Friday, December 14, 2012
C.A.: Insurer’s Installment Payment Charges Lawful
By JACKIE FUCHS, Staff Writer
State Farm Insurance may continue to charge a service fee to policyholders who pay their premiums in installments, the Fourth District Court of Appeal held yesterday.
Justice Terry O’Rourke, writing for a unanimous Div. One, said San Diego Superior Court Judge Ronald Styn correctly ruled that State Farm Mutual Automobile Insurance Company’s installment fee did not run afoul of the state’s Unfair Competition Law or breach State Farm’s policies.
Styn abused his discretion, however, the panel said, by ordering the insurer to bear the costs of providing notice to potential class-members that plaintiffs sought discovery of their contact information and service charge payment information.
Such charges were “significant special attendant costs” which were required by the California Constitution and properly borne by the plaintiffs, members of a putative class of State Farm insureds who pay their automobile policy premiums in monthly installments.
They alleged that State Farm unlawfully charges such policyholders a service fee that is not included in the contract price specified in the policy or on the declarations page.
O’Rourke agreed with the trial court that such practices are not unlawful, saying:
“The installment fee paid under the [State Farm Payment Plan] is consideration for a benefit separate from the insurance and is paid under an agreement separate from the policy. Therefore, the installment fee is not an insurance premium or rate that must be stated on the declarations.”
The panel was also not persuaded by the policyholders’ arguments that State Farm’s imposition of service charges for the option of paying in installments constituted a breach of the policy’s own terms, or that the policy does not permit State Farm to impose an installment fee without amending the policy by endorsement to include that additional charge.
“The SFPP agreement provides the insured a benefit separate from the insurance and is supported by consideration separate from the policy premium; it does not change the policy. Consequently, it was not required under terms of the policy to be made a part of the policy through an endorsement.”
But even though the panel agreed with Styn’s holdings on the lawfulness of State Farm’s installation service charges, it disagreed with his finding that State Farm should pay for the costs of a privacy notice policyholders were sent in connection with plaintiff’s request, made before it requested class certification, for “[a]ll documents that identify the names and last known addresses and telephone numbers of all policyholders,” and another for “[d]ocuments identifying policyholders’ payment histories … including the policyholder’s name, address, … [and] policy number...”
The panel said that Styn’s conclusion that State Farm, of its own accord, sought and was granted permission to send the policyholders an “opt-in” notice informing them that SFPP payment information linked to their name and address would be provided only if the policyholder affirmatively consented, was incorrect, in that such notice was necessary to protect the policyholders’ privacy rights under the California Constitution.
The panel explained:
“The costs State Farm incurred in providing its policyholders notice of plaintiffs’ discovery demands were significant special attendant costs beyond those typically involved in responding to routine discovery, and they were necessary to the conduct of the litigation because the notice procedure State Farm used was required by law and court order. Therefore, we conclude it was an abuse of discretion to order State Farm to bear the costs of the notice procedure and not award those costs to State Farm as a prevailing party.”
Presiding Justice Richard Huffman and Justice Gilbert Nares concurred in the opinion.
The case is In re Insurance Installment Special Fee Cases; 12 S.O.S. 6404.
Copyright 2012, Metropolitan News Company