Thursday, February 25, 2010

Farmers seeks bond to cover discovery costs in Arkansas class action

TEXARKANA, Ark. -- Six years into a pending Arkansas class action litigation and still maintaining their innocence against the plaintiffs' allegations, defendant Farmers Insurance Co. wants to recoup the millions they have spent providing documents to the plaintiffs' attorneys.

Farmers, one of the few remaining defendants who is still refusing to pay a settlement, is asking Miller County Circuit Court Judge Kirk Johnson to enforce the Arkansas Cost Bond Statute and order the non-resident plaintiffs to pay a bond to cover the insurance company's out-of-pocket costs.

In response to the request, the plaintiff's are challenging the constitutionality of the statute with the Arkansas Attorney General.

The original class action, which was filed Sept 8, 2004, in the Circuit Court of Miller County, Ark., accuses hundreds of insurance companies of not paying the general contractors' overhead and profit or not accounting for the cost of a general contractor's services when estimating the repair costs under their homeowners' policies. Although the insurance companies paid previous their client's previous damages claims, the lawsuit argues that plaintiffs are entitled to additional payments.

The class action alleges claims of civil conspiracy, unjust enrichment, fraud, and constructive fraud

One of many insurance companies that believe this Arkansas case involves discovery abuse, Farmers has consistently asked Judge Johnson for protective orders against the plaintiff's extensive requests for production of documents.

Initially, the plaintiffs agreed to allow all the insurance companies to provide a 2,000 page-sampling of their case files, instead of producing all their claims files as previously requested.

Farmers filed numerous motions seeking protective orders and a court enforcement of the agreement to reduce the request of claim files. Many of the motions, some almost six years old, still remain undecided by Judge Johnson. The judge maintains he will not violate Arkansas law and delve into the issues of the litigation prior to class certification.

To some extent, Farmers has attempted to comply with the outrageous requests for documents, it has produced millions of pages of claim files and had the files converted to the requested format. In its most recent motion, Farmers states it has spent at least $6 million on this production and coupled with mounting defense fees and costs, it wants the plaintiffs to post that $6 million in a bond.

Farmers argues that the costs of its complying with the Court's discovery order is imposing an "undue burden and expense" and is depriving the company of its property pre-judgment in violation of the Fifth Amendment.

The plaintiffs are represented by Texarkana attorneys John Goodson and Matt Keil of the law firm Keil and Goodson; and attorneys Michael B. Angelovich, Cary Patterson, Brady Paddock and Christopher Johnson of the Texarkana law firm Nix, Patterson and Roach LLP.

Chivers v State Farm Case No 2004-294-3

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Friday, February 12, 2010

Texas Farmers Insurance Homeowners Class Action Lawsuit

Pursuant to the order of the 172nd District Court of Jefferson County Texas this press release is being issued to inform interested parties that a Class has been certified and is pending awaiting trial in the matter: Sandra Geter, on behalf of herself and all others similarly situated v. Farmers Group, Inc.; Farmers Underwriters Association; Fire Underwriters Association; Farmers Insurance
Exchange; and Fire Insurance Exchange, Cause No. E-167,872), In the District Court of Jefferson County Texas, 172nd Judicial District. The following copy of the Notice ordered by the Court provides further information.

Para una traduccion en espanol de esta notificacion por favor llame al 1-877-695-7479

V. |

Legal Notice
A Pending Class Action Lawsuit May Affect Your Legal Rights

If your HO-B homeowners insurance was not renewed in the circumstances described below, you are hereby put on notice that a class action lawsuit has been certified and is now pending in the 172nd Judicial District Court, Jefferson County, Texas (the "Court"). The lawsuit is entitled Sandra Geter, on behalf of herself and all others similarly situated, (the "Plaintiffs") v. Farmers Group, Inc., Farmers Underwriters Association, Fire Underwriters Association, Farmers Insurance Exchange, and Fire Insurance Exchange, (the "Defendants"), Cause No. E-167,872, 172nd District Court, Jefferson County, Texas (the "Lawsuit").

This Notice affects you if you fit within the following class (the "Geter Class"):

All persons, other than those excluded below, whom, on or after November 14, 2001, received a notice from one or more Defendants advising them that their current HO-B homeowner policy covering property in the State of Texas would not be renewed when it expired.

The persons excluded from the Geter Class are:

(a) All persons who received a notice from one or more Defendants on or
after November 14, 2001, advising them that their current HO-B
policy covering property in the State of Texas would not be renewed
because the person receiving the notice had filed three or more
claims under the policy in the preceding three years and the claims
did not result from natural causes;
(b) All persons who received a notice from one or more Defendants on or
after November 14, 2001 advising them that their current HO-B
policy covering property in the State of Texas would not be renewed
because the person receiving the notice had filed two non-weather
related claims in a period of less than three years, had received a
notice that their policy would be subject to non-renewal if a
third non-weather related claim was filed during a three year
period beginning with the date of the first of the two non-weather
related claims, and who filed a third non- weather related claim
during the said three year period;
(c) All government entities, bodies and agencies of any character,
federal state or local and their employees (in that capacity only);
(d) The presiding judge(s) and other court personnel; and
(e) The Defendants and their employees and agents.

The Court has ordered that the Geter Class be provided notice as follows:

1. Plaintiffs contend that despite Defendants' notice of non-renewal,
Geter Class members are entitled to renew their HO-B homeowner's
insurance policy and Plaintiff seeks a declaratory judgment
establishing whether and on what terms the Geter Class has a right
to renew the HO-B coverage. Defendants have denied any wrongdoing,
have denied that the Geter Class is entitled to renewal of the
coverage or the requested declaration, and Defendants contend that
they were not required to offer HO-B homeowners insurance policies
to Texas policyholders. The Texas Commissioner of Insurance has
agreed that Texas law permits Farmers to discontinue, as it has
done, offering HO-B policies to Texas policyholders, and offer, in
lieu of the HO-B policy, its amended and revised HO-A policy. This
Notice is not to be construed as an expression of any opinion by the
Court with respect to the merits of the respective claims or
defenses. This Notice is sent merely to advise you of the pendency
of the action and the rights which you have with respect to the

2. All Geter Class members are also members of another class in the
pending case of Jan Lubin, et al v. Farmers Group, Inc. et al., C.A.
No. GV202501, in the 261st District Court in Travis County, Texas.
In particular, Geter Class members are members of the Rate class in
Lubin ("Lubin Class"), which includes all "who received a notice at
any time after November 14, 2001, that their HO-B Policy would not
be renewed." Farmers has agreed with the Texas Attorney General, to
settle the Lubin matter. The settlement must still be approved by
the trial court in Lubin. Under the proposed settlement, Lubin Rate
Class Members are eligible for a 6.8 % refund of earned base
premiums paid on HO-A policies incepted or renewed from December
28, 2001, up to and including November 10, 2002, either in the form
of a refund check or a credit upon renewal after approval of the
settlement. The Lubin Rate Class received a reduction to any HO-A
policy that was renewed or to any new policy issued, and the
reduction also is to be applied retrospectively to HO-A policies
issued before December 18, 2002. The proposed settlement with the
Lubin Class also provides other benefits to members of the Geter
Class. Some policyholders may receive benefits as members of the
Lubin Discount Class if they are current or former HO-A
policyholders and former HO-B policyholders who paid premiums that
were higher than what they would have been charged had the agreed
upon individual discounts been applied. Lubin Discount Class members
who did not receive discounts for Farmers Property Risk Assessment,
age of home, and territory at the level agreed to by the State and
the Farmers Parties are eligible to receive an Individual Discount
Adjustment payment. In addition, Geter Class members may be entitled
to recover in Lubin from the Credit Usage Notice Adjustment Fund if
Farmers used incorrect credit information when calculating their HO-
B premiums. Lubin Credit Usage Notice Class Members are eligible to
make a claim against the Lubin Credit Usage Notice Adjustment Fund,
designed to reimburse those policyholders who paid a higher premium
for auto or homeowners insurance due to erroneous credit information
on the individual's credit history maintained at a credit bureau,
which led Farmers to charge higher premiums than they would have
charged with correct credit information.

3. The settlement in Lubin has been preliminarily approved by the
District Court in Travis County. If you want to participate in the
final fairness hearing in Lubin, you must be a member of the Lubin
Class. The procedure for participation in the Lubin hearing will be
sent to you separately in another notice.

4. Any member of the Geter Class may opt out of the Geter Class and thus
be excluded from the litigation and remain eligible to participate
in the Lubin settlement. To opt out a Geter Class member need only
send their name and address in writing along with a statement that
they wish to opt out of the Geter Class to: Tom Kiehnhoff, Reaud,
Morgan & Quinn, 801 Laurel St., Beaumont, Texas 77701 with a copy to
Layne E. Kruse, Fulbright & Jaworski LLP, Fulbright Tower, 1301
McKinney, Suite 5100, Houston, TX 77010-3095. The opt out request
must be postmarked by May 1, 2010. Persons who opt out will not be
entitled to share in the benefits of the judgment if it is favorable
to Plaintiff and the Geter Class, and will not be bound by the
judgment if it is adverse to Plaintiff and the Geter Class.

5. All Geter Class members who do not opt out as described in Paragraph
4, will be bound by the determination of the Court whether favorable
or unfavorable to the Geter Class. Geter Class members are advised
that only the claim for declaratory relief has been certified as a
Geter Class claim and only the claim for declaratory relief will be
tried in Geter. Geter Class members are warned that claims for
damages or any other relief not within the scope of the declaratory
relief certified will not be tried as Geter Class claims and there
is a real and substantial danger that such claims may later be found
to be barred by a judgment for or against the Geter Class, unless
the Geter Class member opts out.

