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INSURANCE AGAINST RIOT LOSSES

THURSDAY, JULY 18, 1968

HOUSE OF REPRESENTATIVES,
SPECIAL INVESTIGATING SUBCOMMITTEE OF THE
COMMITTEE ON THE DISTRICT OF COLUMBIA,

Washington, D.C. The Special Investigating Subcommittee met, pursuant to notice, at 9:00 a.m. in room 1310, Longworth House Office Building, Hon. John Dowdy (Subcommittee Chairman) presiding.

Present: Representatives McMillan (Chairman of the full committee), Dowdy, (Chairman of the Subcommittee), Sisk, Fuqua, Nelsen, and Zwach.

Also Present: James T. Clark, Clerk; Hayden S. Garber, Counsel; Sara Watson, Assistant Counsel; Donald Tubridy, Minority Clerk; and Leonard 0. Hilder, Investigator.

Mr. Dowdy. The Subcommittee will come to order.

We have for hearing this morning several bills relating to insurance against riot losses-H.R. 18541 by Mr. McMillan, H.R. 17647 by Mr. Diggs, H.R. 17607 by Mr. O'Konski, and H.R. 18149 by Mr Brasco.

Without objection, these bills will be made a part of the record at this point, together with a letter dated May 31, 1968, from the Government of the District of Columbia addressed to the Speaker of the House of Representatives; two reports from the Government of the District of Columbia concerning these various bills; and a letter from the American Insurance Association.

(The material referred to follows:)

(H.R. 18541, 90th Cong, second sess., by Mr. McMillan on July 12, 1968.) A BILL To authorize relnsurance with appropriate loss sharing by the District of Columbla

against Insurance losses resulting from riots and other civil disturbances, and for other purposes Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That this Act may be cited as the "District of Columbia Insurance Placement Act”.

DECLARATION OF PURPOSE

Sec. 2. The purposes of this Act are:

(1) To assure stability in the property insurance market for property located in the District of Columbia ;

(2) To assure the availability of basic property insurance as defined by this Act;

(3) To encourage maximum use, in obtaining basic property insurance, of the normal insurance market provided by authorized insurers;

(4) To provide for the equitable distribution among authorized insurers of the responsibility for insuring qualified property for which basic property insurance cannot be obtained through the normal insurance market by the

establishment of a FAIR Plan (fair access to insurance requirements), an Industry Placement Facility and a Joint Reinsurance Association;

(5) To establish a fund to be known as the “District of Columbia Insurance Development Fund” to provide financial back-up for the Insurance Placement Program and Joint Reinsurance Associatio nestablished herein, or to provide financial back-up to enable insurers to qualify for riot and civil disorder reinsurance under the National Insurance Development Corporation Act of 1968 or any other Act of the Congress of the United States which will simi. larly provide reinsurance or financial back-up to accomplish the purposes of

this Act. SEC. 3. As used in this Act, unless the context otherwise requires :

(1) “Superintendent” means the Superintendent of Insurance of the Dis. trict of Columbia ;

(2) "Basic property insurance” means the coverage against direct loss provided in the Standard Fire Policy and Extended Coverage Endorsement and such vandalism and malicious mischief or such other classes of insurance as may be added with respect to said property by the Industry Placement Facility with the approval of the Superintendent, but shall not include in. surance on automobile, farm and manufacturing risks ;

(3) "Inspection Bureau" means the fire insurance rating bureau or any other organization designated by the Industry Placement Facility with the approval of the Superintendent to make inspections to determine the condi. tion of the properties for which basic property insurance is sought and to perform such other duties as may be authorized by the Industry Placement Facility;

(4) “Industry Placement Facility” (hereinafter referred to as the Facility) means the organization formed by insurers licensed to write and engaged in writing basic property insurance (including homeowners and commercial multi-peril policies) within the District of Columbia to assist applicants in securing basic property insurance and to formulate and administer a program for the equitable apportionment among such insurers of such basic property insurance ;

(5) “Premiums written” means gross direct premiums charged with respect to property in the District of Columbia on all policies of basic property insurance, and the basic property insurance premium components of all multiperil policies, as computed by the Facility with the approval of the Superintendent, less return premiums, dividends, paid or credited to policyholders, or the unused or unabsorbed portions of premium deposits.

