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S.B. 807
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VETOES
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(b) how the nonprofit corporation receiving the assets of the Corporation
anticipates utilizing the assets or has been utilizing the assets; and
(c) when the provisions of law regarding the phase-out and dissolution of the
Corporation are no longer needed.
SECTION 3. AND BE IT FURTHER ENACTED, That this Act shall "take
effect July 1, 2002. Section 2 of this Act shall remain effective only through the date
of the report in which the Commissioner of Financial Regulation advises that the
phase-out and dissolution of the Credit Union Insurance Corporation and the
transfer of the assets of the Corporation are completed and, at the end of that date,
with no further action required by the General Assembly, Section 2 of this Act shall be
abrogated and of no further force and effect.
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May 15, 2002
The Honorable Thomas V. Mike Miller, Jr.
President of the Senate
State House
Annapolis MD 21401
Dear Mr. President:
In accordance with Article II, Section 17 of the Maryland Constitution, I have today
vetoed Senate Bill 807 - Homeowner's Insurance - Perpetual Policies - Cancellation.
Senate Bill 807 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 Senate Bill 807 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.
Senate Bill 807 does contain provisions that an insurer must follow for canceling a
"perpetual" policy. These provisions are not strong enough. If the State affirmatively
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- 4900 -
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