By Bob Egelko, SAN FRANCISCO CHRONICLE

February 9, 2022

https://www.sfchronicle.com/bayarea/article/State-Farm-doesn-t-have-to-…

State Farm Insurance will not have to refund $100 million to homeowners after the state Supreme Court denied appeals Wednesday by California's insurance commissioner and a consumer organization, which both contended the customers had been overcharged.

Then-Insurance Commissioner Dave Jones declared in 2016 that State Farm's rates were excessive, based on its expenses and investment income. He ordered the company, which covered 20% of the state's policyholders, to lower its rates by 7% and refund about $100 million to customers over the next 17 months. 

State Farm reduced its rates from November 2016 until May 2018, when Jones granted a rate increase. The company withheld the refunds while it challenged Jones' decision, a challenge that a state appeals court granted last October. 

Even if Jones correctly found the rates excessive, an insurer is legally entitled to charge rates the commissioner has approved until the state sets new rates, and cannot be required to pay refunds of previously authorized rates, said the Fourth District Court of Appeal in San Diego. 

State Farm "was required and entitled to charge the approved rate, until a different rate was approved," Justice Richard Huffman said in the 3-0 ruling. 

The court also said Jones was wrong in his assessment of the company's income. The commissioner said State Farm's assessment had failed to include funds available from its Illinois-based parent company's auto insurer and other affiliates. But the court said the state can consider only income from the California-based homeowner's insurer, and cannot rely on "speculation" that other affiliates shared their investment income. 

The ruling became final Wednesday when the state's high court denied appeals by the current insurance commissioner, Ricardo Lara, and the advocacy group Consumer Watchdog. 

The decision, however, does not require the state to increase State Farm's rates or authorize the company to bill customers for the previous rate reduction. Lara's office said California law does not allow insurers to recoup past losses in future rates. 

But Harvey Rosenfield, founder of Consumer Watchdog, said the ruling could jeopardize billions of dollars in potential auto insurance refunds for Californians whose cars have often stayed in their driveways during the COVID-19 pandemic. Rosenfield was the author of Proposition 103, the 1988 initiative that established insurance rate regulation in California under an elected commissioner. 

Lara "needs to order them to reduce their rates and provide refunds immediately" or lose authority to do so under the appeals court's criteria, Rosenfield said. He asserted that Californians were overcharged $5.5 billion for auto insurance in 2020 because they used their vehicles far less than the mileages on which their rates were based. 

State Farm said it was pleased with the ruling. Michael Soller, a spokesperson for Lara, said the commissioner's office was reviewing the decision and its effect on consumers. 

The case is State Farm General Insurance Co. vs. Lara, S272151. 

Bob Egelko is a San Francisco Chronicle staff writer. Email: [email protected]  Twitter: @BobEgelko