“We are pleased to bring this litigation to the correct conclusion,” stated Eric Goldberg, AIA associate general counsel. “Regulation 703 was wrong on three counts. First, a regulatory agency cannot make new law. Second, it reflected a fundamental misunderstanding of how insurance underwriting works. Third, it was overly restrictive and far exceeded the scope of similar state laws throughout the country,” said Goldberg.
AIA and PCI filed a complaint seeking declaratory relief in New Castle County Superior Court on Oct. 31, 2005. The complaint stated that the department did not have statutory authority to adopt Regulation 703, and asked the court to find that the regulation was null and void without force or effect. On January 2, 2008, the Superior Court ruled in favor of the plaintiffs on the merits. The Delaware Department of Insurance subsequently appealed to the Delaware Supreme Court.
“This was a three-year process and we are pleased the courts ruled in our favor,” said Richard Stokes, PCI regional manager and counsel. “While the insurance industry offered to work with the department to resolve the issue for the benefit of consumers prior to filing the complaint, the final regulation was adopted as initially proposed. This was an important constitutional issue. There was no statutory basis for the proposed regulation. By seeking to go beyond the statutory powers of the office, the proposal raised important separation of powers issues.”
Regulation 703, entitled Prohibited Practices Related to the Non-renewal of Residential Homeowners’ Policies, violated a very fundamental principle of administrative law: a regulatory agency cannot make new law under the guise of administrative agency rulemaking. This privilege is reserved for the legislature and the courts.
Regulation 703, which was proposed on Oct. 1, 2005, would have severely restricted the ability of an insurer to non-renew a homeowner’s insurance policy based on claims history. Claims history remains a key, objective underwriting tool that insurers use to predict additional future losses. If enacted, Regulation 703 would only have served to increase the costs of homeowners with good loss experience by forcing them to subsidize the insurance costs of those with poor loss experience.
Moving forward, the Delaware General Assembly is currently considering S.B. 191, which addresses restrictions on homeowners’ insurance policy cancellations. The bill now provides a balance that assures consumers receive important benefits while providing insurers the ability to offer homeowners’ insurance in a more stable regulatory environment.
This agreed-upon compromise version of the bill is similar to laws in many other states and is expected to be considered by the legislature on Tuesday. AIA and PCI are hopeful of final passage and signature by the governor.