SB-0900, As Passed House, June 9, 2016

SENATE BILL No. 900

April 19, 2016, Introduced by Senators HUNE, STAMAS, BRANDENBURG, HORN, HANSEN and SCHMIDT and referred to the Committee on Commerce.

A bill to amend 2003 PA 198, entitled

"Farm produce insurance act,"

by amending sections 7, 9, 11, and 15 (MCL 285.317, 285.319,

285.321, and 285.325), as amended by 2012 PA 149.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 7. (1) A board of directors shall govern and administer

the authority. The board shall consist of the following 10 members:

(a) The director, or his or her designee, is a nonvoting

member and the chairperson and secretary of the board. This member

shall not receive per diem or other compensation or reimbursement

for expenses for serving on the board.

(b) One nonvoting member appointed by the governor with the

advice and consent of the senate, from recommendations received

from the largest Michigan organization representing the interests

of licensees in Michigan, as determined by the director.

advice and consent of the senate for staggered terms, from

recommendations received from the largest Michigan organization

representing general farm interests in Michigan, as determined by

the director. Only a producer is eligible for appointment under

this subdivision. For the first board, the governor shall appoint 1

voting member appointed under this subdivision for a term of 1

year, 1 voting member for a term of 2 years, and 1 voting member

for a term of 3 years.

(d) One voting member appointed by the governor with the

advice and consent of the senate, from recommendations received

from the largest Michigan organization exclusively representing the

interests of corn producers in Michigan, as determined by the

director. Only a producer is eligible for appointment under this

subdivision.

(e) One voting member appointed by the governor with the

advice and consent of the senate, from recommendations received

from the largest Michigan organization exclusively representing the

interests of soybean producers in Michigan, as determined by the

director. Only a producer is eligible for appointment under this

subdivision.

(f) One voting member appointed by the governor with the

consent and advice of the senate, from recommendations received

from the largest Michigan organization exclusively representing dry

bean producers in Michigan, as determined by the director. Only a

producer is eligible for appointment under this subdivision.

(g) One voting member appointed by the governor with the

advice and consent of the senate, from recommendations received

from the largest Michigan organization representing the interests

of agricultural lenders in Michigan, as determined by the director.

(h) One voting member appointed by the governor with the

consent and advice of the senate, from recommendations received

from the largest Michigan organization exclusively representing

wheat producers in Michigan, as determined by the director. Only a

producer is eligible for appointment under this subdivision. For

the first appointment under this subdivision, the governor shall

appoint the voting member for a term of 2 years.

(2) Except as provided in subsection (1)(b) and (c) for the

first board, and except as provided in subsection (1)(h), each

member of the board appointed by the governor shall serve for a 3-

year term and may be reappointed for 1 or more additional terms.

The governor may remove a member appointed by the governor from the

board for good cause.

(3) The governor shall fill a vacancy on the board for an

unexpired term for the remainder of the term and in the same manner

as an original appointment. A vacancy does not impair the right of

a quorum to exercise all the rights and perform all the duties of

the board.

(4) Five voting members constitute a quorum. The affirmative

vote of 5 or more voting members is necessary for an action of the

board other than adjournment of a meeting of the board. An

adjournment of a meeting of the board requires a vote of a majority

of voting members present at the meeting and voting.

(5) The board shall hold an annual meeting and at least 1

additional meeting each calendar year. The secretary of the board

shall provide written notice of each meeting to the members of the

board at least 5 days before the meeting.

(6) A member of the board may waive any notice required by

this section, before or after the date and time stated in the

notice, in writing and delivered, mailed, or electronically

transmitted to the authority for inclusion in the minutes or filing

with the records of the authority.

(7) A board member's attendance at a meeting waives any

objection to any of the following:

(a) No notice or a defective notice of a meeting, unless the

member at the beginning of the meeting objects to holding the

meeting or transacting business at the meeting.

(b) Consideration of any particular matter at a meeting that

is not within the purpose or purposes described in the notice,

unless the member objects to considering the matter when it is

presented.

(8) The board shall do all of the following:

(a) Elect from among its members a vice-chairperson and

treasurer.

(b) Create forms, and establish policies and procedures to

implement this act.

11 and collect and deposit all producer premiums into the fund.

