A Little Elm resident has filed a complaint with the Texas Department of Insurance and wants a refund after he says he was over-insured by State Farm and that, over the years, his policy has cost him thousands of dollars more than it should have.
In 1999, Peyton and his wife bought a quaint house that sits on five acres of land in Little Elm. The Peyton’s then chose to insure their home with State Farm, the largest insurer in Texas.
“When you talk to your insurance agents, you expect that they have your best interests in mind,” Peyton said. “And that’s what I expected.”
Peyton said, with that in mind, he did not question his insurance agent’s recommendation that his policy be written to cover a home with its living space of 1,600-square-feet to be covered for 2,400-square-feet. Peyton said his agent told him that by doing that he’d be “completely covered for the entire loan amount of my home.”
But therein may be the problem. Peyton’s total loan amount included the price of his home and five acres of land.
On State Farm’s website it states: “We recommend that you purchase an amount of coverage at least equal to the estimated replacement cost.” It also states replacement cost is not the market value of the home, the outstanding mortgage amount, the home’s purchase price or the cost of the land.
Peyton said he may have never known he was over-insured if he hadn’t switched to another State Farm agent, Eric Grunor, who told him he should be paying only $2,384 per year. At the time, Peyton said he was paying more than $3,200 per year.
Grunor said when the accurate square footage of Peyton’s house was used, and when he wasn’t writing a policy against the full loan amount that included several acres of land, the cost of the policy went down.
“So we adjusted his policy, and the premium was adjusted down as well,” Grunor said.
Peyton began adding up what he believed he overpaid over the course of 13 years – around $10,000.
“I was angry,” said Peyton, who filed a complaint with the TDI to see if his complaint could help him get a refund.
State Farm conducted an investigation into Peyton’s claim and told the TDI: “…this homeowner’s policy was written to cover the loan amount.”
That response raised a red flag with the TDI since Peyton’s loan amount covered both his house and his land – something State Farm’s own website said should not be considered as part of the replacement cost when considering coverage.
“We’re going to go back to State Farm again. I don’t like their response,” a TDI specialist investigating Peyton’s complaint told him in a voicemail.
State Farm told NBC 5 that a homeowner, not an agent, bears the responsibility of assuring a home is properly insured.
“Our agents work with customers to evaluate the amount of insurance for their needs, and suited to their preference,” State Farm spokesman, Gary Stephenson, told NBC 5 in an email. “Ultimately, it is the responsibility of the customer to choose the amount of coverage he or she wants. It may be for the amount paid for the home, or amount mortgaged, or appraised value of the home, or a lesser amount. The final decision rests with the customer.
But one internal memo obtained by NBC 5 may suggest the agent and the underwriter bear some responsibility. The memo stated: “…the agent and underwriter must carefully select the business we write. The business must be properly insured to value.”
In the end, Grunor left State Farm following a dispute, but said he believes an agent should partner with their customers to get the policy right.
“I think that’s our role as agents, is to make sure that our customers are adequately insured and they’re properly insured,” Grunor said.
State Farm’s investigation concluded it did nothing wrong. The company told the TDI that square footage is only one factor in “calculating replacement cost.” And Peyton’s wife signed the policy application that included square footage.
“We’re the largest insurer of homes in the state for a good reason.” Stephenson said. “We provide customer service that’s based on years of being there for our customers.”
The TDI said State Farm did not break any laws or violate the state’s insurance code, but TDI spokesman Jerry Hagins told NBC 5 it did appear Peyton was over-insured.
“The square footage error resulted in him buying more insurance than he needed,” Hagins said.
But Hagins said the insurance company is not required to verify the accuracy of a house’s square footage. That is a consumer’s responsibility.
The TDI recommends homeowners review their policies every year for issues with accuracy. Consumers can, and should, ask questions about their policy.
In an internal email, State Farm’s investigator warned Peyton’s case should be a reminder of “why it is recommended to agents to have reviews with their clients.”
But according to policy, “The burden is… on the client.”
That doesn’t sit well with Peyton who, as of this writing, has not received a refund.
“I feel like with State Farm, like the only difference [between] State Farm and God is God doesn’t think he’s State Farm,” said Peyton.