REPORT TITLE:
Insurance


DESCRIPTION:
Makes earthquake insurance a required optional coverage for every
homeowners' policy.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           26
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO EARTHQUAKE INSURANCE.



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

 1      SECTION 1.  Chapter 431, Hawaii Revised Statutes, is amended
 
 2 by adding a new article to be appropriately designated and to
 
 3 read as follows:
 
 4                           "ARTICLE    
 
 5                       EARTHQUAKE INSURANCE
 
 6      431:   -A  Residential property insurance; necessity of
 
 7 offer of earthquake peril coverage.  No policy of residential
 
 8 property insurance may be issued or delivered or, with respect to
 
 9 policies in effect on the effective date of this chapter,
 
10 initially renewed in this State by any insurer unless the named
 
11 insured is offered coverage for loss or damage caused by the
 
12 peril of earthquake as provided in this article.  That coverage
 
13 may be provided in the policy of residential property insurance
 
14 itself, either by specific policy provision or endorsement, or in
 
15 a separate policy or certificate of insurance which specifically
 
16 provides coverage for loss or damage caused by the peril of
 
17 earthquake alone or in combination with other perils.
 
18      431:   -B  Required scope of offered coverage.  The offer
 
19 required by section 431:   -A shall include coverage against risk
 

 
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 1 of loss or damage from the peril of earthquake on all property
 
 2 insured by the policy of residential property insurance.  The
 
 3 earthquake coverage shall be in accordance with the insurer's
 
 4 rules and rating plan, provided, however, that nothing contained
 
 5 in this chapter shall require an insurer to issue a policy of
 
 6 residential property insurance except in accordance with the
 
 7 insurer's usual underwriting standards.  However, those standards
 
 8 shall not permit an insurer to provide a policy of residential
 
 9 property insurance unless the offer of coverage required by this
 
10 article is made.
 
11      431:   -C  Additional premium or deductible; foundation
 
12 anchor bolt, cripple wall bracing, and water heater anchoring
 
13 requirements; submission to insurer of retrofit performance
 
14 verification.  If an insurer subject to this chapter charges an
 
15 additional earthquake insurance premium or deductible because a
 
16 dwelling fails to comply with any building code requirements to
 
17 withstand earthquake damage and the dwelling is subsequently
 
18 brought into compliance with those requirements, then the
 
19 additional premium or deductible attributed to noncompliance
 
20 shall not be charged.
 
21      431:   -D  Time of coverage offer; contents.(a)  The
 
22 offer of coverage required by section 431:   -A may be made prior
 

 
 
 
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 1 to, concurrent with, or within sixty days following the issuance
 
 2 or renewal of a residential property insurance policy.  If the
 
 3 offer of coverage is mailed to the named insured or applicant, it
 
 4 shall be mailed to the mailing address shown on the policy of
 
 5 residential property insurance or on the application.  The offer
 
 6 of earthquake coverage shall contain the following language in at
 
 7 least ten-point bold type face:
 
 8           YOUR POLICY DOES NOT PROVIDE COVERAGE AGAINST THE PERIL
 
 9      OF EARTHQUAKE.
 
10           HAWAII LAW REQUIRES THAT EARTHQUAKE COVERAGE BE OFFERED
 
11      TO YOU AT YOUR OPTION.
 
12           THE COVERAGE, SUBJECT TO POLICY PROVISIONS, MAY BE
 
13      PURCHASED AT ADDITIONAL COST ON THE FOLLOWING TERMS:
 
14           (A)  AMOUNT OF DWELLING COVERAGE:          
 
15           (B)  APPLICABLE DEDUCTIBLE:           IF YOUR LOSS IS
 
16      BELOW THIS AMOUNT, YOU MAY NOT RECEIVE ANY PAYMENT FROM YOUR
 
17      COVERAGE.
 
18           YOUR INSURANCE COMPANY OR AGENT WILL PROVIDE WRITTEN
 
19      NOTICE AS TO HOW THE DEDUCTIBLE APPLIES TO THE MARKET VALUE
 
20      OF YOUR COVERAGE, THE INSURED VALUE OF YOUR COVERAGE, OR THE
 
21      REPLACEMENT VALUE OF YOUR COVERAGE.
 
22           (C)  RATE OR PREMIUM:          
 

 
 
 
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 1           YOU MUST ASK THE COMPANY TO ADD EARTHQUAKE COVERAGE
 
 2      WITHIN 30 DAYS FROM THE DATE OF MAILING OF THIS NOTICE OR IT
 
 3      SHALL BE CONCLUSIVELY PRESUMED THAT YOU HAVE NOT ACCEPTED
 
 4      THIS OFFER.
 
 5           THIS COVERAGE SHALL BE EFFECTIVE ON THE DAY YOUR
 
 6      ACCEPTANCE OF THIS OFFER IS RECEIVED BY US.
 
 7      (b)  The offer may contain additional provisions not in
 
 8 conflict with or in derogation of the foregoing.
 
