SB1746

SECTION 1. Chapter 431, Hawaii Revised Statutes, is amended by adding new article to be appropriately designated and to read as follows:

"ARTICLE .

MOTOR VEHICLE INSURANCE SPECIAL AND

REVOLVING FUND PROGRAM

PART I. GENERAL PROVISIONS

§431: -101 Definitions. As used in this article:

"Contract insurer" means a single insurer or a consortium of insurers awarded an exclusive contract to offer vehicle insurance on non-exempted registered vehicles in a county.

"Insured" means a motor vehicle owner whose vehicle is registered and who is the named insured or an operator of a motor vehicle who is a minor, spouse, or other relative of the named insured and resides in the same household with the named insured.

"Motor vehicle insurance" means the required overages and required optional coverages for motor vehicles.

"Motor vehicle insurance state fund program" or "fund" means the motor vehicle insurance state fund program established pursuant to section 431: -102.

§431: -102 Motor vehicle insurance state fund program established; revolving fund. (a) There is established, within the department of commerce and consumer affairs, for administrative purposes only, the motor vehicle insurance state fund program, hereinafter referred to as "the fund". The fund shall be under the control of a board of trustees. The purpose of the fund is to collect moneys received as motor vehicle insurance fees, invest and manage them, and make premium payments on the exclusive contracts with the motor vehicle insurers for the several counties.

(b) There is established, within the department of commerce and consumer affairs, a motor vehicle insurance state revolving fund into which shall be deposited all revenues from the motor vehicle insurance fees imposed under section 243-4. An appropriation from the state general fund to the motor vehicle insurance state revolving fund shall be deemed a loan that shall be repaid by the fund within five years. Expenditures from the account shall be used for the operation of the insurance system authorized under this article.

§431: -103 Board of directors; composition. (a) The fund shall be administered by a board of five directors to be placed in the department of commerce and consumer affairs for administrative purposes. The directors shall be appointed by the governor for staggered terms in the manner provided in section 26‑34. A director may be removed by the governor for good cause. A vacancy on the board shall be filled in accordance with section 26‑34. Any director whose term has expired may continue to serve until a successor is appointed. The directors shall select one member to serve as chairperson and another to serve as vice-chairperson. The vice-chairperson shall serve as chairperson when the chairperson is absent.

(b) Except as an insured person of the fund, no person may serve on the board if the person has any conflict of interest or does business directly with the fund, including but not limited to, persons who are in the business of providing legal, accounting and auditing, hospital, medical, motor vehicle repair, administrative, investment, or actuarial services.

§431: -104 Meetings; quorum required; minutes. (a) The board shall meet at least once every month. The chairperson may call a board meeting at any time by giving at least seven days' written notice of the time and place of the meeting to all other directors. Any three directors may call a board meeting by giving at least ten days' written notice of the time and place of the meeting to all other directors. A board meeting may be called at any time without notice if at least four directors agree.

(b) Three directors shall be a quorum to transact the fund's business. Each director present at a meeting shall have one vote. Any action taken shall be by a simple majority of the directors present at a meeting. Every director present shall cast one vote.

§431: -105 Powers and duties. Except as otherwise provided in this article, the board may do whatever is necessary to effectuate the purposes of this part, including but not limited to:

(1) Bidding for and procuring an exclusive contract with an insurer or a consortium of insurers to provide motor vehicle insurance to each county of the State;

(2) Gathering actuarially relevant data from other state and county agencies, such as the district courts, the county finance departments, the insurance division of the department of commerce and consumer affairs, the department of transportation, and the department of taxation, to determine a contract price and other material items in accepting bids from insurers, to develop and maintain adequate amounts of moneys to make the premium payments on the contracts, to provide the fund with the necessary information to establish the liquid fuel fees that shall be charged simultaneously with the fuel taxes under chapter 243;

(3) Collecting, receiving, holding, and disbursing all moneys payable to or by the fund;

