PCI Disappointed with Maine’s Failure to Reform Fire Policy on Terrorism

February 6, 2004

The Property Casualty Insurers Association of America issued a bulletin stressing its disappointment with a decision by the Joint Standing Committee on Insurance and Financial Services in Maine not to support passage of reforms in the state’s insurance laws concerning damages linked to terrorist acts.

“PCI has made a strong case for LD 1793, which would amend the Standard Fire Policy (SFP) to allow insurers to exclude coverage for a fire loss that ensues from a certified act of terrorism,” stated PCI New England regional manager Frank O’Brien. “The SFP’s mandated cover of fire following a loss has been a sticking point for many insurers and this change would go a long way toward bringing needed stability to the state’s commercial insurance market.

“We are heartened to see that some of the committee members, including the House Chairman, realized the importance of this issue and voted to support it. But the bottom line is that the committee’s recommendation not to support passage means insurers in Maine will continue to face uncertainty when underwriting commercial risks.”

John Lobert, PCI’s senior vice president of state legislative affairs, explained that the reforms were needed as the events of Sept. 11, 2001 had caused insurers to realize that “terrorist acts could produce not only horrific initial damage, but also fires that followed the initial event that are potentially more devastating than the primary act.”

“When the federal government passed the terrorism backstop, it did not preempt laws regarding fire losses that could follow an act of terrorism. This creates a conflict that is potentially dangerous for the financial health of insurers doing business in states that mandate use of the Standard Fire Policy. LD 1793 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,” he continued.

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. “This is an antiquated concept that no longer serves a useful purpose because competition ensures that insurers offer much more than basic coverage,” Lobert commented.

The PCI noted that other states, including Virginia (the first to do so) Louisiana, Michigan, Minnesota, Nebraska, New Hampshire and Oklahoma, had enacted changes to the Standard Fire Policy.

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