State Farm And Other Companies Charged Accident Surcharge

Residents of California who purchased their auto insurance from State Farm between 1997 and 2002 may have unknowingly paid an illegal accident surcharge on their policies. The surcharge is also known as a "Non-Verifiable Accident Record Surcharge" or a "persistency discount."

The surcharge was tacked on to policies for people who were previously uninsured. However it may also have been charged in instances where drivers had previous insurance but State Farm could not verify that insurance.

State Farm surcharge

State Farm is not the only company to be accused of charging the illegal surcharge. A lawsuit, filed in 2001, claims that the surcharge violates both Proposition 103 and the Insurance Code section 1861.02. The suit, Ryan v. Farmers Insurance claims that insureds that have an insurance coverage lapse do not received the benefits that Proposition 103 was intended to provide. It is against the law in California to consider a person's previous insurance coverage, or lack thereof, when determining insurance premiums or benefits.

The plaintiff claims that any policyholder who did not have insurance for at least 30 consecutive days at any time during three years before purchasing insurance from Farmers Insurance was forced to pay the surcharge.

According to court documents, "under the pretext of attempting to verify an insured's accident or driving record, numerous carriers have instead enacted rating plans which actually target an individual's lack of prior automobile insurance as a factor in the setting of premiums. Under these plans, the carriers ostensibly seek to obtain written verification of an insured's driving record, but in reality the only acceptable type of driving record verification in evidence of current insurance. Thus, the lack of automobile insurance- in and of itself- determines whether a surcharge will be applied or whether a discount is denied."

Court records cite an earlier case, Mitchell v. Allstate, in which the parties reached a settlement and Allstate agreed to stop charging the Non-Verifiable Accident Record Surcharge. In that case, court documents cited depositions of two insurance agents who testified that Allstate's "Rule 39 Surcharge" (also the Non-Verifiable Accident Record Surcharge) was a charged as a way for Allstate to get around Proposition 103.

A report at The Foundation For Taxpayer & Consumer Rights also reports that as a way of verifying that customers previously had insurance, some insurance companies requested that show proof of prior insurance under the guise of requesting information as evidence of a good driving record. This information was then used to determine whether or not there were any lapses in the policyholder's insurance. If there were lapses, or if the insurance could not be verified, the illegal accident surcharge was applied.

In addition to the lawsuits against Allstate and Farmers Insurance Group, lawyers are investigating State Farm for its use of the accident surcharge. If you were a State Farm policyholder and paid an illegal surcharge, contact a lawyer to discuss your options.

State Farm And Other Companies Charged Accident Surcharge

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