Texas Appeals Court Reverses Farmers Settlement

January 21, 2005

Justice David Puryear with the 3rd 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 rates.

Texas Attorney General 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 eventually reached in November 2002 but has been on hold due to challenges in the courts.

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

“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 policy holders.”

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

The insurance department wasn’t the only party expressing disappointment in Justice Puryear’s ruling.

“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.

“The insurance industry and the Department have been working very hard over the past several years to stabilize this market and bring down rates. What occurred today is another unnecessary and self-serving holdup in that process.”

A TDI spokesperson said the department’s lawyers were in the process of reviewing the court’s opinion.

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