Insurers lawsuit widens: Allstate, Farmers face class action

AUSTIN - A lawsuit alleging that Allstate and Farmers insurance companies overcharged their customers more than $100 million in the last decade was certified as a class-action case Thursday by a state judge.

The decision by state District Judge Amado Abascal of Zavala County means that up to 4 million current and former policyholders of the two insurers could get small refunds if the suit is successful. Both companies have denied the allegations and said they will appeal the judge's ruling.

"Millions of Texans are now in a position to receive the refunds they deserve from Allstate and Farmers," said Dallas lawyer John Cracken, who filed the suit claiming the insurers reaped financial windfalls through illegal billing practices.

"Allstate and Farmers must look their past and present policyholders in the eyes and explain why they do something which no other major insurance company does, and why they've refused the Texas insurance commissioner's demand that they stop."

Attorneys for both companies criticized the judge's decision, predicting it will be overturned on appeal.

"We are disappointed and we will appeal the order," said Tom Rogers, an attorney for Farmers, reiterating his company's position that the billing practices in question were approved by the Texas Department of Insurance. Mr. Rogers insisted the case should not have been made a class action because the issue properly belongs before the insurance department, which regulates the industry.Allstate attorney Roger Higgins said his company also will appeal to the 4th District Court of Appeals in San Antonio.

"This lawsuit, which was concocted by plaintiffs' attorneys to make themselves rich, should never have been allowed to go forward and certainly should not be certified as a class-action suit," Mr. Higgins said.

The lawsuit centers on the way Allstate and Farmers calculate premiums before they bill their customers. Insurers are allowed to round their premium bills up or down to the nearest dollar one time so that bills do not include any cents in the total. But Allstate and Farmers have been double-rounding in calculating bills - first the annual premium and then the semi-annual premium. They are still double-rounding bills despite orders from state Insurance Commissioner Elton Bomer to stop the practice. That double-rounding has produced an extra $57 million in the last 10 years for Farmers and an extra $52 million for Allstate, according to Mr. Cracken.

In his order approving class-action status on Thursday, Judge Abascal said that anyone who has had at least one policy with Allstate or Farmers from June 11, 1986, to June 11, 1996, could be included in the class of plaintiffs. In a related action on Thursday, Mr. Bomer heard arguments on a proposed rule that would end double-rounding and spell out how premium calculations are to be made. Mr. Bomer, who has acknowledged the companies may have been given bad information by the insurance department, is expected to approve the new rule in the next few weeks.

Mr. Rogers called the suit's allegations of more than $100 million in overcharges "wildly exaggerated."

"It is not even close to $100 million," he said, adding that a typical policyholder would receive only a few dollars if the suit were successful.

Mr. Cracken defended his estimates, and said the money belongs to policyholders no matter how much it is.

"Allstate and Farmers contend that they should keep the overcharges because individual refunds may total less than $50," he said. "That' s wrong. It's not Allstate's and Farmers' money, so they cannot justify keeping it."

Mr. Bomer said Thursday he has been disappointed that the two insurers have not heeded his demands earlier this year to stop double-rounding bills.

"I had no authority to make them do that, but I thought it was the right thing to do and that they should step up and do it," the commissioner said.

Company officials have said they will take no action until a new rule is in place, probably around Nov. 1. Farmers and Allstate are the second- and third-largest property insurers in Texas, with more than 25 percent of the total market. Farmers currently insures about 1.2 million drivers in Texas and Allstate insures about 560,000.