Farmers Insurance Group, the third-largest auto insurer in Texas, has yet to agree to refund an estimated $8 to $10 million to policyholders it admitted overcharging, stating instead that it is continuing to negotiate a plan to issue the refunds.
The Dallas Morning News reported that Farmers has insisted that accounting mistakes caused the overcharges. More than a year ago, the company averted a class-action lawsuit by reporting itself to the Texas Department of Insurance (TDI) for overcharging customers after those customers were involved in traffic accidents in which they were found to be at fault.
TDI spokesman Lee Jones explained that state regulations stipulate a 15 percent policy increase for at-fault drivers involved in collisions; the 15 percent increase expires in 3 years. Farmers reported in the summer of 2000 that it had failed to reduce premium prices for thousands of policyholders after the three-year period due to the lack of a computerized system to automatically remove surcharges from premium at the end of the required period.
Farmers notified TDI of its violation just days before policyholders planned to file a class-action lawsuit. Farmers began negotiating with TDI on a plan to refund the surcharges, and the suit was subsequently dropped.
Because Farmers self-reported the violation, the matter initially seemed simple, according to Jones: “For a number of reasons, this case has taken much longer than anyone imagined…The Texas Department of Insurance never intended or wanted this case to last so long.” Shortly after refund negotiations began, complications arose regarding who should receive restitution, and how much.
TDI began its investigation on Aug. 20, 2000, but ultimately turned the case over to the State Office of Administrative Hearings, where negotiations are reported to continue. Farmers has filed legal documents with the administrative law judge that claims there is a two-year statute of limitations on the overcharges, and that state regulators do not have the authority to levy fines against the company. According to company officials, however, refunds for overcharges occurring more than two years ago had been offered during negotiations with TDI.
Farmers’ filings specifically ask that the company and its subsidiaries Farmers Texas County Mutual Insurance Co., Mid-Century Insurance Co. of Texas, and Texas Farmers Insurance Co., be “exonerated from any claim they violated the provisions of the Texas Insurance Code or any rules of the Texas Department of Insurance…[and the] relief sought by the Texas Department of Insurance be in all things denied.”
Farmers spokesman Bob Huxel said a hearing on the issue had been scheduled for the week of Dec. 10 before an administrative law judge. However, the company and TDI have agreed to delay the hearing. “We are continuing to work with the Texas Department of Insurance in an effort to conclude this matter as soon as reasonably possible,” Huxel noted.
Despite the company’s claims that negotiations continue, consumer groups believe it intends to drag out the process in order to pay as little as possible to its policyholders. D. J. Powers, attorney for the Center for Economic Justice, said, “There shouldn’t have to be any deal cut for them to refund the overcharges. They should have to pay the money back, period…Farmers only went to the insurance department because they were caught overcharging customers by some of their policyholders who were ready to take them to court.” Powers added, “This is a perfect example of why class-action lawsuits are so important, because we can’t always rely on government agencies to protect consumers.” A former legal counsel for TDI, Powers criticized the department for not being aggressive enough with Farmers.
Powers also mentioned that perhaps as many as 80 percent of Farmers policyholders involved in collisions paid surcharges beyond the three-year limit. The company and its subsidiaries have about 1.5 million auto policies in Texas.