Mich. Legislature Sends Bill Limiting Insurer Exposure Under Standard Fire Policy to Gov.; AAI Urges Enactment

May 21, 2003

The Michigan Legislature has passed a bill limiting insurer exposure under the Standard Fire Policy Act and sent it to the governor, whose signature is urged, according to the Alliance of American Insurers (AAI).

Under the bill, HB 4432, commercial property/casualty insurance policies would reportedly not be required to cover a fire loss that ensues from a certified act of terrorism if the insured has refused coverage offered as mandated by the federal Terrorism Risk Insurance Act.

“Enactment of HB 4432 would make the state’s commercial insurance market more stable, and the Alliance urges Gov. Jennifer Granholm (D) to sign it into law as quickly as possible,” Bill Schroeder, vice president of the Alliance’s Midwest Region, commented.

“Following the events of Sept. 11, 2001, insurers realized that terrorist acts could produce not only horrific initial damage, but also fires that followed the initial event – fires potentially more devastating than the primary act,” John Lobert, Alliance senior vice president of state government affairs, said.

“While the federal government passed the terrorism backstop, it did not preempt laws regarding fire losses that could follow an act of terrorism. The proposed changes in HB 4432 would allow insurers to exclude coverage of such fire damage following a terrorism act if the insured has turned down terrorism coverage under the federal program. This, in turn, would ensure the stability of the state’s commercial insurance marketplace.”

The New York Standard Fire Policy, as it is commonly referred to, was passed in the 1940s to set a floor of basic fire coverage, Lobert explained. “This is an antiquated concept that no longer serves a useful purpose because competition ensures that insurers offer much more than basic coverage. However, it creates a conflict with the federal TRIA that is potentially dangerous for the financial health of insurers. For this reason, the Alliance asks that the governor quickly enact this bill.”

Virginia was the first state to enact changes to the Standard Fire Policy earlier this year, followed by Minnesota and Nebraska. Similar bills have been introduced in Connecticut, Massachusetts, New Hampshire and Oklahoma.

In addition, industry efforts to change the law are underway in Illinois, Louisiana, New Jersey, Pennsylvania and Washington as well as the other 15 states that require the New York Standard Fire Policy.

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