Court Opinion

ID: 9753748
Source: CourtListenerOpinion
Date Created: 2023-08-28 19:25:41.375965+00
Date Added: 2024-06-11T09:54:14.125376
License: Public Domain

HARRELL, J.,
concurring and dissenting.
History shows again and again how Nature points out the folly of Man.
Blue Oyster Cult, Godzilla (1977)
*467Imagine a parallel universe with an Alternate Maryland, where an Alternate Allstate is approved to write homeowners’ and lessees’ property insurance (and does so to the tune of approximately a 13% market share). One Saturday at home, the head of Alternate Allstate’s underwriting department settles-in to watch an all-day fest of Godzilla movies. As he watches Godzilla destroy large portions of Tokyo and other coastal areas of Japan again and again (and concerned that climate change could induce the giant amphibious lizard to migrate to other climes, perhaps along a warming mid-Atlantic coastline of the Alternate United States), he imagines Alternate Allstate’s financial exposure should Godzilla come ashore in Alternate Maryland. First thing the next morning, he inquires confidentially of the head of Alternate Allstate’s actuarial department how likely it might be that, assuming Godzilla exists, it might meander ashore along Alternate Maryland’s Atlantic coastline or lower Alternate Chesapeake Bay. The actuary’s response is: “How the hell should I know, but if it does, the property damage will dwarf Tokyo’s fate.” Now really worried and being an eminently cautious person, the underwriter decides that, at a minimum, Alternate Allstate should cease writing new policies of property insurance (but not abandon its existing policy holders) to a distance in Alternate Maryland along its Atlantic coastline and the southern Alternate Chesapeake Bay corresponding to how far inland Godzilla had ravaged Japan. Upon learning of Alternate Allstate’s decision, the Insurance Commissioner of Alternate Maryland, no fan of science fiction, thought to himself quite logically: “Well, how likely is it that such a force of nature will savage Alternate Maryland?” Alternate Allstate, anticipating such a question, included the following in its new business plan: “It is too hard for us to calculate whether, when, and how often over time a giant amphibious lizard will attack Alternate Maryland, but if it does the damage will break our company. We prefer not to take that chance.” The Insurance Commissioner, quixotically, is satisfied by this response, excuses Alternate Allstate from having to justify the probability of the projected catastrophic event occurring, and *468approves Alternate Allstate’s plan. Shortly thereafter, a vast majority of the judges on the Alternate Maryland Court of Appeals affirms that decision.
In the real Maryland, the real Allstate decided not to write new homeowner’s insurance policies in nearly one-third of Maryland because of unsubstantiated fear of a hypothetical force of nature, a Category 2 or greater hurricane making landfall in Maryland. Although my opening analogy is silly, it is so intentionally to illustrate my view that the Commissioner’s and this Court’s approval of Allstate’s discriminatory decision is wrongheaded. Recorded history on the subject shows (again and again) that a catastrophic hurricane of the order of magnitude described in Allstate’s plan justification has not made landfall in Maryland yet. The Commissioner and the Court, nonetheless, approve Allstate’s decision to cease writing new homeowner’s insurance policies in the artificial hurricane bands (neatly coinciding with zip-code areas) because Allstate’s computer models predict such a hypothetical hurricane would make landfall in Maryland every 25,000 years. The basis for this decision is folly. The decision contravenes precedent, which requires insurers to justify the withdrawal of a line of insurance in less than the entire state with a statistical basis grounded in probability, not hypotheticals. The conclusions reached in the majority opinion will transform Maryland Code, Insurance Article § 27-501(a)(2) into a figurative Maginot Line, which insurers may sweep around and avoid. I dissent.
I.
In order to reduce its exposure to risk of losses due to a catastrophic hurricane making landfall in Maryland, Allstate decided to cease issuing new homeowner’s policies in all of St. Mary’s, Somerset, Talbot, Wicomico, and Worchester Counties and significant swaths of Anne Arundel, Calvert, Charles, Dorchester, Prince George’s, and Queen Anne’s Counties. Allstate grounded its decision in hurricane prediction models, which computed a relative risk of a category 2 or higher hurricane making landfall in Maryland four times in 100,000 *469years. Allstate’s battery of evidence did not include, however, an assessment of the probability of such a catastrophic hurricane landing in Maryland. This omission is significant because, as Allstate’s own evidence points out, none of the 163 hurricanes recorded in meteorological history that made landfall in the United States did so in Maryland. I agree with the majority that § 27-501 applies to Allstate’s decision; however, I disagree with the majority that Allstate provided sufficient evidence to justify the Commissioner’s decision in Allstate’s favor.
