Farmers Insurance to pay refund

Farmers Insurance Group is paying $3.4 million in fines and customer refunds to settle complaints from California regulators that the company unfairly penalized homeowner policyholders for filing claims.

California Insurance Commissioner Steve Poizner said the settlement was part of an ongoing effort to stop an industry practice known as “use it and lose it.”

Under the practice, he said, consumers who file claims could be hit arbitrarily with higher premiums or policy cancellations as a result.

In the case of Farmers, Poizner said the company lacked clear guidelines for deciding whether to collect a surcharge or not renew a policy after a claim was filed.

Although the company denies any wrongdoing, it issued refunds averaging $233 to about 6,000 of its approximately 1.4 million home insurance customers (a total of about $1.4 million).

It also agreed to pay a $2-million administrative penalty and make changes in the way it evaluates claims.

Consumer complaints against a Los Angeles-based Farmers subsidiary, the Fire Insurance Exchange, date to 2003.

Regulators found that the company often violated its guidelines in deciding not to renew coverage for a policyholder, based on the number of claims filed, Department of Insurance spokeswoman Jennifer Kerns said.

For example, she said that some policyholders who filed legitimate claims, such as for a tree falling in a storm and crushing a fence, had their policies not renewed or premiums hiked because they used their insurance for its intended purpose.

The department’s probe also concluded that Farmers incorrectly overestimated the risk of fire at some properties, collecting too much in premiums.

Farmers in a statement blamed the overcharges on “inadvertent computer system errors.”

Farmers spokesman Jerry Davies said his company “agreed to pay the penalty in the spirit of cooperation with the Department of Insurance.”

marc.lifsher@latimes.com