Charles O. "Chuck" Grigson, Gerald Hooks, and Leslie Hooks v. State

ACCEPTED
03-15-00436-CV
6313799
THIRD COURT OF APPEALS
AUSTIN, TEXAS
7/31/2015 3:00:46 PM
JEFFREY D. KYLE
CLERK
NO. 03-15-00436-CV
___________________________________________________
FILED IN
3rd COURT OF APPEALS
IN THE COURT OF APPEALS AUSTIN, TEXAS
THIRD JUDICIAL DISTRICT COURT 7/31/2015 3:00:46 PM
JEFFREY D. KYLE
AUSTIN, TEXAS Clerk
___________________________________________________
CHARLES O. “CHUCK” GRIGSON,
APPELLANT
VS.
THE STATE OF TEXAS, THE TEXAS DEPARTMENT OF INSURANCE,
THE TEXAS COMMISSIONER OF INSURANCE;
and FARMERS GROUP, INC. ET AL.,
APPELLEES
___________________________________________________
On Appeal from the 261st Judicial District Court of Travis County, Texas
Cause No. D-1-GV-02-002501
___________________________________________________
APPELLANT GRIGSON’S RESPONSE TO APPELLEES’ JOINT MOTION TO DISMISS
APPEAL FOR LACK OF JURISDICTION AND REQUEST FOR EXPEDITED
CONSIDERATION OF MOTION
___________________________________________________
Joe K. Longley Philip K. Maxwell
LAW OFFICES OF JOE K. LAW OFFICE OF PHILIP K.
LONGLEY MAXWELL
State Bar No. 12542000 State Bar No. 13254000
1609 Shoal Creek Blvd. #100 1609 Shoal Creek Blvd #100
Austin, Texas 78701 Austin, Texas 78701
512-477-4444 512-947-5434
Attorneys for Appellant Grigson
TO THE HONORABLE COURT OF APPEALS:
I. The 2015 order is a class certification order by virtue of its express
terms.
By its express terms, the July 6, 2015 Order of Preliminary Approval 1 now
before the Court is a class certification order appealable under Section 51.014(a)(3)
of the Texas Civil Practices and Remedies Code. Paragraph 2 of the 2015 order
defines the classes as required by Rule 42(c)(1)(B). 2 Paragraph 7 of the 2015 order
describes the notice to the class and paragraph 8 finds that the notice is “the best
notice practicable under the circumstances” as required by Rule 42(c)(2)(B).3
Paragraph 5 of the 2015 order finds the “fair and adequate representation”
requirement of Rule 42(a)(4).4 The Rule 42(a)(4) “fair and adequate
representation” finding in paragraph 5 of the 2015 order of preliminary approval
fundamentally alters the Rule 42(a)(4) finding made in paragraph 5 of the 2003
1
ORDER OF PRELIMINARY APPROVAL (July 6, 2015) (“the 2015 order”). EXHIBIT 1. The 2015
Order was entered pursuant to Rule 42 and the Insurance Code. 2015 Order at 2 and 5, para. 8.
2
TEX. R. CIV. P. 42(C)(1)(B): “Determining by Order Whether to Certify a Class Action;
Notice and Membership in the Class. . . . An order certifying a class action must define the
class . . . .”
3
TEX. R. CIV. P. 42(C)(2)(B): “Determining by Order Whether to Certify a Class Action;
Notice and Membership in the Class. . . . the court must direct to class members the best notice
practicable under the circumstances . . . .”
4
TEX. R. CIV. P. 42(a)(4): “Prerequisites to a Class Action. One or more members of a class
may sue or be sued as representative parties on behalf of all only if . . . the representative parties
will fairly and adequately protect the interests of the class.”
Appellant Grigson’s Response To
Appellees’ Joint Motion To Dismiss Appeal 2
order of preliminary approval, 5 a point best made by redlining the changes made in
the 2015 order.
5. The Court further finds that there has been no at no time
during the course of this litigation has there been any collusion
whatsoever between the State and the Farmers Parties with
respect to negotiating the Settlement Agreement and that the
State has represented, and will continue to represent, the
interest of the Farmers’ policyholders fairly and adequately and
without a conflict of interests.
Thus, the 2015 order makes the finding that Rule 42(a)(4) is satisfied in 2015
based on a record made 12 years after the 2003 order was signed. The Rule
42(a)(4) finding in the 2003 order had to be altered to meet Grigson’s 2015
charges of collusion, conflicts of interest, and inadequacy of the State in
representing the class. 6
These provisions in the 2015 order tracking the certification requirements of
Rule 42 unmistakably brand the 2015 order as a certification order subject to this
Court’s interlocutory jurisdiction.
5
ORDER OF PRELIMINARY APPROVAL (June 27, 2003)(“the 2003 order), para. 5. EXHIBIT 2.
6
See CHARLES O. “CHUCK” GRIGSON’S FOURTH AMENDED PLEA IN INTERVENTION. EXHIBIT
3. INTERVENOR GRIGSON’S RESPONSE IN OPPOSITION TO CLASS CERTIFICATION AND
PRELIMINARY APPROVAL (“Grigson’s Opposition to Class Certification”). EXHIBIT 4.
Appellant Grigson’s Response To
Appellees’ Joint Motion To Dismiss Appeal 3
II. The reason the 2015 order does not say “the court hereby certifies
the settlement classes” is because of the State and Farmers’
agreement to abrogate this Court’s jurisdiction in violation of Texas
law.
The State and Farmers do not address the express terms of the 2015 Order
that make it a Rule 42 certification order. Instead, they construct a “Back to the
Future” alternate reality wherein a 12-year-old class certification order approving a
12-year-old terminated class settlement 7 is “fast forwarded” to the present in an
effort to support the approval of a 2015 class settlement containing different terms
negotiated under different circumstances, neither of which were present or
addressed when the 2003 order was entered.
Why would the State and Farmers agree to go to such extremes to avoid
entry of a 2015 order that contains the words “the court hereby certifies”? There is
only one answer—to try to abrogate this Court’s statutory jurisdiction over this
appeal. The settlement history of the last two years in this case proves the point.
On August 23, 2013, the State and Farmers filed their joint motion to
approve a 2013 settlement, 8 the predecessor settlement to the 2015 settlement now
7
Grigson’s Opposition to Class Certification at 4-7 (detailing the termination of the 2003
settlement agreement and 2003 certification order).
8
STATE OF TEXAS AND FARMERS PARTIES’ JOINT MOTION FOR PRELIMINARY APPROVAL OF
SECOND AMENDED SETTLEMENT AGREEMENT AND STIPULATION AND CLASS NOTICE (August 23,
2013) (“the 2013 motion”) EXHIBIT 5. The 2013 motion sought approval of the SECOND
AMENDED SETTLEMENT AGREEMENT AND STIPULATION. (August 29, 2013) (“the 2013
Settlement”). EXHIBIT 6. In the record in the trial court, the 2013 agreement is frequently
referred to as “SASA.”
Appellant Grigson’s Response To
Appellees’ Joint Motion To Dismiss Appeal 4
before the Court. In their motion to approve the 2013 settlement, the State and
Farmers said that:
Approving a class action settlement as to a putative class is
generally a multi-step process. Only the first step is to occur at
the upcoming hearing--preliminary approval of the proposed
settlement and conditional certification of a temporary class.9
Consistent with the 2013 Motion, the 2013 Settlement, under the heading
“CERTIFICATION OF SETTLEMENT CLASSES”, said that “[t]he Parties
agree that the Court may enter an order conditionally certifying the Settlement
Classes”10 and that an order of preliminary approval be entered “substantially in
the form of Exhibit A hereto.” 11 The order marked Exhibit A states that “this
Court hereby certifies, for purposes of effectuating the Settlement Agreement, the
following Settlement Classes.” 12
On April 28, 2014—the day before the preliminary approval hearing on the
2013 settlement—Grigson filed his Plea in Intervention as a policyholder member
of the putative class and as an owner of the Exchanges. 13 Grigson prayed that the
9
2013 Motion at 17-18 (citations omitted and emphasis added).
10
2013 Settlement at 8, para. 4.
11
2013 Settlement at 8, para. 3.
12
2013 “Proposed Order” at 2, para. 2 (attached as Exhibit A to 2013 settlement). EXHIBIT 7
here.
13
Grigson’s Plea in Intervention and Objection to Preliminary Approval of Second Amended
Settlement Agreement. (“Grigson’s Original Plea in Intervention.”) EXHIBIT 8.
Appellant Grigson’s Response To
Appellees’ Joint Motion To Dismiss Appeal 5
2013 settlement not be approved because there was a conflict between the
policyholder-owned Exchanges (who were paying all of the settlement) and
Farmers Group Inc. (who was paying nothing); 14 there was a conflict “created by
one firm, Fulbright and Jaworski, representing both FGI and the Exchanges;”15 and
because the State was an inadequate class representative having agreed to
surrender the State’s jurisdiction to consider FGI’s high management fees in
making rate decisions in the future and having agreed to accept $2 million of
policyholder money for case “expenses,” terms that directly conflict with the
interests of the class.16 Of particular importance to the matter before this Court
now, Grigson also pled that a new certification hearing and order was required
because the 2003 settlement was different from, and had been expressly
superseded by, the 2013 settlement: “Previous certification of the 2003 Classes did
not certify anything pursuant this 2013 settlement.” 17
On April 29, 2014, the trial court rejected the 2013 settlement.
