Attorneys Warn of Impact on Policyholders

November 9, 2001

Attorneys who represent insurance policyholders warned House Financial Services Committee Chairman Michael Oxley on Nov. 7 that, “in the rush by the insurance industry to maximize financial gain through legislative subsidies, little attention has been paid to the right and interests of policyholders, especially those with businesses affected by the events of Sept. 11, 2001.”

In a strongly worded letter, Curtis D. Porterfield, a partner writing in behalf of the Howrey Simon Arnold & White, LLP- Insurance Recovery Practice, further noted that “before Congress creates legislation to underwrite a massive subsidy of future terrorist losses, it must first require the insurance industry to honor its policies and pay existing claims for property loss and business interruptions arising from the Sept. 11 attacks. There are clear indications that, even now, the insurance industry is more concerned about profits than paying policyholders.”

Porterfield listed several protections for policyholders which should be written into any legislation aimed at rescuing the insurance industry, indicating that any new government support program should:

Be required to provide coverage for the reasonable business interruption and property damage claims of companies adversely affected by the events of Sept. 11 under policies that were in effect on that day.

Not be permitted to deny coverage on the basis of any War Risk or Terrorism Exclusions.

Not be permitted to underwrite new policies, or renew existing policies, with any War Risk or Terrorism Exclusions.

Be required to process claims related to the Sept. 11 tragedy within 180 days of the day that proofs of claim are submitted by policyholders. ยท Be required to develop a streamlined process for expediting the handling of policyholder claims.

Be required to extend notice requirements on existing policies until April 2002 to allow policyholders to investigate and evaluate potential coverage under those policies.

Not be permitted to discriminate against certain types of risk, on the basis of location or type of business.

Be required to limit offsets of reinsurance against surplus thereby preventing the insurance companies from overextending themselves.

Be prevented from creating a “reinsurance spiral,” whereby portions of a risk are repeatedly passed on to the government in the event that the risk is reinsured multiple times.

The House Financial Services Committee is currently marking up legislation, HR 3210, “The Terrorism Risk Protection Act,” which addresses current and future government subsidies for the insurance industry.

Hearings on the bill were cancelled due to the anthrax closures, and a subsequent roundtable discussion was attended by representatives of the insurance industry and taxpayer groups. No one representing the policyholders’ point of view took part in that roundtable.

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