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California court says State Farm can't hide business data from the public

The State Court of Appeals in San Francisco has ruled that State Farm Mutual Automobile Insurance Co. can't prevent the California Department of Insurance (CDI) from releasing the company's business data sorted by ZIP code to the public.

Redlining

Redlining is the unethical practice of refusing to offer insurance to someone due to age, race, or location. It is called "redlining" because in the past insurers allegedly actually drew red lines on maps to indicate the geographical areas in which they wouldn't sell insurance.

On Oct. 17, 2001, the court rejected a lawsuit filed by State Farm that claimed the company's business data sorted by ZIP code contain "trade secrets" that the CDI has no authority to publicly disclose without the insurer's consent. The court's decision upholds a similar ruling made last year by the San Francisco Superior Court.

State Farm's lawsuit started in December 1999 when it sued then California Insurance Commissioner Chuck Quackenbush and consumer advocate Birny Birnbaum after Birnbaum received the business data sorted by ZIP code from the CDI and confronted the insurer with the documents in litigation in Texas. The documents were State Farm's quarterly market reports on auto insurance business in Texas, sorted by ZIP code. Birnbaum used these documents to allege that State Farm was not actively selling insurance in inner-city areas, a practice referred to as redlining.

State Farm's lawsuit sought to force Birnbaum to return the data to Quackenbush and to prevent him from handing it over to any other member of the public. The San Francisco Superior Court dismissed all of State Farm's claims against Birnbaum. In September 2000, the San Francisco Superior Court rejected State Farm's lawsuit against Quackenbush.

Attorneys for several of the state's consumer advocate organizations praise the decision and say it is the first appellate court decision in the nation to conclusively decide that insurers' data that are sorted by ZIP code should be made public. This data are seen by some as a evidence of "redlining," or avoiding the sale of insurance policies in certain low-income or minority neighborhoods.

"The law makes these redlining filings public, not secret as State Farm desperately hoped," says Mark Savage, an attorney with Public Advocates, a public interest law firm, and lead counsel for the case.

"We're really surprised and saddened by the decision," says Brenda Smith, State Farm's public affairs manager in California. "We have serious concerns about protecting our customers' information going forward."

Smith says State Farm is evaluating the ruling and does not yet know whether the company will choose to respond or how. Until the court officially enters its decision into court records, a temporary stay preventing disclosure of the data will remain in place.

What State Farm doesn't want you to know

Since 1995, all companies that sell auto, home, or small business insurance in California have been required to file business data sorted by ZIP code with the CDI, according to Public Advocates and Consumers Union, the publisher of Consumer Reports. The data include race and gender of policyholders, the number of policies sold and canceled, and the location of offices and agents, all sorted by ZIP code. It does not include customers' names or addresses.

Since 1995, all companies that sell auto, home, or small business insurance in California have been required to file insurance data sorted by zip code with the CDI.

Each year, the CDI issues a report summarizing all insurers' data filed for the previous calendar year. However, it is impossible to pinpoint where individual insurers may be engaged in redlining, says Savage, because the CDI only summarizes each insurer's record in all "underserved" (typically low-income, minority) ZIP codes combined. "We can be talking about hundreds of ZIP codes," says Savage. Despite the limited usefulness of these summaries, says Savage, the data that is available to the public is still "pretty damning."

For example, in 1995 approximately 16 percent of California's population lived in underserved communities, but State Farm's data reveal that the company had only 3 percent of its agents in underserved communities combined. It doesn't end there, Savage says. While the average insurer wrote only 6 percent of its auto policies, 7 percent of its home insurance policies, and 10 percent of its commercial policies in underserved ZIP codes, "State Farm's record was even worse."

According to Public Advocates, 1995 CDI data reveal that State Farm issued only 4 percent of its auto policies, 6 percent of its home insurance policies, and 9 percent of its commercial policies in underserved ZIP codes. State Farm's lawsuit, originally filed in 1999, sought to keep secret whether these percentages fell even further in specific low-income, minority ZIP codes such as inner-city Oakland and inner-city Los Angeles.

"We are pleased that the court has upheld the public's right to know," says Betsy Imholtz, director of the West Coast Regional Office of Consumers Union. "Disclosure of redlining data for all companies is essential so that we can identify which insurers may be violating the law."

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