 9      (c)  Use of the language prescribed by this section shall
 
10 constitute compliance with the requirements of section 431:   -A
 
11 by an insurer subject thereto.
 
12      431:   -E  Modes of insurer compliance in offering
 
13 coverage.  An insurer that issues or delivers a policy of
 
14 residential property insurance in this State may comply with
 
15 section 431:   -A in any of the following ways:
 
16      (1)  By offering to underwrite directly the risk of loss or
 
17           damage caused by peril of earthquake;
 
18      (2)  By arranging for earthquake coverage to be offered by
 
19           an affiliated insurer; or
 
20      (3)  By arranging for the coverage to be offered through an
 
21           insurance agent or broker under a policy or certificate
 
22           of insurance issued by a nonaffiliated insurer.
 

 
 
 
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                                     S.B. NO.           26
                                                        
                                                        

 
 1      431:   -F  Nonacceptance of offer by insured; presumptions
 
 2 and burden of proof.  If the insurer establishes proof of mailing
 
 3 or delivery of the required offer and the offer of earthquake
 
 4 coverage is not accepted by the named insured within thirty days
 
 5 from the date of mailing or delivery of the offer, there shall be
 
 6 a conclusive presumption that the named insured elected not to
 
 7 accept the coverage.  An election, actual or presumed, by any
 
 8 named insured shall be binding upon any other person insured or
 
 9 any other party having an insurable interest in the insured
 
10 property.
 
11      431:   -G  Renewal or continuation of policy; subsequent
 
12 offers required.  If an offer of earthquake coverage is accepted,
 
13 the coverage shall be continued at the applicable rates and
 
14 conditions, provided the policy of residential property insurance
 
15 is not terminated by the named insured or insurer.  If the offer
 
16 is not accepted, the insurer or any affiliated insurer shall be
 
17 required, at least every other year, to offer earthquake coverage
 
18 in connection with any continuation, renewal, or reinstatement of
 
19 the policy following any lapse thereof, or with respect to any
 
20 other policy that extends, changes, supersedes, or replaces the
 
21 policy of residential property insurance.  Nothing in this
 
22 section shall preclude the named insured from terminating the
 

 
 
 
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                                     S.B. NO.           26
                                                        
                                                        

 
 1 earthquake coverage at any time.
 
 2      431:   -H  Notice of noncoverage.  Where the offer of
 
 3 earthquake coverage has not been accepted, the insurer shall
 
 4 notify the named insured that the policy does not provide that
 
 5 coverage.  After the offer on an every other year basis, the
 
 6 notice of noncoverage shall be provided prior to or concurrent
 
 7 with the renewal of the policy of residential property insurance.
 
 8 This section shall not affect any other provisions of this
 
 9 chapter nor shall it affect coverage under the policy of
 
10 residential property insurance.
 
11      431:   -I  Nonrenewal, rejection, or cancellation of policy
 
12 by insurer after acceptance of coverage; prohibition.(a)  An
 
13 insurer shall not refuse to renew, reject, or cancel a policy of
 
14 residential property insurance after an offer of earthquake
 
15 coverage is accepted solely because the insured has accepted that
 
16 offer of earthquake coverage, except in cases in which the policy
 
17 is terminated by the named insured.
 
18      (b)  Underwriting standards applicable to residential
 
19 property insurance shall not be applied in a discriminatory
 
20 fashion against any person who accepts or elects to continue
 
21 earthquake coverage.
 
