Maryland court sides with Allstate’s decision to not write new policies for coastal properties

Insurance NewsMaryland’s highest court has sided with Allstate this week in a case regarding the insurer’s move to stop writing new homeowners policies in coastal regions. The case emerged in 2007 when the insurer chose to step away from the coastal market due to the potential for natural disasters. The insurer’s move was spurred by a catastrophe model that suggested that losses in these regions as a result to hurricanes or other storms could be gargantuan.

The Maryland Court of Appeals chose to uphold the rulings of lower courts, agreeing that the insurer was within its rights to discontinue writing new policies. Originally, the insurer withdrew from the coastal market in 2006 and adopted a rule that it would not write new policies for properties in Maryland that were within one mile of the Atlantic Ocean. That changed in 2007 when the insurer changed the rule and decided to not write new policies in all ZIP codes along the East Coast that fell in hurricane zones.

The case took a somewhat whimsical turn during the ensuing years of litigation when Allstate’s opponents proposed what is being called the “Godzilla Argument.” The argument hypothesizes that an alternate version of the insurer that resides in a parallel universe would stop writing policies for homes due to the potential of an unlikely event, such as a major hurricane. The argument is based on Allstate’s insistence that Maryland and other states in the northeastern U.S. could be subject to such disastrous event despite the fact that they have not experience any storm of the magnitude Allstate fears.

In the end, the argument did not hold in court.

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