6. If Geter prevails in this case, to renew HO-B coverage, Defendants
contend that each Geter Class member must pay the full cost of the
renewed HO-B policies for each year in issue, or from the year of
non- renewal (in most instances from 2002) to date. For example,
the premium for a HO-B policy in 2002 has been estimated to be in
excess of $5,410.00 for Sandra Geter, or total premiums of about
$43,280.00 for the years 2002-2009. In 2003, the Texas Legislature
passed legislation regulating rates. Each insurance exchange is
required to use certain criteria in setting rates and must file
proposed rates with the Texas Insurance Commissioner. Exchanges are
not currently permitted to write homeowners insurance on the HO-B
form - or any other policy form - without first undergoing this
rate-making process. Because new rates would have to be filed with
the Texas Commissioner of Insurance for approval under the new law,
the exact amount each Geter Class member would be required to pay to
obtain an HO-B policy renewal is unascertainable at present.

7. Since the Geter case was filed in 2002, the Texas Supreme Court has
ruled that the HO-B policy excludes mold damage claims. Therefore,
any renewal of an HO-B policy offered to Geter Class members as a
result of this case would not include coverage for losses caused by

8. If Geter prevails in this case, to renew a HO-B policy, Defendants
contend that each member of the Geter Class would also be required
to qualify for the coverage. In addition to submitting proof of
ownership of the insured property, the renewal of each Geter Class
member's HO-B policy would be subject to underwriting review.
Underwriting is the process used by an insurer to determine if a
risk is acceptable to the insurer, and if so, how to price that risk
if written. An underwriting review may include, among other things,
the inspecting of the insured's home (both interior and exterior) to
determine whether it continues to meet underwriting requirements.
The underwriting inspection may include an inspection of the home's
roof, foundation, sidings, doors, windows, driveways, porches,
decks, patios, gutter, plumbing, heating, cooling systems,
electrical, and the maintenance and other physical condition of the
property. If a property does not meet the actuarially sound
underwriting guidelines, Defendants cannot be required to renew it
without regard to whether Geter prevails in this matter.

9. Any Geter Class member may, if they choose and at their own expense,
enter an appearance through counsel of their choosing. All Geter
Class members who do not opt out or enter an appearance through
counsel of their choosing will be represented by Plaintiff through
her counsel:

Glenn W. Morgan
Tom N. Kiehnhoff
Chris Portner
Reaud, Morgan & Quinn
801 Laurel Street
Beaumont, TX 77701
(409) 838-1000

Wayne A. Reaud
The Reaud Law Firm
801 Laurel Street
Beaumont, TX 77701
(409) 838-1000

L. DeWayne Layfield
Law Office of L. DeWayne Layfield
P.O. Box 3829
Beaumont, TX 77704
(409) 832-1891

10. The attorneys representing the Geter Class have entered an employment
contract with Sandra Geter under which Sandra Geter agreed that
should she prevail in this case the attorneys would receive a
contingent fee payment. However, since no damages will be recovered
in this Lawsuit by the Geter Class, the attorneys representing the
Geter Class plan to apply for reasonable and necessary fees based on
the hours that they actually worked on this matter, assuming the
Geter Class prevails at trial. If awarded by the Court, reasonable
and necessary fees would be paid by Defendants.

11. All communications and questions concerning this Notice should be
sent to Plaintiff's attorneys identified in Paragraph 4, and should
not be addressed to the clerk of this Court.

12. If the address of any Geter Class member changes or is different than
the address stated on the envelope enclosing this Notice, the new or
corrected address information should be sent by mail to the
attorneys identified in Paragraph 4.

13. This Court has retained jurisdiction in this action to alter, amend
or withdraw its order determining that this cause shall be
maintained as a class action, at any time before final judgment.

14. The pleadings and other papers filed in this action are available for
inspection in the office of the clerk of this Court.

15. You can also obtain additional information by visiting or calling toll free 1-877-695-7479.

Dated: December 10, 2009 /s/ Donald J. Floyd
Honorable Donald J. Floyd
Judge 172nd District Court
Jefferson County, Texas

Media inquiries can be made as indicated in the Notice.


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Thursday, February 11, 2010

Do you have to contact the media before Farmers Insurance will pay your claim?

Molly McClure came home to find her heavy metal patio cover collapsed under the weight of ice and snow. The attached awning brought the backside of her roof soffitt down with it.

Molly said, “From corner to corner it’s along the whole backside of the house that’s damaged.” The real split was between Molly and Farmers Insurance after the adjustor denied her claim.

Molly said, “I’m shocked it’s not covered. I can’t believe they wouldn’t cover that because it’s obvious there is damage to the house.” The denial letter implied the awning doesn’t have walls so is not considered a structure.

Faced with $6,600 in repair costs, Molly and her father Dale have argued with Farmers Insurance representatives for three weeks. Six On Your Side contacted the media Vice President for Farmers in Los Angeles Jerry Davies, and e-mailed photos of the damage to him.

Within 12 hours Dale McClure received a call from his local agent. Dale said, “Our agent said we won which is a good thing. Its what we wanted to hear.”

Molly has been told Farmers will replace her awning, repair the soffitt and even compensate her neighbor who spent three hours helping her raise the roof soffitt.

In a statement Jerry Davies of Farmers Insurance said, “Farmers claims executives visited with the agent and went to the customer’s home for a review of the claim. After further review farmers has decided the claim will be covered. We are pleased that she is fully covered.”

However the McClures say this should be a lesson to any homeowner with a covered patio or carport. Molly said they should check their homeowner’s policy regardless of the insurance company to see if those attachments to their homes are covered.

Watch the Video


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Thursday, January 21, 2010

Class Action: We are looking for individuals who were wrongfully charged deductibles

Wrongful Application of Deductibles

My name is Joseph Watkins. I am an attorney specializing in bad faith in Tucson, Arizona. I am currently handling a class action lawsuit in federal district court titled Rodriquez vs, Farmers Insurance. The lawsuit involves cases where deductibles were charged wrongfully. Specifically, in any claim or any policy limit was exceeded by an amount greater than the total deductible, the deductible must be refunded. For instance, if you have a contents loss of $20,000 with $50,000 in total coverage, Farmers will normally charge your full deductible against the loss. However, if there was a sub limit of, for example, $2500 for furs and the loss involved $5000 in damage to fur coats, Farmers must absorb or refund the deductible up to $2500 even though the loss was under the total contents limit for coverage.

The deductible is usually charged on the first check issued. If any policy limit is exceeded after that point in time the deductible must be refunded. This is true of any limit not just the larger limits.

Please contact:
Joseph W. Watkins
6303 E. Tanque Verde, #210
Tucson, AZ 85715

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Friday, December 04, 2009

Farmers Insurance Fined $10,000

Farmers Insurance fined for rerating policies using credit scores
By Brent Hunsberger, The Oregonian
December 03, 2009, 1:51PM
The Oregon Insurance Division has fined Farmers Insurance Co. of Oregon $10,000 for altering consumers' insurance premiums based on their credit scores.

The penalty, handed down late last month, stems from Farmers' three-year practice of using a consumer's credit history to re-rate their auto and homeowners' insurance policies when they renewed. In more than 1,000 cases, the re-ratings resulted in higher premiums, the state's final order says.

Oregon law allows insurers to use credit scores as part of its criteria for refusing initial coverage or determine your rate. But it bars insurers from using credit history or an insurance score at renewal to re-rate a personal insurance policy, unless the consumer asks.

Farmers' spokesman Jerry Davies said via e-mail that a programming change in early 2006 "caused an undetected system issue. Unfortunately, the system issue caused our
mechanical system to stop working correctly.

The case stems from a consumer complaint the division received in July 2008 about poor service. In the process of investigating, state officials discovered Farmers' practice, said Ron Fredrickson, manager of the division's consumer advocacy team.

The improper reratings took place between January 2006 and Feb. 13, 2009 on 8,385 instances, state officials said. In 1,050 of those cases, the re-rating resulted in an increase in premiums.

Farmers has refunded consumers a total of $64,840, division spokeswoman Cheryl Martinis said. Customers with policies still in force were issued credits, Davies said. Farmers also is making changes to its computer system, state officials say.

To see other actions taken this year against insurers in Oregon, visit the insurance division's Web site.

-- Brent Hunsberger

Farmers Insurance Company of Oregon Final Order


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Tuesday, September 15, 2009

Consumer Reports Survey: Most Problems with Claims were with Farmer’s Insurance and Others

Many people don’t have reliable insurance for their home. That’s the finding of a Consumer Reports National Research Center survey on insuring your home. The problems included delayed payments, payouts that were smaller-than expected, and some claims that were denied entirely.

Those who reported the most problems with claims were with—Farmer’s Insurance, Allstate, and Traveler’s—all major insurance carriers.

And Consumer Reports finds many insurance companies are cutting back coverage. Some are imposing high deductibles for windstorm damage. You might not be covered any longer for mold or dog bites.

Most important is checking what coverage you’ll have if your house is destroyed. Consumer Reports says Insurers are cutting back here, too. “Guaranteed replacement cost coverage,“ which pays the total bill to rebuild regardless of the price, is very hard to get, and where it’s available it’s very expensive.

Consumer Reports recommends comparison shopping for insurance every five years. Some good sites— and

And to be sure you’re protected in the future, check that the policy includes adjustments for inflation.

Consumer Reports says be aware that flood damage is never covered by private homeowners insurance. But you can get flood coverage through the federal government. For details, go to


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Thursday, September 10, 2009

Farmers Insurance and others may be shorting Texas homeowners

HOUSTON --Three new proposed class action lawsuits in Texas allege insurance companies are shorting their consumers. The lawsuits say as much as 20 percent is often missing from what their homeowners insurance should provide in a pay out.

The allegations center around the alleged non-payment of something the insurance industry refers to as “overhead and profit” to consumers, which is money insurance companies pay so consumers can afford to hire a professional general contractor when needed to oversee repairs. The money is supposed to provide enough funds to pay for a general contractor’s overhead expenses such as licensing and bonding fees, and also enough to allow the general contractor to make a living.

The Texas Department of Insurance has issued two separate bulletins informing insurance companies that not paying overhead and profit where a general contractor is needed would be “unfair to the insureds,” and could subject the insurance company to possible disciplinary action.

Cheryl Guerra says she’s one of the homeowners who got shorted on her Hurricane Ike claim by Travelers Insurance.

“It makes me very angry,” she asked. “Why aren’t we getting what we deserved?”

