SECTION: FINANCIAL; Pg. E01

LENGTH: 867 words

HEADLINE: Insurers Ask to End Terrorism Coverage; Petitions to States Cover Home, Car, Life Policies

BYLINE: Jackie Spinner, Washington Post Staff Writer

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Insurance companies have started seeking permission from state regulators to exclude terrorism coverage from a variety of policies next year, including home, auto and life.

All 50 states and the District of Columbia have received at least one petition for an exclusion, and many more are expected as insurance companies and regulators wait to see what Congress will do to help the industry cover future terrorism claims.

The companies requesting the exclusions include big national firms such as Ace and American International Group as well as smaller companies such as Springfield Fire & Casualty, which wrote about 2,500 policies last year in Illinois.

In filing for the exclusions now, the insurance companies are trying to meet deadlines imposed by state regulators for alerting policyholders to major changes in coverage or for cancellation of policies. "It's an absolute mess out there," said Ronald Thornton, president and chief executive of the Inland Marine Underwriters Association, a trade group. "Everybody is trying to figure out what to do, and nobody knows."

In some cases regulators are not certain how to apply their own rules because of the unusual circumstances created by the terrorist attacks on the World Trade Center and the Pentagon.

Reinsurance companies, which provide insurance to primary insurance companies, have already indicated that they will not cover terrorism after Jan. 1 because of uncertainty over how to price the risk. About 70 percent of reinsurance policies, which are not regulated by the states, expire at the end of the year.

Without reinsurance for terrorism, primary insurers will have to shoulder the risk themselves, and many have said they are unable or unwilling to expose their companies to unknown liability.

Terrorism damage was typically covered in most U.S. policies before Sept. 11, and most states require primary companies to get permission to drop it.

William Kelso, the 82-year-old founder of Springfield Fire & Casualty, said he has asked the Illinois Insurance Department to allow the company to exclude terrorism from commercial and personal policies.

Kelso, whose company is headquartered in Springfield, the Illinois capital, said his firm could withstand just $ 1 million in terrorism claims before being wiped out. "I can't afford to take a terrorist hit unless I limit the exposure," he said.

Regulators said they are in the tricky position of trying to protect consumers from gaps in coverage while also making sure that insurance companies remain solvent.

"We're in some pretty gray area at this point," said Kathleen Sebelius, president of the National Association of Insurance Commissioners. "This is not a problem that is only in New York and New Jersey and urban areas. It is a countrywide situation, and it's getting incredibly close to a drop-dead date."

Local regulators are weighing their reactions. In the District, Insurance Commissioner Lawrence Mirel said he has already decided to grant the terrorism exclusions requested by five companies -- three life insurers and two property insurers.

He declined to name the firms.

"I don't think anything dire is going to happen if it's excluded," Mirel said. "They already exclude war, and that doesn't create a problem. I don't think banks are not going to give loans. I don't think buildings are not going to get built."

Maryland Insurance Commissioner Steven B. Larson is contemplating exclusion requests from several individual property and life insurance companies.

Maryland also has received a blanket request from Insurance Services Office Inc., a private firm that has filed for terrorism exclusions in 50 states on behalf of 200 insurance groups. The companies could then decide whether to use the exclusions if they're granted.

"It's a very difficult situation," Larson said. "States are looking at these exclusions, and it's not clear there is the authority to prohibit them."

Larson said he does not support the exclusions in principle but he also does not want to see turmoil in the insurance market.

"It's hard to get a handle on what's going to happen," he said. "It's vitally important that Congress provide some level of certainty in the market."

In Virginia, Mary Bannister, the state's deputy insurance commissioner for property and casualty, said she expects most problems to be resolved by federal legislation, eliminating the need for states to consider the exclusions.

"We're just trying very hard to avoid that," she said.

Consumer groups are lobbying state regulators to forbid the exclusions and to monitor rates charged if terrorism coverage is available.

They also want to make certain that a uniform definition of terrorism is adopted.

A request for an exclusion filed by American International Group in some states, for example, defined terrorism as "use or threatened use of any unlawful means . . . for the actual or apparent purpose of intimidating, coercing, punishing or affecting society or some portion of society or government."

That definition may be too broad and could include hate crimes, according to some regulators who have reviewed it.

CORRECTION-DATE: November 18, 2001

CORRECTION:
A Nov. 16 Business section article was unclear about the nature of the terrorism coverage exclusions that Insurance Services Office Inc. is seeking from state regulators on behalf of 200 insurance groups. Those exclusions would involve only commercial policies and general liability war risk coverage.

LOAD-DATE: November 16, 2001