(d) Establish the amount of the administrative premium under

section 10; collect and deposit all administrative premiums into

the fund; and enter into a memorandum of understanding with the

director that provides for reimbursement of the director for

producer security activities from the proceeds of the

administrative premiums.

(e) Take any legal action it considers necessary to compel a

failed licensee to repay the fund for any payment made from the

fund to a claimant for a valid claim against that licensee.

(f) Take any legal action it considers necessary to compel a

claimant to participate in any legal proceeding in relation to the

claim or the failure of a licensee.

(g) Within 5 business days of receiving notice of failure of a

licensee, publish notice of the failure in a manner described in

the grain dealers act.

(h) Request the services of the department or arrange for

legal services through the department of attorney general if the

board considered it necessary in the execution of its duties.

(i) Procure insurance against any loss in connection with its

operations, in amounts and from insurers as determined by the

board.

(j) Borrow money from a bank, an insurance company, an

investment company, or any other person, and pay or include in the

loan any financing charges or interest, consultant, advisory, or

legal fees, and other expenses the board determines are appropriate

in connection with the loan. Any loan contract must provide for a

term of not more than 40 years, allow prepayment without penalty,

and plainly state that the loan is not a debt of this state but the

sole obligation of the authority, payable solely from the fund or

from any appropriation from this state made to the authority for

repayment of the loan.

(k) Employ personnel as required in the judgment of the board

and fix and pay compensation from money available to the authority

from the administrative expenses account described in section 9(2).

(l) Make, execute, and carry out any contract, agreement, or

other instrument or document with a governmental department or

other person it determines is necessary or convenient to accomplish

the purposes of this act.

(m) If requested by the director and approved by the board,

make payment from the fund to compensate a claimant for a valid

claim.

(9) The board may do any of the following:

(a) Establish policies and procedures in connection with the

performance of the functions and duties of the authority.

(b) Adopt a policy establishing a code of ethics for its

employees and board members, consistent with 1973 PA 196, MCL

15.341 to 15.348.

appropriations, revenue sharing, other financing and assistance,

and any other aid from any source and deposit them in the fund and

agree to and comply with any conditions attached to them.

(10) A voting member may receive per diem compensation and

mileage reimbursement for attending meetings of the board or while

engaged in the performance of his or her duties on behalf of the

authority, in amounts established by the board, and may receive

reimbursement for other expenses approved by the board. The amounts

established by the board shall not exceed the maximum commission of

agriculture rates for per diem compensation and mileage

reimbursement. A voting member shall not receive any other

compensation for serving on the board or for services performed for

the authority.

(11) The department shall inspect the books and records of a

licensee during normal business hours to verify whether the

licensee is complying with the provisions of this act.

(12) A licensee shall make its books and records available to

the department for the inspections and verifications described in

sections 10(6) and ~~11(5).~~ 11(4). Financial information submitted to

the department or the authority by a licensee for purposes of this

subsection and sections 10(6) and ~~11(5)~~ 11(4) is confidential and

is not subject to the disclosure requirements of the freedom of

information act, 1976 PA 442, MCL 15.231 to 15.246, except that

disclosure of financial information may be made in any of the

following circumstances:

(a) With the written consent of the licensee.

(b) Pursuant to a court proceeding.

employee of the department.

(d) The disclosure is made to an agent or employee of a state

or the federal government authorized by law to see or review the

information.

(e) The information is disclosed in the form of an information

summary or profile, or as part of a statistical study that includes

data on more than 1 grain dealer, that does not identify the grain

dealer to which any specific information applies.

Sec. 9. (1) The farm produce insurance fund is established

under the direction and control of the board. The fund shall

consist of administrative premiums, producer premiums, money from

any other source, and interest and earnings from fund investments.

The board shall direct payments from the fund only for the

following purposes:

(a) Payment of valid claims under section 15.

(b) Payment of administrative premiums and producer premium

refunds under section 13.

(d) Payment of legal fees and legal expenses under subsection

(3).

(e) Reimbursement of the director for producer security

activities.

(2) The board shall allocate money from the fund to a separate

administrative expenses account to pay administrative expenses and

to reimburse the director for producer security expenses. This

allocation shall not exceed $500,000.00 in any fiscal year.

