Insurers file suit against new rule

Article Courtesy of The St. Petersburg Times

Published  February 14, 2007

TALLAHASSEE - A group of insurance companies has gone to court to reclaim their right to cancel homeowners policies, which the Florida Cabinet suspended two weeks ago.

The Florida Insurance Council, representing major insurance companies such as Allstate and Nationwide, filed a pair of legal challenges this week asking judges in separate venues to throw out the emergency rule that prevents insurance companies from dropping homeowners policies for much of 2007.

The industry group says the Florida Cabinet stretched beyond its authority in approving an emergency rule that "takes steps that are nowhere contemplated by the legislation" passed during the January special session on insurance, according to an injunction filed Monday in the 1st District Court of Appeal in Tallahassee. The group filed a second challenge on Tuesday with the Division of Administrative Hearings.

The emergency rule forbids insurance companies from raising rates or dropping policies, effective Jan. 31. At the time, Gov. Charlie Crist said the purpose was to prevent companies from rushing to cancel policies or seek higher rates before a new law governing the insurance industry could take effect.

The insurance group argues that the Cabinet didn't have the authority to restrict policy cancellations, and also argues that the emergency rule was considered too hastily to give insurance companies a fair chance to make a case against it.

"The main concern is that the rule can result in unintended consequences that might hurt consumers, and the simple lack of due process with the granting of the emergency rule," said George Grawe, Allstate's general counsel.

The emergency rule has prevented Allstate from following through on its plan to cancel more than 100,000 policies, which would have been transferred to Royal Palm Insurance Co.

The insurance group's legal challenges won't impact homeowners policies - yet. The group wants to invalidate the rule, which would open the door to drop policies.

Crist said Tuesday he was not surprised by the legal fight.

"They can't win in the Legislature any more, they can't win in the Cabinet any more, so they're going to try the court system," Crist said.

The entire Cabinet voted with Crist on the emergency measure, but both CFO Alex Sink and Agriculture Commissioner Charles Bronson said they had reservations. Sink questioned why more advanced notice wasn't given, since the rule was publicized only the night before the Cabinet meeting. In the past, emergency rules have been released the Friday before Tuesday Cabinet meetings, said Tara Klimek, Sink's spokeswoman.

Exactly how long the moratorium will last is somewhat unclear. The emergency rule says policies can't be dropped until formal rate requests are filed in March, after the first elements of the new law are in effect. But insurance companies say the practical effect is that they would be forbidden from dropping policies for most of 2007.

The part that really irks insurers, and which is featured prominently in their legal challenge, is a followup "clarification" letter that Commissioner Kevin McCarty wrote on Feb. 9.

In addition to preventing new policies from being canceled, the Office of Insurance Regulation said that it will also stop insurers from canceling policies for which it had given notice months earlier.

Under the interpretation, insurers who in early November told policyholders they would be dropped effective Jan. 31 or after cannot cancel those policies. For example, the governor's parents, who received a January notice from Tower Hill Insurance Group that their homeowners policy would be dropped, are now among those protected for most of 2007.

In recent weeks, insurance companies have been sending letters to those customers telling them they would be renewed rather than canceled.

Florida Insurance Council members say the agency's interpretation goes beyond what the Legislature intended.

"This procedure violates the separation of powers protection in the Florida Constitution and deprives insurers of their right to only have the Florida Legislature enact legislation," the lawsuit stated.

Commissioner McCarty disagrees.

"We think it's essential to further the goals and objectives of the Florida Legislature when they enacted House Bill 1A," he said.

The Florida Insurance Council doesn't represent the two largest property insurance providers in Florida: State Farm, the largest private insurance company, or Citizens Property Insurance Corp., the state-run company.

The emergency rule hasn't affected Citizens or State Farm, spokesmen for both companies said.