Acknowledging Grigson’s objections and those of the two other intervenors, the
court expressed concern that the settlement would “obliterate” another Texas class
14
Grigson’s Original Plea in Intervention at 7-8. EXHIBIT 8.
15
Grigson’s Original Plea in Intervention at 7. EXHIBIT 8.
16
Grigson’s Original Plea in Intervention at 8-9. EXHIBIT 8.
17
Grigson’s Original Plea in Intervention at 5. EXHIBIT 8.
Appellant Grigson’s Response To
Appellees’ Joint Motion To Dismiss Appeal 6
action against Farmers where a litigation class has already been certified; 18 that the
settlement lacked class compensation for the lost time value of money; 19 and that
there were questions concerning the “representational conflict” of a single law firm
representing the exchanges and the corporation and “potential for unfairness to the
exchanges vis-a-vis the corporation.” The trial court told the State and Farmers
this issue would have to be addressed before the court could grant even preliminary
approval of a settlement in the case. 20
The trial court’s rejection of the 2013 settlement triggered its termination
clause, which provided that:
The Farmers Parties do not agree to certification of the
Settlement Classes for any purpose other than to effectuate this
Settlement Agreement. In the event that the Court were not to
approve and certify the Settlement Classes in all respects as
defined in this Settlement Agreement (1) any stipulations and
agreements made herein are null and void and (2) it is
understood that the Farmers Parties would challenge the
certification of a litigation class . . . . 21
On September 4, 2014, at the hearing on “Farmers Parties’ Motion to Strike
Grigson’s Intervention,” Farmers’ lawyer said he didn’t think the court had
actually rejected the 2013 settlement. The court disagreed.
18
04/29/2014 Tr. at 56. EXHIBIT 9.
19
Id. at 29-31.
20
Id. at 49-50.
21
2013 Settlement at 8, para. 2. (Emphasis added.) EXHIBIT 6.
Appellant Grigson’s Response To
Appellees’ Joint Motion To Dismiss Appeal 7
THE COURT: Well, I haven't approved this settlement
agreement. In fact, I rejected it. So you are now in a posture
where you don't agree with the class action. And in fact, you
were the party who wanted the class action 12 years ago. So it
seems to me we're back at square one with no settlement
agreement, no certified class . . . . 22
THE COURT: I thought I was pretty clear on April 29th I'm
declining to approve the second amended settlement agreement.
I thought that was pretty clear, and I thought that you and I had
that sort of meeting of the minds at the beginning of this
hearing, but I guess if I wasn't clear, I'm hopefully clear now. 23
On March 4, 2015—nearly 11 months after rejection of the 2013 settlement
on April 29, 2014, the State and Farmers filed the new 2015 settlement. To prop
up an argument that the trial court had not really rejected the 2013 settlement, and
therefore the 2013 settlement had not really terminated, and therefore the 2003
certification order really was still good, the State’s and Farmers crafted the 2015
settlement as a “Supplement” to the 2013 settlement, which they attached as an
exhibit along with all of its exhibits.
It is the 2015 Supplement that contains the State’s and Farmers’ agreement
to abrogate this Court’s jurisdiction. Under the heading “CERTIFICATION OF
SETTLEMENT CLASSES”, the State and Farmers agree that:
As to Section III of the [2013] Settlement Agreement on
“Certification of Settlement Classes,” the Parties acknowledge
and agree that the District Court has certified the Settlement
22
09/4/2014 Tr. at 55:9-15. (Emphasis added.) EXHIBIT 10.
23
Id. at 57:16-23.
Appellant Grigson’s Response To
Appellees’ Joint Motion To Dismiss Appeal 8
Classes in its Order of Preliminary Approval (June 27, 2003),
that was appealed to the Third Court of Appeals and the
Supreme Court, which affirmed the Order of Preliminary
Approval, and the case was ultimately remanded to the District
Court on March 9, 2010. Accordingly, the Parties have
satisfied the requirement of seeking certification of the
Settlement Classes for purposes of Paragraphs 1-4 of Section
III of the Settlement Agreement, although the other conditions
of Paragraph 2 still apply. 24
In other words, the State and Farmers agree in 2015 to change the 2013
settlement so that it says that “The State shall not file a motion for preliminary
approval that requests the Court to enter an Amended Order of Preliminary
Approval substantially in the form of Exhibits A” (which, it will be recalled,
contains the words “the Court hereby certifies”) and to say “[t]he parties do not
agree that the Court may enter an order conditionally certifying the settlement
classes and appointing the State, through the Attorney General, as class
representative and class counsel.”
Of course, the State’s and Farmers’ unlawful agreement to abrogate this
Court’s jurisdiction was not self-executing. To complete the deal, Farmers and the
State needed the trial court’s cooperation. First, they needed the trial court to
ignore the order that was a defined term in and part of the 2015 Settlement because
that order does contain the words “the court hereby certifies.” Next, they needed
the trial court to sign a new order that is not part of the 2015 settlement agreement
24
SUPPLEMENT TO THE SECOND SETTLEMENT AGREEMENT AND STIPULATION (March 4, 2015)
(the “Supplement”) at 2, para.III. (Emphasis added.) EXHIBIT 11.
Appellant Grigson’s Response To
Appellees’ Joint Motion To Dismiss Appeal 9
the court is approving, an order that removes the words “the court hereby
certifies.” Finally, they needed the trial court to stick with the plan and overrule
any objection that the new order did not comply with Rule 42. Farmers and the
State got all they wanted from the trial court, and the trial court gave all of it to
them knowingly and willingly, as the transcript of the hearing plainly shows.
MR. LONGLEY: I want to make an objection on the record
before we go off the record, Your Honor, regarding the form of
the order that you're about to sign. We object to the form.
THE COURT: Then tell me what the defect is in the form of the
order.
MR. LONGLEY: The defect is that, number one, we were just
handed this order. It was not attached as part of the moving
papers. The one that was attached to the moving papers in
Paragraph 2 says this Court hereby certifies classes, and this is
the first time we've seen an order that does not certify classes.
THE COURT: That's because their position, as you know, all
along in this joint motion has been that the class was previously
certified -- or the Court gave preliminary approval before, it's
come back to the Court and that the class has never been
decertified. That's -- has that been your argument?
MS. GREER [for Farmers]: Yes, Your Honor.
MR. GODBEY [ for the State]: Yes, Your Honor.
THE COURT: And so what you like about that other order is
that it suggests that I have to go back and recertify the class,
and that's what you'd like me to put in the order, right?
MR. LONGLEY: Either that or that you refuse to certify a class
in this particular order for the reason that you're adopting their
Appellant Grigson’s Response To
Appellees’ Joint Motion To Dismiss Appeal 10
view that it's already been certified and you're applying that
certification in 2003 to this new 2015 settlement.
THE COURT: No, I understand what they're doing in this
order, and I thought about that very thing as I read it, just as
you did, and I am going to sign the order as they've presented
it.25
* * *
MR. LONGLEY: I guess what I need to know is the Court not
going to entertain any alternative order to refuse with regard to
what we might want to submit?
THE COURT: I'm not going to entertain any substantive
differences, that's correct.
MR. LONGLEY: Such as the certification.
THE COURT: That's correct. That's exactly right.
MR. LONGLEY: We're addressing that right now.
THE COURT: Exactly, we are addressing that right now. And I
understood that from the briefing you gave me in advance of
this hearing that you were each trying to spin my prior
comments on the record to be a "oh, we need to recertify this
class" from your perspective and "no we don't" from their
perspective. I understood that completely.
MR. LONGLEY: And I think I do, too, Your Honor, that this
particular settlement that you're approving will not have a
separate certification or refusal to certify.
THE COURT: It's going to be the order they've proposed. 26
25
07-02-2015 Tr. pp. 116-136 at 122:5-123:12. EXHIBIT 12.
26
07-02-2015 Tr. at 133:20 – 134:18. EXHIBIT 12. In their haste to get their deal done,
Farmers and the State tendered the trial court an order that is missing its paragraphs 3 and 4.
Appellant Grigson’s Response To
Appellees’ Joint Motion To Dismiss Appeal 11
But the jurisdiction of the courts cannot be abrogated by agreement. Walls
Regional Hosp. v. Altaras, 903 S.W.2d 36, 40-41 (Tex. App.—Waco 1994, orig.
proc.). Nor can it be abrogated by a trial court. The State’s and Farmers’
agreement to suppress an order that says “hereby certifies” cannot oust this Court
of its jurisdiction to review an order that, despite their efforts and the complicity of
the trial court, is so clearly within its jurisdiction.
Indeed, the proper invocation of this Court’s interlocutory jurisdiction does
not require that an order say anything about classes, certifications or the myriad
other matters in Rule 42. Phillips Petroleum Co. v. Yarbrough, 405 S.W.3d 70, 80
(Tex. 2013); (holding appealable an order denying a motion to sever a new claim
made after a litigation class had been certified because “the new claim raises
concerns about the propriety of certification that, regardless of whether
certification is ultimately ordered or upheld, were not present or considered with
respect to” the class claim previously certified). The substantial changes the State
and Farmers made to the 2003 settlement; 27 the gross conflict between the State
These are paragraphs they excised from the order that is part of the settlement agreement where
the court appoints class counsel and “hereby certifies” the classes. In the trial court’s haste to
give Farmers and the State everything they wanted, the court signed it, providing graphic proof
of the trial court’s wholesale abandonment of its duty of “heightened scrutiny” and “rigorous
analysis.”