Administrative expenses under this subsection include the actual

cost of processing refunds of administrative premiums and producer

premiums, enforcement, record keeping, ordinary management and

investment fees connected with the operation of the fund,

verification cost under section ~~11(5),~~ 11(4), and any other

expenses approved by the board. Administrative expenses do not

include legal fees and legal expenses described in subsection (3).

(3) For legal services requested by the board, the board shall

pay for any legal services and legal expenses required by the

authority, board, or fund from money in the fund. Legal services

and expenses described in this subsection are not administrative

expenses and shall not be paid from the administrative expenses

account.

(4) All of the following apply to the investment of any money

in the fund that the board determines is not needed to meet the

immediate cash needs of the fund:

(a) The treasurer of the board is the investment officer of

the fund and shall invest or direct the investment of the money in

the fund only in a manner that complies with this subsection.

(b) The money shall only be invested through a bank trust

department or a professional investment advisor registered with the

securities and exchange commission under the investment advisors

act of 1940, 15 USC 80b-1 to 80b-21, as determined by the board.

determined by the board:

(i) United States government bonds, United States treasury

notes, or obligations issued by United States government agencies

or United States government-sponsored enterprises.

(ii) Deposit accounts in or certificates of deposit issued by

a financial institution if all of the following are met:

(A) Deposits in the financial institution are insured by an

agency of the United States government.

(B) The principal office of the financial institution is

located in the United States.

held in any 1 account does not exceed the federally insured amount

for that financial institution's accounts.

(D) The amount held in any 1 account in a state or nationally

chartered bank does not exceed $500,000.00.

(iii) Corporate bonds and municipal bonds, if all of the

following are met:

(A) The total investment in corporate and municipal bonds, and

in common and preferred stocks under subparagraph (iv), does not

exceed 45% of the amount of the fund.

(B) The bonds are rated investment grade or better by at least

1 nationally recognized rating service.

municipality does not exceed more than 5% of the amount of the

fund.

(iv) Common or preferred stock, or a mutual fund or bank-

pooled fund that invests in common or preferred stocks, if all of

the following are met:

(A) The total investment under this subparagraph does not

exceed 11.25% of the amount of the fund.

(B) The common or preferred stock in which the fund invests,

or the stock held by the mutual fund or bank-pooled fund in which

the fund invests, is stock in a publicly owned company that trades

on a United States regulated exchange.

(d) The money shall not be invested in a mutual fund, unless

the mutual fund is 1 of the following:

(i) A mutual fund described in subdivision (c)(iv).

(ii) A money market mutual fund, if all of the following are

met:

(A) The investment is money the board determines is needed to

meet short-term obligations of the fund.

(B) The money is invested for not more than 180 days.

the securities and exchange commission, 17 CFR 270.2a-7.

(D) The money market mutual fund invests only in obligations

that are rated in the highest rating classification established by

at least 2 standard rating services, or in obligations issued by

government agencies, obligations issued by government-sponsored

enterprises, or government bills, bonds, or notes.

(5) The board shall ensure that the bank trust department or

professional investment advisor described in subsection (4)(a)

completes a compliance review of the investment portfolio on a

quarterly basis and provides a copy of the investment review to the

fund and department within 30 days after the end of each quarter.

(6) The board shall ensure that the audit required under

section 17 includes a certification from the certified public

accountant concerning whether the fund complied with the

requirements of subsection (4) in the audit period. If an audit

does not include this certification, the director by order may

restrict or eliminate the board's authority to invest in corporate

or municipal bonds or common or preferred stocks under subsection

(4).

(7) The fund shall operate on a fiscal year established by the

board.

(8) As used in subsection (4), "financial institution" means a

state or nationally chartered bank or a state or federally

chartered savings and loan association, savings bank, or credit

union.

Sec. 11. (1) Except as provided in this section, beginning

January 1, 2005, each producer shall pay to the authority a

producer premium of not more than 0.2% of the net proceeds from all

farm produce sold by the producer to a licensee in this state. If

the farm produce is sold to a licensee, the licensee shall deduct

the producer premium from the proceeds of sale and pay the premium

to the authority on behalf of the producer as provided in

subsection (3).

