Allstate Insurance officials will be called to account at a hearing this month on its practice of canceling the policies of homeowners who don't also buy their auto insurance, which state insurance regulators say is illegal.

The state Insurance Department issued a citation to Allstate Tuesday that requires the company appear on Sept. 19 in Manhattan.

Allstate will have to "show cause" why state regulators should not impose civil penalties after the company failed to comply with the requirement that a customer's auto insurance coverage not be a factor in whether to renew homeowners policies.

Some customers who paid for both Allstate's auto and homeowners insurance had their homeowners policies renewed, while others with just homeowners were dropped, according to state regulators. The illegal move affected thousands of Allstate customers, according to documents made public Tuesday by state regulators.

Allstate and another company, Liberty Mutual, had been tying auto insurance to their decisions about homeowner renewal, Insurance Department superintendent Eric Dinallo said in a news conference Aug. 28.

Dinallo accused the companies of seeking to increase profits by inducing customers with homeowners coverage to add auto policies.

Armed with a legal opinion issued last week, Dinallo ordered the two companies to stop immediately and devise a plan to reinstate consumers who were dropped under the illegal practice. Liberty Mutual said last week it was going to contact 380 Long Island residents who had been affected by their practice and attempt to renew their homeowner policies.

But Allstate officials said their actions were legal and that a prior administration at the Insurance Department had known about its plans to use auto coverage as a criteria when deciding which customers to renew.

Tuesday, Allstate spokeswoman Krista Conte issued a statement about the citation and hearing notice.

"Allstate responded to the department in writing and also attempted to make contact with the superintendent directly following the events of last week," Conte said.

"In our written communication, we believe we addressed the concerns raised by the department. On Friday, Aug. 31, we received a hearing notice from the department. We are reviewing the document and will respond accordingly."

Allstate has about 25 percent of the homeowners insurance market on Long Island. After the busy hurricane season of 2004 and 2005, including Katrina, and with forecasters saying Long Island was overdue for a catastrophic storm, about a half-dozen insurance companies, including Allstate, began shedding homeowner policies in hurricane-prone and coastal areas of New York. Under state law, the companies are allowed to not renew up to 4 percent a year of its homeowner customers statewide to manage its exposure to large payouts should a big storm hit the region.

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BY KEITH HERBERT

Copyright © 2007, Newsday Inc.

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