Opinion ID: 2359555
Heading Depth: 1
Heading Rank: 3

Heading: The Carter Case

Text: On May 13, 1981, the American Motorists Insurance Company sent a notice to one of its insureds, Judith Carter of Timonium, Maryland, informing Mrs. Carter that the insurer did not intend to renew her automobile liability insurance policy when it expired on July 1, 1981. The notice (as explained by the insurer's representative at the later hearing) indicated that the nonrenewal decision was based on two incidents occurring in 1979 and 1981. On October 17, 1979, the insured automobile, operated by Mrs. Carter, struck another vehicle in the rear, causing property damage to both vehicles, although there were no personal injuries. Based upon this incident, Mrs. Carter was convicted in the District Court of Maryland of following too closely. On March 6, 1981, the insured automobile, again operated by Mrs. Carter, slid on some ice, spun around, and struck another vehicle. This too caused property damage to both vehicles, but there were no personal injuries. Mrs. Carter was not convicted of any traffic offense based on this second incident, although the insurer did pay a property damage claim made by the owner of the other vehicle. [9] The nonrenewal notice sent to Mrs. Carter went on to refer to a study done by the State of California, which concluded that a driver with a traffic violation over a three year period was 1.81 times more likely to have an accident within the next three years than a driver who had no traffic violations, and that the average driver is involved in an accident only once every twelve years. The nonrenewal notice then pointed out that the insurance company was entitled under its filed rating plan to surcharge Mrs. Carter for the two accidents but that comparison of the permitted surcharge with the probability of future loss through accident reveals that the company will not be compensated adequately based on the premium rate and the surcharge authorized. The nonrenewal notice concluded by stating that maintaining an insured such as Mrs. Carter has a direct adverse bearing on the economic and business purpose of the company. Mrs. Carter protested the proposed action of American Motorists Insurance Company and requested a hearing before the Insurance Commissioner. In addition, she submitted a detailed statement to the Insurance Commissioner for the purpose of showing that the accident on March 6, 1981, was not her fault. At the subsequent administrative hearing the sole witness for the insurance company was Ruth Sheehan, identified as Underwriting Supervisor, Kemper Insurance. Miss Sheehan testified that the American Motorists Insurance Company views any Maryland driver with more than one accident or traffic violation within a three year period as an unacceptable risk. [10] She stated that this determination was based on studies, reports and the company's own experience. Nevertheless, no studies or reports were introduced in evidence, and no data or evidence was submitted concerning the company's experience. Miss Sheehan did testify that a study conducted by the California Division of Motor Vehicles concluded that the average driver is involved in an accident every twelve years. And that that single predictor of accident involvement is the driver's conviction record. An operator convicted of one conviction within a three-year period has 1.95 times the increased probability of an accident than does the violation-free driver. And the driver that's involved in two accidents within a three-year period has 2.93 times the increased probability of another accident than does the accident-free operator. Miss Sheehan went on to testify that American Motorists would be able, under its rating plan filed with the Maryland Insurance Commissioner, to surcharge Mrs. Carter for both of the accidents. Her direct testimony, under the questioning by the insurer's counsel, concluded as follows: Q Is the  are the premiums the company is allowed to charge, including the surcharge for these two accidents, sufficient to offset the increased risk of loss indicated by a person with Miss Carter's driving record? A No, because we feel in comparison to the surcharge to the increased probability of future loss, does not compensate the company for the increased risk. Q You're saying that the increased risk is greater than is the increased premium that is allowed to be charged? A That's correct. Q Does the company take this  will the company take the same action when any of its insureds in Maryland, that it is aware, has more than one accident or violation within a three-year period? A It most certainly does. Q And, were any factors other than the accidents and violations considered when the company sent out the notice of intent not to renew? A No. Following the hearing the Insurance Commissioner, by the Hearing Officer, issued a written order concluding that nonrenewal of Mrs. Carter's policy is in violation of Sections 234A, 240AA of Article 48A and ordering that the Licensee [insurer] continue in effect the insurance coverages. Among the Findings of Fact, the Hearing Officer found that the insurer has failed to produce evidence which demonstrates that its underwriting standards are reasonably related to its economic and business purposes. In addition, the Hearing Officer found that the licensee has a surcharge plan it can apply to the accidents of Mrs. Carter.