(2) A producer premium imposed under this section is in

addition to any other fees or assessments required by law.

(3) Beginning January 1, 2005, when purchasing farm produce

from a producer, a licensee or its agent or representative shall

deduct the producer premium described in subsection (1) from the

proceeds of sale and notify the producer of the amount of the

deduction in writing. The licensee shall forward the producer

premium to the authority for deposit into the fund on behalf of the

producer within 30 days of the close of each quarter of the fiscal

year.

~~(4) Until the authority has received $5,000,000.00 in producer~~

~~premiums under this act from licensees, a licensee that forwards~~

~~producer premiums it has collected to the authority within the time~~

~~period described in subsection (3) may retain 0.1% of the producer~~

~~premiums collected.~~

(4) ~~(5)~~ A licensee shall clearly indicate in its books and

records the individual producer premiums collected by the licensee

under subsection (3) and retain those books and records for at

least 3 years. A licensee shall make the portion of the books and

records of the licensee reflecting the producer premiums collected

available for inspection by the director during regular business

hours. The department shall take steps reasonably necessary to

verify the accuracy of the portion of the licensee's books and

records that reflect the producer premiums collected. The board

shall reimburse the department for the costs related to the

verification from the fund as an administrative expense under

section 9(2).

(5) ~~(6)~~ At each annual meeting, the board shall certify the

amount of money in the fund at the end of the preceding fiscal

year. A producer shall continue to pay and a licensee shall

continue to collect producer premiums until the board certifies

that the fund, excluding the proceeds of administrative premiums

assessed under section 10, contained more than ~~$5,000,000.00~~

$10,000,000.00 at the end of the preceding fiscal year. In any

fiscal year where the board has certified that the fund, excluding

the proceeds of administrative premiums assessed under section 10,

contained more than ~~$5,000,000.00~~ $10,000,000.00 at the end of the

preceding fiscal year, a producer is not required to pay and a

licensee is not required to collect producer premiums until 1 of

the following occurs:

(a) The board certifies that the fund contained less than

$3,000,000.00 at the end of the preceding fiscal year. In any year

where the board has certified that the fund contained less than

$3,000,000.00 at the end of the preceding fiscal year, the

obligation of each producer to pay and each licensee to collect

producer premiums is reinstated.

(b) The obligation of each producer to pay and each licensee

to collect producer premiums is reinstated in any fiscal year in

which all of the following are met:

(i) The board certifies that the fund contained at least

$3,000,000.00 at the end of the preceding fiscal year.

(ii) The board is aware of a failure of a licensee.

(iii) As determined by the board, the amount required to

satisfy valid claims equals or exceeds the amount of money in the

fund.

Sec. 15. (1) Subject to subsection (2), a producer that

satisfies any of the following conditions is eligible to make a

claim for reimbursement from the fund under this section:

(a) The producer possesses written evidence of ownership of

farm produce that discloses a storage obligation of a licensee that

has failed, including, but not limited to, a warehouse receipt,

acknowledgment form, or settlement sheet.

(b) The producer has surrendered warehouse receipts as part of

a sale of farm produce to a licensee that failed not more than 21

days after the surrender of the warehouse receipts and the producer

surrendering the warehouse receipts was not fully paid for the farm

produce.

and sale of farm produce or transfer of price later farm produce to

a failed licensee, including, but not limited to, an acknowledgment

form, settlement sheet, price later agreement, or similar farm

produce delivery contract, but the grain dealer did not pay the

producer in full for the farm produce.

(2) A producer is not eligible for reimbursement from the fund

for a claim submitted under this section if any of the following

apply:

(a) The producer previously requested a refund from the fund

under section 13 and the producer did not previously reenter the

program under section 13(5).

(b) The claim relates to delivery of farm produce to a

licensee that is a cooperative association, under the terms of an

agreement between the producer and the licensee that allocated

delivery rights and obligations proportionate to a capital

investment of the producer in the licensee.

interests, the producer is the owner of at least 5% of the voting

shares, other than publicly traded shares, membership interests,

partnership interests, or other ownership interests of the licensee

whose failure is the basis of the claim. As used in this

subdivision, "patronage interests" means shares or membership,

partnership, or other ownership interests in a licensee that is a

cooperative association that are allocated and distributed to the

producer in proportion to that producer's patronage of the

cooperative association.

