Monday, March 31, 2008

Farmers Insurance Oklahoma Class Action

Court Authorized Notice to Oklahomans - Who Had Homeowner's Insurance Issued by Farmers - About Their Rights in a Class Action Lawsuit
By District Court of Comanche County, Oklahoma

LAWTON, Okla., March 31 --A statewide notice program authorized by the District Court of Comanche County, Oklahoma began today in order to issue notices to those who had homeowner's insurance issued by Farmers Insurance Company, Inc. and Farmers Insurance Exchange (the "Defendants") after June 14, 1994. The notices are a result of the Court establishing or "certifying," in August 2003, a class action lawsuit about whether the Defendants improperly withheld payments for general contractor's overhead and profit ("O&P") from amounts paid on claims under homeowner's insurance policies to citizens of Oklahoma.

The lawsuit is called Burgess et al. v. Farmers Insurance Company, Inc. et al., No. CJ-2001-292. The lawsuit includes all citizens of Oklahoma who were or are Farmers homeowners' policyholders who: (1) suffered a covered loss to their home from June 14, 1994 to the present; (2) whose loss was adjusted on an actual cash value ("ACV") basis; (3) whose claim files indicated the anticipated involvement of three trades or more in the repair of the property at the time of the ACV adjustment; and (4) whose ACV adjustment did not include a 20% payment for O&P. Generally, a claim was adjusted on an ACV basis if the initial payment from the Defendants for the covered loss had depreciation taken out. Depreciation is a decrease or loss in value that occurs because of age or wear.

The lawsuit says that the Defendants intentionally underpaid the homeowners' claims of thousands of Oklahomans by failing to provide them a payment for O&P. The Plaintiffs' claims are based on the contention that there is an industry standard three trades rule which requires payment for the services of a general contractor when three or more trades are anticipated in a home repair. The Defendants deny they have underpaid any homeowners' claims, or that they failed to provide homeowners insureds with any relevant information concerning coverage. It is the position of the Defendants that there is no industry standard three trades rule, and that the determination of whether, and when, O&P is reasonably likely to be incurred depends upon a number of different factors in addition to the number of trades. The lawsuit seeks money or benefits for the Class.

The Court has not decided whether the Class or the Defendants are right. The lawyers for the Class will have to prove their claims at a trial. The Court appointed the following lawyers from Oklahoma to represent the Class as "Class Counsel": Reggie Whitten and Michael Burrage of Whitten, Burrage, Priest, Fulmer, Anderson & Eisel; Jason Roselius and Derrick Morton of Nelson, Roselius, Terry, O'Hara & Morton; and Terry West and Bradley West of The West Law Firm.

Those who wish to remain members of the Class don't have to do anything at this time and will be informed about any claims process that results from the trial or any proposed settlement. Class members will be bound by all orders and judgments of the Court.

Class members may exclude themselves from the Class. To do so, they must mail a letter stating that they want to be excluded from Burgess v. Farmers Insurance Company, Inc., and include their name, address, telephone number, and signature. Exclusion requests must be postmarked by May 16, 2008, and sent to Burgess Exclusions, PO Box 6336, Portland, OR 97228-6336. Class members who exclude themselves from the Class cannot participate in any recovery for the Class, and will not be bound by any court orders or judgments.

For more information and a detailed Notice, Class members may write to the above address, or see the website at
Burgess v. Farmers Insurance Company (Oklahoma Class Action)

SOURCE District Court of Comanche County, Oklahoma

Plaintiffs: Derrick Morton of Nelson, Roselius, Terry, O'Hara & Morton, +1-405-705-3600; Defendants: Thomas T. Rogers of Jackson Walker L.L.P., +1-512-236-2030,

Friday, March 28, 2008

Prepairing To Deal With Farmers Insurance

I recently went through a grueling homeowners claim with Farmers and wanted to share the lessons I learned in hopes that it may help someone else. As a disclaimer, everything in this and subsequent posts are my opinion and are intended for informational purposes only.

