NU Online News Service, May 13, 3:13 p.m.EST

American Family Mutual Insurance will pay 5,000 of its Arizonapolicyholders nearly $1.2 million after making an error involvingrepayment of taxes charged to contractors.

The Arizona Department of Insurance says a roofing contractorlast December contacted regulators to report American Family wasnot including a tax building contractors must pay to the state—aTransaction Privilege Tax, which is normally included as part of aninsurance claim.

The complaint to the insurance department followed a wave ofclaims from a winter storm in January and a hail storm in Octoberlast year.

The insurance department says American Family conducted aninternal audit and found out a mistake by out-of-state adjustersled to it underpaying about 5,380 claims in 13 counties because thetax was not included in the payment. The insurer paid policyholdersabout $1.1 million to correct the error, plus about $45,500 ininterest, says the insurance department.

Now that the Arizona Department of Insurance is aware of theproblem it says it is looking into whether other insurers that usedout-of-state adjusters overlooked the tax in claims payments.

American Family Insurance Group is the fourth-largest writer ofpersonal property insurance in Arizona, with a 7.3 percent marketshare, according to Highline Data.

Highline Data is a part of Summit Business Media, which alsoowns National Underwriter.