When a property suffers significant fire damage, Pennsylvania law allows municipalities to hold a portion of the property owner’s insurance proceeds in escrow until the damaged structure is repaired, removed, or secured. This system serves an important purpose: protecting our communities from abandoned and unsafe properties and ensuring municipalities have resources available to address them when necessary.
 
However, current law does not establish a clear deadline for a municipality to act when it holds these funds. Without a reasonable timeline, insurance proceeds can remain in municipal escrow even when the municipality has not used the money to address the damaged property. Property owners deserve certainty about what will happen to their insurance proceeds, and municipalities need clear standards for administering these funds.
 
For this reason, we plan to introduce legislation amending Section 508 of the Insurance Company Law of 1921 to establish a reasonable timeline for the use of fire insurance proceeds held by a municipality.
 
Under our legislation, if a municipality does not receive reasonable proof within 120 days that the damaged structure has been repaired, removed, or secured, the municipality must use the escrowed proceeds to bring the property into compliance with municipal codes and applicable ordinances. Recognizing that circumstances differ from property to property, the legislation allows a municipality to extend this period by up to 245 additional days when more time is necessary.
 
The legislation also requires municipalities to return any portion of the proceeds that they do not use for these purposes. If a municipality fails to return funds as required, the named insured may bring a civil action to recover those proceeds. For funds already held when the legislation takes effect, municipalities will have one year from the date they received the proceeds before the new requirements apply.
 
Fire insurance escrow laws should protect neighborhoods from blight without allowing public entities to hold private insurance proceeds indefinitely. This legislation maintains the safeguards municipalities need to address damaged and unsafe properties while creating clear expectations, reasonable timelines, and accountability for the administration of these funds.
 
Please join us in co-sponsoring this legislation to provide property owners and municipalities with a clear, predictable process for resolving fire insurance escrow funds.