Hawaii-2010-HB633-Introduced

SECTION 1. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"Chapter

Hawaii medical malpractice insurance relief fund

§ ‑1 Definitions. As used in this chapter:

"Board" means the board of directors of the Hawaii medical malpractice insurance relief fund.

"Commissioner" means the insurance commissioner as defined in section 431:2‑102.

"Covered event" means a claim for a medical tort as defined under section 671‑1.

"Deductible" means the amount of loss assumed by the policyholder that is not included in the coverages provided by the fund.

"Department" means the department of commerce and consumer affairs.

"Fund" means the Hawaii medical malpractice insurance relief fund established by this chapter.

"Physician" means an individual licensed to practice medicine or surgery pursuant to chapter 453 except for an individual who is employed by a hospital or a professional corporation as defined under section 415A‑2.

"Plan of operations" means the plan for providing medical malpractice insurance as adopted by the board pursuant to section ‑8, including any amendments thereto.

§ ‑2 Hawaii medical malpractice insurance relief fund; establishment. There shall be a Hawaii medical malpractice insurance relief fund to be placed within the department of commerce and consumer affairs for administrative purposes. The fund shall be a public body and a body corporate and politic. The fund shall offer policies of medical malpractice insurance for sale to physicians pursuant to this chapter.

§ ‑3 Board of directors. (a) The board of directors of the fund shall consist of:

(1) The commissioner as an ex officio voting member; and

(2) Six members appointed by the governor pursuant to section 26‑34; provided that:

(A) Two of the members shall be appointed from a list of nominations submitted by the president of the senate; and

(B) Two of the members shall be appointed from a list of nominations submitted by the speaker of the house of representatives.

(b) The governor shall select a chairperson and vice‑chairperson from among the members.

(1) Be the policy making body of the fund;

(2) Establish policies for the administration and operation of the fund;

(3) Meet as often as necessary to formulate and implement strategies and plans of operation in furtherance of this chapter. Upon its appointment, the board shall adopt an interim plan of operation within ninety days; and

(4) Receive no compensation for services, but shall be entitled to reimbursement of necessary expenses incurred in the performance of duties.

(d) The board may:

(1) Appoint, not subject to chapter 76, an executive director of the fund whose salary shall be set by the board;

(2) Employ, not subject to chapter 76, technical experts and officers, agents, and employees, permanent or temporary, as required; and

(3) Contract with persons, not subject to chapter 76 or 78, when the board determines that the services are essential to the execution of the functions of the fund.

§ ‑4 Powers, duties, functions. (a) The fund shall have the general power to:

(1) Sue and be sued;

(2) Make and alter policies for its organization and internal administration;

(3) Adopt rules in accordance with chapter 91 to effectuate the purposes of this chapter;

(4) Borrow moneys, including moneys from state or federal sources, and issue notes or other obligations of the fund for any of its purposes as authorized by the legislature from time to time;

(5) Pledge, assign, or grant a security interest in all or any part of the moneys, rents, charges, assessments, or other revenue, and proceeds thereof derived by the fund; provided that any pledge, assignment, or grant of security interest shall constitute a lien and security interest on the moneys, rents, charges, assessments, or other revenue, and proceeds thereof to the extent and with the priority set forth in the document establishing the pledge, assignment, or security interest, without the necessity for physical delivery, recording, or further act; and provided further that in effectuating any pledge, assignment, or grant of security interest, the fund may do either or both of the following:

(A) Transfer possession of collateral to its secured parties; or

(B) Execute and cause to be filed at the bureau of conveyances, Uniform Commercial Code financing statements for the purpose of providing notice to third parties of a pledge, assignment, or grant of security interest; provided that any failure to file a financing statement or the filing of a financing statement that contains incomplete or inaccurate information shall not affect the perfected lien and security interest of the pledge, assignment, or grant of security interest; and

(6) Enter into contracts as necessary to effectuate the purposes of this chapter.

