TALLAHASSEE - An appeals court has upheld the state insurance regulator's order in January barring Allstate from seeking new business in Florida, delivering a severe blow to the insurer over its failure to cooperate with an investigation into how it sets rates.
State Insurance Commissioner Kevin McCarty issued an order invalidating the licenses of 10 Allstate companies to do future business in the state on Jan. 16. The 1st District Court of Appeal in Tallahassee lifted the suspension while it considered the issue. Friday, the court ruled McCarty did not exceed his authority in yanking the licenses.
"If you read the opinion from the court, they basically slam Allstate into the ground," said Tom Zutell, a spokesman for the state Office of Insurance Regulation.
"We are very disappointed in today's ruling and disagree with the Court's opinion," Allstate said in a brief statement. Spokeswoman Amy Moore said the insurer is preparing to file for a rehearing, which it has the right to do within 15 days. Allstate can continue to write new business until that filing is resolved.
OIR is seeking clarification from the court on a firm timetable.
The OIR has been feuding with Allstate since the state subpoenaed the company and three other insurers in October regarding nonrenewals, claim settlement practices, reinsurance programs and the companies' relationships with risk modeling companies, insurance ratings organizations and industry trade associations.
Although the investigation focused on Florida's homeowners insurance crisis, the order targets all of Allstate's lines, preventing it from offering auto insurance, among others. The order does not affect existing Allstate customers or renewals. Allstate has nearly 2 million customers in Florida.
McCarty said he was "pleasantly surprised" at the ruling. The judicial system is wary of state agencies interfering with commerce, he said.
"It's hard for me to contain my enthusiasm in view of today's news," McCarty said, kicking off an afternoon news conference.
'McKinsey Report' Sought
Last year, OIR launched an investigation into whether there was collusion in the rate-setting process as homeowners premiums soared after the devastating hurricane seasons of 2004 and 2005. In response to subpoenas, Allstate originally submitted 30,000 documents, all labeled as "trade secret," OIR said. Included were documents that were public records posted on OIR's Web site.
Among documents sought by OIR was what is known as the "McKinsey Report," which investigators think addresses allegations that Allstate used a computer program through which insurers can dictate financial goals and reduce the size of certain claims to reach the desired result.
Allstate Not Complying In Missouri
Allstate has been ordered by a Missouri court to produce a document similar to the McKinsey Report, but has not done so in that case. It is incurring a fine of $25,000 a day, which has so far reached $2.4 million, according to OIR.
Allstate said it has now produced more than 400,000 documents in response to the Florida subpoenas, but McCarty said the company is "far from complete in its compliance."
"If Allstate is willing to accrue a $25,000-a-day fine in the state of Missouri for violating that court order, it certainly would not comply with the orders of the Office of Insurance Regulation," McCarty said. Under Florida law, OIR's only recourse, he said, was a $2,500-a-day fine or suspension of new business.
The court on Friday said McCarty's suspension order provided details "sufficient to demonstrate an immediate danger to the public health, safety or welfare." That is the threshold required for suspension of insurance licenses in Florida, and the court said OIR satisfied it with allegations of monetary loss to policyholders and ongoing criminal activity.
Under state law, failure to cooperate with an OIR investigation is a crime.
Allstate's Moore said the company "will continue to produce documents until the OIR is satisfied." Because of the sheer volume of documents called for by the subpoenas, "it does take time to produce those," she said. "We are already at 400,000 and expect to go through quite a few more before we satisfy OIR."
Being barred from selling new business lines could hit Allstate's bottom line hard. For example, regulators said Allstate, which held $1.9 billion in auto premiums in 2006, has seen its auto business increase by about $100 million in premiums a year.