(4) Receiving moneys as set forth in sections 243-4 and disbursing funds as premium payments to motor vehicle insurers as required under this article;

(5) Reimbursing the State and counties for their administrative expenses in channelling the motor vehicle insurance fees to the fund;

(6) Investing the fund's assets as authorized by law;

(7) Using income on investment reserves or profits to reduce amounts needed from the motor vehicle insurance fees imposed under sections 243-4 as long as the fund has reserves deemed sufficient in accordance with sound actuarial practices to provide the motor vehicle insurance benefits required under this article;

(8) Serving as a fiduciary for motor vehicle owners and drivers in the State;

(9) Hiring or contracting for the services of attorneys, insurance consultants, actuaries, health consultants, motor vehicle repair consultants, certified public accountants, insurance adjusters, investment advisers, and other technical services;

(10) Hiring an administrator to function as the fund's chief executive officer, and other necessary administrative, technical, and professional employees who shall be exempt from chapter 76;

(11) Keeping abreast of developments in the motor vehicle insurance market;

(12) Conducting claims studies and other research necessary to ensure the adequacy of the system of premium collection and disbursement by the fund to the motor vehicle insurers and the payment of motor vehicle insurance benefits provided by insurers to insureds in this article; and

(13) Proposing recommendations to the governor and the legislature for amendments to this article that are necessary to implement a more effective motor vehicle reparations system for this State.

PART II. EXCLUSIVE INSURER CONTRACTS

§431: -201 Competitive bids for exclusive motor vehicle insurance coverage. (a) Any other law to the contrary notwithstanding, the motor vehicle insurance coverage required under section 431:10C-301 for policy terms beginning on or after September 1, 2009, shall be provided exclusively in each county by one insurer or a consortium of insurers that has been awarded the contract for providing the required motor vehicle insurance policies on all motor vehicles registered in that county as well as motor vehicles located in that county but exempt from the registration requirements.

This section shall not preclude an insurer or a consortium of insurers from being awarded the contracts for all four counties. This section shall require the contract insurers to also offer the required optional coverage for motor vehicles under section 431:10C-302. This section also shall not affect the authority of any authorized insurer, regardless of whether that insurer is also a contract insurer, to provide insurance coverage supplemental to that described in sections 431:10C-301 and 431:10C-302.

(b) The contracts shall extend for a three-year policy period. The fund shall administer the bidding process, exempt from chapter 103D, and shall adopt rules under chapter 91 to implement the purposes of this section, which shall include, but not be limited to the:

(1) Minimum qualifications of prospective bidders; and

(2) Specific information to be contained in the bid such as financial data, staffing data, proposed premium rate schedules developed in accordance with the rate-making guidelines under part II of article 10C.

(c) Before any prospective bidder is entitled to submit any bid as provided in this section, the bidder shall submit written notice of the intent to bid at least six calendar days prior to the date for opening bids, and the fund shall determine whether the bidder has the financial ability, experience, and competence to provide insurance coverage for all registered motor vehicles in the entire State that are required to maintain insurance coverage under article 10C. Whenever it appears to the fund that the prospective bidder is not fully qualified or able to perform the duties required, the fund, after affording the bidder an opportunity to be heard, and, if still of the opinion that the bidder is not fully qualified, shall refuse to receive or to consider the bid offered by that prospective bidder.

(d) The fund shall publish an invitation for bids at least once in a newspaper of general circulation and posted in areas accessible to the general public not less than twenty-one days prior to the anticipated opening date for the acceptance of bids. The invitation shall include, but not be limited to:

(1) Information on the place, the date, and the time at which the bid must be received;

(2) A description of the insurance coverage and service required under this article and the criteria upon which the bids are to be evaluated;

(3) All contractual terms and conditions applicable to the purchase, including rating tables and classifications; and

(4) The name of the county served under the contract.

