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Farmers Insurance sues Texas over emergency rate freeze

Upping the ante in its tit-for-tat battle with the Texas Department of Insurance (TDI), Farmers Insurance Group is suing Texas Insurance Commissioner Jose Montemayor and the TDI in response to the TDI's Aug. 13, 2002, emergency cease and desist order that halted any further hikes to the insurer's Texas home insurance rates.

Farmers' lawsuit is just the latest volley in the ongoing battle between the insurer and Texas officials.

According to the lawsuit, Montemayor's cease and desist order against Farmers exceeds the authority vested in him by the Texas insurance code. Additionally, the lawsuit contends that the Texas insurance code exempts insurance "exchanges" from rate regulation.

Insurance companies that are owned by its members (who are also its insureds) are called "reciprocal exchanges." In Texas, Farmers operates as Farmers Insurance Exchange and Fire Insurance Exchange. See Why most Texas home insurers can charge whatever they like.

The lawsuit, filed Sept. 3, 2002, in Travis County District Court, asks the court to nullify the cease and desist order, as well as related disciplinary actions, and issue a permanent injunction against Montemayor and the TDI to prevent them from imposing any further rate freezes.

Montemayor, who is testifying before the Texas state Senate Committee on Business and Commerce on such insurance issues as mold, credit scoring, and medical malpractice, was unavailable for comment.

Farmers' lawsuit is just the latest volley in the ongoing battle between the insurer and Texas officials. On Aug. 5, 2002, Texas Attorney General John Cornyn filed a lawsuit against Farmers, alleging price gouging. Farmers' response to that lawsuit was to announce it will halt the sale of new home insurance policies in Texas after Oct. 31, 2002.

After the TDI issued its cease and desist order, Farmers said the TDI's actions reflect a "purely political agenda."

"We have become [a] personal political punching bag for the fall campaign and it is a terrible disservice to our policyholders, our employers, and, frankly, everyone in Texas."

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