CHARLES E. MOYLAN, JR. (Retired, Specially Assigned), J.
In this challenge to a decision of the Maryland Insurance Administration ("MIA"), the appellant is the People's Insurance Counsel Division ("Division"). The Division is an entity of recent vintage,
The core problem in this case is that the Division sought to impose on the appellees, Allstate Insurance Company and Allstate Indemnity Company (collectively "Allstate"), a two-pronged set of conditions or restrictions devised by the General Assembly, beginning in 1970, essentially to combat discriminatory practices in underwriting of racial, ethnic, religious, gender and other familiar varieties. The flaw in the Division's effort is that it seeks to apply those conditions or restrictions to what was a fundamentally business decision of Allstate that did not remotely involve any of the traditional or historic discriminations.
A final threshold observation about this appeal is that the type of risk here being examined, the risk of catastrophic wind damage associated with hurricanes, is a phenomenon so completely and fundamentally dissimilar to the only types of risk heretofore dealt with in the caselaw that the case becomes one of truly first impression.
On December 4, 2006, Allstate advised the MIA that it intended to cease writing new property insurance policies in "certain catastrophe-prone areas" in Maryland effective January 1, 2007. Allstate believed that certain coastal areas bordering the Atlantic Ocean and the Chesapeake Bay presented an unusually high risk of loss in the event of a catastrophic hurricane. As a result, it decided that it was no longer in Allstate's best economic interest to continue to write new property insurance policies in those areas. After an "extensive six month review," this filing of its intent to stop writing new property insurance, submitted pursuant to Maryland Code (1995, 2006 Repl.Vol.), § 19-107 of the Insurance Article ("I.A."), was approved by the Maryland Insurance Commissioner ("the Commissioner") on May 31, 2007. The MIA concluded that the designation of the geographic areas within which Allstate would no longer issue new policies had "an objective basis and [was] neither arbitrary nor unreasonable."
The very next day, the Division requested a hearing before the MIA regarding Allstate's filing. The Division's request was granted, and a hearing was held on December 13 and 14, 2007. By an order issued February 2, 2008, Associate Deputy Commissioner Thomas Paul Raimondi determined that the Division had standing to request the hearing, that Allstate had the burden of persuasion, and that Allstate had sufficiently demonstrated that its filing satisfied I.A. §§ 19-107 and 27-501.
On remand, a hearing was held before Judge Sylvester B. Cox in the Circuit Court for Baltimore City on the Division's petition for judicial review on September 24, 2009. Judge Cox, by order filed October 9, 2009, denied the Division's petition, and affirmed the Commissioner's final order. The Division filed a timely appeal to this Court on November 4, 2009.
On appeal to this Court, the Division raises the following questions for our determination:
Although the appeal to us is technically from the Circuit Court for Baltimore City, we are actually reviewing the decision of the Commissioner. We look not at the circuit court, but through the circuit court. Bayly Crossing, LLC v. Consumer Protection Division, 417 Md. 128, 136-37, 9 A.3d 4 (2010).
In reviewing the decisions of the Commissioner, this Court has an austerely limited role. "Ordinarily, a final order of the Commissioner must be upheld on judicial review if it is legally correct and reasonably supported by the evidentiary record." Insurance Commissioner v. Engelman, 345 Md. 402, 411, 692 A.2d 474 (1997). In reviewing the Commissioner's decision, our role is confined to "determining if there is substantial evidence in the record as a whole to support the agency's findings and conclusions, and to determine if the administrative decision is premised upon an erroneous conclusion of law." United Parcel Service, Inc. v. People's Counsel, 336 Md. 569, 577, 650 A.2d 226 (1994).
On this appeal, the Division, incidentally, does not challenge any of the Commissioner's factual findings.
The Division's first contention is that Allstate's decision to discontinue writing new property insurance in certain catastrophe-prone areas of Maryland was in violation of Insurance Article, § 19-107. Section 19-107(a) provides:
(Emphasis supplied).
Phrased affirmatively, that section therefore provides that Allstate "may ... refuse to issue ... a contract of ... property insurance or casualty insurance solely because the subject of the risk ... is located in a certain geographic area" so long as it satisfies preconditions (1) and (2). With respect to Allstate's satisfaction of precondition (1) there is no dispute. It filed with the Commissioner a written statement designating the geographic area within which it would no longer write property insurance more than 60 days before it began to implement its intended policy. The only dispute with respect to § 19-107(a) is whether Allstate's designation of the geographic area in which it intended to discontinue writing property insurance had an "objective basis" and was not "arbitrary or unreasonable" within the contemplation of subsection (a)(2).