Before my claim, the extent of my knowledge of my insurer was a basic comprehension of the Declaration Page of our policy and knowing when the premiums were due. After seemingly countless hours of research, hours which Farmers philanthropically provided us by trying to screw us for six months, I believe we know a little more now.

We were fortunate in the respect that my wife has an extensive accounting and computer background and I have an extensive construction background. Were it not for these factors, we might not have realized the CRT (Catastrophe Response Team) estimate was 110% low.

So, what does one need to know, when entering into a negotiation with Farmers?

First I would like to suggest a small visual aid exercise. Walk outside.Turn back and look at your home longingly. This will help you get used to the fact that you will not have your home for some time to come. Next, find the smallest pebble on your property. Take your time and look well for the smallest one. This will teach you patience. You will need this, lots and lots of it. Take your pebble and walk to a point where you are in front of the hardest wall of your home. In fact, circle the house many times. This will prepare you for Farmers answers to your questions. When you are in front of the hardest wall, throw the pebble at the wall. Pick a wall that was not damaged in your loss, because your policy clearly states that Farmers Insurance group will not pay for any subsequent damage, such as rats getting in through blown out walls and chewing wires, mold grown because of time delays in getting fair compensation for the loss, walls dented from thrown pebbles…that sort of thing. Walk over and pick up your pebble. Walk back to the point where you threw your pebble from. Throw it again. Repeat this process until you are at a point of frustration such as you have never felt before. Walk over and pick up your pebble. Throw it at the wall again. Repeat this process until you ask yourself in your very soul ‘why am I doing this?’ Walk over and pick up your pebble. Farmers will not pay for any cleanup not Directly related to loss damage.

Second thing in your preparations, gather your family around you. Hug them with passion and deep feeling. Look each one of them in the eye and assure them that anything you will call them five months from now, you do not mean it and sincerely regret doing so. Kiss each one of them good bye, as you will now be busy. Don’t forget to wish little Suzy well on those extended 6th grade projects she gets in preparation for Jr. High, that your should be monitoring her weekly progress on. Your life will now become about numbers, lots and lots of numbers.

This brings us to the Third preparation. Buy new, or put fresh batteries into an existing fully functional calculator. You will need it. Farmers, and this is only an opinion, does not buy new, nor puts fresh batteries into existing calculators. Become more familiar with Excel. It will help. Buy extra ink cartridges. Better yet, buy a laser jet. I could go on here about ALE (Additional Living Expenses) Worksheets, Xactimate Estimates, Supplemental Worksheets etc., but they will be addressed in later posts. Suffice it to say; before it’s all over, you may look at your calculator as you do your spouse, in both the good and bad ways. If that happens do not feel ashamed or guilty. Those feelings will pass.

Fourth, go to your favorite literary purveyor, and purchase a copy of ‘R.S. Means Residential Repair & Remodeling Costs’. Yes, it’s expensive. Yes, as you thumb through it in the book store, it may read like the Iliad in its native tongue. Trust me, it will help you. You can always put it out at the yard sale after your claim is settled. I guarantee you some small contractor will snap it up, after he gets over his disappointment that you don’t have any power tools for sale. Farmers will tell you their estimate is full, complete, priced for your market, compiled from the ‘industry standard in estimating software’, and that they love you and want to bear your children. It’s all bull. R.S. Means is and has been the construction industry standard for the past 60 years. Xactimate, Farmers estimating program is made up of imaginary numbers no honest, quality minded contractor could charge and sustain any longevity in the market. (The preceding statement is an opinion, and in no way constitutes an intentional threat to the Xactimate Estimating Program, its creator Xactware, nor Xactware’s parent company, Insurance Solutions Office)

Lastly, again go outside, if you have since returned indoors after your pebble exercise. Look up at the sky. Try to convince yourself the sky is green. Really work at it…no, really. Stop this exercise just short of having convinced yourself. We don’t want you to permanently go over to the dark side. This will greatly aid you in your future conversations with representatives of Farmers Insurance Group. It will help you understand what they are trying to tell you.