Guerra is suing Travelers now as a representative of the proposed class of consumers.

She alleges Ike caused roof damage, a downed fence, moisture damage in her walls, and other problems that needed repairs. She says Travelers Insurance did not pay her overhead and profit, leaving her without enough money to hire a general contractor.

“There really wasn't enough money to get everything done,” she said. “Trying to make up the difference to fix the damage is really impossible.”

Guerra says her family had no choice but to repair the roof over her family’s home on their own.

As a result, she says, her family of amateurs was forced to take on what she felt were dangerous repairs they were untrained to do, such as repairing their roof.

“We went and bought the material and did it ourselves,” she said. “My husband got up there.”

Guerra says she was petrified about the possible impact on her family, both physically and financially.

“What if my husband got hurt? He’d lose work.”

Alex Winslow of Texas Watch, a consumer and insurance watchdog group based in Austin, says insurance companies leave overhead and profit off claims far too often.

“Most customers don't even know their policy should be paying it,” he said. “It could be hundreds, (or even) thousands of dollars.”

Winslow says most consumers don’t know they are being shorted when it happens, which is why he says the number of complaints the Texas Department of Insurance has received on the issue should raise red flags.

KHOU discovered at least 60 overhead and profit related complaints made to the Department of Insurance, some dating back to 1997. However, after Ike struck, the number of complaints suddenly accelerated, with 26 of those 60 complaints coming during 2009 alone.

The Texas Department of Insurance felt the issue was important enough to issue a new bulletin in late 2008 about, reminding insurance companies to pay overhead and profit or face penalties. However, to date, department spokesman Jerry Hagins says they have yet to take any enforcement action on the issue.

“Unless an insurance company gets their cage rattled, they're going to continue to try to take advantage of consumers,” said Winslow.

State spokesman Hagins says the Department of Insurance has an open inquiry into many of the ways various insurance companies have been handling Ike-related claims. He says the overhead and profit issue is something they are examining as part of that wider inquiry.

Attorney Javier Delgado, who is filing suit in Texas against five insurance companies on this issue, says many Texans have been taken advantage of and probably have no idea.

“It's so systemic. It's so rampant,” he said. Delgado says insurance companies have good reason to leave overhead and profit off of many of their estimates to consumers.

“If you’re saving 2-thousand dollars on average per claim, that turns out to be a lot of money.”

He points to how a jury in Oklahoma issued a $130 million verdict against Farmers insurance for not paying overhead and profit to consumers in that state. The case was called Burgess Vs. Farmers and does not affect Texas consumers. Many Oklahoma homeowners will now be eligible to receive up to 20 percent more money than they had previously been paid on their claims. Delgado says his review of Farmers cases in Texas reveals what he alleges are some of the same problems here.

“Over 90 percent of the cases the clients we have that came to us, on the initial estimate Farmers did not pay overhead and profit.”

Delgado says Farmers has since paid the overhead and profit to many of those consumers, but only after he got involved as an attorney. Delgado says you shouldn’t have to hire an attorney to be treated fairly.

He also believes the problem with nonpayment of overhead and profit has accelerated in Texas after Ike struck, which is one of the costliest storms to insurance companies in American history.

“I was missing the overhead and profit, which comes to about two grand,” said homeowner Mike Barrera, who is suing Texas Windstorm for nonpayment of overhead and profit.

Barrera says he too was forced to fix his Ike-damaged house by himself, along with help from non-professionals he knew.

“Basically I had to solicit friends, family, we did the majority of it ourselves,” he said.

Barrera says he would have preferred to not put his friends and family at risk on the job, but says he could not hire a general contractor after Texas Windstorm didn’t include overhead and profit on his estimate.

“It's a rip off. Bottom line,” said Barrera. “I’m probably one of thousands of people.

We asked the top executive at Texas Windstorm, Jim Oliver, if and when Texas Windstorm pays overhead and profit to its consumers.

“We’re perfectly willing to pay profit and overhead if it's incurred, but we can't put it in the estimate,” he said.

KHOU showed Oliver dozens of examples where Texas Windstorm appears to have never included overhead and profit in estimates to consumers. Oliver says there is a way for those consumers, or others, to get paid overhead and profit from Texas Windstorm: they have to go out and hire a general contractor first, and then come back to Texas Windstorm and ask for the money later.

KHOU: I need to have the work completed and get a bill from my general contractor before I get overhead and profit from you?

Jim Oliver: Correct.

Texas Windstorm’s policy may have been affecting consumers for quite some time. Why? Nearly ten years ago, Texas Windstorm executive Reggie Warren wrote a memo describing similar policies as to what Oliver told KHOU about, saying: "Overhead and profit is considered if and when a contractor does the work and the expense is incurred."

KHOU showed Oliver that memo and asked him about it and its impact on current Texas Windstorm policy. “We're not gonna pay it, unless we understand a general contractor was used, as Mr. Warren has indicated here,” Oliver said.

The problem? A year before that memo, in 1998, the Texas Department of Insurance’s Commissioner issued an industry-wide bulletin specifically telling insurance companies that making consumers “incur” expenses first, is not proper and "would be contrary to purposes of the subject insurance policy."

The current insurance commissioner in Texas, Mike Geeslin, reinforced the point in December of 2008 by saying in a new bulletin "The Department's position has not changed."

The 2008 bulletin from Commissioner Geeslin concludes the Department of Insurance “will take appropriate enforcement action when evidence of unfair claim settlement practices is apparent.”

Oliver also told KHOU during the interview that if consumers hire a general contractor, it must be one who is “licensed” by the State of Texas. He also said a consumer could not be paid overhead and profit, if he or she acted as their own general contractor.

“A contractor needs to have a license to be paid overhead and profit,” he said.

Jim Oliver: The law says you have to have a license as a general contractor.

KHOU: To get overhead and profit?

Jim Oliver: Yes, because otherwise you’re not entitled to it.

KHOU informed Oliver we could locate no such law. We did find a federal court decision from Texas, Ghoman Vs. New Hampshire Insurance, which found under Texas insurance code a consumer who rebuilt his own house was still entitled to overhead and profit. The decision reads in part, in a decision not related to a Texas Windstorm claim:

“(The insurance company) points out that plaintiff did not actually incur some of these costs because he completed some of the repairs himself. While this may be true, it is legally irrelevant. See Gilderman, 649 A.2d at 945 (“All repair and replacement costs are, in theory, ‘contingent’ prior to being incurred.”) …His recovery is not tied to the repair or replacement of his property.”

Soon after KHOU’s on camera interview, we received the following note from Oliver:

“I checked on issues related to profit and overhead and found the following:

1. Reconfirmed that our claims people pay profit and overhead for all contractors whether licensed or not.

2. If a policyholder wants to be his/her own contractor TWIA will pay profit and overhead

3. When an independent adjusting firm fails to include the profit and overhead on an estimate, a sample of our files reviews that we pay profit and overhead.”

Homeowner Cheryl Guerra says it is important regulators protect consumers.

“Somebody has to take care of the people here,” she said, citing her fence that is still down, along with water spots inside her home, that she says are there because her insurance company never gave her enough money to pay for all her repairs.

“If they’re not going to take care of me, what am I paying my premiums for?”

Travelers Insurance did not make a statement on Guerra’s lawsuit after multiple attempts to reach a public relations representative.

We asked Farmers Insurance spokesman Jerry Davies about the jury verdict against Farmer’s in Oklahoma, as well as the new proposed class action lawsuit in Texas, spearheaded by a homeowner named Manuel Quezada.

"We are aware of the Quezada lawsuit which was recently filed, and we have filed an answer to the plaintiffs' complaint. Our general practice is not to comment publicly about pending litigation."

After our interview with Jim Oliver, he sent a follow-up written statement that seems to reverse at least one of his comments made during that meeting. In the written statement he says:

“Profit and Overhead is not shown as a line item on these estimates because we have included it in the "unit pricing" for each item to be repaired to be sure that adjusters did not omit it as part of the claim. By taking this approach, the policyholder can get Profit and Overhead or he/she can hire someone to supervise the repair work. As stated previously, we pay Profit and Overhead for the policyholder and both licensed and unlicensed contractors. We have had very few complaints about our unit pricing so we believe that our methodology is working as expected.”

Oliver also wrote a separate a note to KHOU management about a story we aired last week involving Texas Windstorm's alleged non-payment of claims related to wind-lifted shingles. Oliver called the story “unfair, inaccurate, incomplete, and deceptive” and gave a list of 17 “facts” he felt should have been included in the story. To read his points and the full letter, click here.

Recent lawsuit settlements in other states for non payment of overhead and profit by companies such as Nationwide Insurance have resulted in the agreement to pay consumers that money on claims where three or more “trades” were necessary for a general contractor to oversee. The settlement documents in that case describe a trade as “an occupation of a skilled craftsman, e.g., electrician, drywall installer, carpenter, etc.” A notice to Nationwide homeowners in that state says eligible consumers can now receive up to 20 percent of the amount previously paid to them to complete repairs.

Consumers in Texas who want to know if their claim included this money can look on their “proof of loss” statements and their estimates to see if there is a line included for overhead and profit. If you do not see it, and believe you had enough repair work to need a general contractor, you may file a complaint by contacting the Texas Department of Insurance here:

KHOU is collecting stories from consumers on this issue. If you have one to share you can email investigative reporter Mark Greenblatt at


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Thursday, August 27, 2009

Farmers Insurance offers $5,000+ for Bad Faith

In 2000, an employee of Menards drove a truck into the home of Edley and Lurline Stewart, causing property damage and personal injuries.

The Stewarts had homeowners and automobile insurance through Farmers Insurance Group. Farmers tendered the Stewarts $805.97 as settlement of their personal property claims, but the Stewarts returned it as unreasonable.

The Stewarts then filed suit against both Menards and Farmers. They settled with Menards for $57,000, reserving the right to pursue more damages against Farmers.

An arbitrator found that, except for the $805.97 previously tendered, the Stewarts’ property damage claim against Farmers was barred by the statute of limitations; and that they were entitled to nothing for personal injury because their damages did not exceed $57,000.