27
The changes in the 2003 settlement made by the 2013 settlement, are shown in redline
comparisons submitted by the State and Farmers as Exhibit 2 to the 2013 settlement. See
EXHIBIT 13. The changes in the 2013 settlement made by the 2015 Supplement require
reading the Supplement and then comparing the affected provisions in the 2013 settlement that is
Appellant Grigson’s Response To
Appellees’ Joint Motion To Dismiss Appeal 12
and the policyholder classes raised by the State’s decision to dump the millions of
dollars of undistributed settlement money into the State’s unclaimed property fund
in violation of last year’s decision by the Supreme Court in Highland Homes v.
State 28 that undistributed funds of a class settlement are “claimed” by the class
representative and hence may not be sent to the Comptroller’s “unclaimed property
fund”; 29 the State’s and Farmers’ outrageous and prohibited ex parte contact with
the trial court on the evening before the hearing on Grigson’s Motion to Disqualify
Farmers’ conflicted lawyers; 30 and the State’s and Farmers’ collusion in creating
attached to the 2015 Settlement and to the 2015 Joint Motion for Preliminary Approval. (“The
2015 Motion.”) EXHIBIT 14.
28
448 S.W.3d 403 (Tex. 2014).
29
In reality, there is no “fund” for unclaimed property. The State spends the money “the
moment it is received.” Clark v. Strayhorn, 184 S.W.3d 906, 908 (Tex.App.—Austin 2006),
cert. den. 549 U.S.995 (2006) (quoting testimony of the Comptroller’s office).
30
Grigson’s Opposition to Class Certification at 14-23. EXHIBIT 4. The claim of a conflict of
interest of the lawyers for the Exchanges and FGI was not addressed in 2003, as the trial court
recognized when rejecting the 2013 settlement on April 29, 2014.
THE COURT: . . . I don't remember in that trial what discussion there was
or evidence there was about the issues raised by Mr. Woods Intervenor
and now amplified and somewhat clarified by Mr. Longley's intervention
about the tension and even the representational conflict, they say, by a
single law firm representing the exchanges and the corporation. That was
-- that's really interesting to me, and I don't -- I was searching my memory
bank for whether that was touched upon at all in that week-long trial, and I
just couldn't remember anything. (04-29-2014 Tr. at 48:13-23).
THE COURT: . . . Here's my question. I don't remember anybody
challenging whether that was fair to the exchanges vis-a-vis the
corporation. I don't remember that issue of the tension between the
exchanges and the corporation being flushed out in that trial.
Appellant Grigson’s Response To
Appellees’ Joint Motion To Dismiss Appeal 13
the artifice of “no certification” just to avoid this Court’s jurisdiction—all occurred
years after the 2003 order was entered and, in the words of the Supreme Court in
Phillips Petroleum, “were not present or considered” then. But Grigson has no
need to urge Phillips Petroleum to uphold the jurisdiction of this Court. The 2015
Order is not a certification order disguised as something else. The 2015 Order is a
class certification order by virtue of its express terms, and the State and Farmers’
collusive agreement to make it seem otherwise must fail.
III. The Court must stay notice to protect its jurisdiction and avoid
irreparable harm to the policyholders whose money is to be used to
pay the costs of notice.
Section 51.014(b) of the Texas Civil Practice and Remedies Code
automatically stays the “trial” and “all other proceedings in the trial court” pending
resolution of an appeal of an interlocutory class certification order. In the class
action context, a reasonable construction of “trial” includes the final fairness
hearing, which the 2015 order sets for February 1, 2016.31 Likewise, a reasonable
construction of “other proceedings in the trial court” includes the sending of class
notice, which the 2015 order mandates be done by September 7, 2015. To construe
the statute any other way would permit the class to be notified of a hearing that
cannot happen, a plainly absurd result contrary to accepted rules of statutory
MR. MATTAX [for the State]: I would -- I would agree with your
recollection. (04-29-2014 Tr. at 49:10-16)
31
2015 Order at 4, para. 6. EXHIBIT 1.
Appellant Grigson’s Response To
Appellees’ Joint Motion To Dismiss Appeal 14
construction. Carreras v. Marroquin, 339 S.W.3d 68, 73 (Tex. 2011) (stating the
“absurd result” rule).
Anticipating that the State and Farmers would proceed with class notice
despite the statutory automatic stay—a conclusion confirmed by the postings of the
notice on several websites controlled by the State and by Farmers—Grigson has
moved for an emergency stay to protect the Court’s jurisdiction and prevent
irreparable harm to the policyholders caused by the expenditure of policyholder
money on the notice. The Court granted the same relief when this case was
appealed in 2003.32 And it should do so today. The class notice is only proper if
the certification order is proper, an issue that this appeal will decide.
As the Supreme Court said in McAllen Med. Ctr., Inc. v. Cortez, 33 “When a
trial court preliminarily certifies a settlement-only class action, the effect on the
course of the proceedings is immediate, significant, and perhaps irreparable if it is
later determined that the class cannot be maintained.”34 Just as in Cortez, the trial
court here has preliminarily certified a settlement class without performing the
“rigorous analysis” and “heightened scrutiny” required by Rule 42. Here, just as in
Cortez, the settling parties want to send notice bearing the “trial court’s
imprimatur” in order to prime the class to participate in a settlement that too has
32
EXHIBIT 15. (2003 Stay Order).
33
66 S.W.3d 227 (Tex. 2001)
34
Cortez at 234.
Appellant Grigson’s Response To
Appellees’ Joint Motion To Dismiss Appeal 15
not been subjected to the stringent requirements of Rule 42. But here, unlike
Cortez, the Settling Parties want to use the policyholders’ own money to send the
notice, not only interfering with the jurisdiction of this Court but irreparably
harming the policyholders should the Court overturn the order.
The reasons for staying the sending of notice in this case are compelling.
The Court’s authority to issue the stay is clear. No persuasive reason has been
offered by the State and Farmers to support sending notice before deciding whether
notice should be sent at all. Grigson prays the Court enter the order granting the
stay.
WHEREFORE, PREMISES CONSIDERED, Grigson prays that the Court
enter an appropriate order denying the Appellees’ Motion to Dismiss Appeal for
Lack of Appellate Jurisdiction and granting Grigson’s Emergency Motion to Stay
Sending of Class Notice. Grigson further requests that this Court grant such other
relief to which he may show himself justly entitled.
Respectfully submitted,
CHARLES O. “CHUCK” GRIGSON
APPELLANT
LAW OFFICES OF JOE K. LONGLEY
_______/s/ Joe K. Longley__________
Joe K. Longley
State Bar No. 12542000
1609 Shoal Creek Blvd. #100
Austin, Texas 78701
Appellant Grigson’s Response To
Appellees’ Joint Motion To Dismiss Appeal 16
512-477-4444 PHONE
512-477-4470 FAX
LAW OFFICE OF PHILIP K. MAXWELL
Philip K. Maxwell
State Bar No. 13254000
1609 Shoal Creek Blvd #100
Austin, Texas 78701
512-947-5434 PHONE
ATTORNEYS FOR APPELLANT,
CHARLES O. “CHUCK” GRIGSON
CERTIFICATE OF COMPLIANCE WITH TEX. R. APP. P. 9.4(i)
I certify that the foregoing document contains 3,389 words and complies
with the word limit set forth in Texas Rule of Appellate Procedure 9.4(i).
_______/s/ Joe K. Longley__________
Joe K. Longley
Appellant Grigson’s Response To
Appellees’ Joint Motion To Dismiss Appeal 17
CERTIFICATE OF SERVICE
The undersigned hereby certifies that a true and correct copy of the above
and foregoing document was served on the following counsel of record by
eFile.TXCourts.gov electronic filing system on this the 31st day of July, 2015.
Joshua Godbey Marcy Greer
Office of the Attorney General of Alexander Dubose Jefferson &
Texas Townsend, LLP
P. O. Box 12548 515 Congress Ave., Suite 2350
Austin, TX 78711-2548 Austin, TX 78701
Sara Waitt Michael J. Woods
General Counsel 8620 N. New Braunfels, Ste. 522
Texas Department of Insurance San Antonio, TX 78217
P. O. Box 149104
Austin, TX 78714-9104 Joseph C. Blanks
PO Box 999
M. Scott Incerto Doucette, TX 75942
Norton Rose Fulbright
98 San Jacinto Blvd #1100
Austin, TX 78701
_______/s/ Joe K. Longley__________
Joe K. Longley
Appellant Grigson’s Response To
Appellees’ Joint Motion To Dismiss Appeal 18
VERIFICATION
THE STATE OF TEXAS §
COUNTY OF TRAVIS §
BEFORE ME, the undersigned authority, on this day personally appeared
Joe K. Longley, a person whose identity is known to me. After I administered an
oath to him, upon his oath, he said the following:
"My name is Joe K. Longley, and I am capable of making this verification,
and the facts in this verification are true and within my personal knowledge. I am
lead counsel for Appellant Charles 0 "Chuck" Grigson. All documents included in
the APPENDIX filed for this Response are true and correct copies of documents
filed or presented to the trial court in this action. I have read the Response and the
factual statements contained therein that are not otherwise established by this
record are within my personal knowledge and are true and correct."
"Further, Affiant sayeth not."
Joe K. Longley
VERIFICATION OF JOE K. LONGLEY 1
NO. 03-15-00436-CV
___________________________________________________
IN THE COURT OF APPEALS
THIRD JUDICIAL DISTRICT COURT
AUSTIN, TEXAS
___________________________________________________
CHARLES O. “CHUCK” GRIGSON,
APPELLANT
VS.