Completing these steps, you are now ready to learn the logistical skills needed to negotiate your claim to a fair settlement…

Although this was somewhat tongue in cheek, it is a fairly accurate portrayal of what it is like to deal with Farmers Insurance Group. Please do not be daunted by it. It is possible to get a fair settlement. You will have to fight for it. It will take you a long time. To be successful, you will have to put your normal life on hold. You will get frustrated, you will be demoralized. Your relationships will suffer. Farmers Insurance Group counts on these things. I can’t give you a date, but it has been a long time since Farmers, and several other major insurers have laid aside their responsibilities to policyholders and discarded fiduciary ethics. Until our national and state legislators pass the anti-trust laws necessary to reign in these obscene attitudes and practices, it is up to us as individual policyholders and contractors to fight for what is rightfully ours, to be treated fairly and with good faith.

I wish I could go back to when all I needed to know was when our premium was due. I can not. We are forced to buy insurance. We can not buy a home without it. We can not drive without it. We need to know that in our most trying times. When a loved one is injured, when the vehicle we use to support our families is disabled, when our homes can not be lived in, that our needs will take precedent over extra profit for a shareholder. What Farmers Insurance Group, and several other insurers are doing is wrong. Not a ‘little wrong’, not’ kinda wrong’, not ‘gee, this is pretty wrong’. It is WRONG. For a company, whose duty it is to ease the loss of one’s life, health , and or possessions that one has worked and struggled for, to add obstacles, stress, and heartache to what can already be a catastrophic, devastating, or even just a challenging event in a family’s life, simply to increase their financial portfolio is unconscionable.

Copied from the Farmers Insurance Forum

Tuesday, March 25, 2008

California Court Allows Policyholders To Question Farmers Insurance Fees

By Patricia-Anne Tom
March 25, 2008

A California Court of Appeals has allowed policyholders in the Farmers Insurance Exchanges to question alleged excessiveness of management fees charged to them by Farmers Group Inc., a wholly owned subsidiary of Zurich Financial Services.

In Benjamin J. Fogel, et al.,v. Farmers Group Inc., et al., the plaintiff holds automobile, homeowners, and umbrella insurance policies issued through Farmers Insurance Exchange, Fire Insurance Exchange, and Truck Insurance Exchange (collectively the Exchanges).

The Exchanges are reciprocal insurance exchanges, which according to court documents, are "'an unincorporated business organization of a special character in which the participants, called subscribers ... are both insurers and insured; for their mutual protection, they exchange insurance contracts through the medium of an attorney in-

In August 2003, Fogel, on behalf of all policyholders of the Exchanges, filed a class action lawsuit against Farmers (which Fogel alleged was the attorney-in-fact for the policyholders of all three Exchanges) and the Exchanges. The original complaint alleged that the Exchanges required all policyholders to appoint FGI as their attorney-in-fact and that FGI breached its fiduciary duty to the policyholders and committed fraud by, among other things, charging excessive fees. The original complaint also alleged that FGI and the Exchanges engaged in unlawful and/or unfair business practices within the meaning of Business and Professions Code section 17200 et seq., based upon two practices -- the Exchanges' requiring policyholders to appoint FGI as their attorney-in-fact and FGI's charging excessive fees -- as well as other conduct.

The class action suit filed in 2004 by Fogel claims that FGI and its subsidiaries paid themselves more than $4.5 billion in fees in the 2000 to 2002 time period, resulting in at least a 43 percent profit over the costs of the services that FGI provided the policyholders. Fogel sought disgorgement of all excessive fees charged from 1999 to the present and an injunction against future excessive charges.

However, the defendants emphasized that FGI, doing business as Farmers Underwriters Association, was attorney-in-fact only for Farmers Insurance Exchange policyholders, and that Truck Underwriters Association and Fire Underwriters Association serve as
attorneys-in-fact for policyholders in Truck Insurance Exchange and Fire Insurance Exchange, respectively. According to court documents, "One of the other arguments they made in the motion was based upon the form 'Subscription Agreement' that defendants asserted each of the policyholders signed when they applied for insurance." Each agreement provided that the relevant entity was appointed as the policyholder's attorney-in-fact, described the scope of its power to act on behalf of the subscriber, and stated that the subscriber agreed that the entity would collect a certain percentage of the premium as compensation for acting as attorney-in-fact. The defendants argued that FGI did not breach its fiduciary duty because it was undisputed that it collected less than 20 percent of the premiums as fees during the period at issue.

