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State high court backs policyholders fighting Farmers Insurance Settlement

09:40 AM CDT on Saturday, April 28, 2007
By TERRENCE STUTZ / The Dallas Morning News

AUSTIN – A $117 million settlement between the state and Farmers Insurance Group went back to a state appeals court on Friday after the Texas Supreme Court issued a ruling that keeps alive a legal challenge of the settlement by unhappy Farmers policyholders.

In a 7-1 decision, the high court sent the case back to the 3rd Texas Court of Appeals to consider additional arguments of Farmers policyholders against the court settlement. The high court questioned the ability of the attorney general to fairly represent customers of the company.

At the same time, the court overruled objections by the policyholders and said Attorney General Greg Abbott could seek to have the settlement certified as a class action representing all Farmers customers in the state. Such a certification could invalidate most other claims against the company.

The mixed ruling means that half a million homeowners insured or formerly insured by Farmers will have to continue to wait for refunds in a case that has already been in court for more than four years.

Michelle Levy, a spokeswoman for Farmers, said company officials were pleased with the Supreme Court decision and "look forward to the next step in moving this along so we can implement the settlement."

Thomas Kelley, spokesman for the attorney general's office, said the high court affirmed the attorney general's authority "to protect residents from insurers that violate the law."

Texans "can rest assured that we will continue to vigorously defend and enforce laws that protect homeowners," Mr. Kelley said.

But Joe Longley, attorney for Farmers policyholders opposed to the $117 million settlement, highlighted the part of the Supreme Court decision that will give his clients a new opportunity to make their arguments before the 3rd Texas Court of Appeals.

"The settlement was woefully inadequate," said Mr. Longley, who argued that the attorney general cannot adequately represent consumers because he also represents the Texas Department of Insurance. The state agency, Mr. Longley said, is more interested in stabilizing the insurance market than obtaining a fair settlement for Farmers policyholders.

Mr. Longley and his clients, who are seeking class action status, intervened in the case in December 2002.

State regulators and Farmers reached the settlement in the fall of 2002 as the insurer was threatening to pull out of the Texas home insurance market because of massive mold losses and a lengthy dispute with the state over alleged overcharges. Gov. Rick Perry repeatedly attacked Farmers' practices in his 2002 race for governor.

The state insurance commissioner, appointed by Mr. Perry, finally struck an agreement with Farmers to resolve state complaints of excessive charges.

But shortly after the agreement was announced, policyholders represented by Mr. Longley challenged it, saying it was a bad deal for customers. A state judge initially upheld the settlement, but the Austin-based appeals court set that decision aside. The attorney general then took it to the Texas Supreme Court.

Alex Winslow of Texas Watch, a consumer group, said the high court ruling means that "a terrible settlement approved by the Texas Department of Insurance is not going to be shoved down policyholders' throats."

He also noted the attorney general will be required to follow certain requirements for a class action case, namely that actual Farmers policyholders must be consulted before the monetary agreement is final.

Under the original settlement, Farmers agreed to cut homeowners rates 6.8 percent in 2003 and refund 6.8 percent of premiums for the previous year. That represented $70 million of the $117 million settlement. The company also agreed to another $42 million in discount adjustments and $5 million in miscellaneous refunds.

Premiums were reduced 6.8 percent, or about $35 million, in 2003, leaving $82 million still to be returned to consumers.

-Copied without permission from Dallas Morning News

© 2007 The Dallas Morning News Co.

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