(b) The fund shall have the specific power to:

(1) Adopt and administer a plan of operation, pursuant to section ‑8, and a manual of rules and rates thereunder;

(2) Authorize the provision of medical malpractice coverage by the fund and establish limits of liability for specific coverages within the range of authorized coverage;

(3) Adopt actuarially sound rates based on reasonable assumptions relative to expectations of medical malpractice frequency and severity for all coverage provided under policies or endorsements issued by the fund. Rates adopted shall be subject to approval by the commissioner pursuant to article 14 of chapter 431. Rates adopted shall provide for classification of risks and shall include past and prospective losses and expense experience in this State;

(4) Adopt any form of medical malpractice insurance policy necessary for providing policies of medical malpractice insurance by the fund, with the approval of the commissioner;

(5) Issue policies of medical malpractice insurance and pay claims for coverage over the mandatory deductible or other deductible provided in the plan of operation or any manual of rules and rates adopted under the plan of operation;

(6) Require every insurer authorized to write and engage in writing casualty insurance in this State on a direct basis to act as a servicing facility, and by contract with the insurer authorize the insurer to service policies and policyholders of medical malpractice insurance, provide claim services, and perform any other duties as authorized by the fund for applicants to the fund and those insured by it;

(7) Assess all insurers authorized to write and engage in writing casualty insurance in this State on a direct basis the amounts that together with the other assets of the fund are sufficient to meet all necessary obligations of the fund;

(8) Develop procedures regarding policies written by unauthorized insurers comparable to the assessments, surcharges, and other contributions made by insurers authorized to do business in this State;

(9) Accumulate reserves or funds, including the investment income thereon, to be used for paying expenses, making or repaying loans or other obligations of the fund, providing loss mitigation incentives, and paying valid claims for covered events insured by the fund;

(10) Collect and maintain statistical and other data as may be required by the commissioner;

(11) Impose fines for each incident of nonpayment of amounts due to the fund under this chapter; provided that the fines shall not exceed twenty-five per cent of the amount then due;

(12) Create loss mitigation incentives, which may include premium credits, premium rebates, loans, or cash payments;

(13) Enter into claims financing transactions, including reinsurance transactions, debt transactions, and other transactions incorporating elements of reinsurance, insurance, debt, or equity;

(14) Establish business and corporate entities or organizations for the purposes of this chapter; and

(15) Perform any and all acts reasonably necessary to carry out the purposes of this chapter.

§ ‑5 Assessments. (a) Any assessment made pursuant to section ‑4(b)(7) shall be made on the insurer's gross direct written premiums for casualty insurance in this State for the preceding calendar year. The rate of assessment in a year in that a covered event has not occurred shall be per cent and shall not include the insurer's gross direct written premiums for motor vehicle insurance in this State; provided that following a covered event, the rate of assessment may be increased to an amount not to exceed per cent and may include the insurer's gross direct written premiums for motor vehicle insurance in this State. This increase shall remain in effect until all claims and other obligations, including bonds and notes, arising out of a covered event are fully discharged.

(b) In the event of a loss from a covered event, the fund, in addition to the assessment in subsection (a), shall assess those insurers that acted as servicing facilities during the twelve months ended at the start of the month preceding the month in which the covered event occurs. The total assessment shall be a fixed percentage of the total coverage provided by the fund under the policies of medical malpractice insurance during the month preceding the month in which the covered event occurs. A separate total assessment shall be made for each covered event. The total assessment shall be allocated to each servicing facility based on the proportion of the total amount of the fund's gross direct written premiums for policies of hurricane property insurance, in each case, during the twelve months ending at the start of the month preceding the month in which the covered event occurs. Assessments made under this subsection and assessments made under subsection (a) in a year in which a covered event has occurred are due from each insurer based on assessment procedures established by the fund to meet its obligations to policyholders in a timely manner. The percentage to be used to calculate the total assessment shall be:

(1) For calendar year 2009, a percentage as fixed by the board in the plan of operation; provided that the total assessment shall not exceed $ ;

(2) For calendar year 2010, per cent;

(3) For calendar year 2011, per cent; and

(4) For calendar year 2012, and each calendar year thereafter, per cent.

(c) The fund may exempt or defer, in whole or in part, the assessment of any insurer if the assessment would cause the insurer's financial statement to reflect amounts of capital or surplus less than the minimum amounts required for a certificate of authority in this State.

§ ‑6 Accumulation of $500,000,000 in funds and commitments. (a) The commissioner shall provide the fund with written confirmation if the director of finance secures $500,000,000, in the aggregate in the form of:

(1) Commitments from either the federal government or an agency of the federal government or a financial institution;

(2) Revenue bonds other than those issued or to be issued in response to the occurrence of a covered event; or

(3) A combination of the commitments or bonds.

