SB 2966: Property Insurance; Total Loss; Notice; Adjustment; Refund

A BILL FOR AN ACT

relating to property insurance.

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

     SECTION 1.  The legislature finds that insurers should be transparent about a policyholder's coverage and options if the policyholder loses their property in a natural disaster.  After catastrophic events like wildfires, hurricanes, tsunamis, and volcanic eruptions, many homeowners experience a total loss of their dwellings and other structures.  Despite these losses, insurers often continue to collect premiums as though the destroyed property still existed.  This forces homeowners to pay for coverage on structures and contents that are no longer there while also bearing the burden of rebuilding.

     The legislature believes that the current system for offering property insurance adjustments or refunds following a natural disaster is confusing and reactive.  Most states require insurers to refund unearned premiums when a policy is canceled mid-term.  However, refunds are generally only issued if the homeowner actively requests the cancellation or an adjustment in coverage.  Homeowners may be unaware of their right to cancel or adjust coverage, especially during the chaos following a natural disaster.  As a result, insurers may continue to charge full premiums even when there is no dwelling or contents to insure.

     However, the legislature recognizes that, even after a home is destroyed, policyholders still need to maintain certain coverage, including liability coverage for injuries or incidents occurring on the vacant property and builder's risk coverage once rebuilding begins.  Insured property owners should not lose protection while they recover and rebuild simply because their dwelling coverage is no longer active.

     The legislature believes that a more proactive approach to offering coverage adjustments and premium refunds, as well as clearer communication with policyholders, will promote fairness, transparency, and consumer protection while strengthening Hawaii's resilience after natural disasters

     Accordingly, the purpose of this Act is to require insurers to:

     (1)  Automatically refund any unearned premium after a policyholder experiences total property loss;

     (2)  Adjust premiums for subsequent policy terms to reflect the absence of a dwelling, structure, or contents; and

     (3)  Provide policyholders with clear notice of the coverage needed, and where they can obtain that coverage, for vacant property or reconstruction sites.

     SECTION 2.  Chapter 431:10E, Hawaii Revised Statutes, is amended by adding a new part to be appropriately designated and to read as follows:

"Part   .  ADJUSTMENTS, NOTICE, AND REFUNDS AFTER TOTAL LOSS

     §431:10e-A  Definitions.  As used in this part, unless the context otherwise requires:

     "Builder's risk coverage" means insurance that covers the risks associated with the reconstruction or repair of a dwelling or structure following a total loss.

     "Insurer" has the same meaning as defined in section
431:1-202.

     "Liability coverage" means coverage for personal liability risks arising from the ownership or occupancy of a property, even in the absence of any dwelling or structures on the property.

     "Total loss" means that the dwelling or other insured structure on a property has been destroyed to the extent that the dwelling or structure is no longer habitable or usable and must be removed and reconstructed.

     "Unearned premium" means the portion of the policy premium that is:

     (1)  Attributable to the unexpired term of the policy; and

     (2)  Provides coverage for a dwelling, structure, or other property that has undergone a total loss.

     §431:10E-B  Total loss; automatic refund of unearned premium.  (a)  Notwithstanding any other law to the contrary, if a policyholder experiences a total loss, the insurer shall refund any unearned premium to the policyholder on a pro-rata basis.  The refund shall be issued within thirty days of the date of the total loss, or the date the insurer confirms the destruction of the property, whichever occurs first.

     (b)  A refund issued pursuant to this section shall be issued automatically and shall not require the policyholder to request a refund or cancel the policy.

     §431:10E-C  Premium and coverage adjustments for future policy terms.  (a)  When renewing or continuing a policy after the policyholder experiences a total loss, the insurer shall adjust the policy premium and coverage to reflect the destruction of any dwelling, structure, or contents.

     (b)  The insurer shall make liability coverage available to the policyholder for the entire period between the date of the total loss and the completion of the rebuilding process.

     (c)  Once rebuilding begins, the insurer shall:

     (1)  Offer the policyholder builder's risk coverage, if available; or

     (2)  Inform the policyholder in writing that they should obtain builder's risk coverage from another source.

     §431:10E-D  Notice to policyholders.  (a)  Within thirty days of a total loss, the insurer shall provide the policyholder with a clear, written notice explaining:

     (1)  The policyholder's right to a refund of any unearned premium and confirmation that the refund has been, or will be, issued;

     (2)  The policyholder's right to premium and coverage adjustments for future policy terms;

     (3)  The availability of liability coverage for the vacant property, or the need to obtain this coverage from another source; and

     (4)  The availability of builder's risk coverage once rebuilding begins, or the need to obtain this coverage from another source.

     (b)  The notice shall be written in plain language and delivered to the policyholder by first-class mail or electronic transmission."

     SECTION 3.  This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

     SECTION 4.  In codifying the new sections added by section 2 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.

     SECTION 5.  This Act shall take effect upon its approval, and shall apply to all homeowner's insurance policies issued or renewed on or after its effective date.

Report Title:

Property Insurance; Total Loss; Notice; Adjustment; Refund

Description:

Requires insurers, after a policyholder experiences a total loss, to automatically refund any unearned premium; adjust premiums for subsequent policy terms to reflect the absence of a dwelling, structure, or contents; and provide policyholders with clear notice of the coverage needed for vacant property or while rebuilding.

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.