Court Rules California Insurance Commissioner Cannot Make State Farm Pay Refunds for Overcharges

California Insurance Commissioner Ricardo Lara cannot force insurers to repay consumers when they charge excessive rates, the California Court of Appeal in San Diego has ruled.

The court held that State Farm will not have to pay more than $100 million in refunds plus interest to Californians who were reportedly overcharged by the company for its homeowners, condo and renters coverage.

The court also held that when determining whether to approve a request by State Farm General, a subsidiary of State Farm Mutual, to raise its rates, the commissioner cannot take into account the subsidiary’s proportionate share of the investment income the company earns when it invests the funds of all its subsidiaries.

A spokesman for Lara did not immediately respond to a request for comment.

Consumer Watchdog, an advocacy group that was involved in the case, issued the following statement on behalf of founder Harvey Rosenfield, who authored the state’s Proposition 103:

“Californians passed Proposition 103 to protect themselves against arbitrary rates and discriminatory practices by requiring insurance companies to keep rates and premiums fair at all times or else be held accountable by the Insurance Commissioner or in the courts. The Court of Appeal’s decision has stripped the Insurance Commissioner of the powers the voters gave him to protect Californians against excessive rates. Consumer Watchdog will ask that it be overturned by the California Supreme Court.”

The court, among other things, found that Lara’s interpretation of certain regulations were inconsistent with the state’s insurance code, and agreed with an early superior court decisions to set aside his rate order. The court also found that Lara “erred in ordering a retroactive rate and refund.

According to Consumer Watchdog, also at stake as a result of the decision is an estimated $3.5 billion in overcharges that insurance companies imposed on California motorists alone during the pandemic in 2020 that have not been repaid.

In October, Lara directed three auto insurance companies to reimburse California drivers the excess premiums they were charged from the start of the pandemic, or face legal action.

Related:

• Consumer Report Claims Insurers Overcharged California Motorists $5.5B During First Year of Pandemic
• Despite Less Driving During 2020 Pandemic, Traffic Deaths Were Highest In 13 Years
• State Farm Returning $400M to California Auto Customers

Topics California Legislation