Posted on: Friday, June 6, 2003

Suit accuses State Farm of charging too much

By Curtis Lum
Advertiser Staff Writer

Members of an 'Aiea condominium association yesterday filed a lawsuit accusing State Farm Insurance of overinsuring homeowners by more than $10 million.

The lawsuit was filed in Circuit Court by attorneys Thomas Grande and Robert Hatch on behalf of the Association of Apartment Owners of the Bougainville. The association is seeking an undetermined amount in damages. The suit also seeks to represent all other apartment-owner associations that were insured by State Farm.

State Farm spokeswoman Carolyn Fujioka yesterday afternoon said the company had not seen the lawsuit and could not comment.

The association is accusing State Farm of violating a state law that prohibits the sale of excessive property insurance. Since the association purchased the policy from State Farm in July 1984, the appraised value of the 141-unit townhouse complex has gone from $17.8 million to about $19 million, according to the lawsuit.

The lawsuit alleges that State Farm placed an automatic inflation clause in its contracts that increased the valuation of the property annually, and the firm's most recent valuation was $31 million. State Farm based its premium on the higher valuation, Hatch said, but was required to pay only for the replacement cost of the building, estimated at $19 million.

Grande and Hatch said the inflation clause cost the association thousands of dollars for excessive insurance coverage.

"State Farm was getting the benefit of higher premiums, while not having the risk of paying the limits of insurance," Hatch said. "It is illegal for an insurance company to charge premiums for a value higher than the replacement clause."