State Farm Florida Withdrawal Plan May Go To Judge

July 15, 2009

After months of trying, Florida state officials and State Farm Florida have been unable to agree on the details of the insurer's plan for withdrawing from the state, so steps have been taken to have an administrative law judge decide.

However, State Farm Florida and state officials say that even though the process of setting a date with a law judge with the Division of Administrative Hearings (DAH) is underway, there is still a possibility that a deal can be worked out before a law judge must get involved.

"We continue to be hopeful we will come to an agreement," Justin Glover, State Farm spokesperson, told Insurance Journal.

Edward Domansky of the Florida Office of Insurance Regulation (OIR) agreed, adding that the setting of a DAH hearing date would lend a timetable to the discussions that will be continuing.

One of the major remaining issues is agreeing on a state-approved process for the selection of insurance companies that would pick up the nearly 1 million policies State Farm is dropping.

The earliest date the two sides could agree on for the start of a DAH session is Oct. 12 but State Farm is anxious to have the hearing sooner because its financial situation is deteriorating. The insurer has petitioned to begin the process before that date if at all possible.

The company says it is losing about $20 million in surplus a month in Florida.

Last month Administrative Law Judge Suzanne F. Hood granted an abeyance of proceedings before the DAH, which settles disputes with state agencies, until July 15.

Lawyers for OIR and State Farm had until 5 p.m. yesterday to inform the DAH whether they have voluntarily come to a settlement or, if not, whether a DAH hearing had to be scheduled.

According to OIR, State Farm Florida may not proceed with its withdrawal until their differences over the plan are settled.

The dispute stems from State Farm Florida's announcement in January that it would begin a two-year withdrawal from the state by non-renewing its nearly 1 million policies, beginning with its highest risk policies.

The company said it decided to close its Florida operation after being denied homeowners insurance rate increases by the state regulator. It also said that State Farm Florida would be insolvent and unable to pay all of its claims by the end of 2011 if it does not take this action.

But Commissioner Kevin McCarty and the OIR have balked at State Farm's withdrawal plan, terming it "hazardous" to the state and to policyholders, including those insured by the state-backed Citizens Property Insurance Corp. that takes on property risks private insurers will not.

McCarty issued an order in February requiring the insurer to meet certain conditions as part of its withdrawal. He is seeking to ban State Farm from placing risks in the state-backed Citizens and to force the insurer to amend its contracts with its exclusive agents to permit them to place business with other private insurers. He also wants the insurer to surrender its certificate of authority before the withdrawal is complete.

State Farm, the state's biggest home insurer after the state-backed Citizens, appealed the stipulations, arguing that McCarty and the OIR do not have the authority to set conditions on its withdrawal.

State Farm contends that allowing its agents to write policies for other insurance companies except the government's Citizens would violate the exclusivity provision of their contracts with State Farm Florida.

The company also said that losing its certificate of authority early would harm its ability to purchase reinsurance it would need during the course of the withdrawal.

DAH is just the first step in the litigation process. If it receives an unfavorable result at DAH, State Farm has the option to appeal the DAH ruling to the First Circuit Court of Appeal. This action would continue to hold the proposed withdrawal plan and in abeyance until the court issues a ruling, according to OIR.

Citizens is supposed to be an insurer of last resort but has become Florida's largest property insurer with more than one million policies. State officials are concerned about adding to Citizens' burden.

State Farm Florida is a subsidiary of Bloomington, Ill.-based State Farm Insurance, which will continue selling auto and life insurance in the state.