"The Insurance Code is basically the product of a comprehensive revision enacted by Ch. 553 of the Acts of 1963." Muhl v. Magan, 313 Md. 462, 465, 545 A.2d 1321 (1988). In the 1996 recodification of the insurance laws, what became § 19-107(a) was taken directly from what had been Article 48A, § 61A. That earlier section had been enacted by Chapter 927, Section 1, of the Acts of 1965 and in its original form provided simply:
(Emphasis supplied). That appears to have been a legislative effort to prohibit, or at least to inhibit, the practices of some insurance companies to "red line" areas in which the companies would not write motor vehicle insurance on the basis of racial demographics.
In that original manifestation, the section applied only to motor vehicle insurance and it did not prohibit discriminatory practices generally. It was only in 1970 that the Legislature undertook to curb discriminatory practices in insurance underwriting. Section 61A was amended by Chapter 746 of the Acts of 1973, at which time it took essentially its present form.
What clearly emerges is that within the contemplation of § 19-107, the "arbitrary or unreasonable" test is not to be applied to the fiscal wisdom or business acumen of the insurance company in discontinuing to write or renew insurance but only to its "designated geographic area." It is simply the mapping function that must have an objective basis and must not be arbitrary or unreasonable. That particular concern is not with "what," but with "where."
Allstate timely filed with the MIA its intention to stop writing new property insurance in what it had determined to be a catastrophe-prone area of Maryland. This "catastrophe-prone" region, designated by Allstate as Hurricane Bands 4, 5, and 6, consisted of Calvert, St. Mary's, Somerset, Talbot, Wicomico, and Worcester Counties, as well as portions of Anne Arundel, Charles, Dorchester, Prince George's, and Queen Anne's Counties. Allstate Insurance Company, 408 Md. at 340 n. 3, 969 A.2d 971.
According to Allstate, its decision to stop writing new policies in Bands 4, 5, and 6 was based on its significant market share in those bands, and its projections of losses that would result in the event of a catastrophic storm striking Maryland
Allstate's belief that Bands 4, 5 and 6 are especially vulnerable to substantial losses resulting from wind-storm damage was based on information produced by a computer-generated model provided by a catastrophe modeling service, Applied Insurance Research, Inc. ("AIR"). At the December 2007 hearing before the circuit court, counsel for Allstate explained how the AIR Hurricane Model V7.0 (the "AIR model") operated:
(Emphasis supplied).
Counsel for Allstate next explained how Allstate used the statistics generated by the AIR model:
(Emphasis supplied).
Using the data output representing the worst five percent of simulated storms, damage ratios were calculated for every zip code in Maryland. The damage ratios represented the degree of damage a zip code could expect in the event of a catastrophic storm, as compared to the rest of the state. "The higher the damage ratio, the higher the potential damage an area is likely to sustain in the event of a hurricane."
Those damage ratios were then used to divide the state into "Hurricane Bands." Allstate banded zip codes with like damage ratios together, and separated those zip codes with dissimilar damage ratios.
----------------------------------------------------------------------
Average Hurricane
Allstate Average Loss Predicted for Damage Ratio
Homeowners Band Damage Ratio $300,000 Home Relativity
----------------------------------------------------------------------
Band 1 N/A N/A N/A
----------------------------------------------------------------------
Band 2 0.202 $60.60 0.65
----------------------------------------------------------------------
Band 3 0.275 $82.50 0.88
---------------------------------------------------------------------- Band 4 0.442 $132.60 1.42 ---------------------------------------------------------------------- Band 5 2.323 $696.90 7.47 ---------------------------------------------------------------------- Band 6 4.155 $1,246.50 13.36 ---------------------------------------------------------------------- Grand Total 0.311 $93.30 1.00 ----------------------------------------------------------------------
The "damage ratio relativity" column indicates that approximately 1.4 times more damage is expected in Band 4 as compared to the whole state, 7.5 times more in Band 5, and 13.4 times more in Band 6. Allstate contended that those statistics were "compelling evidence of the potential for substantial catastrophic loss in Maryland," and believed that "actions [were] necessary to responsibly control our exposure."
