State Farm Hit On Auto Glass Claims
Minnesota regulators have charged State Farm with more than 13,000 insurance law violations, exposing the company to potential fines of over $130 million for its handling of auto glass claims.
The alleged misconduct, which the company denied, led Minnesota Commerce Commissioner Jim Bernstein to denounce the firm. "State Farm claims to be a good neighbor, but it acts more like a neighborhood bully to consumers and glass shops," he declared in announcing the charges.
In a statement of charges and order to appear, the Department of Commerce, which regulates insurers, accused the Bloomington, Ill.-based company of engaging in unfair trade and claim settlement practices for glass damage claims this year and in 2001.
In a market conduct report covering a one-year period, the department alleged that State Farm Fire and Casualty Company and State Farm Mutual Automobile Insurance Company committed over 13,000 violations of the states insurance law. Among some of the allegations:
On at least 1,832 occasions, the company paid less than the "fair and reasonable market price" on auto glass claims to policyholders or glass shops. State Farm paid a network price that the department claims is 55 percent off-list.
More than 100 policyholders allegedly were told they had to pay for glass repairs directly if they went out of the State Farm network, and had to pay the difference between what their vendor charged and the companys network would have charged. Both are a violation of the states laws, the department said.
State Farm allegedly used a company in which the insurer has a financial interest, and which is not licensed to do adjusting, to investigate and adjust auto claims.
On more than 600 instances, it is alleged, the company steered policyholders to select a glass vendor that agreed to the insurer's pricing. State Farm is accused of using a misleading telephone script that led policyholders to believe they would only receive reimbursement for what the company was willing to pay.
The company is accused of hundreds of instances of not adhering to statutory guidelines on deadlines on auto glass claims.
The department said State Farm "failed to comply" with an order and subpoena for complete files on 2,000 auto glass claims.
Mr. Bernstein said the department has been working with the company for over a year on this issue and has been "very, very patient." However, it has become evident the company feels it does not need to comply with the law, he said.
"A company does not have the right to say it does not like a law and ignore it," Mr. Bernstein noted. "Like a private citizen violating the law, they are subject to the consequences."
Bruce Gordon, a representative for the department, said the company, which is the largest auto insurer in the state, could face censure, revocation of its license, and civil penalties that could reach as much as $10,000 per violation. The company was fined $75,000 in September last year for sending payments for repairs to policyholders instead of the repair company.
State Farm said it is disappointed in the departments actions and believes "it is an unfair characterization of our glass program," said Anne Obst, public relations specialist at the companys Woodbury, Minn., operation center. She said the company would continue to work with the department to address this issue and find a resolution.
"State Farm is committed to prompt, fair handling of consumers auto glass claims," Ms. Obst stated.
The company is scheduled to appear before an administrative law judge on July 31.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, July 8, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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