Maryland Court Sides With Allstate in Coastal Homeowners Case

The Maryland Court of Appeals, the state’s highest court, recently ruled in favor of Allstate. The court upheld a previous lower court’s ruling that the insurer was within its rights to stop writing new homeowners policies in coastal areas of the state in 2007.

The court said Allstate’s decision was based on the company’s catastrophic storm forecasting models and that it was not discriminatory.

In 2006, Allstate filed a new underwriting rule stating that, pending regulatory approval, it would stop writing new homeowners and renters policies in all ZIP Codes located within what it defined as Hurricane Bands 4, 5, and 6, covering one third of the state. In May 2007, Maryland regulators approved the rule, saying that Allstate’s geographic designation had an objective basis and was neither arbitrary nor unreasonable. The new underwriting rule was put into effect in June 2007.

However, the Office of the Attorney General filed a challenge against Allstate and other insurers who adopted comparable underwriting rules. It alleged that the insurers’ decision to stop writing new policies in coastal areas was discriminatory and was based on improbable scenarios.

The high court sided with Allstate in a 6-1 decision. But in what has to be one of the more colorful arguments in an insurance case, Judge Glenn Harrell wrote a dissenting opinion that compared Allstate to a hypothetical insurer – “Alternate Allstate” – that stops writing new policies because of an unlikely risk of being attacked by Godzilla.

He argued that recorded history on the subject shows, again and again, that a catastrophic hurricane of the order of magnitude described in Allstate’s plan justification and forecasting models has not made landfall in Maryland yet. And the chance of such a hurricane hitting Maryland in the future is so improbable that the insurers might as well be waiting for Godzilla to attack Maryland.