Battle with Allstate may go to court

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Law bans dropping coverage

Battle with Allstate may go to court

Tuesday, July 25, 2006

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By Mowbray

Allstate's efforts to drop wind and hail coverage for existing

homeowners policies in coastal areas violates Louisiana's most

important consumer protection statute on property insurance,

Louisiana Insurance Commissioner Jim Donelon said, adding that the

efforts are likely to end up in court.

On Friday, Donelon said Allstate planned to drop hurricane coverage

for 30,000 of its 140,000 customers in 18 coastal parishes.

" It's totally opposite of what the reading of the statute says, and

what the practice of the industry has been statewide since that

statute was enacted in 1992, " Donelon said. " They are gutting the

homeowners protection policy and taking the majority of coverage

away. "

But Allstate said it has a different interpretation of the law, and

plans to move ahead with the same types of policy changes it is

making in states such as Texas, Florida, New York and North Carolina

to try to reduce its exposure to catastrophe losses.

" Nowhere along the Gulf Coast and the Atlantic Coast are we writing

new policies on the coast, and we're either ceding business, doing

deductibles or nonrenewing, " said Rob Hair, senior state manager for

Allstate, which is making changes in response to new computer models

that show a heightened hurricanes risk for the foreseeable future.

Matter of interpretation

At issue is a 1992 consumer protection statute on insurance that

Donelon calls the best in the country. That law prevents insurers

from dropping customers once they have been policyholders for three

years, save for a limited number of exceptions. It states:

" No insurer providing property, casualty, or liability insurance

shall cancel or fail to renew a homeowner's policy of insurance or

to increase the policy deductible that has been in effect and

renewed for more than three years unless based on nonpayment of

premium, fraud of the insured, a material change in the risk being

insured, two or more claims within a period of three years, or if

continuation of such policy endangers the solvency of the insurer.

This subsection shall not apply to an insurer that ceases writing

homeowners insurance or to policy deductibles increased for all

homeowners policies in the state. "

Donelon says the meaning of the statute is clear, that insurance

companies can't drop coverage for their policyholders once they've

been together for three years, save for some notable exceptions. The

industry, including State Farm, the state's largest residential

insurer, have indicated with their actions in the past that their

reading concurs with the insurance department's, Donelon said.

But Allstate Regional Counsel Lorrie Brouse said that Allstate, the

state's No. 2 residential insurer with 20.2 percent of the

homeowners insurance market, isn't breaking the law with its

proposed action. It's not dropping customers, Brouse said, it's

utilizing an endorsement to make policy changes.

" We're simply stating we're not in violation of that statute because

we're not nonrenewing. We are offering people the same policy, but

on a select group of homeowners, we will remove the wind and hail. "

Brouse said. " We had this researched very well. We feel very

comfortable with our position. "

Donelon said he respectfully disagrees, and insurance department

attorneys are figuring out what's the next step. " Ultimately our

state Supreme Court will decide that, " Donelon said.

Opening the door

But Allstate appeared to back off of its threat to drop coverage for

220,000 customers statewide and leave the homeowners market over the

issue, saying that Donelon had " mischaracterized " their stance on

Friday.

" Since we believe that our plans are not in violation of state law,

we do not plan to exit the state, " Brouse said. " Withdrawal is

always an option, but it's a last resort. "

Hunter, director of insurance at the Consumer Federation of

America, said that Louisiana's law is an important consumer

protection, and that it's critical that Donelon stick to his guns.

Hunter said he's not surprised that Allstate is pushing the issue,

and warned that if the insurance department caves to Allstate's

request, other companies will demand the same treatment and render

the law useless.

" The insurance commissioner has to fight. Otherwise, how can the

insurance commissioner say no if someone comes in next week and asks

for the same thing? He has to stand firm. It's the law, " Hunter

said. " It's an open door for others to come to the department and

say the same thing. You've got to stand firm on the first one.

Allstate is usually the heavy. "

In calls to local media on Monday, puzzled homeowners questioned why

Louisiana Farm Bureau Mutual Insurance Co. was allowed to begin

dropping the wind and hail coverage for 7,500 customers in southern

Louisiana in June and re-book them with the Louisiana Citizens

Property Insurance Corp., the state-sponsored insurer of last

resort, if Allstate isn't allowed to drop wind and hail coverage.

