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HB589
HOUSE OF REPRESENTATIVES
H.B. NO.
589
THIRTY-THIRD LEGISLATURE, 2025
STATE OF HAWAII
A BILL FOR AN ACT
relating
to CONDOMINIUM insurance
.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
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SECTION 1.
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The legislature finds that before the Maui
wildfires on August 8, 2023, the availability of condominium building master
property insurance policy options within the condominium insurance marketplace
was already shrinking.
�
Due in part to
the shrinking condominium insurance marketplace, the cost of condominium
building master insurance policies has increased exponentially, with insurers
increasing deductible amounts from approximately $10,000 to $25,000 per unit,
per occurrence, to as much as $250,000.
�
These increased deductibles are also due to consistent and high-cost
losses.
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The
legislature also finds that while the State has not experienced a direct, major
impact from a major hurricane since hurricane Iniki devastated Kauai and
damaged homes along Oahu's leeward coast more than thirty years ago, mortgage
lenders continue to require Hawaii homeowners to carry hurricane insurance that
can cost two to three times the amount of annual premiums of a conventional
homeowner policy.
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The governor's
emergency proclamation dated August 7, 2024, enabled the executive branch to
provide additional options for condominium associations to purchase hurricane
and property insurance for their buildings by authorizing:
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(1)
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Loans to the Hawaii hurricane relief
fund and the Hawaii property insurance association to facilitate the issuance
of hurricane and property insurance policies to condominium associations; and
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(2)
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The Hawaii hurricane relief fund to
issue hurricane insurance policies for large condominium buildings and set
policy limits.
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The
legislature also acknowledges that although insurance coverage, excluding
hurricane coverage, for condominium buildings is available in the standard
insurance market, the availability of this coverage is not guaranteed.
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The
legislature further acknowledges that the city and county of Honolulu's
requirement for mandatory fire sprinkler retrofits or alternative fire safety
upgrades in older condominium properties covered by ordinance 18-14, as amended
by ordinance 22-2, has resulted in insurance premium increases of one hundred
per cent or more since 2022, and substantial expenses to comply with the
ordinance for more than three hundred high-rise properties on Oahu.
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The
purpose of this Act is to establish a mutual insurance program to provide
coverage to stabilize the insurance market serving Hawaii high‑rise
residential condominium properties.
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SECTION
2.
�
Chapter 431, Hawaii Revised Statutes,
is amended by adding a new article to be appropriately designated and to read
as follows:
"
Article
HAWAII CONDOMINIUM MUTUAL INSURANCE COMPANY
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�431:
��
-101
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Purpose.
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There is established the Hawaii condominium
mutual insurance company
to provide property and casualty
insurance coverage to high-rise residential condominiums and the owners of
units within those condominiums
at the highest level of service with the
lowest possible cost, consistent with reasonable and applicable actuarial
standards and the sound financial integrity of each residential condominium
property association.
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�431:
��
-102
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Definitions.
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As used in this
article:
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"Administrator" means the chief
executive officer of the Hawaii condominium mutual insurance company.
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"Association"
shall have the same meaning as in section 514B-3.
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"Board" means the board of
directors of the Hawaii condominium mutual insurance company.
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"Company" means the Hawaii condominium
mutual insurance company established by this article.
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"Council" means the Hawaii condominium
mutual insurance company oversight council.
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"High-rise
residential condominium property" means a residential building having
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or more stories of residential units.
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"Investment manager" means any
fiduciary, who has been designated by the board to manage, acquire, or dispose
of the company's assets, a bank as defined by law, or an insurance company
qualified to perform services under the laws of more than one state.
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"Qualified actuary" means a
member of the American Academy of Actuaries who is either a fellow of the
Casualty Actuarial Society or an Associate of the Casualty Actuarial Society
who has five or more years of experience.
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�431:
��
-103
�
Hawaii condominium mutual insurance company; established.
�
(a)
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The Hawaii condominium mutual insurance company is established as an
independent corporation to provide condominium insurance and related services
to Hawaii condominiums and the owners of the units within those
condominiums.
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The company may be
reorganized as a nonprofit corporation under chapter 414D.
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(b)
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The company shall be organized and operated as a domestic mutual
insurance company.