The Division also takes umbrage at the fact that "Allstate's geographic restrictions are not just along the coast—they extend far inland from the Atlantic Ocean, in some cases 60 miles or more. No other insurance company imposes such restrictions beyond 1 mile from the Atlantic Ocean." The Division would have the Commissioner put on geographic blinders. To be 60 miles away from the Atlantic Ocean is beside the point if one is nonetheless on the eastern or western littoral of the lower Chesapeake Bay or along the wide estuarial mouth of the Potomac River.
The essential north-south axis of the Chesapeake Bay is in parallel alignment with the paths of hurricanes veering north along the Atlantic coast. The width of the Bay's mouth and its lower reaches make them, in time of storm, almost open sea. Whereas Puget Sound may be shielded from the open Pacific by the Olympic Mountains and San Francisco Bay can hide behind the Santa Cruz Range, the Delmarva Peninsula offers the Chesapeake Bay no such topographical jetty or windbreak. Its negligible elevation above sea level and its pencil-thin tip offer little more protection than a sand bar. A hurricane coming directly up the Bay or across Northampton or Accomack Counties, Virginia, would have nothing to stop it until it hits southern Maryland or the coastline of the Eastern Shore. If other insurers have not yet recognized this, Allstate has.
With respect to § 19-107(a), Commissioner Raimondi, with ample support in the evidence, expressly found:
(Emphasis supplied).
We hold that there was substantial evidence to support the Commissioner's findings and his rulings. With respect to § 19-107(a), there was no error.
The Division's second contention is that Allstate's decision to discontinue writing new property insurance in certain catastrophe-prone areas of Maryland was in violation of Insurance Article, § 27-501(a). Section 27-501(a) provides:
(Emphasis supplied).
As it was with § 19-107(a), the satisfaction of subsection (a)(1) poses no problem. The Division never suggested that Allstate's projected action involved any of the traditionally prohibited discriminatory practices. The contention focuses exclusively on subsection (a)(2). There is no dispute as to what the words of (a)(2) say. There is a critical dispute as to how broadly the words of (a)(2) were ever meant to apply. The legislative history of § 27-501(a) is the indispensable starting point for any intelligent analysis.
In the recodification that produced the present Insurance Article, what is now § 27-501(a) was taken, without any substantive change, from what had been Article 48A, § 234A. Section 234A, in turn, had been enacted by Chapter 417 of the Acts of 1970 and was aimed at prohibiting a broad range of discriminatory practices. As first enacted, § 234A(a) "made it unlawful for an insurer ... to cancel or refuse to underwrite or renew a particular insurance risk or class of risks for any arbitrary, capricious, unfair or discriminatory reason based in whole or in part upon the race, creed, color, religion, national origin or place of residency of any applicant or policy-holder." Within a year, § 234A(a) was rewritten by Chapter 789 of the Acts of 1971. "Sex" was added to the catalogue of prohibited discriminatory criteria; "any arbitrary, capricious, or unfairly discriminatory reason" became an independent catchall criterion; and "religion, national origin or place of residency" were relegated to implicit membership in the latter catch-all category. "Blindness" has since been added to the list of forbidden criteria.
The first case to interpret the new section was Insurance Commissioner v. Allstate Insurance Company, 268 Md. 428, 302 A.2d 200 (1973). Judge Barnes summed up the purpose of the new legislation, 268 Md. at 442, 302 A.2d 200:
(Emphasis supplied).
The decision in that case overturned two rulings by the Insurance Commissioner that the determinations by two insurance companies not to renew automobile insurance had been arbitrary and capricious and were, therefore, in violation of § 234A. The holding of the Court of Appeals was that the "arbitrary and capricious" language was restricted to the types of discrimination spelled out in the section and did not confer any right on the Commissioner to monitor in any broader way the decision of an insurer not to renew policies. The Commissioner, in short, could not challenge established underwriting criteria
268 Md. at 443-44, 302 A.2d 200 (emphasis supplied).
Government Employees Insurance Company ("GEICO") v. Insurance Commissioner, 273 Md. 467, 330 A.2d 653 (1975), was also a case in which the Insurance Commissioner had ruled that two insurance companies had failed to "justify" their decisions not to renew automobile insurance for two motorists. The circuit court affirmed the Insurance Commissioner but the Court of Appeals reversed, holding that the insurance companies had no such obligation under the then controlling law to "justify" their decisions. Judge Levine's opinion for the Court of Appeals emphasized that substantive burdens on the business decisions of the insurers can only come from legislative action and may not be devised by either the Insurance Commissioner or by the courts.
