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H.B.1236
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VETOES
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SECTION 2. AND BE IT FURTHER ENACTED, That this Act shall take effect
October 1, 2002.
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May 15, 2002
The Honorable Casper R. Taylor, Jr.
Speaker of the House
State House
Annapolis MD 21401
Dear Mr. Speaker:
In accordance with Article II, Section 17 of the Maryland Constitution, I have today
vetoed House Bill 1236 - Homeowner's Insurance - Perpetual Policies -
Cancellations.
House Bill 1236 would have authorized an insurer to cancel a "perpetual"
homeowner's insurance policy if the cancellation: (1) takes effect on the anniversary of
the policy's inception; (2) is not based on a claim that occurred more than three years
before the anniversary date of the policy on which the proposed cancellation would
take effect; and (3) is otherwise in accordance with other anti-discrimination
insurance laws.
When an individual purchases a "perpetual" homeowner's insurance policy, it is with
the understanding that he/she will place a fixed sum of money on deposit with the
insurance company in return for comprehensive insurance protection. Unlike other
insurance policies, "perpetual" policies have no expiration or renewal date and require
no annual premium. Consequently, a "perpetual" insurance policy is, by its very
nature, an indefinite insurance policy.
An insurer should not be allowed to cancel a "perpetual" policy. An insurer who
cancels a "perpetual" policy is in reality making a mid-policy cancellation, an action
that is otherwise not allowed under State law. Proponents of House Bill 1236 contend
that insurance companies that issue "perpetual" policies should be allowed to cancel
them when the policyholder has extraordinary losses. While I recognize that
"perpetual" policies do carry a certain amount of risk to the insurer due to the
insurer's inability to increase the policyholder's premium, this risk should be
recognized at the time the contract is entered into with the policyholder and is offset
by the ability of the insurer to earn investment income on the policyholder's deposit.
House Bill 1236 does contain provisions that an insurer must follow for canceling a
"perpetual" policy. These provisions are not strong enough. If the State affirmatively
allows the cancellation of "perpetual" homeowner's insurance policies, the
cancellations should only apply to policies issued after the effective date of the bill. In
addition, more stringent standards should be established for canceling a "perpetual"
policy rather than just applying the same standards that currently govern annual or
semi-annual insurance policies.
For the above reasons, I have vetoed House Bill 1236.
Sincerely,
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- 5338 -
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