Can insurance companies refuse to write property insurance in certain geographic areas of North Carolina, like the coastal counties, and what is the Insurance Commissioner's authority to require coverage?

Plain-English summary

By the mid-1990s some insurance companies were declining to voluntarily write property insurance in NC's coastal counties, citing exposure to hurricanes and severe weather. Commissioner of Insurance James Long asked the AG five interrelated questions about whether insurers could refuse to write or appoint agents by geographic area, and what authority the Commissioner had to force them.

AG Michael F. Easley, through Senior Deputy AG Reginald L. Watkins, Special Deputy AG Lorinzo L. Joyner, and Assistant AG Ted R. Williams, walked through Chapter 58.

Right to refuse coverage. G.S. 58-7-15 permits insurers (except in risk-sharing plans) to limit the kinds of insurance they provide. Outside motor vehicle insurance (Article 37), NC does not require any insurer to accept every applicant. So general property and casualty insurance refusal is permissible in principle.

Limit: unfair discrimination. G.S. 58-63-10 prohibits unfair trade practices in insurance. G.S. 58-63-15(7) defines unfair discrimination, and subsection (7)(c) reaches the coastal-refusal question directly: it is an unfair trade practice to refuse, cancel, or limit property or casualty insurance based on geographic location of the risk, for risks of the same class and essentially the same hazard, unless the refusal preserves solvency (and is not a pretext for discrimination) or is required by law.

To apply this, the AG broke it down: (1) class of risk, drawing on the rating classifications in G.S. 58-36-10(4); (2) hazard (physical conditions and moral hazards affecting probability or severity of loss); (3) geographic-location basis of refusal; and (4) absence of the solvency or legal-requirement exception. The decision-process standard, by analogy to G.S. 58-40-20(e) on rates, is whether the insurer equitably reflects differences in expected losses and expenses. Coastal risks may genuinely differ in expected losses (windstorm exposure) and expenses (reinsurance cost), which could justify differential treatment under the statute.

Agents. G.S. 58-33-40(b) lets insurers appoint as agents any individuals who hold valid NC agent licenses. No NC statute requires insurers to appoint resident agents in any specific area. G.S. 58-16-5(4), which had required appointment of resident agents, was repealed in 1987. G.S. 58-33-60 (enacted 1987) confirms there is no requirement that a licensed resident agent must countersign, solicit, transact, take, or process insurance on behalf of nonresident agents or authorized insurers.

Commissioner's authority. No general statute lets the Commissioner order an individual company to write insurance or appoint agents. The principal tool is Article 42 of Chapter 58 (extended to July 1, 1997 by Section 26 of Chapter 517 of the 1995 Session Laws). After notice and a hearing under G.S. 58-2-50, if the Commissioner finds that any kind of insurance authorized under G.S. 58-7-15(4) through (22) is not readily available in the voluntary market and that the public interest requires availability, the Commissioner may promulgate plans, including FAIR plans, beach plans, and other risk-sharing arrangements. G.S. 58-42-10 requires participation in plans by all insurers licensed for the relevant insurance kind, all licensed agents representing those insurers, and every rating organization that sets rates for that insurance, subject to a solvency-impairment exclusion. G.S. 58-42-35 lets the Commissioner order plan-level agent appointments where local participation is sparse.

The framework leaves the voluntary market lightly regulated but creates a formal mechanism (Article 42) for the State to intervene when private decisions leave parts of NC without access to coverage. The AG's opinion is essentially the legal blueprint behind NC's later beach plan and FAIR plan structures.

Currency note

This opinion was issued in 1995. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Chapter 58 has been substantially amended since 1995. The NC FAIR Plan, the NC Insurance Underwriting Association (the Beach and Coastal Property Insurance Plans), and other risk-sharing mechanisms have evolved with major statutory and regulatory revisions. The Commissioner of Insurance's authority and the insurer's discretion have been shaped by post-2000 hurricane experiences and federal influence. Anyone advising a coastal property owner, an insurer, or a policymaker on geographic refusal questions today should pull the current Chapter 58, the current rules of the NC Department of Insurance, and any later AG opinions or court decisions.

Common questions

Q: Why does motor vehicle insurance get treated differently?
A: Because NC has a mandatory financial-responsibility law for vehicles, and Article 37 of Chapter 58 requires insurers to accept and insure any applicant. The legislature created a special take-all-comers rule for cars because driving without insurance creates immediate harm to the broader public. Property and casualty insurance does not carry the same mandatory-coverage policy choice.