273 Md. at 483-84, 330 A.2d 653 (emphasis supplied).
In direct response to the 1973 Allstate decision, the General Assembly had amended § 234A once again. By Chapter 752 of the Acts of 1974, the Legislature, immediately after the words proscribing traditional or historic discriminations, added the provision:
(Emphasis supplied). The GEICO opinion was handed down six months after the 1974 amendment took effect on July 1, 1974, but had no occasion to apply it because the critical decisions being reviewed in the GEICO case had been made before the 1974 amendment took effect. GEICO, therefore, does not help us in interpreting the impact of the 1974 amendment to § 234A.
Within months, however, the interpretation of the 1974 amendment that GEICO failed to provide was provided by St. Paul Fire & Marine Insurance Co. v. Insurance Commissioner, 275 Md. 130, 339 A.2d 291 (1975). This interpretation is critical because the appeal now before us turns exclusively on the question of whether Allstate's business decision to discontinue writing new property insurance in a broad swathe of catastrophe-prone areas is or is not in violation of § 27-501(a)(2), taken directly from former Art. 48A, § 234A(a)
We shall hold that Allstate's decision is not in violation of § 27-501(a)(2) for two separate reasons. In the first place, we hold that § 27-501(a)(2) does not apply to this broad-ranging policy decision by Allstate that did not involve any of the traditionally prohibited forms of discrimination. We also hold, alternatively, that even if § 27-501(a)(2) were, arguendo, deemed to apply, Allstate's decision would not in any event have constituted a violation of that section.
The decision of the Court of Appeals in St. Paul Fire & Marine Insurance Company v. Insurance Commissioner is, in our judgment, completely dispositive of the present appeal. It is, indeed, the only appellate opinion to deal with a situation comparable to the one before us. The rest of the caselaw, dealing as it does with decisions to cancel the coverage of an individual motorist because of a bad driving record, or not to renew the coverage of a doctor because of an untruthful application, bears such a strained and attenuated relationship (if any) to what is before us as to be essentially totally useless. We are dealing here, by contrast, with an across-the-board decision by Allstate to discontinue underwriting all new property damage policies in all or in significant parts of eleven of Maryland's twenty-three counties. We are not dealing with Allstate's appraisal of the driving record of an individual motorist. The two diametrically different situations are simply not comparable, and it would take a Procrustean effort to attempt to squeeze the broad-ranging analysis called for in this case into the Lilliputian framework of analysis employed in all of the cases other than St. Paul Fire & Marine.
The St. Paul Fire & Marine situation was comparable in scope to the situation before us. Just as Allstate in the present case became increasingly aware of the financial losses it might be facing in catastrophe-prone areas, St. Paul Fire & Marine, as Judge Levine explained, became increasingly aware of the risks involved in medical malpractice coverage.
275 Md. at 133, 339 A.2d 291 (emphasis supplied).
We see no meaningful distinction between the total termination of a type of coverage in the St. Paul Fire & Marine case and the broad curtailment of writing new coverage within the three hurricane bands in the present case. The rationale of Judge Levine's opinion would apply as surely to § 27-501(a)(2) in the present case as it applied to the 1974 amendment to former § 234A in that case. The thrust of the opinion is that the new language supplements the old language and is not a free-standing criterion.
Faced with past losses and the threat of increasing future losses, St. Paul Fire & Marine announced that "it would cease writing physicians and surgeons professional liability [coverage] in Maryland by January 1, 1975." Id. at 134, 339 A.2d 291.
The Circuit Court for Baltimore City affirmed the Commissioner. Before the Court of Appeals, St. Paul Fire & Marine advanced three contentions.
Id. at 135-36, 339 A.2d 291 (emphasis supplied).
Significantly, the Court of Appeals never addressed the latter two contentions because it held, at the threshold, that the statutory provision in question was not even applicable to the type of broad-based business decision made by the insurer.
Id. at 136, 339 A.2d 291 (emphasis supplied). The subject was thus applicability and not satisfaction.
In rejecting the argument that the 1974 amendment to § 234A(a) had created a new and broad substantive power in the Commissioner to oversee the business soundness of decisions affecting coverage generally, Judge Levine's opinion stressed that the amendment did not create an independent section in the Insurance Code but only added a provision to § 234A(a) which was historically an anti-discrimination measure. The new provision was not a free-standing or autonomous measure but simply an incremental addition to a pre-existing measure. In terms of who was covered by the new amendment, the opinion pointed out that the words "risk or class of risk" in the new language replicated precisely the words "risk or class of risk" in the original anti-discrimination measure. Judge Levine summarized the insurer's position.