In 1974, the General Assembly amended then Maryland Code, article 48A, § 234A (the predecessor to § 27-501), expanding the prohibition of discriminatory insurance underwriting beyond prejudice (e.g., race, color, creed, sex, ability) to include underwriting decisions based on any reason not reasonably related to the insurer’s economic or business purposes. Lumbermen’s Mut. Cas. Co. v. Ins. Comm’r, 302 Md. 248, 255, 487 A.2d 271, 274 (1985). The language of the amendment is substantially similar to the present language in § 27-501(a)(2).5 The General Assembly was concerned at that time about a developing pattern where automobile insurers justified cancelling insurance policies because the insured had as few as one accident, an underwriting policy that “might not be justified by the actual risk experience of those insurers.” St. Paul Fire & Marine Ins. Co. v. Ins. Comm’r, 275 Md. 130, 143-44, 339 A.2d 291, 298-98 (1975). The preamble to Chapter 752 of the Acts of 1974 expresses this concern and states that an insurer’s underwriting decisions must
“be made solely on the basis of a reasonable application to relevant facts of underwriting principles, standards and rules that can be demonstrated objectively to measure the *470probability of a direct and substantial adverse effect upon losses or expenses of the insurer in light of the approved rating plan or plans of the insurer then in effect....”
Lumbermen’s Mut. Cas. Co., 302 Md. at 254, 487 A.2d at 274 (quoting 1974 Md. Laws 752). The preamble is an integral part of the aim of § 27-501. We relied on it as authority for requiring insurers to justify objectively the termination of an insurance policy. Lumbermen’s Mut. Cas. Co., 302 Md. at 267-68, 487 A.2d at 280-81; see also St. Paul Fire & Marine Ins. Co., 275 Md. at 137, 339 A.2d at 295. Thus, the 1974 amendment represents the legislative intent to protect the public from arbitrary underwriting practices. Gov’t Emps. Ins. Co. v. Ins. Comm’r, 273 Md. 467, 478, 330 A.2d 653, 659 (1975).
Crumlish v. Insurance Commissioner, 70 Md.App. 182, 520 A.2d 738 (1987), expanded upon Lumbermen’s analysis of § 27-501(a)(2) and the statute’s requirement that “an insurer or insurance producer may not cancel or refuse to underwrite or renew a particular insurance risk or class of risk except by the application of standards that are reasonably related to the insurer’s economic and business purposes.” In order to establish that an underwriting standard is reasonably related to the insurer’s economic and business purposes, the insurer must produce facts that answer sufficiently the following questions: (1) What is the statistical basis for the supposition? (2) How valid is any such statistical evidence? (3) If there is statistical validity to the supposition, what direct and substantial adverse effect would it have upon insurer’s losses and expenses in light of its current approved rating plan? Crumlish, 70 Md.App. at 190, 520 A.2d at 742; see also Lumbermen’s, 302 Md. at 266, 487 A.2d at 280 (stating that an insurer seeking to not renew an insurance policy must show the available rating plan “would not have adequately compensated the insurance companies for the asserted increased risk”). Although the Crumlish questions were concededly set-out in dicta (which the majority here notes), several later cases incorporated the Crumlish questions into their analyses (which the majority here ignores), giving this principle precedential weight and bolstering an important regulatory tool to prevent unsubstantiated, discrimi*471natory insurance underwriting practices in Maryland. See Fromberg v. Ins. Comm’r, 87 Md.App. 236, 245, 589 A.2d 544, 548-49 (1991); Ins. Comm’r v. Nevas, 81 Md.App. 549, 557-58, 568 A.2d 1144, 1148-49 (1990); see also Stavely v. State Farm Mut. Auto. Ins. Co., 376 Md. 108, 110, 829 A.2d 265, 267 (2003); Andrew Janquitto, Maryland Motor Vehicle Insurance § 14.5 (Matthew Bender 3d. ed. 2011).
Because § 27-501 applies to the present case, Allstate was required to produce a sufficient statistical basis justifying its cessation of writing new homeowner’s insurance policies in its so-called hurricane bands four, five, and six. Allstate must show also that its current rating plan, were it to continue to write polices in those areas, would leave it compensated inadequately. Further, Allstate’s supposition must “be made solely on the basis of a reasonable application to relevant facts of underwriting principles, standards and rules that can be demonstrated objectively to measure the probability of a direct and substantial adverse effect upon losses or expenses of the insurer in light of’ Allstate’s current insurance rating plan. Preamble to 1974 Md. Laws 752 (emphasis added). In sum, even as the Commissioner conceded, “insurers have been required to provide statistics to demonstrate the relationship between the underwriting standard applied and the insurer’s business and economic purposes.”
Allstate failed to advance a statistical basis, derived from historical meteorological evidence, climate science, and/or actual claims history, that demonstrated the probability of a catastrophic hurricane making landfall in Maryland. Even if it would be difficult or lacking in some other actuarial way to make that effort, merely asserting that difficulty or impression, without making a bona fide effort to marshal the available evidence, should not be good enough to justify moving on to Allstate’s alternative modeling approach. Allstate justified its decision based on hypothetical hurricanes, i.e., computer models based on the worst 5% of hurricanes that made landfall in North Carolina, Virginia, and Delaware, but not Maryland.6 *472These models estimated that the relative risk of such a hurricane landing in Maryland is once every 25,000 years.7