(b) Upon written confirmation from the commissioner pursuant to subsection (a), the Hawaii medical malpractice insurance relief fund shall:

(1) Control or freeze rates; and

(2) Continue accumulating premiums from policies of medical malpractice insurance, net of any reinsurance payments, operating expenses, and funds necessary for the development of a comprehensive loss reduction plan.

(c) When the balance of the net moneys accumulated totals $500,000,000, the fund may notify the commissioner of that fact. Following the receipt of the notice, the commissioner may order a reduction in the rates for policies of medical malpractice insurance.

(d) In the event of a loss from a covered event, the net moneys accumulated shall be used to settle claims and pay current and ongoing expenses of the fund. The net accumulated moneys, commitments, and bonds described in subsection (a)(2) shall be used only in the event losses from a covered event exceed the assessment pursuant to section ‑4(b)(7) and section ‑5.

(e) In the event the balance of the net accumulated moneys falls below $400,000,000, the fund shall establish rates, subject to the approval of the commissioner, necessary to replenish the account balance to $500,000,000 as promptly as reasonably practicable. The director of finance shall seek to arrange additional commitments whenever the account balance falls below $400,000,000.

(f) The fund shall be exempt from paying all taxes and fees levied by the State on other insurers.

§ ‑7 Advisory committee. (a) To assist the fund in implementing this chapter, the fund may appoint an advisory committee consisting of individuals:

(1) Who are members of the American Academy of Actuaries; and

(2) Who have substantial experience in the area of medical malpractice.

(b) The fund may appoint additional advisory committees as the fund deems necessary in furtherance of this chapter.

§ ‑8 Plan of operation. (a) The fund shall adopt a plan of operation and a manual of rules and rates necessary to ensure the solvency and the reasonable and equitable administration of the fund. The adoption of, and any amendments to, the plan of operation and manual of rules and rates shall not be subject to chapter 91, except that the policy forms for policies of medical malpractice insurance shall be adopted pursuant to chapter 91.

(b) If the fund fails to adopt a plan of operation or fails to adopt amendments to the plan of operation, the commissioner shall adopt a plan of operation or make amendments necessary to carry out the purposes of this chapter. Any plan of operation, or amendment, adopted by rule of the commissioner shall continue in full force and effect until the rule is superseded by a plan of operation, or amendment, adopted by a majority vote of all members of the fund's board, and approved by the commissioner.

(1) Establish procedures for performance of all powers and duties of the fund;

(2) Establish procedures for providing notice to all persons with interests insurable by the fund in the State of the type of medical malpractice insurance available from the fund in the event the fund offers medical malpractice insurance;

(3) Provide for and adopt all necessary forms, including insurance policies to be used by and on behalf of the fund, for use by the fund and servicing facilities;

(4) Adopt actuarially sound rates, based on reasonable assumptions relative to expectations of medical malpractice frequency and severity, to be charged for medical malpractice insurance provided by the fund, in accordance with article 14 of chapter 431;

(5) Publish manuals of rules, rates, and rating and classification plans that shall address mandatory deductibles, limits of coverage, and the classification of risks and rate modifications based on the exposure of insureds;

(6) Establish procedures for receiving and servicing applications to the fund;

(7) Establish procedures for processing and maintaining records of the fund relating to its financial transactions, its agents, its employees, its operations, and all transactions with any servicing facility;

(8) Establish procedures for the collection and remittance of the premiums and return of unearned premiums when applicable;

(9) Establish procedures for the payment of valid claims;

(10) Establish procedures for prorating available funds pursuant to section ‑15;

(11) Establish procedures for obtaining reinsurance;

(12) Establish procedures to borrow funds; and

(13) Develop a plan for the investment of moneys held by the fund subject to the limitations in article 6 of chapter 431.

§ ‑9 Annual statements. (a) The fund shall submit to the commissioner each year, no later than one hundred twenty days after the end of the fund's fiscal year, a financial report in a form approved by the commissioner.

(b) The commissioner may require other reports concerning risks insured by the fund as the commissioner deems appropriate.