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The company shall
comply with, unless specifically excluded, all requirements of the insurance
code regarding a domestic mutual insurance company.
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The company shall not be an agency of the
State.
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The company or its liabilities
shall not be deemed to constitute debts or liabilities of the State of Hawaii
or pledges of the full faith and credit of the State.
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The company shall write property and casualty
insurance policies for high-rise residential condominiums and its residential
unit owners as required or authorized by law to the same extent as any other
private insurer.
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The company shall not
write other lines of insurance, reinsurance, or excess insurance.
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(c)
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The company's assets shall consist of real and personal property and
shall include all premiums and other moneys paid to the company, all property,
and other income acquired, earned, or otherwise gained by the use of premiums
and other moneys paid to the company by deposits, investments, exchanges, and
other transactions.
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The company's assets
shall be the sole property of the company and shall be used exclusively by the
company for the operation and obligations of the company.
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(d)
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The company is exempt from participation, and shall not join, contribute
financially to, nor be entitled to the protection of, any plan, association,
guaranty, insolvency fund, or education and training fund authorized or
required by this chapter.
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Notwithstanding the foregoing exemptions, beginning January 1, 2027, the
company shall participate in the property and liability insurance guaranty
association, pursuant to sections 431:16-101 to 431:16-117; provided that the
company shall meet the surplus requirements applicable to all other domestic
insurers under chapter 431 effective January 1, 2027.
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(e)
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On or after January 1, 2027, the company shall provide property and casualty
insurance coverage to Hawaii condominiums and their unit owners otherwise
entitled to coverage but not able to or not electing to purchase coverage in
the voluntary insurance market, and not authorized, either individually or as a
part of a group, to self-insure.
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An
authorized self-insured is eligible for coverage upon termination of
self-insurance.
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�431:
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-104
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Incorporation of article 14A
sections.
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Unless the context
otherwise requires, sections 431:14A-106, 431:14A-107, 431:14A-108,
431:14A-109, 431:14A-110, 431:14A-111,
�
431:14A-112, 431:14A-113, 431:14A-115, and 431:14A-116 are incorporated
by reference into this article; provided that the definitions set forth in
section
431:
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-102 shall apply when a defined term is
used.
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�431:
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-105
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Company divisions.
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The company may add one or more divisions
for purpose of this article.
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�431:
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-106
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Board of directors, established.
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(a)
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The
board of directors of the company shall be responsible for the organization,
management, policies, and activities of the company.
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The board shall consist of nine voting
members and one nonvoting member.
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The
voting members shall consist of the following:
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(1)
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Eight
directors who shall be owners, officers, or employees of policyholders of the
company; and
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(2)
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One
director who shall be a public, at-large member elected by the board of
directors.
The
administrator shall be the nonvoting member of the board.
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(b)
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The initial eight directors shall be appointed by the governor and shall
serve for terms of one year each.
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The public, at-large member initially
elected by the board shall serve for a term of one year.
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The initial board of directors shall
determine the staggering and length of future directors' terms; provided that
no term shall exceed three years.
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Each
director shall serve for terms as specified by the board unless sooner removed
for cause pursuant to rules adopted by the board.
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Each director shall hold office until a
successor is appointed.
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No person shall
serve more than two consecutive full terms as director.
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Any other law to the contrary
notwithstanding, the election and composition of the board of directors as
provided in this section shall be deemed adequate to qualify the company as a
mutual insurer under chapter 431.
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(c)
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A vacancy on the board shall be filled by appointment of the governor in
the case of appointed directors, or by election by the board of directors in
the case of the at-large member.
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The
person appointed to fill a vacancy shall serve for the remainder of the term of
the person's predecessor.
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(d)
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Within one year after appointment, each director shall be a member or an
employee of a policyholder of the company and shall continue in such status
during the director's term of office.
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Any director representing a member that fails to maintain workers'
compensation insurance from the company shall be disqualified from serving on
the board.
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(e)
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Each director shall receive necessary traveling and board expenses
incurred in the performance of duty as director and a fee commensurate with the
duties expected of actual attendance at board meetings.