(e) Bids shall be opened publicly in the presence of one or more witnesses at the time and place designated in the invitation for bids. The amount of each bid, and such other relevant information or data that may be required under rules adopted by the fund in accordance with chapter 91, together with the name of each bidder, shall be recorded and made available for public inspection. To the extent that a bidder requests and the fund concurs, trade secrets, and other proprietary information contained in a bid document shall remain confidential.

(f) Except as authorized in this chapter, all bids shall be unconditionally accepted without alteration or correction. Bids received after the closing date posted on the invitation shall not be accepted unless the delay was due to an error of the contracting agency. Bids shall be evaluated on criteria established by the fund to determine acceptability. No criteria may be used in bid evaluations that are not set forth in the invitation for bids.

(g) Correction or withdrawal of inadvertently erroneous bids before or after award, or cancellation of awards or contracts on the basis of bid errors, shall be permitted in accordance with rules adopted by the fund. Following bid opening, no changes in any provisions of bids prejudicial to the interest of the public or fair competition shall be permitted. Except as otherwise provided by rule, all decisions to permit the correction or withdrawal of bids, or to cancel awards or contracts based on bid errors, shall be supported by a written determination made by the fund.

(h) The contract shall be awarded with reasonable promptness by written notice to the lowest responsible and responsive bidder whose bid meets the requirements and criteria set forth in the invitation for bids. The contract with an insurer shall be in writing and shall be executed in the name of the State, on behalf of the people of Hawaii, by the fund. If the lowest bid is rejected, or if the bidder to whom the contract is awarded fails to enter into the contract, the fund may award the contract to the lowest remaining bidder or may publish another invitation for bids.

(i) The contract shall be for a term of three years and shall require the insurer to provide motor vehicle insurance coverage as required under article 10C at the premium rate schedules submitted by the selected bidders that shall serve as the premium rate schedules over the term of the contract. The contract shall stipulate that the insurer shall be liable beyond the contract period for the processing and payment of all claims arising from an accident that occurred during the contract period.

(j) Any actual or prospective bidder who is aggrieved in connection with the solicitation or award of a contract may submit a protest to the fund. The protest shall be submitted in writing within fourteen calendar days after the aggrieved party became aware or should have been aware of the facts that gave rise to the action to protest.

(k) The fund shall settle and resolve any protest submitted. If the protest is not resolved by mutual agreement, the fund shall issue a written decision and shall furnish a copy of the decision to the aggrieved party. An appeal on the fund's decision may be taken to a court of appropriate jurisdiction. In the event of an appeal taken after the contract insurer has commenced its service, the contract insurer shall not be restrained from continuing its service if the restraint means that the residents of this State will not have access to the motor vehicle insurance coverages required under article 10C.

§431: -202 Rate adjustments during contract period. Notwithstanding the rate-making procedures for motor vehicle insurance rates under article 10C, a contract insurer shall not make any changes to the rate schedules unless the insurer submits evidence to the fund that its solvency is in imminent danger. No rate change shall become effective without the prior approval of the fund. The fund, in considering the necessity and reasonableness of any rate change request, shall request that the insurer furnish all financial and claims records and other data to justify any rate change.

§431: -203 Monitoring of contract insurer; investigation of complaints; examinations. (a) The fund shall closely monitor the operations of a contract insurer to ensure that the processing of claims is expeditious and that the terms of the contract are being met. In carrying out its monitoring responsibilities, the fund shall conduct annual examinations of a contract insurer's affairs, transactions, accounts, records, documents, and assets.

(b) The fund shall investigate any complaint filed against a contract insurer by an insured. If the fund finds that the contract insurer erred, the fund shall order the contract insurer to correct the error or subject the contract insurer to an appropriate penalty as authorized under section 431:10C-117. If, in the opinion of the fund, a contract insurer's complaints record is unacceptable, the insurer may be disqualified from bidding for the next contract term. The fund shall adopt rules pursuant to chapter 91 establishing specific criteria and procedures for disqualification.

