Read first time 01/11/10.   Referred to Committee on Financial Institutions, Housing & Insurance.

     AN ACT Relating to forming joint underwriting associations; amending RCW 48.15.040; adding a new chapter to Title 48 RCW; providing an expiration date; and declaring an emergency.

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

NEW SECTION.  Sec. 1   Availability of insurance for loss arising from flooding in the geographical area protected by any dam on the Green river is vital to the economy of the state of Washington. If adequate property insurance for loss arising from this flood is not available, the security of citizens' property and the viability of business operations and services are threatened. This chapter gives the commissioner authority to ensure continued availability of excess insurance to insure property at risk from, and business that is interrupted by, flood arising from the failure of a dam on the Green river or from efforts to prevent the failure of a dam on the Green river. The commissioner may establish a temporary joint underwriting association for excess flood insurance to insure property at risk from, and business that is interrupted by, flood arising from the failure of a dam on the Green river or from efforts to prevent the failure of a dam on the Green river if:
     (1) Excess flood insurance of a particular class or type is not available from the voluntary market; or
     (2) There are so few insurers selling excess flood insurance that a competitive market does not exist.
     The commissioner may use appropriated funds as needed to establish and supervise the association.

NEW SECTION.  Sec. 2   The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.
     (1) "Association" means a nonprofit underwriting association established under this chapter.
     (2) "Board" means the governing board of the association.
     (3) "Casualty insurance" has the same meaning as "general casualty insurance" in RCW 48.11.070. "Casualty insurance" does not include any type of:
     (a) Workers' compensation insurance;
     (b) Employers' liability insurance;
     (c) Nuclear liability insurance; or
     (d) Surety insurance.
     (4) "Excess flood insurance" means insurance against loss, including business interruption, arising from flood that is in excess of the limit of liability insurance offered by the national flood insurance program.
     (5) "Person" means a natural person, association, partnership, or corporation.
     (6) "Property insurance" has the same meaning as in RCW 48.11.040 and does not include surety insurance.

NEW SECTION.  Sec. 3   (1) The commissioner may create an association to provide excess flood insurance to insure property at risk from, and business that is interrupted by, flood arising from the failure of a dam on the Green river or from efforts to prevent the failure of a dam on the Green river if the requirements of this section are met.
     (2) The commissioner must hold a hearing under chapters 48.04 and 34.05 RCW before forming an association.
     (3) An association may not begin underwriting operations for excess flood or business interruption insurance until the commissioner finds that:
     (a) If a market assistance plan formed under section 15 of this act finds that there are fewer than four admitted or surplus lines insurers offering excess flood insurance, exclusive of personal insurance, then the market assistance plan is inadequate to insure property at risk from, and business that is interrupted by, flood arising from the failure of a dam on the Green river or from efforts to prevent the failure of a dam on the Green river;
     (b) Persons cannot buy excess flood insurance through the voluntary market; or
     (c) There are so few insurers selling excess flood insurance that a competitive market does not exist.
     (4) At a hearing to appeal the commissioner's finding that excess flood insurance is unavailable through the voluntary market or that a competitive market does not exist, the finding that four or more admitted or surplus lines insurers are offering excess flood insurance, exclusive of personal insurance, is prima facie evidence that a competitive market does exist. A decision of the commissioner, finding that excess flood insurance is unavailable through the market assistance plan, voluntary market, or that a competitive market does not exist, may be appealed under chapters 48.04 and 34.05 RCW.

NEW SECTION.  Sec. 4   (1) The association may offer policies only as follows:
     (a) The coverage of any one policy may not exceed five million dollars; and
     (b) The total amount of all coverage offered by the association may never exceed two hundred fifty million dollars.
     (2) The board, jointly with the commissioner, shall apportion policies within these limitations on an equitable basis.

NEW SECTION.  Sec. 5   (1) If an association is formed, a person that is unable to obtain excess flood or business interruption insurance because it is unavailable in the voluntary market or because the market is not competitive is eligible to apply to an association for insurance.
     (2) The association may decline to insure particular persons that present an extraordinary risk because of the nature of their operations, property condition, past claims experience, or inadequate risk management. However, the location of a property for which insurance is sought from the association must not, in and of itself, constitute an extraordinary risk.
     (3) Any decision to decline coverage must be sent to the applicant and include:
     (a) A statement of the actual reason for declination; and
     (b) A statement that the applicant may appeal the decision to the commissioner.
     (4) If the commissioner finds that the decision to decline coverage is not supported by the criteria in this section, the commissioner may require the association to provide coverage.
     (5) A decision of the commissioner to provide or to decline to provide coverage under this may be appealed under chapters 48.04 and 34.05 RCW.

NEW SECTION.  Sec. 6   (1) The association is composed of all insurers that have a certificate of authority to write either casualty or property insurance, or both, in this state. Every property or casualty insurer, or both, must be a member of the association as a condition of its authority to continue to transact business in this state.
     (2) The association has the general powers and limitations of a nonprofit corporation under chapter 24.03 RCW and of an insurance company under Title 48 RCW, as needed to transact its business.
     (3) To the extent consistent with this chapter, the association and its member insurers are "persons" under chapter 48.30 RCW.