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(f)
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No person shall be a director who has a direct and substantial interest
in a competing insurer as:
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(1)
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A
stockholder (excluding the holding of less than one per cent of the outstanding
shares in a publicly traded insurer);
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(2)
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An
employee;
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(3)
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An
attorney; or
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(4)
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A
contracting party (excluding an independent contractor or business owner who
does less than twenty-five per cent of its total annual volume of business per
year with competing insurers).
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�431:
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-107
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Oversight council.
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(a)
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There is established the Hawaii condominium mutual insurance company
oversight council which shall meet at least once annually.
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For administrative purposes only, the council
shall be assigned to the department of commerce and consumer affairs.
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The council shall oversee the activities of
the company to ensure that the company fulfills its purpose as set forth in
this article.
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(b)
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The council shall consist of five members who shall include:
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(1)
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A
member of the senate appointed by the president of the senate;
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(2)
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A
member of the house of representatives appointed by the speaker of the house of
representatives;
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(3)
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The
director of the department of commerce and consumer affairs; and
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(4)
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Two
at-large members who are an owner, officer, or employee of the company
policyholder appointed by the governor;
provided
that if any designee under paragraphs (1) or (2) does not meet the test in
subsection (c), the president of the senate, speaker of the house, or governor,
as applicable, shall designate an appropriate representative.
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Section 26-34 shall not apply to appointments
under this section.
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(c)
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No person shall serve on the council who within the second degree of
consanguinity or affinity has a direct and substantial interest in an insurer
that competes with the company, including but not limited to:
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(1)
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A
stockholder of a competing company (excluding a holder of less than one per
cent of the outstanding shares in a publicly traded company);
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(2)
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An
employee of a competing company;
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(3)
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An
attorney who represents a competing company; or
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(4)
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A
party who contracts with a competing company (excluding an independent
contractor or business owner who does less than twenty-five per cent of its
total annual volume of business per year with competing insurers).
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(d)
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Members of the council shall serve without compensation, but shall be
reimbursed for reasonable expenses necessary for the performance of their
duties.
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(e)
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The administrator shall serve as liaison officer to the council.
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Not later than sixty days after July 20, 2027,
and every June 15 thereafter, the board shall provide to the council any and
all data and information the council may require, including but not limited to:
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(1)
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The
company's statutorily required annual financial statement;
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(2)
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Copies
of any reports issued by the insurance division in connection with the
triennial examination of the company; and
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(3)
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Actuarial
certification of loss reserves.
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(f)
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After receipt of the data and information required pursuant to
subsection (e), the council shall review the activities of the company and
determine whether the company is fulfilling its purpose as set forth in this
article.
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The council shall promptly, but
in no event later than October 15, 2027, and every October 15 thereafter,
submit a report to the governor with a copy to the board of directors, stating
whether the company is fulfilling its purpose as set forth in this
article.
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If the council determines that
there are any deficiencies in the company's fulfillment of its purposes as set
forth in this article, it shall include in its report a detailed description of
any deficiencies.
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Within a time frame
established by the council, but in no event later than six months after
delivery of the council's report in accordance with this section, the company
shall respond in writing to any deficiencies identified in the council's
report.
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The Hawaii condominium mutual
insurance company shall provide staff support to the council.
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(g)
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If the governor determines that corrective action is appropriate after
reviewing the council's report and the company's response, the governor shall
inform the legislature, and the legislature shall consider what action is
needed.
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�431:
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-108
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Audits.
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(a)
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For casualty and property insurance policies
issued to an association, the administrator, or designated representative,
shall have reasonable access to association records and property during regular
working hours to carry out audits and obtain other information necessary for
the administration of this article.
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(b)
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For each casualty and property insurance
policy issued to a unit owner, the administrator, or designated representative,
shall have reasonable access to the unit and association records and property
during regular working hours to carry out audits and obtain other information
necessary for the administration of this article.
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�431:
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-109
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Building safety and management programs.
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(a)
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The
company shall work with policyholders to develop, implement, and monitor
building safety and management programs.
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The programs shall include the development of a loss reduction plan that
promotes safe building conditions.
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(b)
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The company shall promote safety programs to
policyholders through programs and activities, which may include:
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(1)
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Analyzing reports of accidents to help
determine the cause of those accidents;
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(2)
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Conducting studies for risk and hazard
identification and assessments by professionals;
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(3)
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Conducting educational programs
designed to prevent frequently recurring accidents; and
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(4)
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Inspecting properties and investigating
unsafe conditions to promote safety and eliminate hazards.
