AUSTIN, TX – Thousands of Farmers Insurance's Texas policy holders will probably miss out on a proposed $455 million settlement in a national class action lawsuit that accused the company of illegally inflating auto and homeowner rates by charging excessive management fees.
The case, which started out in a Texas court several years ago, is now before a superior court in California. A leading consumer group is arguing that most policyholders are unlikely to file for a refund because of the application process, but a judge is expected to approve the settlement before the end of the year.
Less than a quarter of eligible Farmers customers have applied, with a Dec. 6 deadline looming. Any unclaimed settlement funds will be turned over to Farmers subsidiaries that will decide how to use the money to benefit policyholders.
Texas customers of Farmers are estimated to receive up to 20 percent of the settlement, or around $90 million, according to attorneys. Individual policyholders could receive checks for up to $60, but only if they have been sent an application form and file it with a Minnesota company handling the settlement claims. The average refund is about $25.
A "fairness" hearing on the settlement will be held Nov. 9 before Los Angeles Superior Court Judge William F. Highberger, who will listen to arguments for and against the proposal, which includes $455 million in refunds plus $90 million in attorney fees.
The national class action case was handled in California because of similar complaints against the company there and because Farmers – owned by Zurich Financial Services of Switzerland – has its headquarters in California. The original case in Texas has been on hold since 2007 pending the outcome of the California suit.
"We strongly believe this is a fair and reasonable settlement agreement for all sides. We look forward to the conclusion of this case," said Mark Toohey, a spokesman for Farmers. The company has denied any wrongdoing and has said it decided to settle to "provide certainty to its shareholders and clarity to its customers, as well as to avoid the risks and significant expense of continued litigation."
Consumer Watchdog, a California-based group, was allowed to intervene in the class action case and has been leading opposition to the settlement. Attorneys for both Farmers and the various plaintiff groups – including those from Texas – have urged the judge to give final approval to the deal.
Former Texas Insurance Commissioner J. Robert Hunter contended in a court document that the proposal will do little for consumers, particularly if all of the unclaimed money goes back to Farmers subsidiaries.
"It is highly unlikely that Farmers would voluntarily return unclaimed settlement funds to policyholders in the form of lower rates or other benefits," Hunter told the court. "It is simply not how they operate."
He added that unless the court orders the subsidiaries to distribute the money to policyholders harmed by the insurance company, "the settlement will be largely meaningless."
An attorney for Consumer Watchdog, Jerry Flanagan, said that nearly $350 million of the $455 million in refunds is unclaimed and would go back to Farmers subsidiaries under terms of the settlement. The subsidiaries are the same entities that were once accused by the plaintiff attorneys of paying excessive management fees to the parent corporation of Farmers, he said.
"Only a small percentage of their policyholders will submit a claim, and the company knows that. It's ridiculous to require that their policyholders and former policyholders fill out and send in a claim form when Farmers could simply send them a check," he said. "Farmers knows exactly how much it owes each of
them. Instead, it has supported creation of a system where few people will participate."
Flanagan said policyholders who fail to take any action – as well as those who applied for a refund – are barred from recovering any refunds for related overcharges by Farmers. Aug. 18 was the deadline for policyholders to opt out of the settlement.
"The defendants are getting released from claims for a whole range of potentially illegal actions in California, Texas and around the country," he said.
In addition, some Farmers customers in Texas can't find out if they qualify for a settlement because agents have been told by the company not to discuss the case or give out information. They have been referred to the Minnesota firm handling the claims, which relies solely on customer information furnished by Farmers.
Austin attorney Joe Longley, who represented one group of plaintiffs from Texas, said Farmers customers are better off with the California proposal than the original settlement of $117 million that was hammered out by Farmers and former state Insurance Commissioner Jose Montemayor in 2002.
The agreement came after the company had threatened to pull out of the Texas home insurance market because of massive losses from mold claims. Company officials also were stinging from repeated attacks by Gov. Rick Perry, who made Farmers his favorite target in his 2002 campaign.
The original settlement included rate reductions, premium refunds, higher discounts and miscellaneous refunds. Longley and his clients challenged that settlement, contending the amount was inadequate. Longley eventually had his Texas clients participate in the California case.
"We objected to the Farmers settlement as not being nearly enough, and as a result, the national class action case evolved out of the Texas case," Longley said.
"Texas policyholders are getting a better deal with this [California] settlement because it is real money as opposed to credits or future reductions in rates," he said.
Once the settlement is approved, Travis County District Judge Scott Jenkins will convene a hearing in Austin to determine if any further action is needed in the Texas case. The last significant ruling occurred in 2007, when the Texas Supreme Court sent the case back to district court so that Longley's clients could raise their objections to the original agreement.
Aides to Attorney General Greg Abbott, who did not participate in the California case, declined to comment on the national settlement. But the attorney general represents the state insurance department in the Texas case.
Another class action case affecting Texas policyholders of the company was approved in federal court in Oklahoma City last week for $40 million plus $8 million in attorney fees. That case involved faulty disclosures of premium discounts by Farmers.
AT A GLANCE
Farmers insures more than 700,000 homeowners in Texas.
Settlement amount: $455 million
Policyholders eligible: 12.5 million
Policyholders filing for refund so far: 2.1 million (17 percent)
Claimed so far: $110 million (24 percent)
Claim form deadline: Dec. 6
SOURCE: Rust Consulting Inc.
How to apply:
Farmers policyholders insured by some of the company's auto and homeowner subsidiaries between Jan. 1, 1999, and Dec. 31, 2010, may be eligible for a refund from the $455 million settlement in a national class action case. Notices were supposed to be sent to all policyholders eligible for a refund, based on customer lists furnished by Farmers. Those seeking refunds must fill out an application form and mail it to the address below. For further information about the settlement, go to http://www.fogelsettlement.com. Policyholders can also call 1-888-538-5785 or write to: Farmers Group Settlement, PO Box 2422, Faribault, Minn. 55021.
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