AUSTIN - Texas Attorney General John Cornyn today announced an agreement with GEICO, a major auto insurer. GEICO has agreed to return approximately $500,000 deducted from Texas policyholder claims when damaged auto parts were replaced by newer parts.
In February, Cornyn sued 88 other insurance companies, alleging that this practice, called "betterment", is illegal under the Texas auto policy. GEICO was not sued because the company quickly agreed to change its practices and refund money to its policyholders. Cornyn and GEICO formalized their agreement in an Assurance of Voluntary Compliance ("AVC") filed today in Travis County District Court. In addition to GEICO policies, the settlement also covers Colonial County Mutual Insurance Company policyholders whose policies were reinsured by GEICO.
"GEICO cooperated with our investigation from the very beginning and is serving its policyholders well by changing its practices and agreeing to issue refunds," Attorney General Cornyn said.
"Betterment" is an insurance industry term for increasing the value of a vehicle by paying to repair it with newer or better parts, equipment or finishes. For example, if your engine is damaged in a collision and your insurance company decides to replace it with a newer engine, some companies deduct an amount for betterment or depreciation on the claim payment. The standard Texas auto policy does not expressly allow for such a deduction, and a 1998 Austin Court of Appeals opinion and a recent bulletin from the Texas Commissioner of Insurance indicate that these deductions are improper.
Under the agreement, GEICO will refund any depreciation or betterment deducted, plus interest, to Texas GEICO policyholders who made auto repair claims against GEICO from January 1, l996 to the present. The average refund amount, including interest, is estimated to be about $150. GEICO will mail refunds to eligible policyholders who made a repair claim from October 1, 1997 to the present. GEICO policyholders who made auto repair claims between January 1, 1996 and September 30, 1997, and whose claims payments were reduced for betterment or depreciation, must contact GEICO at 1-800-841-5432 ext. 1709 and will receive a refund after verification of their claim. Current policyholders should be receiving notice of the settlement in their policy renewals this year, but all persons who think they may have a claim are encouraged to visit GEICO's website at www.geico.com for further details.
GEICO agreed that the settlement will not affect its insurance rates. The AVC does not require GEICO to admit liability or wrongdoing of any kind. Under the settlement, GEICO will also pay $50,000 in attorney's fees and investigative costs to the Attorney General's office.
The investigation was handled by Assistant Attorney General Jim Wenzel in the Insurance Practices Section of Cornyn's Consumer Protection Division.
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