Md. orders insurer to write new policy on state property

Royal & SunAlliance also is fined $125,000 for cancellation due to 9/11

August 29, 2002|By Meredith Cohn | Meredith Cohn,SUN STAFF

State regulators yesterday ordered a London-based insurer to continue providing coverage for Maryland's properties, including the Baltimore-Washington International Airport and the stadiums at Camden Yards, and pay a fine for dropping the state after the Sept. 11 terrorist attacks.

In a 75-page ruling, the Maryland Insurance Administration, which oversees insurance companies operating in the state, said Royal & SunAlliance Insurance Group PLC did not give proper notice or reasons for canceling the state's $500 million annual policy in February.

While many public and private property owners nationwide have faced difficulties retaining insurance against acts of terrorism, insurance professionals say the Maryland case is unique in its scope and that the order is likely headed to the courts.

Under the order, Royal & SunAlliance USA Inc., the American affiliate of the British firm, must write another insurance policy by next Tuesday and pay a $125,000 fine.

"Although Royal's business sustained an adverse impact from Sept 11, I find that Royal used this occasion to improperly weed out its book of business rather than to underwrite fairly and properly," Insurance Commissioner Steven B. Larsen wrote in the ruling.

The insurance regulators said the company had options other than to cancel the entire policy, such as raising rates or excluding acts of terrorism from coverage.

But Royal & SunAlliance said yesterday that it followed all the rules in dropping the state's coverage in February, when the policy was due to expire. The insurance coverage continued while the company appealed the state's effort to compel it to continue the coverage.

"We are disappointed by the ruling invalidating our decision not to renew the insurance policy for the state of Maryland," said Kedar Bryan, a spokesman for the insurance company.

"Our action was fully consistent with Royal & SunAlliance's rights and obligations and in the time required by Maryland law. Royal & SunAlliance decided not to renew the policy because it could no longer currently underwrite the level of coverage previously written for the state of Maryland. This was due in large part by the unavailability of reinsurance caused by the Sept. 11 terrorist attacks."

He said company attorneys were reviewing "what the next step should be."

Insurance companies, which collectively are expected to pay about $40 billion to cover the costs of the Sept. 11 attacks, largely lost their reinsurance. That's the insurance coverage the companies buy to reduce their risk.

In turn, insurers have raised rates and dropped coverage for acts of terrorism on public and private property. Acts of terrorism were not generally mentioned in policies prior to the Sept. 11 attacks and were covered.

Congress is considering legislation that would temporarily protect insurance companies from such immense losses in the event of another catastrophic attack. If the legislation is passed, the state may face more favorable conditions next February, when state Treasurer Nancy K. Kopp says the state may need to seek a new insurer.

"We are very pleased that the administration found that the state had been acting correctly and that the complaint against Royal & SunAlliance was correct," said Kopp, whose office bought and renewed the annual policy for 11 years.

"We believe that Royal & SunAlliance will continue to honor our current policy until next February," she said. "I recognize that come February, we'll have to get new coverage. In all candor, I recognize that the property insurance will be more expensive and may not retain terrorism coverage. It's a problem everyone is facing."

Terrorism insurance has become difficult for public and private property owners to obtain, agree groups that represent the policyholders and the insurance companies.

But the Maryland case is unique, said Robert P. Hartwig, chief economist at the Insurance Information Institute, which is maintained by insurance companies. "I'm unaware of this occurring in another state," he said. "I'm sure the [insurer] will appeal."

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