The recent court of appeals ruling rejected FGI's argument that the fees had been approved by the California commissioner of insurance as part of the rate requests FGI files on behalf of the insurance exchanges it manages. The court held that FGI and its subsidiaries owe a fiduciary duty to the Exchanges' policyholders and must answer allegations that it has overcharged them for its services by several billion dollars since 1999.

"We hold that neither Walker, section 1860.1, nor the filed rate doctrine apply to this lawsuit against the attorneys-in-fact, because the attorneys-in-fact are entities distinct from the exchanges, with fiduciary relationships with each of the subscribers. Accordingly, we reverse the summary judgment in favor of the attorneys-in-fact and direct the trial court to enter an order denying defendants' motion and granting plaintiff's motion to summarily adjudicate defendants' exhaustion of administrative remedies
affirmative defense," the court of appeals said.

Acting Presiding Justice Thomas L. Willhite Jr. issued the ruling which was concurred in by Justice Nora M. Manella and Justice Steven C. Suzukawa of the California Court of Appeal, Second District, Division 4, Los Angeles.

Fogel was represented by Austin attorneys Philip K. Maxwell and Joe K. Longley, and Los Angeles attorneys Tom Girardi and Walter Lack.

FGI was represented by Raoul D. Kennedy of Skadden, Arps, Slate, Meagher & Flom LLP, San Francisco.

Sources: California Courts, Law Offices of Philip K. Maxwell

Saturday, March 22, 2008

Insurers' profits in Texas prompt calls for lower rates

Insurers' profits in Texas prompt calls for lower rates

Earnings defended as reserve for Texas storms

12:00 AM CDT on Thursday, March 13, 2008
By TERRENCE STUTZ / The Dallas Morning News

AUSTIN – Texas insurers were virtually untouched by the slowing economy in 2007 as they recorded one of their most profitable years of the decade, prompting new calls for tougher state action on homeowner rates.

New financial reports released Wednesday by the Texas Department of Insurance indicated that most companies had another year of solid earnings as they marked their fifth straight year of beating or equaling a standard benchmark for reasonable profits.

Overall, the industry had an average loss ratio of 36.5 percent in 2007, according to the reports. In other words, insurers paid out 36.5 percent of premiums to cover property losses – well below the 58 percent figure often cited by experts as a good measure of profitability.

Industry representatives said a few good years of profits offset the poor years that companies suffered in the early part of the decade and emphasized that insurers need to build up reserves for inevitable losses that will occur when hurricanes or hailstorms hit Texas in the future.

But consumer groups called the low loss-ratio numbers "outrageous" and further proof that companies are continuing to overcharge Texans for insurance on their homes.

"Homeowners deserve better treatment than this," said Alex Winslow of Texas Watch, a consumer group active in insurance issues.

"Insurance companies are continuing to post exorbitant profits in large part because the Texas Department of Insurance refuses to get tough. Policyholders are sick and tired of lip service. They want action."

Industry cites overhead

Industry spokesman Jerry Johns, president of the Southwestern Insurance Information Service, said the 36.5 percent loss figure reported by the insurance department is misleading because it does not take into account expenses such as agent commissions, overhead, administrative costs and other expenses.

"That percentage doesn't take into account an enormous amount of overhead for insurers," he said.

In 2006, the industry said those expenses took another 30 percent of the premiums they collected. If that figure holds up for last year, it would result in a combined expense and loss ratio of around 66.5 percent.

Mark Hanna of the Insurance Council of Texas said insurance companies rely on good years to prepare for years of widespread property damage, primarily from hailstorms in North Texas and hurricanes along the Texas coast.