(c) After the completion of the annual examination, the fund shall evaluate a contract insurer's performance. The fund shall include in its evaluation, specific areas that require improvement and performance expectations for the ensuing year.

(d) The fund shall report annually to the legislature prior to the convening of each regular session on the status of the motor vehicle insurance system as operated by the contract insurers. The report shall be organized by county and include, but not be limited to: the number of insureds, claims data, complaints filed and their disposition, the fund's examination findings, the insurance commissioner's evaluation of the contract insurer, and recommendations for legislative action.

§431: -204 Electric motor vehicles; specialty bidding. Nothing in this part shall prohibit any authorized insurer from offering required and supplemental motor vehicle insurance policies for only electric motor vehicles or motor vehicles propelled by electric power."

SECTION 2. Section 243-4, Hawaii Revised Statutes, is amended by amending subsections (a) and (b) to read as follows:

"(a) Every distributor [~~shall,~~] in addition to any other taxes provided by law, shall pay a license tax to the department of taxation for each gallon of liquid fuel refined, manufactured, produced, or compounded by the distributor and sold or used by the distributor in the State or imported by the distributor, or acquired by the distributor from persons who are not licensed distributors, and sold or used by the distributor in the State. Any person who sells or uses any liquid fuel knowing that the distributor from whom it was originally purchased has not paid and is not paying the tax thereon shall pay [~~such~~] the tax as would have applied to [~~such~~] the sale or use by the distributor. The rates of tax hereby imposed are as follows:

(1) For each gallon of diesel oil, 1 cent;

(2) For each gallon of gasoline or other aviation fuel sold for use in or used for airplanes, 1 cent;

(3) For each gallon of liquid fuel other than fuel mentioned in paragraphs (1) and (2), and other than an alternative fuel, sold or used in the city and county of Honolulu, or sold in any county for ultimate use in the city and county of Honolulu, 16 cents state tax[,] and a motor vehicle insurance tax to be set by the motor vehicle insurance state fund program, and in addition [~~thereto such~~] to that amount, to be known as the "city and county of Honolulu fuel tax", as shall be levied pursuant to section 243-5;

(4) For each gallon of liquid fuel other than fuel mentioned in paragraphs (1) and (2), and other than an alternative fuel, sold or used in the county of Hawaii, or sold in any county for ultimate use in the county of Hawaii, 16 cents state tax[,] and a motor vehicle insurance tax to be set by the motor vehicle insurance state fund program, and in addition [~~thereto such~~] to that amount, to be known as the "county of Hawaii fuel tax", as shall be levied pursuant to section 243-5;

(5) For each gallon of liquid fuel other than fuel mentioned in paragraphs (1) and (2), and other than an alternative fuel, sold or used in the county of Maui, or sold in any county for ultimate use in the county of Maui, 16 cents state tax[,] and a motor vehicle insurance tax to be set by the motor vehicle insurance state fund program, and in addition [~~thereto such~~] to that amount, to be known as the "county of Maui fuel tax", as shall be levied pursuant to section 243-5; and

(6) For each gallon of liquid fuel other than fuel mentioned in paragraphs (1) and (2), and other than an alternative fuel, sold or used in the county of Kauai, or sold in any county for ultimate use in the county of Kauai, 16 cents state tax[,] and a motor vehicle insurance tax to be set by the motor vehicle insurance state fund program, and in addition [~~thereto such~~] to that amount, to be known as the "county of Kauai fuel tax", as shall be levied pursuant to section 243-5.

If it is shown to the satisfaction of the department, based upon proper records and from [~~such~~] any other evidence as the department may require, that liquid fuel other than fuel mentioned in paragraphs (1) and (2) is used for agricultural equipment that does not operate upon the public highways of the State, the user thereof may obtain a refund of all taxes thereon imposed by this section in excess of 1 cent per gallon. The department shall adopt rules to administer [~~such~~] these refunds.

