Skip to content Insurance Policy Installment Fees Not Part of Premium If Under Separate Agreement


Search Publications

January 2013

Insurance Policy Installment Fees Not Part of Premium If Under Separate Agreement

Fees Charged by Insurer For Payment of Premiums In Installments Are Not "Premiums" Under California Law If the Installment Agreement Is Separate and Distinct From Policy

(December 13, 2012) __Cal.App.4th __; 12 C.D.O.S. 13642

The California Court of Appeal, 4th Appellate District, affirmed dismissal of a class action suit alleging that an insurer had unlawfully charged service fees to policyholders who paid for their insurance in monthly installments.

The representative class members were State Farm insureds who paid premiums in monthly installments and were billed a monthly installment fee. They alleged State Farm’s practice of not including installment fees on the declarations page violated Insurance Code §§381 and 383.5, which require a statement of the premium on the declarations page. The complaint further alleged State Farm’s failure to obtain the insurance commissioner’s approval of the installment fee violated Insurance Code §1861.01, which subjects insurance rates to the insurance commissioner’s prior approval.

State Farm demurred on the grounds the lawsuit failed to state a valid cause of action. The trial court agreed and entered a judgment dismissing the lawsuit.

The Court of Appeal affirmed the trial court’s judgment. The court relied upon two of its earlier decisions -- Insurance Exchange of the Automobile Club v. Superior Court (2007), 148 Cal.App. 4th 1281, and Troyk v. Farmers Group, Inc. (2009), 171 Cal.App.4th 1305. The installment fee in Automobile Club was not part of the premium because it reflected "the interest charged for the time value of money for the option of making payments of premium over time." In contrast, the fee in Troyk was part of the premium because it was "a service charge imposed for payment in full of the stated insurance premium for a one-month policy."

The Court of Appeal concluded the State Farm installment fee was similar to the Automobile Club installment fee rather than the fee in Troyk because State Farm’s fee was charged for making a true installment payment on the total premium owed for a six-month term of insurance coverage, whereas the installment fee at issue in Troyk was part of the total payment due for a one-month term of coverage. The court also noted that the subject policies did not provide policyholders with the option of payment premiums in installments, but rather required payment in full at the beginning of the policy periods. Moreover, because the installment agreements were separate agreements from the policy, State Farm did not breach the insurance contracts by granting policyholders the option of paying in monthly installments, subject to their agreement to pay the service fees. The court ruled, "Therefore, the installment fee is not an insurance premium or rate that must be stated on the declarations page or elsewhere in the policy under sections 381 and 383.5, or approved by the Insurance Commissioner under section 1861.01 et seq."

In addition, in the course of the litigation, the plaintiffs asked State Farm to produce documents identifying policyholders and policyholders’ payment histories. State Farm insisted that privacy notices should be sent to its policyholders. State Farm sent the privacy notices to its policyholders and asked the trial court to order the plaintiffs to pay State Farm the costs for sending the notices, which totaled more than $700,000. The trial court ordered that State Farm should bear those costs.

The Court of Appeal reversed the trial court’s order, holding the costs State Farm incurred in providing its policyholders notice of the plaintiffs' discovery demands were significant special attendant costs beyond those typically involved in responding to routine discovery, and necessary to the conduct of the litigation because the notice procedure State Farm used was required by law and court order. Therefore, the court concluded that it was abuse of discretion to order State Farm to bear the costs of the notice procedure and to not award those costs to State Farm as a prevailing party.

Click here for the opinion. 

This opinion is not final. It may be withdrawn from publication, modified on rehearing, or review may be granted by the California Supreme Court. These events would render the opinion unavailable for use as legal authority in California state courts.

This and other case bulletins, as well as other publications of Gordon & Rees LLP, may be found at


Jordan S. Altura