AAI Says Mass. Bill Mandating Fuel Spill Coverage Would Upset Homeowners Mkt.

The Alliance of American Insurers (AAI) is opposing passage of a bill heard Tuesday by a Massachusetts legislative panel that would add fuel spill coverage to the standard homeowners insurance policy.

HB 1961 mandates that insurers writing homeowners insurance in Massachusetts provide coverage for the release or threatened release of liquid fuel from a residential liquid fuel storage system. Insurers also would be required to defend insureds against third-party liability claims related to storage tank leaks. Minimum coverage offered would be $25,000 per occurrence for first-party costs and $100,000 per occurrence for liability.

“The Commonwealth should not be mandating coverage, adding unnecessary requirements and burdens that will result in additional costs being imposed upon insurers, putting pressure on homeowners premiums,” said Frank O’Brien, vice president of the Alliance’s New England Region, in testimony submitted to the Joint Committee on Taxation.

O’Brien also noted that, unlike other types of insurance in Massachusetts, regulation of the homeowners line has been left, for the most part, to free-market pressures. “Therefore, the line is considered very competitive, resulting in adequate rates and very few availability problems. This bill clearly envisions a very active role for the Division of Insurance, which could upset this balance.”

The bill also reportedly requires owners of storage tanks to upgrade their fuel lines, but is unclear what efforts will be made to assure compliance. “As a result, HB 1961 would place insurers in the position of offering ‘maintenance coverage’ for those who fail to take steps to mitigate leaks,” O’Brien explained.