Texas Appeals Court Reverses Farmers Settlement

Justice David Puryear with the Third District Court of Appeals in Austin, Texas, on Jan. 21 struck down a $117.5 million settlement Farmers Insurance Group reached with the state in 2002 over homeowners insurance rates.

Then-Texas Attorney Gen-eral John Cornyn filed suit against Farmers in 2002 at the request of the Texas Department of Insurance, alleging the company had overcharged its customers using unfair and discriminatory practices. A settlement was reached in November 2002.

Several Farmers policyholders reportedly went to court to block the 2002 settlement believing it didn’t go far enough in providing rate relief to Farmers homeowners customers.

According to court documents, under the agreement Farmers was to lower “homeowners’ base rates by 6.8 percent immediately, refrain from increasing those base rates until August 31, 2003, and adopt nondiscriminatory discounts bas-ed on a home’s age and location and the insureds’ credit history.” Additionally, the company was to provide refunds and credits to its Texas homeowners policyholders.

“We’re disappointed in this,” Texas Department of Insurance spokesman Jim Hurley told the Associated Press. “A handful of class action attorneys have derailed a settlement that would have greatly benefited Farmers policyholders.”

The court noted that one of the main issues in the appeal of the settlement “was whether sections 17 and 18 of article 21.21 of the insurance code authorized the Attorney General to bring a class action suit without satisfying traditional class-action prerequisites, in particular, the appointment of a class representative who would adequately represent the interests of the class and whose claims were typical of the class.”

The court ultimately concluded that without certain “express statutory language” granting such authority, “the Attorney General cannot maintain a class action without satisfying the class-action prerequisites.”

“Something that could have saved Texas consumers millions of dollars has been tossed to the back burner just to the benefit of the plaintiffs lawyers,” said Sandra Ray, public affairs director for Southwestern Insurance Information Service.

Texas Insurance Commissioner José Montemayor said the department still has “several avenues open,” regarding the settlement, which dealt with the company’s rating practices. “I have not met with the attorneys to see which one we are going to use to bring it to closure, but bring it to closure we will,” he added.

Topics Lawsuits Texas Agribusiness Homeowners