Id. at 138, 339 A.2d 291 (emphasis supplied).
The Commission, on the other hand, was contending for a much broader reading of the 1974 amendment, essentially the same contention now being made by the Division in the present case.
Id. at 138-39, 339 A.2d 291.
The Court of Appeals concluded that although the amendment broadened and enhanced the protection being given to certain persons and classes of person, it did not enlarge the ranks of the special group being protected. The Court accepted the company's position.
Id. at 140, 339 A.2d 291 (emphasis supplied).
What is now § 27-501(a)(2) is simply the second step in a two-step anti-discrimination process. If an action by an insurer would appear presumptively to violate § 27-501(a)(1), it is not enough for the insurer merely to disclaim a discriminatory purpose. The insurer, pursuant to § 27-501(a)(2), then bears the burden of establishing that its decision is "reasonably related to the insurer's economic and business purposes" rather than serving a discriminatory purpose. In GEICO v. Insurance Commissioner, 273 Md. at 483, 330 A.2d 653, Judge Levine explained the supplementary or auxiliary role of the new provision added by the 1974 amendment.
(Emphasis supplied).
Step Two in this process does not exist except in conjunction with Step One. If, as the Court of Appeals held, the new 1974 statutory language was inapplicable there, it is inapplicable here.
In the present case, no distinction is being made by Allstate between individuals or classes of individuals within Hurricane Bands 4, 5, and 6. The consequential inapplicability of § 27-501(a) in this case is indistinguishable from the inapplicability of Art. 48A, § 234A(a) in St. Paul Fire & Marine.
Id. at 142, 339 A.2d 291 (emphasis supplied). Judge Levine's opinion concluded:
Id. at 144, 339 A.2d 291 (emphasis supplied).
With respect to this second contention by the Division, our primary holding is that § 27-501(a)(2) of the Insurance Article, at the threshold, does not apply to this broad-based business decision by Allstate that did not involve any of the traditionally prohibited forms of discrimination. If inapplicable, it, ipso facto, could not have been violated.
A second reason why the Division may not prevail on this contention is that even if, purely arguendo, § 27-501(a)(2) were deemed to apply to Allstate's decision to stop underwriting new property insurance in Hurricane Bands 4, 5, and 6, our holding even in that event would be that Allstate, on the merits, had fully satisfied the requirements of the section. The Division contends that Allstate failed to satisfy § 27-501(a)(2) in two separate regards: 1) that Allstate failed "to provide any statistical data validating the probability of a catastrophic hurricane occurring in Maryland," and 2) that Allstate failed "to provide statistical data showing that its rating plan in effect was not sufficient to cover losses in the event of a catastrophic hurricane[.]" We will address each of those subcontentions in turn.
The first subcontention is unreal. There is a repetitive drumbeat to the Division's attack on Allstate's compliance with § 27-501(a)(2). In its brief, the Division boldly asserts, "Allstate was legally required to show the probability of a catastrophic hurricane striking Maryland in order to justify its no-write decision." Quoting from the preamble to Chapter 752 of the Acts of
We hear in this nostalgic echoes from Lerner and Loewe's "My Fair Lady," as it tells us that "hurricanes hardly happen." Professor Higgins to the contrary notwithstanding, however, hurricanes do happen— frequently and predictably. We can predict, as did Allstate, when they are going to happen and where they are going to happen. In terms of when they will happen, for the Eastern Seaboard of the North American continent, they are going to happen six or eight times a year and, each year, within a June 1 to November 30 window commonly called the "hurricane season." In terms of where they are going to happen (meaning where they will make landfall), they are going to happen on the east coast of North America somewhere between the Yucatan Peninsula and Nova Scotia. Even if we were to narrow that target range to one of between Brownsville, Texas and Bar Harbor, Maine, for a national insurance company such as Allstate it would all be part of a common concern that knows no state boundaries.
For tropical disturbances brewing off the west coast of Africa in the southern hemisphere and six thousand miles away from their ultimate landfalls, this is commendably good prognostication. For the Division to demand that Allstate somehow fine-tune the prognostication to one of an eight percent likelihood that a category-four hurricane will come ashore on Assateague Island in September of 2057 is absurd. The very nature of the meteorological phenomenon is not vulnerable to being thus pinned down.
