Alabama Insurance Reform Bill

By Senator Ben Brooks

M30o93H7pQ09L8X1t49cHY01Z5j4TT91fGfr Alabama Insurance Reform Bill

Published: Thu, February 28, 2008 - 5:37 am
Last Updated: Thu, February 28, 2008 - 5:51 am

SB5
By Senators Brooks and Glover
RFD Banking and Insurance
Rd 1 05-FEB-08

SYNOPSIS: This bill would create the Alabama Coastal Insurance Authority, comprised of all insurers authorized to write property insurance in Alabama. This bill would require all members of the Authority to participate in the writing, the expenses, the profits, and the losses that occur when insuring residential and commercial property in counties adjacent to the Gulf of Mexico for essential property insurance. This bill would allow persons with insurable property in counties adjacent to the Gulf of Mexico to apply to the Authority for essential property insurance coverage.
This bill would create the Alabama Coastal Insurance Authority Board, appointed by the Governor, to promulgate operational rules for the Authority to follow.
This bill would provide individuals in certain areas in Alabama counties adjacent to the Gulf of Mexico an income tax credit for certain weather-resistant property improvements.
Under current law, condominium associations established prior to 1991 are governed by the Condominium Ownership Act. This bill will allow unit holders in a pre-1991 condominium to elect to be governed by the Alabama Uniform Condominium Act.
This bill will clarify that condominiums governed by the Alabama Uniform Condominium Act may obtain insurance from captive insurance companies created under the Alabama Captive Insurers Act.
This bill will provide an income tax credit for homeowners for hurricane-resistant home upgrades of up to one thousand dollars ($1,000) or 25 percent of the cost, whichever is less.

A BILL
TO BE ENTITLED
AN ACT

Relating to property insurance, to add a new Chapter 22A to Title 27, Code of Alabama 1975, consisting of Sections 27-22A-1, 27-22A-2, 27-22A-3, 27-22A-4, 27-22A-5, 27-22A-6, and 27-22A-7 and to add Section 35-8-23 to the Code of Alabama 1975, in order to create the Alabama Coastal Insurance Authority to provide essential property insurance for residential and commercial properties in counties adjacent to the Gulf of Mexico; to provide for certain tax credits; and to create the Alabama Coastal Insurance Authority Board to promulgate rules for the Authority; to allow condominium associations organized under the Condominium Ownership Act to elect to be governed instead by the Uniform Condominium Act; and to amend Section 35-8A-313, Code of Alabama 1975, to allow condominium associations to obtain property insurance coverage from a captive insurance company.

BE IT ENACTED BY THE LEGISLATURE OF ALABAMA:

Section 1. This act shall be known and may be cited as the Alabama Coastal Property Insurance Reform Act.

Section 2. Chapter 22A of Title 27 consisting of Sections 27-22A-1, 27-22A-2, 27-22A-3, 27-22A-4, 27-22A-5, 27-22A-6, and 27-22A-7, are added to the Code of Alabama 1975, to read as follows:

Chapter 22A

Alabama Coastal Property Insurance Reform

§27-22A-1.

The purpose for this act is to encourage market participation by private insurance carriers and an adequate market for essential property insurance for residential and commercial property to applicants in counties in Alabama which are adjacent to the Gulf of Mexico.

§27-22A-2.

For purposes of this chapter, the following terms shall have the following meanings:

(1) AUTHORITY. The Alabama Coastal Insurance Authority.

(2) BOARD. The Alabama Coastal Insurance Authority Board.

(3) ESSENTIAL PROPERTY INSURANCE. Insurance against direct loss to insurable property as limited in the standard fire policy and extended coverage endorsement thereon, as may be approved by the Commissioner of Insurance.

(4) INSURABLE PROPERTY. Immovable property at fixed locations and tangible personal property located in it, which property is determined by the Authority to be in an insurable condition as determined by reasonable underwriting standards.

(5) INSURER. As defined in Section 27-1-2.

§27-22A-3.

(a) There is hereby created and established an Alabama Coastal Insurance Authority Board that shall consist of the following nine members appointed by the Governor:

(1) Five members representing insurance companies licensed to transact property insurance in this state, at least two of which shall represent insurance companies domiciled in this state.

(2) One member licensed in this state as a property insurance producer.

