[atlas:bill]

AN ACT Relating to creating a construction contractor joint underwriting association; and adding a new chapter to Title 48 RCW.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. INTENT. The construction industry is the largest industry segment in the nation and in Washington state. Construction contractors, large and small, both general contractors and subcontractors, and including contractors doing all kinds of building development work, experience difficulty in obtaining contractor liability insurance coverage in the state of Washington. New contractors, in particular, cannot obtain coverage and existing contractors are finding renewal coverage extremely difficult to obtain. If contractor liability renewals are offered, coverage is often severely restricted, accompanied by extreme rate hikes, or both.

The market pull-out from offering this insurance is targeted primarily at contractors building more than ten homes a year, multifamily residences, or condominiums. As a result of this unavailability, many contractors are abandoning multifamily development, despite the growth management act's call for dense urban infill.

This chapter is intended to increase the availability of construction contractor liability coverage by creating a mechanism making contractor liability insurance available for construction contractors. This chapter is implemented by requiring all insurers authorized to write general casualty insurance to be members of a joint underwriting association created to provide contractor liability to construction contractors.

NEW SECTION. Sec. 2. DEFINITIONS. Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.

(1) "Association" means the joint underwriting association established under this chapter.

(2) "Construction contractor liability insurance" means insurance coverage for the legal liability of the insured and for loss, damage, or expense incident to a claim arising from negligence in construction by a contractor as defined in this section.

(3) "Contractor" means a person or entity licensed as a contractor under chapter 18.27 RCW.

NEW SECTION. Sec. 3. PLAN FOR ESTABLISHING ASSOCIATION. The insurance commissioner shall approve by December 31, 2002, a reasonable plan for the establishment of a nonprofit, joint underwriting association for construction contractor liability insurance subject to the conditions and limitations in this chapter. This plan shall include a market assistance plan to be used prior to activating a joint underwriting association.

NEW SECTION. Sec. 4. MARKET ASSISTANCE PLANS. (1) The commissioner shall by rule require insurers authorized to write general casualty insurance in this state to form a market assistance plan to assist persons and other entities unable to purchase construction contractor liability insurance in an adequate amount from either the admitted market or nonadmitted market.

(2) For the purpose of this section, "market assistance plan" means a voluntary mechanism by insurers writing general casualty insurance in this state in either the admitted or nonadmitted market to provide construction contractor liability insurance for a class of insurance designated in writing to the plan by the commissioner.

(3) The bylaws and method of operation of any market assistance plan must be approved by the commissioner prior to its operation.

(4) A market assistance plan must have a minimum of twenty-five insurers willing to insure risks within the class designated by the commissioner. If twenty-five insurers do not voluntarily agree to participate, the commissioner may require casualty insurers to participate in a market assistance plan as a condition of continuing to do business in this state. The commissioner shall make such a requirement to fulfill the quota of at least twenty-five insurers. The commissioner shall make his or her designation on the basis of the insurer's direct premium for other liability and products liability insurance in this state, as reported in the insurer's annual statement.

NEW SECTION. Sec. 5. COMPOSITION OF ASSOCIATION. The association is all insurers possessing a certificate of authority to write general casualty insurance, engaged in writing construction contractor liability insurance, or both, within this state. Every insurer is a member of the association and remains a member as a condition of its authority to continue to transact business in this state. Only licensed contractors under chapter 18.27 RCW may obtain insurance from the joint underwriting association.

NEW SECTION. Sec. 6. CONSTRUCTION CONTRACTOR LIABILITY INSURANCE‑-RATING PLAN MODIFIED ACCORDING TO PRACTICE VOLUME. A licensed contractor may apply to the association to purchase construction contractor liability insurance, and the association shall offer a policy with liability limits established by the commissioner. The commissioner shall require the use of a rating plan for construction contractor liability insurance that permits rates to be modified according to type of construction and volume of construction. Any rating plan for construction contractor liability insurance under this section must be based on sound actuarial principles.

NEW SECTION. Sec. 7. ADMINISTERING A PLAN. The commissioner may select an insurer to administer a plan established under this chapter. The insurer must be authorized to write general casualty insurance in the state of Washington.

NEW SECTION. Sec. 8. POLICIES WRITTEN ON A CLAIMS-MADE BASIS‑-COMMISSIONER MAY NOT APPROVE WITHOUT INSURER GUARANTEES. The commissioner may not approve a policy written on a claims-made basis by an insurer doing business in this state unless the insurer guarantees to the commissioner the continued availability of suitable liability protection for construction contractors (1) subsequent to the discontinuance of business by the construction contractor, or (2) the sooner termination of the insurance policy by the insurer, for so long as there is a reasonable probability of a claim for damages for which the construction contractor might be liable.

NEW SECTION. Sec. 9. RISK MANAGEMENT PROGRAM‑-PART OF PLAN. A risk management program for insureds of the association must be established as a part of the plan. This program must include but not be limited to: Investigation and analysis of frequency, severity, and causes of defective construction projects; development of measures to reduce or control the defective construction; systematic reporting of defect claims; investigation and analysis of property owner complaints; and education of association members to improve construction quality and risk reduction.

NEW SECTION. Sec. 10. RULE MAKING. The commissioner may adopt all rules necessary to ensure the efficient, equitable operation of the association, including, but not limited to, rules requiring or limiting certain policy provisions.

NEW SECTION. Sec. 11. CAPTIONS. Captions used in this act are not any part of the law.

NEW SECTION. Sec. 12. Sections 1 through 11 of this act constitute a new chapter in Title 48 RCW.