Report Title:

Contractors Recovery Fund; Payment of Claims

Description:

Revises process for claimants to recover from the contractors recovery fund. Establishes board of trustees for the recovery fund.

THE SENATE

S.B. NO.

3060

TWENTY-SECOND LEGISLATURE, 2004

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO CONTRACTORS RECOVERY FUND.

 

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

SECTION 1. Section 444-1, Hawaii Revised Statutes, is amended by adding a new definition to be appropriately inserted and to read as follows:

""Board of trustees" or "trustees" means the board of trustees or persons appointed to the board of trustees of the contractors recovery fund pursuant to section 444-A."

SECTION 2. Chapter 444, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§444-A Trustees of fund; board; recovery from fund. (a) There is established in the department of commerce and consumer affairs for administrative purposes a contractors recovery fund board of trustees consisting of three members appointed by the governor. One member shall be appointed from a list of three nominees submitted by the speaker of the house of representatives and one shall be appointed from a list of three nominees submitted by the president of the senate. One member shall be a contractor, as defined in this chapter, and one member shall be an attorney licensed to practice law in this State. The trustees shall serve as provided in section 26-34.

The trustees shall organize annually and shall elect from among their members a chairperson and a treasurer to serve for one-year terms. Once organized, meetings shall be held at the call of the chairperson. Two trustees shall constitute a quorum and may transact all business of the board of trustees, except as otherwise provided by this section. The trustees shall adopt rules in accordance with chapter 91 and consistent with this section, governing the administration of the contractors recovery fund and the procedures for the presentation, consideration, and payment of claims.

The members of the board of trustees shall serve without compensation but shall be reimbursed for expenses, including travel expenses, necessary for the performance of their duties.

(b) The board of trustees shall have the following duties and responsibilities:

(1) The fund shall be audited by the auditor annually and at such other times as the board shall direct. The audits shall be at the expense of the fund. The annual audit shall be included in a report to be submitted annually by the board of trustees reviewing in detail the administration of the fund during the preceding year;

(2) The board of trustees may apply to the board for interpretations of these rules and of the extent of their powers and duties and for advice regarding the proper administration of the fund;

(3) The treasurer shall maintain the assets of the fund in a separate account and shall disburse moneys therefrom only upon the action of the trustees pursuant to this chapter and rules adopted pursuant to this section. The treasurer shall obtain a bond annually covering all of the trustees with such surety as may be approved by the trustees and in such amount as they may fix, or the treasurer may transfer the assets of the fund to the custody of a corporate trustee authorized to do business as a trust company in the State of Hawaii;

(4) To cause to be investigated all applications for reimbursable losses brought to the trustees' attention;

(5) To determine the order and manner of payment of applications for reimbursement;

(6) To reject or allow applications in whole or in part to the extent that funds are available;

(7) To use or employ the fund for any of the following purposes within the scope of the fund's objectives:

(A) To make reimbursements on approved applications;

(B) To purchase insurance to underwrite such losses in whole or in part;

(C) To invest such portions of the fund as may be permitted under state law;

(D) To deposit moneys in interest-bearing accounts in federally insured banks, federally insured savings and loan associations, or any other federally insured financial institution located in the State; the interest or other income will be a part of the fund;

(8) To provide a full report of the fund activities at least annually to the board and director and make other reports of its activities and publicize its activities as the trustees may deem advisable;

(9) To enforce claims that the fund may have for restitution;

(10) To employ and compensate consultants, counsel and employees as the trustees deem appropriate; and

(11) To make reimbursements for administrative expenses incurred in the administration of the fund.

(d) The claimant shall prepare or cause to be prepared an application for reimbursement containing the following information:

(1) The name and address of the contractor;

(2) The amount of the loss claimed;

(3) The date or period of time during which the alleged loss was incurred;

(4) Name and address of the claimant;

(5) A general statement of facts relative to the claim;

(6) The judgment from the circuit court or district court;

(7) Other information that the trustees require.

(e) Upon submission of a claim pursuant to section 444-28(b), the trustees may consider payment from the contractors recovery fund upon a finding that:

(1) The judgment is final;

(2) The claimant has exhausted all remedies in attempting to collect the judgment; or

(3) The contractor is without assets or adjudicated a bankrupt.

The trustees shall conduct an investigation to determine whether the claim is for a reimbursable loss, as set forth in this chapter, and to guide the trustees in determining the extent, if any, to which reimbursement shall be paid. A copy of the application shall be personally served upon the contractor or sent by certified mail to the contractor's last known address as shown on the contractor's registration statement on file with the department. When the claim is for a non-reimbursable loss, or otherwise barred, no further investigation need be conducted.

Reports on investigations shall be submitted to the chairperson within a reasonable time. The trustees may approve, reject, or modify the reimbursement, or order further investigation as they deem necessary. Any trustee may request that testimony or documentary information be presented. Absent such a recommendation or request, claims shall be processed on the basis of information contained in the report.

(f) Written notice of the trustees' determination shall be provided to the claimant."