(3) Three members not affiliated with the insurance industry, one of whom having his or her primary residence in Baldwin County and one of whom having his or her primary residence in Mobile County.

(b) Members of the board shall serve terms of four years each and are eligible for reappointment. The Governor shall stagger the terms of initial appointments with four members serving two-year terms and five members serving four year terms, such that four or five members will be newly appointed or reappointed every two years. Members may continue to serve until their successors are appointed. When making appointments, the Governor shall consider the racial, gender, geographic, urban and rural, and economic diversity of the state, and shall strive for the board to reflect this diversity.

(c) The board shall promulgate rules and procedures for the Alabama Coastal Insurance Authority to follow in a plan of operation.

(d) There is no liability on the part of the board or any member for any act or omission in the performance of these powers and duties.

§27-22A-4.

(a) There is hereby created and established the Alabama Coastal Insurance Authority for the purpose of providing essential property insurance coverage for residential and commercial properties in Mobile and Baldwin Counties. The Authority shall be comprised of all insurers authorized to write property insurance in Alabama. Each insurer must be a member of the Authority and remain a member as long as the Authority is in existence as a condition to conduct and transact business of insurance in this state.

(b) A person having an insurable interest in insurable property is entitled to apply to the Authority for coverage and for an inspection of the property.

(c) If the Authority determines that the property is insurable and there is no unpaid premium due from the applicant for prior insurance on the property, the Authority, upon receipt of the premium, or a portion of it, shall cause to be issued a policy of essential property insurance for a term of at least one year.

(d) The board shall develop a plan of operation for the Authority, which, along with any revisions thereto, shall be submitted to and approved by the Commissioner of Insurance before the effective date thereof. A copy of the approved plan of operation, together with any approved revisions thereto, shall be maintained for public inspection in the Department of Insurance.

(e) The Authority shall be exempt from all state and local taxes based on insurance premiums and from state income tax. To the extent possible, the Authority shall be structured so as to be exempt from federal income taxes.

(f) The Authority shall carry over any unexpended monies and any unexpended surplus to subsequent fiscal years. These funds shall be maintained in a special fund to be designated as the Alabama Coastal Insurance Authority Trust Fund. Monies in this fund shall not lapse, shall not be subject to transfer to the General Fund or other state funds, and shall not be redistributed. Any interest earned or investment earnings on amounts in the fund shall be deposited to the credit of the fund. Monies in the special trust fund may be used only for the purpose of assisting the Authority in defraying expenses, paying claims, and paying reinsurance costs.

§27-22A-5.

(a) All members of the Authority shall participate in its writings, expenses, profits, and losses in the proportion that the net direct premium of the member written in Alabama during the preceding calendar year bears to the aggregate net direct premiums written in Alabama by all members of the Authority, as certified to the Authority. Credit for voluntary writings in the Gulf Front, Beach and Seacoast Zones shall be calculated separately for each zone on the basis of 100 percent credit for fire policies, 75 percent credit for homeowners and mobile homeowners policies, and 50 percent credit for commercial multi-perils policies. The "Total Credit" for each zone shall be allowed a credit separately for Gulf Front, Beach and Seacoast property premiums. Premiums for policies excluding wind and hail are not eligible for credit. Farm premiums are not eligible for credit. Participation shall be determined separately for each zone using credits as calculated separately for each zone.

(b) The assessment of a member insurer may be ordered deferred in whole or in part upon application by the insurer if, in the opinion of the board, payment of the assessment would render the insurer insolvent or in danger of insolvency or produce a hazard to its policy holders, creditors, or the public. The deferral must be repaid to the Authority by the impaired insurer with interest in a manner prescribed by the board.

(c) A member company that perceives an assessment by the Authority to be unjust or illegal shall pay the assessment or interest under protest in writing within 30 days of the assessment. If determined by the board that the assessment was collected unjustly or illegally, the Authority shall refund the assessment. If the member fails to pay an assessment within 30 days, the member is subject to disciplinary actions prescribed by the board.

§27-22A-6.

The board shall have the general powers and authority granted under the laws of this state to property insurers and in addition thereto, the specific authority to do all of the following:

(1) Enter into contracts as are necessary or proper to carry out the provisions and purposes of this act, including the authority, with the approval of the commissioner, to enter into contracts with persons or other organizations for the performance of administrative functions or with similar plans of other states for the joint performance of common administrative functions.

