I 

111TH CONGRESS 

2D SESSION H. R. 5762 

To amend the Internal Revenue Code of 1986 to provide for the creation 

of disaster protection funds in the District of Columbia by property 

and casualty insurance companies for the payment of policyholders’ 

claims arising from natural catastrophic events. 

IN THE HOUSE OF REPRESENTATIVES 

JULY 15, 2010 

Ms. NORTON introduced the following bill; which was referred to the 

Committee on Ways and Means 

A BILL 

To amend the Internal Revenue Code of 1986 to provide 

for the creation of disaster protection funds in the District of Columbia by property and casualty insurance 

companies for the payment of policyholders’ claims arising from natural catastrophic events. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘District of Columbia 

5 National Disaster Insurance Protection Act’’. 


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1 SEC. 2. DISTRICT OF COLUMBIA NATURAL DISASTER PRO2 TECTION FUNDS. 

3 (a) CONTRIBUTIONS TO NATURAL DISASTER PRO4 TECTION FUNDS.—Subsection (c) of section 832 of the In5 ternal Revenue Code of 1986 (relating to the taxable in6 come of insurance companies other than life insurance 

7 companies) is amended by striking ‘‘and’’ at the end of 

8 paragraph (12), by striking the period at the end of para9 graph (13) and inserting ‘‘; and’’, and by adding at the 

10 end the following new paragraph: 

11 ‘‘(14) the qualified contributions during the 

12 taxable year to a natural disaster protection fund.’’ 

13 (b) NATURAL DISASTER PROTECTION FUND GROSS

14 INCOME.—Subsection (b) of section 832 of such Code is 

15 amended by adding at the end the following new para16 graph: 

17 ‘‘(9) SPECIAL RULE FOR ASSETS HELD IN NAT18 URAL DISASTER PROTECTION FUND.—For purposes 

19 of determining gross income under this subsection, 

20 any items of income, gain, loss, or deduction derived 

21 from or attributable to any assets held in a natural 

22 disaster protection fund shall not be taken into ac23 count.’’ 

24 (c) DISTRIBUTIONS FROM NATURAL DISASTER PRO25 TECTION FUNDS.—Paragraph (1) of section 832(b) of 

26 such Code is amended by striking ‘‘and’’ at the end of 


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1 subparagraph (D), by striking the period at the end of 

2 subparagraph (E) and inserting ‘‘, and’’, and by adding 

3 at the end the following new subparagraph: 

4 ‘‘(F) the aggregate amount of all distribu5 tions during the taxable year from a natural 

6 disaster protection fund, except that a distribu7 tion made to return to the qualified insurance 

8 company any contribution that is not a quali9 fied contribution for a taxable year shall not be 

10 included in gross income if such distribution is 

11 made prior to the filing by the qualified insur12 ance company of its tax return for such taxable 

13 year.’’ 

14 (d) DEFINITIONS AND OTHER RULES RELATING TO

15 NATURAL DISASTER PROTECTION FUNDS.—Section 832 

16 of such Code is amended by adding at the end the fol17 lowing new subsection: 

18 ‘‘(h) DEFINITIONS AND OTHER RULES RELATING TO

19 NATURAL DISASTER PROTECTION FUNDS.—For purposes 

20 of this section— 

21 ‘‘(1) NATURAL DISASTER PROTECTION FUND.— 

22 The term ‘natural disaster protection fund’ (here23 after in this subsection referred to as the ‘fund’) 

24 means any money, securities, or other property held 


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1 by a qualified insurance company that is identified 

2 and maintained in a segregated account— 

3 ‘‘(A) which is designated as a ‘natural dis4 aster protection fund’ and held in a bank or 

5 bank branch located in the District of Columbia 

6 that is licensed and regulated by the Comp7 troller of the Currency or the District of Colum8 bia Commissioner of Insurance, Securities, and 

9 Banking, 

10 ‘‘(B) under the terms of which— 

11 ‘‘(i) the assets in the fund are re12 quired to be invested in a manner con13 sistent with the investment requirements 

14 applicable to all insurance companies 

15 under the laws of the District of Columbia, 

16 ‘‘(ii) an excess balance drawdown 

17 amount is required to be distributed to the 

18 qualified insurance company no later than 

19 the close of the taxable year following the 

20 taxable year with respect to which such 

21 amount is determined, and 

22 ‘‘(iii) no portion of the assets of the 

23 fund may be paid or distributed from the 

24 fund except for a qualified distribution. 


