State Farm Insurance has entered into an agreement with the Vermont Department of Financial Regulation (DFR), to settle claims that the company improperly calculated life insurance interest payments – which led to underpayments for over 500 policy beneficiaries.
Under the terms of the settlement, State Farm will have to pay $204,000 as an administrative penalty, and another $30,347 in restitution to the affected beneficiaries. In addition, the insurer is required to implement a corrective action plan to ensure that it complies with Vermont law, Vermont Business Magazine reported.
State Farm will be subjected to a DFR audit to verify that the corrective processes have been properly implemented.
“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 DFR commissioner Michael Pieciak in a statement. “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 review of State Farm’s life policy found that the insurer’s policy form did not contain reference to Vermont’s death benefit interest rate. The review also determined that State Farm was unable to certify that the proper interest had been paid during the prior six years. The review came to the conclusion that 569 claims were underpaid based on an erroneous interest rate.