State Farm Appeals $310M Refund Order

The six-year battle between the Texas Department of Insurance and State Farm Lloyd’s (SFL) over homeowners insurance rates that TDI says are excessive is destined to continue. State Farm appealed an order signed by Texas Insurance Commissioner Mike Geeslin instructing the company to refund a $310 million to Texas policyholders in a case stemming from 2003.

The insurer has filed a motion for rehearing with TDI and plans to file an appeal in Travis County District Court, according to Associated Press reports.

TDI in 2003 told State Farm to cut its rates by 12 percent but the company sued the department and the case has been in limbo ever since. Commissioner Geeslin issued the current order on Nov. 16, the result of a re-hearing after the case was remanded to TDI by the Third Court of Appeals in 2008.

“I have issued an order that completes what the Legislature started in 2003,” Geeslin said in a statement released by TDI. “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 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.

If TDI ultimately prevails, the amount paid to individual policyholders would vary. The total amount of the refund is approximately $257 million, and the interest owed is approximately $53 million, according to TDI.

The company would repay the amount to policyholders via renewal credits for existing policyholders, or by check. State Farm Lloyd’s was ordered to begin “applying renewal credits, and pay refunds and interest within 60 days” of the order date. However, State Farm’s appeal will halt any refund payments until final resolution by the courts.

Kevin Davis, a spokesman for State Farm, told Insurance Journal after the order was issued that the company believes “State Farm Lloyds rates are, and always have been, both fair and justified.

“With this decision, the Commissioner effectively created another Hurricane Ike for State Farm. The financial impact of this order is comparable to the financial strain caused by the third most destructive hurricane to ever make landfall in the U.S.,” Davis said.

“This decision not only challenges State Farm financially, it creates an unstable environment for consumers and the insurance industry. It will impact Lloyds in a significant manner.”

Topics Texas