P.R. Laws tit. 21, § 4361
The municipalities shall have the obligation of protecting their assets and resources against any type of financial loss resulting from the contingencies or risks mentioned in subsection (c) of this section.
(a) In order to comply with the obligation imposed above, the municipalities shall use the risk control mechanisms provided by the Secretary of the Treasury, which may include:
(1) The use of self-insurance that meets the requirements of insurance techniques but which shall not be deemed as insurance pursuant to §§ 101 et seq. of Title 26, known as “Puerto Rico Insurance Code”.
(2) The partial or total transfer of risks to authorized insurers through the use of bonds, warranties and insurance contracts.
(3) The use of captive insurers and reinsurance.
(4) Assumption of risk by the State when none of the above mentioned options is viable.
(b) When providing the manner that the above mentioned risk treatment systems are to be used, the Secretary of the Treasury shall take into account that the insurance technique operates with greater efficiency, in the measure that this is applied to risks of different incidence and severity, and that the number of objects insured is greater. He/she shall likewise provide, whenever possible, for said mechanisms to apply globally to all the municipalities. Nevertheless, the Secretary of the Treasury may authorize the use of insurance mechanisms that apply to specific municipalities or groups of municipalities, if he/she determines that this is the most efficient and less costly option in the specific case of said municipality or group of municipalities.
(c) The risk treatment mechanisms provided by the Secretary of the Treasury shall provide protection, as he/she may determine, to the municipalities against any pure risk. Pure risks shall be construed as those that may cause the municipality a financial loss, but not an earning, including:
(1) Losses for physical damage to property.
(2) Indirect economic losses or extraordinary expenses resulting from such damage.
(3) Losses due to all types of claims for damages, including, without it being understood as a limitation, professional liability and contractual liability, if any, in a minimum amount equal to the statutory limits provided in this subtitle.
(4) Losses of the municipalities’ assets, including money, securities, bonds, deeds or certificates of indebtedness or obligation, or any type of financial instrument or public property belonging thereto, caused by fraud, dishonesty, theft, robbery, embezzlement, forgery, misrepresentation, misappropriation, default, or any other dishonest act or failure in the faithful compliance of the duties and obligations of their office, committed by officials and employees of the municipality or by any other persons, with the knowledge and consent of said officials and employees.
(d) The Secretary of the Treasury shall act in representation of the municipalities, in the manner he/she deems most convenient, thrifty, and advantageous for them, in everything connected with the protection of their assets against losses resulting from pure risks. In pursuing this responsibility, the Secretary shall be empowered to decide among other things, on the mechanism that shall be used to treat the risks to be covered, the limits of coverage, the terms of the contracts that will apply thereto, and the contribution, fee or premium that the municipality shall pay for the coverage it will receive, and the procedures to be followed in the handling, appraisal and negotiation of claims.
The Secretary may also require that the municipalities, in their transactions with third parties, require said parties, by contract, to protect the municipality against financial losses that result from said transactions or that they be totally relieved from legal liability connected to said transactions.
To the effects of this protection, the Secretary of the Treasury may require the municipalities to compel said persons to furnish the bonds, warranties and insurance that he/she deems pertinent.
(e) The Secretary of the Treasury, in consultation with the Commissioner, shall provide by regulations, the criteria, requirements and procedures that shall apply in everything connected to the treatment of risks that could cause financial losses to the municipalities, including, among others, the risk treatment mechanism to be used, the risks to be covered, the limits of coverage, the officials, employees and persons who should be covered against the types of losses mentioned in subsection (c)(4) of this section, and the criteria said persons should meet to obtain such coverage, the appraisal of claims, and the granting of credits for good experience to the municipality.
He/she shall also be empowered to require the municipalities to impose on the Special Corporations for the Development of the Municipalities, the obligation to protect their assets against financial loss resulting from the risks mentioned in subsection (c) of this section, and to relieve the municipality from losses resulting from their operations.
With regard to the types of losses mentioned in subsection (c)(4) of this section, the regulations and the contract establishing the agreement between the municipality and the mechanism used to underwrite the risk, shall provide that the mayor or his/her authorized representative shall submit, no later than May 10 of each year, a list of the positions whose incumbents should be covered against the types of losses mentioned in said subsection, and that the new incumbents in said positions shall be automatically covered when they assume said office.
With regard to the types of losses mentioned in clauses (1)–(3) of subsection (c) of this section, the regulations shall establish the information that the municipalities must submit, and the procedures and actions they must follow, so that the Secretary of the Treasury may comply with the responsibilities and obligations imposed on him/her by this section.
(f) The amounts of the fees, contributions or premiums that correspond to each municipality for the cost of their protection against financial loss established in this section, shall be paid from municipal funds. The Secretary of the Treasury shall advance the corresponding amounts for this concept from the General Fund of the Commonwealth of Puerto Rico. These amounts shall be reimbursed to the General fund in the amount or portion that corresponds to each municipality, from their property tax withholdings, and shall be remitted to the Secretary of the Treasury pursuant to the trust contract signed between the Municipal Revenue Collection Center and the Government Bank.
(g) The municipalities shall have the obligation to protect their assets and resources against financial loss resulting from risks related to transactions made in the mormal course of their operations such as investments in special corporations and financial instruments, bonds, or loans to third parties, bankruptcy of their creditors, economic fluctuations, changes in interest rates, among others, which are not included in the scope of the term “risk”, established in subsection (c) of this section, nor can be dealt with adequately by the mechanisms mentioned in its subsection (b) of this section. The Commissioner shall provide the measures and procedures that the municipalities should use to avoid financial losses for these concepts by regulations.
The power of the Secretary of the Treasury shall be subject to the discretion of the municipality pursuant to the provisions of subsection (v) § 4054 of this title.
History —Aug. 30, 1991, No. 81, § 8.011; June 21, 2010, No. 63, § 2.