West Virginia Insurers Fight City Over Debris Removal Account

Property insurance companies in West Virginia are caught between a rock and a hard place over an ordinance in the city of Huntington that forces them to pay funds on some total fire losses to the city rather than directly to policyholders, which they believe state law requires.

The new Huntington ordinance forces insurers to put up to 13.3 percent of a policy’s property coverage amount into an escrow account from which the city can then pay itself for any debris removal costs it incurs due to a property owner’s failure to clean up after a fire. The city can also deduct any unpaid municipal fees or taxes. The ordinance, adopted last November, went into effect July 1.

The insurer trade group, the West Virginia Insurance Federation (WVIF), has gone to Cabell County Circuit Court to challenge the ordinance that its member insurers, along with state Insurance Commissioner Jane Cline, believe violates state insurance law. Charleston Attorney Jill Cranston Bentz, president of the WVIF, said the group filed its complaint July 1 seeking to stay implementation of the ordinance, Article 954, as well as a final ruling that it is invalid. The court has scheduled a hearing for July 31.

In the meantime, the city has had two fires that could fall under the ordinance, and the property owner involved in one has also filed a suit challenging the ordinance, according to Bentz.

Insurers argue that the city ordinance unlawfully infringes upon the state’s authority to regulate insurance, a position with which the state’s insurance commissioner’s office concurs. They also contend that it contradicts the state’s “valued policy” insurance law that requires them to pay proceeds directly to policyholders and the state’s unfair trade practices act that requires prompt payment.

The city’s stated purpose for the ordinance is to deter arson, discourage abandonment of burned out properties and “prevent urban blight and deterioration.” City officials adopted it under the state’s new Home Rule Pilot Program that was created to give municipalities more freedom.

The case could have ramifications beyond insurance law as the WVIF petition also challenges the entire pilot project as a violation of the state Constitution.

Insurers say the city has a right to collect for debris removal costs and unpaid fees, but it shouldn’t use insurance companies as “agents for unlawful confiscation.”