THE STATE OF TEXAS, THE TEXAS DEPARTMENT OF INSURANCE,
THE TEXAS COMMISSIONER OF INSURANCE; and FARMERS GROUP,
INC. ET AL.,
APPELLEES
___________________________________________________
On Appeal from the 261st Judicial District Court of Travis County, Texas
Cause No. D-1-GV-02-002501
___________________________________________________
APPELLANT GRIGSON’S APPENDIX IN SUPPORT OF RESPONSE TO APPELLEES’
JOINT MOTION TO DISMISS APPEAL FOR LACK OF JURISDICTION AND REQUEST
FOR EXPEDITED CONSIDERATION OF MOTION
___________________________________________________
EXHIBIT 1 7-6-2015 Order of Preliminary Approval
EXHIBIT 2 6-27-2003 Order of Preliminary Approval
EXHIBIT 3 5-15-2015 Intervenor Grigson’s Fourth Amended Plea in
Intervention
EXHIBIT 4 5-15-2015 Intervenor Grigson’s Response in Opposition to
Class Certification and Preliminary Approval of Class
Settlement
EXHIBIT 5 8-23-2013 State of Texas and Farmers Parties’ Joint Motion
for Preliminary Approval of Second Amended Settlement
Agreement and Stipulation and Class Notice
EXHIBIT 6 8-29-2013 Second Amended Settlement Agreement and
Stipulation
EXHIBIT 7 2013 Order of Preliminary Approval
EXHIBIT 8 4-28-2015 Charles O. “Chuck” Grigson’s Plea in
Intervention and Objection to Preliminary Approval of
Second Amended Settlement Agreement
EXHIBIT 9 4-29-2014 Hearing Transcript
EXHIBIT 10 9-4-2014 Hearing Transcript
EXHIBIT 11 3-4-2015 Supplement to the Second Amended Settlement
Agreement and Stipulation
EXHIBIT 12 7-2-2015 Hearing Transcript
EXHIBIT 13 8-29-2013 Redline Second Amended Settlement Agreement
and Stipulation
EXHIBIT 14 3-6-2015 State of Texas and Farmers Parties’ Joint Motion
for Preliminary Approval of Second Amended Settlement
Agreement and Stipulation, Supplement Thereto, and Class
Notice
EXHIBIT 15 7-7-2003 03-03-00374 Third Court of Appeals Order
Staying Sending of Class Notice
APPELLANT GRIGSON’S APPENDIX 2
EXHIBIT 1
TO APPELLANT GRIGSON’S RESPONSE TO
APPELLEES’ JOINT MOTION TO DISMISS APPEAL FOR
LACK OF APPELLATE JURISDICTION
Filed in The District Court
of Travis County, Texas
JUL -6 2015 ~
CAUSE NO. GV202501
At q·.S4 ~ - M.
Velva L. Price, District Clerk
THE STATE OF TEXAS, THE TEXAS § IN THE DISTRICT COURT
DEPARTMENT OF INSURANCE, and §
THE TEXAS COMMISSIONER OF §
INSURANCE, §
§
Plaintiffs, §
§
v. §
§
FARMERS GROUP, INC. , FARMERS §
UNDERWRITERS ASSOCIATION, FIRE § OF TRAVIS COUNTY, TEXAS
UNDERWRITERS ASSOCIATION, §
FARMERS INSURANCE EXCHANGE, §
FIRE INSURANCE EXCHANGE, TEXAS §
FARMERSINSURANCECONWANY, §
MID-CENTURY INSURANCE CONWANY §
OF TEXAS, MID-CENTURY INSURANCE §
CONWANY, FARMERS TEXAS COUNTY §
MUTUAL INSURANCE CONWANY, §
TRUCK INSURANCE EXCHANGE, and §
TRUCK UNDERWRITERS § 261ST JUDICIAL DISTRICT
ASSOCIATION,
Defendants.
ORDER OF PRELIMINARY APPROVAL
This matter came on for hearing on July 1 and 2, 2015, for preliminary approval of the
Second Amended Settlement Agreement and Stipulation of December 18, 2002, as amended on
June 13, 2003 , and as further amended on August 29, 2013 , and the Supplement to the Second
Amended Settlement Agreement and Stipulation of March 4, 2015 (collectively referred to as
" Second Amended Settlement Agreement" or " Settlement Agreement") between the State of
Texas, the Texas Department of Insurance, and the Texas Commissioner of Insurance, on behalf
of Texas policyholders of the Defendants in the classes defmed below (collectively, the " State")
and Fire Underwriters Association, Farmers Group, Inc. d/b/a Farmers Underwriters Association,
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Farrp.ers Insurance Exchange, Fire Insurance Exchange, Texas Farmers Insurance Company,
Mid-Century Insurance Company of Texas, Mid-Century Insurance Company, Farmers Texas
County Mutual Insurance Company, Truck Insurance Exchange, and Truck Underwriters
Association (collectively, the "Farmers Parties"). The State and the Farmers Parties have moved
jointly, pursuant to Texas Rule of Civil Procedure Rule 42(e) and Texas Insurance Code
§ 541.266, for an Order of Preliminary Approval ("Order") (1) preliminarily approving the
settlement of all claims asserted in the above-captioned cause ("Action"), the terms of which are
set forth in the Second Amended Settlement Agreement, which has been filed with the Clerk of
the Court, and (2) approving the proposed notice to the Classes.
The Court having read and considered the Second Amended Settlement Agreement and
attached exhibits, including the proposed Notice of Proposed Class Settlement, the proposed
Claim Form, the proposed form of Final Judgment, exhibits, pleadings and record in this case,
the evidence and other materials presented at the hearing, and argument of counsel and
applicable authorities, fmds that there exists substantial and sufficient grounds for entering this
Order.
IT IS THEREFORE ORDERED, ADJUDGED, AND DECREED THAT:
1. The Court, for purposes of this Order, adopts all defmed terms as set forth in the
Settlement Agreement.
2. The Court has previously certified, only for purposes of effectuating the
Settlement Agreement, the following Settlement Classes ("Settlement Classes"):
(i) All of the Exchanges' Texas homeowners insurance policyholders
(a) whose homeowners insurance policy incepted (including renewals)
from December 28, 2001, through and including December 27, 2002, or
(b) who received a notice at any time after November 14, 2001, that their
HO-B policy would not be renewed ("Rate Class");
2
(ii) All of the Exchanges' Texas homeowners insurance policyholders who
according to Farmers' records were eligible to receive discounts for
FPRA, age of home, or territory from November 16, 2000, through and
including December 10, 2002 ("Discount Class"); and
(iii) All Texas homeowners or automobile insurance policyholders of the
Exchanges or the Automobile Insurance Providers who according to
Farmers ' records were provided or should have been provided a Credit
Usage Notice from October 1, 1999, through February 28, 2003 ("Credit
Usage Notice Class")
That certification decision has been affirmed in its entirety by the appellate courts of Texas.
Farmers Grp., Inc. v. Lubin, 222 S.W.3d 417, 420, 427-28 (Tex . 2007) (holding that "the
standard class action requirements must be applied generally to the claims asserted by Attorney
General, not the Attorney General himself," and directing court of appeals to address
intervenors ' remaining points of error on remand); Lubin v. Farmers Grp., Inc., No. 03-03-
00374-CV, 2009 WL 3682602, at *26-32 (Tex. App. -Austin Nov. 6, 2009, no pet.) (overruling
intervenors' other objections to certification).
5. The Court further finds that at no time during the course of this litigation has there
been any collusion whatsoever between the State and the Farmers Parties with respect to
negotiating the Settlement Agreement and that the State has represented, and will continue to
represent, the interests of the Farmers' policyholders fairly and adequately and without a conflict
of interests. Accordingly, the Court preliminarily approves : (a) the Second Amended Settlement
Agreement, including the terms and the releases contained in it, as being fair, just, reasonable,
and adequate as to the Settlement Classes; and (b) the Settlement Funds described in the
Settlement Agreement, including the Prospective Rate Reduction, Retrospective Rate Reduction,
Individualized Discount Adjustment, Credit Usage Notice Fund, and the proposed additional
consideration, subject to the right of any member of the Settlement Classes to exclude himself or
herself from the Settlement Classes in accordance with the terms set forth in the Settlement
3
Agreement, and to show cause, if any exists, why a Final Judgment should not be entered in
accordance with the terms of the Settlement Agreement.
6. A hearing ("Settlement Hearing") shall be held before this Court on February 1,
2016, at 9:00 a.m. in the 53rd Judicial District Court Room: (a) to determine whether the
proposed Second Amended Settlement Agreement is fair, reasonable, and adequate and should
be approved, and whether the Final Judgment should be entered as to claims asserted in this
litigation, or which could have been asserted, against the Released Parties on the merits; (b) to
determine whether the Settlement Classes members' right to adequate representation has been
satisfied; and (c) to reserve jurisdiction to effect and enforce the Settlement Agreement.
