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July 3, 1979.

U.S. FIRE INSURANCE COMPANY et al., Plaintiffs,

The opinion of the court was delivered by: GREENE


HAROLD H. GREENE, District Judge.

 The Urban Property Protection and Reinsurance Act was enacted by the Congress in 1968 after a rash of civil disorders led it to conclude that the lack of adequate reinsurance coverage in inner city areas was contributing to their deterioration since heavy losses sustained by private insurance companies as a result of the disorders jeopardized their ability to provide property protection insurance for them. Under this statute, the Federal Insurance Administration, an agency of the Department of Housing and Urban Development, is authorized to provide riot reinsurance to private insurers subject to certain terms and conditions, one of which is that the particular state in which the company operates establish a federally-approved plan to provide Fair Access to Insurance Requirements (FAIR).

 On September 1, 1978, the Administrator offered such reinsurance to insurance companies under a standard contract for the year October 1, 1978, to September 30, 1979, and issued a list of 26 states and the District of Columbia which were deemed eligible to participate in the program. On September 15 and 18, 1978, the various Plaintiffs accepted this offer. Thereafter, and presumably in reliance thereon, they wrote property insurance policies, apparently amounting to several billions of dollars, in a number of states. Upon payment of the appropriate premiums, these policies became federally reinsured under the Administrator's standard contract.

 On October 15, 1978, after Plaintiffs had entered into these reinsurance contracts, Congress enacted the so-called Holtzman Amendment, P.L. 95-557, § 307, 12 U.S.C. § 1749bbb-3, which, in addition to changing the composition of the boards of directors of the agencies administering the state plans, requires that no risk within a plan may be insured at a rate higher than the rates set by the principal state-licensed rating organizations. Severawl months after the enactment of this Amendment, the Administrator determined that the States of Iowa, Minnesota, Missouri, New York, and Virginia, do not meet the requirements of the Amendment and she subsequently advised Plaintiffs that their federal riot reinsurance with respect to these five states was terminated as of March 7, 1979. Following an exchange of correspondence, in which the parties took opposing positions with respect to the Administrator's authority to terminate the reinsurance contracts prior to their specified termination dates, Plaintiffs brought this action.

 The sole issue before the Court is whether plaintiffs are entitled under the statute to a continuation of federal riot reinsurance coverage through the life of their contracts, e.g., through September 30, 1979, on insurance policies issued prior to March 7, 1979. *fn2"

 The provisions of the Act which bear most directly upon this question are sections 3, 7 and 9.

 Section 3 of the Act, 12 U.S.C. § 1749bbb-3, provides that insurance companies are entitled to purchase federal riot reinsurance only if the state in which the primary policy is written has in effect a suitable FAIR plan. Prior to the enactment of the Holtzman Amendment, such plans, in order to be acceptable under the Act, had to meet ten conditions, set forth in different subparagraphs of section 3(b). All of the states involved in this litigation were and are in compliance with these provisions.

 On October 31, 1978, however, the Holtzman Amendment added an eleventh condition to section 3(b) which states:

 (11) Notwithstanding any other provision of this section, on and after January 31, 1979, no risk within the plan shall be insured at a rate higher than the rates or advisory rates set by the principal State-licensed rating organization for essential property insurance in the voluntary market; except that this provision shall not be deemed to prohibit the application to any such risk, on a nondiscriminatory basis, of condition charges for substandard physical conditions within the control of the applicant for insurance as set by the principal State-licensed rating organization for the voluntary market.

 Both parties agree that the plans of the aforementioned five states do not meet the requirements of this eleventh condition. Defendants contend that in view of the failure of the five states to amend their plans to comply with the Holtzman Amendment, the Administrator was required to terminate all of their federal riot reinsurance, including those policies which have already been reinsured. In reaching this conclusion, the Administrator essentially relied on the provision that "no risk shall be insured" on and after January 1979, and determined that this provision effects an automatic and self-executing cut-off of federal riot reinsurance in states whose plans are not in compliance.

 Section 7 of the Act, 12 U.S.C. §§ 1749bbb-7, contains the Act's sanction provisions. Thus, Section 7(c) directs that "[no] reinsurance shall be offered to any insurer or pool in a State... unless there is in effect in such State a [FAIR] plan..." (emphasis added). This, Plaintiffs argue, indicates that the only sanction available in the event of the failure of a state to enact or maintain an acceptable plan is that no new riot reinsurance may be offered or written after the time that the state is determined not to be in compliance, and that it therefore negates any inference that existing insurance may be terminated as a consequence of such noncompliance.

 Finally, section 9 of the Act, 12 U.S.C. § 1749bbb-9, explains the conditions under which federal riot reinsurance may be terminated prior to the end of a policy year. Plaintiffs claim that since this section does not explicitly include the failure of a state to maintain a suitable FAIR plan among those ...

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