Q: How is "same class and same hazard" applied?
A: By the insurer's own rating classifications under G.S. 58-36-10(4), refined for actual hazard exposure. Coastal beachfront homes are typically a different class than inland homes because of windstorm exposure. Two ocean-facing homes in the same neighborhood are the same class. Refusing to write for one but not the other based purely on whether they are in or out of a particular zip code, when the actual hazard is identical, would be unfair discrimination. Refusing to write across an entire higher-risk area where the hazard genuinely is greater is generally permissible.

Q: What does the "solvency" exception mean?
A: An insurer can refuse to write coverage in a high-risk area if doing so would impair the insurer's solvency. The exception cannot be a pretext: the insurer has to be able to show that the refusal is genuinely about its ability to remain financially sound. Insurance Department review of this defense involves actuarial and financial analysis.

Q: What is a "risk-sharing plan" under Article 42?
A: A pool that all licensed insurers for a particular insurance kind are required to participate in, designed to make coverage available for risks the voluntary market is not absorbing. The NC FAIR Plan and the Beach and Coastal Property Insurance Plans are the practical successors to the Article 42 mechanism in property insurance. Premiums in these plans are typically higher than voluntary market rates, but coverage is available.

Q: Does this opinion give homeowners a private right of action against an insurer who refuses?
A: The opinion analyzes the legal framework; it does not address private rights of action in detail. NC's Unfair and Deceptive Practices Act and Chapter 58's insurance regulatory framework have their own remedy structures. A coastal homeowner refused coverage on a discriminatory basis would typically file a complaint with the Department of Insurance for administrative remedies, with private litigation being a separate path with its own procedural rules.

Background and statutory framework

NC's coastal property insurance market has been one of the recurring policy challenges for state insurance regulators. Hurricane risk along the Outer Banks and other coastal areas creates concentrated exposure that some insurers prefer to limit or exit. The state's policy response has been a layered system: voluntary market for ordinary risks; risk-sharing plans (FAIR Plan, Beach Plan, Coastal Plan) for risks the voluntary market refuses; reinsurance backstops; and statutory anti-discrimination rules that channel insurer decisions through actuarial-rationality requirements.

The 1995 opinion is a foundational legal sketch of the framework. The structural balance is: insurers can exit voluntary markets they find unprofitable, but their exits must be based on actual class/hazard differences (not just geography), and the State has a tool (Article 42 risk-sharing plans) to compel participation when entire categories of coverage become unavailable. The Commissioner is more of a market-architect than a direct command-and-control regulator over individual companies.

Citations

• N.C.G.S. § 58-7-15 (insurers not required to insure every applicant, except via risk-sharing plans)
• N.C.G.S. § 58-16-5(4) (resident-agent appointment requirement, repealed 1987)
• N.C.G.S. § 58-33-40(b) (insurer may appoint any licensed agent)
• N.C.G.S. § 58-33-60 (no resident-agent countersignature requirement)
• N.C.G.S. § 58-36-10(4) (rating classifications)
• N.C.G.S. § 58-40-20(e) (rate fairness standard analogously applied)
• N.C.G.S. § 58-42-1 (Commissioner may promulgate risk-sharing plans)
• N.C.G.S. § 58-42-10 (mandatory participation in approved plans)
• N.C.G.S. § 58-42-35 (Commissioner may order plan-level agent appointments)
• N.C.G.S. § 58-63-10 (general unfair trade practice prohibition)
• N.C.G.S. § 58-63-15(7)(c) (unfair discrimination by geographic location)
• Article 37 of Chapter 58 (motor vehicle insurance take-all-comers rule)
• Articles 42, 45, 46 of Chapter 58 (risk-sharing frameworks)
• Section 26 of Chapter 517 of the 1995 Session Laws (extending Article 42 to July 1, 1997)
• State v. Arlington, 157 N.C. 640, 73 S.E. 122 (1911) (Commissioner's special duty to enforce Chapter 58)

Source

• Landing page: https://ncdoj.gov/opinions/availability-and-writing-of-insurance-by-geographic-location/

Original opinion text

• Do insurance companies in general have the option of choosing not to write insurance in certain geographic areas of the State?
• If the answer is yes, are there any limitations placed upon the company?
• Do insurance companies in general have the option of choosing not to appoint agents in certain geographic areas of the State?
• If the answer is yes, are there any limitations placed upon the company?
• Does the Department of Insurance have statutory authority to either require insurance companies to write insurance and appoint agents in all geographic areas of the State or to prohibit them from withdrawing from certain geographic areas in the State?