(2) Sue or be sued, including taking any legal actions necessary or proper to recover or collect monies due the Authority.

(3) Take legal action as necessary to do any of the following:

a. To avoid the payment of improper claims against the Authority or the coverage provided by or through the Authority.

b. To recover any amounts erroneously or improperly paid by the Authority.

c. To recover any amounts paid by the Authority as a result of mistake of fact or law.

d. To recover other amounts due the Authority.

(4) Establish and modify from time to time as appropriate, rates, rate schedules, rate adjustments, expense allowances, claim reserve formulas, and any other actuarial function appropriate to the operation of the Authority. Rates and rate schedules may by adjusted for appropriate factors such as type of construction and geographic variation in claim cost and shall take into consideration appropriate factors in accordance with established actuarial and underwriting practices.

(5) Issue policies of insurance in accordance with the requirements of this act and regulations issued pursuant thereto.

(6) Appoint appropriate legal, actuarial, and other committees as necessary to provide technical assistance in the operation of the Authority, policy, and other contract design, and any other function within the authority of the Authority.

(7) Borrow money to effect the purposes of the Authority. Any notes or other evidence of indebtedness of the Authority not in default shall be legal investments for insurers and may be carried as admitted assets.

(8) Establish rules, conditions, and procedures for member insurers to receive credit for essential property insurance voluntarily written in the beach area.

(9) Employ and fix the compensation of employees.

(10) Provide for reinsurance of risks incurred by the Authority.

(11) Provide for wind mitigation credits.

(12) Adopt policies and procedures as may be necessary or convenient for the implementation of this act and the plan of operation of the Authority.

(13) Perform all acts that relate to the function and purpose of the Authority, whether or not specifically designated in this act.

(14) Establish a trust account or similar account in which to maintain and carry over any surplus or unexpended monies which may exist or be created.

§27-22A-7.

The Commissioner of Insurance, by regulation, may establish additional powers and duties of the Authority and may adopt rules and regulations as necessary and proper to implement this act.

Section 3. Section 35-8-23, is added to the Code of Alabama 1975 to read as follows.

§35-8-23.

Condominium property may be removed from the provisions of this chapter and placed under the provisions of Title 35, Chapter 8A, the Alabama Uniform Condominium Act, provided that two thirds of all unit owners of a condominium agree. Such a conversion may be effectuated by a vote at a called meeting, or by petition with each signature of a unit owner witnessed on the petition by someone other than a unit owner, such conversion being duly recorded as a change to the bylaws of the association.

Section 4. Section 35-8A-313, Code of Alabama 1975, is amended to read as follows:
§35-8A-313.

"(a) Commencing not later than the time of the first conveyance of a unit to a person other than a declarant, the association shall maintain, to the extent reasonably available:

"(1) Property insurance on the common elements insuring against all risks of direct physical loss commonly insured against or, in the case of a conversion building, against fire and extended coverage perils. The total amount of insurance after application of any deductibles shall be not less than the greater of 80 percent of the actual cash value of the insured property at the time the insurance is purchased or such greater percentage of such actual cash value as may be necessary to prevent the applicability of any co-insurance provision and at each renewal date, exclusive of land, excavations, foundations and other items normally excluded from property policies; and

"(2) Liability insurance, including medical payments insurance, in an amount determined by the board but not less than any amount specified in the declaration, covering all occurrences commonly insured against for death, bodily injury, and property damage arising out of or in connection with the use, ownership, or maintenance of the common elements.

"(b) In the case of a building containing units having horizontal boundaries described in the declaration, the insurance maintained under subdivision (a)(1), to the extent reasonably available, must include the units, but need not include improvements and betterments installed by unit owners.

"(c) The insurance described in subsections (a) and (b) may be provided by a captive insurance company defined in Title 27, Chapter 31B, the Alabama Captive Insurers Act. If the insurance described in subsections (a) and (b) is not reasonably available, the association promptly shall cause notice of that fact to be hand-delivered or sent prepaid by United States mail to all unit owners. The declaration may require the association to carry any other insurance, and the association in any event may carry any other insurance it deems appropriate to protect the association or the unit owners.