22      431:   -J  Policy of residential property insurance
 

 


 

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                                     S.B. NO.           26
                                                        
                                                        

 
 1 defined; proof of mailing.(a)  As used in this chapter "policy
 
 2 of residential property insurance" means a policy insuring
 
 3 individually owned residential structures of not more than four
 
 4 dwelling units or individually owned condominium units, and their
 
 5 contents, located in this State and used exclusively for
 
 6 residential purposes or a tenant's policy insuring personal
 
 7 contents of a residential unit located in this State.  "Policy of
 
 8 residential property insurance," as defined, shall not include
 
 9 insurance for real property or its contents used for any
 
10 commercial, industrial, or business purpose, except a structure
 
11 of not more than four dwelling units rented for individual
 
12 residential purposes.
 
13      (b)  Proof of mailing of the offer by first-class mail
 
14 addressed to a named insured or applicant at the mailing address
 
15 shown on the policy or application shall create a conclusive
 
16 presumption that the offer was made.
 
17      431:   -K  Uninsured deductible amount on residential
 
18 policies; disclosure of basis used to compute percentage;
 
19 advertisements.(a)  Every policy of residential property
 
20 insurance which provides coverage for loss or damage to a
 
21 structure from the peril of earthquake, but which provides for an
 
22 uninsured deductible amount computed as a percentage, shall
 

 
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                                     S.B. NO.           26
                                                        
                                                        

 
 1 clearly disclose on the page setting forth the policy
 
 2 declarations the basis upon which the percentage is computed.
 
 3 This disclosure shall be printed in at least ten-point bold
 
 4 typeface.
 
 5      (b)  Every advertisement for a policy subject to subsection
 
 6 (a) shall clearly disclose the deductible by stating the
 
 7 applicable percentage and the basis upon which the percentage is
 
 8 computed.
 
 9      431:   -L  Proximate cause of loss or damage; construction
 
10 with other provisions.  Notwithstanding any contrary provision of
 
11 law, and in the absence of an endorsement or an additional policy
 
12 provision specifically covering the peril of earthquake, no
 
13 policy which by its terms does not cover the peril of earthquake
 
14 shall provide or shall be held to provide coverage for any loss
 
15 or damage when earthquake is a proximate cause, regardless of
 
16 whether the loss or damage also directly or indirectly results
 
17 from or is contributed to, concurrently or in any sequence by any
 
18 other proximate or remote cause, whether or not covered by the
 
19 policy.  The term "policy" as used in this section includes all
 
20 policies of any nature, including, but not limited to, business
 
21 and commercial forms providing coverage against loss due to
 
22 damage to the property of the insured.  Nothing in this section
 

 
 
 
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                                     S.B. NO.           26
                                                        
                                                        

 
 1 shall operate to preclude an insurer from specifically providing
 
 2 coverage for direct loss caused by explosion, theft, or glass
 
 3 breakage resulting from an earthquake.  Furthermore, nothing in
 
 4 this section shall exempt an insurer from its obligation under a
 
 5 fire policy to cover losses of a fire caused by or following an
 
 6 earthquake.
 
 7      431:   -M  Minimum coverages; additional living expenses
 
 8 minimum coverage waiver in case of residential dwelling.(a)  At
 
 9 a minimum, any offer of coverage of loss or damage caused by the
 
10 peril of earthquake pursuant to section 431:   -A shall include
 
11 the following coverages:
 
12      (1)  Dwelling;
 
13      (2)  Personal property; and
 
14      (3)  Additional living expenses of an amount not less than
 
15           $1,500 to cover expenses while the residential dwelling
 
16           remains uninhabitable due to physical loss or damage
 
17           from the peril of earthquake.
 
18      (b)  In the case of a residential dwelling which is not
 
19 owner occupied, the minimum coverage for additional living
 
20 expenses may be waived by the applicant or policyholder, provided
 
21 the insurer gives notice to the applicant or policyholder that
 
22 coverage for additional living expenses is offered but may be
 

 
 
 
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 1 waived, and the waiver is in writing.
 
 2      431:   -N  Structural engineering costs; habitability of
 
 3 dwelling; demolition costs; optional coverage.  To the extent
 
 4 that the coverage is not already provided in the minimum offer of
 
 5 coverage, every insurer shall offer the following optional
 
 6 coverage to the offer of coverage required by section  431:   -A:
 
 7      (1)  Coverage in a specific percentage amount of the insured
 
 8           residential dwelling coverage for payment of services,
 
 9           except as provided by public entities, for the purpose
 
10           of structural engineering costs to determine the
 
11           habitability of the residential dwelling or coverage
 
12           for the homeowner liability for the actual costs of
 
13           residential dwelling demolition due to structural
 
14           condemnation as the result of damage or loss from the
 
15           peril of earthquake.
 
