Alliance Hails Minn. Action on Standard Fire Policy

The Alliance of American Insurers is urging Minnesota’s governor to sign into a law a measure that will go a long way toward stabilizing the state’s commercial insurance market.

The bill (House File 267) passed the Senate yesterday by a 66-0 vote and now awaits Republican Gov. Tim Pawlenty’s signature, which is expected. The bill would not require Standard Fire Policy insurance contracts to cover a fire loss that ensues from a certified act of terrorism if the insured has refused coverage offered as mandated by the federal Terrorism Risk Insurance Act.

Minnesota has become the third state in two weeks to take action to change the Standard Fire Policy Act related to commercial insurance policies. Virginia became the first state to enact changes to the Standard Fire Policy early last week, and a Michigan house panel held a hearing on such policies.

“It has become evident that terrorist acts have the capability of producing not only horrific initial damage, but also can result in fires following the initial event that could be even more devastating than the primary act,” said Bill Schroeder, vice president of the Alliance’s Midwest Region.

“When the federal government passed the terrorism backstop, it did not preempt laws regarding fire losses that could follow an act of terrorism. The proposed changes in HF 267 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. This, in turn, would ensure the stability of the state’s commercial insurance marketplace.”

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, said John Lobert, senior vice president of state government affairs for the Alliance. “This is an antiquated concept that no longer serves a useful purpose because competition ensures that insurers offer much more than basic coverage. Instead, it creates a conflict with the federal TRIA that is potentially dangerous for the financial health of insurers. For this reason, the Alliance asks Gov. Pawlenty to move quickly to enact this bill.”

In addition to Virginia, Michigan and Minnesota, similar bills have been introduced in Connecticut, Massachusetts, Nebraska, New Hampshire and Oklahoma. In addition, industry efforts to change the law are underway in Illinois, Louisiana, New Jersey, Pennsylvania and Washington as well as the other 15 states that require the New York Standard Fire Policy.

The Alliance of American Insurers, based in Downers Grove, Illinois, is a national trade association representing more than 340 property/casualty insurance companies.