By refusing to accept a class-action insurance settlement against Farmers Group Inc., Montana will receive $1.2 million in the next month to spend on legal charity.
During news conference Thursday in Billings, Monica Lindeen, Montana’s commissioner of securities and insurance, said Farmers made customers go through a cumbersome process to claim their refund and that the insurance company’s subsidiaries got to keep the money that wasn’t claimed.
“We really felt that Montana policyholders were not being treated fairly by the class action settlement,” she said. “I’m very excited.”
After seven years of legal wrangling, Farmers settled the Fogel v. Farmers Group lawsuit last October by agreeing to pay $455 million to customers, plus $72 million to the plaintiffs’ attorneys. The company did not admit any wrongdoing.
But nationally, only about half of the company’s clients filed the lengthy form to claim a refund, and fewer than one-third of eligible Montanans did. That meant Farmers got to keep $3.4 million of Montana’s unclaimed share.
“In this settlement, the money went back to Farmers, which we thought was frankly ridiculous,” said Jesse Laslovich, chief legal counsel for the commissioner.
After Montana objected, Utah, Oregon, Indiana and Iowa joined the effort.
Billings attorneys John Heenan and Randy Bishop first brought the fairness issue to the attention of Lindeen and Laslovich, and they had only a couple of days to object.
“Of all the 50 states, only Montana, through Commissioner Lindeen’s leadership, (initially) got involved,” Heenan said.
Farmers refused to pay a larger settlement. So the Montana attorneys negotiated with about 20 law firms, mostly in California and Texas.
On Sept. 14, those attorneys agreed to pay $2 million out of their $72 million in fees to these five states. Because Montana was the first to object, it will receive the lion’s share of the money.
The $1.2 million will go to the nonprofit Montana Justice Foundation, which gives grants to other organizations providing legal services to Montanans who can’t afford to hire an attorney.
The organization’s budget has fallen 80 percent since 2007 because of low interest rates.
The foundation, formed in 1979, expects to have $400,000 to spend this year, so this one-time settlement is triple its current budget.
The foundation’s executive director, Amy Sings In The Timber, of Missoula, said the foundation’s board, which is meeting in Billings now, will discuss how to spend the windfall.
“We couldn’t be more thrilled,” she said.
Because Montana has only one million residents, the state often has only a handful of people participating in national class-action lawsuits, Laslovich said. But this Farmers case affected more than 160,000 Montanans who filed a claim by the deadline of December 2011.
In the lawsuit, customers alleged that Farmers was charging excessive management fees for auto, home and business insurance through some of its subsidiaries, called exchanges, from Jan. 1, 2009, through Dec. 31, 2010. The lawsuit claimed the exchanges then paid half of the fees back to Farmers.
Farmers overcharged an estimated 13 million customers by $9 billion, according to Consumer Watchdog. That means each customer paid an average of $692 in excessive fees and will receive an average settlement of $35, according to the consumer organization.
Individual payments will range from $20 to $400.