Local governments have often been tasked with cleaning up burned and abandoned structures. To help local governments recoup the cost of these cleanups, when an insurance company receives a claim under a fire insurance policy for a loss to real property (such as land and buildings) due to fire, a lien on the insurance proceeds is automatically created in favor of the municipality or county where the property is located. 1 The insurer must withhold payment of a portion of proceeds until it receives certification that the building has been repaired or cleaned up. 2 If the owner satisfactorily cleans up or repairs the property within a reasonable time, the lien is released. 3 If, on the other hand, a municipality or county has incurred these costs and the insurance company receives notice to that effect within six months, the local government will be reimbursed from the withheld proceeds. 4
Liens for fire cleanup are the greater amount between $5,000 or 10% of the policy limit for the real property loss, including any coverage for debris removal, although the lien amount may not exceed a policy’s limit on coverage for real property and debris removal. 5 For policies issued by farmers’ mutual fire insurance companies, liens are limited to 10% of policy limits for loss to real property. 6 The liens do not apply to the loss of items such as personal possessions or payments for temporary housing and living expenses. 7
- Discourages deliberate arson or neglect
- Discourages abandonment after fire by property owners, particularly for non-owner-occupied properties where those incentives are higher
- Can expedite returning properties to productive use
- Helps local governments cover costs of fire-related debris removal and demolition
- Helps mitigate fire-related hazards created by neglected properties
- Limited applicability
- New provision of the West Virginia Code is largely untested and possibly unknown to insurance companies, county clerks, and others
The Insurer’s Letter. Within 10 days of the insurer’s determination that a covered claim constitutes a total loss, 8 the company must send certified letters to the insured and either to the municipal treasurer or the county sheriff, as applicable.
The letter should state:
(1) any amount claimed;
(2) the limits and conditions of coverage;
(3) the location of the property;
(4) the terms and limits of coverage designated by the insurance policy for securing, cleanup, and removal, if any;
(5) any time limitations imposed on the insured for securing, cleanup, and removal; and
(6) the policyholder’s name and mailing address. 9
Recording and Perfecting the Lien. Within 30 days of receiving the insurer’s letter, a local government must perfect (i.e., make official) its lien by filing notarized notice with the clerk of the county commission of the county where the property is located. The notice should state and establish a lien for the estimated cost of cleanup, debris removal, and securing the structure, subject to the limitations discussed above. Section 38-10E-1(c)(3) of the West Virginia Code provides the format for the notice. The county clerk must index the lien in a book in his or her office called “Debris Removal Liens” as a lien against the insurance proceeds, and must send a copy of the notice to the insurer. 10
Releasing the Lien. When the property has been adequately cleaned up, the lien is considered satisfied. The municipal treasurer or the county sheriff must then sign a release and record it with the clerk of the county commission in the “Debris Removal Liens” book, and immediately send a certified copy to the insurance company. 11
No additional funding should be necessary to use this tool.
It’s to the insurance industry’s advantage to participate in a program like this. To an extent, it takes the arson-for-profit motive out of the picture when the property owner knows they will have to take care of their property after they burn it down.12
In October 2008, the City of Huntington passed an ordinance requiring insurance companies to hold a portion of proceeds from fire insurance claims, to be allocated to the City’s Finance Director. If an owner paid to rebuild or tear down a fire-damaged property within a certain amount of time, the money held for the City was returned to the owner. If an owner walked away from a fire-damaged property, the allocated money was used to pay for demolition.
As Huntington explains in its Home Rule Plan, revised in 2013:
Members of the City of Huntington’s Home Rule team had several meetings with representatives of the Insurance Commissioner’s office and the West Virginia Insurance Federation while working on the details of the ordinance. The Insurance Federation took issue with the City of Huntington enacting an ordinance that set out different guidelines than those used in other parts of the state. As a potential compromise, the City agreed to work with State legislators on a solution that would be consistent across the state and delayed the effective date of the article until July 1, 2009.
On July 1, 2009, the Insurance Federation filed a lawsuit against the city of Huntington in Cabell Circuit Court. The lawsuit was prompted by the enactment of the ordinance. The West Virginia Insurance Federation contended in the lawsuit that the Home Rule Pilot Program giving Huntington and three other cities home rule powers is unconstitutional and should be terminated.
The City of Huntington worked closely with [former] Governor Joe Manchin and [West Virginia] legislators on a bill that would allow counties and municipalities to place a statutory lien on a portion of fire insurance proceeds when there is a total loss. Governor Manchin proposed the bill during the West Virginia Legislature’s regular session in January  and touted its potential while touring several dilapidated structures in Huntington in March.