It is as if the Division, stubbornly hung up over some irrelevant sentence or two in the caselaw about some accident-prone motorist who had his insurance cancelled, refuses to hear what Allstate'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.
In more generic form, the syllogism is:
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. 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. As such, it is in the gunsights 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
Appearing before Commissioner Raimondi on December 13, 2007, Robert Grant Newbold was accepted by all parties as an expert witness in computer modeling. He was employed by AIR and worked with the computerized simulation studies that calculated the pattern of losses that might be sustained from hurricane wind damage. He explained, moreover, how the studies and the projections extend necessarily from Texas to Maine.
(Emphasis supplied).
In talking about one of the projections for Maryland specifically, the witness said that some of the Maryland calculations were based on four of the model storms making landfall in Worcester County, Maryland, but that Maryland would also be affected by other model storms making landfall in Sussex County, Delaware; in Virginia Beach; and in Northampton County, Virginia.
(Emphasis supplied).
The study of possible hurricane impact, the expert made clear, of necessity covered twenty-eight hurricane-prone states.
(Emphasis supplied).
Ryan A. Michel, the senior actuary at Allstate, also testified as an expert. He explained that Allstate considers Maryland, Virginia, and Delaware as a single identifiable catastrophe-prone area.
(Emphasis supplied).
Mr. Michel again explained how the hurricane-related problems cross state lines and can only be understood in that broader geographic context.
(Emphasis supplied).
In view of the narrowness of the "Mid-Atlantic" band that embraces Virginia, Maryland, and Delaware and the fact that hurricane-caused damage could occur in all three states regardless of which of those states enjoyed the literal landfall, we do not understand the Division's narrow focus on the history of hurricane's actually making landfall in Maryland. There is also what Robert Newbold referred to in his testimony as a "by-passing storm," which he described as a storm that "does not actually make a landfall on the U.S. coastline, yet it still generates hurricane-force winds over land." The projected damage is not restricted to the state where landfall is made.
Whereas the Division is insisting on data about historic hurricanes that have actually made landfall in Maryland, Mr. Michel explained why that is not the pertinent line of inquiry.
(Emphasis supplied).
Mr. Michel also explained how the nature of the risk is changing and that a hurricane today could produce losses much greater than those produced by a hurricane of precisely the same characteristics fifty years ago.
(Emphasis supplied).
A number of exhibits were also submitted to the Commissioner at the two-day hearing. A letter from Allstate in response to a question from the MIA referred to the "Mid-Atlantic states of Virginia, Maryland and Delaware" as an indivisible geographic unit of measurement.
(Emphasis supplied).
Another response to the MIA from Allstate on January 19, 2007, explained how the simulated computer studies take into account all East Coast hurricanes that have occurred since 1900.
(Emphasis supplied).
Another response to the MIA, also in evidence, pointed to the magnitude of estimated losses in Maryland from hurricanes that made literal landfall in Virginia, in Delaware, and even in North Carolina.
(Emphasis supplied). That same study also showed that a Category 4 hurricane projected to make landfall in Worcester County, Maryland would produce expected losses of $237,189,890.
As an actuarial expert, Mr. Michel testified that the estimated wind damage in Hurricane Band 4 would be 42% higher than would be the average for the rest of the state, 650% higher in Hurricane Band 5, and 1,300% higher in Hurricane Band 6.
Based upon this wealth of evidence, Commissioner Raimondi concluded that Allstate had amply demonstrated that its decision to discontinue writing new property insurance in Hurricane Bands 4, 5, and 6 would "serve its business and economic purpose of reducing its exposure in the event of a catastrophic coastal storm."
(Emphasis supplied).
Although charged with not having been sufficiently anecdotal about the "Hurricane of '33," for instance, or any other historic hurricane, Allstate's use of the AIR Hurricane Model V7.0 cranked out, zip code by zip code, predictive statistical data for 100,000 model years. We are hard-pressed to understand exactly what more the Division could want.
In its second subcontention, the Division does not allege that Allstate discriminated in any way against any person or class of persons. It simply challenges the showing of the soundness of Allstate's business decision. The gist of the subcontention is:
(Emphasis supplied). The Division immediately went on to charge that "the Commissioner did not adhere to this Court's decision in Crumlish." (Emphasis supplied)
Quite aside from characterizing as "well-settled" something that is far from settled and bestowing the honorific of "this Court's decision" on what was overtly nothing more than dicta, what is this Crumlish to which the Division does obeisance? To tip our hand at the outset, we note that had the Commissioner's decision on this issue gone in the other direction, Allstate would have had a very strong cross-appeal charging that the Commissioner was in error for following the Crumlish dicta.
