access to general liability insurance.
General liability coverage focus of legislation
A bill in the Rhode Island Legislature would make it easier for owners of small apartment buildings to get general liability insurance.
Insurance carriers generally consider one- to four-unit rental properties higher risk, and owners of those properties historically have had a tough time buying property insurance. In response, the state many years ago set up a program to make it easier for owners to get insurance policies for their apartment buildings as part of an “assigned risk pool.”
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The program, called the FAIR Plan (short for Fair Access to Insurance Requirements), provides basic property insurance, but it does not offer general-liability insurance, or coverage against lawsuits stemming from personal injuries.
A House bill passed last month would expand the FAIR Plan to include general liability coverage for one- to four-unit apartment complexes in Rhode Island – properties that insurance carriers have been shying away from since the state enacted landmark legislation last year to fight lead-paint poisoning.
The new lead-paint law holds property owners liable if their tenants get lead poisoning from lead paint in the home. Even though that provision of the law won’t take effect until July 2004, many insurance companies already have stopped offering general liability insurance for apartment buildings built prior to 1978 (the year in which lead paint was banned nationwide).
“The lead-liability law is a great step toward encouraging property owners to get rid of lead paint hazards, but a side effect is that it has created a big insurance hole,” said Rep. Roger A. Picard, a Democrat who sponsored the FAIR Plan expansion bill.
Picard said the problem is acute in his district of Woonsocket, which has a high concentration of older multi-family apartment buildings.
Anticipating that insurance carriers would pull out of Rhode Island’s lead-liability market, the state last year expanded the FAIR Plan to offer lead-liability insurance when the law takes effect in 2004 – ensuring a last resort for property owners.
What was unforeseen, though, is that some insurance companies would stop offering general liability coverage altogether.
“It seems like (insurance) companies have been scared away from the whole liability issue,” said Cristie Hanaway, president of Hanaway Insurance Agency in Cumberland, an affiliate of Gencorp Insurance Group of East Greenwich. “A lot of them have just pulled out.”
Two years ago, at least six insurance carriers that her office does business with, were writing general liability policies for small apartment buildings in Rhode Island, Hanaway said. Now only one carrier is offering that coverage.
Some of the contraction is likely due to the hard insurance market, Hanaway said. But instead of jacking up premiums – the usual practice during a hard market – carriers increasingly are issuing non-renewals for liability insurance for small-rental properties in Rhode Island, she said.
“The fact that they’re withdrawing from the marketplace says something else is going on, and I think that ‘something else’ is the lead-liability law,” Hanaway said.
Hanaway said the pending bill would offer a last resort for owners of older apartment buildings to buy general liability insurance through the FAIR Plan, which would help “bring insurance companies back into the market rather quickly.”
State Sen. William A. Walaska, a Warwick Democrat, sponsored the Senate version of the legislation, which the Senate Financial Services, Technology and Regulatory Issues Committee approved. The Senate is expected to vote on the bill in coming weeks.
If approved, the law would take effect Jan. 1, 2004.
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