Cancelled car insurance refunds

Last month a California Court of Appeal overturned the Superior Court ruling in Streit v. Farmers Group, Inc. and allowed California consumers to pursue a lawsuit against Farmers Insurance for cheating customers out of fair refunds if they cancel their insurance policy. Consumer Watchdog’s attorneys authored a key “Friend of the Court” brief that laid the groundwork for the Appellate Court’s decision.

Consumers sued Farmers because when they cancelled their policy with the insurance giant, Farmers did not return all of their unused premium, but instead refunded substantially less. For example, if a customer pays $1,000 for six months of insurance but cancels the policy after three months, they would expect to be refunded $500, according to a pro rata calculation that is the default standard under the law. However, without providing any meaningful disclosure of its refund practice Farmers refunds substantially less than the pro rata amount.

As Consumer Watchdog explained in its amicus curiae brief :

Farmers failed to meet basic requirements governing all contracts by using ambiguous terms, which were nowhere defined or explained in the policy contract. Bearing the brunt of Farmers’ cancellation refund practices, and those of other unscrupulous insurers, are insurance consumers. Without the ability to accurately determine the amount of final premium they will pay for an insurance policy and the amount they will be refunded upon cancellation, insurance consumers are unable to enter the insurance marketplace with the information they need to comparison shop and have optimal consumer choice.

The Court of Appeal said that Los Angeles County Judge William Highberger was wrong to throw out the case because Farmers Insurance failed to properly explain or even disclose the costs customers would face. The case has been sent back to Judge Highberger to enter a new order overruling Farmers motion to dismiss the case and to conduct further proceedings on the merits of Plaintiffs claims.

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