The bad faith claim remained, however. Farmers made an offer of judgment of $5,000, plus taxable costs, which the Stewarts accepted.


Stewart v. Farmers Insurance Group

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Monday, March 09, 2009

Farmers Insurance customers are STILL waiting for their money

$117 million in Farmers refunds for Texas policyholders has been in limbo 7 years

By TERRENCE STUTZ / The Dallas Morning News

AUSTIN – It's becoming known as the case of the missing insurance refunds.

Back in the fall of 2002, Farmers Insurance and state regulators agreed to resolve allegations that the company had overcharged customers with a $117 million settlement that included refunds and lower rates for nearly half a million policyholders.

Shortly after the agreement was announced, it was challenged by a group of Farmers policyholders, who insisted it was a bad deal for them. Although a state judge upheld the settlement, his decision was overturned by an appeals court and then taken to the Texas Supreme Court – which sent the legal dispute back down for further deliberations.

And so the case sits unresolved – going on seven years – and Farmers customers are still waiting for their money.

"Farmers has worked closely with the Texas Department of Insurance and remained ready to implement the agreed-on settlement for several years," said Michelle Levy, a spokeswoman for Farmers in Texas. "We're ready to take action, but there's nothing we can do until the courts have decided this."

'No longer viable'

Joe Longley, attorney for the Farmers policyholders, said the amount is a slap at policyholders.

"The settlement amount was a fraction of what Farmers took from their customers in Texas and what they are continuing to take. Refunds should be as much as 10 times" the $117 million settlement, he insisted.

The case was sent back to the 3rd Texas Court of Appeals in Austin in April 2007 and has been sitting there since.

Longley said he believes the case should be sent back to trial court because all the deadlines and conditions of the original settlement have long passed.

For a lot of reasons, he said, the settlement is "no longer viable" and must be redone.

The attorney general's office, meanwhile, is trying to have the settlement certified as a class action representing all Farmers customers in the state. Such a certification could invalidate other claims against the company.

Mold beginnings

The agreement came after the company had threatened to pull out of the Texas home insurance market because of massive mold losses. Company officials also were stinging from repeated attacks by Gov. Rick Perry, who made Farmers his favorite target in his 2002 race for governor.

Perry's appointed insurance commissioner at the time, Jose Montemayor, hammered out the agreement with Farmers, apparently without consulting the governor, who was unhappy with the terms.

In the years since, Farmers has stayed on the good side of the insurance department, even winning approval from current Commissioner Mike Geeslin last month to increase rates by double-digit percentages for hundreds of thousands of customers.

Farmers is now the third-largest property insurer in Texas behind State Farm and Allstate, providing coverage to about 714,000 homeowners.

Alex Winslow of Texas Watch, a consumer group active in insurance issues, said the stalled Farmers settlement is an example of the flawed system of regulation in Texas

"Due process is a right for everybody, including insurance companies. But seven years is too long," Winslow said.

He compared the Farmers settlement to the "sweet deal" that Allstate received from the state last year when it settled allegations of overcharges in homeowners insurance. Allstate agreed to refund $51.6 million to its customers but was let off the hook for another $19.2 million by Geeslin, who defended the settlement as a "positive step" for ratepayers and the Texas insurance market.

Texas Watch is backing legislation filed by Democrats in the Senate and House that would require prior state approval of insurance rate increases. Currently, companies can raise rates once they notify the insurance department, which has the right to review those rates and decide whether they are justified.

Industry's stance

The insurance industry opposes prior government approval of rate increases.

"Instead of chasing the short-sighted goal of artificial price fixing, we should stick with the goal of creating a well-regulated competitive marketplace that can handle our state's tough climate efficiently and still attract companies and capital," said Beaman Floyd of the Texas Coalition for Affordable Insurance Solutions, an industry group.

Levy of Farmers emphasized that her company agreed to pay refunds to its customers and has been blocked from doing so by the class action intervention filed by Longley, an Austin attorney.

"They have left Farmers unable to implement the settlement, including retrospectively reducing rates and adjusting certain rating factors," she said.

Longley contends that the company's rates are still too high, which Levy disputed.

Longley also has a separate class action case against Farmers pending in federal court in Oklahoma City. That suit centers on management fees charged by Farmers that are reflected in premiums paid by customers in Texas and several other states.

The state's other long-running dispute over insurance rates, involving State Farm, is scheduled to go before the insurance commissioner at a March 30 hearing.

State Farm was accused by the state of overcharging customers and ordered to lower rates by 12 percent in the fall of 2003. The case has been in the courts since then, and State Farm has won some key victories. But the company is on the hook for more than $650 million in overcharges and penalty interest dating back nearly six years.


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Monday, March 02, 2009

Farmers Insurance seeks 27.5% homeowners’ rate increase

Property insurance increases expected

Advocate business writer

Louisiana homeowners and businesses will see property insurance rates rise more this year than they have since 2006, in large part because of the financial meltdown, Insurance Commissioner Jim Donelon said.

“I do not anticipate that it will result in double-digit increases,” Donelon said.

In 2008, Louisiana homeowners’ rates rose an average of less than 1 percent, Donelon said. In 2007, the rates were up by just over 3 percent.

This year the rates will rise somewhere between those low numbers and 10 percent, Donelon said. The same holds true for commercial property insurance and for automotive coverage.

Insurance companies’ ability to write coverage is affected by the amount of capital available, Donelon said. With investors dumping insurance sector stocks, those companies can’t write as much coverage.

Meanwhile, insurance companies are also seeing their investment portfolios take a beating, Donelon said. This also reduces the amount of coverage they can write.

According to the Insurance Information Institute, an industry-funded group in New York, investments are the principal source of declining profitability among insurers. During the first three quarters of 2008, the insurance industry’s investment gain was $28.3 billion. The fourth-quarter figures are not yet available, but even if the industry’s investments remained at that level, when stocks and interest rates continued to fall, the total would still be the lowest in 15 years.

Robert Hartwig, president of the institute, said bonds represent roughly two-thirds of insurance companies’ investments, with stocks accounting for 20 percent or less.

Low interest rates and returns on investments, in the United States and internationally, will ultimately affect the price of insurance, Hartwig said. That is because a certain part of the losses that insurers pay have always been financed by investment returns.

The effect varies by insurer, Hartwig said, “but there was no insurer that was not impacted by what happened on Wall Street last year.”

Still, the major factor influencing property insurance costs in Louisiana remains the threat of a major hurricane, Hartwig said. An active season is expected in 2009, and reinsurers are raising their rates to reflect that.

Donelon said that with less coverage available, the law of supply and demand kicks in and prices rise.

Already, State Farm Fire & Casualty Co., the largest insurer in Louisiana, has asked to increase homeowners’ rates an average of 14 percent statewide. Farmers Insurance Exchange, the sixth-largest firm in the state, is seeking a 27.5 percent increase in homeowners’ rates and the institution of a 5 percent hurricane deductible. Louisiana Farm Bureau, the fifth-largest company, is seeking a 10.2 percent increase.

The Insurance Department is reviewing those requests, but Donelon said his preliminary review is that neither State Farm nor Farmers will receive a double-digit increase.

Farm Bureau’s request has only recently been filed.

However, Brooke Cluse, a spokeswoman for State Farm, said the rate request is not directly related to the state of the economy or financial markets.

“We have had a tremendous amount of weather-related losses in the state over the past several years, and while many insurers have left the state, State Farm is here and committed to our policyholders in Louisiana. We have demonstrated our commitment by helping our customers recover from unexpected loss and they can expect nothing less in the future.”

Farmers Insurance officials could not be reached for comment Friday.


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Farmers Insurance Company sued again

Lawsuits keep coming in Burlingame landslide
Shasta Kearns Moore / The Southwest Community Connection

HILLSDALE — Two more lawsuits have been filed in Multnomah County Court by the owners of the second home destroyed in the Burlingame Place landslide. The complaints totaling more than $1.7 million name Dave and Kathei Hendrickson, Farmers Insurance Company and the family’s insurance agent, Lynette Sanders.

Dr. Yuan Chou and his wife, Siukee Tong, barely escaped their home in the early morning on Oct. 8 when the house owned by the Hendricksons slid down the hillside and shoved their house off its foundation.

Both houses were destroyed — along with five other homes that were damaged — and the resulting debris has since been removed from the site.

Chou and Tong’s attorney, Jim Martin, said his clients are suing Farmers’ Insurance Company for not covering the damage to the home. Farmers’ Insurance has refused to pay, saying the policy does not cover earth movement.

But Martin argues that the damage to the home was not directly caused by earth movement.

“It is our position that the Hendricksons’ house is a flying object that landed on my client’s house, which is covered in the policy,” he said, adding that photographs show no mud on the Chou home. “So my client’s house was not damaged by land movement, it was damaged by a house falling on it.”

The family is also suing the Hendricksons for trespass, private nuisance and strict liability.

The complaint lists several remodels and landscaping projects that the Hendricksons undertook before the slide and argues that their negligence in performing these projects contributed to the landslide.

As stated in the complaint: “Upon information and belief, homes such as the Defendants’ home, do not slide down hillsides that has been there for 80 years without Defendants’ negligence in the care of their home, remodeling of their home and most importantly their landscaping as well as water management (sic).”

Farmers’ Insurance, who is also the Hendricksons’ insurer, has agreed to defend the them against this suit, according to their private attorney.

Burlingame Place remains closed
The section of Burlingame Place where Dave and Kathei Hendrickson’s home once stood will be closed until the shoulder can be rebuilt, say city officials.

Now a steep drop off to Terwilliger Boulevard, Bureau of Environmental Services spokesman Ross Caron said it would be too dangerous to open the street and risk damage to the road.

City engineer Doug Morgan said tests have shown the slope to be stable so far, but that it would be too risky to allow traffic on that section of road without the lateral support of a shoulder.

“Because of the steepness of the scarp, it’s not considered safe to reopen Burlingame,” Morgan said.

It is the responsibility of the homeowners to rebuild the shoulder, which could cost anywhere from $100,000 to $300,000, Caron estimated.

