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Posted 2/27/2003 10:14 PM
By Edward Iwata, USA TODAY
In a hair-raising reminder that nuclear war is always possible, insurance behemoth State Farm is telling policyholders that it won't cover damage to cars from nuclear or radioactive blasts.
State Farm, the nation's No. 1 insurer of automobile and homeowner policies, was reviewing its terrorist-related coverage when it realized its auto policies lacked the exclusion, a standard feature of most personal and commercial insurance policies.
"There's a very remote possibility that something like that would happen," says Ana Compain-Romero, a State Farm spokeswoman. "But if it did happen, it would be catastrophic. How would you recover? Where would you begin?"
Since the Sept. 11 attacks, insurers have feared that another terrorist-related attack could wipe out their industry.
To help the industry, Congress last November passed the Terrorism Risk Insurance Act, which requires insurers to offer commercial policies with the federal government covering 90% of losses above $10 billion, up to $100 billion.
The attack on New York City cost the industry $40 billion, according to the Insurance Information Institute, an industry group. And investor Warren Buffett, in a letter to Berkshire Hathaway shareholders, warned recently that a nuclear attack on New York would cost insurers $1 trillion in losses.
Insurance companies have used nuclear exclusions in their policies since the Cold War flared up with the former Soviet Union in the 1940s and 1950s, says Robert Hartwig, senior economist at the Insurance Information Institute.
"Insurers recognized long ago that they couldn't withstand the losses that would result from a nuclear attack," Hartwig says.
Why was the nuclear exclusion missing from State Farm's auto policies?
State Farm originally had the exclusion, but removed it in the early 1980s, Compain-Romero says.
State Farm believed that the federal government would cover radiation damages from nuclear reactors. The insurer also thought that any losses from a nuclear attack would be excluded by the standard war exclusion on every insurance policy.
State Farm's 40 million auto policyholders nationwide will be notified of the change through this year. Some received notices in late 2002.
The nuclear exclusion will be added to all State Farm auto policies by June 2004. State Farm's commercial and homeowners coverage already carry the exclusion. The policy change excludes coverage for vehicle losses caused by any detonation or release of radiation from any nuclear or radioactive device, Compain-Romero says.
© Copyright 2003 USA TODAY, a division of Gannett Co. Inc.