEDED TO COM- 6 PLETE REPAIR OR REPLACEMENT. 7 (B) THAT THE DAMAGED OR DESTROYED STRUCTURE AND ALL REMNANTS 8 OF THE STRUCTURE HAVE BEEN REMOVED FROM THE LAND ON WHICH THE 9 STRUCTURE OR THE REMNANTS OF THE STRUCTURE WERE SITUATED, IN COM- 10 PLIANCE WITH THE LOCAL CODE REQUIREMENTS OF THE CITY, VILLAGE, OR 11 TOWNSHIP IN WHICH THE STRUCTURE WAS LOCATED. 12 (C) THAT THE INSURED HAS ENTERED INTO A CONTRACT TO PERFORM 13 REPAIR, REPLACEMENT, OR REMOVAL SERVICES BY A DATE CERTAIN WITH 14 RESPECT TO THE INSURED REAL PROPERTY AND THAT THE INSURED CON- 15 SENTS TO PAYMENT OF FUNDS DIRECTLY TO THE LICENSED CONTRACTOR 16 PERFORMING THE SERVICES. FUNDS RELEASED UNDER THIS SUBDIVISION 17 MAY BE FORWARDED ONLY TO A LICENSED CONTRACTOR PERFORMING SERV- 18 ICES ON THE INSURED PROPERTY. 19 (7) REASONABLE PROOF REQUIRED UNDER SUBSECTION (6) INCLUDES 20 ANY OF THE FOLLOWING: 21 (A) ORIGINALS OR COPIES OF PERTINENT VERIFIABLE CONTRACTS, 22 RECEIPTS, AND OTHER SIMILAR PAPERS EVIDENCING BOTH THE WORK PER- 23 FORMED OR TO BE PERFORMED BY A DATE CERTAIN AND THE MATERIALS 24 USED OR TO BE USED BY ALL CONTRACTORS PERFORMING REPAIR, REPLACE- 25 MENT, OR REMOVAL SERVICES WITH RESPECT TO THE INSURED REAL PROP- 26 ERTY, OTHER THAN A LICENSED CONTRACTOR SUBJECT TO SUBDIVISION 27 (B). 04710'97 6 1 (B) AN AFFIDAVIT EXECUTED BY THE LICENSED CONTRACTOR THAT 2 HAS PERFORMED THE GREATEST AMOUNT OF REPAIR OR REPLACEMENT WORK 3 ON THE STRUCTURE, OR THAT HAS DONE MOST OF THE CLEARING AND 4 REMOVAL WORK IF STRUCTURE REPAIR OR REPLACEMENT IS NOT TO BE 5 PERFORMED. THE LICENSED CONTRACTOR SHALL ATTACH TO THE AFFIDAVIT 6 ALL PERTINENT CONTRACTS, INVOICES, AND RECEIPTS AND SHALL SWEAR 7 THAT THESE ATTACHED PAPERS CORRECTLY INDICATE THE NATURE AND 8 EXTENT OF THE WORK PERFORMED TO DATE BY THE LICENSED CONTRACTOR 9 AND THE MATERIALS USED. 10 (C) AN INSPECTION OF THE INSURED REAL PROPERTY TO VERIFY 11 THAT REPAIR, REPLACEMENT, OR CLEARING HAS BEEN COMPLETED IN 12 ACCORDANCE WITH SUBSECTION (6). 13 (8) IF WITH RESPECT TO A LOSS, REASONABLE PROOF IS NOT 14 RECEIVED BY OR SHOWN TO AN AUTHORIZED REPRESENTATIVE OF THE CITY, 15 VILLAGE, OR TOWNSHIP DESIGNATED BY THE GOVERNING BODY OF THE 16 CITY, VILLAGE, OR TOWNSHIP WITHIN 120 DAYS AFTER THE POLICY PRO- 17 CEEDS PORTION WAS RECEIVED BY THE TREASURER, THE CITY, VILLAGE, 18 OR TOWNSHIP SHALL USE THE RETAINED PROCEEDS TO SECURE, REPAIR, OR 19 DEMOLISH THE DAMAGED OR DESTROYED STRUCTURE AND CLEAR THE PROP- 20 ERTY IN QUESTION, SO THAT THE STRUCTURE AND PROPERTY ARE IN COM- 21 PLIANCE WITH LOCAL CODE REQUIREMENTS AND APPLICABLE ORDINANCES OF 22 THE CITY, VILLAGE, OR TOWNSHIP. ANY UNUSED PORTION OF THE 23 RETAINED PROCEEDS SHALL BE RETURNED TO THE INSURED. 