§ ‑10 Powers of the commissioner. (a) For the purpose of ascertaining the fund's condition or compliance with this chapter, the commissioner shall examine the accounts, records, documents, and transactions of the fund at least once every three years commencing at the time the fund starts issuing policies of medical malpractice insurance or more often if the commissioner deems it necessary. The fund shall pay all reasonable and actually incurred expenses of the examination in accordance with section 431:2-306(b); provided that a detailed estimate of the expenses to be incurred shall be approved by the board prior to the examination. In the event the actual expenses incurred are in excess of ten per cent of the estimate, the commissioner shall communicate in writing to the board the reason for the excess expenses.

(b) The commissioner may exercise all of the commissioner's powers provided by law in the supervision and regulation of the fund, any servicing facility, and any other person or entity subject to the jurisdiction of the commissioner.

§ ‑11 Coverage available from the fund; deductible. The fund, pursuant to this chapter and the plan of operation, shall have the power to provide policies of insurance to physicians, including incidental coverages and subject to limits as specified in the plan of operation but not to exceed $ for each claimant under one policy in any one year.

§ ‑12 Mitigation. The fund shall develop a comprehensive loss reduction plan for the risk of medical malpractice.

§ ‑13 Appeals. (a) Any applicant or policyholder adversely affected by a decision of the fund shall have the right to appeal to the board within thirty days after the decision. The application for an appeal shall specify how the applicant or policyholder making the appeal was aggrieved and the grounds upon which relief is demanded. The decision of the board shall be deemed final.

(b) Any final action, decision, or order of the board under this chapter shall be subject to judicial review by the circuit court.

§ ‑14 Immunity and limitation on liability. (a) There shall be no liability on the part of, and no cause of action of any nature shall arise against, any servicing facility or its authorized insurance producers; the fund or its agents, employees, or board; the State; the commissioner; or the commissioner's representatives for any action taken by them in the performance of their powers and duties under this chapter; provided that this section shall not be construed to prohibit any exercise of the commissioner's power pursuant to this chapter or any other law or rule adopted pursuant to law or chapters 661 and 662, any other law to the contrary notwithstanding.

(b) Nothing in this chapter shall create an obligation, debt, claim, cause of action, claim for relief, charge, or any other liability of any kind whatsoever in favor of any person or entity without regard to whether that person or entity received any benefits under this chapter, against the State, or its officers and employees. The State and its officers and employees shall not be liable for the results of any application, denial of application, claim, loss, or other benefits provided by the fund pursuant to this chapter.

(c) Nothing in this chapter shall be construed as authorizing any claim against the State whatsoever, nor shall this chapter be construed as authorizing any claim against the fund in excess of any note, loan, liability, or other obligation incurred by the fund.

(d) Nothing in this section shall be construed to alter any obligation to pay assessments or charges authorized to be imposed or levied by the board pursuant to this chapter. The fund shall be subject to chapter 431 only as provided for in this chapter.

§ ‑15 Insolvency of fund. If the total amount available at any time to the fund is insufficient to make all necessary payments, the moneys available shall be prorated and the unpaid portion shall be paid as soon thereafter as moneys become available.

§ ‑16 Establishment of trust funds. (a) The fund shall establish, outside the state treasury, a medical malpractice insurance reserve trust fund, and any accounts thereunder, and any other trust fund or account necessary to carry out the purposes of this chapter. Moneys deposited in the medical malpractice insurance reserve trust fund and any accounts thereunder or any other trust fund or account shall be held by the fund, as trustee, in a depository as defined in section 38-1 or according to a similar arrangement at the discretion of the board, including trust or custodial accounts created for the benefit of the fund's secured parties under contractual claims financing arrangements. The moneys may be invested and reinvested in accordance with the plan of operation. Disbursements from the trust funds shall not be subject to chapter 103D and shall be made in accordance with procedures adopted by the board.

(b) The medical malpractice insurance relief fund shall implement the assessments of all insurers authorized to write and engage in writing casualty insurance in this State on a direct basis, as authorized by section ‑4(b)(7) and section ‑5, and the proceeds from the assessments shall be deposited into the medical malpractice insurance reserve trust fund or into trust or custodial accounts, created for the benefit of the fund's secured parties, that are held inside or outside the medical malpractice insurance reserve trust fund.

(c) If the fund offers to issue policies of medical malpractice insurance, the premiums for the policies shall be deposited into the medical malpractice insurance reserve trust fund.

