State Blocks Effort to Curtail Terror Coverage

State regulators Tuesday blocked a move by insurers to limit terrorism coverage for California homeowners, slowing the industry’s push to curtail such coverage nationwide.

The effort to restrict terrorism coverage for homeowners is an abrupt about-face for insurers, which until now have said insurance for homes, cars and other personal coverage would not be directly affected by the aftermath of Sept. 11.

The California Department of Insurance made the issue public Tuesday when Commissioner Harry Low formally denied insurers’ initial request to exclude terrorism coverage for both commercial and homeowner insurance in the state. Low invited insurers to modify the guidelines or ask for a hearing on the issue.

Low said regulators are “open-minded” about limiting terrorism coverage for commercial insurance but are more skeptical about providing similar limits for homeowners’ insurance.

“I would like a lot more clarification on how this impacts homeowners,” Low said.

Still, Low said he could not rule out granting such exclusions if insurers could make a reasonable case that the limits are necessary.

The industry guidelines would free insurers from having to pay any terrorism-related claims when acts of terrorism within a 72-hour period nationwide cause more than $25 million in insured losses or kill or severely injure 50 or more people.

In rejecting the exclusions, Low denounced the thresholds as “unreasonably low,” “overly broad” and “arbitrary.”

Insurers asked state regulators to approve the guidelines for commercial insurance after Congress failed to enact legislation that would have limited insurers’ risk. Insurers say they can pay the estimated $40 billion to $70 billion in claims stemming from the attacks on the World Trade Center and the Pentagon but could be wiped out by future terrorist acts.

The guidelines were submitted to all 50 states in November by the Insurance Services Office Inc., an industry advisory group. In mid-December, the ISO quietly added additional guidelines that would extend the exclusion to homeowners insurance, said Christopher Guidette, an ISO spokesman.

California and New York are among the few states to reject the terrorism exclusion for commercial insurance. Forty-one other states and the District of Columbia have approved the limits for commercial coverage.

Guidette said several states are considering the homeowners exclusion as well, although only two, which he declined to identify, have so far approved it.

Insurers that initially believed terrorism was primarily an issue for businesses have since realized their liability may extend well beyond commercial coverage, an insurance industry spokesman said.

“Many companies have said they couldn’t envision something that would impact homeowners, but then again we couldn’t envision Sept. 11” before it happened, said Don Griffin, head of business and personal lines for the National Assn. of Independent Insurers.

An airborne toxin or poisons in the water could make entire communities uninhabitable, and homeowner insurance companies would be forced to pick up much of the tab, Guidette said.

“It wouldn’t be limited to planes crashing into buildings,” Guidette said. “The exposure to insurers for homeowners [coverage] could be staggering.”

Consumer advocates said insurers shouldn’t be allowed to escape liability for terrorist attacks.

“That’s exactly the kind of risk people require insurance for,” said Harvey Rosenfield, head of the Santa Monica-based Foundation for Taxpayer and Consumer Rights. “At some point, a homeowners policy is going to be worthless, because everything has been excluded.”