Cease and Desist Order Against State Farm Mutual Automobile Insurance Company

REGARDING the Automobile Insurance Rate Stabilization Act, 2003, S.O. 2003, c. 9 and the Insurance Act, R.S.O. 1990, Chapter I.8, as amended, in particular section 441                                               

AND REGARDING State Farm Mutual Automobile Insurance Company

CEASE AND DESIST ORDER

The Superintendent of Financial Services ("Superintendent") is of the opinion that State Farm Mutual Automobile Insurance Company ("State Farm") committed an unfair or deceptive act or practice by charging rates for coverages or categories of automobile insurance, regarding the application of the Graduated License Discount (GLD") and the Driver Inexperience Factor ("DIF"), that were not approved by the Superintendent.

State Farm waives the procedural requirements under section 441(2) of the Insurance Act ("Act") for a Notice of Intention to make an order and its right under section 441(3) to request a hearing.

TAKE NOTICE THAT pursuant to section 441(7) of the Act, and with the consent of State Farm, the Superintendent hereby orders that State Farm:

(A) Refund all current and former policyholders who were overcharged ("eligible policyholders") by a date and in a manner acceptable to the Superintendent.  The plan for refunding shall include the following features:   

(i) Eligible policyholders shall be refunded the amount that was paid in excess of the approved rate plus interest of 5% calculated annually from the date of the payment for the policy to the date the refund is issued.

(ii) Reimbursement shall be by means of a cheque and/or credit to the policyholder’s account. A letter in a form approved by the Superintendent shall be sent to the policyholder to explain why the policyholder received the refund.

(iii)State Farm shall begin to issue refund amounts on January 2, 2008, to eligible policyholders. Refunds are to be issued before, or at the latest on, July 1, 2008, including situations as outlined in paragraph A(iv) below.

(iv) In any case where the address of a former eligible policyholder is unavailable or a cheque sent to a policyholder is returned, State Farm will contact the policyholder’s agent to determine whether a valid address can be obtained or attempt to locate a new address from publicly available sources, on or before July 1, 2008.  If a valid address can be obtained, the refund cheque will be sent to that address before or at the latest on July 1, 2008.

(v) The amount, if any, representing the value of cheques that, as of December 31, 2008, have been sent and remain uncashed, or have been determined to be undeliverable, will be donated to charity.

(vi) State Farm shall maintain a database in and/or through which all accounting of funds in connection with this Order shall be administered, including full reconciliations of refunds payable, refunds paid, refunds outstanding (as applicable), and the amounts representing refund cheques that remain uncashed or are determined to be undeliverable in connection with this Order, including the total amount donated to charity (as outlined in paragraph A(v), above).

(B) State Farm shall not take any steps to recover amounts from current and former policyholders who were undercharged in connection with the misapplication of the GLD and DIF. 

(C) On or before December 31, 2008, State Farm shall provide the Superintendent with a written report specifying the details of its compliance with the plan for refunding in this Order, including a full reconciliation of the refunds payable, the refunds paid and the amounts that remain uncashed or are determined to be undeliverable. The report shall also address any other information relevant to compliance with the plan for refunding.

(D)On November 1, 2007, State Farms’ Chief Agent and Senior Vice President for Canada confirmed to the Superintendent, and the Superintendent accepted, that he is satisfied that:

(a) State Farm’s internal controls with respect to its operating processes have been reviewed and amended so that the deficiencies that resulted in, or permitted, the charging of unapproved rates when applying the GLD and DIF have been appropriately corrected; 

(b) State Farm’s internal control procedures include sufficient controls and checks to minimize or eliminate errors when manual intervention is required for the purposes of rating, classification and billing.State Farm will report the above confirmation to its Board of Directors, by way of its annual compliance reporting mechanism.

TAKE NOTICE THAT section 447(2)(b) of the Act provides that any person who fails to comply with any order made under the Act is guilty of an offence and liable on a first conviction to a fine of not more than $100,000 and on each subsequent conviction to a fine of not more than $200,000.

AND FURTHER TAKE NOTICE THAT section 447(4) of the Act provides that every director, officer and chief agent of a corporation who caused, authorized, permitted or participated in a corporationcommitting an offence, or who fails to take reasonable care to prevent a corporation from committing an offence, is also guilty of an offence and is liable on a first conviction to a fine of not more than $100,000 and on each subsequent conviction to a fine of not more than $200,000.

ISSUED AT Toronto, Ontario, this 20th day of December,  2007

 

Robert Christie
Chief Executive Officer and
Superintendent of Financial Services

TO:     

State Farm Mutual Automobile Insurance Company
333 First Commercial Drive
Aurora, Ontario  L4G 8A4

Attention:         

Mr. Robert Cooke, Chief Agent and Senior Vice President for Canada