7. The Farmers Parties shall disseminate notice of the proposed Second Amended
Settlement Agreement and Settlement Hearing to putative members of the Settlement Classes
within sixty (60) days of the date of this Order. The Court approves Rust Consulting, an
independent third-party settlement administrator, as Farmers ' agent to carry out the notice
campaign and settlement administration as approved by the Court. A copy of the Notice of
Proposed Class Settlement (''Notice"), together with a copy of the Claim Form, substantially in
the forms attached as Exhibits 1 and 2, shall be mailed by first-class U.S . mail, postage prepaid,
to all members of the Settlement Classes at the address of each such person as set forth in the
records of the Released Parties or as otherwise may be identified through reasonable effort, as
more thoroughly explained in the March 28, 2014, Affidavit of Kimberly K. Ness and the May
29, 2015, Declaration of Joel K. Botzet of Rust Consulting. In addition, commencing within
seven (7) days of the date of this Order and continuing until the date of the Settlement Hearing,
the Office of the Attorney General, the Texas Department of Insurance, and the Farmers Parties
shall post on their respective Internet web-sites (www .texasattorneygeneral.gov,
4
www.tdi.texas.gov and www.fanners.com), as well as at www.TexasFannersSettlement.com, a
Summary Notice of Settlement, substantially in the form attached as Exhibit 3 ("Summary
Notice") (in both English and Spanish). The Court will permit the Parties to the Settlement
Agreement to additionally post the following items on the TexasFarmersSettlement.com website:
(a) a copy of the executed Second Amended Settlement Agreement (and exhibits) and
(b) Commonly Asked Questions and Answers that are either approved by the Parties or ordered
by the Court.
8. The Court approves the form of the class Notice, the Summary Notice, and the
Claim Form, and finds that the procedures established for mailing and distributing such notices
substantially in the manner and form set forth in paragraph 7 of this Order meet the requirements
of Rule 42 of the Texas Rules of Civil Procedure and§§ 541.261 and 541.267(b) of the Texas
Insurance Code, and due process, and constitute the best notice practicable under the
circumstances.
9. To effectuate the provision of notice provided in paragraph 7 above, the Farmers
Parties shall be responsible for the receipt of all responses from the members of the Settlement
Classes and, until further order of this Court, shall preserve all entries of appearance, Claim
Forms, requests for exclusion, and any and all other written communications from members of
the Settlement Classes or any other person in response to the Notice. The costs of notification of
the Settlement Classes as provided in this Order, including printing, mailing, and posting on the
Internet of the required notices shall be borne by the Party charged with the responsibility for
such actions in paragraph 7 this Order.
10. Three (3) days before the date fixed by this Court for the Settlement Hearing, the
State and the Farmers Parties shall cause to be filed with the Clerk of the Court affidavits or
5
declarations of the person or persons under whose general direction the mailing of the Notice and
the distribution of the Summary Notice by posting on the web-sites identified in paragraph 7
shall have been made, showing that such mailing and distribution have been made in accordance
with this Order.
11. Each member of the Settlement Classes will be bound by the proposed settlement
provided for in the Settlement Agreement, and by the Final Judgment or any other determination
by this Court affecting the Settlement Classes, unless such member shall mail, by first-class U.S .
mail, a written request for exclusion from the Settlement Classes, post-marked no later than
November 13, 2015, addressed to State of Texas v. Farmers Settlement Administrator, Rust
Consulting, Inc.; P.O. Box 9348; Minneapolis, MN, 55440-9348. Such request for exclusion
must state: (a) the name, address and telephone number of the person seeking exclusion;
(b) whether such person has a homeowners or automobile insurance policy from the Farmers
Parties, or both; (c) the date of inception of such policy(ies) and the most recent date of renewal
for such policy(ies), if available; (d) the policy number(s), if available; and (e) that the person
making the request wishes to be excluded from the Settlement Classes. Because the Settlement
Agreement is intended to be a resolution of all Released Claims, any person requesting exclusion
must either exclude himself or herself from the Settlement Agreement in its entirety, or submit to
the Settlement Agreement in its entirety. A request for exclusion shall not be effective unless it
is made in the manner and within the time set forth in this paragraph and in the Notice. If a
member of the Settlement Classes requests to be excluded, that person will not receive any
benefit from the Retrospective Rate Reduction, the Individualized Discount Adjustment, or the
Credit Usage Notice Fund provided for in the Settlement Agreement, in the event the Settlement
Agreement is approved by the Court. Nor will such person be permitted to participate further in
6
the Action. Any Class Member who does not request exclusion in the manner provided for in
this Order may, but need not, enter an appearance in this Action at his or her own cost through
counsel of his or her own choice. If a member of the Settlement Classes does not enter an
appearance, that person' s interests will be represented by the State in the Action.
12. Any member of the Settlement Classes who has not requested exclusion from the
Settlement Classes may appear at the Settlement Hearing, in person or through counsel, to object
and be heard in opposition to any of the matters to be heard at the Settlement Hearing, including
(a) the requested approval of the Settlement Agreement as fair, adequate, and reasonable, and/or
(b) the requested entry of the Final Judgment. A member of the Settlement Classes cannot
request exclusion from the Settlement Classes AND object to the Settlement Agreement. For
any objection to be considered by the Court, the objector must mail a valid written objection, and
it must be postmarked by no later than November 13, 2015. In order to be valid, the written
objection must set forth: (a) a reference, at the top, to "State of Texas v. Farmers, Cause No.
GV202501 ;" (b) a statement as to whether the objector intends to appear at the Settlement
Hearing, either in person or through counsel; (c) a detailed statement of the specific basis for the
objection; (d) the name that is set forth on the Notice that was sent to the objector; (e) the
objector' s current name, if different from the name set forth on the Notice; (f) the objector' s
current address; (g) the objector' s current telephone number and, if available, telecopier number;
(h) the objector' s type of policy and policy number; and (i) the objector's signature or that of his
or her authorized representative. Three copies of the written objection must be sent, the first
addressed to the District Clerk of Travis County, Texas, 1000 Guadalupe Street, Austin, Texas
78701 , the second addressed to Joshua R. Godbey, Assistant Attorney General, Financial
Litigation, Tax, and Charitable Trusts Division, Office of the Attorney General, P.O. Box 12548,
7
Austin, Texas 78711-2548, and the third addressed toM. Scott Incerto, Norton Rose Fulbright
US LLP, 98 San Jacinto Boulevard, Suite 1100, Austin, Texas 78701. If an objection does not
include all of the required information or if it is not timely mailed to the three correct addresses,
then it shall be invalid, and it will not be considered by the Court. Any member of the
Settlement Classes who does not object in the manner provided shall be deemed to have waived
such objection and shall forever be foreclosed from making any objection to the fairness,
adequacy, or reasonableness of the Settlement Agreement and the proposed Final Judgment.
Any replies to such objections shall be filed by December 15, 2015.
13. If the Court gives final approval to the Settlement Agreement and enters a fmal
judgment, in order to be entitled to participate in the Credit Usage Notice Fund portion of the
Settlement Agreement, a member of the Credit Usage Notice Class who has not requested
exclusion from the Settlement Classes must submit a Claim Form, substantially in the form
attached as Exhibit 2, to the Claims Administrator at the address set forth in the Notice. Such
Claim Form must be completed and postmarked on or before April 1, 2016. Any member of the
Credit Usage Notice Class who does not submit a completed Claim Form and follow the process
for certifying review of his or her individual credit report as provided for in section IV(4) of the
Settlement Agreement shall not be entitled to share in the Credit Usage Notice Fund, but
nonetheless shall be bound by the terms of the Second Amended Settlement Agreement and by
the Final Judgment and any other Order of this Court approving the Second Amended Settlement
Agreement, including all releases, and shall be barred and enjoined in this or any other action
from asserting any Released Claims.
14. Members of the Rate and Discount Classes shall automatically receive their share
of Settlement Funds within 30 days after the Effective Date of the Second Amended Settlement
8
Agreement, unless they file a written request for exclusion from the Settlement Classes as
provided in paragraph 11 above.
15. The Court expressly retains the power to adjourn the Settlement Hearing, without
any further notice other than an announcement at the Settlement Hearing of adjournment, and to
approve, modify, or disapprove the Second Amended Settlement Agreement without further
notice to members of the Settlement Classes. The Court retains jurisdiction over this Action to
consider all further applications arising out of or connected with the proposed settlement.
16. The administration of the Second Amended Settlement Agreement, and the
decision of all disputed questions of law and fact with respect to the validity of any claim or right
of any person to participate in the distribution of the Settlement Fund, shall be under the
authority of the Court. The Parties to this Second Amended Settlement Agreement, their counsel
in any capacity in which they may act in implementation and fulfillment of the Settlement
Agreement, and any employees or agents of such law firms or the Parties to the Second
Amended Settlement Agreement (including, without limitation, those employees who may
furnish services in connection with the proposed Settlement) shall not be liable for anything done
or omitted in connection with the Second Amended Settlement Agreement and its administration
except for their own willful misconduct.
17. The Parties to the Settlement Agreement are directed to carry out their obligations
under the Second Amended Settlement Agreement.
18. In the event that the Second Amended Settlement Agreement is not approved by
the Court, or the Court enters the Final Judgment and it is vacated or modified on appeal, or
otherwise altered in a material way, or the Effective Date for any other reason does not occur,
and if any Party to the Second Amended Settlement Agreement accordingly exercises its right to
9
terminate the Settlement Agreement pursuant to its terms, then the Second Amended Settlement
Agreement and any actions to be taken in connection with it shall be vacated and terminated and
shall become null and void for all purposes, and all negotiations, transactions and proceedings
connected with it (a) shall be without prejudice to the rights of any Party; (b) shall not be deemed
or construed as evidence or an admission by any Party of any fact, matter or thing; and (c) shall
not be admissible in evidence or used for any purpose in any subsequent proceeding in the
Action, or any other action or proceeding in this or any other forum, judicial, administrative, or
otherwise, except proceedings to enforce the Settlement.
