BATON ROUGE, La.-- Allstate Insurance Co. officials say state law allows the company to drop basic hurricane coverage for 20,000 policyholders in 18 coastal parishes -- a stand that Insurance Commissioner Jim Donelon is challenging.

The company does not plan to pull out of the Louisiana homeowners market, a threat that Donelon says Allstate made during a meeting Friday, said Allstate spokeswoman April Eaton.

At issue is a state consumer protection law that prohibits insurance companies from changing a policy or dropping coverage if the policyholder has been insured for three years and has not had more than two claims not considered "acts of God."

Allstate legal counsel Lorrie Brouse said that the state law deals with cancellations and nonrenewals.

"We're not disputing the statute," she said. "We're saying what were planning to do doesn't apply."

Donelon said the law does not allow Allstate the second-largest insurer in the state to "gut" policies.

Allstate wants to drop wind and hail coverage in Ascension, Assumption, Cameron, Iberia, Jefferson, Lafayette, Lafourche, Orleans, Plaquemines, St. Bernard, St. Charles, St. James, St. John the Baptist, St. Martin, St. Mary, St. Tammany, Terrebonne and Vermilion parishes.

"This stretches from Cameron to St. Bernard," Donelon said.

"Its not just the folks on Holly Beach and Grand Isle."

Reducing the company's risk cannot be solved with a "one-item fix" such as raising rates in the storm areas, Eaton said.

Donelon said Allstate wrote policies with full knowledge of the consumer protection law. He said the dispute likely would be settled by the Louisiana Supreme Court.

In 2004, Allstate dropped 95,000 customers in Florida. This year, the company intends to not renew 120,000 Florida homeowners policies.

Allstate recently reported a second-quarter profit of $1.2 billion, earnings the company said were largely driven by automobile insurance.

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Information from: The Advocate, http://www.theadvocate.com

(Copyright 2006 by The Associated Press. All Rights Reserved.)