Allstate justified its decision using the relative risk of hypothetical hurricanes and thus failed to justify its “no-write” decision for new policies and to show the current rating plan would fail to compensate Allstate sufficiently should it continue to write policies in the hurricane bands. Allstate fails also to illuminate why there is an increased risk of a catastrophic hurricane. If the science of climate change is at the bottom of its worries, Allstate does not say so. Finally, Allstate’s decision enlarges considerably the portion of Maryland where Allstate will not write new homeowner’s policies. Previously, Allstate excluded only those properties within one mile of the Atlantic Ocean. Allstate’s new policy excludes properties as far inland as 60 miles from the Atlantic Ocean (approximately one-third of Maryland), including cities such as Cambridge, Prince Frederick, and Leonardtown. Allstate should not be allowed to implement its new plan until it shoulders its statistical burden of showing probability.
The majority opinion excuses the Commissioner’s failure to find fatal Allstate’s lack of probabilistic evidence by distinguishing the Crumlish line of cases. It relies on Mirkin v. Med. Mut., 82 Md.App. 540, 572 A.2d 1126 (1990) and Miller v. Ins. Comm’r, 70 Md.App. 355, 521 A.2d 761 (1987), as authority for the supposition that the Crumlish analysis is not a standing requirement applicable to every underwriting stan*473dard.8 Reliance on Mirkin and Miller for this proposition is misplaced, however.
In Mirkin, the insurer cancelled Dr. Mirkin’s professional liability insurance because he altered a patient’s billing records, a fact discovered during a malpractice lawsuit against Dr. Mirkin. 82 Md.App. at 546-47, 572 A.2d at 1129-30. In Miller, the insurer cancelled Miller’s professional liability insurance because he made material misrepresentations on his application for the insurance. 70 Md.App. at 361, 521 A.2d at 764. Drs. Mirkin and Miller posited that cancelling insurance because the insureds made misrepresentations is not an underwriting standard reasonably related to the insurers’ economic and business purposes. The panels of the intermediate appellate court rejected their arguments because cancelling an insurance policy because the insureds mislead the insurers is a underwriting standard incapable of objective justification, but nonetheless related reasonably to the insurers’ economic and business purposes. Mirkin, 82 Md.App. at 551, 572 A.2d at 1132 (citing to Miller, 70 Md.App. at 368-70, 521 A.2d at 768-69). The Legislature codified the Mirkin and Miller exception as Maryland Code, Insurance Article § 27-501(j)(1)(i).9
Mirkin and Miller are inapposite to the present case. Unlike Drs. Mirkin and Miller, homeowners in Southern Maryland and the Eastern Shore obviously did not act inten*474tionally to jeopardize their prospect for obtaining insurance coverage from Allstate. Second, declining to write new homeowner’s insurance policies because of the risk of catastrophic hurricane damage is an underwriting policy that can be justified by “an objectively demonstrable, statistical basis.” Mirkin, 82 Md.App. at 551, 572 A.2d at 1132. The probability of a category two or greater hurricane making landfall in Maryland should be able to be determined by using historical data (which shows no hurricanes making landfall there), predicting meteorological change based on quantitative or qualitative factors from climate change or other evidence, as well as using computer models (which predict one hypothetical catastrophic hurricane every 25,000 years).
The majority opinion finds refuge (unsuccessfully, in my view) in Maryland Code, Insurance Article § 27 — 501(j)(l)(vi), which it labels a “catchall” exception to § 27-501(a)(2). Section 27 — 501(j)(l)(vi) provides:
In the case of homeowner’s insurance, standards reasonably related to an insurer’s economic and business purpose under subsection (a)(2) of this section, include, but are not limited to, the following and do not require statistical validation: ... any other standard approved by the Commissioner that is based on factors that adversely affect the losses or expenses of the insurer under its approved rating plan and for which statistical validation is unavailable or is unduly burdensome to produce[.]
Md.Code Ann., Ins. § 27-501(j)(1)(vi). The use of § 27-501(j)(1)(vi) here is problematic. The Commissioner did not invoke expressly § 27-501(j)(1)(vi) when he excused Allstate’s lack of statistical evidence to support its decision not to write new insurance policies in hurricane bands four, five, and six. Rather, the Commissioner invoked (erroneously) Mirkin and Miller to distinguish Crumlish. Second, statistical validation as to the probability of a catastrophic hurricane making landfall in Maryland is available, and is not unduly burdensome to produce, as pointed out supra. Therefore, § 27-501(j)(1)(vi) does not relieve Allstate of its burden to demon*475strate objectively the probability of a catastrophic hurricane making landfall in Maryland.10
For these reasons, I would reverse the judgment of the Court of Special Appeals and remand this case to that court with directions to reverse the judgment of the Circuit Court for Baltimore City and to remand the case further to the Insurance Commissioner with further directions to vacate his decision and conduct further proceedings consistent with this concurring and dissenting opinion. Allstate should be given the opportunity, if it wishes to seize it, to produce proper evidence to justify its new plan.

