Indiana One of First States to Ban Tax on Insurers for Accident Responses

Some call it ‘double taxation;’ others easy money

Indiana recently became one of the first states in the country to pass legislation prohibiting the practice of municipalities charging fees for accident response runs, when Senate Enrolled Act 81 was sent to Indiana Governor Mitch Daniels’ desk for his signature on March 13, 2008. Governor Daniels has seven days to either sign or veto the bill. If the Governor does not act within seven days, the bill becomes law. At this writing, Governor Daniels had not vetoed the legislation.

The impetus for this legislation is the emerging practice of municipalities charging fees to Hoosiers who are involved in traffic accidents to cover the cost of local police entities investigating the accidents. These localities simply pass an ordinance allowing insurance companies to be billed for these services, then use the proceeds to supplement their respective budgets with the income that is generated — at the expense of Hoosier drivers and the insurance industry. Several municipalities have passed these types of ordinances in Indiana, while a number have rejected them.

Agents Say Bad Public Policy

“All Indiana citizens pay taxes to pay for these types of basic services,” said Steve Duff, vice president of Government Affairs for the Independent Insurance Agents of Indiana. “The insurance industry views these accident response fees as an additional tax on Hoosier citizens and the insurance industry in Indiana.”

The Independent Insurance Agents of Indiana and the insurance industry feel that the passage and implementation of these types of fees is bad public policy and an over burdensome tax on the citizens of Indiana, especially in the difficult economic times that the state is experiencing. This underscores the need for the language in Senate Enrolled Act 81 to prohibit the practice, and is the reason that the Independent Insurance Agents of Indiana and the insurance industry worked to pass this legislation.

“The Independent Insurance Agents of Indiana are pleased that the Indiana General Assembly, led by the yeoman efforts of State Representative Ron Herrell, has acted swiftly to enact a law that truly benefits the citizens of Indiana by protecting them from this unwarranted tax,” continued Duff. “Indiana has gotten ahead of the curve in banning this anti-consumer practice. Hopefully, other states will be able to follow Indiana’s lead for the protection of their own citizens from these unwarranted taxes.”

Insurers Support Efforts

National insurance trade groups also lauded the move to ban the municipal tax.

“A fundamental purpose of government, and in part why taxes are even collected, is to provide basic services to citizens such as police response to an accident. Applying this fee onto law abiding insurance policyholders was simply unfair double taxation and the General Assembly is to be applauded for banning it,” said John Birkinbine, AIA assistant vice president, Midwest Region.

Senate Bill 81, a bill that includes a ban on “Accident Response Service Fees,” was passed by the Indiana General Assembly with near unanimous support. The legislation prohibits local law enforcement agencies from charging a fee to accident victims for police response. If signed, Indiana will join Missouri and Pennsylvania in banning this “crash tax.”

“Most cities that have implemented these fees only go after citizens who have insurance. This double taxation is unfair to law-abiding citizens who purchase insurance as required by the state; meanwhile, individuals who are breaking the law by driving without insurance are not charged for these services. The right move is to ban such fees,” added Birkinbine.

The Property Casualty Insurers Association of America (PCI) also sent a letter to Gov. Mitch Daniels urging him to sign legislation (SB 81) that would prohibit local governments from charging fees for responding to traffic accidents.

We are hopeful that Gov. Daniels will sign the legislation,” said Greg LaCost, assistant vice president and regional manager for PCI. “Many residents in Indiana have expressed their opposition to local governments attempting to impose a hidden double tax on consumers that ultimately increases the cost of insurance. As a taxpaying citizen, it is not unreasonable to expect local police and fire departments to respond to an automobile accident without having to pay extra for this service. Indiana communities such as Porter, Munster and Merrillville in recent years have all rejected the accident tax. With this law, unsuspecting motorists in Indiana will not have to worry about getting hit with these fees.”

Easy Money

The proponents of accident response fees portray their program as “easy” money for municipalities or emergency response agencies by claiming insurance companies will pay the fee and recommend targeting only non-residents. Many insurance contracts may not include coverage for these charges. For example, according to a January 2008 survey of Ohio insurance companies, insurers representing 82 percent of the market there do not cover such fees.

“Municipalities that enact this fee simply pit one community against another, likely dampen commerce, and let insurance scofflaws off the hook. We hope other states join Indiana and prohibit this ‘crash tax’,” added AIA’s Birkinbine.

Funding woes?

The state insurance trade association offered another perspective.

“The passage of SEA (Senate Enrolled Act) 81 provides an important protection for Hoosiers,” Insurance Institute of Indiana President Stephen Williams said. “It guarantees they will not be double taxed by being charged for police responding to auto accidents. Essential services such as police and fire protection are already funded by local taxes, and these fees are just a chance for governments to take more of their citizens’ money.”

Several vendors across the country are touting these fees to cities and towns as a solution to police funding woes. The vendors convince the local governing body to pass an ordinance allowing insurance companies to be billed when police come out to investigate a traffic accident, however, most insurance policies in Indiana do not cover these fees.

Since most insurance policies in Indiana do not cover these fees, the bill is passed on to the citizen, who is surprised with a bill ranging anywhere from $200-$500.

Griffith, in Lake County, had once adopted the ordinance pitched by Cost Recovery Corp. of Dayton, Ohio, which billed out-of-towners involved in an accident a fine of more than $200. This legislation closes the door on out-of-state vendors who lobby for these ordinances with the intent of retaining a large cut by acting as a town’s collection and billing service,” Williams noted.

Senator Dennis Kruse (R-Auburn) and Senator Ryan Mishler (R-Breman) co-authored the bill, and the 2007 session’s author Representative Ron Herrell (D-Kokomo) sponsored the bill and was instrumental in its passage.

“Indiana citizens who have already experienced a traumatic experience, such as an automobile accident, should not have to pay considerable amounts of money that tax dollars already cover in addition to the traumatic event,” Representative Herrell said. “This is going to be a huge benefit to the citizens of Indiana.”

Following much scrutiny, the Griffith Town Council eliminated the ordinance. Several other Indiana cities and towns have rejected the offer from Cost Recovery Corp. and thanks to the passage of SEA 81 there will be no need to consider such sales pitches.

The property/casualty industry in Indiana employed more than 9,900 people and paid more than $177.5 million in premium taxes alone in 2006. Additionally, insurers are a major source of capital for governmental bodies in the state. According to analysis of A.M. Best data, they held $8.1 billion in Indiana municipal bonds in 2005 — approximately 27 percent of the outstanding state and local government debt in the state.

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