State sues Farmers over home rates

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State sues Farmers over home rates

By JUAN A. LOZANO

Associated Press Writer

HOUSTON - The state of Texas sued Farmers Group Inc. on Monday, accusing the

U.S. insurance giant of charging consumers excessive and unjustified rates

for homeowners' coverage through deceptive trade and discriminatory

practices.

The lawsuit, filed in Austin, accuses Farmers - the state's second-largest

homeowner insurer - of reducing coverages while increasing premiums by

claiming the company is losing money when the insurer actually is turning a

profit, particularly on management fees.

" We will not tolerate deceptive or illegal activity in order to pad the

bottom line, " said Attorney General Cornyn, who along with Gov. Rick

and Insurance Commissioner Montemayor, announced the lawsuit at a

news conference in Houston.

The lawsuit, part of an active investigation of the insurance industry in

Texas, seeks an injunction barring Farmers from what the state considers

improper business practices and a refund of " all excessive premium payments

to Texans aggrieved by Farmers' practices, " which could total up to $140

million.

The state also seeks civil penalties up to $10,000 per violation and $25,000

per Texan harmed by any of the company's illegal practices.

The state further accuses Los Angeles-based Farmers of failing to notify

policy- holders in writing that credit history affects premiums and their

ability to renew policies. It also alleges that the Texas Department of

Insurance has found that Farmers is improperly charging Texans to cover

catastrophes in other states.

said he doesn't believe claims from Farmers and the other top insurers

in Texas - Allstate and State Farm - that they are losing money because of

higher costs from mold claims and other factors.

The suit claims in fiscal year 2001, Farmers had an after-tax profit of

$438.7 million from its management fees.

" As governor, I'm committed to taking action against unscrupulous corporate

actors, " said. " Homeownership is at the heart of the American dream

and I will not allow companies like Farmers to destroy that American dream

in the state of Texas. "

Bill , a Farmers spokesman, said the company has not violated any

Texas laws but in fact has stayed committed to the state even though the

company continually loses money, he said.

From January through May of this year, Farmers has lost $390 million in

Texas. Last year, the company lost $500 million, said.

" Nationwide, less than 20 percent of our homeowners premiums come from Texas

but an excess of 40 percent of our losses come from Texas, " he said. " Even

though we are losing lots of money, we want to stay in Texas. "

Last August, Farmers became the first major insurer to stop offering new

homeowners policies in Texas, a move that was followed by some competitors.

In July, the company reversed course on its new rule not to write new

policies on homes that have had a water claim in the past three years or

homes older than 30 years with certain types of plumbing.

Farmers, in Texas since 1954, historically has had a customer base of about

700,000 homeowners, said, and this year it's added 50,000 homeowners.

called the lawsuit " political harassment. " is running for

re-election this year while Cornyn is the Republican nominee for U.S.

senate.

" Arbitrary political behavior that is without merit would be something that

could drive us out of this state. It will make the company rethink its

commitment to Texas, " said.

said the lawsuit and ongoing investigations of insurance companies

weren't motivated by politics but are part of his duties as governor.

Tony , 's Democratic opponent in November, called the lawsuit

" too little too late. "

" I think he should have done that a long time ago, " said. " This

crisis has been on us and he should have seen it coming a year ago, a year

and a half ago. "

Doug , a spokesman for the Insurance Council of Texas, said the

insurance industry is experiencing a rough period in the state, with $1.2

billion in water losses in 2001 and a predicted $2 billion loss this year.

" Regulators, legislators and the industry want rates to go down. We want to

be able to offer a more affordable product, " he said. " I think there is

light at the end of the tunnel. "