DFR reaches $230,000 settlement with State Farm for underpayment to life insurance beneficiaries

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DFR reaches $230,000 settlement with State Farm for underpayment to life insurance beneficiaries

Thu, 08/06/2020 - 4:13pm -- tim

Vermont Business Magazine On August 6, 2020, Commissioner Michael Pieciak announced the Vermont Department of Financial Regulation (DFR) entered into a settlement agreement with State Farm Insurance Company, of Illinois, for improperly calculating interest payments resulting in underpayments to over 500 life insurance policy beneficiaries. Under the terms of the settlement, State Farm will pay $204,000 as an administrative penalty and implement a corrective action plan to ensure compliance with Vermont law. The company also paid $30,347 in restitution to the affected beneficiaries.

“Our department’s top priority is protecting Vermont consumers and making certain they are fairly treated and get the full benefit of Vermont law and their insurance policies – I am proud our department achieved these goals under this settlement,” said Commissioner Pieciak. “I also appreciate that State Farm has worked cooperatively with our department, provided restitution, and committed to implementing a corrective action plan to prevent this from happening again.”

A routine review of State Farm’s form life policy determined that State Farm’s policy form did not contain reference to Vermont’s death benefit interest rate. Further, State Farm was unable to certify the appropriate interest had, in fact, been paid during the prior six years. It was later determined 569 claims were underpaid based on an inappropriate interest rate.

Under the settlement agreement, State Farm will strengthen its internal processes to ensure future compliance with Vermont law and the company will be subject to a DFR audit to verify these processes have been properly implemented.

DFR entered into similar insurance settlements in 2019 with CMFG Life Insurance Company and John Hancock relating to the underpayment of interest on death benefits, which combined totaled $1,031,000 in administrative penalties and $170,793 in restitution.

Commissioner Pieciak would like to recognize and thank the leadership of Deputy Commissioner Kevin Gaffney, as well as Christina Rouleau, Phil Keller, Isabelle Keiser, Marcia Violette, and Diane Sherman for their work on this matter.

Commissioner Pieciak also encourages Vermonters to contact DFR if they have a question, concern or complaint about their finances or at 833-DFR-HOTLINE or online at https://dfr.vermont.gov/consumers/file-complaint/insurance.

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Source: Montpelier, VT – Vermont Department of Financial Regulation 8.6.2020