The proposed $117.5 million settlement between the Texas Department of Insurance (TDI) and Farmers Insurance is a reminder of the problems caused by years of excessive regulation and litigation by TDI.

The high homeowners insurance rates at question in this lawsuit were themselves brought about by TDI’s efforts to regulate policy forms. Forms contain the information about what damages are covered under a policy. TDIs’ insistence that companies use the state’s form led to a court deciding that companies should pay for mold related damages-even though the forms did not include mold. Once this occurred, rates skyrocketed as companies tried to keep pace with skyrocketing claims.

TDI eventually relaxed form regulation and rates started to come down. By the beginning of 2003, the mold crisis was over. But the Texas Legislature still decided that it needed to re-regulate homeowners insurance rates. Ever since, TDI has been taking on one insurance company after another. Not that insurance companies are blameless-they are made up of fallible humans just like the rest of us. But the record shows that TDI has had a particularly hard time over the last decade or so when it comes to justifying its actions in the courts.

For instance, in Geeslin v. State Farm Lloyds, the courts declared TDI’s actions void and unenforceable, finding the statute unconstitutional and that TDI had denied State Farm due process. In TDI v. Allstate, TDI’s effort to make the company pay claims not included in its policies was found to be an unenforceable interference of the freedom to contract. Finally, the courts declared TDI’s rate supervision order to be arbitrary and capricious in TDI v. State Farm.

There is no reason for Texas to regulate homeowners insurance rates. And every reason for the state not to do so. The result of rate regulation has been higher rates, reduced access to policies, and significant litigation costs. The Farmers case, for instance, includes $2 million in attorney’s fees for the Texas Attorney General’s office.  

The state has a role to play in preventing fraud and theft. But not in telling consumers what products they should buy and what prices they should pay. TDI should get out of the business of rate and form regulation.

Year

TDI action

Result

2003

State Farm filed its current rates with TDI on June 26, in compliance with SB 14.  On August 18, TDI said the rates were “unreasonable” and ordered State Farm to reduce its rates by 12%. State Farm sought judicial review of the commissioner’s determination in district court.

The court declared TDI’s actions void and unenforceable, finding the statute unconstitutional and that TDI had denied State Farm due process by failing to follow the applicable contested case provisions of the Administrative Procedure Act (APA). This decision was affirmed by the Court of Appeals in May of 2008. Geeslin v. State Farm Lloyds, 255 S.W.3d 786.

2004

On December 6, the commissioner issued a rate supervision order, determining that State Farm “require[d] supervision because of [its] rating practices.” State Farm sought judicial review of this arguing that the order was invalid because it was based on excessive rates, not rating practices.

On July 5, 2005 the trial court granted State Farm’s motion for summary judgment, ending the dispute in favor of State Farm without needing a full trial.  Neither party appealed the judgment.  State Farm v. Department of Insurance and Geeslin – Cause no.: GN500537, in the 201st Judicial District, District Court, Travis County, Austin, Texas.

2005

On October 5, TDI filed a lawsuit to force Allstate to extend its homeowners’ coverage to payment for alternative living expenses in the wake of Hurricane Rita, even though Allstate claimed that the expenses were not covered under its policies. TDI alleged that the refusal to pay for the loss of use, even where there is no physical damage is an unfair claim settlement practice.

The court found that Allstate did not have to pay for displaced residents’ alternative living expenses since those expenses were not covered in the policies.  The court also found that TDI’s effort was an unenforceable interference of the freedom to contract.  TDI did not appeal the decision. TDI v. Allstate – Cause No: GN-503652, in the 200th Judicial District Court, Travis County, Texas.

2006

In May, State Farm filed rates that the commissioner determined to be excessive and unreasonable. The commissioner also revoked State Farm’s right to file and use its rates without prior approval from TDI. State Farm sought judicial review and a declaration that the commissioner had no authority to issue the supervision order on the grounds stated.

On July 24, the Court of Appeals affirmed a district court’s summary judgment for State Farm, stating that the commissioner had no authority to issue the order on the grounds that State Farm exercised its right to judicial review, that the commissioner violated State Farm’s due process rights, that the order was not supported by substantial evidence, and that the commissioner’s rate supervision was “arbitrary and capricious.” TDI v. State Farm 260 S.W.3d 233.

2007

Allstate filed its rates and began to use them as instructed under the statute.  TDI retroactively rejected Allstate’s rate request and told Allstate to refund its policyholders for the difference plus interest.  Allstate appealed to the Third Circuit Court of Appeals.

On April 17th, 2008, the Third Circuit Court of Appeals granted summary judgment in favor of Allstate, which had argued that because TDI’s application of a retrospective ad hoc analysis through the “component” method meant that an insurer might never know the legal standards or proper components of a filing.  Geeslin v. Allstate – Cause No. 03-08-00284-CV, in the 3rd Court of Appeals, Austin, Texas

2008

TDI issued a rate supervision order revoking State Farm’s ability to file and use its insurance rates without prior approval from TDI

The Appeals Court found the rate supervision order was arbitrary and capricious and reversed TDI’s rate supervision order.  The court found that State Farm was allowed to charge its initial rates while its appeal of an order issued in rate review proceeding was pending. TDI v. State Farm, 260 S.W.3d 438 (Tex.App.-Austin) 2008.

2010

TDI tells State Farm that it will publish confidential rate information on its website after State Farm raises its rates by roughly 4%. State Farm sues to keep its confidential information off the web site.

The Court issued an injunction temporarily preventing TDI from posting the confidential information, pending outcome of the lawsuit. 

 

 

 

 

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