State Farm, Farmers Win a Round in Texas as Judge Strikes Down Mandated Rollbacks

November 9, 2004

A state district judge in Texas overturned mandated rate rollbacks in homeowners insurance for State Farm and Farmers insurance companies, but the Texas Department of Insurance is reportedly not ready to give up the fight.

Insurance Commissioner José Montemayor last year ordered State Farm and Farmers to cut rates for their homeowners offerings by 12 percent and 17.5 percent, respectively. Montemayor ordered the rollbacks under new regulations established to implement insurance reforms passed by the legislature in 2003.

State District Judge Suzanne Covington ruled that provisions of the state’s 2003 insurance reform law were unconstitutional and violated the companies’ due process rights, according to the Dallas Morning News. The Austin American-Statesman reported that Covington had problems with the part of the law that sets a timetable for companies to protest rate cuts.

A spokesman for TDI told the Dallas Morning News the judge did not deny the merits of the rollbacks nor did she rule against the state’s overall rate-setting authority. He said the department plans to pursue other options fight for rate relief on behalf of Farmers and State Farm customers. One option may be an appeal to a higher court.

In an announcement, consumer organizations AARP Texas and Texas Watch described the court’s action as being “unfortunate for the approximate 40 percent of Texas homeowners who are customers of the two companies. Promised rate relief is still on hold with no apparent end in sight.”

“Texas homeowners were promised relief from skyrocketing homeowners insurance premiums,” stated Gus Cardenas, president of AARP Texas. “This is a clear sign that insurance reform is not done. We encourage the many legislators who have worked hard with us on this issue to redouble efforts and help us finish the job.”

“State Farm and Farmers have been stalling and delaying for over a year now, and their policyholders have been forced to pay hundreds of millions of dollars in over charges,” said Alex Winslow, Program Director of Texas Watch. “This ruling is one more sign that Texas must continue to work for real reforms that will lower insurance rates for all Texas families.”

The rate rollbacks for Farmers and State Farm have been on hold since Montemayor ordered them in the fall of 2003. The companies have since then used the courts to suspend the rate reductions and challenge their legality.

Farmers and State Farm reportedly both applauded the judge’s decision. Spokespersons for both companies said their respective firms believe their rates are reasonable and fair. Together the two companies hold about a 40 percent share of the homeowners market in the state.

Rate reductions were ordered for some 29 insurance companies last year. Twelve companies subsequently appealed to the commissioner to set aside the ordered rollbacks. Ten of those withdrew their appeals after negotiating settlements with TDI, some for lower reductions. State Farm and Farmers were the last holdouts.

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