Appeals court rejects California home insurance refund order

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Sacramento, California (AP) – Consumer advocates said Tuesday they would ask the California Supreme Court to overturn an appeals court ruling they said undermined the state’s ability to seek billions in insurance company cash back.

The San Diego State Court of Appeals on Friday rejected the California Insurance Commissioner’s report from 2016 that the California branch of State Farm overcharged homeowners’ insurance rates.

Dave Jones, who was the insurance commissioner at the time, ordered the company to return more than $100 million to California policyholders, a decision that the appeals court overturned.

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More broadly, Harvey Rosenfeld, founder of Consumer Watchdog, said the decision threatens current insurance commissioner Ricardo Lara’s order that insurers recoup up to $3.5 billion, he says, for overcharging California motorists who have drastically curtailed their driving. During the coronavirus pandemic as the state mandated blanket stay-at-home orders last year.

Rosenfeld said the ruling undermines the 1988 voter-approved ballot proposal, which created an elected California insurance commissioner and allowed the commissioner to reject proposed price increases and order a refund.

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Deputy Insurance Commissioner Michael Soler had a narrower explanation, that the decision was specific to the state farm and the state’s attempt to prevent the company “from manipulating corporate investment policies in order to increase insurance premiums for California consumers” — a claim that the court also dismissed.

The three-judge panel of the Fourth District Court of Appeals ruled that “retroactive rate and refunds are not permitted” under its interpretation of the powers imposed by Proposition 103.

The judges found that the initiative “aims to ensure fair and reasonable rates” and that the insurance commissioner has “broad discretion in adopting regulations to administer the initiative.”.

But this allows for a prior approval system in which companies file for price changes that are reviewed by the insurance commissioner before they take effect — “not the kind of open enforcement authority the commissioner seems to confirm,” as the court found previously by rejecting the method Jones used to assert that The company has overcharged its policyholders.

“Califorians passed Proposition 103 to protect themselves from abusive rates and discriminatory practices by requiring insurers to maintain fair rates and premiums,” Rosenfeld said. The appeals court decision “stripped the insurance commissioner of the powers he had been given by voters to protect Californians from excessive rates.”

He said the state’s Supreme Court had already twice upheld the commissioner’s authority to order refunds, although the lower court said judges were handling related cases and “not generally the commissioner’s discretion.”

State Farm said it was pleased with the court’s decisions both on the retroactive refund and its refusal for the way Jones determined how much he believed the company owed.

State Farm created a California-only subsidiary of non-auto insurance lines in 1998, citing “the extraordinary risks posed by California’s exposure to disasters.” By the time of Jones’ request, the subsidiary had insured about 20% of California homeowners.

In 2014, the company applied for a 6.4% increase in home and renter insurance policies.

Two years later, Jones instead ordered a refund based in part on his calculation of how much State Farm had earned by investing insurance payments to consumers nationwide.

The appeals court said it can only consider the subsidiary’s income, a decision Rosenfeld argued opens the door to bookkeeping scams that under-report the subsidiary’s true profitability.

But the court said opponents of its interpretation “did not demonstrate that manipulating the rate limit was an objective of Proposition 103.” She specifically dismissed the argument that because of her ruling, multi-state insurers in the future could be expected to cook the books.

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