Caron said officials can eventually use city code to force the property owners to rebuild the hillside, but because the road closure is no longer impacting a major thoroughfare, they can afford to give the Hendricksons more time.

“It’s a delicate balancing act between being patient and compassionate and moving the process along quickly,” Caron said, adding city officials are trying to “treat them as they would like to be treated.”


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Wednesday, February 18, 2009

Farmers Insurance sued over Hurricane Ike claim

A Jefferson County man has filed suit against Farmers Insurance Exchange, alleging he was not paid money to which he was entitled after Hurricane Ike destroyed sections of his home.

When Pete Zavala's property at 9336 FM 365 in Beaumont sustained dwelling and contents damages on Sept. 13 during Hurricane Ike, he submitted a claim to Farmers, which had insured his property, according to the complaint filed Feb. 10 in Jefferson County District Court.

Zavala requested Farmers cover the cost of repairs, the suit states.

However, Farmers improperly adjusted Zavala's claim for the repairs of his property, even though the policy provided coverage for losses, he claims.

Farmers told Zavala it would not pay the full proceeds of the policy, although demand was made for it, which constitutes a breach of the insurance contract
, the suit states.

"Defendant misrepresented to Plaintiff that the damage to the property was not in excess to the amount paid, even though the damage was caused by a covered occurrence," the suit states.

Farmers also failed to make an attempt to settle Zavala's claim in a fair manner, a violation of the Texas Insurance Code, unfair settlement practices, he claims.

The company failed to explain the reason for its offer of an inadequate settlement, another violation of the Texas Insurance Code
, according to the complaint.

Farmers failed to affirm or deny coverage of the claim within a reasonable time frame, the suit states.

It refused to fully compensate Zavala, even though it did not conduct a reasonable investigation, which constitutes another violation of the Texas Unfair Competition and Unfair Practices Act, he alleges.

Farmers breached its contract with Zavala by refusing to pay the policy, according to the suit.

Zavala is seeking three times his actual damages, plus 18 percent post-judgment interest per annum and exemplary damages.

Jason M. Byrd of Snider and Byrd in Beaumont will be representing him.

The case has been assigned to Judge Milton Shuffield, 136th District Court.

Case No. D183-249

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Monday, February 16, 2009

Texas Farmers Insurance Co. is suing the state to block the release of documents

By RYAN McNEILL / The Dallas Morning News

Texas Farmers Insurance Co. is suing the state to block the release of documents to The Dallas Morning News that could give insight into how it charges consumers for its homeowners policies.

The lawsuit, filed Feb. 3 in Travis County, followed a decision by the state attorney general's office ordering the Texas Department of Insurance to release the documents. The insurance department was also ordered to release similar documents filed by Allstate Fire and Casualty Co., which did not sue to block the action.

The News requested rate filings and supporting documentation for the three major homeowners insurance companies in Texas – State Farm Lloyds Co., Allstate and Farmers. The insurance department released only parts of Allstate's and Farmers' filings that had not been marked "confidential" by the companies; it released all of State Farm's filings, none of which had been marked "confidential."

At issue is how much insurance companies can use trade-secrets exemptions in Texas' open-records laws to keep information from the public. The requested documents show mathematical formulas and other information the companies use as a model to determine what to charge customers.

Farmers argued that release of the documents, provided to the insurance department as agency officials sought to determine whether insurance rates were proper, would cause irreparable financial harm by making "valuable trade secrets" available to competitors.

"Essentially what we're being asked to do is like the University of Texas having to share its football playbook with Texas A&M," said Michelle Levy, a Farmers spokeswoman.

Pushing transparency?

Consumer advocates worry that transparency is at stake.

"What are they hiding here?" asked Alex Winslow, executive director of the consumer advocacy group Texas Watch. "What is it they don't want the public to know about how they're setting their rates?"

The Texas Department of Insurance initially refused to release any part of Allstate and Farmers filings that were marked "confidential" without a ruling from the Texas attorney general's office.

Winslow said his consumer watchdog group has found that "insurance companies will stamp everything they file with the Department of Insurance as proprietary and confidential, even if it's explicit in the statute as being subject to open records."

On Jan. 15, the attorney general ordered the records' release, ruling that the Legislature intended for the public to have access to the documents because they were part of the insurance department's review of insurance premiums under the state's file-and-use system.

State insurance officials insist that they release what is allowable, while upholding the law.

"When it comes to transparency, we push as much information out there as we possibly can," said Texas Insurance Commissioner Mike Geeslin.

But the executive director of the Center for Economic Justice, an Austin-based advocacy group, disagreed.

"Insurers are hiding what they're doing, and regulators are being complicit," said Birny Birnbaum.

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Saturday, February 14, 2009

Farmers Insurance rate hike to hit many Texas homeowners

By TERRENCE STUTZ / The Dallas Morning News

AUSTIN – Hundreds of thousands of homeowners in North Texas and across the state will see their insurance rates increase by double digits beginning Monday after state regulators decided not to object to the rate hikes by Farmers Insurance.

The higher rates affect policyholders for two of the company's largest subsidiaries – Farmers Insurance Exchange and Fire Insurance Exchange – which will boost their premiums nearly 10 percent and 12.6 percent respectively, starting with policies renewed on Monday.

Farmers is the third-largest home insurer in Texas.

"We are not planning to take any action on it, so the effective date stands," Jerry Hagins of the Texas Department of Insurance said Friday. The agency reviewed the proposal after it was filed late last year and could have objected if officials had found the increase unjustified.

A spokeswoman for Farmers said the increase for customers of the two subsidiaries is across the board with no variations by region of the state.

Michelle Levy of Farmers, who cited higher costs for labor and materials as one reason for the increases, noted that the rate proposals were being developed even before Hurricanes Ike and Dolly struck the Texas coast last year.

"It was part of our annual review of rates in 2008," she said.

Rates for Farmers' other home insurance subsidiary in the state – Texas Farmers Insurance – went up 7.9 percent last year, an increase that was reflected in annual premium notices beginning in May. Farmers provides coverage for about 714,000 Texas homeowners.

Consumer groups on Friday criticized the insurance department for allowing the increases to go through.

"These kinds of double-digit rate hikes should provide the Legislature with the evidence they need to move forward with real insurance reforms this year,"
said Alex Winslow of Texas Watch.

"Enough is enough. How many of these rates hikes do we have to have before lawmakers and the insurance commissioner recognize that insurance companies are taking advantage of the system?"
he asked.

Regarding the massive losses that companies suffered in 2008 because of the hurricanes, Winslow said, "Certainly we want rates to be sufficient, but given the overcharges that Farmers and other companies have imposed on customers for years, I have no doubt the insurance industry in our state has ample resources to protect themselves against weather-related losses."


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Farmers Insurance is one of the 10 Worst Insurance Companies for Consumers

The American Association for Justice has recently released a report entitled The Ten Worst Insurance Companies in America. You can read it here (pdf). The Alabama Association for Justice has prepared a statement on the report, which appears below:

10 Worst Insurance Companies for Consumers Ranked; No. 1, 3, 4 and 7 Sell Policies in AL

Insurance Industry Employs "Deny, Delay, Defend" Strategy, Puts Profits Over Policyholders

MONTGOMERY - In recent years, Alabama homeowners have seen sharp increases in their insurance premiums. A new study put out by the American Association for Justice ranks the 10 worst insurance companies in the U.S. for consumers and explains the overall rise in premium costs to an industry-wide strategy of denying claims, delaying payments and defending those positions as long as possible in hopes that weary claimants will settle for less than their claim is worth.

"Nationally, we've seen insurance companies continue to put profits over the best interest of their policyholders," Gibson Vance, president of the Alabama Association for Justice (ALAJ), formerly the Alabama Trial Lawyers Association, said, adding that "in Alabama it's no different."

In Alabama, State Farm (#4 on the 10 Worst Insurance Companies List) is the leading insurer of property and casualty insurance, followed by Allstate, AIG and Farmers (#'s 1, 3 and 7 on the 10 Worst Insurance Companies List). Alabamians pay the ninth-highest average homeowners premiums in the nation, which insurers say is because of hurricane risk, but interestingly only 12 percent of the state is coastal. In addition, property and casualty insurers took in $6.6 billion in premiums from Alabama policyholders in 2006 but only paid out $3.5 billion in losses.

Thousands of court documents, materials uncovered from litigation and discovery, testimony, complaints filed with state insurance departments, SEC and FBI records, and news accounts were reviewed to compile the rankings and statistics of the study. Financial documents also revealed extravagant profits and executive compensation while policyholders' claims were routinely delayed and denied. Over the last 10 years, the property / casualty and life / health insurance industries have each enjoyed annual profits exceeding $30 billion. The insurance industry takes in over $1 trillion in premiums every year. It has $3.8 trillion in assets, more than the GDPs of all but two countries. The CEOs of the top 10 property / casualty firms earned an average of $8.9 million in 2007. The CEOs of the top 10 life / health insurance earned an average of $9.1 million. The median insurance CEO's cash compensation is $1.6 million per year, leading all industries.

"The 10 worst insurance companies that made the list did so because of their shameful treatment of policyholders. As the study shows, Allstate's Your in Good Hands' motto only applies if you don't make a claim," Vance said.

10 Worst Insurance Companies for Consumers

1. Allstate (NYSE: ALL) set the standard for insurance company greed and placing profits over policyholders. Allstate contracted with consulting giant McKinsey & Co. in the mid-1990s to systematically force consumers to accept lowball claims or face its "boxing gloves," an aggressive strategy designed to deny claims at any cost. One Allstate employee reported that supervisors told agents to lie and blame fires on arson, and in turn, were rewarded with portable fridges.

2. Unum (NYSE: UNM) - Unum's actions are even more shameful considering the type of insurance it sells: disability. Unum's behavior was epitomized when it denied the claim of a woman with multiple sclerosis for three years, stating her conditions were "self-reported," contrary to doctors' evaluations. In 2005, Unum agreed to a settlement with insurance commissioners from 48 states over their practices.

3. AIG (NYSE: AIG) - The world's biggest insurer, AIG's slogan was "we know money." AIG, described by commentators as "the new Enron," has engaged in massive corporate fraud and claims abuses. In 2006, the company paid $1.6 billion to settle a host of charges.

