State Farm Insurance was slapped on Monday with a far-reaching state order that calls on the state’s largest insurer to refund $310 million to its Texas home insurance customers for overcharges dating back to 2003.

Texas Insurance Commissioner Mike Geeslin said that State Farm, which provides coverage to 1.2 million Texans, must pay up after fighting state regulators for several years to avoid the refunds that Geeslin and consumer advocates say are owed.

State Farm officials, who have said the company owes nothing, were not immediately available for comment. The company has 10 days to file an appeal, which could delay any refunds until the courts rule.

The refund amounts to 6.2 percent of policyholder premiums for customers insured by State Farm. Lloyds— the company’s home insurance arm – from September 2003 to August 2004. For customers insured from September 2004 to July 2008, the refund amounts to about 3.4 percent of premium for each year they were insured.

“The commissioner found State Farm Lloyds rates were excessive and is ordering State Farm Lloyds to pay refunds,” Geeslin said in a summary of his order released late Monday.

The amount that State Farm was ordered to pay was less than what the state’s public insurance counsel was seeking — about $1 billion — as Geeslin followed the recommendations of his staff for a lesser amount.

“There is evidence, there is law — and between the two, you come up with $310 million,” he said.

Alex Winslow, head of consumer group Texas Watch, called the order an insult to policyholders.

“This is a joke. There is no doubt this refund is a pennies on the dollar settlement,” he said, adding that he wouldn’t be surprised to see the case drag on another six years if State Farm appeals.

The decision is being closely watched in part because insurance could become a pivotal issue in next year governor’s race: U.S. Sen. Kay Bailey Hutchison has indicated she will make insurance rates a major part of her campaign to unseat Gov. Rick Perry.

The rate dispute, dating back to 2003, began when the insurance department ordered State Farm Lloyds and several other insurers to reduce their premiums because they were deemed excessive.

The order stemmed from an insurance reform law passed by the Texas Legislature that year that put home insurance rates under state control after a period of record premium increases.

State Farm, which was told to cut its rates by 12 percent, responded by suing the state.

In the most recent ruling, Geesling was told to convene a hearing on the overcharge allegations and listen to evidence from State Farm, the insurance department and the state’s consumer advocate.

State Farm attorneys had said during hearings this year that a refund totaling hundreds of millions of dollars could be “crippling” for the company.

The attorneys also noted that the insurer is still paying off a $1 billion loan made by its parent company six years ago to stave off bankruptcy.