Mich. Limits Insurer Exposure Under Standard Fire Policy

Michigan Gov. Jennifer Granholm (D) has signed into law a bill limiting insurer exposure under the Standard Fire Policy Act. The state follows similar action earlier this year by Virginia, Minnesota and Nebraska, according to the Alliance of American Insurers.

Under the new law, formerly HB 4432, commercial property/casualty insurance policies are not required to cover a fire loss that ensues from an act of terrorism if the insured has refused coverage offered as mandated by the federal Terrorism Risk Insurance Act.

“Enactment of HB 4432 makes the state’s commercial insurance market more stable by permitting insurers to limit their exposure to catastrophic losses,” said Bill Schroeder, vice president of the Alliance’s Midwest Region.

“Following the events of Sept. 11, 2001, it became clear that terrorist acts could produce not only horrific initial damage, but also fires that followed the initial event – fires potentially more devastating than the primary act,” said John Lobert, Alliance senior vice president of state government affairs.

“While 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 HB 4432 allow insurers to exclude coverage of such fire damage following a terrorism act in certain circumstances. This, in turn, will ensure the stability of the state’s commercial insurance market.”

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,” Lobert explained. “However, it creates a conflict with the federal TRIA that is potentially dangerous for the financial health of insurers. That is why the Alliance has worked so hard to gain passage of such exemptions.”

Virginia was the first state to enact changes to the Standard Fire Policy earlier this year, followed by Minnesota and Nebraska. Similar bills have been introduced in Connecticut, Massachusetts, 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.