Monday, January 12, 2015

Insurance Administration orders State Farm to refund premium increases that resulted from "not at fault" claims

State Farm, one of the largest automobile insurance providers in Maryland, has been ordered to refund all premium increases that were due to "not at fault" automobile insurance claims by Maryland customers.

The refund orders, which were revealed by a official of the Maryland Insurance Administration (MIA) who is not authorized to speak on the record, were issued after State Farm was found to be non-compliant with the section of Maryland insurance law that pertains to notification of rate changes.

Prior to 2014, State Farm did not increase insurance premiums when a "not at fault" automobile insurance claim was filed.  This meant that customers could submit claims for losses covered under the "comprehensive" section of their State Farm automobile insurance policy without incurring a premium increase.   For example, if a customer made a claim due to auto theft, hail storm damage, or striking a deer (all of which are covered by the comprehensive section of a policy), State Farm would not increase their rates.  "Uninsured motorist" claims, another example of "not at fault" claims, also did not cause customers' premiums to increase prior to 2014.

In 2014, State Farm quietly filed a rate change notice with the MIA to allow premiums to increase when "not at fault" claims were submitted.  Under Maryland law, State Farm was required to notify customers of their right to protest the rate increase.   According to the MIA, State Farm began billing customers based on the rate increase and simultaneously notified customers of their right to protest the rate increase.  However, the "right of protest" notification lacked certain details that are required under state law.  Since the notification did not conform to state law, the MIA has ordered State Farm to refund all premium increases that were charged for "not at fault" claims.

In addition to being ordered to refund the premium increases, the MIA is assessing a significant penalty to State Farm for failing to withdraw their rate increase request after being notified that they were not in compliance with state law.

State Farm customers whose premiums were increased due to a "not at fault" claim can expect a refund (with interest) or a credit to their next bill (with interest) in the next several months.

State Farm has the option of submitting another premium change request to the MIA and issuing corrected "right of protest" notices, but any premium increase can be applied only to future premiums, and cannot be recovered by State Farm retroactively.