In Crumlish, the insurer had cancelled a motorist's coverage because of two collisions by the insured resulting in property damage. The Commissioner affirmed the decision of the insurer and the circuit court affirmed the decision of the Commissioner. The Court of Special Appeals, however, vacated the order of the Commissioner and remanded the case to the Commissioner because of the failure of the original order to contain a "concise statement of the facts as found by the Commissioner and his conclusion therefrom" as required by Art. 48A, § 39. 70 Md.App. at 187, 520 A.2d 738. The Crumlish opinion then went on:
Id. at 188, 520 A.2d 738 (emphasis supplied).
After opining that the standard the insurer was using was not reasonably related to its economic and business purposes, as ostensibly required by Art. 48A, § 234A, Crumlish elaborated on what must be proved to establish that an underwriting standard is adequately related to
Id. at 190, 520 A.2d 738 (emphasis supplied).
The Division's present charge that Allstate failed to show the "direct and substantial adverse effect the supposition [about hurricanes] would have upon [its] losses and expenses in light of its current approved rating plan" is verbatim out of that Crumlish dicta and not out of former Art. 48A, § 234A(a) or out of present § 27-501(a)(2). It was, moreover, from the Crumlish dicta that the Division got its obsession with statistical data.
What the Crumlish dicta did was to construct an elaborately detailed regulatory scheme out of thin air. Such judicial rule making, however, was in direct contravention of Judge Levine's overarching admonition in GEICO v. Insurance Commissioner, 273 Md. 467, 483-84, 330 A.2d 653 (1975), that should be the starting point for every analysis:
(Emphasis supplied).
It did not take long for subsequent caselaw to question the universality of the Crumlish dicta. In Miller v. Insurance Commissioner, 70 Md.App. 355, 521 A.2d 761 (1987), the General Accident Insurance Company of America had cancelled a doctor's professional liability insurance. The Commissioner affirmed the action of General Accident and the circuit court affirmed the Commissioner. On appeal to this Court, the doctor contended that General Accident had not satisfied Art. 48A, § 234A by showing "`the application of standards which are reasonably related to the insurer's economic and business purposes.'" 70 Md.App. at 369, 521 A.2d 761 (relying on Lumbermen's Mutual Casualty Company v. Insurance Commissioner, 302 Md. 248, 487 A.2d 271 (1985)). Despite the lack of any statistical data to support the validity of General Accident's cancellation decision, this Court affirmed the soundness of the decision based on an applicant's deception or misrepresentation.
70 Md.App. at 370, 521 A.2d 761. See also Erie Insurance Company v. Insurance Commissioner, 84 Md.App. 317, 579 A.2d 771 (1990).
82 Md.App. at 550-51, 572 A.2d 1126 (emphasis supplied). See, however, Medical Mutual Liability Insurance Society v. Magan, 72 Md.App. 330, 336-38, 529 A.2d 841 (1987), and Insurance Commissioner v. Nevas, 81 Md.App. 549, 557-58, 568 A.2d 1144 (1990), which followed the Crumlish dicta.
The Crumlish dicta was in a very real sense doomed to go wrong from the start because of its heavy reliance upon a secondary discussion in Lumbermen's Mutual Casualty Company v. Insurance Commissioner, 302 Md. 248, 487 A.2d 271 (1985), which was itself palpably unreliable. The basic decision in Lumbermen's, of which we have no criticism, turned upon the misuse by insurers of Art. 48A, § 234A when their proper approach should have been through § 242, dealing with rating plans. The actual holding in Lumbermen's was clear.
Id. at 269, 487 A.2d 271 (emphasis supplied).
In earlier contrasting § 242 with § 234A, however, the opinion had recited some of the history of § 234A, including Chapter 752 of the Acts of 1974 which amended it.
Id. at 254, 487 A.2d 271 (emphasis supplied).
The flaw in Lumbermen's, and consequently in the Crumlish dicta, is with respect to the mishandling of the preamble to Chapter 752 of the Acts of 1974. House Bill 859, which introduced the Act, originally contained the following language:
(Emphasis supplied).
Accordingly, the title of H.B. 859 included the phrase "objective standards" and the preamble to the bill announced the legislative purpose that insurers' underwriting decisions must
(Emphasis supplied).
