Maryland's People's Insurance Counsel has lost again in its bid to overturn a decision by Allstate Insurance Company to stop writing new property insurance policies in portions of 11 counties in the state that it regards as most prone to catastrophic hurricane damage - chiefly zip codes on the Eastern Shore and around the Chesapeake Bay.

Earlier this month, the Maryland Court of Special Appeals affirmed a lower court's decision that Allstate did not violate state anti-discrimination laws in drawing a red line around the places where it found itself most vulnerable. Those laws were written in the 1970s to end racial discrimination by homeowners' and auto insurance companies. 

The decision was another loss in the Allstate matter for the Maryland People's Insurance Counsel Division, which had sought to reverse the company's move. 

"The flaw in the Division's effort is that it seeks to apply those conditions or restrictions [against illegal discrimination] to what was a fundamentally business decision of Allstate that did not remotely involve any of the traditional or historic discriminations," the court found.

Here, in brief, is how it played out:

In the wake of the terrible hurricane seasons in 2004 and 2005, which caused major damage and huge insurance losses in Florida, Louisiana and Texas, Allstate began a risk analysis of its vulnerability to catastrophic damages that could result from landfalling hurricanes in 28 states.

Using a consultant's computer model, the company simulated 100,000 years of hurricane losses in storm-prone states, including Maryland, Delaware and Virginia. From that, they identified four model storms of Cat. 4 making landfall in Worcester County, Md., Sussex County, Del., Virginia Beach, Va., and Northhampton County, Va.

They projected what damages were likely from such storms in Maryland zip codes, and how exposed Allstate was to those losses. The result was a map laying out "hurricane bands" where Allstate's exposure was sharply higher than the average across the rest of the state. The company drew a line around those zip codes as "catastrophe-prone" and announced in 2006 it would stop writing new policies there. Current policy holders were not affected.

The People's Insurance Counsel - part of the Attorney General's office - took the company on, arguing that the move was arbitrary and unreasonable, and that the company failed to show its rates were insufficient to cover projected losses.

The Counsel also argued that no hurricane had made landfall in Maryland in at least 100 years. (In fact, the National Hurricane Center counts two that have. And many other storms have brushed the state; or, like Isabel in 2003, crossed it weakened to tropical storm strength after landfalls in the Carolinas or elsewhere.)

Allstate argued that its decisions were based on careful, objective analysis and sound business judgments.

The Maryland Insurance Commission in 2008 rejected the Insurance Counsel's arguments. So did the Circuit Court for Baltimore City. The Counsel took the case to the Court of Special Appeals.

In its March 1 opinion, the court ripped the Insurance Counsel's contentions, at various points, as "unreal," "absurd," based on a "fantasy analysis." The company's analyses of the risks it faced in the region, the court found, were sound.

Quoting from the Insurance Commissioner's earlier decision upholding Allstate's actions, the court said, "Allstate has demonstrated objectively that the zip codes located in Hurricane Bands 4-6 represent the greatest potential for loss in the event of a catastrophic storm when compared to the rest of the state ...[B]y refusing the accept additional insureds in the areas which pose the highest risk in the event of a catastrophe, Allstate will serve its business and economic purpose of reducing its exposure in the event of a catastrophic coastal storm."

In its analyses, Allstate found that if a storm identical to Hurricane Hazel in 1954 were to strike today, the company would face $307.8 million in insured losses in Maryland alone. Wind damage in Hurricane Band 4 would be 42 percent higher than the average for the rest of the state; 650 percent higher in Band 5, and 1,300 percent higher in Band 6.

The court also pointed out that there is a sharp difference between "ordinary risk" and "catastrophic risk." The former involves taking a chance on individuals by spreading the risk across a large number of insured people. In catastrophic risk, insuring a large number of individuals in a vulnerable location increases the danger of huge company losses in the event of, say, a hurricane strike.

"The fascinating development of the present case will illustrate, perhaps for the first time, the difference between short-term and long-term insurance problems and solutions, and the gaping difference between ordinary insurance risk and catastrophe risk," the court said.

Or, more colorfully, the court said, "The difference in magnitudes of risk between Hurricane Katrina, and Katrina Abramowitz, with two traffic infractions and three points on her driving record, is so vast as to be incomprehensible. Even to attempt to describe the one in terms of the other would be gibberish."

(SUN PHOTOS: Tropical Storm Isabel, 2003; Top to bottom: Algerina Perna, Jed Kirschbaum, Kim Hairston)