AUSTIN, TX — Farmers Insurance agreed recently to a national class-action settlement that included up to $90 million in restitution for its Texas customers for homeowners and auto rates that were too high, but a related case may once again be revived in the state.
The Texas case – the first class-action insurance lawsuit ever filed by the attorney general's office – stems from a homeowners insurance rate dispute between the state and Farmers that first flared during the 2002 governor's race.
Gov. Rick Perry, then seeking his first full term as governor, repeatedly attacked Farmers for overcharging customers. Farmers conceded late that year and agreed to a package of refunds, rate reductions and discounts.
But a group of Farmers customers represented by an Austin lawyer jumped into the case, objecting to the settlement as inadequate. They eventually got their case attached to a similar class action in California that resulted in Farmers' agreeing to pay $450 million to policyholders in several states, including Texas. The court's order in that case was signed in December.
Now, a spokesman for Texas Attorney General Greg Abbott says the state will pick up its class-action case, which was left pending for five years while the California litigation proceeded.
Tom Kelley, a spokesman for Abbott, said the state needed to continue "its long-standing effort to hold Farmers Insurance accountable" for overcharging Texans.
Kelley said the outcome of the national settlement had nothing to do with the decision to resume the Texas case, other than that its resolution allows the Texas case to go forward. But the national settlement has been criticized asgiving too much money back to Farmers if homeowners don't claim it.
A spokesman for Farmers said the company was evaluating the Texas case and would work with state officials to try to resolve it.
"Farmers Insurance remains strongly committed to the proposed settlement agreement that we entered into with the state of Texas several years ago," said senior vice president Mark Toohey. He said that settlement was "fair and reasonable to all involved."
"It is important to remember that the required final court approval of the proposed settlement has been delayed for several years due to appeals," Toohey said.
The original $117 million settlement included rate reductions, premium refunds, higher discounts and miscellaneous refunds for nearly half a million Farmers customers. The case was notable because it was certified as a class action – the first time an attorney general had used a 1973 state law allowing the office to
bring a class action on behalf of insurance consumers.
Meanwhile, the national settlement approved in California has been criticized by some as too favorable to Farmers. Just 30 percent of the $450 million in refunds – about $150 million – was claimed by Farmers customers in Texas and other states before the December deadline for requesting a refund.
Under terms of the settlement, the remaining $300 million will be given to Farmers subsidiaries – called insurance exchanges – which will decide how to use the funds to benefit customers.
Among those who came out against the settlement was former Texas Insurance Commissioner J. Robert Hunter, who contended in a court document that the proposal would provide little benefit for consumers, particularly if most of the unclaimed money went 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 said. "It is simply not how they operate."
An attorney for Consumer Watchdog, a California consumer group that intervened in the California case, also questioned the settlement and the decision of the plaintiffs' lawyers, who received $72 million in attorney fees, to support its provisions.
"This was an absolutely horrible settlement for everybody except the defendants and the attorneys," said Jerry Flanagan of Consumer Watchdog.
"One of the biggest problems is that three or four courts have already found that the defendant [Farmers] controls these exchanges in every way. The money that goes to the exchanges is really money that will go back to the defendant," he argued. "They need to give the money back to consumers."
Texas customers of Farmers are estimated to receive up to 20 percent of the total amount, or around $90 million, according to attorneys. Individual policyholders could receive checks for up to $60 but only if they were sent an application form and filed it with a Minnesota company handling the claims. Those settlements will go forward, even though the attorney general is keeping the Texas case alive.
Farmers officials have defended the settlement as "fair and reasonable" for all sides.
While the class-action suit accused the insurer of illegally inflating auto and homeowner rates by charging excessive management fees, the company has denied any wrongdoing.
In a statement explaining its support of the settlement, Farmers said it "decided to bring this matter to a close by settling this case in order to provide certainty to its shareholders and clarity to its customers as well as to avoid the risks and significant expense of continued litigation."
The Texas case is before state District Judge Scott Jenkins in Travis County. The Texas attorney general's office did not participate in the California case.
Farmers insures more than 700,000 homeowners in Texas.
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