(6) "Property owner" means any person having an insurable interest in real, personal, or mixed real and personal property. Sec. 4. (a) Any person having an insurable interest in real or tangible personal property in the District of Columbia who after diligent effort, has been unable to obtain basic property insurance shall be entitled, upon application to the Facility, to an inspection of the property by representatives of the Inspection Boreau. Such request must be made by the applicant and may be transmitted by the applicant or by his authorized representative.

(b) The manner and scope of the inspection and the form of the inspection report shall be prescribed by the Facility with the approval of the Superintendent. The inspection shall include, but need not be limited to, pertinent structural and occupancy features as well as the general condition of the building and surrounding structures; a representative photograph of the property may be taken as part of the inspection.

(c) Promptly after the request for inspection is received, an inspection shall be made and an inspection report filed with the company or companies designated by the Facility. Copy of the completed inspection report shall be sent to the Facility and made available to the applicant.

SEC. 5. Within thirty days after the effective date of this Act, all insurers licensed to write and engaged in writing in the District of Columbia, on a direct basis, basic property insurance or any component thereof in multi-peril policies, shall establish an Industry Placement Facility to formulate and administer a program with the approval of the Superintendent, for the equitable apportionment among such insurers of basic property insurance which may be afforded applicants in urban areas whose property is insurable, without regard to neighborhood or area location, in accordance with reasonable underwriting standards but who, after diligent effort, are unable to procure such insurance through normal channels. Each such insurer, as a condition of its authority to transact

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such kinds of insurance in the District of Columbia, shall participate in such Industry Placement Facility program in accordance with rules of the program to be established by a Governing Committee consisting of five insurers elected annually in the manner to be provided in the program. There may be established under the program separate classifications of written premiums for the purpose of equitable distribution but shall not include automobile, farm, or manufacturing risks. The program may also provide, with the approval of the Superintendent, for assessment of all members in amounts sufficient to operate the Facility, and may establish limits of liability to be placed through the program, reasonable underwriting standards for determining insurability of a risk, and commission to be paid to the licensed producer designated by the applicant.

SEC. 6. (a) Within thirty days after the effective date of this Act all insurers licensed to write and engaged in writing in the District of Columbia, on a direct basis, basic property insurance or any component thereof in multi-peril policies, sball establish a Joint Reinsurance Association (hereinafter referred to as the Association). Every insurer shall be a member of the Association and shall remain a member as a condition of its authority to transact such kinds of insurance in this District.

(b) The Association shall be authorized to assume and cede reinsurance on risks written by insurers in conformity with the program.

(c) Each insurer shall participate in the writings, expenses, profits and losses of the Association in the proportion that its Premiums Written during the preceding calendar year bear to the aggregate Premiums written by all insurers in the program, excluding that portion of the Premiums Written attributable to the operation of the Association.

(d) The Association shall be administered by the Governing Committee under rules to be adopted by it with the approval of the Superintendent. Voting on general administrative questions of the Association and Facility as provided in said rules, shall be weighted in accordance with each insurer's Premiums Written during the most recent calendar year, as disclosed in the reports filed by the insurers with the Superintendent.

(e) The Association may, on its own initiative or at the request of the Superintendent, amend its rules or program, subject to approval by the Superintendent who shall have supervision of the Inspection Bureau, the Facility and the Association. The Superintendent or any person designated by him, shall have the power of visitation of and examination into the operation and free access to all the books, records, files, papers, and documents that relate to operation of the Facility and Association, and may summon, qualify and examine as witnesses all persons having knowledge of such operations including officers, agents or employees thereof.