(d) At the time the claim is submitted, the producer is the

owner of at least 5% of the voting shares, other than publicly

traded shares, membership interests, partnership interests, or

other ownership interests of the parent corporation of the licensee

whose failure is the basis of the claim.

(e) Title to the farm produce that is the subject of the claim

was transferred by the producer more than ~~2 years~~ 18 months before

the date the claim is submitted.

(f) If notice of the failure of the licensee was published in

a newspaper of general circulation in each county in which a

facility of the licensee was located, the claim is submitted more

than 1 year after that publication.

(3) If the department finds a claim made under subsection (1)

is valid and the board approves of the valid claim, the board shall

within 90 days of the board's approval pay the claimant the amount

described in subsection (4) or (5) from the fund as compensation

for the claim. The 90-day time period for payment may be extended

if the board and claimant agree in a writing that describes the

payment terms and schedule.

(4) A claimant that incurs a storage loss due to the failure

of a licensee is entitled to payment under subsection (3) in an

amount equal to 100% of the storage loss, less any administrative

premium or producer premium that would have been due on the sale of

the farm produce. The department shall determine the gross amount

of the storage loss based ~~upon~~ on local market prices on the date

of failure. The department may consider any evidence submitted by

the failed licensee or any claimants concerning the actual charges

associated with stored farm produce.

(5) A claimant that incurs a financial loss due to the failure

of a licensee is entitled to payment under subsection (3) in an

amount equal to 90% of the financial loss. For farm produce that is

sold in a transaction subject to the grain dealers act, the

department shall determine the amount of the financial loss based

on the value of the farm produce less any outstanding charges

against the farm produce. If the farm produce has not been priced,

the department shall establish the amount of the financial loss

using the local market on the date of failure less any usual and

customary charges associated with the sale of farm produce.

(6) The board may require a claimant paid under this section

for a valid claim to subrogate to the board or authority all the

claimant's rights to collect on any bond issued under the grain

dealers act or the United States warehouse act, 7 USC 241 to 256,

and the claimant's rights to any other compensation arising from

the failure of the licensee. If required to subrogate under this

subsection, the claimant shall assign the claimant's interest in

any judgment concerning the failure to the board or authority.

(7) The board shall deny the payment of a valid claim under

this section if the board determines any of the following are met:

(a) The claimant as payee fails to present for payment a

negotiable instrument issued as payment for farm produce within 90

days after the date the negotiable instrument is tendered to the

claimant as payment for farm produce purchased by the licensee.

(b) The claimant has engaged in marketing or management

practices that have contributed to the claimant's loss. The

authority may consider whether the marketing or management

practices are generally accepted marketing or management practices

in this state in making its determination.

violated this act in connection with the claim.

(d) The claimant did not take reasonable actions to mitigate

farm produce losses.

(8) If the department determines that a failure of a licensee

has occurred, the board shall do all of the following:

(a) Determine the valid claims against the licensee and the

amount of the valid claims.

(b) Authorize payment of money from the fund when necessary to

pay claimants for valid claims as provided in this section.

produce assets of a failed licensee to repay the fund for money

paid to claimants, subject to any priority lien right a holder of a

mortgage, security interest, or other encumbrance may possess under

any applicable law. The board shall not deposit into the fund an

amount in excess of the sum of the principal amount of valid claims

paid to claimants, plus interest for the period from the date a

claimant was paid for a valid claim to the date that the remaining

farm produce assets were received by the board under this

subsection, at a per annum rate equal to the auction rate of 91-day

discount treasury bills on the date the claimant was paid.

(d) If the amount in the fund and any amount the board borrows

under subsection (9)(b) are insufficient to pay all valid claims,

pay the amount available for payment proportionately among the

valid claims approved by the board and pay the prorated amount to

those claimants.

(9) If the department determines that a failure of a licensee

has occurred, the board may do any of the following:

(a) Pursue any subrogation rights obtained from claimants

under subsection (6).

(b) If the fund has insufficient money to pay the valid

claims, borrow money as authorized under section 7(8)(j) for the

payment of valid claims.

Enacting section 1. This amendatory act takes effect 90 days

after the date it is enacted into law.