$455 Million Farmers Group Settlement OK’d Over Objections

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Los Angeles, CA — A $455 million settlement in a long-running insurance class action was approved Wednesday, but the judge overseeing the case tentatively cut the requested attorney fees by 25 percent – and at least one objector to the settlement indicated an appeal could be on the way.

Los Angeles County Superior Court Judge William F. Highberger ruled that the settlement provided a "substantial benefit" to the 12.5 million class members who are current or former members of insurance exchanges connected with Farmers Group Inc.

The judge drew charts on his courtroom's dry erase board to show the risks attached to further litigating the case, stating there was "a real possibility of an all-or-nothing outcome."

Highberger set a Dec. 20th hearing to determine whether plaintiffs' lawyers in the case — led by the law firms of Girardi Keese and Engstrom, Lipscomb & Lack — were entitled to more than the $67.9 million in fees he awarded them. The proposed settlement, first announced in October 2010, called for plaintiffs' lawyers to net $90 million in fees. Any unclaimed money will go back to the exchanges, uner the terms of the deal.

The underlying lawsuit alleges Farmers unlawfully tacked on unnecessary and unfair management fees to the cost of various types of insurance policies. Fogel v. Farmers Group Inc., BC300142 (L.A. Super. Ct., filed Aug. 1, 2003).

Jerry Flanagan of Consumer Watchdog, who represents a class member who has objected to the settlement, said his group "will certainly be considering" an appeal of Highberger's decision.

Consumer Watchdog has expressed concern that simply returning the money to the exchanges rewards Farmers for its alleged bad behavior. Flanagan argued in court Wednesday that the money should go back to the exchanges, but with more restrictive conditions.

"The defendants won't agree to that," Highberger responded.

Flanagan said prior to the settlement agreement plaintiffs' lawyers had argued that Farmers controlled the exchanges. Now, in arguing the exchanges should get the unclaimed money, they "seem to be arguing that what they wrote… was wrong," he said.

So far, 2.5 million claims have been made as part of the settlement — a participation rate of more than 20 percent — with $150.3 million claimed at this point, Highberger said, calling it "an extraordinary take rate."

One member of the class who waived his claim in the settlement was Highberger's research attorney, whom the judge said refused the 8 cents offered to him as part of the deal.

The judge approved the settlement over the objections of several parties, including the state of Montana and the Center for Class Action Fairness, a Washington, D.C.-based advocacy group led by attorney Ted Frank.

Ralph C. Ferrara of Dewey & LeBoeuf LLP, who represents Farmers Group, blasted as "outrageous" any insinuation that the attorneys in the case had colluded in a scheme to pad their own pockets.

Speaking after the hearing, Walter J. Lack of Engstrom, Lipscomb & Lack said he was "a little disappointed" with Highberger's view on the attorney's fees, saying his firm had been awarded "far higher" fees in similar cases.

Highberger rejected an earlier suggestion by Consumer Watchdog that any unclaimed money go to California's cash-strapped court system, ruling it would be a conflict of interest. He also dismissed suggestions that the money go to charity.

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