NEW SECTION.  Sec. 7   (1) A governing board shall administer the association.
     (2) The board and the commissioner shall work cooperatively to achieve the objectives of this chapter.
     (3) The board may select and employ one or more persons to manage the operations of an association. Every managing person must be authorized to transact insurance in the state of Washington and have demonstrated expertise in excess flood insurance. The board may employ any advisors that the board deems necessary.
     (4) The board must consist of seven persons appointed as set forth in this subsection.
     (a) Three board members must be member insurers appointed by each of the following three trade associations: Property casualty insurers association of America, American insurance association, and national association of mutual insurance companies. At least one of the three insurers on the board must be a domestic insurer.
     (b) Four board members must be residents of the state. One is appointed by the insurance commissioner. One is appointed by the King county council. One is appointed by the association of Washington cities, to represent one or more of the following municipal governments: Auburn, Kent, Renton, or Tukwila. One is appointed by the board of directors of the center for advanced manufacturing Puget Sound. None of the resident-appointees may be employed by, serve on the board of directors of, or have a substantial ownership interest in any insurer.
     (c) Original board members must be appointed to serve an initial term of three years and may be appointed for a second term. Board members may serve consecutive terms. Successor board members must be appointed as soon as possible subject to (a) and (b) of this subsection.
     (5) The commissioner shall notify the members of the board if he or she has information that any board member is dishonest, reckless, or incompetent or is failing to perform any duty of his or her office, and the board shall meet immediately to consider the matter. The commissioner must receive notice of the time and place of this meeting. If the board finds by a majority of the board members, with the accused board member not voting on this matter, that the commissioner's objection is well-founded, the accused board member shall be removed immediately. The successor of a board member removed under this section must be appointed as soon as possible subject to subsection (4) of this section.
     (6) All members of the board shall conduct the business of the association in a manner that is in the interest of all policyholders of the association. Board members stand in a fiduciary relationship to the association and must discharge their duties in good faith and with that diligence, care, and skill that ordinary, prudent persons would exercise under similar circumstances in a like position.
     (7) Each person serving on the board or any subcommittee thereof, each member insurer of the association, and each officer and employee of the association must be indemnified by the association against all costs and expenses actually and necessarily incurred by him, her, or it in connection with the defense of any action, suit, or proceeding in which he, she, or it is made a party by reason of his, her, or its being or having been a member of the board, or a member or officer or employee of the association, except in relation to matters as to which he, she, or it has been judged in such action, suit, or proceeding to be liable by reason of willful misconduct in the performance of his, her, or its duties as a member of the board, or member, officer, or employee of the association. This indemnification is not exclusive of other rights as to which the member, officer, or employee may be entitled as a matter of law.
     (8) Members of the board may be reimbursed by the association for actual and necessary expenses incurred to attend meetings.

NEW SECTION.  Sec. 8   (1) The board must adopt a plan of operation within thirty days of its appointment.
     (2) The plan of operation may take effect only after it has been reviewed by the commissioner. Any changes recommended by the commissioner must be either approved by a majority of the members of the board or a written statement of the board's reasons for rejection of any provision provided to the commissioner. The commissioner may continue to consult with the board to arrive at a plan of operation that is approved by both the commissioner and the board, or the commissioner may accept the plan of operation of the board. This process must conclude with a plan of operation accepted by the board within thirty days of the first board appointed under this act.
     (a) The plan of operation may be amended by agreement of a majority of the members of the board and the commissioner.
     (b) The association must use rates that are demonstrably sound as compared to accepted actuarial standards. At the time of filing with the commissioner, the rates must be accompanied by an actuarial analysis. The rates must comply with chapter 48.19 RCW and be approved by the commissioner.

NEW SECTION.  Sec. 9   The association must file a statement annually with the commissioner that contains information about the association's transactions, financial condition, and operations during the preceding year. The statement must be in the form and in a manner approved by the commissioner. The association must maintain its records according to the accounting practices and procedures manual adopted by the national association of insurance commissioners. The commissioner may require the association to furnish additional information if the commissioner considers it necessary to evaluate the scope, operation, and experience of the association.

NEW SECTION.  Sec. 10   (1) The commissioner may examine the transactions, financial condition, and operations of the association when the commissioner finds it necessary in order to carry out the purposes of this chapter. Except as set forth in subsections (2) and (3) of this section, each examination must be conducted in the manner prescribed for domestic insurance companies in chapter 48.03 or 48.37 RCW.
     (2) The commissioner is not required to examine any association on a prescribed cycle or schedule.
     (3) An association created under this chapter is responsible for the total costs of its financial and market conduct examinations. RCW 48.03.060 (1) and (2) and 48.37.060(14) (a) and (b) are not applicable to the examination of an association created under this chapter.

