State Farm ruling: Bar for trade secrets ‘absurdly low,’ advocates say

An appeals court on Monday backed State Farm’s bid to hide from the public how many home insurance customers it serves or cancels in Florida, leading consumer advocates to mourn a loss of transparency and accountability.

If there are no further challenges and competitors follow suit, the decision could wipe out public access to information about potentially all of the hundreds of property insurance companies in Florida’s Quarterly and Supplemental Reporting System, or QUASR. The state’s Office of Insurance Regulation, the losing party in the case, did not immediately issue a public statement.

The burden would fall on legislators to write a more rigorous standard than whether data has “independent economic value to others,” advocates said.

“The public needs the information to be able to understand the rates being proposed and try to intervene for relief when an insurer is using unfair or improper prices,” said Bob Hunter, director of insurance for the Consumer Federation of America.

The ruling also hides from the public any troubling matters like “redlining,” which can reflect unlawful discrimination against certain communities, he said.

State Farm failed to get a similar ruling a decade ago. This time an appeals panel backed a Leon County judge who found State Farm met the burden of the law as written, News Service of Florida reported.

“As to the central issue here — whether State Farm demonstrated that its data possessed independent economic value to others — the testimony of multiple witnesses supported State Farm’s case,” said Judge Timothy Osterhaus, writing the main opinion for a 3-o decision of the 1st District Court of Appeal. “A State Farm executive testified, for instance, that a competitor could use the data ‘to see where we’re actively growing. And then go someplace else deriving economic advantage by not having to invest marketing money where they know they can’t advance.’ ”

Despite its arguments in court, numbers have shown in the recent past that State Farm was not “growing” its homeowner business on a statewide basis at all, but perhaps did not welcome publicity that could hurt other lines of business including auto policies. Insurer advertising often emphasizes themes of trust such as being a good neighbor.

State Farm was once Florida’s largest property insurer but has dropped hundreds of thousands of homeowner policies in a major insurance crisis for the state. That helped swell the ranks of state-run insurer Citizens and smaller start-up companies in Florida.

In 2014, State Farm said it was “re-entering” the Florida homeowner market but dropped more than 40,000 customers, or more than 10 percent, in the year following that, The Palm Beach Post reported.

Last year State Farm said it was no longer talking to the newspaper because of its coverage of the issue.

“Thank you for reaching out, but unfortunately due to your consistent approach of continuously writing negatively about State Farm in your news stories, we are no longer responding to your inquiries,” spokeswoman Michal Brower said.

Proving that data provide “independent economic value to others” is a trivial hurdle to lock the public out of a state system that has been in place for years, said Birny Birnbaum, executive director of the Center for Economic Justice in Texas. He has participated in rate hearings and other insurance proceedings in several states including Florida.

“The fundamental problem is that the bar for ‘proving a trade secret’ is absurdly low,” Birnbaum said. “There is no harm to State Farm from release of these data and the so-called proof was simply assertions without any evidence.”

As for value to competitors, the information hardly represents advance warning of a marketing strategy, he said. QUASR numbers form a snapshot at least six months old, he said.

Yet the information has value to the public because it shows how many policies a company is adding, canceling or not renewing statewide and in individual counties, advocates said. Among other things, that allows consumers to judge how likely a company might be to stand behind or drop customers in a given market, which might be at odds with advertising or public statements.

Rates are regulated in part because many forms of insurance are required by law, such as with auto coverage, or by mortgage lenders or government agencies in the case of home insurance, advocates note. So there is a public interest in transparency about annual costs that are not far from taxes in the impact on a typical family.

Birnbaum called it “another loss for transparency and for the goal of public records laws — public accountability.”

Update: “The Office is in the process of reviewing the decision,” said Office of Insurance Regulation spokeswoman Amy Bogner.

 

 

State Farm: Auto business tied to Florida secrecy bid

References to ice cream and red herrings peppered oral arguments before an appeals court Thursday as State Farm and Florida regulators squared off on whether the company should be allowed to hide as a trade secret information routinely made public for years.

At issue is data virtually every other company in the state provides about how many home insurance customers it has — or is canceling. That information goes dark to the public if a lower-court ruling stands and competitors follow suit.

“A company cannot claim trade secret for something that is not new,” said Elenita Gomez,  representing the Florida Office of Insurance Regulation.

Circuit Judge James C. Hankinson
Circuit Judge James C. Hankinson

But State Farm’s lawyer told a three-judge panel at the First District Court of Appeal in Tallahassee the quarterly data is like a new “ice cream flavor” that has economic value. The company says it wants to avoid revealing its marketing strategy to  competitors.

“It  is of value to State Farm’s auto insurance business,” attorney Karen Walker said, noting many customers want to buy home and car policies from the same place.

The appeals panel is considering whether to uphold a ruling that State Farm can hide information  submitted to the state’s Quarterly and Supplemental Reporting System (QUASR). The system lags close to half a year behind real time, but shows  how many policies a company has statewide and in individual counties, and how many policies it has canceled or not renewed in each three-month period.

In the case initially filed in 2014, the company maintains its “associates spent valuable time and resources to determine how to best re-enter the market and have gone to great expense to develop its plans for identifying and rating risks.” It took its data off the public grid and went to court to protect the trade-secret status it declared.

But a wall of secrecy would also protect, say, a company that did not want the public to know about how many home insurance customers it was dropping as it tried to hold on to its car business. Trust matters a lot in insurance. Insurers collectively spend billions of dollars on advertising to reassure customers they are in good hands or dealing with good neighbors.

Despite the fact State Farm said it was “re-entering” the Florida homeowner market, it dropped more than 40,000 customers, or more than 10 percent, in the year following that, The Palm Beach Post reported.

State Farm was once Florida’s largest property insurer but has shed about half a million homeowner policies in the past half dozen years, making it a leading actor in a major insurance crisis for the state.

Leon County Circuit Judge James Hankinson ruled in May that State Farm’s information met the definition of trade secret in state statute.  Advocates saw scant consideration of  a public or consumer interest in transparency or accountability in a regulated industry. Instead, the judge wrote that a disputed issue was “whether QUASR data has value. The court finds that there is value to the QUASR data.”

If that is all it takes to knock down a state system in use for many years, it points to ridiculously weak wording in the law, Birny Birnbaum, executive director of the Center for Economic Justice in Texas, said after the lower-court ruling.

“At best, it shows that demonstration of a trade secret is trivial and the overly broad trade secret exemption to public information laws undermines public accountability,” he said.