OCEAN CITY — A Maryland appeals court this week ruled a major insurance carrier was well within its rights to stop writing new property insurance policies in coastal areas of the state including Ocean City and Worcester County, pointing out the decision was based on sound business practices and not discriminatory in any way.
In December 2006, Allstate Insurance informed the Maryland Insurance Administration (MIA) it would no longer be writing new property insurance policies in “certain catastrophe-prone areas” in the state effective Jan. 1, 2007. The decision was made in the aftermath of Hurricanes Katrina and Rita, during which Allstate and most major carriers took devastating and potentially crippling losses on property insurance claims totaling hundreds of millions of dollars.
The big insurance companies cited the potential risk of increased losses in the future in coastal areas of Maryland, including Worcester and Ocean City, as the basis for the decision not to write any new homeowner policies in the designated catastrophe prone areas. The MIA reviewed Allstate’s decision and deemed it valid. However, in 2007, the Maryland General Assembly created the People’s Insurance Counsel Division during a special session as a watchdog agency of sorts to look out for the interests of the consumers in insurance issues.
The division quickly filed a challenge against Allstate and the other major carriers’ decision not to issue new homeowner policies in hurricane-prone areas of Maryland, which essentially includes most of the state, calling the policy discriminatory. In the years since, the case has gone up and down the judicial ladder before the state’s Court of Special Appeals this week issued a definitive opinion on the issue.
The Court of Special Appeals ruled in favor of Allstate, essentially agreeing the company’s decision was based on sound and prudent business fundamentals and was not in any way discriminatory against residents in coastal areas of Maryland. In advance of its decision, Allstate designated the catastrophe-prone areas in Maryland with hurricane bands numbered 4, 5 and 6, with 6 being the band most likely to be impacted by a catastrophic hurricane. Naturally, Worcester County fell within the boundaries of the designated hurricane bands, along with all or portions of every county bordering the Chesapeake.
Allstate then commissioned a research company to create a model that provided real risk data down to the zip code level, which the insurance company used as the basis for its decision to stop writing new property insurance policies in the designated at-risk geographic areas identified.
The model generated storm strike probabilities in hurricane bands 4-6 for the next 100 years. For example, the model predicted four hurricanes making landfall in Worcester County with two more making landfall in Virginia and another making landfall in Delaware.
However, the People’s Division was not satisfied with Allstate’s data and continued to assert the insurance carrier’s decision to discontinue homeowner policies in hurricane-prone areas was arbitrary and unreasonable. The Court of Special Appeals opinion issued this week begs to differ.
“For the Division to demand that Allstate somehow fine tune the prognostication to one of an eight-percent likelihood that a category-4 hurricane will come ashore on Assateague Island in September of 2057 is absurd,” the opinion reads. “The very nature of the meteorological phenomenon is not vulnerable to being thus pinned down. It’s as if the Division refuses to hear what All State’s three expert witnesses were talking about a problem massively bigger than Maryland, but of which Maryland is nonetheless a small, but undeniable part. The syllogism is simple.”
The appeals court ruled the People’s Division’s request for more specific hurricane probability data was unreasonable.
“Although it is a continental problem of a type to be studied through a telescope, the Division wants it to be examined under a microscope,” the opinion reads. “That is not a scientific way to look at a global phenomenon. We will take judicial notice that Maryland is on the eastern seaboard of North America and, as such, is in the gun sights of six to eight hurricanes per year. As a relatively thin slice of a much larger target, Maryland’s statistical chances of not being hit in a given year are good. It cannot be predicted, however, when its turn will come. It is, in any event, prudent and fiscally wise to plan ahead for such an eventuality, which is what All State is doing.”
The appeals court also dismissed the People’s Division contention Allstate’s refusal to write new homeowner policies in hurricane prone areas was akin to dropping the driver’s policy because of accidents or tickets.
“The difference in magnitudes of risk between Hurricane Katrina and Katrina Abramowitz, with two traffic infractions and three points on her driving record, is so vast as to be incomprehensible,” the opinion reads. “Even to attempt to describe one in terms of the other would be gibberish. An automobile collision or a botched operation is not a catastrophe.”