On June 16, 2010, Governor Manchin signed the Fire Insurance Proceeds Bill into law. The bill was a compromise between Huntington and the Insurance Federation. 1 3
We haven’t made money on this tool, but that’s actually a good thing. It means that people are taking care of their properties themselves. The buildings are getting demolished, and we do receive some revenue from people having to come in and get a permit to do the demolition. One of our inspectors goes out and checks to make sure the work is done, and we haven’t had any problems with non-performance. There was a problem in this context before and this tool seems to have taken care of it, with minimal effort on our part. When you can get the bank and the insurance companies involved, property owners react, including owners who live out of state. This tool seems to be working across the board, and doesn’t seem to be a respecter of persons.
— Ericka Hernandez Hostetter, Assistant City Attorney, Huntington
Gov. Joseph Manchin, insurers and the West Virginia Municipal League, as well as the city of Huntington, are now embracing legislation that will allow any city or county to obtain a lien on insurance proceeds for a total fire loss if the municipality has reason to believe the owner will abandon the property and not take care of cleaning up after the fire.14
‘Unfortunately, after a damaging fire, some property owners take their fire insurance money and run, leaving the city with a dangerous, abandoned building they cannot afford to demolish. We are joining our cities and the Insurance Federation on a bill that gives more flexibility to clean up buildings damaged beyond repair by fire, by allowing the cities to place a lien on fire insurance policies,’ said Manchin.
Huntington’s original Home Rule Plan cited the statistic that injuries to firefighters are around five times higher in vacant structures than in occupied ones. 15
From 2003 to 2008, Huntington averaged over 300 structure fires within the city limits annually:
- 77% occurred in non-owner-occupied buildings.
- 30% of those occurring in non-owneroccupied buildings resulted in total loss and abandonment.
- Properties abandoned after structure fires were estimated to have a high correlation with delinquency on property taxes, refuse fees, and municipal fees.
- Values for properties next to burned structures were estimated to drop by at least 10%. 16
- W. Va. Code Ann. § 38-10E-1 (West 2015).
- Id. §§ 38-10E-1(a), 38-10E-2(a).
- Id. § 33-17-9b.
- Id. §§ 38-10E-1(a), 38-10E-2(a).
- “All insurers providing fire insurance on real property . . . shall be liable, in case of total loss by fire or otherwise, as stated in the policy, for the whole amount of insurance stated in the policy, upon such real property,” unless insurance has been procured from two or more insurers covering the same interest in the real property. Id. § 33-17-9. The test for whether a loss counts as a “total loss” is “whether a reasonably prudent owner, uninsured, desiring such a structure as the one in question was before the injury, would, in proceeding to restore the building to its original condition, utilize as the basis for such restoration the remnant of the structure standing. If such remnant is reasonably adapted for use as such basis, there is no total loss.” Nicholas v. Granite State Fire Ins. Co., 125 W. Va. 349, 352–53, 24 S.E.2d 280, 283 (1943). This essentially means that if a burned structure can no longer be restored to its original form, the insured owner is entitled to payment for the whole insurance coverage available. For a partial loss, the insured receives coverage “for the total amount of the partial loss, not to exceed the whole amount of insurance upon the real property as stated in the policy.” W. Va. Code Ann. § 33- 17-9 (West).
- W. Va. Code Ann. § 38-10E-1(b) (West).
- Id. § 38-10E-1(c)(1)–(3), (d).
- Id. § 38-10E-2(b).
- City of Huntington, West Virginia Municipal Home Rule Pilot Program Application 10 (2007), available at http://www.wvcommerce.org/App_Media/assets/doc/peopleandplaces/ WV_Home_Rule/2007_ORIGINAL_HomeRuleapplicationHUNTINGTON.pdf.
- City of Huntington, Home Rule Pilot Program: Revised April 2013 6 (2013), available at http://www.cityofhuntington.com/assets/pdf/document-center/Home_Rule_Plan.pdf.
- Andrew G. Simpson, West Virginia Eyes Lien on Fire Insurance to Fight Abandoned Buildings, Ins. Journal (Jan. 10, 2010), http://www.insurancejournal.com/news/ southeast/2010/01/21/106747.htm (last visited Aug. 12, 2015).
- City of Huntington Application, supra note 12.
- Id. at 11.