24 (9) A FINAL SETTLEMENT SHALL NOT INCLUDE THE PAYMENT OF 25 POLICY PROCEEDS FOR PERSONAL PROPERTY OR CONTENTS DAMAGE. 26 (10) THERE IS NO LIABILITY ON THE PART OF, AND A CAUSE OF 27 ACTION DOES NOT ARISE AGAINST, AN INSURER OR AN AGENT OR EMPLOYEE 04710'97 7 1 OF AN INSURER FOR WITHHOLDING OR TRANSFERRING MONEY IN THE COURSE 2 OF COMPLYING OR ATTEMPTING TO COMPLY WITH THIS SECTION. 3 (11) THIS SECTION APPLIES ONLY TO FINAL SETTLEMENTS THAT 4 EXCEED 40% OF THE INSURANCE ON THE INSURED REAL PROPERTY. 5 (12) THIS SECTION APPLIES ONLY TO PROPERTY LOCATED IN A 6 CITY, VILLAGE, OR TOWNSHIP THAT PURSUANT TO A RESOLUTION BY ITS 7 GOVERNING BODY NOTIFIES THE COMMISSIONER IN WRITING THAT THE 8 CITY, VILLAGE, OR TOWNSHIP HAS ESTABLISHED A TRUST OR ESCROW 9 ACCOUNT TO BE USED AS PRESCRIBED IN THIS SECTION AND INTENDS TO 10 UNIFORMLY APPLY THIS SECTION WITH RESPECT TO ALL PROPERTY LOCATED 11 WITHIN THE CITY, VILLAGE, OR TOWNSHIP FOLLOWING WRITTEN NOTIFICA- 12 TION TO THE COMMISSIONER. THE COMMISSIONER SHALL PREPARE AND 13 DISTRIBUTE A LIST OF ALL CITIES, VILLAGES, AND TOWNSHIPS THAT 14 HAVE ELECTED TO APPLY THIS SECTION TO ALL INSURANCE COMPANIES 15 TRANSACTING PROPERTY INSURANCE IN THIS STATE. 16 (13) A CITY, VILLAGE, OR TOWNSHIP SHALL REMAIN ON THE LIST 17 UNTIL A WRITTEN REQUEST FOR DELETION HAS BEEN RECEIVED BY THE 18 COMMISSIONER AND THE AMENDED LIST HAS BEEN PREPARED PURSUANT TO 19 THIS SUBSECTION. 20 (14) A CITY, VILLAGE, OR TOWNSHIP MAY APPLY TO BE ADDED TO 21 THE LIST BY MAKING A WRITTEN REQUEST FOR ADDITION TO THE 22 COMMISSIONER. WHEN A WRITTEN REQUEST FOR ADDITION FROM A CITY, 23 VILLAGE, OR TOWNSHIP HAS BEEN RECEIVED BY THE COMMISSIONER, AN 24 AMENDED LIST SHALL BE PREPARED AND DISTRIBUTED INDICATING THE 25 ADDITION. THE ADDITION SHALL BE EFFECTIVE ON THE DATE SPECIFIED 26 BY THE COMMISSIONER IN THE AMENDMENT. THE COMMISSIONER SHALL 27 NOTIFY THE CITY, VILLAGE, TOWNSHIP, AND INSURANCE COMPANIES OF 04710'97 8 1 THE EFFECTIVE DATE OF THE ADDITION WHICH SHALL BE EFFECTIVE NOT 2 LESS THAN 30 DAYS AFTER RECEIPT OF NOTICE BY THE INSURANCE 3 COMPANY. A CITY, VILLAGE, OR TOWNSHIP SHALL NOT APPLY THIS SEC- 4 TION FOR ANY LOSS THAT OCCURRED BEFORE THE EFFECTIVE DATE OF THE 5 ADDITION. 6 (15) A CITY, VILLAGE, OR TOWNSHIP MAY CEASE TO APPLY THIS 7 SECTION FOR A PERIOD OF NOT LESS THAN 6 MONTHS UPON NOT LESS THAN 8 30 DAYS' WRITTEN NOTICE TO THE COMMISSIONER. AFTER RECEIPT OF 9 REQUEST TO BE DELETED FROM THE LIST, THE COMMISSIONER SHALL PRE- 10 PARE AND DISTRIBUTE AN AMENDMENT TO THE LIST INDICATING THE 11 DELETION. THE DELETION SHALL BE EFFECTIVE ON THE DATE SPECIFIED 12 BY THE COMMISSIONER IN THE AMENDMENT. THE COMMISSIONER SHALL 13 NOTIFY THE CITY, VILLAGE, TOWNSHIP, AND INSURANCE COMPANIES OF 14 THE EFFECTIVE DATE OF THE DELETION WHICH SHALL BE EFFECTIVE NOT 15 LESS THAN 30 DAYS AFTER RECEIPT OF THE NOTICE BY THE INSURANCE 16 COMPANY. A CITY, VILLAGE, OR TOWNSHIP SHALL CONTINUE TO APPLY 17 THIS SECTION FOR ANY LOSS THAT OCCURRED BEFORE THE EFFECTIVE DATE 18 OF THE DELETION, NOTWITHSTANDING THE DELETION. 