Legislative Analysis
Phone: (517) 373-8080
INCREASE INSURANCE ESCROW CAP http://www.house.mi.gov/hfa
FOR CERTAIN MUNICIPALITIES
Analysis available at
House Bill 4331 (S-1) as passed by the Senate http://www.legislature.mi.gov
Sponsor: Rep. Karen Whitsett
House Committee: Insurance and Financial Services
Senate Committee: Housing and Human Services
Complete to 6-13-24
(Enacted as Public Act 82 of 2024)
SUMMARY:
House Bill 4331 would amend section 2227 of the Insurance Code to increase the
maximum amount that can be escrowed by certain municipalities from fire insurance
claims and certain other property insurance claims involving residential real property. The
bill would increase the maximum amount to $24,000 beginning July 1, 2024. This amount
would then be annually adjusted every July 1 based on the Detroit Consumer Price Index.
The current cap of $12,000, adjusted for inflation, took effect January 1, 2015. The actual
cap after adjustments is now $15,009. In addition, the bill would allow certain abandoned
funds to be used for repairs, in addition to their currently allowed use for demolition.
These escrow provisions in the Insurance Code allow participating municipalities (cities,
townships, and villages) to have a portion of a fire insurance settlement for losses within
their jurisdiction withheld and escrowed until there is evidence that the property is being
or will be repaired, replaced, or demolished. Then the funds can be released to the insured.
If the insured does not act, the municipality can use the funds to do the work itself. The act
only applies to settlements that exceed 49% of the insurance carried on the property, and it
does not apply to coverage for personal property or damage to contents.
Municipalities are eligible to participate in the fire insurance withholding program under
one of two sections in the Insurance Code. Section 2227 (which House Bill 4331 would
amend) includes all municipalities that are located in a county with a population of 425,000
or more, 1 as well as all municipalities with a population of 50,000 or more (regardless of
the population of the county they are in). Section 2845 includes municipalities with a
population of less than 50,000 that are located in counties with a population of less than
425,000. 2 In addition to this eligibility, the two sections differ in that section 2845 applies
only to claims for loss due to fire or explosion, while section 2227 includes losses from
other causes as described below.
Under section 2227, if a claim is filed for a loss to insured real property due to fire or
explosion, or for a loss due to vandalism, malicious mischief, wind, hail, riot, or civil
commotion, the insurance company in a participating municipality withholds from
1
Under the 2020 Census, this includes Wayne, Oakland, Macomb, and Kent Counties. Genesee County fell below the
425,000 population threshold in the 2020 Census.
2
A current list of participating municipalities, indicating the section they participate under, is available here:
https://www.michigan.gov/difs/-/media/Project/Websites/difs/OCS/Fire_Insurance_Withholding_Program.pdf
House Fiscal Agency Page 1 of 3
 payment either 25% of the property’s actual cash value or 25% of the final settlement,
whichever is less. However, for residential property, the amount withheld cannot exceed
the current maximum of $15,009 (which House Bill 4331 would increase to $24,000). The
money withheld is paid into an escrow account, to be used by officials of the municipality
to protect the public health and safety and to bring the property and structure up to code.
For example, the money can be used for the demolition costs of razing unsafe burned and
blighted structures or for the removal of debris. Unused money is returned to the insured.
If the insured and the insurer have agreed on the demolition costs or debris removal costs
as part of the final settlement, the insurer must withhold the largest of the following
amounts:
• The agreed-upon cost of demolition or debris removal.
• 25% of the property’s actual cash value, up to the current maximum for residential
property of $15,009 (which the bill would increase to $24,000).
• 25% of the final settlement, up to the current maximum for residential property of
$15,009 (which the bill would increase to $24,000).
In addition, when section 2227 was last amended in 2014, a provision was added to allow
a municipality to retain and use policy proceeds to demolish any property if, on or before
the date the amendments took effect, a year or more had gone by since the funds were
withheld and the municipality had not been shown evidence that the insured was taking
steps to repair, replace, or demolish the insured property, and the insured property had been
demolished.
House Bill 4331 would adapt this language to provide that a municipality may retain and
use policy proceeds to demolish or repair any property if, on or before the date the bill
takes effect, a year or more had gone by since the funds were withheld and the municipality
had not been shown evidence that the insured was taking steps to repair, replace, or
demolish the insured property. (That is, the bill would allow a municipality to use for repair,
in addition to demolition, funds that were abandoned before the bill became law.)
MCL 500.2227
BACKGROUND:
According to supporters of the bill, the current inflation-adjusted amount allowed to
withheld under current law has not kept pace with the actual cost of home demolition. This
is particularly a problem in Detroit, where the financial incentives lead property owners to
abandon properties, leaving the city to demolish these blighted properties with insufficient
funds. Supporters also argue that the current law is too narrow and that additionally
allowing the use of funds to repair a property would help the city to address blight.
FISCAL IMPACT:
House Bill 4331 would make additional funding available to municipal governments in
certain instances by increasing the maximum amounts that are allowed to be escrowed. The
House Fiscal Agency HB 4331 (S-1) as passed by the Senate Page 2 of 3
 magnitude of these impacts would vary by community, based on the number of qualifying
events that would trigger the escrow. The bill would have no impact on state government.
POSITIONS:
A representative of the City of Detroit testified in support of the bill. (5-25-23)
The Department of Insurance and Financial Services indicated support for the bill.
(5-25-23)
Legislative Analyst: Alex Stegbauer
Fiscal Analyst: Marcus Coffin
■ This analysis was prepared by nonpartisan House Fiscal Agency staff for use by House members in their
deliberations and does not constitute an official statement of legislative intent.
House Fiscal Agency HB 4331 (S-1) as passed by the Senate Page 3 of 3


Statutes affected:
Substitute (S-1): 500.2227
House Introduced Bill: 500.2227
As Passed by the House: 500.2227
As Passed by the Senate: 500.2227
House Concurred Bill: 500.2227
Public Act: 500.2227
House Enrolled Bill: 500.2227