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The "Farmers Insurance News-Alert" website is dedicated to providing the consumer and general public with detailed information concerning the Farmers Insurance Group. This includes fraud reports, consumer complaints, lawsuit's and other legal actions taken against this company. All information contained herein is for educational purposes only. Original sources, when known are sited.

 

AUTO INSURANCE

Class-action settlement was a travesty


There was only one real winner in the recent $35.7 million settlement of a class action suit against two of Texas' largest auto insurers. That was John Cracken of Dallas, the class action lawyer who filed the suit. He will reap about $10 million in fees, some of which will also go to the small army of media flacks and others who helped him. Policyholders will reap $5.75 each - less than the price of a single movie ticket. If ever there was a suit that exposed the deficiencies of class actions, this is it.

Mr. Cracken sued the Farmers and Allstate insurance companies, alleging that their practice of double-rounding insurance premiums was a rip-off of consumers. (The practice involved the rounding of both the annual and semi-annual premiums paid by most motorists.) He was right. The practice was a rip-off. The extra few cents exacted per consumer amounted to a windfall for the companies.

But the insurers produced evidence indicating that Texas regulators had forced them to do it, and Texas Insurance Commissioner Elton Bomer admitted that his department (years before he assumed his post) had consistently advised the insurers to double-round.

The apparent complicity of Texas regulators is why there never should have been a class-action suit in the first place. The offending practice should have been corrected administratively by the insurance department, not by a hand-picked South Texas court known for its sympathies to plaintiffs.

The settlement seems even more sour when one takes into account the following: Mr. Bomer's actuaries have calculated that only about $10 million of the $25 million set aside for policyholders will be paid out. That's because people who held policies before 1995 and are no longer with either insurer must request their refunds in writing. So much for defending consumers' interests.

While there is only one winner, there are many losers. They are the policyholders, who in time will pay with higher premiums the cost of this wretchedly excessive and unnecessary affair.

 

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