SIGNED `` Z1Lr_ ,2015.
10
Exhibit 1
261 ST DISTRICT COURT OF TRAVI S COUNTY, TEXAS
If You Had Certain Home or Auto Insurance in Texas,
You May Be Eligible for Benef its from a Class Action Settlement.
A Texas court authorized this notice. This is not a solicitation from a lawyer.
• You have been identified from Farmers' records as someone who had a homeowners
or automobile insurance policy in Texas between October 1999 and February 2003.
• A Settlement has been reached with certain Insurance Exchanges and Providers ("the
Defendants," see Question I for a complete list) in a class action lawsuit about the
pricing and marketing of certain homeowners and automobile insurance policies.
Generally, the Settlement includes Texas homeowners or automobile insurance
policyholders who had certain types of insurance policies with the Defendants between
October l , 1999 and February 28, 2003 (see Questions 5 & 6).
• The Settlement provides payments to eligible policyholders for rate reductions or
discounts on past insurance premiums and free credit reports and payments of $35 for
not receiving adequate notice from the Defendants about their use of credit information
(see Question 9).
Your legal rights are affected even if you do nothing. Please read this notice
carefully.
YOUR LEGAL RIGHTS AND OPTIONS IN THIS SETTLEMENT
SUBMIT A CLAIM The only way to get a payment under the Credit Usage Fund (see Question
13).
ASK TO BE Get no benefits from the Settlement. This is the only option that allows
EXCLUDED you to sue the Defendants over the claims resolved by this Settlement.
OBJECT Write to the Court if you don ' t like the Settlement.
Go TO A HEARING Ask to speak in Court about the fairness of the Settlement.
Do NOTHING Receive payment (if eligible) as a member of the Rate Class or Discount
Class. Do not receive payment under the credit usage fund. Give up
rights to pursue your own lawsuit about the claims this Settlement
resolves.
• These rights and options-and the deadlines to exercise them-are explained in this
notice.
• The Court in charge of this case still has to decide whether to approve the Settlement.
Payments will only be made if the Court approves the Settlement and after any appeals
are resolved. Please be patient.
QUESTIONS? CALL 1-888-222-0691 OR VISIT WWW.TEXASfARMERSSETTLEMENT.COM
PARA UNA NOTIFICACION IN ESPANOL, LLAMAR 0 VISITAR NUESTRO WEBSITE.
What This Notice Contains
BASIC INFORMATION ...................................................................................................... 3
I. Why is there a notice?
2. What is this lawsuit about?
3. Why is this a class action?
4. Why is there a Settlement?
WHO IS PART OF THE SETTLEMENT? ........................................................................... 4
5. Who is incl uded in the Settlement?
6. What type of insurance policies are involved in the Settlement?
7. What is a Credit Usage Notice?
8. What if I am not sure whether I am included in the Settlement?
THE SETTLEMENT BENEFITS ......................................................................................... 5
9. What does the Settlement provide?
10. What can I get from the Settlement?
II. When will I receive my payment?
12. What am I giving up to stay in the Settlement Class?
HOW TO GET BENEFITS .................................................................................................. 6
13. How do I get benefits?
EXCLUDING YOURSELF FROM THE SETTLEMENT ...................................................... 7
14. How do I get out ofthe Settlement?
15. If I do not exclude myself, can I sue the Defendants for the same thing later?
16. If I exclude myself, can I still get benefits from this Settlement?
17. What about other cases involving the issues in this case?
WHO REPRESENTS ME IN THIS CASE? ........................................................................ 8
18. Who represents my interests in this case?
OBJECTING TO THE SETTLEMENT ................................................................................ 8
19. How do I tell the Court if I do not like the Settlement?
20. What is the difference between objecting and asking to be excluded?
THE SETTLEMENT HEARING .......................................................................................... 9
21. When and where will the Court decide whether to approve the Settlement?
22. Do I have to attend the hearing?
23. May I speak at the hearing?
GETTING MORE INFORMATION ...................................................................................... 9
24. How do I get more information?
QU ESTIONS? C ALL 1-888-222-0691 OR VISIT WWW.TEXASFARMERSSETTLEMENT.COM
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BASIC INFORMATION
II. Why is there a notice?
A Court authorized this notice because you have a right to know about a proposed Settlement of this class
action lawsuit and about all of your options before the Court decides whether to give final approval to the
Settlement. This notice explains the lawsuit, the Settlement, and your legal rights.
Judge Scott H. Jenkins of the 261"' Judicial District Court of Travis County, Texas is overseeing this case.
This litigation is known as State ofTexas v. Farmers Group, Inc., No. GV202501 . The people who sued
are called the " Plaintiffs." The Defendants are: Farmers Group, Inc., Farmers Underwriters Association,
Fire Underwriters Association, Farmers Insurance Exchange, Fire Insurance Exchange, Texas Farmers
Insurance Company, Mid-Century Insurance Company of Texas, Mid-Century Insurance Company,
Farmers Texas County Mutual Insurance Company, Truck Insurance Exchange, and Truck Underwriters
Association.
I 2. What is this lawsuit about?
The lawsuit claims that, during 1999 to 2003, the Defendants:
• Charged rates that resulted in excessive premiums for its homeowners policies written on a
form approved by the Texas Department of Insurance ("TDI") called the HO-A and used unfair
or deceptive practices involving the determination of certain fees, discounts, and policy
offerings, and improper use of credit scoring and certain risk assessments.
• Failed to provide adequate notices that information on certain policyholders' credit reports may
have impacted their premiums or policy placement and used anticompetitive practices in the
sale and marketing of homeowners and automotive insurance policies.
• Improperly stopped offering a type of homeowners policy called the HO-B .
The Defendants deny these claims and maintain they did nothing wrong.
I 3. Why is this a class action?
In a class action, one or more people or entities sue on behalf of themselves and other people with similar
claims. All of these people together are the "class" or "class members." In this case, the representative
entities are the State of Texas, the TO!, and the Texas Commissioner of Insurance. One court resolves the
issues for all Class Members, except for those who exclude themselves from the Class.
I 4. Why is there a Settlement?
The Court has not decided in favor of the Plaintiffs or the Defendants. Instead, both sides have agreed to a
Settlement. By agreeing to the Settlement, the Parties avoid the costs and uncertainty of a trial, and Class
Members receive the benefits described in this notice. The proposed Settlement does not mean that any
law was broken or that the Defendants did anything wrong. The Defendants deny all legal claims in this
case. The TDI, the Texas Commissioner of Insurance, and the Attorney General of Texas think the
proposed Settlement is best for everyone who is affected.
QUESTIONS? CALL 1-888-222-0691 OR VISIT WWW.TEXASfARMERSSETTLEMENT.COM
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WHO Is PART OF THE SETTLEMENT?
If you received this notice addressed to you in the mail (without requesting it), then you may be a member
of one or more Settlement Classes. But even if you did not receive a notice, you may be a Class Member,
as described below.
I 5. Who is included in the Settlement?
The Settlement includes three Classes. You may be member of more than one Class. You are included if
you are or were covered under an included Texas policy issued by one of the Defendants and you meet the
following criteria:
CLASS T YPE OF POLICY CLASS DEFINITION
Policy began (or was renewed) from December 28,
Rate Class Homeowners policy 200 I through November 10, 2002, or you received a
notice at any time after November 14, 200 I, that your
HO-B policy would not be renewed (see Question 6).
Policy where, according to Defendants' records, you are
Discount Class Homeowners policy eligible under the Settlement to receive recalculated
discounts on your premiums from November 16, 2000
through December I 0, 2002.
Policy where, according to Defendants' records, you
Credit Usage Homeowners or were provided or should have been provided a Credit
Notice Class automobile insurance Usage Notice from October I, 1999 through February
policy 28, 2003.
I 6. What types of insurance policies are involved in the Settlement?
The Settlement includes Farmers homeowners policies written on TDI-endorsed forms described as HO-A
(including TDP-1), HO-B (including HO-Protector Plus, H0380 endorsement, TDP-2, TDP-3, DF-B uilders
Risk, and HO-A with H0- 170 endorsement), HO- B-CON, and HO-B-T, and all endorsements approved by
TDI for use with such forms during the time periods described above. It also includes Farmers private
passenger automobile insurance policies during the same time.
I 7. What is a Credit Usage Notice?
A Credit Usage Notice is a notice of "adverse action" under the Fair Credit Reporting Act ("FCRA"), a
U.S . federal law. Adverse action could mean bei ng denied credit, receiving substandard terms from a
lender, or, as in this case, receiving higher insurance rates or being placed with a different insurer because
of your credit information.
As part of the claim process (see Question 13), Credit Usage Notice Class Members will have the
opportunity to access and review a copy of their cred it reports.
QUESTIONS? C ALL 1-888-222-0691 OR VISIT WWW.TEXASFARMERS5ETTLEMENT.COM
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I 8. What if I am not sure whether I am included in the Settlement?
If you are not sure whether you are included in the Settlement, you may call 1-888-222-0691 with questions
or visit www.TexasFarmersSettlement.com. You may also write with questions to Texas Farmers
Settlement, P.O. Box 9348, Minneapolis, MN 55440-9348.
THE SETTLEMENT BENEFITS
I 9. What does the Settlement provide?
