By Lyle Adriano, INSURANCE BUSINESS AMERICA
February 14, 2022
The Supreme Court of California has ruled that State Farm does not have to refund homeowners $100 million, after it denied appeals from both the state insurance commissioner and a consumer advocate group.
In 2016, then-insurance commissioner Dave Jones deemed State Farm’s homeowners' insurance rates as excessive, based on its expenses and income. Jones then ordered the insurer to reduce its rates by 7% and offer refunds of approximately $100 million to its customers over the next 17 months.
The insurer complied with the former directive, and reduced its rates from November 2016 to May 2018, when Jones granted State Farm a rate increase. But State Farm withheld the refunds and challenged the commissioner’s decision – and a state appeals court finally granted the petition last October.
According to the Fourth District Court of Appeal in San Diego, even if the commissioner found the rates excessive, an insurer is legally entitled to charge rates the regulator has approved until the state sets new rates. The insurer also cannot be required to pay refunds of previously authorized rates, the district court said.
In the 3-0 ruling last October, Justice Richard Huffman said that the insurer “was required and entitled to charge the approved rate, until a different rate was approved.”
The court also found that Jones’ assessment of State Farm’s income was wrong. Jones had claimed that State Farm’s assessment failed to consider funds available to it from its parent company’s auto insurance business and other affiliates, but the court said that the state can only consider income from State Farm’s California homeowners’ insurance business, and that the commissioner cannot rely on “speculation” that other affiliates had the capability to share their investment income.
San Francisco Chronicle reported that the district court’s ruling became final on February 09, 2022 after the Supreme Court denied appeals by current insurance commissioner Ricardo Lara and consumer advocacy group Consumer Watchdog.
It was reported that the decision does not require California to raise State Farm’s rates, nor does it authorize the insurer to bill customers for the previous rate reduction. A statement from commissioner Lara’s office also noted that state law prevents insurers from recouping past losses in future rates.