"A good year for Texas insurers means homeowners weren't clobbered by tornadoes, hurricanes and hailstorms," he said. "It means insurers will be in good financial shape when Texas, which has some of the most violent weather in the world, faces this year's spring and summer thunderstorm season."

Public Insurance Council Rod Bordelon, who represents consumers in rate cases, said his office is considering asking state Insurance Commissioner Mike Geeslin to order rate reductions.

"The new figures indicate that insurance companies in Texas are again earning record profits, and we need to see some rate decreases. Certainly, there is justification for the commissioner to consider rate decreases," he said.

State Farm, the largest insurer in Texas, has been fighting the state in court since fall 2003 over an order to decrease its homeowner premiums by an average of 12 percent. Some experts have estimated that the company owes its customers more than $600 million in overcharges since that time – but the company insists its rates have been fair and reasonable.

In 2007, State Farm was slightly above the average loss ratio in Texas, paying 39.2 percent of its premiums to cover losses. The two other largest companies in the state, Allstate and Farmers, were near the state average.

'File and use' system

Texas uses a "file-and-use" rate system for auto and home insurance that allows companies to immediately increase premiums – without state approval – once they notify the Texas Department of Insurance. The department can challenge any increase it deems excessive.

State Farm and Allstate have been placed under state orders that require them to get approval from the state before they can raise rates. Allstate, like State Farm, has been at odds with state regulators over what it charges for homeowners coverage.

The file-and-use system was approved by the Legislature in 2003 after the home insurance market in Texas was rocked by massive losses related to mold and water damage. To ease an insurance availability crisis, lawmakers opted to give companies more freedom in setting rates and thereby encourage more companies to sell policies in Texas.

However, the number of insurers selling policies in Texas has not increased appreciably since the law took effect.

Ben Gonzales, a spokesman for the insurance department, noted that the agency reviews all rate filings by companies. "If we find a company that is charging excessive rates, we have tools to bring them back in line," he said.

While the department reviewed company-by-company rates last year after very low loss ratios – and high profits – were reported by insurers, no companies were ordered to lower their rates as a result of the reviews. No similar reviews have yet been announced for this year, Mr. Gonzales added.

"Companies have not suffered any major catastrophic losses the past few years, and that is a major factor in the loss ratio numbers," he said. "But it won't be that way forever, and we don't want to be in position where we cause a lack of availability of insurance."

Even with the better claims experience in 2007, Mr. Johns noted, Texas still ranked third among the states in weather-related losses at $677 million. Only California and Minnesota had greater total losses.

In Dallas, the current average premiums for a $100,000 brick veneer home with a 1 percent deductible and $40,000 coverage on contents are about $803 a year for a 6-year-old house and $892 for a 15-year-old house. For a frame home, the average premiums are $950 for a 6-year-old house and $1,054 for a 15-year-old house.

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Farmers Insurance to raise rates on homeowner policies

Farmers to raise rates on homeowner policies

By Laura Elder
The Daily News
Published March 19, 2008

Farmers Insurance intends to raise rates on a relatively new line of homeowner policies, a move that would increase premiums for some property owners in the county by 4.1 percent on average.

The planned increase comes as insurers, including Farmers, posted another profitable year of underwriting in Texas.

Effective May 16, Texas Farmers Insurance Co. will impose the increase on consumers who have a “Texas Family Home Policy,” which offers broader coverage than other Farmers’ lines and which the company introduced in Feb. 2006.

The amount of Farmers’ rate increase varies, but statewide the average is 7.9 percent, officials say.

The rate hike is meant to cover the insurer’s increased expenses caused by the rising cost of construction, reinsurance and growing loss trends, said David Bishop, a Farmers spokesman. Reinsurance allows insurers to buffer their risk by purchasing their own coverage against weather-related catastrophes.

The latest rate increase affects about 200,000 of Farmers’ 700,000 policyholders in the state who have coverage through the company’s Texas Family Home policies, Bishop said.

Two other subsidiaries of the insurer — Farmers Insurance Exchange and Fire Insurance Exchange — raised rates Feb. 1 resulting in average rate increases of between 14 percent and 16 percent for county residents.

