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Farmers to Pay $500k in Restitution, Denies Violating Texas Law


  Some 8,000 Texans can expect a portion of over $500,000 in refunds from Farmers Insurance Group after Commissioner Elton Bomer and Farmers' officials signed a consent order to pay restitution for violating a Texas insurance law which prohibits a "no prior" insurance rule. The consent order includes Texas Farmers Insurance Co., Mid-Century Insurance Company of Texas and Farmer Texas County Mutual Insurance Co.

  Between July 24, 1996 to Jan. 27, 1997, policyholders were allegedly overcharged for auto insurance because they did not meet Farmers' prior insurance requirements. Although Farmers agreed to return the refunds, they have denied any allegations of breaking the rule. Farmers signed the consent order about one week before an administrative law judge was scheduled to hear their case.

  Under state law, a rate-regulated carrier may not consider an applicant's lack of prior insurance to determine automobile liability premiums, unless they have driven without insurance in Texas for more than 30 days out of the preceding 12 months. Exceptions to the rule include people that did not own a car before they moved to Texas (and thereby had no insurance), newly licensed drivers and people that previously used public transportation.

  TDI asserts that Farmers' underwriting guidelines required that drivers have three consecutive years of prior insurance to qualify for its lowest "preferred" rates, two consecutive years for the next best "standard" rates and drivers with less than two years of prior insurance only qualify for the highest rates. People that were exempt from the rule were included with the highest rated drivers.

  Also, policyholders that would have been upgraded to a better tier if Farmers' guidelines were not in effect will receive a policy refund. Farmers is sending a notification to all its agents regarding the customers who should expect a refund.

  "It boils down to a difference of opinion regarding the TDI rule," Mark Toohey, Farmers spokesman, said. "Our folks interpreted the rule one way; TDI interpreted in another way."

  "The bottom line is we decided it was in the best interest of our entire organization and all of our customers to end what could have been a long, drawn-out legal procedure."


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