State Farm Wins One in Dispute Over Homeowners Rates in Texas

In a long running dispute between the Texas Department of Insurance and State Farm over homeowners insurance rates, the 3rd Court of Appeals in Austin on Aug. 22 ruled that state regulators did not have the authority to issue a disciplinary order against State Farm Lloyds over rates filed in 2003.

After State Farm filed its rates in 2003, the department ordered the company to reduce its rates by 12 percent. State Farm appealed the order in district court, which ruled in favor of the insurer. The department appealed and pursued sanctions against the company for charging what the department called excessive rates.

According to the opinion written by Chief Justice W. Kenneth Law, in its initial enforcement action against State Farm Lloyds, TDI sought to: “(1) to prevent State Farm Lloyds from charging its current rates, which, according to TDI, were excessive; (2) to require State Farm Lloyds to pay restitution to affected policyholders; and (3) to impose sanctions on State Farm Lloyds.”

State Farm appealed the disciplinary order, a trial court ruled in favor of the department and the insurer appealed that decision.

State Farm had filed its rates under the rate filing system established by Senate Bill 14, which allowed insurers to file their rates, and use them. TDI could then review and approve or disapprove the rates.

The issue of whether or not State Farm Lloyds initially filed rates are appropriate is still under appeal. The appeals court established, however, that because the rate issue is still on appeal, State Farm Lloyds may continue to apply those rates and TDI has no authority to impose sanctions on the company for doing so.

“State Farm Lloyds opted to continue to charge its initial rates while the appeal was pending,” Justice Law wrote. “Depending on the result of the hearing on remand, State Farm Lloyds may ultimately be required to refund overcharges with interest.” Law said such a “scheme manifests a legislative intent that during an appeal regarding the excessiveness of their rates, insurers may opt to charge their initial rates, subject to the remedy of a refund if the insurer ultimately loses. …

“We cannot conclude that the legislature intended that the commissioner could penalize under its general enforcement powers, the very conduct the legislature authorized.”

The court’s opinion in State Farm Lloyds, Appellant, v. Mike Geeslin (successor to José Monte-mayor) in his official capacity as Commissioner of Insurance and Texas Department of Insurance, Appellees, (NO. 03-05-00524-CV) may be found online.

Associated Press reports contributed to this story.