The California Supreme Court Pumps the Brakes on Carrier Refunds

Last week, the California Supreme Court denied a petition and depublication request by California’s insurance commissioner and consumer organizations in a case entitled State Farm General Insurance Company v. Lara. The repercussions of this decision are potentially huge for carriers.

By virtue of the state supreme court ruling, State Farm will not have to refund approximately $100 million, as was previously ordered in 2016 by then-Insurance Commissioner Dave Jones, who determined that the insurer was charging excessive rates for homeowners, condo and renters coverage based on its expenses and investment income.

Back then, State Farm agreed to lower its rates for this insurance by 7%, as mandated by Commissioner Jones; however, the insurance company refused to pay the refunds as ordered and instead challenged the directive in court in its case against Jones’s successor, Commissioner Ricardo Lara.

Fast-forward, and the Superior Court of San Diego County agreed with State Farm’s position, finding that refunds were not necessary because insurers are legally entitled to charge rates that have—or had—been approved by the Department of Insurance, as was true in the case of State Farm’s homeowners, condo and renters policies. This determination ran counter to the Insurance Commissioner’s argument that Proposition 103 provided the authority to order rate refunds in order to ensure that Californians are charged fair rates.

The lower court ruling was affirmed by the California Court of Appeal in San Diego, which held last October that State Farm was actually required to charge the approved rate—that which the Department of Insurance ultimately deemed to be excessive—until a different rate had been authorized. It was that decision that was brought before the California Supreme Court.

The Fallout

By virtue of the recent denial by the state high court of the petition and depublication request filed by Commissioner Lara and company, State Farm is off the hook for the nine-figure refund. But the decision may not be limited in scope to that company, as the ruling casts doubts about the ongoing enforceability of Lara’s order that insurers refund an estimated $3.5 billion in overcharges collected from California motorists during the pandemic. Despite this cloud, it should be noted that carriers have returned more than $2 billion in premium relief to California drivers in the shadow of COVID-19.

Of course, if you have any questions regarding the impact of State Farm General Insurance Company v. Lara or other rate-related concerns, the insurance regulatory team at Michelman & Robinson, LLP is here with answers.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.