State Farm Ordered to Refund $350 Million to Customers for Overcharges

State Farm InsuranceMillions of State Farm Insurance customers in Texas have been overcharged by the company since 2003, and are owed approximately $350 million by the insurer, a judge ruled Monday.

Texas District Judge Tim Sulak's ruling upheld a previous decision by State Insurance Commissioner Mike Geeslin that ordered State Farm Lloyds, the company's homeowners subsidiary, to reimburse approximately, 1.2 million customers for overcharges, including $53 million in penalty interest, the Dallas Morning News reported."There is substantial evidence to support the commissioner's decision, and the decision is upheld," Sulak said, the Morning News reported. The judge's ruling came after listening to two hours of oral arguments from attorneys for State Farm, the Texas Department of Insurance and the Texas Office of Public Insurance Counsel.

State Farm, the state's largest insurer, said its rates have always been fair, and expected Geeslin's order to be reversed.

"We knew, no matter which way the judge ruled, an appeal from either party was highly likely in this case," said Kevin Davis, a spokesman for the company, according to reports. "State Farm Lloyds' rates are, and always have been, fair and competitive - and we remain confident the commissioner's order will be reversed."

Texas Public Insurance Counsel Deeia Beck said State Farm continued overcharging its customers despite several years of warnings from state regulators that its rate were excessive, according to reports.

Beck maintains that State Farm should be responsible for nearly $1 billion it overcharged customers for homeowners coverage between 2003 and 2008, according to reports. Attorneys for State Farm counter that the company owes nothing and charged premiums that were competitive with other companies.

Texas Watch, a consumer advocate, applauded the judge's decision and noted that the $350 million refund is only some 30% of the $1 billion Beck showed the company actually owes.

"Judge Sulak's ruling today makes one thing crystal clear: It is time for State Farm to pay up," Texas Watch Executive Director Alex Winslow said in a statement. "State Farm has abused its policyholders through overcharges and years of legal wrangling. Every day that State Farm dodges this truth, the abuse continues. The insurance commissioner knows it, the court knows it, and certainly State Farm's customers know it."

Commissioner Geeslin first ordered State Farm to reimburse its customers in November 2009, either via refund checks or through a policy renewal credit. Longstanding State Farm customers can expect to collect $200 to $300.

"Simply explained, the 2009 order is a function of law and evidence, and the court agreed that there was substantial evidence in support of its findings," Geeslin said, according to reports. "This is a major step toward bringing this issue to a conclusion."

During oral arguments before the judge, State Farm attorney Susan Conway said the $350 million refund would wipe out a third of State Farm Lloyds' capital and threaten its finances, according to reports.

"This refund would be disastrous and irresponsible," she told the judge. "The commissioner failed to consider the impact the refunds would have on the financial stability of State Farm Lloyds."

According to the Dallas Morning News, however, a report from the Insurance Department shows that State Farm enjoyed a profitable year in 2010 after paying out only 52% of its premiums to cover property losses, a good deal less than the 60% loss ratio benchmark for profitability in Texas.
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