State Farm Appeals Home Insurance Refund

Published: Mon 07 Dec 2009

Wendy Blair

State Farm Lloyds has appealed an order by the Texas Insurance Commissioner to repay homeowners insurance customers $310 million in premiums and interest after allegedly overcharging some of them as long ago as 2003.

Texas' largest home insurer filed the motion for a rehearing with the Department of Insurance, spokesman Kevin Davis said. It also has filed an appeal in Travis County District Court. The appeal will stop repayments until there is court ruling.

"We disagree with parts of the order, and we need more time to fully evaluate the financial impact of the fine," Davis said. "We only had 10 days to file an appeal or forever lose that right."

He noted the company has no money set aside to make the payments. Davis earlier said the financial strain the order poses for the company is similar to that experienced with claims for damages done by Hurricane Ike, the third most destructive hurricane to make landfall in the United States.

State Farm Lloyds is an association of underwriters that operates under the Lloyds Plan as provided in Texas law. Commonly referred to as simply State Farm, it underwrites homeowners and commercial multiple-peril insurance for about 1.2 million policyholders in the state.

Insurance Commissioner Mike Geeslin ordered the refunds of what he considered years of overcharges by the insurer. Reform of insurance laws by the Legislature six years ago allows the Department of Insurance to order refunds of insurance rates it considers unjustified as well as file rates with the state.

The legislature also permitted insurers to increase rates without the approval of the department. Insurers contend such approval allows faster rate adjustments when market conditions change. When State Farm filed rates under provisions set by Texas lawmakers, the Department of Insurance ordered a 12 percent decrease in rates. That was in 2003.

The company has argued its rates are set fairly and considers the ordered rate cut overregulation by the department. It filed a lawsuit against the state. The issue was then sent back to Geeslin for his ruling.

The Office of Public Insurance Counsel, which represents consumer interests with the Department of Insurance, has contended State Farm owed nearly $1 billion in refunds and interest to customers. Public Insurance Counsel Deeia Beck declined comment until State Farm's motion gets her office's review.

At least one consumer watchdog group already has weighed in regarding the company's challenge to the latest order. "Rather than taking responsibility for their wrongdoing, State Farm is once again thumbing its nose at its customers," said Alex Winslow, head of Texas Watch.