State Farm Agrees to Pay $775,000 + Costs in Settlement with MN Dept. of Commerce

State Farm and the Minnesota Department of Commerce – Insurance Division-have ended an 18-month investigation into the company’s auto and homeowners insurance rates by reaching an agreement that the insurer will pay $775,000 in fines plus investigative costs. Part of the agreement provides that the company has not admitted to any wrongdoing.

The Commission, headed by Jim Bernstein, had charged that State Farm “pressured independent medical examiners to change their opinions to reduce PIP [Personal Injury Protection] claim costs. The coverage is central to “no-fault” provisions aimed at assuring that accident victims receive reimbursement for all reasonable medical expenses without having to file legal actions.

The Department’s announcement stated that “Under the terms of the settlement, State Farm has agreed to:
— Implement procedures that will prevent the company from influencing or changing the results of independent medical examinations by its employees or vendors.
— Stop using chiropractor examination reports to deny or reduce PIP benefits for non-chiropractic medical treatments.
— Stop forcing policyholders to litigate for benefits they are entitled to under the law.
— Provide all relevant medical records to the independent medical examiner prior to the examination.
— Cease disclosing personal or privileged information about the insured without written authorization.

It will also “hire an independent consultant who will review State Farm’s procedures for no-fault personal injury claims.” The Department also said it plans to investigate similar charges against other insurers.

State Farm’s Utility Rating Plan (URP) was also found to be in violation of state laws against “redlining” as it used criteria concerning electrical wiring that actually was based on the age of the structure. Under the terms of the settlement, State Farm agreed to continue the discount but stop surcharging for the next policy period.

“Premiums on homes that are 40 years old or older will be reduced by 3-18% after the surcharge has been removed,” said the bulletin. “Currently, there are 149,510 Minnesota State Farm policyholders that are being surcharged under the URP.”

Bernstein’s third charge against State Farm was that it “engaged in various unfair trade and claim settlement practices in its handling of auto glass claims.” It allegedly withheld funds belonging to glass shops by paying less than the “fair and reasonable market price” on more than 1,800 auto glass claims. It will now have to allow policyholders to choose their own glass repair shops, and has agreed to pay the lower of two bids to be submitted.

“State Farm made bad business decisions that penalized Minnesota insurance consumers,” Bernstein stated. “This is a fair settlement of these three issues. It would be unfair to taxpayers if they had to foot the bill for extended litigation.”

According to State Farm, the $775,000 in civil penalties and investigative costs represents the largest penalty the company has ever paid to a state insurance regulator. It is the largest property and casualty insurer in Minnesota with 22 percent of the homeowners market and 19 percent of the auto market.

Topics Minnesota