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.

 

 

Judge erred in State Farm secrecy case, appeal says

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

A judge in Tallahassee relied “solely on the testimony of State Farm’s own employee” about the value of information the company wants to declare a trade secret and “misapplied” the proper definition under law, Florida regulators argued in an appeal this week.

If it stands, Leon County Circuit Judge James C. Hankinson’s ruling this spring would let State Farm — and potentially every other property insurer in the state — hide information that has been public for years about how many customers it has, or is dropping.

The trial court found only that the data had value to State Farm, but not independent economic value to others as required by law, argued Elenita Gomez and Shaw Stiller, assistant general counsels for the state’s Office of Insurance Regulation.

The court “misstated and misapplied the definition of a trade secret” in Florida Statutes, they wrote in a filing Monday with the First District Court of Appeal.

Attempts to seek comment from State Farm were not successful.

In May, a Florida spokeswoman said State Farm will no longer talk to The Palm Beach Post.

“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.

Information about how many customers a company has or has dropped, statewide and in various counties, is available for virtually every Florida property insurer in a public database known as QUASR.

Since 1995, insurers have been required to file this quarterly information with the state and it has been available as public records the entire time, regulators noted.

As The Post reported, State Farm was once Florida’s largest property insurer but dumped about half a million homeowner policies in the past half dozen years in a massive insurance crisis for the state. Insurance advertising often emphasizes themes of trust, such as being a good neighbor, but public access to data can offer another perspective — such as when a company is canceling or not renewing policies.

By 2014, State Farm said it was “re-entering” the market but needed to keep its customer counts in various counties secret so as to avoid tipping off competitors. It declared the information a trade secret. State Farm is the only major insurer not appearing in the state database since that time.

In court documents, 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. Because Florida is a competitive marketplace, many competitor insurers would like to have access to State Farm’s current data contained in the (state) reports, thereby potentially undermining the value of this work to State Farm.”

Yet The Post found the company actually dropped about one in 10 of its remaining customers, or about 40,000, in the year after it announced it was writing new business.

Consumer advocates have struggled to understand the trial court’s ruling.

It is “still hard to understand how information that had routinely been public could transform into a trade secret,” said Birny Birnbaum, executive director of the Center for Economic Justice in Texas. “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.”