Minnesota Commerce Commissioner Jim Bernstein is charging State Farm Fire and Casualty Company and State Farm Mutual Automobile Insurance Company with more than 13,000 violations of Minnesota insurance law.
Based on a market conduct examination, the Department of Commerce is alleging that State Farm engaged in unfair trade and claim settlement practices in the handling of its auto glass claims in Minnesota.
The allegations include:
• On at least 1,832 occasions, State Farm withheld funds belonging to policyholders or glass shops by paying less than the “fair and reasonable market price” on auto glass claims. Instead, State Farm paid a “network” price that it arbitrarily set – generally 55 percent off the list price. Based on a market survey in effect at the time, the Department determined a fair and reasonable price in hundreds of disputed claims submitted by State Farm. State Farm refused to pay that amount. (State Farm has agreements with several hundred auto glass shops that make up its network, known as the “Offer and Acceptance Program.”)
• State Farm told more than 100 policyholders that they, not the company, must pay their chosen vendor directly if the vendor was not in State Farm’s network. Policyholders were also told that they must pay the difference between the price charged by their chosen vendor and the State Farm network price. Failing to pay a policyholder’s chosen vendor is a violation of Minnesota law and, in this case, also violated a Cease and Deist Order issued to State Farm by the Department in 2001.
• State Farm contracted with LYNX, Inc. to investigate, evaluate, and adjust auto glass claims, though LYNX is not licensed as an adjuster. LYNX is owned by PPG Industries, which manufactures auto glass products. State Farm also has a significant financial interest in PPG ? more than $237million of investments according to State Farm’s annual statement.
• On more than 600 occasions, State Farm limited the ability of policyholders to select the glass vendor and, in effect, steered them to a shop that agreed to State Farm’s pricing. State Farm, through its adjuster LYNX, states in a telephone script:
• • “I would like to inform you that you have chosen a shop that has not agreed to the State Farm pricing structure nor the State Farm warranty. Should they not accept the State Farm pricing for your job, State Farm will reimburse you based on the lower of two competitive bids. What this means for you is that you could end up paying more than your deductible.”
• • By using this script, State Farm customers were misled to believe that they were only entitled to the amount of reimbursement that State Farm was willing to pay.
• • On hundreds of occasions, State Farm failed to meet various statutory deadlines for acknowledging auto glass claims, claim acceptance or denial, and timely claim payment. For example, in 127 cases, State Farm did not deny or pay claims within 60 business days as required by Minnesota law. On more than 1,800 occasions, State Farm also failed to advise policyholders about their rights to demand arbitration, as required by the Minnesota No-Fault Act.
• State Farm failed to comply with the Department’s order and subpoena to provide complete files for more than 2,000 auto glass claims.
“State Farm claims to be a good neighbor, but it acts more like a neighborhood bully to consumers and glass shops,” said Bernstein. “Because it is the biggest kid on the block, State Farm thinks it can set any price it wants for auto glass and then make it difficult for policyholders to choose a shop that doesn’t accept its pricing structure. I firmly believe that State Farm understood the legislature’s intent and chose to do something very different.”
In 2001, State Farm, while not admitting or denying any wrongdoing, agreed to pay a $75,000 civil penalty for allegedly failing to provide payment to their policyholders’ chosen vendor.
State Farm is the largest auto insurer in Minnesota, collecting more than $591million in auto insurance premiums from Minnesota policyholders in 2001.
Based on the Department’s Statement of Charges, State Farm is ordered to appear at a hearing before an administrative law judge. A pre-hearing conference is scheduled for July 31. State Farm faces civil penalties and other sanctions.