Insureds After COVID Premium Cuts Must Ask State Regulator First, Judge Rules

Insureds After COVID Premium Cuts Must Ask State Regulator First, Judge Rules

2020-10-26 14:17:10

A federal judge has ruled that State Farm Fire and Casualty Co. no need to pay back premiums to a small business customer because of the insured's reduced sales during the pandemic.

The Missouri judge ruled that the prosecutor, Alissa’s Flowers Inc., must first exhaust administrative remedies through the office of the state insurance commissioner before seeking legal remedy.

In July, Alissa’s Flowers sued in Western Missouri Federal District Court that State Farm overcharged the company by requiring it to pay insurance premiums that did not reflect the changes in its business operations during the COVID-19 pandemic. Alissa’s Flowers argued that the insurer was required to adjust its premiums in response to reduced business activity under the terms of the insurance policy.

Alissa’s Flowers made allegations of breach of contract, breach of good faith and fair dealing, unjust enrichment, money received and received, and declaratory and coercive measures.

However, State Farm filed for and won a dismissal, arguing that the court had no jurisdiction because Alissa's Flowers had not exhausted administrative remedies before filing her complaint.

State Farm's commercial victims policy covered the period from March 5, 2020 to March 5, 2021. On March 13, 2020, a national emergency was declared in relation to the outbreak of the coronavirus disease. The Missouri governor also declared a state of emergency on the same day and issued a stay home order about a month later that lasted until May 3. On April 16, the county health department issued an order to stay at home. closure of all non-essential businesses. Alissa's flower shop was closed to the public from March 16, 2020 to May 11, 2020. The florist said this closure resulted in a loss of $ 100,000 and less exposure than envisaged in the policy.

Alissa's Flowers claimed that the policy required State Farm to lower its premiums in response to its reduced business activity based on three policy conditions: (1) State Farm reserved the right to increase premiums, indicating that the policy is subject to change ; (2) the policy requires State Farm to conduct a premium audit during the policy period and refund unearned premiums; and (3) the policy requires State Farm to reimburse all premium credits due to policyholders.

State Farm alleged that Alissa’s Flowers is challenging its insurance rates and rating system and therefore must file its claims with the Missouri Department of Insurance to exhaust administrative remedies before filing a complaint with the court.

Alissa's Flowers argued that her claims challenged State Farm's premiums, not rates, and therefore it was not required to exhaust administrative remedies under the Missouri Insurance Act “because the DOI has no authority to set premiums for commercial regulate accidents. "

Alissa’s Flowers also argued that even if it disputed State Farm's tariffs, it was not required to exhaust administrative remedies because of the wording that a plaintiff can & # 39; submitting to the DOI indicates that administrative procedures are permissible.

However, Judge Brian Wimes found that Alissa & # 39; s Flowers' complaint described the direct impact of State Farm's rules and rates on premiums paid and would have paid fewer premiums had State Farm audited and paid the premiums accordingly. had adjusted. The judge said this assumes State Farm would have applied a lower rate that took COVID-19 into account when calculating a reduced premium. According to Alissa & # 39; s Flowers' own claims, the premiums are thus & # 39; inseparable from State Farm & # 39; s rules and rates. The policy also illustrates a close relationship between State Farm's rules and rates and the premiums paid by Alissa's Flowers by stating that State Farm's premiums are & # 39; calculated based on the rates in effect on the when the policy was issued. The florist similarly alleged a breach of contract against State Farm based on overpaid premiums under the policy.

The court concluded that Alissa's Flowers' claims essentially "challenge State Farm's rates, rating plan, rating system and underwriting rules" at the time the policy was issued.

The judge also confirmed that Missouri law requires parties to exhaust their administrative remedies before a court can act. "While the legal language indicates that an insured can choose whether to use the complaints procedures outlined, the Court holds that an insured must use the administrative procedure if he wants to pursue a judicial review," wrote Judge Wimes.

Because Alissa’s Flowers had not exhausted administrative remedies for the DOI, the court upheld State Farm's motion to dismiss.

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