16      (2)  For purposes of this section, an insurer may satisfy
 
17           its obligation to offer optional coverage by including
 
18           the optional coverage specified in this section and in
 
19           section 431:   -O as part of the offer of coverage in
 
20           section 431:   -M and required by section 431:   -A or
 
21           as an endorsement to a policy of residential property
 
22           coverage.
 

 
 
 
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                                     S.B. NO.           26
                                                        
                                                        

 
 1      431:   -O  Reconstruction costs; retrofitted dwellings;
 
 2 optional coverage.  To the extent that the coverage is not
 
 3 already provided in the minimum offer of coverage, every insurer
 
 4 shall offer the following optional coverage as part of the offer
 
 5 of coverage as required by section 431:   -A only after the
 
 6 insured has completed and the insurer has verified retrofitting
 
 7 of the residential dwelling as described in section 431:   -P(a):
 
 8           Coverage in the amount of $10,000 for the purpose of
 
 9      reconstruction costs required to bring the residential
 
10      dwelling on the residential property up to any required
 
11      current local residential dwelling building code standards
 
12      as required by the local government as part of any approval
 
13      of the reconstruction permit process after an earthquake.
 
14      431:   -P  Discounts or surcharges; disclosure.(a)
 
15 Subject to the approval of the commissioner, every insurer
 
16 subject to this chapter, at the time of offering to issue or
 
17 offer to renew coverage as part of the offer of coverage required
 
18 by section 431:   -A, shall disclose to the applicant in writing
 
19 as a freestanding document, which brings attention to the
 
20 applicant, all discounts or surcharges, if any, that are
 
21 available from the insurer for that insurance and for any related
 
22 insurance provided under that coverage as part of the offer of
 

 
 
 
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                                     S.B. NO.           26
                                                        
                                                        

 
 1 coverage required by section 431:   -A.
 
 2      The insurer shall provide and disclose in writing any
 
 3 discounts or surcharges, if any, for earthquake hazard
 
 4 reductions, which shall include, but not be limited to,
 
 5 retrofitting of the residential dwelling by tying the structure
 
 6 to the foundation or bracing the structure to the foundation, or
 
 7 securing of the hot water heater, and any other discounts that
 
 8 are available from the insurer.
 
 9      (b)  Each insurer that offers earthquake insurance through
 
10 licensed agents or brokers shall provide in writing the document
 
11 required in subsection (a) and any documents required by section
 
12 431:   -D(a) to the agents and brokers listing all of the
 
13 discounts or surcharges, if any, that are required to be
 
14 disclosed to the applicant under this section, and shall require
 
15 its agents and brokers to make the disclosures required by this
 
16 section.
 
17      (c)  An insurer is not subject to this section where an
 
18 insured has completed earthquake hazard reductions and the
 
19 insurer has provided discounts or surcharges for the specific
 
20 policy in the form of premium rate changes.
 
21      431:   -Q  Disaster plans covering earthquakes; filing.
 
22 (a)  Every insurer subject to this chapter, before July 1, 2000,
 

 
 
 
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                                     S.B. NO.           26
                                                        
                                                        

 
 1 shall file with the commissioner a disaster plan covering
 
 2 earthquakes.
 
 3      (b)  The disaster plan shall include specific provisions
 
 4 regarding procedures for handling claims under the insurer's
 
 5 issued policies or endorsements covering loss or damage from the
 
 6 peril of earthquake.
 
 7      (c)  The plan shall be deemed acceptable to the commissioner
 
 8 within ninety days of the date of filing.  All disputes under
 
 9 this section shall be subject to resolution under chapter 91.
 
10 The commissioner may review the disaster plan at any time.
 
11      (d)  In the event that the commissioner finds that an
 
12 insurer has filed an inadequate disaster plan or substantially
 
13 failed to implement the disaster plan it filed with the
 
14 commissioner pursuant to subsection (a), the commissioner may
 
15 require the insurer to file a revised disaster plan within sixty
 
16 days that corrects any deficiencies identified by the
 
17 commissioner.  If a revised disaster plan is not filed within
 
18 sixty days, the commissioner may suspend the insurer's authority
 
19 to write residential property insurance in this State until the
 
20 time that a revised plan is filed."
 
21      SECTION 2.  This Act shall take effect on July 1, 1999.
 
22 
 
23                           INTRODUCED BY:  _______________________
 

 
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