After reviewing the questions presented and the relevant statutes, it is our opinion and conclusions that:

• Insurance companies cannot make any unfair discrimination between risks or individuals of the same class and essentialy the same hazard because of the geographic location of the risk, unless the refusal is for the purpose of preserving the solvency of the insurer or the refusal, cancellation or limitation is required by law. Insurance companies can, therefore, refuse to write in certain geographic locations only if they do not run afoul of the anti-discrimination provisions of G.S. 58-63-15(7)(c).
• There are no provisions in the statutes regulating insurance companies which would require that an insurance company appoint any resident of this State as its agent.
• The Commissioner may promulgate a plan to provide coverage or designate agents if after a hearing he finds that a certain kind of insurance is not readily available in the voluntary market, and he is in compliance with the provisions of Article 42 of Chapter 58 of the General Statutes.

The questions presented arise in the context of the refusal of some insurance companies to voluntarily write property insurance in the coastal areas of North Carolina.

Writing Insurance by Geographic Location

Articles 1 through 64 of Chapter 58 of the North Carolina General Statutes represent a comprehensive insurance regulatory scheme designed to protect the public. The Commissioner of Insurance is charged with the special duty of seeing that these provisions are carried out. State v. Arlington, 157 N.C. 640, 73 S.E. 122 (1911). Critical to that regulation is the designation of the kinds of insurance that may be authorized. G.S. 58-7-15 provides that:

[E]xcept to the extent an insurer participates in a risk sharing plan under Article 42 of this Chapter, nothing in this section requires any insurer to insure every kind of risk that it is authorized to insure. (Emphasis added.)

A review of the provisions of Chapter 58 reveals that only in the case of motor vehicle insurance are individual insurance companies required to accept and insure any applicant. (See Article 37 of Chapter 58.) On its face, G.S. 58-7-15 appears to allow insurance companies not participating in risk-sharing plans to limit the insurance they provide. Further, an examination of the risk-sharing plans applicable to insurance companies (see Chapter 58, Articles 42, 45, and 46) reveals no provisions mandating that an individual insurance company accept and insure each applicant for property and casualty insurance. Thus, except in the case of motor vehicle insurance, insurance companies are not required by statute to insure every applicant for property and casualty insurance.

Notwithstanding the foregoing, there is a general unfair business practice prohibition with which all insurers must comply. G.S. 58-63-10 provides that, "[N]o person shall engage in this State in any trade practice which is defined in this Article as or determined pursuant to this Article to be un unfair method of competition or an unfair or deceptive act or practice in the business of insurance." Unfair discrimination is defined as an unfair trade practice under G.S. 58-63-15(7). Subsection (7) (c) provides that the following constitutes unfair discrimination:

Making or permitting any unfair discrimination between or among individuals or risks of the same class and of essentially the same hazard by refusing to issue, refusing to renew, cancelling, or limiting the amount of insurance coverage on a property or casualty risk because of the geographic location of the risk, unless:

• The refusal or limitation is for the purpose of preserving the solvency of the insurer and is not a mere pretext for unfair discrimination, or
• The refusal, cancellation or limitation is required by law.

Assuming that neither of the statutory exceptions above applies, G.S. 58-63-15(7)(c) requires a showing that:

• The company is making or permitting unfair discrimination between risks;
• The risks are of the same class;
• The risks are subject to essentially the same hazard; and
• The refusal to write or renew, the cancellation, or the limitation on the amount of insurance on a property or casualty risk is because of the geographic location of the risk.

While there is no general definition of what constitutes unfair discrimination under the insurance laws, an analogy can be made to unfair discrimination in rates. G.S. 58-40-20(e) provides that "[a] rate is not unfairly discriminatory in relation to another in the same class if it reflects equitably the differences in expected losses and expenses." While unfair discrimination in rates and unfair discrimination under G.S. 58-63-15(7)(c) may not be identical, the principle used to identify the unfair discrimination appears useful for unfair discrimination in insurance, i.e., whether there is an equitable reflection of the differences in expected losses and expenses in the decision-making process.

A critical component of this analysis is whether a risk is of the same class. G.S. 58-36-10(4) provides that risks may be grouped by classifications and lines of insurance. Classifications can further be modified to reflect variations in hazards or expense provisions depending upon whether they have a probable effect upon losses and expenses. A guide as to what is a class would appear to be the various classifications which have been established for rating purposes pursuant to G.S. 58-36-10(4).

G.S. 58-63-15(7)(c) further provides that the risk must also be subject to essentially the same hazard. A hazard is defined as an act or condition which increases the likelihood or severity of a loss from a given peril. Hazards can be classified as either physical or moral hazards. Physical hazards are physical conditions which increase a chance of loss, such as location of the property and type of construction. Moral hazards are generally considered to be mental or psychological factors which may increase a loss. The focus is on the tendencies toward dishonesty in an insured. (See David L. Bickelhaupt, General Insurance p. 8 (1983)).