19 (16) THE COMMISSIONER SHALL PROMULGATE RULES TO IMPLEMENT 20 AND ADMINISTER THIS SECTION PURSUANT TO THE ADMINISTRATIVE PROCE- 21 DURES ACT OF 1969, 1969 PA 306, MCL 24.201 TO 24.328. 22 (17) THE WITHHOLDING REQUIREMENTS OF THIS SECTION DO NOT 23 APPLY IF ALL OF THE FOLLOWING OCCUR: 24 (A) WITHIN 15 DAYS AFTER AGREEMENT ON A FINAL SETTLEMENT 25 BETWEEN THE INSURED AND THE INSURER, THE INSURED HAS FILED WITH 26 THE INSURER EVIDENCE OF A CONTRACT TO REPAIR AS DESCRIBED IN 27 SUBSECTION (7). 04710'97 9 1 (B) THE INSURED CONSENTS TO THE PAYMENT OF FUNDS DIRECTLY TO 2 THE LICENSED CONTRACTOR PERFORMING THE REPAIR SERVICES. FUNDS 3 RELEASED UNDER THIS SUBDIVISION MAY BE FORWARDED ONLY TO A 4 LICENSED CONTRACTOR PERFORMING THE REPAIR SERVICES ON THE INSURED 5 PROPERTY. 6 (C) ON RECEIPT OF THE CONTRACT TO REPAIR, THE INSURER GIVES 7 NOTICE TO THE CITY, VILLAGE, OR TOWNSHIP IN WHICH THE PROPERTY IS 8 SITUATED THAT THERE WILL NOT BE A WITHHOLDING UNDER THIS SECTION 9 BECAUSE OF THE REPAIR CONTRACT. 10 (18) THE INSURER SHALL PRESENT TO THE INSURED OPTIONS FOR 11 DEMOLITION AND DEBRIS REMOVAL AS PART OF NEGOTIATIONS ON THE 12 FINAL SETTLEMENT WHERE DAMAGE TO THE STRUCTURE EXCEEDS 40% OF THE 13 INSURANCE ON THE INSURED REAL PROPERTY. IF THE INSURED AND THE 14 INSURER HAVE AGREED ON THE DEMOLITION COSTS OR THE DEBRIS REMOVAL 15 COSTS AS PART OF THE FINAL SETTLEMENT OF THE REAL PROPERTY 16 INSURED CLAIM, THE INSURER SHALL WITHHOLD 1 OF THE FOLLOWING 17 SUMS, WHICHEVER SUM IS THE LARGEST, AND SHALL PAY THAT SUM IN 18 ACCORDANCE WITH THIS SECTION: 19 (A) THE AGREED COST OF DEMOLITION OR DEBRIS REMOVAL. 20 (B) TWENTY-FIVE PERCENT OF THE ACTUAL CASH VALUE OF THE 21 INSURED REAL PROPERTY AT THE TIME OF LOSS. 22 (C) TWENTY-FIVE PERCENT OF THE FINAL SETTLEMENT OF THE 23 INSURED REAL PROPERTY CLAIM. 24 (19) AS USED IN THIS SECTION, "FINAL SETTLEMENT" MEANS A 25 DETERMINATION OF THE AMOUNT DUE AND OWING TO THE INSURED, FOR A 26 LOSS TO INSURED REAL PROPERTY, BY ANY OF THE FOLLOWING MEANS: 04710'97 10 1 (A) ACCEPTANCE OF A PROOF OF LOSS BY THE INSURER. 2 (B) EXECUTION OF A RELEASE BY THE INSURED. 3 (C) ACCEPTANCE OF AN ARBITRATION AWARD BY BOTH THE INSURED 4 AND THE INSURER. 5 (D) JUDGMENT OF A COURT OF COMPETENT JURISDICTION. 6 (20) THIS SECTION APPLIES TO POLICIES ISSUED OR RENEWED ON 7 AND AFTER JUNE 1, 1998. 8 Enacting section 1. Section 2845 of the insurance code of 9 1956, 1956 PA 218, MCL 500.2845, is repealed effective June 1, 10 1998. 04710'97 Final page. DKH