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NJ Insurer Draws Heat From State Regulators Over Drought Insurance

July 11, 1988

NEWARK, N.J. (AP) _ A New Jersey insurance company has drawn the ire of drought-suffering farmers and state regulators who say the insurer appears to be backing off an offer to provide drought insurance.

Insurance officials in at least three states - Minnesota, Indiana and Ohio - are looking into the policies offered during a six-week period in May and June by Federal Insurance Co., a subsidiary of Chubb Group Insurance Cos. of Warren, N.J.

″People are in a panic out here,″ Keith Kendall, an administrative officer for the Indiana Insurance Department, said Monday. ″They were lined up around the block to buy this stuff.″

The company is offering to return premiums to farmers, saying sales of the policies exceeded its coverage capacity. But officials in Minnesota and Indiana warned that Chubb could possibly lose its license to do business in those states if it did not provide the coverage.

Essentially, the policy offers coverage for crop damage due to below- average rainfall. Depending on the policy, the less rain that falls, the more money is paid.

Chubb said the policy is a variation on the type of coverage offered to outdoor-event promoters insuring against a rain-out.

Chubb said Monday that only about 40 policies actually had been issued out of thousands of applications filed May 1 to June 17. The company said Federal’s insurance agent, Good Weather International, which developed the policy, was authorized to provide only up to $22.5 million in coverage in the Farm Belt states.

Shortly before the enrollment period expired, news stories about the drought and Good Weather’s marketing brought on a flood of applications, Chubb spokeswoman Mary Lu Korkuch said. About 8,000 to 9,000 applications had come in since June 17, she said.

″We are still seeking to determine the magnitude of coverage requested above the capacity limit which we are committed to, and we are working to develop a proposal to state insurance commissioners about how to best manage the situation,″ she said.

State regulators said Chubb promised to underwrite hundreds of millions of dollars in policies. The company would not comment on a figure, but Kendall said Chubb had $50 million in Indiana policies alone.

Chubb sent out letters over the weekend to insurance agents offering refunds to farmers who sent in premiums in exchange for canceling the contracts, Ms. Korkuch said.

Kendall criticized the company’s stance that it had no obligation to provide insurance to applicants. He noted that the period covered by the policies was limited to June, July and August and said that to offer refunds five weeks after the beginning of the period was unfair.

″We’re going to get Federal to stand behind all applications solicited in the state of Indiana,″ he said.

The state’s insurance commissioner, Harry Eakin, said over the weekend that about 1,700 Indiana farmers had signed contracts for the coverage, paying $15 million to $20 million in premiums for coverage. He set a hearing for July 26 to determine whether Good Weather or Federal acted unfairly or deceptively.

In Minnesota, officials said Chubb should issue drought policies to about 1,000 farmers there.

A 1987 state law says that if a farmer’s premium check is cashed, as has happened in most Minnesota cases, the policy cannot be canceled by the company or farmer, officials said.

State and company representatives in Minnesota plan to meet to discuss the issue.

In Ohio, Peg Ising, an assistant director to the state insurance division, said, ″We’re looking at the situation in Ohio at the present time.″

Most crop insurance is backed by the U.S. Agriculture Department’s Federal Crop Insurance Corp., which has an April 15 application deadline and covers a range of natural afflictions at once.

Few companies provide coverage for specific problems - such as drought. Ms. Korkuch said Chubb had been doing so for three or four years.

Chubb apparently had been having trouble finding a company to offer reinsurance, said Eric Edgington, a spokesman for Federal Crop Insurance Corp.

″In years like this, only Uncle Sam has pockets deep enough,″ he said.

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