State Farm Appeals Conditions Placed on Florida Withdrawal

Mar 9, 2009

Insurance Journal–March 9, 2009

By Bill Kaczor

State Farm Florida on Friday appealed stipulations that Insurance Commissioner Kevin McCarty has put on its plan to withdraw from the state’s property insurance market.

Florida’s second largest insurer of homes and other property filed an administrative appeal that argues McCarty exceeded his legal authority by setting the conditions on the two-year phase-out plan.

The conditions include a requirement that State Farm Florida transition its homeowner policies — about 800,000 — to other private companies but not to the state-created Citizens Property Insurance Co.

Citizens was intended to be an insurer of last resort but has become Florida’s largest property insurance company with more than 1 million policies.

Other conditions would allow State Farm agents to write policies with other companies and make State Farm Florida give up its state license within 30 days of the withdrawal plan’s approval.

State Farm Florida is a subsidiary of Bloomington, Ill.-based State Farm Insurance, which intends to continue selling auto and life insurance in the state.

“We will carefully review that petition to make sure that it clearly outlines all disputed issues of material facts and meets legal sufficiency requirements,” said McCarty spokesman Ed Domansky.

McCarty has 15 days to complete his review. If the petition doesn’t meet those criteria he can order State Farm Florida to resubmit it. Once approved, the appeal would go to an administrative law judge for a hearing.

The petition argues state law doesn’t give McCarty the power to prohibit any insurer from making a business decision to stop operating in Florida and that allowing agents to write policies for companies, with the exception of Citizens, would violate the exclusivity provision of their contracts with State Farm Florida.

“When people go to a State Farm Florida agent, they expect to buy a policy of a State Farm Florida affiliate,” company lawyers wrote in the petition.

There’s an exception, though, in the contract that allows the agents to write Citizens policies because it is a governmental entity.

Requiring the company to give up its license in 30 days would make it difficult, if not impossible, for State Farm Florida to obtain backup coverage called reinsurance that’s needed to cover potential hurricane losses during the phase-out period, the company argued.

State Farm Florida announced its intention to go out of business after McCarty turned down a requested 47.1 percent rate increase. Company officials said the insurer will soon became insolvent even without any hurricanes if it cannot increase premiums.