Suit targets home rule

HUNTINGTON — The West Virginia Insurance Federation is contending in a lawsuit that a pilot program giving Huntington and three other cities home rule powers is unconstitutional and should be terminated.

The Insurance Federation filed the lawsuit against the city of Huntington on Wednesday in Cabell Circuit Court. The lawsuit was prompted by Wednesday’s enactment of a city ordinance that allows the city to withhold insurance claim proceeds from property owners if they don’t tear down their fire-damaged structures.

The ordinance, which was approved by Huntington City Council on Nov. 10, 2008, is part of the city’s home rule plan. The city also has authority under its plan to implement a land bank authority and a 1 percent occupation tax.

In May 2008, a state panel chose Huntington, Charleston, Bridgeport and Wheeling to participate in a five-year pilot program created by the Legislature. The intent of the program is to give cities more autonomy on taxation and administrative and personnel issues.

Huntington’s ordinance requires insurance companies to withhold $2,000 from every $15,000 of benefits payable to a policyholder on every total fire loss within the city. The withheld proceeds would be placed in escrow by the city and not released until all debris has been removed.

If the property owner does not obtain a certificate of good standing from the city within 90 days, the city will use some of the money in escrow to pay any delinquent fees on the property. If the owner fails to acquire a certificate within 180 days, the money can be used by the city to tear down the property.

City officials argue the ordinance would prevent property owners from abandoning burned properties. When a structure is gutted by fire, it’s common for the property owner to pocket the insurance money and leave the city to pay for the cleanup costs.

But the Insurance Federation claims that the ordinance conflicts with general insurance laws. The withholding provisions in Huntington’s ordinance conflict with laws that require insurance companies to pay the face value of a policy in the event of a total loss, according to the lawsuit.

The ordinance “invades the terms and conditions of insurance policies and forces policyholders to first seek permission from the City of Huntington before pursuing vested contractual rights with insurance companies in the event of a total loss by fire,” the lawsuit states. “Unless the terms and conditions dictated by (the ordinance) are complied with, the City of Huntington gives itself the power to confiscate money from policyholders and places the burden and liability on insurance companies to be the City’s agent of this unlawful confiscation.”

The West Virginia Insurance Commission agrees with the Insurance Federation’s assessment, according to the lawsuit. The Insurance Federation included in its filing letters from the state agency to the cities of Hinton and Beckley stating that the ordinance interferes with the Insurance Commission’s authority. Both cities have considered adopting Huntington’s ordinance.

In addition to the city ordinance, the Insurance Federation also argues the home rule pilot program as a whole is unconstitutional and asks that it be declared null and void. It is seeking a preliminary injunction on the city ordinance until the matter can be addressed in court. The lawsuit has been assigned to Cabell Circuit Judge Jane Hustead.

The Insurance Federation represents property and casualty insurance companies in West Virginia. Ninety percent of the auto insurance policies and 75 percent of the home insurance policies in the state are covered by member companies of the federation.

Huntington officials released a prepared statement Thursday saying they met with the Insurance Federation and Insurance Commission last week. City officials thought all three parties had agreed to avoid litigation and work on a compromise ordinance that could be implemented statewide, according to the release.

 “It is unfortunate that the Federation felt compelled to pursue litigation on a matter that lends to the deterioration of our communities by unsightly burned-out structures and depletes already strained public monies in unnecessary demolition costs,” according to the release.

Jeremy McKnight/For The Herald-Dispatch

The Cabell County Courthouse, which also houses the former Cabell County Jail at 7th Street between 4th and 5th avenues.