SB988

SECTION 1. The legislature finds that earthquakes can cause substantial property damage to buildings within affected areas. Further, the United States Geological Survey reports that the State of Hawai‘i experiences thousands of earthquakes per year, with the island of Hawai‘i experiencing these events especially frequently. The legislature notes that, due to the potential damage and high probability of earthquakes, property owners may wish to obtain earthquake insurance.

The legislature further finds that, using data published by the United States Geological Survey on December 22, 2021, the State of Hawai‘i can be divided into five seismic hazard zones. Each zone has a risk chance, which is the probability of the zone facing a damaging earthquake within the next one hundred years. The red zone, which includes the entire island of Hawai‘i, the entire island of Maui, the entirety of Kaho‘olawe, and eastern Lanai, contains three hundred forty-five thousand people and has a risk chance greater than ninety per cent. The dark orange zone, which includes western Lanai and the entirety of Moloka‘i, contains six thousand people and has a risk chance ranging from seventy-five to ninety per cent. The light orange zone, which includes eastern O‘ahu, contains six hundred and one thousand people and has a risk chance ranging from fifty to seventy-five per cent. The yellow zone, which includes central and western O‘ahu, contains three hundred ninety-seven thousand people and has a risk chance ranging from twenty-five to fifty per cent. The green zone, which includes Kauai and Ni‘ihau, contains seventy thousand people and has a risk chance less than twenty-five per cent.

The legislature further finds that condominiums are governed by associations, in which all owners of condominium units are voting members. Additionally, condominium associations are required to maintain property insurance, commercial general liability insurance, and a fidelity bond. However, the legislature also notes that none of these mandatory insurances include earthquake insurance. The legislature further finds that earthquake insurance policies are not offered for individual condominium units, meaning that the owner of a condominium unit can only obtain earthquake insurance if a policy is purchased for the entire condominium building.

Accordingly, the purpose of this Act is to require associations of condominium owners to purchase earthquake insurance for the entirety of their condominium buildings.

SECTION 2. Section 514B-143, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) Unless otherwise provided in the declaration or bylaws, the association shall purchase and at all times maintain the following:

(1) Property insurance:

(A) On the common elements;

(B) Providing coverage for special form causes of loss; and

(C) In a total amount of not less than the full insurable replacement cost of the insured property, less deductibles, but including coverage for the increased costs of construction due to building code requirements, at the time the insurance is purchased and at each renewal date;

(2) Commercial general liability insurance against claims and liabilities arising in connection with the ownership, existence, use, or management of the property in a minimum amount of $1,000,000, or a greater amount deemed sufficient in the judgment of the board;

(3) A fidelity bond, as follows:

(A) An association with more than five dwelling units shall obtain and maintain a fidelity bond covering persons, including the managing agent and its employees who control or disburse funds of the association, in an amount equal to $500 multiplied by the number of units; provided that the amount of the fidelity bond required by this paragraph shall not be less than $20,000 nor greater than $200,000; and

(B) All management companies that are responsible for the funds held or administered by the association shall be covered by a fidelity bond as provided in section 514B‑132(a)(3). The association shall have standing to make a loss claim against the bond of the managing agent as a party covered under the bond; [~~and~~]

(4) Earthquake insurance:

(A) On the common elements, the condominium units, and any personal items within the condominium units; and

(B) Providing coverage for the full cost of the insured items and property; and

[~~(4)~~] (5) The board shall obtain directors and officers liability coverage at a level deemed reasonable by the board, if not otherwise limited by the declaration or bylaws."

SECTION 3. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 4. This Act shall take effect upon its approval.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	988
THIRTY-SECOND LEGISLATURE, 2023
STATE OF HAWAII