Insurance companies and their trade groups are continuing totalk to state regulators about the decision of severaljurisdictions to tell insurers they cannot impose hurricanedeductibles for losses suffered from Superstorm Sandy.

Jurisdictions that have declared the hurricane deductibles notvalid are Delaware, New York, Rhode Island, New Jersey,Connecticut, Pennsylvania Maryland, and the District ofColumbia.

The only state to specifically classify Sandy as a hurricane wasNorth Carolina, according to lawyers at Nelson Levine de Luca &Hamilton, LLC.

The North Carolina Department of Insurance noted that hurricanedeductibles would likely be applicable because Sandy was stillclassified as a hurricane when North Carolina sustained damage.

Department spokesperson Kerry Hall also notes that NorthCarolina policies refer to “named-storm” deductibles rather thanhurricane deductibles, the law firm says in a memo.

The legal memo calls the controversy “One of the myriad issuesthat has arisen from Sandy.

The lawyers say that because of “Sandy's unique nature” as ahybrid tropical and post-tropical storm, “the applicability ofthese deductibles to property damage claims stemming from thesuperstorm is ripe for controversy.”

The controversy was created when the National Weather Servicedowngraded Sandy from a hurricane to a “post-tropical cyclone.”

The Nelson, Levine lawyers argue that state decisions“proactively ended the controversy,” but officials of the AmericanInsurance Association and the Property Casualty InsurersAssociation of America disagree. Their objections are in additionto concerns raised earlier by the National Association of MutualInsurance Companies.

Officials of the trade groups and the insurers are explaining tothe regulators that they based their rates on the contract languagethey negotiated with state regulators, and voiced concern about thepotential the issue has to threaten their solvency.

Willem Rijksen, vice president of public affairs for theAmerican Insurance Association, says, “Insurers are committed andready to help our policyholders recover from this terribledisaster.”

But, he adds, “Let's remember that it's absolutely essentialthat we support certainty, and a robust competitive privateinsurance market for coastal residents in the years to come.

“Political manipulation of private markets weakens thosemarkets—and that's the last thing coastal residents need,” Rijksensays. “We want to work with regulators to help ourpolicyholders recover.”

Donald Griffin, vice president, personal lines, for the Propertyand Casualty Insurers Association of America, Chicago, Ill., saysinsurance companies and their trade groups have been working withregulators to establish the rules when settling claims onSandy.

“Companies have filed and regulators have approved stormdeductibles and PCI is working with our members and the regulatorson these issues,” Griffin says.

He adds that insurance policy contracts may differ based on thestate and whether the contract calls for a deductible based on awindstorm or hurricane trigger.

“Whether windstorm, hurricane or standard, we want to make surethe deductibles are applied fairly and according to the terms ofthe contract,” Griffin says.

He also cautions that the current controversy could impact thesolvency of insurance companies.

In an earlier statement on CNBC, Jim Whittle of the AIA said thelikely result of the decision is higher rates for everyone, aposition also noted by Neil Alldredge, senior vice president, State& Policy Affairs, for NAMIC.

Alldredge also says that NAMIC companies are likely to rethinkhow much coastal risk they can afford to underwrite, given thestates' actions.