"That's not accurate," said Lee Smiertelny, claim manager for the company. "Only a portion of the settlement we made with them is a civil penalty and more than half represents reimbursement of investigative expenses."

He said the company settlement represented an effort to reach a compromise on extremely complicated issues, and "we think this compromise best serves our policyholders."

The settlement, Mr. Bernstein said, involved company actions concerning coverage rates for older homes, auto glass claims handling, and auto injury treatment claims.

State Farm's handling of auto injury claims has been the focus of a multi-state market conduct probe concerning its rejection of claims after questionable processing by two medical review firms. Mr. Smiertelny said he believed that investigation is ongoing.

Minnesota was not part of the multi-state probe and did its own investigation into the company's rejection of auto medical claims, said Bruce Gordon, a Commerce Department spokesman.

Mr. Gordon said State Farm paid the penalty amount before the announcement of the settlement.

The department said the settlement is the outcome of an 18-month examination. Mr. Bernstein said it was a fair settlement that avoided "extended litigation."

In the auto insurance area, the department said it examined 2,000 claim files. Before the settlement, it was alleged that the company pressured independent medical examiners to change their opinions to reduce the cost of personal injury protection medical claims made under the state's no-fault insurance law.

Officials said that under the terms of the settlement, State Farm has agreed to:

? Implement procedures that will prevent the company from influencing or changing the results of independent medical examinations by its employees or vendors.

? Halt the use of chiropractor examination reports to deny or reduce PIP benefits for non-chiropractic medical treatments.

? Stop forcing policyholders to litigate for benefits they are entitled to under the law.

? Provide all relevant medical records to the independent medical examiner prior to the examination.

? Cease disclosing personal or privileged information about the insured without written authorization.

? Hire an independent consultant who will review State Farm's procedures for no-fault personal injury claims.

Mr. Bernstein announced that the department investigation in this area turned up "allegations that other insurance companies are engaging in this same behavior" and he warned that "additional enforcement action may be necessary if these companies do not change their practices."

According to Mr. Bernstein, State Farm had claimed it set insurance rates based on the age of a home's electrical system when in fact it was based on the age of the building.

His announcement noted that state law prohibits insurance companies from charging higher premiums based solely on the age of the home--a provision designed to prevent discrimination based on geographic location--or "redlining."

Under the terms of the settlement, it was announced that State Farm agreed to continue its Utility Rating Plan discount but stop surcharging for the next policy period.

Premiums on homes that are 40-years-old or older will be reduced by 3-to-18 percent after the surcharge has been removed, the department said.

According to the state, there are currently 149,510 Minnesota State Farm policyholders that are being surcharged under the URP.

If State Farm elects to implement a new URP that would impose surcharges, the department said the settlement requires the company to comply with Minnesota law by providing supporting actuarial data based on the age of the home's utilities.

The settlement regarding auto glass, the department said, followed allegations that State Farm withheld funds belonging to glass shops by paying less than the "fair and reasonable market price" on more than 1,800 auto glass claims. Instead, State Farm paid a "network" price--typically 55 percent of the list price--it was alleged.

Based on a market survey required by state law at the time, the department said it determined a fair and reasonable price in hundreds of disputed claims submitted by State Farm, and that the company refused to pay that price.

According to the department, State Farm allegedly limited the ability of hundreds of Minnesota policyholders to select the glass vendor and, in effect, steered them to a shop that agreed to State Farm's pricing.

The company noted that State Farm has agreements with several hundred auto glass shops that make up its network, known as the "Offer and Acceptance Program."

Under terms of the settlement, the department said State Farm has agreed to pay auto glass shops at least 86 percent of the list price for auto glass claims received since July 27 and not yet paid in full.

Customers under the settlement will be able to use a glass shop not in the State Farm network as long as they obtain two competitive bids.

When a policyholder does not notify State Farm before the repair, State Farm will be responsible for obtaining three bids and paying the lowest amount to the glass shop chosen by the policyholder.

"State Farm made bad business decisions that penalized Minnesota insurance consumers," said Commissioner Bernstein. "This is a fair settlement of these three issues. It would be unfair to taxpayers if they had to foot the bill for extended litigation"