The Nebraska Department of Insurance Director Tim Wagner announced that the department plans to disapprove personal lines exclusions for losses arising from terrorism, including exclusions for so-called nuclear and bio-terrorism.
He said that while some states appear to be taking action based upon exclusions in reinsurance contracts, Nebraska has decided not to take that approach. The department will disapprove requests for exclusions without regard to reinsurance or lack thereof. It stated that the possibility that personal lines’ losses related to terrorism will have an insurer-endangering impact is remote, since there is a considerable spread of risk inherent in personal lines, especially in a state like Nebraska.
Nebraska regulators said the attachment of terrorism exclusions would cause personal lines policies to no longer provide the general coverage that a citizen might ordinarily expect for policies of the type being purchased. The department added that it would be bad public policy to have significant insurer-to-insurer differences in the coverage for the remote chance that a personal lines’ policyholder in Nebraska may suffer otherwise covered losses arising out of a terrorist act.
Concerning mold-related exclusions, the Nebraska DOI took the following positions:
On property losses by mold (and other related terms), exclusions will be allowed only if the mold is not a result of a covered cause of loss. If mold is the result of a covered cause of loss, then coverage that is in place for the property portion of the contract will apply without any other limitations, restrictions or deductibles other than those which apply to all causes of loss generally.
On liability losses related to mold (and other related terms), exclusions will be approved.
Attachment of a mold exclusion on liability policies at renewal may be a significant coverage issue for some policyholders, especially for contractors engaged in remodeling or repairs after fire or water damage. Nebraska law requires that insurers that are not offering renewal with essentially the same terms and conditions must notify the policyholder that it is not being offered renewal coverage that is essentially the same as that on the expiring policy. In addition, it is simply good business practice for insurers and agents to be sure that prospective policyholders know what they are being offered.
An insurer that decides to offer mold coverage on a liability policy through the non-attachment of an exclusion can price for this exposure using their +40 percent pricing flexibility provided in the Nebraska rating law. For almost all classes of liability insurance, that should be adequate to recognize the exposure.
The department stated that there may be a few liability classes for which the +40 percent pricing flexibility may not be adequate to recognize the mold exposure. Primarily, these will be contractors that do repair work following losses with water damage. For insurers willing to offer a buy-back for such classes, rate filings can be approved to provide an additional charge, with the additional charge being determined on a guide basis. The DOI said such approval will be available only for classes of risk with recognized mold exposures, and not on an across-the-board basis.
If an insurer encounters a specific risk with significant mold exposure, but it is not in one of these classes, then consent-to-rate pricing can be used to recognize the greater exposure. The DOI added that Nebraska’s consent-to-rate law that applies to general liability insurance does not require approve of consent-to-rate applications by the department, but only an informational filing.
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