On the last calendar day of the 1974 legislative session, however, the State Senate amended the operative language (and the House of Delegates concurred) by deleting from the bill the words "may be demonstrated objectively to have a direct and substantial effect upon losses or expenses" and by substituting therefor the words "are reasonably related to the insurer's economic and business purposes." In the obvious crush of the rush toward adjournment, however, the Legislature, by legislative oversight, neglected to change the bill's preamble to bring it into conformity with the version of the law that ultimately passed.
A preamble, of course, is a brief preliminary statement of what a bill is intended to do. To the extent that the ultimate act does not do that or does something else, the original preamble, if not updated, loses its value as a tool of statutory construction. The interest is in what the act ultimately does, not in what it was once intended to do but didn't.
Lumbermen's nonetheless quoted the superseded and inaccurate ghost preamble, 302 Md. at 254, 487 A.2d 271, and used the excised language in its discussion of legislative intent, Id. at 267-68, 487 A.2d 271. The Crumlish dicta took its lead from Lumbermen's reliance on the inaccurate preamble and followed suit. One of the three precise requirements that it created used verbatim the very language that had been excised from the Act by the Legislature.
70 Md.App. at 190, 520 A.2d 738 (emphasis supplied).
The final conclusion of the Crumlish dicta is framed in the verbatim language of the 1974 law that never was.
Id. at 190, 520 A.2d 738 (emphasis supplied).
The Division in this case falls into precisely the same error. It characterizes the flawed preamble to Chapter 752 of the Acts of 1974 as "the preamble to [the present] § 27-501." After quoting the phantom preamble, it contends, in the rejected language of 1974, "It simply is not possible to `measure the probability of a direct and substantial adverse effect upon the losses or expenses of the insurer' in the absence of any evidence on that subject —the `probability of the effect' occurring." (Emphasis supplied). The Division charges that "the Commissioner did not adhere to this Court's decision in Crumlish."
Let us make it absolutely clear that the definitive interpretation of both the meaning and the function of the 1974 amendment to what was then § 234A (and what is now § 27-501(a)(2)) remains Judge Levine's carefully crafted analysis for the Court of Appeals in St. Paul Fire & Marine Insurance Co. v. Insurance Commissioner (1975) and not the more casual references appearing in either Lumbermen's Mutual Casualty Co. v. Insurance Commissioner (1985) or Crumlish v. Insurance Commissioner (1987).
To forestall the risk of any further relapses into such fantasy analysis, we hereby expressly repudiate the Crumlish dicta. The Division, in reply brief, protests that "[e]ven if Crumlish's interpretation of Section 27-501 was dictum when offered, the Crumlish test has become a settled principle in insurance regulation, and the MIA has consistently applied it prior to this case." The notion of a "settled principle" may only reflect the fact that until the present case arose, there had been no appellate activity dealing with this area of law for over 20 years. If Crumlish was wrong in 1987, however, as it most assuredly was, it is still wrong 24 years later. Longevity does not make it right. In the words of Oliver Wendell Holmes in "The Path of the Law," 10 Harv. L.Rev. 457, 469 (1897):
Even if § 27-501(a), arguendo, applied in this case, we would see no error in the Commissioner's decision that Allstate had fully satisfied it.
In its insistence that venerable tests and measurements that have traditionally been applied to individual and ad-hoc risks, such
That is, indeed, true, because this is the first case that has had to deal with catastrophe insurance. A sound business decision, however, can readily deal with new problems (or newly appreciated or more fully understood problems) in new ways. The fascinating development of the present case will illustrate, perhaps for the first time, the difference between short-term and long-term insurance problems and solutions and the gaping difference between ordinary insurance risk and catastrophe risk. At the hearing before the Commissioner, Ryan Michel, the senior actuary for Allstate, testified:
(Emphasis supplied).
Commissioner Raimondi found as a fact the diametric difference in the treatment of ordinary risk and the response to catastrophic risk.
(Emphasis supplied).
David Chernick, the actuarial consultant, also noted the diametric difference in the handling of the respective risks.
(Emphasis supplied).
Commissioner Raimondi also accepted this analysis as a matter of fact.
(Emphasis supplied).
With respect to this subcontention, we hold again that, even if, arguendo, § 27-501(a)(2)
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. Even to attempt to describe the one in terms of the other would be gibberish. An automobile collision or a botched operation is not a catastrophe.