(d) After each covered event, if the board determines that the moneys in the medical malpractice insurance reserve trust fund, excluding moneys determined by the board to be needed to continue fund operations following that covered event, will be insufficient to pay claims and other obligations of the fund arising out of that covered event, the fund is authorized to levy a surcharge not to exceed seven and one-half per cent a year on premiums charged for all medical malpractice insurance policies issued for risks insured in this State. These moneys may be deposited into the medical malpractice insurance reserve trust fund or into trust or custodial accounts, created for the benefit of the fund's secured parties, which are held inside or outside the medical malpractice insurance reserve trust fund. The formula to calculate the amount and period of the surcharge for each covered event and the procedures and methodology for payment of claims and other obligations of the fund shall be provided in the plan of operation, and the surcharge may remain in effect until all claims and other obligations of the fund, including claims financing transactions, bonds, notes, and other obligations arising out of that covered event, have been fully discharged. The amount and reason for any surcharge made pursuant to this subsection shall be separately stated on any billing sent to an insured. The surcharge shall not be considered premiums for any other purpose, including the computation of gross premium tax or the determination of producers' commissions.

(e) Any proceeds, experience refunds, or other return funds under reinsurance shall be deposited into the medical malpractice insurance reserve trust fund.

(f) Any proceeds from loans or other moneys from the federal government, any proceeds from bonds issued pursuant to this chapter loaned by the director of finance to the fund, and other moneys as the State may make available from time to time shall be deposited into the medical malpractice insurance reserve trust fund.

(g) Moneys in the medical malpractice insurance reserve trust fund or in trust or custodial accounts, created for the benefit of the fund's secured parties, shall be expended by the fund or its authorized designee and used solely for the purposes of this chapter.

(h) Moneys in the medical malpractice insurance reserve trust fund may be:

(1) Disbursed upon dissolution of the fund; provided that:

(A) The net moneys in the medical malpractice insurance reserve trust fund shall revert to the state general fund after payments by the fund on behalf of licensed insurers or the State that are required to be made pursuant to any federal or state law; and

(B) If moneys are paid on behalf of licensed insurers, payment shall be made in proportion to the premiums from policies of medical malpractice insurance serviced by the insurers in the twelve months prior to dissolution of the fund; or

(2) Deposited to the loss mitigation grant fund established under section 431:22-102;

provided that all interest earned from the principal in the medical malpractice insurance reserve trust fund shall be transferred and deposited into the general fund each year that the medical malpractice insurance reserve trust fund remains in existence.

§ ‑17 Transfer of funds; immunity. There shall be no cause of action, claim for damages or relief, charge, or any other liability of any kind whatsoever created against the State, the fund, the commissioner, or their respective agents, employees, or board, by, or relating to, the transfer of any moneys from the medical malpractice insurance reserve trust fund to the loss mitigation grant fund or from the loss mitigation grant fund to the medical malpractice insurance reserve trust fund or involving the loss mitigation grant program.

§ ‑18 Additional notice requirement. Thirteen months prior to discontinuation of writing medical malpractice insurance coverage, an insurer shall file an affidavit with the commissioner stating the reasons for the discontinuation."

SECTION 2. Chapter 435C, Hawaii Revised Statutes, is repealed.

SECTION 3. There is appropriated out of the general revenues of the State of Hawaii the sum of $ or so much thereof as may be necessary for fiscal year 2009-2010 and the same sum or so much thereof as may be necessary for fiscal year 2010-2011 for deposit into the medical malpractice insurance reserve trust fund.

SECTION 4. There is appropriated out of the medical malpractice insurance reserve trust fund the sum of $ or so much thereof as may be necessary for fiscal year 2009-2010 and the same sum or so much thereof as may be necessary for fiscal year 2010-2011 for the purposes of section 1 of this Act.

The sums appropriated shall be expended by the department of commerce and consumer affairs for the purposes of this Act.

SECTION 5. The insurance commissioner shall submit to the legislature an interim report no later than twenty days prior to the convening of the 2010 regular session and a final report no later than twenty days prior to the convening of the 2011 regular session on the implementation of this Act, including any recommended legislation.

SECTION 6. This Act shall take effect upon its approval; provided that sections 3 and 4 of this Act shall take effect on July 1, 2009.

INTRODUCED BY:	_____________________________

HOUSE OF REPRESENTATIVES	H.B. NO.	633
TWENTY-FIFTH LEGISLATURE, 2009
STATE OF HAWAII