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(c)
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Company representatives shall have reasonable
access to the premises of any policyholder or applicant during regular working
hours to carry out evaluations.
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(d)
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Where the company finds, upon the completion
of a detailed inspection, that an insured has policies and practices in place
that demonstrate a high regard for safety, the company may apply a deviation to
the insured's rate structure, noting special recognition of those efforts.
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(e)
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The company shall not incur additional legal
liability toward its members or beneficiaries as a result of any action taken
or not taken pursuant to this chapter beyond that explicitly created by this
chapter or common law and generally applicable to the acts or omissions of all
issuers of property and casualty insurance in this State."
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SECTION
3.
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Chapter 514B, Hawaii Revised
Statutes, is amended by adding a new section to part I to be appropriately
designated and to read as follows:
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"
�514B-
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Condominium loan fund.
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(a)
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There is established the condominium loan fund into which shall be
deposited all moneys appropriated by the legislature to the fund, contributed
or transferred to the fund, and received as repayment of loans and interest
payments as provided in this section.
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(b)
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The director of commerce and consumer affairs
may make loans to associations that have been subject to increased insurance
premium costs of
�����
per cent or more
since January 1,
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, and for which
the increased insurance premium costs have resulted in increased maintenance
fees for unit owners of the condominium.
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(c)
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The director of commerce and consumer affairs
may delegate the authority to make loans under subsection (b) to the Hawaii condominium
mutual insurance company.
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(d)
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All unexpended and unencumbered moneys
remaining in the state disaster revolving loan fund at the close of each fiscal
year, which are deemed by the director of finance to be in excess of the moneys
necessary to carry out the purposes of this section over the next following
fiscal year, shall lapse to the credit of the general fund.
"
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SECTION
4.
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There is appropriated out of the
hurricane reserve trust fund established under section 431P-16, Hawaii Revised
Statutes, the sum of $
�������
�
�
or so
much thereof as may be necessary for fiscal year 2025-2026 and the same sum or
so much thereof as may be necessary for fiscal year 2026-2027 for the
Hawaii
condominium mutual insurance company to provide property and casualty insurance
coverage to high-rise residential condominiums, and the owners of units within
those condominiums, as provided under this Act
, including start-up
costs.
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The
sums
appropriated shall be expended
by the
Hawaii condominium mutual insurance company
for the
purposes of this Act.
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SECTION
5.
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There is appropriated out of the general
revenues of the State of Hawaii the sum of $
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�
or so much thereof as may be necessary for
fiscal year 2025-2026 and the same sum or so much thereof as may be necessary
for fiscal year 2026-2027 to be deposited into the condominium loan fund.
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SECTION 6.
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There is appropriated out of the condominium loan fund the sum of $
��������
�
or so much thereof as may be necessary for
fiscal year 2025-2026 and the same sum or so much thereof as may be necessary
for fiscal year 2026-2027 for loans to associations of apartment owners under
section 514B- , Hawaii Revised Statutes.
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The sums
appropriated shall be expended by the department of commerce and
consumer affairs for the purposes of this Act.
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SECTION
7.
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If any provision of this Act, or the
application thereof to any person or circumstance is held invalid, the
invalidity does not affect other provisions or applications of this Act which
can be given effect without the invalid provision or application, and to this
end the provisions of this Act are severable.
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SECTION
8.
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Statutory material to be repealed is
bracketed.
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New statutory material is
underscored.
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SECTION
9.
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This Act shall take effect upon its
approval; provided that sections 4, 5, and 6 shall take effect on July 1, 2025.
INTRODUCED BY:
_____________________________
Report Title:
Condominium
Insurance; Mutual Insurance Company; Appropriation
Description:
Establishes
the Hawaii Condominium Mutual Insurance Company to provide property and
casualty insurance to high-rise residential condominium properties and the
owners of those units.
�
Establishes a
loan fund to assist associations of apartment owners experiencing increased
insurance costs.
�
Appropriates moneys.
The summary description
of legislation appearing on this page is for informational purposes only and is
not legislation or evidence of legislative intent.