No Word From ISO On Calif. Policy Rejection

In rejecting the ISO request, California Insurance Commissioner Harry W. Low called the damage threshold unreasonably low, a criticism made previously by New York Insurance Commissioner Gregory V. Serio.

Despite Mr. Serio's comments, New York has yet to issue any formal decision on ISO's policy language.

ISO said 36 states, Washington, D.C. and Puerto Rico have approved the policy. In Hawaii, the approval will expire in two months.

Insurance trade organizations reacted with criticism to the California decision, saying California's move could disrupt business and create an insurance shortage.

Mr. Low said he had concerns about loose definitions of terrorism, which encompass everything from hate crimes to vandalism.

"Our goal is to assure that policy language narrowly defines terrorism to eliminate any possible confusion between insurers and policyholders, especially in personal homeowners coverage," Mr. Low said in a statement.

An ISO total exclusion for biological and chemical incidents may be "overly broad and unreasonable," a statement by the California department said. The department's statement also said that a proposed 50-person death or injury requirement for liability exclusion maybe "unreasonably low and arbitrary" and that the ISO proposal may have anti-competitive effects.

A proposal to have multiple incidents of terrorism considered one incident when they occur within a 72-hour period and appear to be carried out in concert or to have a related purpose or common leadership, could be arbitrary and/or unfair, according to the department.

The department said ISO can request a hearing, accept the decision or modify its application.

The department's decision "could create a coverage continuity nightmare for businesses with multistate operations, since California is an anomaly–the only state so far that will not accept terrorism exclusions," said Don Griffin assistant vice president of business and personal lines for the National Association of Independent Insurers in Des Plaines, Ill.

Sam Sorich, NAII vice president and western regional, said the group "is disappointed" that California won't join states that approved the language and "made the sensible decision to approve terrorism exclusions in order to protect insurer solvency."

California insurers now may decide to cancel or not issue some new commercial lines policies and may non-renew policies for certain risks, Mr. Griffin said.

"The ISO language is specific in scope," Mr. Griffin said. "The definition of terrorism contained in the ISO exclusion language would not enable companies to eliminate coverage for hate crimes. How many hate crimes exceed $25 million or seriously injure or kill more than 50 people?"

NAII said that reinsurance for terrorist risks is extremely limited as a result of the huge losses from Sept. 11, leaving primary insurers virtually no choice but to exclude such risks from most commercial line policies in 2002.

Mr. Sorich said NAII hopes "the California DOI will continue to work with ISO, NAII and other industry representatives in crafting an acceptable exclusion from terrorism coverage."

He predicted that "failure to take action on this issue could jeopardize important segments of California's economy–such as sales and management, oil and gas refineries, power plants, banking and general business with multistate operations."