Liability Insurance `Drought' / Wide Range of Businesses, Governments Find Liability Coverage Scarce

Article excerpt

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 causes.

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 increase.

"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 Township, N.J.

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. …