NEW SECTION.  Sec. 11   (1) The association is not a member of the guaranty fund created under chapter 48.32 RCW. The guaranty fund, this state, and any political subdivisions are not responsible for losses sustained by the association.
     (2) The association is exempt from payment of all fees and all taxes levied by the state or any of its subdivisions, except taxes levied on real or personal property.

NEW SECTION.  Sec. 12   (1) The association is funded by premiums paid by persons insured by the association.
     (a) All premiums for the association must be deposited into a fund or funds under management of the board.
     (b) Premiums must be used to pay claims, administrative costs, and other expenses of the association.
     (2) The association may assess its members to pay past and future financial obligations of the association, not funded by premiums.
     (3) If the association makes an assessment, an assessed insurer must pay the association within thirty days after it receives notice of the assessment. If an insurer does not pay an assessment within thirty days after it receives notice of the assessment:
     (a) The assessment accrues interest at the maximum legal rate until it is paid in full. The interest is paid to the association;
     (b) The association may collect the assessment in a civil action and must be awarded its attorneys' fees if it prevails;
     (c) The commissioner may suspend, revoke, or refuse to renew an insurer's certificate of authority; and
     (d) The commissioner may fine the insurer up to ten thousand dollars.
     (4) This section may be enforced under RCW 48.02.080.

NEW SECTION.  Sec. 13   (1) The association may operate for a period of five years. At the end of the five-year period, the association must be dissolved unless the legislature authorizes its continued operation.
     (2) If, at any time, the commissioner or the board of directors holds a hearing under chapters 48.04 and 34.05 RCW and determines that excess flood and business interruption insurance is available through a market assistance plan, in the voluntary market, or that a competitive market exists, the commissioner must order the association to end its underwriting operations.
     (3) If the commissioner or the board of directors orders the association to end all underwriting operations, the commissioner must supervise the dissolution of the association, including settlement of all financial and legal obligations and distribution of any remaining assets as follows:
     (a) If there has been an assessment on the members of the association, and after all creditors of the association are paid in full, then to the member insurers in a proportional manner and as determined by rule by the commissioner; or
     (b) If there has not been an assessment on the members of the association, or if there are funds remaining after distribution under (a) of this subsection and after all creditors of the association are paid in full, then to the policyholders in a proportional manner and as determined by rule by the commissioner.

NEW SECTION.  Sec. 14   The commissioner may adopt all rules needed to implement and administer this chapter and to ensure the efficient operation of the association, including but not limited to rules:
     (1) Creating sample plans of operation for the assistance of the board;
     (2) Requiring or limiting certain policy provisions;
     (3) Containing the basis and method for assessing members for operation of the association; and
     (4) Establishing the order in which the assets of the association that is dissolved by the commissioner must be distributed.

NEW SECTION.  Sec. 15   (1) The commissioner must by rule require insurers authorized to write property insurance in this state to form a market assistance plan to assist persons located in the geographical area protected by any dam on the Green river that are unable to purchase excess flood or business interruption insurance in an adequate amount from either the admitted or nonadmitted market.
     (2) For the purpose of this section, a market assistance plan means a voluntary mechanism by insurers writing property insurance in this state in either the admitted or nonadmitted market to provide excess flood or business interruption insurance for a class of insurance as 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 either property or property and casualty, or both, insurers to participate in a market assistance plan as a condition of continuing to do business in this state. The commissioner must make this requirement to fulfill the quota of at least twenty-five insurers. The commissioner must make his or her designation on the basis of the insurer's premium volume of property insurance in this state.

NEW SECTION.  Sec. 16   The board and the commissioner shall report to the respective committees of the house of representatives and senate having jurisdiction over the insurance code by January 31, 2011, and each subsequent January 31st of each year that the association remains in existence.

Sec. 17   RCW 48.15.040 and 1983 1st ex.s. c 32 s 4 are each amended to read as follows:
     If certain insurance coverages cannot be procured from authorized insurers, such coverages, hereinafter designated as "surplus lines," may be procured from unauthorized insurers subject to the following conditions:
     (1) The insurance must be procured through a licensed surplus line broker.
     (2) The insurance must not be procurable, after diligent effort has been made to do so from among a majority of the insurers authorized to transact that kind of insurance in this state.
     (3) Coverage shall not be procured from an unauthorized insurer for the purpose of securing a lower premium rate than would be accepted by any authorized insurer nor to secure any other competitive advantage.
     (4) The commissioner may by regulation establish the degree of effort required to comply with subsections (2) and (3) of this section.
     (5) At the time of the procuring of any such insurance an affidavit setting forth the facts referred to in subsections (2) and (3) of this section must be executed by the surplus line broker. Such affidavit shall be filed with the commissioner within thirty days after the insurance is procured.
     (6) For purposes of chapter 48.-- RCW (the new chapter created in section 18 of this act), a joint underwriting association established or authorized by the legislature is not an authorized insurer.

NEW SECTION.  Sec. 18   Sections 1 through 16 of this act constitute a new chapter in Title 48 RCW.

NEW SECTION.  Sec. 19   This act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and takes effect immediately.

NEW SECTION.  Sec. 20   This act expires December 31, 2016.