Maryland’s highest court has ruled that the People’s Insurance Counsel Division, a state agency formed in response to the medical malpractice crisis in 2005, may challenge homeowners’ and medical malpractice coverage decisions made by the Maryland Insurance Administration.

The Court of Appeals’ ruling came in a case involving the MIA‘s approval of a decision by Allstate Insurance Co. to stop selling new homeowners’ insurance policies on the Eastern Shore, Southern Maryland and parts of Anne Arundel County.

As part of the ruling, the case now returns to Baltimore City Circuit Court, where the People’s Insurance Counsel (PIC), part of the Maryland Attorney General’s Office, had filed suit challenging Allstate’s moratorium on new policies. Allstate and other property-casualty insurers have taken similar actions along the Atlantic Coast in response to the huge losses suffered by Hurricane Katrina in 2005.

Judge Lynne A. Battaglia wrote in the ruling that “so long as the division is appearing ‘to protect the interests of insurance consumers,’ as they are here, they may appear as a ‘party’ to the proceeding.”

Allstate had argued that by giving the PIC standing that in essence the state has two players at the table, since the MIA and PIC are both ultimately represented by the Attorney General’s Office.

The PIC was established in December 2004, during the Maryland General Assembly’s special session to resolve the state’s medical malpractice coverage crisis. The General Assembly, led by Democrat Thomas V. “Mike” Miller, wanted to ensure that then-Gov. Robert L. Ehrlich Jr., a Republican, and the insurance commissioners he appointed, Al Redmer Jr., a former state delegate and insurance broker, in 2003, and his replacement, R. Steven Orr, in 2006, did not put industry interests ahead of consumers’ concerns.

Modeled after the state’s Public Service Commission, the PIC was established as a watchdog for homeowners’ and medical liability policy decisions made by the MIA. The MIA had been criticized since September 2003 for its response to Hurricane Isabel, which caused widespread flooding in Eastern Baltimore County and for which homeowners struggled to obtain benefits from their homeowners’ policies.

In the legislation creating the PIC, the General Assembly said it “should appear before the [MIA] and courts on behalf of residential and noncommercial users in each matter or proceeding over with the [MIA] has original jurisdiction, including a proceeding on the rates, service, or practices of a public service company or on a violation” of insurance laws. The PIC also was granted authority to “conduct investigations and request the [MIA] to initiate proceedings to protect the interests of residential and noncommercial users.”

That mandate raised questions about whether it was entitled to participate in MIA hearings. It also led to trouble in obtaining access to records initially, according to its former director, Irene Nathan, in her annual report to the General Assembly. Nathan took another position with the Maryland Attorney General’s Office last year and a new director has recently been appointed.

Between July 2007 and June 2008, the PIC reviewed 376 letters to homeowners regarding decisions on their policies and 12 letters sent to medical malpractice policyholders, according to the PIC’s fiscal 2008 annual report, its most recent to the General Assembly. The PIC also reviewed 440 homeowners’ insurance filings, including 268 rate and rules documents and 172 forms. It also looked at 94 medical professional liability filings, including 61 forms and 33 rate or rule filings, according to the annual report. The PIC also reviews proposed legislation to “safeguard consumer interests,” the report said.

In its goals for 2009, PIC officials say the four-person agency “will increase its efforts to initiate investigations and forward requests to the commissioner to take action based on the division’s investigations,” the report said.