The fourth factor in considering the existence of an unfair trade practice violation under G.S. 58-63-15(7)(c) is whether the decision was due to the geographical location of the property. If the basis for the decision not to write is the geographic location of the property and the risk is of the same class and same hazard, it constitutes unfair discrimination, unless as provided in G.S. 58-63-15(7)(c):

• The refusal or limitation is for the purpose of preserving the solvency of the insurer and is not a mere pretext for unfair discrimination, or
• The refusal, cancellation or limitation is required by law.

Whether certain conduct falls within this statutory prohibition is a question of law to be determined on the facts of each case. Among the issues to be considered are: whether the property a company insures in one part of the state is of the same class as property the company refuses to insure in another geographic area and whether the hazards are essentially the same. Based upon the foregoing considerations, it is our opinion that insurers can refuse to write in certain geographic areas of the State only if they comply with the provisions of G.S. 58-63-15(7)(c).

Appointment of Agents

The insurance laws do not address the question of the appointment of agents by geographic regions. However, G.S. 58-33-40(b) provides in pertinent part that any insurance company authorized to transact business in this State may appoint as its agent any individual who holds a valid agent's license issued by the Commissioner. There are no indications that a company is required to appoint an agent.

Prior to its repeal in 1987, G.S. 58-16-5(4) required that foreign or alien insurance companies appoint a resident agent as a condition of being authorized to do business. In 1987, the requirement that all business be transacted through resident agents was also repealed. G.S. 58-33-60 was enacted in 1987, and it specifically provides that with the exception of retaliatory provisions against other jurisdiction, ". . . there shall be no requirement that a licensed resident agent or broker must countersign, solicit, transact, take, accept, deliver, record, or process in any manner an application, policy, contract or any other form or insurance on behalf of a nonresident agent or broker, or an authorized insurer. . . ."

It is therefore our opinion that authorized insurance companies are not required to appoint any residents of this State as agents. It necessarily follows that appointing agents by geographic location is also not required.

Commissioner's Authority

Article 42 of Chapter 58 authorizes the establishment of mandatory or voluntary risk-sharing plans for any kind of insurance not readily available in the voluntary market. Article 42 was scheduled to expire on July 1, 1995. It was extended to July 1, 1997, pursuant to Section 26 of Chapter 517 of the 1995 Session Laws. There is no express provision in Chapter 58 of the General Statutes which would give the Department of Insurance or the Commissioner of Insurance the authority to require an individual insurance company to write insurance or to appoint agents. Likewise, they do not appear to have the authority to prohibit companies from withdrawing from certain geographic areas unless it is part of a plan under Article 42 of Chapter 58.

G.S. 58-42-1 provides:

If the Commissioner finds, after a hearing held in accordance with G.S. 58-2-50, that in all or any part of this State, any amount or kind of insurance authorized by G.S. 58-7-15(4) through G.S. 58-7-15(22) is not readily available in the voluntary market and that the public interest requires the availability of that insurance, he may either:

(1) Promulgate plans to provide insurance coverage for any risks in this State that are, based on reasonable underwriting standards, entitled to obtain but are otherwise unable to obtain coverage; or
(2) Call upon insurers to prepare plans for his approval.

Upon the establishment of a plan, G.S. 58-42-10 provides that:

(a) Each plan shall require participation:
(1) By all insurers licensed in this State to write the kinds of insurance covered by the specific plan;
(2) By all agents licensed to represent those insurers for that kind of insurance; and
(3) By every rating organization that makes rates for that kind of insurance.
(b) The Commissioner shall exclude from each plan any person if participation would impair the solvency of that person.

Finally, G.S. 58-42-35 provides that: If the Commissioner finds that the lack of participating insurers or agents in a geographic area makes the functioning of a plan difficult, he may order that the plan appoint agents on such terms as he designates or that the plan take other appropriate steps to guarantee that service is available.

The plans which may be promulgated under Article 42 involve risk-sharing arrangements. Pursuant to these risk-sharing arrangements, the Commissioner may require the writing of insurance or the designation of agents in a particular geographic location. It is our opinion that Article 42 does not authorize the Commissioner to require a particular company to provide insurance or designate agents.

MICHAEL F. EASLEY
Attorney General

Reginald L. Watkins
Senior Deputy Attorney General

Lorinzo L. Joyner
Special Deputy Attorney General

Ted R. Williams
Assistant Attorney General