HUNTINGTON -- A Cabell County legislator is asking the city of Huntington to withdraw an ordinance that has prompted a challenge in circuit court from the West Virginia Insurance Federation.

But city officials say they have no intentions of doing so now and are preparing for a hearing on the case next week.

Delegate Jim Morgan, D-Cabell, wrote a letter to Mayor Kim Wolfe last week urging him to initiate steps to repeal an 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, but neither of those have been implemented.

In May 2008, a state panel chose Huntington, Charleston, Bridgeport and Wheeling to participate in a five-year pilot home rule 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.

City officials argue the ordinance, which took effect July 1, 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 value policy law in West Virginia that requires insurance companies to pay the face value of a policy in the event of a total loss, according to the lawsuit.

That puts insurance companies in a position of being forced to either violate state law or the city ordinance, said Jill Bentz, president of the Insurance Federation.

The group also argues in its lawsuit that 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. A hearing on the preliminary injunction is set for 11 a.m. Thursday, July 30, before Cabell Circuit Judge Jane Hustead.

Morgan, who is a member of the home rule panel that chose Huntington and the three other cities to participate in the pilot program, said he fears the lawsuit could ultimately impede cities from moving toward self-government.

"Those in positions to act should take a step back, reconsider their actions and move to repeal the current Huntington ordinance to avoid a court decision that would invalidate home rule," Morgan said in his letter to Wolfe.

But city attorney Scott McClure said the city will not withdraw the ordinance unless it can work out a compromise with the Insurance Federation that still allows the city to address burned-out structures. Wolfe also sent a letter to the three other home rule cities this week asking them to intervene in the case, McClure said. Thus far, Wheeling has indicated it will, he said.

McClure also claimed the impetus of the lawsuit is more about attempts by the Insurance Federation to tweak value policy law so the industry could save millions of dollars per year. The industry generally says that value policy law makes premiums higher.

"We believe our ordinance is legal, just as we are certain that the home rule statute is constitutional," McClure said. "The mayor and his staff are looking into solutions where we can accomplish our goals without getting into the Insurance Federation's political dispute over value policy law."

Bentz said altering value policy law along with the city's ordinance is one possible solution to the legal dispute. She noted that Morgan sponsored a bill in the Legislature this year that included the same provisions of the city's ordinance coupled with changes to value policy law. The proposal, however, didn't make it out of committee.

"Value policy law is not the focus of this lawsuit in any way," Bentz said. "Our intention is to invalidate the ordinance and nothing more."

Bentz said the Insurance Federation does not want to derail the home rule program in its entirety. Asked why the organization argues that it is unconstitutional in its lawsuit, she responded, "Because it may be. The city's unwavering position and focus on the home rule amendment is causing it to be an issue."

Gov. Joe Manchin, a staunch advocate of the home rule pilot program, is aware of the lawsuit and is concerned about the lack of progress toward a resolution, spokesman Matt Turner said. He didn't rule out the governor stepping in to try and broker an agreement between the city and Insurance Federation.

"There are some folks he's going to have to talk to," Turner said. "Whether the governor is able to do that and what steps that need to be taken have not been decided yet."

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A Cabell County legislator is asking the city of Huntington to withdraw an ordinance that has prompted a challenge in circuit court from the West Virginia Insurance Federation.