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Consumers Win Prop 103 Transparency Battle With State Farm Insurance

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A California court has rejected a request by State Farm, the nation’s largest insurance company, to conceal the financial arrangements between its $168 billion parent company, based in Bloomington, Indiana, and its California subsidiary, which sells homeowners insurance and claims it’s in financial trouble. 

Four years ago, State Farm requested a $100 million increase in its homeowners rates. Consumer Watchdog filed a challenge and used State Farm’s financial data to show that not only was the request unwarranted, but that the company had previously overcharged its customers by $150 million. The Insurance Commissioner agreed – and State Farm filed four separate lawsuits in San Diego Superior Court. One of them asked the court to rule that State Farm’s financial data are “trade secrets.” 

It wasn’t the first time State Farm tried to avoid public disclosure of its “secrets.” . 

Fifteen years ago, the California Insurance Commissioner ordered insurance companies to disclose the number of auto and home insurance policies they sold by zip code, in order to make sure the companies were complying with Proposition 103. That initiative – the result of a populist uprising against outrageous insurance rates and abusive practices – requires insurance companies to treat their customers fairly, and to open their financial books to public scrutiny when they can apply for rate increases.

State Farm refused to obey the Commissioner’s order, claiming the data were “trade secrets.” The California Supreme Court read the law to State Farm’s lawyers: “All information provided to the commissioner pursuant to this article shall be available for public inspection,” and explained that “all” means “all.” The court ordered State Farm to disclose the information.

Last week’s ruling by the San Diego Superior Court – applying what the Supreme Court had already ruled in 2004 – is just the latest consumer victory in hundreds of lawsuits the insurance industry has filed since Californians took matters into their own hands in 1988 and passed Proposition 103. The insurance industry has wasted a great deal of its policyholders’ money on these frivolous suits, not to mention scare court resources. 

However, State Farm’s litigation assault is not over. The company convinced the superior court that its California subsidiary is independent of the parent company. If it stands, that ruling will mean enormous premium increases for State Farm customers in California. All four of State Farm’s lawsuits are expected to go to the Court of Appeal.