State Farm Must Repay Fla. Homeowners $120 Million

State Farm must pay $120 million to 98,000 policyholders after failing to give them a required discount for storm-proofing their homes, Florida Insurance Commissioner Kevin McCarty announced yesterday.

Under a consent order that the insurer signed, State Farm Florida must also pay a $1 million penalty to the Florida Insurance Regulatory Trust Fund.

According to Mr. McCarty’s statement, the company must issue credits or refunds totaling the $120 million to present or former policyholders who did not apply for, or who did not receive the Windstorm Loss Reduction Rating Plan discount for making their homes more resistant to wind damage.

The commissioner’s Office of Insurance Regulation began investigating the insurer for failing to make the payments in July.

Justin Glover a spokesman for the company said that the investigation was the result of the company contacting the OIR. “We were the ones that notified OIR of the inconsistencies in the discount program and began working with them on the refund program and steps we are taking to ensure consistency in the future.

He said the company discovered the inconsistencies “during a review of our discount program, at that point we immediately notified OIR.” Mr. Glover said the program is a complicated one to administer.

Under state law, insurers are required give notice to homeowners applying for or renewing policies that they can qualify for discounts or credits by taking steps to make homes resistant to storm damage.

According to the order signed by the company, the infractions occurred in 2005, and the company this May instituted processes and reprogrammed computers to make sure policyholders are aware of the windstorm mitigation discounts.

“I am very pleased that State Farm policyholders will now be getting the appropriate monetary credit for the important wind mitigation devices they put on their homes,” said Commissioner McCarty. “Taking steps to fortify our homes against wind damage is very important. Everything Florida consumers can do to reduce storm damage helps to keep property insurance costs down.”

The OIR said State Farm policyholders who are entitled to the refunds will receive a notice from the company. They include policyholders who currently have, or did have, a homeowners, renters, condominium unit owners, apartment or condominium association policy.

Refunds will be credited to the renewal premium for all renewing policyholders entitled to the refund, or the company will issue a check, OIR said.

Under the order, former policyholders or those to whom State Farm has sent a nonrenewal notice prior to yesterday will receive a check within 180 days, In addition, the refund must include 7 percent interest on the amount due to each policyholder until paid, the announcement said.

Further, State Farm has 90 days to prepare the credit or refund process, and 365 days for all credits or refunds to be issued. The company must then provide a signed certification, by a company officer, within 30 days of the date the last credit or refund is issued. OIR said it will conduct a follow-up compliance audit in 12 months.

The law requiring mitigation discount notices was passed in 2005 after Hurricane Katrina, and amended in March 2007 to specifically require insurance companies to tell their policyholders about the discounts at the time a policy is issued or renewed.

OIR issued a memo to insurers on Sept. 14, 2007, reminding them of the statutory requirement.