State Farm overcharged on premiums and should issue refunds, judge says

A judge has recommended that State Farm refund tens of millions of dollars to its California customers and lower its rates after finding that the insurance giant charged excessive premiums over the last year for rental and home insurance policies.

But customers shouldn’t expect a refund just yet. The recommendations released Monday must still be approved by California Insurance Commissioner Dave Jones, who has not indicated whether he will go along with them.

Advocacy groups Consumer Watchdog and the Consumer Federation of California last year challenged a proposed rate increase by State Farm, saying the insurer had not justified the hike and was already charging too much.

Under California’s landmark Proposition 103, insurers must get approval from the state insurance commissioner before raising rates on auto, homeowner and business insurance. Consumers also have the right to challenge those rates.

State Farm had said its proposed rate increase of nearly 7% was needed to cover the additional risk of wildfires, arguing that losses from fires were on the rise. The advocacy groups challenged that proposal, and Administrative Law Judge John Larsen agreed that State Farm’s data showed no increase in wildfire losses.

Larsen recommended State Farm cut its homeowner insurance rates 5.4%, its renters insurance rates 20.4% and its condominium insurance rates 13.8%, retroactive to July 2015.

Todd Foreman, an attorney who represented the groups, said those refunds should amount to about $85 million for 1.7 million policyholders.

Sevag Sarkissian, a spokesman for the Bloomington, Ill.-based insurer, said State Farm still believes its rates are justified.

“Policyholders in California are particularly vulnerable to significant losses from fires following earthquakes and wildfires,” Sarkissian said in an email. “California is in the middle of its fifth year of drought and continues to face the serious threat of wildfires in 2016.”

He said State Farm is still reviewing Larsen’s decision and is waiting to see if Jones will follow the judge’s recommendations, which also call for the insurer to pay policyholders interest for the excessive charges.

Jones said Tuesday he would not comment on whether he will approve Larsen’s recommendations.

On Monday, Jones send the case back to Larsen, asking what, if any, interest State Farm should pay — a move that spurred Consumer Watchdog on Tuesday afternoon to send a news release that said a judge had ordered State Farm to cut rates and pay refunds.

Foreman said Jones’ questions about interest suggests he is planning to sign off on the recommended refunds and rate cuts.

“It doesn’t make sense that he would order the parties to talk about interest rates unless he was going to order the refunds,” he said.

Though the release noted that Jones still must approve Larsen’s decision, Jones said Consumer Watchdog should not have sent the release. On Wednesday, Jones’ office issued a statement saying the group should retract its press release

“I’m very troubled they would seek to mislead consumers,” Jones told the Times. “It’s false and misleading to say a judge has ordered refunds and a rollback of rates.”

Consumer Watchdog founder Harvey Rosenfield said he does not believe the initial release was misleading, pointing out that the statement noted the refunds and rate cuts were subject to Jones’ approval.

“I don’t see anything misleading,” he said.

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UPDATES:

2:39 p.m.: This article was updated with comments from Harvey Rosenfield.

This article was originally published at 8:20 p.m. on Aug. 9.