If the Settlement is approved and becomes final , it will provide certain cash benefits to eligible Class
Members. There are approximately 1.8 million members of the Settlement Classes, but not all Class
Members are eligible to receive cash payments for rate reductions or discounts. The Defendants will pay a
total of$84.38 million to those members ofthe Rate Class and Discount Class who are eligible to receive
a payment from the Settlement. The Defendants w ill also provide payments of$35 to eligible Credit Usage
Notice Class Members who timely file proofs of claim and follow the process outlined in the Claim Form
and in section IV(4) of the Settlement Agreement (see Question 13).
Policyholders who renewed or received a new HO-A insurance policy from the Defendants after November
II , 2002 and before September 1, 2003, have already received an additional reduction in premiums.
More details are in a document called the Settlement Agreement, which is available at
www. TexasFarmersSettlement.com.
Ito. What can I get from the Settlement?
Not every Class Member will receive a payment. The amount of your payment will depend on which Class
you are in and whether you are eligible to receive a payment under the terms of the Settlement Agreement.
Depending upon your eligibility, you may receive payments under one or more of the Settlement Classes.
Class Members may receive the following:
CLASS B ENEFITS NEED TO FILE A CLAIM?
Rate Class Payments for rate reductions on No, payments for rate reductions
HO-A prem iums (amounts wi ll will be automatic for all eligible
vary). Rate Class Members.
Discount Class Compensation for eligible Class No, payments to eligible
Members based on negotiated Discount Class Members will be
discounts (amounts will vary). automatic.
Credit Usage Notice Class Free access to policyholder Yes (see Question 13).
credit report from Equifax and
$35 payment if you complete the
Claim Form process.
The Defendants also agreed to replace their Credit Usage Notice forms for Texas homeowners and
automobile insurance policies with forms approved by the Texas Department oflnsurance (TDI) and agreed
to change certain marketing practices.
Q UESTIONS? C ALL 1-888-222-0691 OR VISIT WWW.TEXASFARMERS5ETTLEMENT.COM
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I 11. When will I receive my payment?
Class Members who are entitled to payments will receive them after the Court grants final approval to the
Settlement and after any appeals are resolved (see "The Settlement Hearing" below). If there are appeals,
resolving them can take time. Please be patient.
I 12. What am I giving up to stay in the Settlement Class?
If the Settlement becomes final , you will give up your right to sue the Defendants for the claims being
resolved by this Settlement unless you exclude yourself from the case. The specific claims you are giving
up against the Defendants are described in Section I of the Settlement Agreement. You will be "releasing"
the Defendants and all related people as described in Section I of the Settlement Agreement. The Settlement
Agreement is availab le at www.TexasFarmersSettlement.com.
The Settlement Agreement describes the "Released Claims" with specific descriptions, so read it carefully .
If you have any questions about what this means, you can write to the Office of the Attorney General,
Consumer Protection Division, P.O. Box 12548, Austin, TX 78711 -2548. You can also talk to your own
lawyer, if you have one.
Note: The release does not include individual claims or complaints about claims, payments, handling or
processi ng made by individual po licyholders or the TD I. The release also does not include certain claims
made in two other class action lawsuits:
• Geter v. Farmers Group, Inc., No. E-0167872-a class action relating to homeowners' insurance
requesting a non-monetary j ud icial statement that Farmers acted improperly in not renewing HO-
B policies for the class members, as was certified for a class action in the 172nd District Court of
Jefferson County, Texas.
• State of Texas v. Texas Farmers Insurance Company, No. GV000271-a class action relating to
automobile insurance in the 2001h Judicial District Court of Travis County, Texas.
How To GET BENEFITS
I 13. How do I get benefits?
If you are a member of the Rate Class or Discount Class eligible to receive benefits under the Settlement
Agreement, you will receive your payment automatically once the Settlement is finally approved. To file
a claim as a member of the Credit Usage Notice Class, you must complete and submit a Claim Form . If
you did not receive a Claim Form in the mail, you can request a Claim Form at
www.TexasFarmersSettlement.com or by calling 1-888-222-0691. Please read the instructions carefully,
fill out the Claim Form and mail it postmarked no later than Month 00, 2015 to:
Texas Farmers Settlement
P.O. Box 9348
Minneapolis, MN 55440-9348
QU ESTIONS? CALL 1-888-222-0691 OR VISIT WWW.TEXASFARMERSSETILEMENT.COM
-6-
EXCLUDING YOURSELF FROM THE SETTLEMENT
If you don ' t want benefits from this Settlement, and you want to keep the right to sue the Defendants about
the issues in thi s case, then you must take steps to get out of the Settlement. This is called excluding
yourself--or it is sometimes referred to as "opting out" of the Classes.
I 14. How do I get out of the Settlement?
To exclude yourself from the Settlement Classes, you must mail a letter that says you want to be excluded
from the Settlement in State of Texas v. Farmers Group, Inc., No. GV20250 I. Your request must include:
• Your name, address, and telephone number;
• Whether you have or had a homeowners or automobile insurance policy from the Defendants,
or both;
• The date the policy(ies) began and the most recent date of renewal (if known) ;
• The policy number(s); and
• Your signature.
You must mail your exclusion request, postmarked no later than Month 00,2015, to:
Texas Farmers Settlement Exclusions
P.O. Box 9348
Minneapolis, MN 55440-9348
You cannot ask to be excluded on the phone, by email, or at the website.
Its. If I do not exclude myself, can I sue the Defendants for the same thing later?
No. Unless you exclude yourself, you give up the right to sue the Defendants for the claims that this
Settlement resolves.
lt6. If I exclude myself, can I stiU get benefits from this Settlement?
No. You will not get the benefits provided if you exclude yourselffrom the Settlement. However, if you
renewed an HO-A homeowners policy with the Defendants, the prospective Rate Reduction was reflected
in your premiums between November 10, 2002 and September I, 2003.
lt7. What about other cases involving the issues in this case?
You may have received or seen other notices about other class actions about insurance policy options,
premium rates, and/or credit usage, including:
• Fogel v. Farmers Group, Inc., No. BC 300142, a nationwide class in the Superior Court for the
State of California for the County of Los Angeles (the " Fogel Action");
• Geter v. Farmers Group, Inc., No. E-0 167872 in the 172"d District Court in Jefferson County, Texas
(the "Geter Action"); and
• In re: Farmers Insurance Co. , Inc. FCRA Litigation, No. ClV-03-158-F, a nationwide class that
includes all cases consolidated and coordinated in MDL No. 1564 in the U.S. District Court for the
Western District of Oklahoma (often referred to as the " Mobbs Action").
Q UESTIONS? C ALL 1-888-222-0691 OR VISIT WWW. TEXASFARMERSSETTLEMENT.COM
-7-
If you were a Class Member in the Fogel Action, you are eligible to participate in this Settlement as well.
If you do not exclude yourse lf from this Settlement, you can receive benefits here and also participate in
the Geter Action by seeking a judicial statement that Farmers acted improperly in not renewing HO-B
homeowners policies to the class members. However, except as provided in the Settlement Agreement,
you will give up all other claims, incl uding any claims for monetary damages, related to the Geter Action.
If you filed a claim in the Mobbs Action (which was also FCRA-related), you are eligible to participate in
the Rate Class and Discount Class benefits, but you are not eligible to receive a payment under the Credit
Usage Fund.
WHO REPRESENTS ME IN THIS CASE?
I 18. Who represents my interests in this case?
Your interests wi II be represented by the State of Texas through the Office of the Attorney General. You
will not be charged for their services. By law, the Office of the Attorney General cannot represent you
individually. If you want to be represented individually by your own lawyer, you are free to hire one at
your own expense. You may write with any questions you may have about the information in this Notice
to:
Office of the Attorney General
Consumer Protection Division
P.O. Box 12548
Austin, TX 78711-2548
OBJECTING T o THE SETTLEMENT
119. How do I tell the Court if I do not Uke the Settlement?
If you are a member of the Settlement C lasses (and do not exclude yourself), you can object to any part of
the Settlement or the Settlement as a whole. To object, you must mail a letter that includes the fo llowi ng:
• A reference at the top to: State of Texas v. Farmers Group, Inc. , No. GV20250 I;
• Whether you intend to appear at the Settlement Hearing in person or through a lawyer (see
Question 22);
• A detailed statement of the reasons you object to the Settlement;
• Your name (and your previous name if the name on the notice you were mailed was different),
address, telephone number, and fax number (if you have one);
• Your type ofpolicy(ies) and the policy number(s); and
• Your signature (or the signature of your authorized representative).
The requirements to object to the Settlement are described in detail in the Settlement Agreement in section
VII . You must mail your objection to each of the fo llowing three addresses, and your objection must be
postmarked by Month 00, 2015:
QUESTIONS? C ALL 1-888-222-0691 OR VISIT WWW.TEXASFARMERS5ETTLEMENT.COM
- 8-
COURT A TTORNEY GENERAL DEFENSE COUNSEL
District Court Clerk of Travis Joshua R. Godbey M. Scott lncerto
County, Texas Assistant Attorney General Norton Rose Fulbright US LLP
1000 Guadalupe Street Office of the Attorney General 98 San Jacinto Blvd., Suite
Austin, TX 7870 l P.O. Box 12548 1100
Austin, TX 78711-2548 Austin, TX 7870 I
I 20. What is the difference between objecting and asking to be excluded?
Objecting is simply telling the Court that you don't like something about the Settlement. You can object
only if you don ' t exclude yourselffrom the Classes. Excluding yourself is telling the Court that you don ' t
want to be part of the Classes. If you exclude yourself, you have no basis to object because the case no
longer affects you.
