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City win scored in high court's insurance ruling.

Last week cities and states won an important victory when the Supreme Court opened the way for attorneys general in 19 states to prosecute four U.S. insurance giants accused of conspiring with British insurance companies to restrict the coverage of an insurance policy which is commonly purchased by city governments, corporations, and non-profit organizations.

The Court's decision in Hartford Insurance Co. v. California, is significant because it may expand the liability coverage of Commercial General LiAability (CGL) insurance purchased by and it, could make-such policies inexpensive and therefore available to more cities.

The four companies (Aetna, Allstate, Cigna, and Hartford Fire) are accused of working with British insurers in the early 1980's, to coerce the Insurance Service Office (ISO), an industry support association, into changing the standard form for they issue for CGL insurance policies.

It is alleged that these companies threatened to boycott selling reinsurance to any primary insurer (insurers who sell insurance directly to consumers) who did not, change its CGL policies from "occurrence" based, where a policy holder is covered for damage and injury which occurs during the life of the policy, to "claim-based," where a holder is only covered for claims filed during the life of the policy, regardless of when the injury or damage occurred. Insurance companies are dependent on reinsurance to lessen their potential liability by spreading it out among other insurers.

The ISO, in 1984, did change the CGL policy forms to " claim-based" and made two other changes the U.S. and British insurers wanted, by completely dropping coverage for accidental pollution liability, and by placing a cap on the mount of money insurance companies would have to pay for the legal defense costs of their clients.

Cities which purchased CGL insurance were therefore receiving less coverage at a time when insurance rates were increasing.

The National League of Cities, in a friend of the court brief, argued that the insurance companies were subject to antitrust suit regardless of this exception because the Sherman Anti-Trust Act supersedes McCarran when the case involves "any agreement to boycott, coerce, or intimidate."

The Supreme Court agreed with the NLC's argument that the four insurance companies were subject to antitrust law-suits and stated that their actions with the British companies, if proven, would constitute a boycott.

This decision could be very beneficial to cities across the country. For instance, municipalities that had attempted to purchase "occurrence" based insurance or pollution liability insurance in the mid 1980's and incurred liabilities as a result not being able to do so, may be able to recover damages from these insurance companies as a result of this decision.
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Author:Provost, Thomas
Publication:Nation's Cities Weekly
Date:Jul 5, 1993
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