HOUSE BILL REPORT

ESB 5571

As Amended by the House

BYSenators Hansen, Fleming and Barr

Creating the grain indemnity fund.

House Committe on Agriculture & Rural Development

Majority Report:  Do pass with amendment.  (13)

      Signed by Representatives Rayburn, Chair; Kremen, Vice Chair; Bristow, Brooks, Chandler, Doty, Grant, Holm, Jacobsen, McLean, Moyer, Nealey and Rasmussen.

House Staff:Kenneth Hirst (786-7105)

AS PASSED HOUSE APRIL 6, 1987

BACKGROUND:

The state's agricultural warehouse statutes require such warehouses and grain dealers to be licensed by the Department of Agriculture.  Licensees must file bonds or certificates of deposits with the department.  The amount of the bond or certificate that must be filed for a license is based upon storage capacity or volume of sales but is not more than $750,000. The department may, in certain circumstances, require a licensee to file an additional bond beyond the limits otherwise specified.

SUMMARY:

State warehousing law for agricultural commodities is amended. In lieu of the bond or certificate of deposit that must be filed with the Department of Agriculture for a warehouse or grain dealer license, a person may give other security acceptable to department in the amount otherwise established for the bond or the certificate of deposit.

INDEMNITY PROGRAM.  A grain indemnity fund program is authorized which is in lieu of bonding or other security requirements for licensure under the warehouse statutes.  The program takes effect within 90 days after the director of Agriculture receives a petition seeking implementation of the program and a determination by the director, after a hearing, that a program is in the interest of the agricultural industry of the state.  The petition must be signed by licensees of at least 33 percent of the grain warehouses and 33 percent of the grain dealers.

ASSESSMENTS & INDEMNITY FUND.  Assessments levied under the program are to be deposited in the Grain Indemnity Fund which is created and which is not subject to appropriation.  The fund shall be used for paying claimants and the necessary expenses of administering the fund.  One-half of the interest accumulated by the fund may be used for the department's warehouse audit program.  The state shall not be liable for any claims presented against the fund.

The rate of the assessments shall be established by rule.  No single assessment for a licensee or applicant shall exceed 5 percent of the bond amount that would otherwise have been required of the licensee or applicant. The assessments shall be imposed annually until such time as the fund balance, less any outstanding claims, exceeds $3 million on the annual assessment date.  In general, when the balance reaches this amount, no assessment shall be imposed except for new applicants who shall pay annual assessments for an equivalent number of years as those participating since the program's inception.  The department may, in certain circumstances, require a licensee to pay an additional assessment or post an additional bond or security.

CLAIMS.  In the event of the financial failure of a licensee, the department shall process the claims of depositors.  Upon determining the amount and validity of a claim, the director shall, after providing an opportunity for a hearing, pay the claim from the fund.  The department may inspect and audit a failed warehouseman.  If the commodities in the warehouseman's possession are insufficient to satisfy storage obligations, the deficiency shall be considered as a claim of the depositor.  If, after notification, a depositor or creditor does not file a verified claim within 30 days of the date of the request, the the claim shall not be paid from the fund.

Once the fund reaches a balance of $1.25 million, approved claims against a licensee shall be paid (to a maximum of $750,000 on all claims against a single licensee) from the fund as follows. Claims against a licensed warehouseman shall be paid in full.  Claims against a licensed grain dealer for payments due: within 30 days of transfer of title shall be paid in full for the first $25,000 and at 80 percent thereafter; between 30 and 90 days of transfer of title, at 80 percent; and after 90 days of transfer of title, at 75 percent.  Before the fund reaches such a balance, additional limitations on the payment of claims are established.  The unpaid balance of any claim subject to these additional limitations shall be paid when the fund first reaches a balance of $1.25 million, subject to the previously specified limits.

If the amount in the fund is insufficient to pay all approved claims within these specified limitations, the claims shall be paid in the order in which they were filed with the department until sufficient monies are available in the fund to pay all of the claims.  If the approved claims against a single licensee exceed $750,000, recovery on the claims shall be prorated.

Amounts paid from the fund for a claim constitute a debt and obligation of the licensee against whom the claim was made.  The director may bring suit and take other similar actions to recover the amount paid and costs and attorneys' fees incurred in maintaining the suit or action.

ADVISORY COMMITTEE.  A Grain Indemnity Fund Advisory Committee is created.  The committee is composed of two agricultural producers, two licensed grain dealers, and two licensed grain warehousemen, all appointed by the director.

GENERAL PROVISIONS.  Two or more applicants for a grain dealer or warehouse license may provide a single bond in an amount established by the department by rule within certain limitations.  Clarification is provided concerning the date upon which the liability of a surety ends when a license has been cancelled or revoked.

Revenue:    A new assessment on grain dealers and warehouses is authorized to be established by rule under certain circumstances.  The Grain Indemnity Fund is created which is not subject to appropriation, into which monies from assessments are to be deposited and from which certain claims are to be paid.

Fiscal Note:      Attached.

Effective Date:The bill contains an emergency clause and takes effect immediately.

House Committee ‑ Testified For:    Jonathan Schlueter, Northwest Grain and Feed Association; Karl Kottman, Washington Association of Farmer Cooperatives.

House Committee - Testified Against:      None Presented.

House Committee - Testimony For:    Recently, 23 licensees have had their bonds cancelled, not because of their business practices but because their bonding companies have decided not to offer bonds for this type of activity.  If the problem continues, an indemnity program may be necessary.  The bill authorizes such a program to be established.

House Committee - Testimony Against:      The bill limits claims against the Indemnity Fund to a total of $750,000 against a single licensee.  In a case involving a licensee that operates a very large business, the claims could greatly exceed that amount and would have to be prorated. Claimants could recover much less than they are owed.