. The pertinent part of the 1974 amendment to Maryland Code, article 48A, § 234A provided, " ‘No insurer, agent or broker may cancel or refuse to underwrite or renew a particular insurance risk or class of risk except by the application of standards which are reasonably related to the insurer’s economic and business purposes.’ ” St. Paul Fire & Marine Ins. Co. v. Ins. Comm’r, 275 Md. 130, 137-38, 339 A.2d 291, 295 (1975) (quoting 1974 Md. Laws 752).

. The United States Court of Appeals for the District of Columbia noted that computer models analyze only the data provided, which, if "made*472quate or insufficiently reliable!,] • • • lead to the problem of "garbage-in garbage-out." Colorado v. United States Dept. of the Interior, 880 F.2d 481, 489 (D.C.Cir.1989) (quoting Natural Res. Def. Council, Inc. v. EPA, 824 F.2d 1211, 1216 (D.C.Cir.1987)).

. The Court of Special Appeals noted Allstate’s paucity of historical meteorological data and interjected its own data to bolster its decision — which, unfortunately, was not part of the case record. People’s Ins. Counsel Div. v. Allstate Ins. Co., 199 Md.App. 1, 26-28, 20 A.3d 117, 131-33 (2011). That the Court of Special Appeals (not exactly a meteorological repository) could unearth such data shows that Allstate could have done the same, but chose not to because Maryland’s meteorological history does not support the statutory criteria to substantiate the cessation of writing new policies.

. The Commissioner advanced this argument in its memorandum of law and final order. The Commissioner buttressed his argument by stating that "an insurer need not always rely on statistics to support its underwriting criteria. In some instances, the risk will be self evident.” To classify the risk here as self-evident is an intellectual hyper-extension. Allstate did not attempt to assess the probability of a catastrophic hurricane making landfall in Maryland. Nor did Allstate explain why its computer models predicted an increased risk (if one hurricane every 25,000 years is an increased risk).

. Insurance Article § 27 — 501(j)(l)(i) provides, "In the case of homeowner's insurance, standards reasonably related to an insurer’s economic and business purpose under subsection (a)(2) of this section, include, but are not limited to, the following and do not require statistical validation: (i) a material misrepresentation in connection with the application, policy, or presentation of a claim.” Md.Code Ann., Ins. § 27-501(j)(l)(i) (LexisNexis 2011).

. Maryland Code, Insurance Article § 27 — 5010(1) excepts, in the case of homeowner’s insurance, seven business purposes from the statistical validation required by § 27-501(a)(2). Notably, catastrophic risk is not one of them.