AUSTIN – Will refund checks for nearly a million State Farm customers – who've already waited 3 ½ years – be in the mail anytime soon?

Regulators at the Texas Department of Insurance say they're determined to make that happen, contending that the state's largest property insurer has been overcharging its customers for homeowners coverage since 2003. Experts estimate that the company owes Texans more than $600 million once interest is added.

But State Farm says no such refunds are due. The company insists its rates are fair and is fighting the state in two courts to prove it.

As both sides await a key court ruling, lawmakers who watch the issue say this isn't what they intended when they enacted a law four years ago that put home insurance rates under state control.

And one House leader is looking for ways to resolve the fight – and prevent drawn-out cases in the future.

"It's ridiculous that we have gone on like this for three or four years with no end in sight," said House Insurance Committee Chairman John Smithee, who sponsored the overhaul. "That was the flaw in the new system we approved – and it was a pretty glaring weakness."

Mr. Smithee, R-Amarillo, met recently with attorneys for the Insurance Department and the attorney general's office to see whether something might be done to get relief for State Farm customers. But the state has limited options because the penalties for insurance companies fighting rate reduction orders are relatively mild. Those penalties were increased in 2005, but they don't affect the State Farm case that began two years earlier.

"There's not a lot of disincentive for a company that wants to drag out one of these rate cases," Mr. Smithee said, adding he is considering new legislation to prevent similar cases. Mr. Smithee said he suspects State Farm – which has one of the largest legal departments of any U.S. company – is hoping the state will eventually make an offer to substantially reduce what the insurer has to pay back to customers.

"They want to delay this process until they get a good deal from the state. But my advice to the commissioner of insurance is that he stand firm because this is one rate case that is going to set a precedent for a long time," he said. "If it comes down to either settling for less money or delaying some more, I would rather delay it to make sure State Farm policyholders get their money back."

A spokeswoman for State Farm said the rates charged by the company in 2003 were fair and competitive with what other companies were charging for homeowners coverage.

"We have always felt that our rates are fair and justifiable," Sophie Harbert said. "Our homeowner policy is one of the most comprehensive policies available in Texas – it is not a stripped-down policy."

Ms. Harbert also noted that State Farm had the lowest consumer complaint ratio among the top 10 insurance companies in Texas, according to Insurance Department figures. The company also argues that it has no obligation to pay under an order that was ruled invalid by the first court to hear the case.

A spokesman for the Insurance Department disputed that interpretation, saying nothing has changed in the state's assertion that State Farm has overcharged its customers and must pay them back.

"They are misrepresenting what occurred in court," said Jim Hurley of the Insurance Department. "What they won in court was a technical point that had nothing to do with the merits of the case. And the merits of the case have never been heard in court because State Farm had continued to use the courts to fight our order."

State Farm has been accused by the department of overcharging its million customers in Texas by about 12 percent dating to the fall of 2003. Estimates put the potential refunds at about $155 million per year, plus penalty interest of 10 percent.

State Farm Lloyds, the company's home insurance subsidiary, now charges an average of $905 a year for coverage on a 15-year-old, brick veneer home in Dallas with a 1 percent deductible and $40,000 coverage on contents. For a frame house with the same coverage, the annual premium is $1,086.

The initial case is now before the 3rd Texas Court of Appeals. Meanwhile, the insurance giant and the state are doing battle on another legal front as well.

Last summer, state Insurance Commissioner Mike Geeslin rejected a State Farm proposal to increase homeowner rates 23 percent in Dallas County and 11 percent statewide. A separate proposal for a 9 percent increase mainly affecting homeowners along the Gulf Coast also was turned down.

In addition, Mr. Geeslin slapped the insurer with an unprecedented order that places the company's rates under state supervision and bars State Farm from increasing premiums without prior state approval. The insurer is fighting it, and the State Office of Administrative Hearings, which conducts court hearings on legal disputes for other state agencies, is considering the case.

Consumer groups are watching closely, and they agree with Mr. Smithee that the outcome could affect insurance rate regulation in Texas for a long time.

"All their customers are still being overcharged because the company is still charging excessive premiums," said Alex Winslow of Texas Watch, who contends that customers of other insurers also are being overcharged for home insurance.

"Basically, insurance rates leveled off at an inflated level [in 2003] and never came down even though companies have seen record-breaking profits since then," he said.

Mr. Winslow said the State Farm case and the rates being charged for homeowners insurance are a clear signal that lawmakers have more work to do on the issue.

He also said the long-running battle over State Farm's rates threatens to send a message to other companies – "Why not drag it out and hang on to your overcharges?"

But industry spokesman Jerry Johns said there are clear indications the home insurance market has improved for consumers in recent years even as the State Farm case remains unresolved.

"The market is more competitive, mold is no longer on the public's mind and companies are aggressively competing for best price and service," he said. "It is difficult to predict what will happen to rates in the future, but we believe they will continue to be stable and hopefully we'll see some decrease in rates over time."