Auto Insurance Discounts Challenged As Hidden Finance Charges

 

By KAREN BRANCH-BRIOSO
The Tampa Tribune

Published: Jul 11, 2007

TAMPA – Since 2002, lawyers for Michelle Reaume of Plant City have fought Progressive Express’ auto insurance discount for customers who pay their bill in one lump sum.

On Tuesday, they took the fight to the Second District Court of Appeal. They’re appealing a state agency decision that said the discount is not a finance charge for customers like Reaume, who – like most – pay their bill in installments.

In 2005, Hillsborough Circuit Judge Perry Little agreed with Reaume’s lawyers James Felman and Katherine Earle Yanes, who call Progressive’s paid-in-full discount a hidden finance charge beyond the 18 percent allowed by law.

In court filings, Progressive lawyers say the discount is no finance charge, but a break based on statistical proof that people who pay in full file less claims than people who don’t. The Office of Insurance Regulation, which oversees insurance companies in Florida, agreed on July 2.

In that decision, OIR Assistant General Counsel Diane Zecchino-Lukin wrote that the discount is part of Progressive’s premium and “not a premium finance charge.” Progressive spokeswoman Cristy Cote said the company was pleased with the OIR’s ruling and declined further comment.

Reaume filed a complaint with the OIR after the appeal court said the agency – not the circuit court – had first dibs on hearing the matter.

The distinction between premiums and finance charges is an important one. The OIR regulates insurance premiums. But state law sets limits on finance charges for people who pay their bill in installments – and allows those who are overcharged to sue in court. Today, those finance limits are $3 a month or 18 percent a year on the balance.

In 1999, Progressive Express charged Reaume the 18 percent, which amounted to an extra $16.47 on her six-month premium of $884. But since her premium was $49 more than the one charged to people who paid in full, Felman contends the effective finance charge was more than triple the legal limit. The paid-in-full discount varies by policy.

“They’re buying the same product,” said Felman, who believes the OIR decision will encourage other companies to offer the discount. “The only difference is…about wealth. Do you have the money to pay it in one check or not?”

Court documents show most Progressive customers did not – or chose not to. In the years from 1997 and 2003, 68 percent to 85 percent of their Florida customers paid their bills in installments.

According to OIR records, 36 companies offer a paid-in-full discount for private-passenger auto insurance. They’re in the minority, representing about 20 percent of the market. The Progressive companies offering the discount – Progressive American, Progressive Select and Progressive Express – are the largest providers in that group, covering almost 11 percent of the market.

Reaume’s lawyers filed the lawsuit as a class-action case. In the years from 1997 to 2003, the number of Progressive installment policies ranged from 221,535 to 547,828. Felman estimated potential damages to be $242 million, just for the difference between paid-in-full premiums and the higher premiums paid by installment customers.

In court files, Progressive’s lawyers wrote that if Reaume were to win, it would do nothing to lower auto insurance rates in the future.

“All that will happen is that those who pay in full will have to pay more, because Progressive will be forced to end the use of the paid-in-full discount,” they said.

After the circuit decision saying the discount was effectively a finance charge, Progressive asked the Second District Court of Appeal to intervene. The lawyers argued that since Reaume’s complaint dealt with a discount that was part of premiums approved by the OIR, it was the OIR and not the courts that should hear the complaint.

OIR General Counsel Steven Parton signed off on a friend-of-the-court brief agreeing with Progressive that his department had jurisdiction over the issue.

Through a public records request, Felman obtained e-mails between OIR and Progressive lawyers that showed the lawyers wrote the original draft for the brief.

“It’s outrageous they let Progressive write the brief for them so they could keep doing this to us,” Felman said.

Parton acknowledged OIR asked Progressive to write the first draft, which he said is generally the case when someone asks the department to file a brief: “Certainly, they sent us a draft with regards to this matter. We took the draft in, rewrote it…We signed off on a brief that had been rewritten by us.”

Parton said his office doesn’t often sign off on briefs for insurance companies it regulates. But since OIR’s jurisdiction was in question, he did.

“In this particular case, the company was correct,” Parton said. “If the company had been doing something wrong, we would not have been involved.”

Reporter Karen Branch-Brioso can be reached at (813) 259-7815 or at kbranch-brioso@tampatrib.com.

 

List of insurance companies in Florida that offer a paid-in-full discount for private passenger auto policies.

 

COMPANY NAME……………….. MARKET SHARE

Deerbrook Ins Co……………….. 0.123%
Encompass Ind Co……………….. 0.103%
Northbrook Ind Co……………….. 0.042%
Progressive American Ins Co……………….. 4.873%
Progressive Select Ins Co……………….. 4.127%
Progressive Express Ins Co……………….. 1.889%
Victoria Select Ins Co……………….. 0.152%
Titan Ind Co……………….. 0.007%
Victoria Fire & Cas Co……………….. 0.003%
New Hampshire Ind Co Inc……………….. 0.598%
National Union Fire Ins Co Of Pitts……………….. 0.355%
Insurance Co Of The State Of PA……………….. 0.331%
Illinois Natl Ins Co……………….. 0.248%
American Intl South Ins Co……………….. 0.133%
American Intl Ins Co……………….. 0.119%
American Home Assur Co……………….. 0.109%
AIG Centennial Ins Co……………….. 0.012%
AIU Ins Co……………….. 0.011%
Argus Fire & Cas Ins Co……………….. 0.000%
Mendota Ins Co……………….. 0.294%
Mercury Ins Co of FL……………….. 1.523%
Safeco Ins Co Of IL……………….. 0.878%
Safeco Ins Co Of Amer……………….. 0.254%
Infinity Auto Ins Co……………….. 0.709%
Infinity Ind Ins Co……………….. 0.285%
Infinity Select Ins Co……………….. 0.049%
Infinity Ins Co……………….. 0.028%
Infinity Assurance Ins Co……………….. 0.012%
Integon Ind Corp……………….. 0.388%
National General Assur Co……………….. 0.329%
Integon General Ins Corp……………….. 0.162%
Security Natl Ins Co……………….. 0.731%
Bristol West Ins Co……………….. 0.130%
Esurance Ins Co……………….. 0.794%
Dairyland Ins Co……………….. 0.475%
Peak Prop & Cas Ins Corp……………….. 0.037%

TOTAL MARKET SHARE 20.313%

SOURCE: Florida Office of Insurance Regulation

 

Find this article at:
http://www.tbo.com/news/money/MGBZ68DVY3F.html