Surcharges for Accidents Caused by Defective Tires

DATE: September 21, 2000

RE: Surcharges for Accidents Caused by Defective Tires

Most of the country is aware that tire manufacturer Bridgestone/Firestone has issued

a national and international recall of certain sizes of tires. The recall was prompted

by consumer complaints and auto collision data that demonstrate that tread separation

has caused serious and fatal automobile accidents in the United States and abroad.

The insurance industry has been credited with stepping forward and alerting federal

authorities to the correlation between insurance claims and defective tires. For

these efforts, the insurance industry should be applauded.

In Alabama, insurers of private passenger-type automobiles are allowed to assess

surcharges to insurance premiums following payment of certain claims. However, most

insurance companies do not surcharge a policy if the driver is reimbursed by the

person responsible for the accident. Companies also are not allowed to charge for

collisions with animals, "hit and run" accidents, accidents where the insured automobile

was lawfully parked and other circumstances in which the driver is not "at fault."

We have learned that some insurers are surcharging policies for accidents caused

by defective tires. In light of the national recall and federal investigation, we

believe such rating to be unfairly discriminatory, in violation of Sections 27-13-35

and 27-13-65, Code of Alabama 1975. Defective tires and the accidents they cause

pose an insurance risk to United States insurers. However, those insurers have full

right of subrogation of those losses and are encouraged to pursue the responsible

parties

such rating to be unfairly discriminatory, in violation of Sections 27-13-35

and 27-13-65, Code of Alabama 1975. Defective tires and the accidents they cause

pose an insurance risk to United States insurers. However, those insurers have full

right of subrogation of those losses and are encouraged to pursue the responsible

parties. Policyholders should not be required to bear the burden of surcharges while

waiting for the insurance industry to pursue their subrogation claims. Litigation

surrounding this recall and investigation will take years.

We require that insurers authorized to do business in Alabama cease surcharging

policies for accidents caused by defective tires, regardless of the brand, effective

immediately. Insurers are further directed to remove such current surcharges and

refund or credit the amount of the surcharge to the policyholders beginning from

the inception of the surcharge. This directive applies to surcharges on current

in-force policies and policies purchased after the date of this bulletin.

Questions on this matter can be directed to the Property and Casualty Division,

Alabama Department of Insurance Department, 334-241-4174.