(b) Every distributor of diesel oil, in addition to the tax required by subsection (a), shall pay a license tax to the department for each gallon of [~~such~~] the diesel oil sold or used by the distributor for operating a motor vehicle or motor vehicles upon public highways of the State. The rates of the additional tax hereby imposed are as follows:

(1) For each gallon of diesel oil sold or used in the city and county of Honolulu, or sold in any other county for ultimate use in the city and county of Honolulu, 15 cents state tax[,] and a motor vehicle insurance tax to be set by the motor vehicle insurance state fund program, and in addition [~~thereto such~~] to that amount, to be known as the "city and county of Honolulu fuel tax", as shall be levied pursuant to section 243-5;

(2) For each gallon of diesel oil sold or used in the county of Hawaii, or sold in any other county for ultimate use in the county of Hawaii, 15 cents state tax[,] and a motor vehicle insurance tax to be set by the motor vehicle insurance state fund program, and in addition [~~thereto such~~] to that amount, to be known as the "county of Hawaii fuel tax", as shall be levied pursuant to section 243-5;

(3) For each gallon of diesel oil sold or used in the county of Maui, or sold in any other county for ultimate use in the county of Maui, 15 cents state tax[,] and a motor vehicle insurance tax to be set by the motor vehicle insurance state fund program, and in addition [~~thereto such~~] to that amount, to be known as the "county of Maui fuel tax", as shall be levied pursuant to section 243-5; and

(4) For each gallon of diesel oil sold or used in the county of Kauai, or sold in any other county for ultimate use in the county of Kauai, 15 cents state tax[,] and a motor vehicle insurance tax to be set by the motor vehicle insurance state fund program, and in addition [~~thereto such~~] to that amount, to be known as the "county of Kauai fuel tax", as shall be levied pursuant to section 243-5.

If any user of diesel oil furnishes a certificate, in [~~such~~] a form as the department shall prescribe, to the distributor, or the distributor who uses diesel oil signs [~~such~~] the certificate, certifying that the diesel oil is for use in operating a motor vehicle or motor vehicles in areas other than upon the public highways of the State, the tax as provided in paragraphs (1) to (4) shall not [~~be applicable.~~] apply. In the event a certificate is not or cannot be furnished and the diesel oil is in fact for use for operating a motor vehicle or motor vehicles in areas other than upon public highways of the State, the user thereof may obtain a refund of all taxes thereon imposed by the foregoing paragraphs. The department shall adopt rules to administer the refunding of [~~such~~] these taxes."

SECTION 3. Section 243-6, Hawaii Revised Statutes, is amended to read as follows:

"§243-6 Fuel taxes[,] and fees, dispositions. (a) All fuel taxes under this chapter shall be disposed as follows:

(1) The "city and county of Honolulu fuel tax" shall be paid by the department of taxation into the state treasury, and [~~shall,~~] by the state director of finance, shall be paid over to the director of finance of the city and county of Honolulu for deposit into the fund known as the "highway fund" created by section 249-18[.];

(2) The "county of Kauai fuel tax" shall be paid by the department into the state treasury, and [~~shall,~~] by the state director of finance, shall be paid over to the director of finance of the county of Kauai for deposit into the fund known as the "highway fund" created by section 249-18[.];

(3) The "county of Hawaii fuel tax" shall be paid by the department into the state treasury, and [~~shall,~~] by the state director of finance, shall be paid over to the director of finance of the county of Hawaii for deposit into the fund known as the "highway fund" created by section 249-18[.]; and

(4) The "county of Maui fuel tax" collected on account of liquid fuel sold or used on the island of Lanai or sold elsewhere for ultimate use on the island of Lanai, shall be paid by the department into the state treasury, and [~~shall,~~] by the state director of finance, shall be paid over to the director of finance of the county of Maui for deposit into the fund known as the "highway fund" created by section 249-18, for expenditure on the island of Lanai. The "county of Maui fuel tax" collected on account of liquid fuel sold or used on the island of Molokai or sold elsewhere for ultimate use on the island of Molokai, shall be paid by the department into the state treasury, and [~~shall,~~] by the state director of finance, shall be paid over to the director of finance of the county of Maui for deposit into the fund known as the "highway fund" created by section 249-18, for expenditure on the island of Molokai. The remainder of the "county of Maui fuel tax" shall be paid by the department into the state treasury, and shall, by the state director of finance, be paid over to the director of finance of the county of Maui for deposit into the fund known as the "highway fund" created by section 249-18.