4. State Farm - State Farm is notorious for its deny and delay tactics, and like Allstate, hired McKinsey consultants. State Farm's true motives became apparent during Hurricane Katrina; for example, it employed multiple engineering firms until they could deny the claims of the Nguyen family of Mississippi. In April 2007, State Farm agreed to re-evaluate more than 3,000 Hurricane Katrina claims.

5. Conseco (NYSE: CNO) - Conseco sells long-term care policies, typically to the elderly. Amongst its egregious behavior, the insurer "made it so hard to make a claim that people either died or gave up," said a former Conseco-subsidiary agent. Former Conseco executives were fined when they admitted to filing misleading financial statements with regulators.

6. WellPoint (NYSE: WLP) - Health insurer WellPoint has a long history of putting profits ahead of policyholders. For instance, California fined a WellPoint subsidiary in March 2007 after an investigation revealed that the insurer routinely canceled policies of pregnant women and chronically ill patients.

7. Farmers - Swiss-owned Farmers Insurance Group consistently ranks at or near the bottom of homeowner satisfaction surveys, and for good reason. For example, Farmers had an incentive program called "Quest for Gold" that offered pizza parties to its adjusters that met low claims payments goals. Like Allstate, it also hired the McKinsey consultants.

8. UnitedHealth (NYSE: UNH) - The SEC opened an investigation into former UnitedHealth CEO William McGuire for stock backdating, which ultimately led to his ouster in 2006 and returning $620 million in stock gains and retirement compensation. Physicians have also reported that their reimbursements are so low and delayed by the company that patient health is being compromised.

9. Torchmark (NYSE: TMK) - According to Hoover's In-Depth Company Records, Torchmark's very origins were little more than a scam devised to enrich its founder, Frank Samford. Torchmark has preyed on low-income Southern residents and charged minority policyholders more than whites on burial policies.

10. Liberty Mutual - Like Allstate and State Farm, Liberty Mutual hired consulting giant McKinsey to adopt aggressive tactics. Liberty's tactics were highlighted when a New York couple's insurance was "nonrenewed" by Liberty, even though they lived 12 miles from the coast and never experienced weather-related flooding.

To see how consumers can hold the insurance industry accountable and view a full copy of the study, visit

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Friday, February 13, 2009

Farmers Mutual Insurance Company Sued for Claim Denial

Montgomery County residents file hurricane insurance suit in Jefferson County
By Kelly Holleran

Two residents of The Woodlands have filed suit against Ranchers and Farmers Mutual Insurance Company and Southeast Surplus Underwriters General Agency, alleging they were not paid money to which they were entitled after Hurricane Ike destroyed sections of their home.

When Michelle Weishiemer's and David Aguilar's property at 19 Shimmer Pond Place in The Woodlands sustained roof and water damages on Sept. 13 during Hurricane Ike, they submitted a claim to Ranchers and Farmers, which had insured their property, according to the complaint filed Jan. 30 in Jefferson County District Court.

Weishiemer and Aguilar requested Ranchers and Farmers cover the cost of repairs, the suit states.

However, Ranchers and Farmers denied a portion of Weishiemer's and Aguilar's claim for the repairs of their property, even though the policy provided coverage for losses, she claims.

It denied the claim after assigning an adjuster from Southeast Surplus to adjust the claim, according to the complaint.

"Plaintiffs' claim(s) still remain unpaid and the Plaintiffs still have not been able to properly repair the Property," the suit states. "Plaintiffs cannot live in their house in its current condition. They have been forced to lease another house at their own expense because Defendants have not even properly paid Plaintiffs under their Loss of Use coverage under their policy."

Ranchers and Farmers told Reed it would not pay the full proceeds of the policy, although demand was made for it, which constitutes a breach of the insurance contract, the suit states.

"Defendants misrepresented to Plaintiffs that the damage to the Property was not covered under the Policy, even though the damage was caused by a covered occurrence," the suit states.

Ranchers and Farmers and Southeast Surplus also failed to make an attempt to settle Weishiemer's and Aguilar's claim in a fair manner, a violation of the Texas Insurance Code, unfair settlement practices, they claim.

The companies failed to explain the reason for their offer of an inadequate settlement, another violation of the Texas Insurance Code, according to the complaint.

Ranchers and Farmers and Southeast Surplus failed to affirm or deny coverage of the claim within a reasonable time frame, the suit states.

They refused to fully compensate Weishiemer and Aguilar, even though they did not conduct a reasonable investigation, which constitutes another violation of the Texas Unfair Competition and Unfair Practices Act, Weishiemer and Aguilar allege.

Ranchers and Farmers and Southeast Surplus breached their contract with Weishiemer and Aguilar by refusing to pay the policy, according to the complaint.

Ranchers and Farmers and Southeast Surplus violated the Deceptive Trade Practices Act by an unreasonable delay in the investigation, adjustment and resolution of the Weishiemer's and Aguilar's claim, by their failure to give Weishiemer and Aguilar the benefit of the doubt and by their failure to pay for the proper repair of Weishiemer's and Aguilar's home, the suit states.

Ranchers and Farmers and Southeast Surplus engaged in false, misleading and deceptive acts or practices in the business of insurance, according to the complaint.

The companies also engaged in unfair claims settlement practices, the suit states.

Weishiemer and Aguilar are seeking unspecified actual, consequential, treble, punitive and exemplary damages, plus attorney's fees, costs, pre- and post-judgment interest and other relief to which they may be entitled.

Jason D. Speights of Speights Law Firm in San Antonio will be representing them.

The case has been assigned to Judge Milton Shuffield, 136th District Court.

Case No. D183-165

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Thursday, January 29, 2009

Farmers Insurance, Claim Denied and Breach of Contract?

The lawsuits keep rolling in over the Oct. 8 landslide in Southwest Portland that destroyed two homes and damaged another.

On Wednesday, Yuan Chou and his wife, Siukee Tong Chou, filed two suits: one against their insurance company for breach of contract and intentional infliction of emotional distress; and another for liability against David and Kathleen Hendrickson, the couple whose home slid down the hillside, crashing into the Chou's home.

The Hendricksons' 1930 home at 6438 S.W. Burlingame Place damaged one home as it ripped the Chou's home off its foundation. The Chous have been living in a rented apartment since narrowly escaping the sliding debris of earth, cars and building materials.

The Chous' suit against Farmers Insurance seeks payment of unspecified damages to their home, its contents and attorney's fees. Farmers issued them a letter last month saying their policy does not cover landslides.

The city of Portland has issued permits for cleanup and some slope stabilization. That work is being paid for by Farmers, which also insured the Hendrickson home. The cleanup falls under the couple's liability policy, but they also are suing Farmers for breach of contract after Farmers denied their property claim.

The city has not found a definitive reason why the home slid, and an exact cause may never be known because the slide erased the evidence. But a preliminary investigation led officials to believe that a leak in the Hendricksons' backyard sprinklers may have saturated the soil.

The homeowners installed a sprinkler system on the property in March 2005, according to city records. Last September, they installed a new back-flow device and shut-off valve. Water use at the property was unusually high just before the slide, officials have said, suggesting a leak or a malfunction. But it's unclear whether the sprinklers were overused or a pipe broke.

The Hendricksons' suit against Farmers cites "an accidental discharge of water" that may have caused the damage. Farmers hired a consultant who concluded, among other things, that the slide was triggered by slope instability "due to the presence of water" and that the water was not likely from rain or natural seepage.

Lawyers in the case expect that homeowners and their insurance companies and the Hendricksons' contractors and their insurance companies likely will come together later this year for settlement talks.


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Friday, January 02, 2009

Farmers Insurance Company of Oregon Accused of “calculatingly malicious” in its Refusal to Pay

Owners of landslide home are first to sue insurer
Hendricksons say they were told 'earth movement' would be covered
By Shasta Kearns Moore

The Southwest Community Connection, Jan 1, 2009

HILLSDALE — The owners of the four-level home that cascaded down a hill into two other houses on Oct. 8 are the first of seven affected households to file suit against their insurance company for denying coverage.

Dave and Kathei Hendrickson allege in the $2 million complaint filed Dec. 10 in Multnomah County Circuit Court that Farmers Insurance Company of Oregon had been, at times, “calculatingly malicious” in its refusal to pay for any damage resulting from the landslide — which demolished the Hendricksons’ house and nearly everything in it.

Kathei Hendrickson was home when the slide occurred in the early morning and barely escaped thanks to quick action by her neighbors. The house and several hundred tons of debris are still sitting at the bottom of the hill, where the road — a portion of Terwilliger Boulevard — has been closed indefinitely.

Many of the homeowners are still not allowed back in their houses and are living with friends or in rental units as they continue to make mortgage payments.

Landslides are generally not covered
According to insurance and landslide experts, “earth movement,” as it is called in the insurance industry, is typically not covered by homeowner’s insurance and requires an extra — and extremely rare — policy.

However, the Hendricksons claim in their suit that a Farmers Insurance agent told them when they bought a “Protector Plus Homeowners Package” in 2005 that it would cover all eventualities, including earth movement.

According to the Hendrickson’s attorney, Bob Bonaparte, the agent “essentially told them they would be covered for every risk … so they purchased the policy, and lo and behold they weren’t.”

A claim denial letter dated Dec. 2 from Farmers Insurance Company of Oregon to the Hendricksons points to language in the policy that they say specifically denies coverage of damage resulting from earth movement, and any of its possible causes.

“The policy repeatedly emphasizes that landslide is never covered under this policy, however caused — whether combined with water or the negligent acts or omissions of people,” states the letter signed by Michael D. Flynn of Farmers Insurance.

What caused the landslide?
Insurance company experts, city engineers and others have all cited an unnatural water saturation of the hillside as the most likely cause of the landslide — though, as most of the evidence was washed away in the slide, the true, specific cause will likely never be fully known.

Records from the city’s Water Bureau show an excessive use of water since the last meter reading on July 31 — about 20,000 extra gallons, according to Dr. Wesley Spang, an engineering expert hired by Farmers Insurance. However, Spang and others have not been able to determine over what period of time the water use occurred nor whether it was intentional or caused by a leak.