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1 ‘‘(2) QUALIFIED INSURANCE COMPANY.—The 

2 term ‘qualified insurance company’ means an insurer 

3 or reinsurer that— 

4 ‘‘(A) is incorporated and domiciled in the 

5 District of Columbia, 

6 ‘‘(B) is subject to supervision by the Dis7 trict of Columbia Commissioner of Insurance, 

8 Securities, and Banking, 

9 ‘‘(C) maintains an office in the District of 

10 Columbia that employs no fewer than 10 full11 time equivalent employees, of whom no fewer 

12 than 5 are residents of the District of Colum13 bia, 

14 ‘‘(D) is subject to taxes imposed by the 

15 District of Columbia on premiums collected for 

16 natural catastrophic risk coverage at the rates 

17 established in section 2608 of title 47, D.C. Of18 ficial Code, or any successor law without regard 

19 to the location of the insured risk, and 

20 ‘‘(E) is not subject to premium taxes im21 posed by any State or other taxing jurisdiction 

22 for natural catastrophic risk coverage written 

23 through the fund. 

24 ‘‘(3) QUALIFIED CONTRIBUTION.—The term 

25 ‘qualified contribution’ means a contribution to a 


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1 fund established by a qualified insurance company of 

2 not more than the total of net premiums or other 

3 payments received during a taxable year for coverage 

4 of qualified losses, but only to the extent such con5 tribution, when added to all previous contributions 

6 to the fund (including net investment earnings of the 

7 fund) and after subtracting all qualified distribu8 tions from the fund, does not exceed the amount 

9 reasonably at risk for the payment of qualified losses 

10 insured through the fund, less reinsurance on those 

11 risks, as determined actuarially on a multi-year 

12 basis. 

13 ‘‘(4) QUALIFIED DISTRIBUTION.—The term 

14 ‘qualified distribution’ means any amount paid or 

15 distributed for— 

16 ‘‘(A) any payment of a qualified loss pur17 suant to an insurance policy or policy of rein18 surance issued by the qualified insurance com19 pany, 

20 ‘‘(B) any payment made to reinsure or oth21 erwise spread the risk of catastrophe risk writ22 ten by the qualified insurance company, 

23 ‘‘(C) any excess balance drawdown 

24 amount, 


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1 ‘‘(D) any administrative expenses directly 

2 related to the maintenance and investment of 

3 the fund, and 

4 ‘‘(E) any claims investigation and adjust5 ments relating to a qualified loss. 

6 ‘‘(5) QUALIFIED LOSS.—The term ‘qualified 

7 loss’ means an insured loss on a United States risk 

8 that satisfies subparagraphs (A) and (B). 

9 ‘‘(A) EVENT.—An insured loss satisfies 

10 this subparagraph if the loss is attributable to 

11 one or more of the following events: 

12 ‘‘(i) Wind (including hurricanes and 

13 tornados). 

14 ‘‘(ii) Earthquake (including any fire 

15 following). 

16 ‘‘(iii) Flood. 

17 ‘‘(iv) Tsunami or tidal wave. 

18 ‘‘(v) Volcanic eruption. 

19 ‘‘(vi) Fire. 

20 ‘‘(vii) Hail. 

21 ‘‘(viii) Snow, ice, freezing, or other 

22 winter catastrophes. 

23 ‘‘(ix) Pandemic or other public health 

24 catastrophe. 


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1 ‘‘(B) CATASTROPHE DESIGNATION OR MIN2 IMUM AGGREGATE INSURED LOSS.—An insured 

3 loss, with respect to an event described in sub4 paragraph (A), satisfies this subparagraph if at 

5 least one of the following occurs: 

6 ‘‘(i) Total insured losses from the 

7 event, or from more than one event hap8 pening simultaneously or immediately fol9 lowing, exceeds $1,000,000,000 on an in10 dustry-wide basis. 

