AIA Opposes Bill to Amend Kansas Fire Lien Law

Kansas House Bill 2640, which attempts to reduce the Kansas Department of Insurance's administrative costs and paper work burden associated with providing fire lien information, would unfairly impact insurers and policyholders, said a representative of the American Insurance Association.

Since the Kansas legislature voted to expand the Kansas fire lien law in 1997 by including windstorms and increasing the maximum lien to 15 percent, the Kansas Department of Insurance has seen a dramatic increase in the number of cities and counties enacting lien resolutions and ordinances. Previously, the department had received only 120 notices over the 15-year history of the fire lien law.

Under the fire lien law, insurers are required to withhold proceeds from policyholders who have suffered a loss and pay a portion of these proceeds to local governments to offset the cost of demolition and clean up normally associated with fire, explosion or windstorm damage.

House Bill 2640 would require insurers to withhold proceeds while determining if the city or county of residence for a policyholder has a fire lien ordinance or resolution, thereby removing this function from the Kansas Department of Insurance.

In recent testimony before the Kansas House Insurance Committee, Brad Smoot, Kansas legislative counsel for AIA, told the panel of legislators that House Bill 2640 would also expand insurer liability beyond current law by making the insurer liable beyond policy limits.

"The concept that a carrier should be obligated beyond what it has agreed to pay to its policyholders and for which it has collected an appropriate premium is contrary to the entire concept of a contract and is possibly unconstitutional," Smoot said.

Smoot went on to tell legislators that since the Kansas Department of Insurance is funded through taxes and fees collected from the state's insurance industry, insurers appreciate any efforts to reduce costs. However, Smoot says, HB 2640 unfairly impacts insurers and their policyholders by requiring insurers to withhold proceeds while determining if each individual city or county law participates in the fire lien program.

"Knowing which cities and counties require this payment is essential to compliance," Smoot said. "A central repository for this information, such as the Kansas Department of Insurance, makes much more sense than forcing each insurer in Kansas to contact every city or county in the state. Although the department has seen a recent increase in fire lien law notices, sooner or later that process will slow down," Smoot added.