The Louisiana Department of Insurance said the difference is that

Louisiana Farm Bureau demonstrated to then-commissioner

Wooley that it faced " imminent insolvency " if it continued to insure

wind risk on the coast, and got a special permission from the

department to cancel existing customers.

Donelon notes that Louisiana Farm Bureau is a single-state entity

that was overwhelmed facing damage from two of the most costly

hurricanes on record, while Allstate is a large national company

that announced record second-quarter profits of $1.21 billion on

Friday. He also said that Mississippi Farm Bureau failed after

Katrina, and other Farm Bureau entities are paying its claims.

Allstate has received no such designation of insolvency.

" In no way is the solvency of Allstate Insurance company in

jeopardy. I have asked them that on many occasions, " Donelon said.

Nationwide efforts

Allstate's efforts to drop wind and hail coverage in Louisiana is

part of the company's nationwide efforts to reduce its exposure to

catastrophic losses while it lobbies the federal government to

create a national catastrophe fund to cover excessive losses from

events such as hurricanes and earthquakes.

Last October, the company notified insurance regulators in North

Carolina that it planned to drop wind and hail coverage in some

coastal areas of the state. In February, Allstate started dropping

customers in coastal areas of New York. In May, Allstate told 65,000

coastal policyholders in Texas that the company would not renew

their windstorm coverage starting Sept. 15. Also in May, the company

announced it would not renew 120,000 homeowner policies in Florida.

During the winter, Allstate approached then-Insurance Commissioner

Wooley, who resigned in mid-February to work for the law firm

of and Reese LLP, about selectively nonrenewing customers in

coastal areas to manage its catastrophe exposure the way the company

is doing other states. But when the insurance department explained

that Allstate would have to demonstrate its financial insolvency to

be able to drop the wind and hail coverage for existing customers,

the company didn't follow through.

Allstate says that was merely a courtesy call to advise Wooley of

where it wanted to go, and it never considered itself to be facing

financial hardship. " We've always been consistent that we never felt

that we were violating any of the statues, " Brouse said.

'A contract is a contract'

During the spring legislative session, a bill was filed proposing

that a " reduction in existing coverage or increase in policy

deductible shall not constitute a cancellation or failure to renew a

property, casualty or liability policy. "

Rep. , a Democrat from New Orleans who chairs the House

insurance committee, said she introduced House Bill 944 on behalf of

State Farm because it was trying to find a way to ease some of the

burdens on the insurance business in northern Louisiana during the

homeowners insurance crisis that has developed after Katrina and

Rita, but said State Farm suggested she withdraw the bill

after it became clear it would gut the 1992 statute. said the

bill would have allowed Allstate to do exactly what it's trying to

do now.

Brouse said Allstate had been interested in the bill because the

insurance industry had been invited to weigh in to help clarify the

1992 statute. She said Allstate never thought it applied to their

situation with the wind and hail customers.

said she is surprised about Allstate's moves on the wind and

hail coverage, because she said the company has been a leading voice

saying that " a contract is a contract " with regard to the one-year

statute of limitations on filing lawsuits over claims.

" They've been the biggest advocate for protecting contractual

relationships. It's ironic that something like that would come from

their company. It's inconsistent, " said. " You can't have it

both ways. "

sided with Donelon that Allstate's proposed action would

violate the 1992 law. She said she is considering holding joint

hearings of the insurance committees of both houses of the

legislature to make sure that the legislative intent of the consumer

protection statute is clear. " It's completely inconsistent with

public policy and with what the legislature intended, " she said.

Allstate says it will start sending notices that customers will lose

their wind and hail coverage in January as customers' policies start

coming up for renewal. Customers will get a letter notifying them of

the change 90 days ahead of time, then they'll get their actual

renewal 45 days before the policy expires.

The 30,000 customers in Cameron, Vermilion, Lafayette, St. ,

Iberia, St. , Terrebonne, Assumption, Ascension, St. ,

St. , St. , Lafourche, Jefferson, Plaquemines, St.

Tammany, St. Bernard, and Orleans parishes who are slated to lose

their wind and hail coverage will receive notices throughout the

year as their policies come up for renewal.

Allstate agents will help those who are dropped get rebooked with

Louisiana Citizens Property Insurance Corp.

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Mowbray can be reached at rmowbray@... or

(504) 826-3417.