State Farm rate increase hits judicial headwinds

Takeaways:

• Administrative law judge denies two motions by State Farm
• Judge states that open hearing is needed for fairness
• CSAA, Mercury request 6.9% rate increases, lower than State Farm's 30% ask

As two large homeowners insurers ask California regulators for 6.9% rate increases, State Farm lost motions to restrict hearings on its proposed 30% rate increase and to postpone evaluation of wildfire claims delays.

The California Department of Insurance (CDI) asked administrative law judge Karl Seligman to postpone consideration of State Farm's handling of wildfire claims until after ruling on the rate increase. 

CDI also asked the judge to hold hearings on the rate increase only virtually, not in person, citing – according to the judge's ruling – "electronic communications from an individual it categorizes as a 'disgruntled policyholder,' along with broader expressions of frustration related to claims handling" and "widely publicized incidents of violence in unrelated but public contexts."

Consumer advocacy group Consumer Watchdog, in its opposing motion, stated that remote-only hearings "curtailed in-person attendance and effectively converted a public proceeding into a closed session." 

Judge Seligman denied both CDI motions. "While such justification may certainly exist in cases where a party's right to a fair hearing is threatened by an unreasonable risk of imminent harm from in-person attendance, the Department has not met that burden here," the judge wrote, adding, "Our regular adjudicatory processes should not be regularly subject to reshaping in response to disruptive conduct, wherever it stems from."

The judge went on to comment about the need for open hearings in his ruling, stating, "Conducting contested hearings remotely invites public skepticism and risks eroding confidence in the legitimacy of the proceedings. Legitimacy is inseparable from fairness, and concerns about it are especially acute in cases like this, where the public expects to see government mechanisms visibly at work on their behalf."

CSAA filed with CDI to request a 6.9% rate increase on August 29 and Mercury Insurance filed for a 6.9% increase on August 15. Last October, CSAA CEO Mike Zukerman discussed the insurance industry's reaction to climate and environmental changes, and the use of catastrophe models in California. 

In its filing, Mercury Insurance is using the Verisk Wildfire catastrophe model for estimating the impact of future catastrophic wildfires, according to a press release. The insurer noted that its rate filing is the first under the state insurance commissioner's reforms announced in December.

"Our filing is the first step toward Mercury's goal of expanding insurance options for California homeowners and underscores our 60-year commitment to California customers and agents," said Gabriel Tirador, Mercury's CEO, in the press release. "As other companies scaled back their California operations, Mercury stepped up to provide more options for our agents and customers, and we are committed to continuing our efforts to help protect our California neighbors well into the future."