Federal Court Won’t Intervene in Erie Insurance Tiff With Maryland Regulator

A federal appeals court has declined to intervene in state regulatory proceedings in Maryland involving allegations of redlining by Erie Insurance, despite Erie’s complaints that the regulator has already shown bias against it and is likely to do so again.

That’s because Erie has not demonstrated that the actions by the Maryland Insurance Administration have been motivated by bias or that continuing the administrative proceedings would deprive it of a constitutionally adequate process, the Fourth Circuit Court of Appeals ruled last month.

The insurer has maintained that the MIA has not afforded it adequate opportunity to respond to complaints of racial and geographic discrimination by four Baltimore independent agencies. The insurer also claims that MIA violated state law by disclosing confidential business information from market conduct exams and its determination letters on the discrimination allegations.

In those letters, MIA determined that Erie used improper underwriting standards and imposed penalties on agents in order to get them to reject eligible urban and minority risks it considered unprofitable, rather than adjusting its filed underwriting and rates to meet the risks.

Erie sued MIA in federal court court in Baltimore last June over the agency’s handling of the matter, seeking a declaration that the determination letters were unlawful, an injunction preventing the defendants from disseminating the letters, and a requirement for the defendants to publicly withdraw them.

Last August, Judge Julie Rebecca Rubin in the federal district court dismissed Erie’s lawsuit against MIA. The judge cited the doctrine of abstention outlined in Younger v. Harris, which generally discourages federal courts from interfering with ongoing state proceedings.

On appeal, Erie raised 21 issues questioning the district court’s dismissal of its case, including expressing its concern that more trade secrets could be disclosed if MIA is permitted to continue on its current administrative path.

In affirming the district court’s decision to abstain from interfering, the Fourth Circuit Court of Appeals found that state law affords Erie adequate opportunity to raise its constitutional claims in the continuing administrative hearings and subsequent state court review.

The court also found that Erie did not prove that past actions by MIA were motivated by bias that would affect future proceedings.

Erie insisted that its case falls within a category of exceptions to the abstention doctrine where constitutional issues are at stake. But as the party asking a federal court to intervene, Erie had the burden to show that it lacks such an opportunity because state procedural law somehow prevents it from presenting its claims. But the court said Erie failed to meet its burden.

Pointing out that Erie seeks an order directing the MIA to withdraw its already issued letters, the court noted that there is nothing preventing Erie from seeking such relief from the hearing officer and the Maryland courts.

The original dispute involved the handling of four administrative complaints filed with MIA alleging Erie engaged in discriminatory practices against low-income and minority communities in the Baltimore area. The complaints were filed by Baltimore Insurance Network, Burley Insurance & Financial Services, Ross Insurance Agency and Welsch Insurance Group.

In their complaints, the agencies said that they were restricted from offering Erie’s policies to residents of primarily Black communities. They alleged that Erie threatened and penalized them for challenging what they maintain are Erie’s discriminatory redlining policies. The agencies claim the retaliatory actions hurt their business.