Richard J. Fidei Insurance Law Blog on Lawyers.com

Florida Insurance Commissioner Kevin McCarty announced that the Office of Insurance Regulation (Office) reached a limited agreement with the Allstate Companies (Allstate) on August 15, 2008 that includes a $5 million fine to resolve the ongoing issues that had become the subject of numerous proceedings stemming from Allstate's September rate filing, the Jan. 15 public hearing and related subpoenas, issued Oct. 16 by the Office.

Allegations against Allstate included failure to freely provide the documents requested in the October subpoenas; falsely asserting trade secrets in its September rate filing and false certification of its September rate filing.

Other terms of the agreement require Allstate to lower its homeowners insurance rates in all territories of the state by 5.6 percent within 30 days of this agreement, for a total reduction of 19.8 percent when including the 14.2 percent reduction that took effect June 1, 2007. Allstate also must write 100,000 new homeowners insurance policies over the next three years; and Allstate's corporate office must cancel a $175 million surplus note it issued to the Florida Allstate companies.

"It is unfortunate that Allstate's disregard of Florida law required the Office to take the drastic actions that we did in order to bring Allstate into compliance," said Commissioner McCarty. "However, the terms agreed to by Allstate in the consent order go a long way toward restoring confidence in Allstate’s business practices and will provide a great benefit to their policyholders and future policyholders."

"Allstate's agreement to cut its rates by 5.6 percent and to begin selling more property insurance is a win for Florida consumers and exhibits a commitment by the company to continue selling property insurance to Florida consumers and to remain as part of the growing, competitive insurance market in Florida."

"Commissioner McCarty has once again done an outstanding job fighting for and protecting the consumers of Florida," said Gov. Charlie Crist.

The $5 million fine will be paid within 30 days of the agreement by the Allstate corporate office in Northbrook, Ill., not by the Florida companies. The fine will be paid to the Insurance Regulatory Trust Fund.

Of the 100,000 new policies to be written over the next three years, 50,000 must be basic homeowners policies, and 50,000 must be condominium, renters and other residential property insurance policies.

Cancellation of the $175 million surplus note is expected to enable the company to solidify its Florida capital base and enable it to write more policies for Florida consumers.

This agreement settles the pending matters, described in the first paragraph above, between the Office and Allstate. As such, the hearing at the Division of Administrative Hearings that had been set to begin Sept. 15 is cancelled.

In addition, Allstate agrees to cooperate with the Office's ongoing investigation into the relationships between insurers, trade associations, rating organizations, modelers, reinsurers, reinsurance brokers and other entities.

Further, Allstate must continue to cooperate with the Office's investigation of its claim-payment practices - including matters related to the 1992 McKinsey report.

Some History:

Allstate was suspended Jan. 17 after the commissioner abruptly halted a Jan. 15 hearing that was to look into the Allstate Companies' reinsurance program, their relationships with risk modeling companies, insurance rating organizations and insurance trade associations.

Allstate was to have provided all appropriate company documents related to the above topics by Jan. 15 and was to have brought appropriate witnesses to testify about the documents and issues at the Jan. 15 hearing, but failed to do so. Instead, the Office of Insurance Regulation (Office) received 51 pages of objections to the subpoenas.

Allstate produced hundreds of thousands of pages (about 825,000) of documents that Office staff members thoroughly reviewed. But only 36,000 pages were produced between the Oct. 16 issuance of the subpoenas and the Jan. 17 issuance of the Immediate Final Order (IFO).

Allstate appealed the suspension to the First District Court of Appeal (DCA), asserting that the commissioner had exceeded his authority by issuing the IFO to suspend its certificates of authority; the court stayed the suspension until it could consider the issue.

In its April 4 opinion, eventually replaced by its May 14 opinion, three DCA judges unanimously agreed that the commissioner had not exceeded his authority when he issued the January Order to suspend the Allstate Companies' licenses. The Court's April 4 opinion, as well as the May 14 opinion, outlined explicitly Allstate's failure to adequately comply at the Jan. 15 hearing. 

On May 16, Commissioner McCarty ordered a stay of the suspension of Allstate's licenses to sell new business in Florida. Commissioner McCarty's decision came as the result of Allstate's submission of an affidavit certifying that it had complied with Florida law by freely providing all documents requested by the Office as part of its investigation of Allstate's business practices in Florida.

Florida law requires a company's CEO and chief actuary to certify that they have read the complete filing. Allstate Floridian CEO Joseph Richardson, Jr. admitted during the February Senate Select Committee hearings that he had read only the executive summary of the company's filing. 

The agreement applies to the following Allstate companies:

• Allstate Floridian Insurance Co.
• Allstate Indemnity Co.
• Allstate Property & Casualty Insurance Co.
• Allstate Insurance Co.
• Allstate Floridian Indemnity Co.
• Allstate Fire and Casualty Insurance Co.
• Encompass Insurance Co. of America
• Encompass Indemnity Co.
• Encompass Floridian Insurance Co.
• Encompass Floridian Indemnity Co.