Texas Judge Strikes Down Rate Rollbacks for State Farm, Farmers

TDI, Lt. Governor vow to continue efforts on behalf of homeowners.

A state district judge in Texas on Nov. 8, 2004, overturned mandated rate rollbacks in homeowners insurance for State Farm and Farmers insurance companies, but the Texas Department of Insurance is not ready to give up the fight. Neither is Lt. Gov. David Dewhurst.

In a message released the day after State District Judge Suzanne Covington’s ruling, TDI said it disagrees with Covington’s decision and is exploring all legal options on behalf of Farmers and State Farm policyholders, including future rate actions and legal appeals.

“We’re very disappointed with the ruling, and the companies’ failure to provide policyholders with the rate relief they deserve,” said Mike Geeslin, TDI Deputy Commissioner for Policy. “The rest of the market has complied with the law, and State Farm and Farmers, representing 40 percent of the market, need to do the same. The numbers speak for themselves.”

Lt. Gov. Dewhurst also expressed his disappointment with Covington’s ruling. Calling the ruling “a setback for hardworking Texas families,” Dewhurst indicated that the legislature would be ready to act if legal appeals fail.

“The judge’s ruling did not in any way address the fact that State Farm and Farmer’s are charging excessive rates,” Dewhurst said in an announcement. “State Farm and Farmers continue to use the courts to delay implementation of fair rates for homeowners. SB 14 was passed in a bipartisan manner, and I am again calling on these companies to comply with the intent of the law. The procedural appeal which Judge Covington declared unconstitutional was drafted by the Attorney General’s Office to comply with state law. If an appeal is not successful we will take every action necessary in January’s Regular Session so that homeowners can get refunds on the excessive rates that State Farm and Farmers have been charging for over a year.”

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. In October, state lawmakers grilled the commissioner at a hearing in Austin about the difficulty in getting State Farm and Farmers to comply with the mandate. At that time Montemayor expressed confidence that a settlement could be reached with the insurers.

Judge Covington ruled, however, 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.

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.

“We believe that the consumers of Texas would best be served by putting the focus where it belongs, on ensuring a competitive marketplace where consumers have a wide range of choices,” State Farm spokeswoman Sophie Harbert told the Associated Press.

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.

In TDI’s view, the “court’s ruling overturns the homeowners rate relief ordered for Farmers and State Farm policyholders in August 2003.” The department said the orders were issued after the companies had the opportunity to justify their current rates in a hearing before Montemayor.

“The ruling applies only to the immediate rate reduction provision of Senate Bill 14. The remainder of the 2003 reforms are not affected,” TDI’s announcement said. “The court’s order did not dispute the underlying facts of the rate reduction ordered.

“TDI stands by its analysis of rates charged by Farmers and State Farm: those rates need to be reduced. TDI believes that it followed all due process procedures outlined in the law. Further, no analysis has been provided to the Department indicating that the orders would have harmed the companies.”

Texas Gov. Rick Perry also expressed his ire at what he called the insurers’ courthouse games. He told reporters at a Veterans Day ceremony that lawmakers will be “incensed” by the companies’ refusal to provide rate relief to their customers. He warned that the message to the insurers is, “We’ll see you in January.”

Topics Trends Texas Legislation Pricing Trends Homeowners