11 ‘‘(ii) The President of the United 

12 States declares a disaster or state of emer13 gency because of the event. 

14 ‘‘(iii) The Governor or chief executive 

15 of a State, possession or territory of the 

16 United States, or of the District of Colum17 bia, declares a disaster or state of emer18 gency because of such event. 

19 ‘‘(iv) The Property Claims Services 

20 unit of Insurance Services Office, Inc., de21 clares a catastrophic industry-wide loss be22 cause of one or more events. 

23 ‘‘(6) EXCESS BALANCE DRAWDOWN AMOUNT.— 

24 The term ‘excess balance drawdown amount’ means 

25 the excess (if any) of— 


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1 ‘‘(A) the amount of the fund balance as of 

2 the end of the taxable year, over 

3 ‘‘(B) the total amount of exposure of the 

4 fund to qualified losses at the end of the tax5 able year under policies written by the qualified 

6 insurance company, as determined actuarially 

7 on a multi-year basis. 

8 ‘‘(7) UNITED STATES RISK.—The term ‘United 

9 States risk’ means any hazard, risk, loss, or liability 

10 attributable to property situated, or an activity con11 ducted, in the United States, or its territories or 

12 possessions. 

13 ‘‘(8) EXCLUSION OF PREMIUMS AND LOSSES ON

14 CERTAIN PUERTO RICAN RISKS.—Notwithstanding 

15 any other provision of this subsection, premiums and 

16 losses with respect to risks covered by a catastrophe 

17 reserve established under the laws or regulations of 

18 the Commonwealth of Puerto Rico shall not be taken 

19 into account under this subsection in determining 

20 the amount of the qualified contributions allowed or 

21 the amount of qualified losses. 

22 ‘‘(9) CONTRIBUTIONS IN KIND.—A transfer of 

23 property other than money to a fund shall be treated 

24 as a sale or exchange of such property for an 

25 amount equal to its fair market value as of the date 


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1 of transfer, and appropriate adjustment shall be 

2 made to the basis of such property. Section 267 

3 shall apply to any loss realized upon such a transfer. 

4 ‘‘(10) DISTRIBUTIONS IN KIND.—A distribution 

5 of property other than money from a fund to a 

6 qualified insurance company shall be treated as a 

7 sale or exchange of such property, and any gain or 

8 loss realized on such sale or exchange shall be ex9 cluded from the gross income of the qualified insur10 ance company. 

11 ‘‘(11) REGULATIONS.—The Secretary shall pre12 scribe regulations as may be necessary or appro13 priate to carry out the purposes of this subsection.’’ 

14 (e) ADDITIONAL TAX ON CERTAIN DISTRIBUTIONS

15 FROM A NATURAL DISASTER PROTECTION FUND.—Sub16 section (d) of section 831 of such Code (relating to the 

17 tax on insurance companies other than life insurance com18 panies) is amended by redesignating subsection (d) as sub19 section (e) and inserting after subsection (c) the following 

20 new subsection: 

21 ‘‘(d) TAX ON NONQUALIFIED DISTRIBUTIONS.— 

22 ‘‘(1) IN GENERAL.—In the case of a qualified 

23 insurance company, the tax imposed by this section 

24 for the current year shall be increased by an amount 

25 equal to 20 percent of the aggregate amount of nonVerDate Mar 15 2010 02:39 Jul 17, 2010 Jkt 089200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\H5762.IH H5762

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1 qualified distributions made by such company during 

2 such year from a natural disaster protection fund. 

3 ‘‘(2) DEFINITIONS.— 

4 ‘‘(A) NONQUALIFIED DISTRIBUTIONS.— 

5 The term ‘nonqualified distributions’ means any 

6 distribution from a natural disaster protection 

7 fund other than a qualified distribution (as de8 fined in section 832(h)(4)). 

9 ‘‘(B) OTHER DEFINITIONS.—The terms 

10 ‘qualified insurance company’ and ‘natural dis11 aster protection fund’ shall have the meanings 

12 ascribed to such terms in section 832(h).’’ 

13 (f) EFFECTIVE DATE.—The amendments made by 

14 this bill shall apply to taxable years beginning after De15 cember 31, 2009. 

Æ 


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