According to legal documents, the release of excess water could have been triggered by several contractors working on the property in recent years. Two days before the slide, Team Clean Windows and More, LLC, power-washed the house; 10 days before, Harrity Tree Specialists removed an 80-year-old cedar tree; and in recent years, an unnamed contractor broke up concrete in front of the house and another installed a sprinkler system.

Regardless, says Farmers Insurance, the Hendricksons would not be covered for any of those possible causes.

Settlement conference
In addition, the other six households affected by the catastrophe have all been denied claims against their own insurance companies and many are preparing claims against Farmers Insurance under the liability portion of the Hendricksons’ policy.

Though the Hendricksons’ complaint includes a request for a jury trial, their lawyer expects that in the middle of 2009 all of the parties to the various lawsuits — including the contractors — will sit down and negotiate who should pay what.

“Lawsuits should be flying any day,” Bonaparte said. “Ours was simply the first.”

Read the Lawsuit: Hendrickson vs Farmers Insurance Company of Oregon


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Thursday, December 18, 2008

Farmers Insurance Blames Santa Cruz County for Fire

Insurance giant says county liable for Trabing Fire
Kurtis Alexander - Sentinel Staff Writer

In claims filed with Santa Cruz County, Farmers Insurance Group contends county officials contributed to the spread of last summer's Trabing Fire by failing to keep roadsides free of flammable vegetation and harboring conditions that advanced the flames.

The county denies the charges, and on Tuesday, the Board of Supervisors dismissed a dozen requests by the insurance giant for nearly $3 million worth of property damage that resulted from the fire.

Attorneys for the county declined comment, citing the possibility of a lawsuit and a policy of not discussing litigation. The issue has yet to proceed to court.

The Trabing Fire started June 20 when a vehicle on Highway 1, at Buena Vista Drive, sprayed hot exhaust into dry grass. About 630 acres burned, including 26 homes and nearly 50 other buildings.

While the county is not responsible for maintaining the state highway, Farmers Insurance alleges that once the fire started, overgrown vegetation on nearby county roads fanned the flames and contributed to the destruction.

"The injury to plaintiff's insureds was approximately caused by this dangerous condition," the claims read.

Officials with Farmers Insurance declined to immediately comment.

Cal Fire Chief John Ferreira, the state's top fire official in Santa Cruz County, says the county's vegetation management practices probably had little to do with the fire and its advance.

"Even had the roadsides been mowed, the fire would have raced through there because of the weather conditions and dryness," he said.

Only bare ground would have stopped that fire, Ferreira said, something that is virtually impossible to provide.

This is not the first time the county's vegetation management program has drawn criticism.

In 2005, the Board of Supervisors imposed a ban on the use of herbicides to control roadside brush, which triggered concerns among the public, as well as some in the Public Works Department, that the county would not be able to keep up with its pruning responsibilities.

Mowing the vegetation, which many said was more environmentally friendly than spraying, takes longer and costs more.

Jane Amaral, a Farmers Insurance customer who lost a greenhouse to the Trabing Fire, said she took note when the county changed its clearing methods and has since seen more brush accumulate along Larkin Valley Road.

"When they sprayed it, it didn't come up as fast," she said. "The mowing doesn't seem to be as efficient."

Amaral, who has already received her insurance payment, is among those whom Farmers Insurance is trying to hold the county liable for.

Public Works Director Tom Bolich acknowledged Tuesday that the new vegetation management practices don't accomplish as much as when herbicides were used. But, he said, they meet their primary goal of ensuring safe clearance and visibility on 270 miles of county roads.

The claims submitted by Fire Insurance Exchange, a division of Farmers Insurance, convey the damages of 12 Farmers Insurance customers on Trabing Road, Larkin Valley Road and Azure Lane, and ask the county to pay losses on buildings as well as certain living expenses of fire victims.


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Friday, December 12, 2008

Farmers Insurance Engaged in Unfair Discriminatory Practices to Overcharge in Texas

Are You In Good Hands?
How home insurance companies in Texas ripped you off—and why it might not happen again.
Dave Mann | December 12, 2008 | Features
Rick Perry was talking tough. It was August 5, 2002, and the Texas governor had been joined at a news conference in Houston by John Cornyn, the state’s attorney general. They announced to the assembled reporters that the state had sued Farmers Insurance, one of Texas’ most prolific writers of home insurance policies, for deceptive trade practices. Cornyn’s office had been investigating the home insurance market, where premiums had ballooned out of control. And now the state had made its first case.

“The investigations are still ongoing, but the findings reflect that at least one company—Farmers Insurance—has engaged in unfair, discriminatory practices to charge consumers excessive and unjustified rates,” Perry told the press. The company, Cornyn added, “has put its own financial gain ahead of the well being of Texans. You don’t do that in Texas.”

But, of course, they had been doing it. In 2002, Texans were paying, on average, the nation’s highest rates for homeowners insurance. That was an impressive feat, given that prices for homes in Texas lagged far behind those in California, New York and Florida. In the previous two years, the state’s big insurers had jacked up premiums. Insurance companies said they were bleeding money from too many expensive claims. But they also had ruthlessly exploited a loophole in state law that allowed them to raise rates unfettered by regulation.

While Perry and Cornyn had ostensibly come to Houston to announce a civil court filing, the political overtones were obvious. The two Republicans were on the November ballot—Perry running for his first full term as governor and Cornyn aiming for the U.S. Senate—and with Election Day just three months off, home insurance had become the 2002 campaign season’s top issue. Texas homeowners were seething. They wanted their rates cut fast.

It was a particularly perilous issue for Perry. He was favored to win. But his Democratic opponent, Tony Sanchez, had seized on the crisis and begun a populist call for stricter regulation that would force the insurers to lower premiums. He hammered Perry for sitting idly by while rates climbed. Sanchez’s campaign was clumsy at times—he named his campaign bus the “Lower Rates Express”—but Perry clearly saw a dangerous political issue.

The governor quickly devised his own reform plan and began criticizing the industry’s greed. Perry, an avowed free-marketeer, seemed an unlikely politician to crack down on big insurance companies. Texas Republicans have long found common cause with the insurance industry against Democratic-leaning trial lawyers, and Perry had received more than $1 million in campaign contributions from insurers at that point in his career.

Yet at nearly every campaign appearance, the governor promised to re-regulate the market and slash premiums. “If the industry hasn’t figured this out, listen up,” Perry told reporters at one point in the 2002 campaign. “Texans are fed up, and I will sign legislation that prevents a handful of companies from bringing the state to its knees. I am offering solutions that put Texans first. I call on the industry to do the same.”

Six years later, Texans are still paying the highest rates for home insurance in the country. The industry has earned billions more than it would have if stricter regulation had been imposed, according to consumer groups; in 2004 alone, the added profit was $4 billion. In 2006, Texas insurers enjoyed one of their most profitable years on record.

The problem wasn’t inaction. Perry and the Legislature passed a sweeping, complicated reform bill in 2003. But the legislation was crafted largely by lobbyists for the insurance industry, imposing the lightest possible regulation. The state remains nearly powerless; insurers in Texas can raise rates by simply notifying regulators.

In January, the Legislature will once again take up home insurance. Six years after siding with the industry, lawmakers will have another chance to fix the system. While the insurance companies will almost assuredly run a similar play—wouldn’t you?—the political environment appears to have changed. Some key legislators are already talking about the need for more regulation. The 2009 session may be consumers’ best chance for meaningful reform in a very long time—assuming history doesn’t repeat itself.

On August 21, 2002, just two weeks after Perry and Cornyn filed their lawsuit, representatives of the largest insurance companies in Texas, including the big four of Farmers, Allstate, State Farm, and USAA, received a fundraising letter from Bill Hammond, president of the Texas Association of Business (TAB). The business group was stockpiling money for an ad campaign that would deliver four million mailers to aid a slate of 22 Republican candidates. The mailing campaign was part of a highly coordinated effort, fronted by then-Congressman Tom DeLay, to capture the Texas House for the GOP and elect Midland’s Tom Craddick speaker. The highly partisan Craddick was a controversial choice. His backers knew they would need a supermajority to install him. To elect that many Republicans would require a lot of campaign money. For that, they turned, in part, to the insurance industry.

Hammond’s letter made clear why big insurers should support the Republican slate: “While this program is costly, there is no doubt that this is a real opportunity to make a difference in the political climate in Austin.”

The industry responded. Insurance interests accounted for $237,000 of the $1.7 million worth of mailers attacking Democrats that TAB sent out in the months before the election, as reported by the Austin American-Statesman. (Spending corporate money on campaigns is illegal in Texas, and TAB and some of its funders would later be indicted for their actions in 2002, as would DeLay.) Farmers ($150,000) also contributed money to DeLay’s Texans for a Republican Majority. On Election Day, nearly all the candidates backed by the DeLay operation won, boosting Craddick into power at the head of a 26-seat Republican majority.

In all, big insurers in Texas spent at least $1.1 million in the 2002 election to support Republican legislators, Perry and Lt. Gov. David Dewhurst. This was highly out of character. Insurance interests have rarely played such a large role in Texas campaigns. But in 2002, the industry badly needed friendly politicians in power.

Home insurance rates in Texas had begun to rise sharply in 1999. The excuse was partly a rash of mold claims filed across the state. But the industry had also lost a bundle in the stock market when the tech bubble collapsed. Consumer advocates had seen this before: when insurance companies lose big in the stock market, they invariably try to cover the investment losses by raising rates on consumers. And in Texas at the time, the industry could gorge itself on rate hikes because of a quirk in state law known as the Lloyd’s loophole.

This gets complicated—as is often the case with insurance policy—but essentially state law at the time left a certain type of insurance policy, known as Lloyd’s policies, unregulated. These were policies originally meant for homes that had unpredictable risk, perhaps because of their high value or because of where they were located. Once the secret got out, though, nearly every insurer in Texas began shifting as many homes as possible into Lloyd’s policies to escape the reach of state regulators. By 2002, about 95 percent of home insurance policies in the state were unregulated. And like teenagers who had suddenly escaped their parent’s supervision, insurers hiked rates—in some cases doubling premiums.

