A tavern in Albany, N.Y., closes its doors. A Miami trucking company
goes out of business after 60 years. The mayor of a small
Pennsylvania town orders police off the streets.
The common denominator in each case is a sudden and sweeping
"drought" in liability insurance.
Once routinely purchased by business and government as protection
against the economic ruin of lawsuits, liability insurance has become
scarce and expensive. The growing list of those left out in the cold
includes municipalities, professionals like engineers and architects,
day-care centers and businesses ranging from large chemical companies
to small manufacturers.
This crisis is more pervasive and has occurred more suddenly than
the well-publicized rise in medical malpractice insurance rates that
have afflicted hospitals and doctors. The drought also has different
Roger Singer, Massachussetts' deputy insurance commissioner, says
his office is flooded with calls from people who can't get insurance
or who face rate increases of 300 percent and more.
"It's everybody from some of the biggest companies in the state to
an individual chimney sweep who can't get coverage," he said.
The crisis touches all society. The New Mexico Retail Liquor
Dealers Association estimates 75 percent of its membership cannot get
or afford insurance. South Carolina officials are trying to persuade
an insurer to continue coverage for hundreds of churches.
"I would expect the churches to be the better risks, and if the
company starts canceling the better risks, then other companies would
follow, and we would have chaos," said state Insurance Commissioner
John Richards IV.
Businesses large and small are affected: Steve Scammell, risk
manager for GAF Corp., a chemical company in New Jersey, expects a
400 percent increase in insurance costs.
Herbert Smoot, owner of Southern Missouri Towing, is selling his
six wreckers and going out of business because of a 300 percent rate
"I just flat had to shut them down," he said. "It's not feasible
when it's a losing proposition."
The drought's impact is widespread. When Mission Insurance Co., a
carrier in California, dropped its specialty day-care insurance, the
ripples reached across the country. Hundreds of day-care centers
went hunting new policies.
In Michigan, premiums for day-care policies increased an average
400 percent. "Parents are being priced out of the market," said Bill
Hankins, a spokesman for the state Department of Social Services.
It affects everyday life. Northeast ski operators will raise the
price of lift tickets a few dollars to cover the cost of higher
insurance. Denver Girl Scouts may have to cancel summer cmap for
want of coverage.
The Chicago suburb of Mount Prospect leveled its popular tobaggan
run after its insurance threatened to cancel the town's policy.
The insurance drought follows the worst year in the liability
insurance industry - a loss of $3.8 billion.
Insurance executives blame the red ink on the steady increase in
the size and scope of lawsuits. Laws expanding the definition of
liability and court interpretations of policies have left insurers
with hefty judgments on claims they say they never intended to cover.
The industry points to a $15.5 million judgment in Jackson
Hartford Accident and Indemnity Co. was ordered to pay damages for
the slow contamination of town wells by chemicals from a landfill
even though its policy excluded polition coverage, except for "sudden
and accidental" incidents.
"The courts have interpreted our contracts to such an extent that
we no longer know what is covered," said Warren Levy, a spokesman for
the Insurance Information Institute.
Insurers and their customers also are paying for nearly seven
years of "interest rate underwriting" - a time when companies sold
policies at bargain basement prices while bolstering profits
throughinvestments paying 14 percent or better. …