When big insurance companies get caught cheating their customers, they get sued. We have seen big insurance companies seek protection from lawsuits, arguing that their rights as corporations exceed the rights of consumers. Recently, one insurance company attempted to cut a secret deal with the Department of Insurance eventually resulting in public embarrassment and bad press. However, we can expect to see this fight again in the coming Legislative session.
In September 2016, Texas Farm Bureau Insurance Company, the largest Texas-based insurer, discretely asked the Texas Department of Insurance to permit it to offer lower premiums to policyholders in exchange for a mandatory mediation-arbitration policy endorsement. Under the proposed endorsement, policyholders must settle any claim dispute through a mandatory mediation-arbitration procedure, the insurer will pre-select and pay the arbitration company, discovery is limited, and the results of the arbitration are secret.[1] Arbitration is a process for resolving disputes outside the courtroom. Unlike lawsuits, the decisions are made by a lawyer, rather than a judge or jury, and the arbitration outcome is binding and cannot be appealed.
A proposal like Texas Farm Bureau’s would inevitably put the policyholder, who may not understand the consequences of pre-emptively signing away their right to sue, at a huge disadvantage when it comes to settling disputes with deep-pocketed insurers. The policyholder’s statutorily guaranteed access to the courts would be stripped away all in exchange for a so-called reduced premium. To the contrary, the insurer would have the advantage of control by forcing all disputes into a biased arbitration where they hold the reins and hand select the arbitrator.
Texas Farm Bureau’s executive vice president Mike Gerik defended the insurer’s proposal, saying that if the endorsement was approved it would allow the insurer to continue operating in some parts of the state and give policyholders the opportunity to save money. Gerik said in a written statement, “[t]his endorsement will provide a choice for our members who want to continue coverage with our company at a reduced premium…We believe an arbitration endorsement is a fair and reasonable choice.”[2]
Texas Farm Bureau’s scheme soon became public causing an uproar. Texas Watch, a consumer advocates organization, began investigations and uncovered internal documents exposing the truth behind Texas Farm Bureau’s scheme and notes from a secret meeting between the Texas Department of Insurance, Texas Farm Bureau and lobbyist. Notes from that meeting showed that the alleged premium savings would match price hikes Texas Farm Bureau implemented in the targeted counties, and Texas Farm Bureau would call it a discount. You can read these internal documents at Texas Watch’s website at http://www.texaswatch.org/blog/internal-documents-reveal-bogus-discount. Once its sham was exposed, Texas Farm Bureau withdrew its proposed endorsement.
Texas policyholders narrowly escaped a major insurance company eliminating the right to sue. For now, Texas homeowners’ insurance policies do not include such provisions. However, the fight is not over yet. It is important that the Texas Department of Insurance continue practicing pursuant to its long-standing policy prohibiting the inclusion of mandatory binding pre-dispute arbitration clauses in residential insurance contracts.[3] As a policyholder in Texas, it is important to call your legislators and let them know that you want insurance companies held accountable in court, not in secret proceedings.
[1] See Texas Farm Bureau’s proposed “Mandatory Mediation-Arbitration Endorsement,” https://www.scribd.com/doc/314518382/Texas-Farm-Bureau-Insurance-Arbitration-Endorsement
[2] See “Statement by Mike Gerik, Executive Vice President of Texas Farm Bureau Insurance Companies,” http://media.click2houston.com/document_dev/2016/06/28/TFBIC_Statement_7205582_ver1.0.pdf.
[3] See “Review Requirements Checklist Residential Property,” Texas Department of Insurance, http://www.tdi.texas.gov/commercial/pcclhome.html (providing that arbitration must be voluntary and limited to post coverage dispute).