Farmers has more than 10,700 policyholders in Galveston County. Farmers does not make available the number of county residents who have Texas Family Home policies.

Farmers also is raising rates to ensure financial stability and its ability to write new business, Bishop said.

He pointed to the freak thunderstorms and tornadoes that slammed parts of Georgia earlier this month, killing at least two people and causing an estimated $150 million in damage, according to reports.

“That could have been Texas,” Bishop said.

Insurers make money by underwriting and investing money they collect in premiums.

Underwriting in Texas was profitable last year, according to regulators at the Texas Department of Insurance.

Farmers, for example, posted a loss ratio of 38.7 percent.

The loss ratio is the amount of each premium dollar insurers pay back to policyholders in benefits. The lower the loss ratio, the better for the insurer.

The loss ratio does not include overhead expenses, which typically is another 30 percent to 35 percent, according to insurers.

In 2007, the industry in Texas reported earned premiums of nearly $4.9 billion and direct incurred losses of about $1.8 billion, resulting in a loss ratio of 36.5 percent, according to industry regulators.

Add in overhead expenses, and for each dollar of premium the industry collected in Texas, it paid out almost 71 cents, according to regulators.

Still, underwriting in Texas isn’t always profitable. The years 1992, 2001 and 2002, the industry collectively posted underwriting losses, according to state regulators.

While Farmers’ latest rate increase goes into effect in May, the insurer could have imposed them immediately upon submitting the plan to the state.

But most insurers try to give the state time to review the filings.

If the state deems the new premiums to be excessive, the company could be forced to offer refunds to consumers.

Farmers filed its intentions with the state to raise rates on Friday. Regulators still are reviewing Farmers’ filing.

The state did not oppose rate increases by Farmers Insurance Exchange and Fire Insurance Exchange.


2007 Preliminary Loss Ratios

Here are the 2007 preliminary loss ratios for the top 10 insurers doing business in Texas. A loss ratio is derived from what insurers took in through premiums and what they paid out in claims.

For example, a loss ratio of 40 percent means that for every dollar collected in premiums, the company paid out 40 cents in claims.

The figures in this list do not include overhead expenses, which the industry and regulators say amount to another 30 percent to 35 percent.

Company, Direct Written Premium, Loss Ratio

State Farm Lloyds, $1.5 billion, 39.2 percent

Allstate Texas Lloyds, $630.07 million, 32.8 percent

Travelers Lloyds of Texas, $276.7 million, 25.2 percent

Texas Farmers Insurance Co., $250.05 million, 38.7 percent

USAA, $220.6 million, 40.7 percent

Farmers Insurance Exchange, $214.5 million, 33.7 percent

USAA Texas Lloyds, $171.1 million, 39.1 percent

Texas Farm Bureau Underwriters, $128.9 million, 46.6 percent

Chubb Lloyds, $117.1 million, 26.5 percent

Fire Insurance Exchange, $115.7 million, 42.4 percent

Source: Texas Department of Insurance

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Tuesday, March 11, 2008

Goddard v. Farmers Insurance: Farmers Insurance to Pay $2.5 Million in Punative Damages

This case has been going on for about 20 years!! Farmers Insurance lowballs and fights tooth and nail to deny you what you are owed. In this case, Goddard v. Farmers Insurance, Farmers Insurance denied the $200,000 and now has to pay $2.5 million! They did get the punative damages reduced from $20 million.

"In Goddard, the court found that the insurer intentionally, deceitfully, and maliciously:
stonewalled the claimant and lowballed settlement offers;
fraudulently manipulated the claims process;
unreasonably refused to settle;
sacrificed the insured’s interest in security to the insurer’s interest in maintaining its reputation for toughness on claims;
all of which the court found to be typical of the insurer's business practices."

For Details of this case see:
* Goddard v. Farmers Insurance

* The Oregon Supreme Court's Recent Decision on Punitive Damages: Why It Took the Wrong Approach

* Oregon Supreme Court rules punitive damages excessive