Sec. 7. (a) Any affected insurer shall have the right of appeal to the Governing Committee. A decision of the Committee on such appeal may be appealed to the Superintendent within thirty days after such decision. Any applicant may appeal to the Superintendent within ninety days after any ruling action or decision of the Inspection Bureau, the Facility of the Association.

(b) All final orders or decisions of the Superintendent made pursuant to this Act shall be subject to judicial review by the District of Columbia Court of appeals pursuant to chapter 3 of title 17 of the District of Columbia Code.

SEC. 8. As respects any act or omission made in good faith there shall be no liability on the part of, and no cause of action of any nature shall arise against insureres, the Inspection Bureau, the Facility, the Association, the Governing Committee, their agents or employees, or the Superintendent or his authorized representatives, with respect to any inspections required to be undertaken by this Act or for any acts or omissions in connection therewith, or for any statements made in any reports and communications concerning the insurability of the property, or in the findings required by the provisions of this Act, or at the hearings conducted in connection therewith. The reports and communications of the Inspection Bureau, the Facility, the Association and the records of the Governing Committee shall not be considered public documents.

Sec. 9. There is hereby created a fund to be known as the "District of Columbia Insurance Development Fund” for the purpose of providing reinsurance for the Facility and Association to be approved by the Superintendent pursuant to this Act, or to provide reimbursement for Federal riot and civil disorder reinsurance so as to enable insurers to qualify for riot and civil disorder reinsurance under the National Insurance Development Corporation Act of 1968 or any other act of the Congress of the United States which will similarly provide reinsurance or

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financial back-up to accomplish the purposes of this Act. The fund shall be used to make payments as may be required of the District of Columbia to any federal reinsurance entity, or to an insurer or the Association for losses sustained in excess of the amount of retention of such losses as shall be provided for by the Commissioner; except that the amount of such payments or reimbursement in any one year shall not exceed five percent of the insruance premiums written on all lines of property insurance in the District of Columbia in the most recent full calendar year. The fund shall consist of all monies appropriated to the fund and securities acquired by and through the use of monies belonging to the fund, together with interest and accretions earned thereon. The fund shall be administered by the Superintendent.

SEC. 10. In addition to any powers conferred upon him by this or any other law, the Superintendent is authorized to do all things necessary to enable the District of Columbia and any insurer participating in any program approved by the Superintendent to fully participate in any federal program of reinsurance which may be hereafter enacted for purposes similar to the purposes of this Act.

Sec. 11. The Superintendent may require such reports from insurers concerning risks insured under any program approved pursuant to this Act as he shall deem necessary.

SEC. 12. This Act shall be and become effective upon the effective date of the National Insurance Development oration Act of 1968 or any other Act of the Congress of the United States which will similarly provide reinsurance or financial back-up to accomplish the purposes of this Act, and shall cease to be of any force or effect upon the termination of said act except that obligations incurred by the Association established pursuant to the provisions of this Act shall not be impaired by the expiration of this Act and such Association shall be continued for the purpose of performing such obligations.

(H.R. 17647 90th Cong., second sess., by Mr. Diggs on June 4, 1968) A BILL To establish a basic property insurance placement plan and joint underwriting

association to improve the availability of basic insurance protection for residential and business properties against fire and other perils through the cooperative efforts of the District of Columbia and the private property Insurance industry; to authorize the District of Columbia to assume a portion of insurance losses resulting from riots and other civil disorders; and for other purposes Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That this Act may be cited as the “District of Columbia Insurance Placement Act".

DECLARATION OF PURPOSE

SEC. 2. The purposes of this Act are

(1) to assure stability in the property insurance market for property located in the District of Columbia ;

(2) to assure the availability of basic property insurance as defined by this Act;

(3) to encourage maximum use, in obtaining basic property insurance, of the normal insurance market provided by authorized insurers; and

(4) to provide for the equitable distribution among insurers of the responsibility for insuring qualified property for which basic property insurance cannot be obtained through the normal insurance market by authorizing the establishment of a joint underwriting association.