With the insurance market in crisis, some level of reform was inevitable. The market would have to be re-regulated and the Lloyd’s loophole closed. The political environment demanded it. The open question was just how stringent the new regulatory structure would be. Many Democrats were touting forced rate rollbacks. They also wanted a reform package that would empower the Texas Department of Insurance to approve rates before companies could put them into effect. This approach is known as “prior approval.” For the industry, it sounded as pleasant as dental surgery.

Big insurers much preferred the plan that Perry put forth: “File-and-use.” Under this system, insurers can raise rates without approval and simply have to notify regulators of their premium increases. Proponents say file-and-use allows the market to set the rates and improves competition, which, they say, leads to lower premiums.

Not long after Election Day, it became clear that insurers would have big sway during the upcoming legislative session. In November, after Craddick claimed the speakership, he appointed a transition team, three men who would serve as gatekeepers to the speaker’s office throughout 2003. Two of those men were political consultant Bill Miller, a Craddick confidant who was a spokesman for Farmers at the time, and Bill Messer, a lobbyist for State Farm.

The insurance industry has always exerted influence at the Texas Capitol, but the past five years, beginning in 2003, have perhaps been the zenith. The handful of consumer advocates who lobbied for stricter regulation during the 2003 session recall being run over. The insurance industry had several hundred lobbyists working on its behalf, an army of influence peddlers who had little trouble winning over free-market Republicans, many of whom had been elected for the first time thanks in part to insurance money.

The GOP leadership stacked the insurance committees in the House and Senate with industry-friendly Republicans. Stringent reforms proposed by some Democrats went nowhere. Instead, the main reform legislation—known as Senate Bill 14—sailed through. The bill re-regulated the market by closing the Lloyd’s loophole but also instituted the more lenient file-and-use approach favored by Perry and the Republican leadership (not to mention the industry).

When SB 14 landed in a conference committee to reconcile it with the House version, the industry’s reps got their way even more. Several consumer protections were stripped out. (Consumer advocates say the conference committee was stacked against them. Then-Rep. Joe Nixon, a Houston Republican, was included on the committee, though he had worked little on home insurance during the session. It later came out that Nixon was negotiating with Farmers on a mold claim on his own house at the same time he served on the conference committee that was designing a regulatory framework for the company.)

“The way I think of file-and-use, you’re really playing catch-up with the insurance companies,” says Ware Wendell, an Austin lawyer who represents consumers in insurance cases and worked on insurance issues for Rep. Steve Wolens, a Dallas Democrat, during the 2003 session. Under SB 14, if the Insurance Department concludes that a company has been overcharging, it can take that company to court to win rebates for customers. The idea, says House Insurance Committee Chairman John Smithee, the Amarillo Republican who sponsored SB 14, was “to make the first line of defense the competitive market, but when that didn’t work, to have a safety valve where you’d have some adult supervision where the commissioner could step in and regulate.”

The problem is that even when regulators have challenged insurers, they have found it difficult to force companies to surrender their profits.

Since 2003, a few companies have reached settlements with the Insurance Department after regulators took them to court. Allstate, for example, settled a case in May for $51 million for overcharges in the past four years. More than 700,000 consumers will split rebates worth $37 million. That’s a whopping average of $53 each—not much, considering that the average annual premium in Texas tops $1,200. Allstate also agreed to lower rates by 3 percent. (In 2007 alone, Allstate raised rates 6 percent.) Meanwhile, Perry and Cornyn’s lawsuit against Farmers was quickly settled in 2003 for $117 million. About $82 million of that amount would be paid back to consumers.

The largest home insurer in Texas, State Farm, has never been forced to lower rates. The company and its team of lawyers have battled the Insurance Department in court for four years now. In the latest ruling this fall, State Farm won an appellate decision that sent the case back to square one. It remains in doubt whether the company, which handles 30 percent of the state’s market, will ever reduce its rates or be forced to pay back overcharges.

“If they spend a million, two million in legal fees along the way but they save 100 million in overcharges, that’s a winning economic proposition,” Wendell says.

The details of insurance policy are nearly incomprehensible to anyone but the most committed. But the end results are easy enough to judge. Did the rates drop by the 12 to 18 percent the industry promised during the debate on SB 14? No.

SB 14 did have some positive effects. More companies began writing home insurance policies in Texas, though they make up such a small percentage of the market that consumer advocates say true competition doesn’t really exist. In 2003 and 2004, many companies did reduce rates a little. The Insurance Department reported that by 2006, 35 of the 37 companies in Texas had cut rates, though some by only a few percent. But two of the biggest insurers, State Farm and Farmers, didn’t lower rates at all, and together they make up about 40 percent of the market. In all, rates dropped about 4 percent by 2006, nowhere close to the reductions promised by the industry. And in the past two years, some homeowners have seen their rates tick back up. In April 2008, State Farm announced an increase of nearly 3 percent. Farmers implemented a 10 percent increase in October.

Looking at the market as a whole, rates have roughly leveled off since 2002, says Alex Winslow, director of the consumer advocacy group Texas Watch. Premiums are just a tad below the 2002 levels that helped fuel the insurance crisis.

But Texas still leads the nation in homeowners insurance rates: The average premium is $1,200 to $1,300. The only state even close to that level is Louisiana, with average premiums of $1,100. The national average is about $800.

While it was touted as “re-regulation,” SB 14 also deregulated insurance policies. Before 2003, insurers offered only a handful of plans. Now companies sell a wide range of complex policies. The industry argued in 2003 that not everyone needed a “Cadillac” plan, and that more options in the market place would fuel competition and drive down prices. But Winslow says that the new insurance policies simply offer less. With rates remaining mostly constant, Texas consumers have continued paying high prices for less coverage.

The policies have become so complicated that most consumers don’t know what’s in their plan. The complexity makes it nearly impossible for average homeowners to comparison-shop. Even the experts have trouble.

“If you ask me what endorsements I have on my policy right now, I couldn’t tell you,” says Wendell, the consumer lawyer. “They send you one piece of paper at a time, saying your policy has been changed to endorsement E-1743, and you’re trying to ask yourself, ‘OK, what does that mean?’ I think choice is great, but you can easily become paralyzed by it.”

The industry loves it. With Texas homeowners receiving less coverage, the insurance industry has paid out less and less money in claims. Even with an occasional spike following Hurricane Rita (and presumably Ike, though the numbers aren’t public yet), Texas insurers were paying out an average of $400 worth of claims per policy in 2007, down from nearly $800 in 2001. Remember that the average premium is more than $1,200. Everything between the $400 paid out in claims and the $1,200 received in premiums is profit—which translates to roughly $800 in profit on average on each homeowners policy in Texas, minus overhead, according to calculations by Texas Watch.

So it’s no surprise that insurers want to maintain the system. Industry groups argue that the file-and-use approach is just beginning to take effect and should be given more time to work.

They also contend that high premiums are needed to cover the costs of major weather disasters in Texas. But other large states suffer weather catastrophes, and homeowners still pay much less for insurance. “Every time I turn on the TV, something apocalyptic is happening in California,” says Wendell. “You have hurricanes brutalizing Florida. And yet their rates are not what we have in Texas.” Floridians pay an average of about $1,000 per premium. In California, it’s $800 to $900. In both states the homes being insured are, on average, far more expensive than those in Texas.

For his part, Smithee, the man who carried SB 14, believes the system has created a more competitive market, but adds that insurers have clearly overcharged consumers in recent years. Smithee has tried to balance industry needs with those of consumers but sometimes finds himself outvoted by industry-friendly members on his committee. He says that Texas’ severe weather does lead to higher rates. “We’re always going to be at or near the highest in the nation,” he says. “Our losses are just so much higher than other states’.” But he concedes that the regulation laid out by SB 14 wasn’t strong enough. “We can’t just turn this whole market loose and say it will work on its own,” he says. “It will probably work most of the time. But in those times when the competition doesn’t work, the consumer is very vulnerable.”

In 2009 when the Legislature once again debates homeowners insurance, consumers will have an all-too-rare chance at genuine reform.

In the two legislative sessions since 2003, Speaker Craddick made sure that few reform bills escaped the House Insurance Committee to come up for votes in the full House.

But next year the dynamic will change for two reasons. The House is more closely divided, meaning Craddick may not be speaker, which may give Smithee more leeway. More important, the Insurance Department is undergoing sunset review, the regular process by which the Legislature examines state agencies. That ensures that an insurance bill will move through the Legislature. Many Democrats and Republicans, having heard from angry homeowners in their districts, are pushing for more stringent regulation. With foreclosures on the rise in Texas, many lawmakers realize that reducing consumers’ insurance bills may allow more folks to keep their homes.

Several lawmakers have indicated they will try to pass a prior-approval system. In September, state Sen. Juan Hinojosa tried to convince the 12 members of the Sunset Committee to recommend a prior-approval system. The measure lost, but by just one vote. The sunset panel’s recommendations will be the starting point when the Legislature convenes in January. Where the debate goes from there is anyone’s guess.

Consumer advocates would like a prior-approval system. They also want the number of available insurance policies reduced and the state’s insurance commissioner to be chosen through election instead of appointment by the governor, a change that has worked well in California.

Smithee is advocating a compromise plan. He wants to strengthen the Insurance Department’s hand but worries about the dangers of too much regulation, which, he says, could drive companies out of the market. Smithee would prefer a hybrid approach in which most companies must obtain prior approval for their rates, but the Insurance Department could shift select insurers (who have proved good actors) into a file-and-use system to spur competition.

Not surprisingly, the industry wants even more deregulation, which Smithee says would be a “big mistake.” The insurance industry’s influence hasn’t diminished. It will once again employ some of the most skilled lobbyists in the Capitol. And much will depend on who wins the House speaker’s race.

As Winslow of Texas Watch points out, this is consumers’ best chance at reform since 2003. Insurers “are always going to have pull,” he says. “But this is as good a [political] environment on this issue as consumers have seen in a long time.”


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