I 

112TH CONGRESS 

1ST SESSION H. R. 3139 

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 

OCTOBER 6, 2011 

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 any premium taxes and 

15 any other taxes and fees imposed by the Dis16 trict of Columbia on all domestic insurance 

17 companies, and 

18 ‘‘(E) is subject to such additional tax as 

19 may be imposed by the District of Columbia— 

20 ‘‘(i) on premiums charged for natural 

21 catastrophic risk coverage written through 

22 the fund, and 

23 ‘‘(ii) at such rate— 

24 ‘‘(I) as may be established by the 

25 District of Columbia, and 


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1 ‘‘(II) as does not exceed the rate 

2 of Federal excise tax imposed by sec3 tion 4371(3) on a premium paid on a 

4 contract of reinsurance issued by any 

5 foreign insurer or reinsurer. 

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

7 ‘qualified contribution’ means a contribution to a 

8 fund established by a qualified insurance company of 

9 not more than the total of net premiums or other 

10 payments received during a taxable year for coverage 

11 of qualified losses, but only to the extent such con12 tribution, when added to all previous contributions 

13 to the fund (including net investment earnings of the 

14 fund) and after subtracting all qualified distribu15 tions from the fund, does not exceed the amount 

16 reasonably at risk for the payment of qualified losses 

17 insured through the fund, less reinsurance on those 

18 risks, as determined actuarially on a multi-year 

19 basis. 

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

21 ‘qualified distribution’ means any amount paid or 

22 distributed for— 

23 ‘‘(A) any payment of a qualified loss pur24 suant to an insurance contract or contract of 


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1 reinsurance issued by the qualified insurance 

2 company, 

3 ‘‘(B) any payment made to reinsure or oth4 erwise spread the risk of catastrophe loss writ5 ten by the qualified insurance company, 

6 ‘‘(C) any excess balance drawdown 

7 amount, 

8 ‘‘(D) any administrative expenses directly 

9 related to the maintenance and investment of 

10 the fund, and 

11 ‘‘(E) any claims investigation and adjust12 ments relating to a qualified loss. 

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

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

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

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

17 this subparagraph if the loss is attributable to 

18 one or more of the following events: 

19 ‘‘(i) Wind (including hurricanes and 

20 tornados). 

21 ‘‘(ii) Earthquake (including any fire 

22 following). 

23 ‘‘(iii) Flood. 

24 ‘‘(iv) Tsunami or tidal wave. 

25 ‘‘(v) Volcanic eruption. 


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1 ‘‘(vi) Fire. 

2 ‘‘(vii) Hail. 

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

4 winter catastrophes. 

5 ‘‘(ix) Pandemic or other public health 

6 catastrophe. 

7 ‘‘(B) CATASTROPHE DESIGNATION OR MIN8 IMUM AGGREGATE INSURED LOSS.—An insured 

9 loss, with respect to an event described in sub10 paragraph (A), satisfies this subparagraph if at 

11 least one of the following occurs: 

12 ‘‘(i) Total insured losses from the 

13 event, or from more than one event hap14 pening simultaneously or immediately fol15 lowing, exceeds $1,000,000,000 on an in16 dustry-wide basis. 

17 ‘‘(ii) The President of the United 

18 States declares a disaster or state of emer19 gency because of the event. 

20 ‘‘(iii) The Governor or chief executive 

21 of a State, possession or territory of the 

22 United States, or of the District of Colum23 bia, declares a disaster or state of emer24 gency because of such event. 


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1 ‘‘(iv) The Property Claims Services 

2 unit of Insurance Services Office, Inc., de3 clares a catastrophic industry-wide loss be4 cause of one or more events. 

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

6 The term ‘excess balance drawdown amount’ means 

7 the excess (if any) of— 

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

9 the end of the taxable year, over 

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

11 fund to qualified losses at the end of the tax12 able year under contracts issued by the quali13 fied insurance company, as determined actuari14 ally on a multi-year basis. 

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

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

17 attributable to property situated, or an activity con18 ducted, in the United States, or its territories or 

19 possessions. 

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

21 CERTAIN PUERTO RICAN RISKS.—Notwithstanding 

22 any other provision of this subsection, premiums and 

23 losses with respect to risks covered by a catastrophe 

24 reserve established under the laws or regulations of 

25 the Commonwealth of Puerto Rico shall not be taken 


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1 into account under this subsection in determining 

2 the amount of the qualified contributions allowed or 

3 the amount of qualified losses. 

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

5 property other than money to a fund shall be treated 

6 as a sale or exchange of such property for an 

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

8 of transfer, and appropriate adjustment shall be 

9 made to the basis of such property. Section 267 

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

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

12 of property other than money from a fund to a 

13 qualified insurance company shall be treated as a 

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

15 loss realized on such sale or exchange shall be ex16 cluded from the gross income of the qualified insur17 ance company. 

18 ‘‘(11) REGULATIONS.—The Secretary shall pre19 scribe regulations as may be necessary or appro20 priate to carry out the purposes of this subsection.’’ 

21 (e) ADDITIONAL TAX ON CERTAIN DISTRIBUTIONS

22 FROM A NATURAL DISASTER PROTECTION FUND.—Sub23 section (d) of section 831 of such Code (relating to the 

24 tax on insurance companies other than life insurance com25 panies) is amended by redesignating subsection (d) as subVerDate Mar 15 2010 22:38 Oct 11, 2011 Jkt 019200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\H3139.IH H3139

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1 section (e) and inserting after subsection (c) the following 

2 new subsection: 

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

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

5 insurance company, the tax imposed by this section 

6 for the current year shall be increased by an amount 

7 equal to 20 percent of the aggregate amount of non8 qualified distributions made by such company during 

9 such year from a natural disaster protection fund. 

10 ‘‘(2) DEFINITIONS.— 

11 ‘‘(A) NONQUALIFIED DISTRIBUTIONS.— 

12 The term ‘nonqualified distributions’ means any 

13 distribution from a natural disaster protection 

14 fund other than a qualified distribution (as de15 fined in section 832(h)(4)). 

16 ‘‘(B) OTHER DEFINITIONS.—The terms 

17 ‘qualified insurance company’ and ‘natural dis18 aster protection fund’ shall have the meanings 

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

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

21 this bill shall apply to taxable years beginning after De22 cember 31, 2011. 

Æ 


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