State Farm Again Ordered to Refund Texas Policyholders

April 13, 2011

A judge in Austin, Texas, has ruled that State Farm Insurance Co. must comply with a state insurance department directive to repay policyholders in a long running dispute between the insurer and Texas insurance regulators over alleged overcharges for homeowners insurance.

State District Judge Tim Sulak ruled in a case that dates backs to 2003 that State Farm must refund nearly $350 million to its policyholders, according to reports in the Dallas Morning News and the Fort Worth Star-Telegram.

State Farm Spokesman Kevin Davis told Insurance Journal in an email message that the company plans to appeal the judge’s ruling.

The Texas Department of Insurance in November 2009 ordered State Farm Lloyd’s (SFL) to refund a total of $310 million to policyholders after finding that the insurer had overcharged customers beginning in 2003. State Farm had been told in 2003 to cut its rates by 12 percent but the company sued the department and the case has been in limbo since then.

Sulak said he fouond “substantial evidence to support the commissioner’s decision, and the decision is upheld,” according to an Associated Press report.

Texas Insurance Commissioner Mike Geeslin’s Nov. 16, 2009, order was the result of a re-hearing after the case was remanded to TDI by the Third Court of Appeals in 2008.

State Farm then filed an appeal in Travis County District Court days after the commissioner’s November 2009 order.

“I have issued an order that completes what the Legislature started in 2003,” Geeslin said in a statement released by TDI at the time of the 2009 order. “As far as any commentary, anything more that I could say would be redundant to what is contained in these pages [of the order]. There is evidence, there is law, and between the two you come up with $310 million.”

The refund amount ordered is significantly lower than the nearly $1 billion that the state’s Office of Public Insurance Counsel had previously estimated the company owed to policyholders.

Geeslin, according to a summary of the 2009 order provided by TDI, “found SFL’s rates were excessive and is ordering SFL to pay refunds amounting to 6.2 percent of premium for policyholders insured with SFL from September 2003 to August 2004.”

SFL was also ordered to refund to policyholders an amount equal to 3.4 percent of premium for those insured by the company from September 2004 through July 2008, excluding new policies written from June 1, 2008, through July 31, 2008.

The $350 million in refunds ordered by Judge Sulak includes interest payments and affects around 1.2 million policyholders, according to media reports.

State Farm writes about 28.8 percent of the homeowners market in Texas.

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