January 18, 1999..
Mid-Century Ordered to Pay $750,000
For Violating Underwriting Stipulations
The Texas Department of Insurance (TDI) has slapped a $750,000 restitution fee
on Mid-Century Insurance Company of Texas, a Farmers Group subsidiary, for violating a
state underwriting guideline stipulation. The refunds will be administered to drivers who
were shunted into a higher-priced sister company because they wanted to buy higher
liability limits without also purchasing physical damage coverage.
Approximately 3,450 drivers covered since Sept. 1, 1995 by Texas Farmers Insurance
Co. instead of the lower-priced Mid-Century will receive refunds on the difference between
the two auto premiums. Mid-Century will also reimburse the state $150,000 for legal and
investigative expenses incurred by TDI.
The insurer agreed to a consent order, but did not admit to any wrongdoing.
Since Sept. 1, 1995, TDI rules have prohibited auto insurance
underwriting guidelines from discriminating, based in whole or in part, on whether a
driver buys certain kinds or amounts of coverage exceeding the minimum required by state
Mid-Century required customers who wanted more liability coverage than the
state-required minimum to buy collision and comprehensive coverage on at least one
vehicle. Those who did not purchase full coverage were placed into the higher rated Texas
Farmers Insurance Company instead of the better priced Mid-Century.
"In the spirit of compromise we agreed to rescind the underwriting guideline
for Mid-Century," John Hageman, a Farmers spokesperson, said. "However, we still
believe we could and are correct in the interpretation of TDI's rule." Hageman said
the TDI rule stated that insurers had to offer the minimum state liability limits at the
best rate. "We did that," he said. "But if you wanted higher limits, we
required you to have full coverage on one vehicle."
As part of the agreement with TDI, Mid-Century will notify customers who receive
refund checks that they no longer need to purchase full coverage as a condition for buying
extra liability. Many insureds of Texas Farmers Insurance Company will now be eligible to
move into Mid-Century.