"(d) Insurance policies carried pursuant to subsection (a) must provide that:

"(1) Each unit owner is an insured person under the policy with respect to liability arising out of his interest in the common elements or membership in the association;

"(2) The insurer waives its right to subrogation under the policy against any unit owner or member of his household;

"(3) No act or omission by any unit owner, unless acting within the scope of his authority on behalf of the association, will void the policy or be a condition to recovery under the policy; and

"(4) If, at the time of a loss under the policy, there is other insurance in the name of a unit owner covering the same risk covered by the policy, the association's policy provides primary insurance.

"(e) Any loss covered by the property policy under subsections (a)(1) and (b) must be adjusted with the association, but the insurance proceeds for that loss are payable to any insurance trustee designated for that purpose, or otherwise to the association, and not to any holder of a security interest. The insurance trustee or the association shall hold any insurance proceeds in trust for unit owners and lien holders as their interests may appear. Subject to the provisions of subsection (h), the proceeds must be disbursed first for the repair or restoration of the damaged property, and the association unit owners and lien holders are not entitled to receive payment of any portion of the proceeds unless there is a surplus of proceeds after the property has been completely repaired or restored, or the condominium is terminated.

"(f) An insurance policy issued to the association does not prevent a unit owner from obtaining insurance for his own benefit.

"(g) An insurer that has issued an insurance policy under this section shall issue certificates or memoranda of insurance to the association and, upon written request, to any unit owner, or holder of a security interest. The insurer issuing the policy may not cancel or refuse to renew it until 30 days after notice of the proposed cancellation or nonrenewal has been mailed to the association, each unit owner and each mortgagee or beneficiary under a deed of trust to whom a certificate or memorandum of insurance has been issued at their respective last known addresses.

"(h) Any portion of the condominium for which insurance is required under this section which is damaged or destroyed must be repaired or replaced promptly by the association unless:

"(1) The condominium is terminated, in which case section 35-8A-218 applies,

"(2) Repair or replacement would be illegal under any state or local statute or ordinance governing health or safety, or

"(3) Eighty percent of the unit owners, including every owner of a unit or assigned limited common element which will not be rebuilt, vote not to rebuild. The cost of repair or replacement in excess of insurance proceeds and reserves is a common expense.

"If the entire condominium is not repaired or replaced, (i) the insurance proceeds attributable to the damaged common elements must be used to restore the damaged area to a condition compatible with the remainder of the condominium, (ii) except to the extent that other persons will be distributees under section 35-8A-205(a)(12)(ii),

"(1) The insurance proceeds attributable to units and limited common elements which are not rebuilt must be distributed to the owners of those units and the owners of the units to which those limited common elements were allocated, or to lienholders, as their interests may appear, and

"(2) The remainder of the proceeds must be distributed to all the unit owners or lienholders, as their interests may appear, in proportion to the common element interests of all the units.

"If the unit owners vote not to rebuild any unit, that unit's allocated interests are automatically reallocated upon the vote as if the unit had been condemned under section 35-8A-107(a), and the association promptly shall prepare, execute, and record an amendment to the declaration reflecting the reallocations.

"(i) The provisions of this section may be varied or waived in the case of a condominium all of whose units are restricted to nonresidential use."

Section 5. For tax years beginning after December 31, 2007, an Alabama income tax credit shall be made available against the tax imposed by Chapter 18 of Title 40 of the Code of Alabama 1975, for the lesser of the two, 25 percent of the cost or one thousand dollars ($1,000) to individuals in counties in Alabama which are adjacent to the Gulf of Mexico who make the following improvements in order to provide a more weather-resistant property:

(1) Roof deck attachment.

(2) Secondary water barrier.

(3) Roof covering.

(4) Brace gable ends.

(5) Reinforce roof-to-wall connections.

(6) Opening protection.

(7) Exterior doors, including garage doors.

(8) Tie downs.

(9) Non-decorative shutters and window covers designed to be storm and hurricane resistant.

(10) Any other mitigating technique approved by the Commissioner of Insurance.

In order to obtain the credit described herein, each citizen claiming such a credit must maintain sufficient records of the improvement, including, but not limited to, receipts from contractors, receipts for materials, records from local building officials, and such records shall be subject to audit under regular state income tax procedures.

Section 6. This act shall become effective on the first day of the third month following its passage and approval by the Governor, or its otherwise becoming law.

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