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AG loses fight against Allstate

Maryland’s top court Wednesday upheld Allstate Insurance Co.’s decision to stop offering new homeowners’ policies in Southern Maryland, the Lower Eastern Shore and parts of Anne Arundel County due to the company’s potential for catastrophic financial losses if a hurricane hits that region.

In its 6-1 decision, the Court of Appeals said Allstate reasonably decided in 2006 not to issue new policies after concluding that a Category 4 hurricane — involving winds over 130 mph — would cause more than $237 million in property damage were it to make landfall in Worcester County.

Peter Killough, Maryland’s chief state advocate for insurance consumers, said he was disappointed with the court’s decision but that it would not deter him from challenging insurers when they refuse to provide coverage for reasons he finds unreasonable.

“We will continue to review filings and to push insurance companies to justify their decisions to discontinue providing coverage to the people of Maryland,” said Killough, who heads the People’s Insurance Counsel Division in the attorney general’s office. “We’re going to continue to review those filings and we’re going to push back when we think the insurance company has gone too far.”

The court rejected Killough’s argument that Allstate’s decision to stop selling new policies was rash because Maryland had not sustained a major hurricane in at least 100 years.

The court deferred to the Maryland Insurance Administration’s conclusion that Allstate, which had suffered high losses when Hurricane Katrina hit New Orleans and elsewhere around the Gulf of Mexico in 2005, was reasonably concerned about the extensive damage and crippling claims that would result from a hurricane slamming the region.

Allstate hailed the high court’s ruling.

“We respect that the Court of Appeals has affirmed the [Maryland] insurance commissioner’s decision to uphold our filing to responsibly manage our exposure in catastrophe-prone areas,” the Northbrook, Ill.-based company said in a statement. “Today’s ruling is a reaffirmation of our commitment to protect our Maryland policyholders and, from a position of strength, to make good on our promise to be there when customers need us.”

The court noted that Allstate produced sophisticated computer models and expert testimony attesting to a hurricane’s potential damage.

“The commissioner found that evidence relevant and compelling, as he had a right to do, and, based on that evidence, concluded that the geographic designations were reasonably related to Allstate’s economic and business purposes and were not arbitrary or unreasonable,” Judge Alan M. Wilner wrote in the court’s majority opinion.

Insurance Commissioner Therese M. Goldsmith issued a statement praising the court’s decision, particularly its upholding of the agency’s authority under Section 27-501 of the Maryland Insurance Article to require that an insurer’s request to deny coverage be “reasonably related to [its] economic and business purposes.” The intermediate Court of Special Appeals said that statutory provision did not apply in Allstate’s case.

“Going forward, it will be clear that Section 27-501 applies to all underwriting decisions,” Goldsmith said.

Judge Glenn T. Harrell Jr. dissented from Wednesday’s decision, saying Allstate’s refusal to issue new policies was based on an “unsubstantiated fear of a hypothetical force of nature.”

On Dec. 4, 2006, Allstate notified the insurance administration that the company would stop issuing new policies in Maryland’s coastal regions effective Jan. 1, 2007.

In defense of its decision, Allstate told the Maryland Insurance Administration that a Category 4 hurricane in Worcester County would cause losses of $237,189,890 for the company.

Allstate’s refusal to offer new homeowner policies in Maryland coincided with the company’s decision not to write new policies in Delaware, Connecticut, New Jersey and parts of Virginia. Allstate cited concerns that a warmer Atlantic Ocean would lead to more and stronger hurricanes hitting the Mid-Atlantic region.

The Maryland Insurance Administration approved Allstate’s decision in February 2008, over the objection of the People’s Insurance Counsel. The division appealed to the Baltimore City Circuit Court.

Allstate challenged the division’s authority to go to court, saying it could do so only if it were representing an injured party, such as a homeowner denied a policy. The high court sided with the division on April 15, 2009, and sent the case back to the circuit court, which subsequently upheld Allstate’s decision on Oct. 9, 2009.

The Court of Special Appeals affirmed, prompting Killough to seek review by the Court of Appeals. The top court heard argument on Dec. 1, 2011.

Wilner, a retired judge, was specially assigned to the case. He was joined in his opinion by Chief Judge Robert M. Bell, Judge Clayton Greene Jr. and retired Judges Lawrence F. Rodowsky, Irma S. Raker and Paul E. Alpert, who were also specially assigned.

WHAT THE COURT HELD

Case:

People’s Insurance Counsel Division v. Allstate Insurance Co., CA No. 60 Sept. Term 2011. Reported. Opinion by Wilner, J. (Retired, specially assigned). Dissent by Harrell, J. Argued Dec. 1, 2011. Filed Jan. 25, 2012.

Issue:

Did the Maryland Insurance Administration err in permitting an insurer to refuse to offer new property insurance policies to homeowners in Eastern and Southern Maryland based on the catastrophic risk of hurricane damage?

Holding:

No; the insurer’s refusal was not “arbitrary or unreasonable” in light of the massive financial loss it would sustain if a devastating hurricane was to strike.

Counsel:

Peter Killough for appellant; Bryan D. Bolton and J. Van Lear Dorsey

RecordFax # 12-0125-22.