The Massachusetts Association of Insurance Agents (MAIA) is pushing a bill, S-465, that would require the Massachusetts Property Insurance Underwriting Association (MPIUA), also known as the Massachusetts FAIR Plan, to have liability coverage included in its Non-Owner Occupied Dwelling policy for one-to-four residential units.
MAIA, an association representing more than 1,400 independent agencies in Massachusetts, noted S-465 (“An Act relative to liability coverage under the Massachusetts Property Insurance Underwriting Association”) has passed the state Senate and is now awaiting consideration by the state House.
Daniel J. Foley, vice president of government affairs and general counsel at MAIA, explained that if, for instance, a property owner of a three-family residence can obtain a policy in the voluntary insurance market from a voluntary carrier, that policy would include liability coverage as well as property coverage.
But currently, if the property owner cannot get insurance coverage in the voluntary market and has to go to the FAIR Plan — the market of last resort — its Non-Owner Occupied Dwelling policy for one-to-four residential units would cover the property but would not include liability coverage. To obtain liability coverage in this case, the property owner would have to purchase it in the surplus lines market.
“Right now, if a property owner — who owns as an investment a small family home of one-to-four residential units — for whatever reason cannot get the Non-Owner Occupied Dwelling policy in the standard voluntary market, the only option is to go to the Massachusetts FAIR Plan. The FAIR Plan is the market of last resort,” he said.
However, since the FAIR Plan’s Non-Owner Occupied Dwelling policy for one-to-four residential units does not include liability coverage, “if someone was visiting a family in a three-family home, and happens to get hurt on the property somehow, the property owner would not be covered by liability coverage.”
So the only way individual property owners in such cases can protect themselves is to go through the surplus lines market and buy a separate liability policy. “That liability policy in the surplus lines market costs three or four times more than what it would cost if it was included as part of the overall Non-Owner Occupied Dwelling policy,” Foley said. In the surplus market, a property owner may pay anywhere up to several hundred dollars for a standalone liability policy.
By going through the surplus lines market, the property owner is going to have two policies, he said. There will be a policy inspection fee every year for the surplus lines policy and a 4 percent tax that’s on the policy as a result of being in the surplus lines market. Further, there is no insolvency protection if that particular company in the surplus lines market happens to be declared insolvent. “The fact is there is no guaranteed insurance insolvency protection,” Foley said.
He also noted that the Rhode Island FAIR Plan has included liability coverage in its Non-Owner Occupied Dwelling policy since 2002 with no adverse impact on the Rhode Island insurance market. “There is really no reason why Massachusetts shouldn’t have this coverage as well,” he said.
“So we think overall, S-465 is a good piece of legislation,” Foley said. “It’s over in the House and the full House has to consider it. And we are pretty hopeful that it will happen this session.”