West Virginia Eyes Fire Insurance Proceeds Lien for Vacant Buildings

West Virginia may be on the path to helping municipalities pay for debris removal of abandoned buildings with insurance payments in a way that insurers can live with.

The issue of how to pay for the cleanup has irked property insurers since last year when one city, Huntington, initiated its own process of requiring insurers to place funds in escrow. Insurer members of the West Virginia Insurance Federation (WVIF) went to court to block that ordinance because they said it conflicted with state insurance law.

Gov. Joseph Manchin, insurers and the West Virginia Municipal League, as well as the city of Huntington, are now embracing legislation that will allow any city or county to obtain a lien on insurance proceeds for a total fire loss if the municipality has reason to believe the owner will abandon the property and not take care of cleaning up after the fire.

“Unfortunately, after a damaging fire, some property owners take their fire insurance money and run, leaving the city with a dangerous, abandoned building they cannot afford to demolish. We are joining our cities and the Insurance Federation on a bill that gives more flexibility to clean up buildings damaged beyond repair by fire, by allowing the cities to place a lien on fire insurance policies,” said Manchin.

The Huntington ordinance required insurers to place $2,000 of every $15,000 in policy value into escrow on total fire losses. Insurers argued that compliance would place them in violation of the state’s valued policy law that requires them to pay all insurance payments to the policyholder. They also did not like that this process was for just one city and worried other municipalities might develop their own variations.

WVIF won a stay of the ordinance but agreed to hold off on pursuing the lawsuit to overturn it completely to give lawmakers a chance to come up with a solution in the new legislative session.

Manchin’s proposal tracks with a compromise that insurers discussed with Insurance Commissioner Jane Cline, Huntington and other state officials late last summer, according to Jill Benz, president of the industry’s WVIF.

Manchin’s lien proposal sets one process for the entire state. Manchin’s bill also makes it clear that insurers complying would not be in violation of other insurance laws.

“It’s not a perfect solution, it’s a compromise,” said Benz, who termed passage “very likely.”

Under the draft legislation (Senate Bill No. 224), insurers would be required to notify any municipality where they have a total fire loss within 10 days. The municipality would then have 30 days to file a lien against the insurance payments for cleanup that could not exceed $5,000 or 10 percent of the policy’s limits.

The new legislation would apply to surplus lines insurers as well as standard market insurers.