SECTION 3. Section 444-26, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) The board of trustees is authorized to establish and maintain a contractors recovery fund from which any person injured by an act, representation, transaction, or conduct of a duly licensed contractor, which is in violation of this chapter or the rules adopted pursuant thereto, may recover by order of the circuit court or district court of the judicial circuit where the violation occurred, an amount of not more than $12,500 per contract, regardless of the number of persons injured under the contract, for damages sustained by the act, representation, transaction, or conduct. Recovery from the fund shall be limited to the actual damages suffered by the claimant, including court costs and fees as set by law, and reasonable attorney fees as determined by the court; provided that recovery from the fund shall not be awarded to persons injured by an act, representation, transaction, or conduct of a contractor whose license was suspended, revoked, forfeited, terminated, or in an inactive status at the time the claimant entered into the contract with the contractor."

SECTION 4. Section 444-28, Hawaii Revised Statutes, is amended to read as follows:

"§444-28 Statute of limitations[; recovery from fund]. (a) No action for an arbitration award or for a judgment which may subsequently result in an order for collection from the contractors recovery fund shall be commenced later than six years from the accrual of the cause of action thereon. When any injured person commences action for an arbitration award or for a judgment which may result in collection from the contractors recovery fund, the injured person shall notify the board in writing to this effect at the time of the commencement of such action. The board shall have the right to intervene in and defend any such action. Nothing in this section shall supersede the statute of limitations as contained in section 657-8.

(b) When any injured person recovers a valid judgment in any circuit court or district court of the county where the violation occurred against any licensed contractor for such act, representation, transaction, or conduct [which] that is in violation of [the provisions of] this chapter or the [regulations promulgated] rules adopted pursuant thereto, which occurred on or after June 1, 1974, the injured person [may], upon the termination of all proceedings, including reviews and appeals in connection with the judgment, may file a verified claim [in the court in which the judgment was entered and, upon ten days' written notice to the contractors license board, may apply to the court] with the board of trustees of the contractors' recovery fund for an order directing payment out of the contractors recovery fund, of the amount unpaid upon the judgment, subject to the limitations stated in this [section.] chapter. Before proceeding against the contractors recovery fund, the injured person must first proceed against any existing bond covering the licensed contractor.

[(c) The court shall proceed upon such application in a summary manner, and, upon the hearing thereof, the injured person shall be required to show:

(1) The injured person is not a spouse of debtor, or the personal representative of such spouse.

(2) The injured person has complied with all the requirements of this section.

(3) The injured person has obtained a judgment as set out in subsection (b) of this section, stating the amount thereof and the amount owing thereon at the date of the application.

(4) The injured person has made all reasonable searches and inquiries to ascertain whether the judgment debtor is possessed of real or personal property or other assets, liable to be sold or applied in satisfaction of the judgment.

(5) That by such search the injured person has discovered no personal or real property or other assets liable to be sold or applied, or that the injured person has discovered certain of them, describing them, owned by the judgment debtor and liable to be so applied, and that the injured person has taken all necessary action and proceedings for the realization thereof, and that the amount thereby realized was insufficient to satisfy the judgment, stating the amount so realized and the balance remaining due on the judgment after application of the amount realized.]

[(d)] (c) The [court] board of trustees shall make an order [directed to the contractors license board] requiring payment from the contractors recovery fund of whatever sum it shall find to be payable upon the claim, pursuant to the provisions of and in accordance with the limitations contained in this section, if the [court] board of trustees is satisfied[, upon the hearing of the truth of all matters required to be shown by the injured person by subsection (c) of this section and] that the injured person has fully pursued and exhausted all remedies available to the injured person for recovering the amount awarded by the judgment of the [court.] board of trustees.

[(e)] (d) The license of the contractor shall be automatically terminated upon execution of a settlement agreement requiring payment from the contractors recovery fund or the issuance of a court order authorizing payment from the contractors recovery fund. No contractor shall be eligible to receive a new license until the contractor has repaid in full, plus interest at the rate of ten per cent a year, the amount paid from the contractors recovery fund on the contractor's account. A discharge in bankruptcy shall not relieve a person from the penalties and disabilities provided in this subsection.

[(f)] (e) If, at any time, the money deposited in the contractors recovery fund is insufficient to satisfy any duly authorized claim or portion thereof, the [contractors license] board [shall,] of trustees, when sufficient money has been deposited in the contractors recovery fund, shall satisfy [such] any unpaid claims or portions thereof, in the order that [such] the claims or portions thereof were originally filed.

[(g)] (f) With respect to the repair or alteration of an existing residential building or structure or any appurtenance thereto, including but not limited to swimming pools, retaining walls, garages or sprinkling systems, initial construction of such appurtenances, and landscaping of private residences, including condominium or cooperative units, pursuant to a contract between the owner and a licensed contractor for which the owner has paid the contractor in full, should, because of the contractor's default, a mechanic's or materialman's lien be enforced against the property pursuant to section 507-47, the court hearing the action shall award such an owner or the owner's assigns a valid judgment against the contractor in an amount equal to the amount of the lien together with reasonable attorney's fees as determined by the court. The judgment shall include an order directing payment out of the contractors recovery fund. Notwithstanding any other provisions of this section to the contrary, the owner or the owner's assigns need not meet any other requirement to secure payment from the contractors recovery fund, except that notice of the lien enforcement hearing shall be given to the contractors license board so it may appear pursuant to section 444-31."

SECTION 5. In codifying the new section added by section 2 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.

SECTION 6. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 7. This Act shall take effect upon its approval.

INTRODUCED BY:

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