State Farm Pays $775,000 Settlement In Minn.

NU Online News Service, Dec. 5, 4:30 p.m. EST?State Farm Insurance has paid Minnesota $775,000 in penalties andcosts to settle allegations of improperly rejecting auto injurytreatment claims and other illegal practices, the state's topinsurance regulator said today.

Minnesota Commerce Commissioner Jim Bernstein said the paymentwas part of a settlement in which the Bloomington, Ill.-basedcompany, while admitting no wrongdoing, had agreed to change itsbusiness practices for auto and homeowners insurance.

Mr. Bernstein said it was the largest penalty the company hadever paid a regulator. The company disagreed.

"That's not accurate," said Lee Smiertelny, claim manager forthe company. "Only a portion of the settlement we made with them isa civil penalty and more than half represents reimbursement ofinvestigative expenses."

He said the company settlement represented an effort to reach acompromise on extremely complicated issues, and "we think thiscompromise best serves our policyholders."

The settlement, Mr. Bernstein said, involved company actionsconcerning coverage rates for older homes, auto glass claimshandling, and auto injury treatment claims.

State Farm's handling of auto injury claims has been the focusof a multi-state market conduct probe concerning its rejection ofclaims after questionable processing by two medical review firms.Mr. Smiertelny said he believed that investigation is ongoing.

Minnesota was not part of the multi-state probe and did its owninvestigation into the company's rejection of auto medical claims,said Bruce Gordon, a Commerce Department spokesman.

Mr. Gordon said State Farm paid the penalty amount before theannouncement of the settlement.

The department said the settlement is the outcome of an 18-monthexamination. Mr. Bernstein said it was a fair settlement thatavoided "extended litigation."

In the auto insurance area, the department said it examined2,000 claim files. Before the settlement, it was alleged that thecompany pressured independent medical examiners to change theiropinions to reduce the cost of personal injury protection medicalclaims made under the state's no-fault insurance law.

Officials said that under the terms of the settlement, StateFarm has agreed to:

? Implement procedures that will prevent the company frominfluencing or changing the results of independent medicalexaminations by its employees or vendors.

? Halt the use of chiropractor examination reports to deny orreduce PIP benefits for non-chiropractic medical treatments.

? Stop forcing policyholders to litigate for benefits they areentitled to under the law.

? Provide all relevant medical records to the independentmedical examiner prior to the examination.

? Cease disclosing personal or privileged information about theinsured without written authorization.

? Hire an independent consultant who will review State Farm'sprocedures for no-fault personal injury claims.

Mr. Bernstein announced that the department investigation inthis area turned up "allegations that other insurance companies areengaging in this same behavior" and he warned that "additionalenforcement action may be necessary if these companies do notchange their practices."

According to Mr. Bernstein, State Farm had claimed it setinsurance rates based on the age of a home's electrical system whenin fact it was based on the age of the building.

His announcement noted that state law prohibits insurancecompanies from charging higher premiums based solely on the age ofthe home--a provision designed to prevent discrimination based ongeographic location--or "redlining."

Under the terms of the settlement, it was announced that StateFarm agreed to continue its Utility Rating Plan discount but stopsurcharging for the next policy period.

Premiums on homes that are 40-years-old or older will be reducedby 3-to-18 percent after the surcharge has been removed, thedepartment said.

According to the state, there are currently 149,510 MinnesotaState Farm policyholders that are being surcharged under theURP.

If State Farm elects to implement a new URP that would imposesurcharges, the department said the settlement requires the companyto comply with Minnesota law by providing supporting actuarial databased on the age of the home's utilities.

The settlement regarding auto glass, the department said,followed allegations that State Farm withheld funds belonging toglass shops by paying less than the "fair and reasonable marketprice" on more than 1,800 auto glass claims. Instead, State Farmpaid a "network" price--typically 55 percent of the list price--itwas alleged.

Based on a market survey required by state law at the time, thedepartment said it determined a fair and reasonable price inhundreds of disputed claims submitted by State Farm, and that thecompany refused to pay that price.

According to the department, State Farm allegedly limited theability of hundreds of Minnesota policyholders to select the glassvendor and, in effect, steered them to a shop that agreed to StateFarm's pricing.

The company noted that State Farm has agreements with severalhundred auto glass shops that make up its network, known as the"Offer and Acceptance Program."

Under terms of the settlement, the department said State Farmhas agreed to pay auto glass shops at least 86 percent of the listprice for auto glass claims received since July 27 and not yet paidin full.

Customers under the settlement will be able to use a glass shopnot in the State Farm network as long as they obtain twocompetitive bids.

When a policyholder does not notify State Farm before therepair, State Farm will be responsible for obtaining three bids andpaying the lowest amount to the glass shop chosen by thepolicyholder.

"State Farm made bad business decisions that penalized Minnesotainsurance consumers," said Commissioner Bernstein. "This is a fairsettlement of these three issues. It would be unfair to taxpayersif they had to foot the bill for extended litigation"