Farmers Insurance refunded $1.4 million to thousands of California homeowners and agreed to pay $2 million in penalties to settle complaints the company overcharged policyholders, officials said.
The settlement came after a California Department of Insurance investigation found the insurer was classifying some homes as having a high fire risk when those homes should have been classified as having a lower fire risk, said department spokeswoman Jennifer Kerns.
The probe, which was triggered by consumer complaints, also found that Farmers lacked the proper guidelines to determine whether to renew a policyholder based on the numbers of times that person filed a claim, Kerns said.
Such a guideline is needed to prevent “use it and lose it,” a practice that regulators said had led many Californians to lose homeowners insurance after filing legitimate damage claims on their houses.
Farmers denied wrongdoing, saying a computer error caused the company to overcharge 6,000 customers.
“We caught it when they caught it,” Farmers spokesman Jerry Davies said.
“We fixed the computer system four years ago, all the customers were paid and have received apologies,” he said.
As part of the settlement, Farmers agreed to work with the department to develop better guidelines to assess a home’s fire risk and determine whether or not to cancel policies.
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