DEFINITIONS

Sec. 3. As used in this Act, unless the context otherwise requires-

(a) "Commissioner" means the Commissioner of the District of Columbia or his designated agent.

(b) "Basic property insurance" means insurance against direct loss to property caused by perils as defined and limited in the standard fire policy and er tended coverage endorsement thereon as approved by the Commissioner, and such other property insurance coverages for such types, classes, and locations of prop erty as may be designated by the Commissioner, but shall not include insurance on automobiles.

(c) "Environment hazard” means any hazardous condition that might give rise to loss under an insurance contract, but which is beyond the control of the property owner.

(d) "Inspection bureau" means the rating bureau or other organization desigated by the Comissioner to perform inspections to determine the condition of the properties for which basic property insurance is sought.

(e) "Industry placement facility" means the facility formed by all insurers licensed to write and engaged in writing basic property insurance (including homeowners and commercial multiperil policies) within the District of Columba to assist agents, brokers and applicants in securing basic property insurance.

(f) “Premiums written" means gross direct premiums written on all policies of such basic property insurance as may be designated by the Commissioner and such basic property insurance components of all multiperil policies as may be designated and computed by the Commissioner, less all premiums and dividends returned to policyholders or the unusued or unabsorbed portions of premium deposits.

(8) "Property owner" means any person having an insurable interest in real, personal, or mixed real and personal property.

FAIR ACCESS TO INSURANCE REQUIREMENTS

SEC. 4. The Commissioner is authorized to adopt such rules and regulations applicable to insurers, agents, and brokers as he deems necessary to assure all propery owners fair access to basic property insurance through the normal insurance markets, including, but not limited to, rules and regulations concerning

(a) the manner and scope of inspections of risks by an inspection bureau ;

(b) the preparation and filing of inspection reports and reports on actions taken in connection with inspected risks, and summaries thereof;

(c) prohibition against penalizing agents and brokers for soliciting applications for insurance on properties which are inspected; and

(d) the operation of an industry placement facility.

INDUSTRY PLACEMENT FACILITY Sec. 5. (a) Within thirty days after the effective date of this Act all insurers licensed to write and engaged in writing in the District of Columbia, on a direct basis, basic property insurance or any component thereof in multiperil policies, shall establish an Industry Placement Facility to formulate and administer a program, subject to disapproval by the Commissioner in whole or in part, to seek the equitable apportionment among such insurers of basic property insurance which may be afforded applicants in the District of Columbia whose property is insurable in accordance with reasonable underwriting standards and who individually or through their insurance agent or broker request the aid of the Facility to procure such insurance. The Facility shall seek to place insurance with one or more participating companies up to the full insurable value of the risk, if requested, except to the extent that deductibles, percentage participation clauses and other underwriting devices are employed to meet special problems of insurability,

(b) Each such insurer shall participate in the Industry Placement Facility program in accordance with the established rules of the program as a condition of its authority to transact such kinds of insurance in the District of Columbia : Provided, That in lieu of revoking or suspending the certificate of authority of any company for any failure to comply with the requirements of this subsection, the Commissioner may subject such company to a penalty of not more than $5,000 when in his judgment he finds that the public interest would be best served by the continued operation of the company in the District of Columbia.

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JOINT UNDERWRITING ASSOCIATION

SEC. 6. (a) The Commissioner is authorized to establish by order of a joint underwriting association if he finds, after notice and hearing, that such association is necessary to carry out the purposes of this Act. Such joint underwriting association shall consist of all insurers licensed to write and engaged in writing in the District of Columbia, on a direct basis, such basic property insurance as may be designated by the Commissioner or any component thereof in multiperil policies.

(b) Every such insurer shall be and remain a member of the association and shall comply with all requirements of membership as a condition of its authority to transact such kinds of insurance in the District of Columbia : Provided, That

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