Oops! Stop Those Policies

Farmers are not the only ones praying for rain. The drought has also meant big trouble for Chubb, the 16th largest U.S. property and casualty insurer (assets: $9.2 billion). Reason: the Warren, N.J., company inadvertently plunged too deep into the rain-insurance business. Chubb's policies, designed to reimburse farmers for crop damage due to low rainfall, sold faster than roadside lemonade in ten Midwestern and Southern states last June, before the full impact of the drought was apparent. By the June 15 application deadline, Chubb's independent managing agent, Good Weather International of Jericho, N.Y., had received more than 8,700 applications for $350 million in coverage. & That was nearly 70 times the amount of rain insurance Chubb sold last year. Stunned by the size of its potential liabilities, Chubb in July placed a $40 million limit on Good Weather's sales, refused to issue 6,200 policies, and offered to refund twice the amount of the premium checks, or about $20 million.

Not fair, cried several hundred farmers whose attorneys agreed last week to consolidate their lawsuits into one national class action against Chubb. In most states, insurance laws dictate that coverage cannot be canceled once the initial premium is paid. Among Chubb's defenses: it did not realize that Good Weather agents had oversold the policies, mostly within two days of the deadline, without permission. But the plaintiffs counter that Chubb, which specializes in up-scale homeowners' and commercial insurance, has been in the business for more than a century and should know how to monitor demand. Insurance authorities in at least five states are considering whether to seek revocation of Chubb's licenses to write insurance in their states.

Even so, many farmers would rather not have to hold Chubb to its word. Says Iowa Plaintiff Lewis Schoening, 52, who farms 1,200 acres and expects to lose two-thirds of his corn crop and almost half his soybeans if the dry weather continues: "I'd sure rather have the rain than the insurance."