Insurers Challenge Delaware Claims History Regulation; Denn Vows to Defend in Court

Insurers are challenging a Delaware regulation that limits their ability to base homeowners insurance renewal decisions on insureds’ past claims history, arguing that the state’s regulator exceeded his authority in imposing the rule.

Insurance Commissioner Matthew Denn has defended the regulation and his authority and vowed to fight the insurers in court.

The American Insurance Association and the Property Casualty Insurers Association of America jointly filed a complaint in New Castle County Superior Court claiming that Denn did not have statutory authority to adopt Regulation 703.

The insurers maintain that Regulation 703 “violates a very fundamental principle of administrative law: a regulatory agency cannot adopt statutes under the guise of administrative agency rulemaking. This privilege is reserved for the legislature.”

Regulation 703, which was published in the Register of Regulations on Oct. 1, 2005, limits the ability of an insurer to non-renew homeowners insurance issued in Delaware based on claims history.

“The Insurance Department is attempting to impose new underwriting and nonrenewal restrictions on homeowners insurers, and to create new unfair trade practices by regulation, despite the lack of any specific statute in support of these restrictions,” claimed Eric Goldberg, AIA assistant general counsel.

Insurers have fought to retain the right to use claims history, arguing that it is a reliable predictor of future losses. Some regulators have expressed concern over when and what type of claims history insurers use to deny coverage.

Denn said that prior to Regulation 703, the state had no protections for homeowners against the use of claims history by insurers. “Regulation 703 changed that, providing some basic protections to ensure that homeowners are treated fairly while still allowing the insurance carriers to earn a profit. For example, my regulation prevents insurance carriers from canceling policyholders when they come up for renewal just because they had one or two weather-related claims due to storms that were completely beyond their control,” he maintained.

Denn said he would “fight to protect this regulation as part of our fight to protect homeowners.”