(b) Each of the foregoing taxes shall be expended for the following purposes, for the island for which the tax revenue is specially indicated, or, if none, for the county for which the tax revenue is indicated:

(1) For payment of interest on and redemption of any bonds duly issued or sold on or after July 1, 1951, under chapter 47 for the financing or aiding in financing the construction of county highway tunnels, approach roads thereto, and highways. [~~Such~~] The payments of interest and principal on the bonds when due, shall be first charges on [~~such~~] the moneys so deposited in the fund[.];

(2) For acquisition, [~~designing,~~] design, construction, reconstruction, improvement, repair, and maintenance of county main and general thoroughfares, highways, and other streets, street lights, storm drains, and bridges, including costs of new land therefor, when expenditures for the foregoing purposes cannot be financed under state-federal aid projects[.];

(3) In the case of the city and county of Honolulu, for payment of the city and county's share in an improvement district initiated by the city and county for an improvement listed in paragraph (2) [~~above which~~] that is permitted to be constructed in the city and county[.];

(4) For the construction of county highway tunnels, overpasses, underpasses, and bridges, where [~~such~~] the improvement cannot be made under state-federal aid projects[.];

(5) For purposes and functions connected with county traffic control and preservation of safety upon the public highways and streets[.];

(6) For purposes and functions in connection with mass transit[.];

(7) For acquisition, design, construction, improvement, repair, and maintenance of bikeways[.]; and

(8) No expenditure shall be made, out of the revenues paid into any such fund, which will jeopardize federal aid for highway construction.

(c) All revenue derived from the motor vehicle insurance tax imposed under section 243-4 shall be paid by the department of taxation into the state treasury, and, by the state director of finance, shall be deposited into the motor vehicle insurance special revolving fund established under section 431: -102."

SECTION 4. 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 2007-2008, and the same sum thereof, or so much thereof as may be necessary for fiscal year 2008-2009, to the motor vehicle insurance state revolving fund.

SECTION 5. There is appropriated out of the motor vehicle insurance state revolving fund the sum of $ , or so much thereof as may be necessary for fiscal year 2007-2008, and the same sum thereof, or so much thereof as may be necessary for fiscal year 2008-2009, to the motor vehicle insurance state fund program, to pay for start-up costs, including the hiring of necessary staff; provided that this appropriation shall be in the form of a loan that shall be repaid to the general fund by June 30, 2015.

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

SECTION 6. Upon the effective date of this Act, the governor shall appoint the board of directors for the state motor vehicle insurance fund program created by this Act to begin planning for the implementation of the state motor vehicle insurance state fund program created by this Act. The insurance commissioner shall assist the board of the state motor vehicle insurance fund program in developing and implementing a plan to ease the transition between the current insurance system and the state motor vehicle insurance fund program. Twenty days prior to the convening of the 2008 regular session, the board of directors of the state motor vehicle insurance fund program shall submit the transition plan to the legislature that shall include recommendations for any further amendments to the insurance code and other laws that are necessary to effectuate this Act effectively. In considering the effects this Act will have on other laws, the state motor vehicle insurance fund program's board of directors shall at least determine whether chapter 287, Hawaii Revised Statutes, should be repealed in its entirety or whether certain provisions should remain in force.

SECTION 7. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 8. This Act shall take effect on July 1, 2007.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	1746
TWENTY-FOURTH LEGISLATURE, 2007
STATE OF HAWAII