THE SETILEMENT HEARING
The Court will hold a hearing to decide whether to approve the Settlement. You may attend and you may
ask to speak (see Questions 22 & 23), but you do not have to.
I 21. When and where will the Court decide whether to approve the Settlement?
The Court will hold a Settlement Hearing at XX:OO x.m. on Month 00, 2015, at the District Court of Travis
County, Texas, 1000 Guadalupe Street, Austin, TX 7870 I. The hearing may be moved to a different date
or time without additional notice, so it is a good idea to check www.TexasFarrnersSettlement.com or call
1-888-222-0691. At this hearing, the Court will consider whether the Settlement is fair, reasonable, and
adequate. If there are objections, the Court will consider them and will listen to people who have asked to
speak at the hearing. After the hearing, the Court will decide whether to approve the Settlement. We do
not know how long these decisions will take.
I 22. Do I have to attend the hearing?
No. The Office of the Attorney General will answer any questions the Court may have. But you or your
own lawyer are welcome to attend at your expense. If you send an objection, you do not have to come to
Court to talk about it. As long as you mailed your written objection on time, the Court will consider it.
You may also have your own lawyer attend, but it is not necessary.
I 23. May I speak at the hearing?
You may ask the Court for permission to speak at the Settlement Hearing.
GETTING MORE INFORMATION
I 24. How do I get more information?
This notice summarizes the proposed Settlement. More details are in the Settlement Agreement. You can
get a copy of the Settlement Agreement at www.TexasFarmersSettlement.com. You also may write with
questions to Texas Farmers Settlement, P.O. Box 9348, Minneapolis, MN 55440-9348 or call the toll-free
QUESTIONS? C ALL 1-888-222-0691 OR VISIT WWW.TEXASFARMERSSETTLEMENT.COM
-9-
number, 1-888-222-0691. You can also request a C laim Form at the website, or by calling the toll free
number.
You may also write with any questions you may have about the information in this Notice to: Office of the
Attorney General, Consumer Protection Division, P.O. Box 12548, Austin, TX 78711 -2548. You can also
get a copy of the Settlement Agreement at that address or at www.tdi.state.tx.us. Please do not contact the
Court with any questions about the Settlement Agreement.
QUESTIONS? CALL 1-888-222-0691 OR VISIT WWW.TEXASFARMERSSETILEMENT.COM
- I0 -
Exhibit 2
Must Be Texas Farmers Settlement Administrator
Postmarked P.O. Box 9348
No Later Than Minneapolis, MN 55440-9348
Month 00, 2015
NAME I ADDRESS CORRECTIONS
CLAIM FORM
TEXAS FARMERS SETTLEMENT
TO:
If you are a member of the Rate Class or Discount Class, you will receive your payment automatically once the
Settlement is finally approved. To file a claim as a member of the Credit Usage Notice Class, you must complete and
submit this Claim Form providing the information requested below.
More information is available at the official Settlement website, www.TexasFarmersSettement.com or call 1-888-222-
0691. Please print clearly in blue or black ink. This Claim Form must be mailed and postmarked by Month 00, 2015.
1. CLASS MEMBER INFORMATION.
Name of Class Member:
----------------------------
Address: ---------------------------------------------------------------------
Telephone Number: ' - - - - - - - - - - - - - - - - - - - 1 ___________________________
2. INSURANCE P OLICY INFORMAT ION.
Homeowners' Policy Information (if applica ble):
Name(s) of Insured(s), if different from above:
Policy Number(s): _ _ _ _ _ _ _ _ _ _ __ Starting Date ofPolicy(ies): _ _ _ _ _ _ _ _ __ __
Address of Insured Premises: ------------------------------------------------------
Name of Agent:
Automobile Policy Information (if applica ble):
Name(s) oflnsured(s), if different from above: ____.:.___ _ _ _ _ _ _ __
Policy Number(s): _ _ _ _ _ _ _ _ _ ____ Effective Date ofPolicy(ies): _ _ _ _ _ _ _ _ _ _ __
Q UESTIONS? C ALL T OLL-F REE 1-888-222-0691 OR V iSIT WWW .T EXAS FARMERS S ETTLEMENT.COM
Address( es) of Insured(s ), if different from above:
Name of Agent:
Vehicle Identification Number (YIN) of Insured Vehicle: _ _ _ _ _ _ _ _ _ _ _ _ __
3. SIGN AND DATE YOUR CLAIM FORM.
I declare under penalty of peijury that:
0 I have not opted out of the Settlement Classes in this case and will not request exclusion from the Settlement
Classes;
0 I did not submit a claim form in the settlement in In re Farmers Insurance Co, Inc. FCRA Litigation. (also called
the "Mobbs Action"), No. CIV-03-158-F, including all cases consolidated and coordinated in MDL No. 1564, in
the U.S. District Court for the Western District of Oklahoma, which was finally approved on September 29, 2011;
0 I have read and understand the contents of this Claim Form; and
0 I am voluntarily submitting to the jurisdiction of the 261 st Judicial District Court of Travis County, Texas for the
purposes of this claim.
Signature
I I
Print Name Month/Day!Year
4. MAIL YOUR CLAIM FORM.
This Claim Form must be postmarked by Month 00, 2015 and mailed to: Texas Farmers Settlement Administrator, P.O.
Box 9348 , Minneapolis, MN 55440-9348.
QUESTIONS? CALL TOLL-FREE 1-888-222-0691 OR VISIT WWW.TEXASFARMERSSETTLEMENT.COM
2
Exhibit 3
Legal Notice
If You Had Home or Auto Insurance in Texas,
You Could Benefit From A Class Action Settlement
A Settlement has been reached with certain Insurance additional sum to be paid to Rate Class and Discount
Exchanges and Providers ("the Defendants") in a Class Members with eligible claims proportionally.
class action lawsuit about the pricing and marketing The Defendants will also provide payments of $35
of homeowners and automobile insurance policies. to eligible Credit Usage Notice Class Members for
A complete list of Defendants is available at not receiving adequate notice about the Defendants'
www.TexasFarmersSettlement.com. The Settlement use of their credit information. Policyholders who
provides payments to eligible policyholders. renewed or received a new HO-A insurance policy
from the Defendants after November II , 2002 and
What Is This About? before September 1, 2003, have already received an
The State of Texas claims that, during 1999 to additional reduction in premiums.
2003, the Defendants charged rates that resulted in
excessive premiums for its HO-A homeowners policy How to Get Benefits.
and used unfair or deceptive practices involving the Payments to the Rate and Discount Classes will be
determination of certain fees, discounts, and policy made automatically. You must submit a Claim Form
offerings, and improper use of credit scoring and by Month 00, 2015 to get benefits as a Credit Usage
certain risk assessments. Notice Class Member. If you did not receive one
in the mail, you may request a Claim Form at the
The lawsuit also claims that, during the same time website or by calling 1-888-222-0691.
frame, the Defendants: I) failed to provide adequate
notices that information on certain policyholders' Your Other Rights.
credit reports may have impacted their premiums or If you don ' t want a payment from this Settlement and
policy placement, 2) used anticompetitive practices in you don' t want to be legally bound by it, you need
the sale and marketing of homeowners and automotive to exclude yourself in writing by Month 00, 2015 or
insurance policies, and 3) improperly stopped offering you won't be able to sue the Defendants about the
HO-B homeowners policies. The Defendants deny claims in this case. If you ask to be excluded, you
these claims and maintain they did nothing wrong. can ' t get a payment from the Settlement. If you stay
in the Settlement, you may object to it by Month 00,
Who's Included? 2015, but will be bound by the terms of the Settlement
Generally, the Settlement includes Texas homeowners if it is approved by the Court.
or automobile insurance policyholders who had
certain types of insurance policies with the Defendants You may have received or seen other notices about
between October I, 1999 and February 28, 2003 . The other class actions about insurance policy options,
Settlement includes three Classes: Rate, Discount, and premium rates, and/or credit report usage. The
Credit Usage Notice. You may be member of more website has more information about how these cases
than one Class. More information about included affect your eligibility to participate in this Settlement.
policies is available at the website.
The Court will hold a hearing on Month 00, 2015
What Can You Get? to consider whether to approve the Settlement. You
The Defendants will pay rate reductions or discounts can appear at the hearing, but you don't have to. You
to the Rate Class and Discount Class Members can hire your own attorney, at your own expense, to
(calculated on a case-by-case basis) and provide an appear or speak for you at the hearing.
For complete information: Visit: www.TexasFarmersSettlement.com
Call: 1-888-222-0691
EXHIBIT 2
TO APPELLANT GRIGSON’S RESPONSE TO
APPELLEES’ JOINT MOTION TO DISMISS APPEAL FOR
LACK OF APPELLATE JURISDICTION
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CAUSE NO. GV202501
THE STATE OF TEXAS, THE TEXAS § IN THE DISTRJCT COURT
DEPARTMENT OF INSURANCE, and §
THE TEXAS COMMISSIONER OF §
INSURANCE, §
§
Plaintiffs, §
§
v. §
§
FARMERS GROUP, INC., FARMERS §
UNDERWRITERS ASSOCIATION, FIRE § OF TRAVIS COUNTY, TEXAS
l UNDERWRITERS ASSOCIATION,
FARMERS INSURANCE EXCHANGE,
FIRE INSURANCE EXCHANGE, TEXAS
§
§
§
FARMERS INSURANCE CO:rvt:PANY, §
1 MID-CENTURY INSURANCE COMPANY §
OF TEXAS, MID-CENTURY IN"SURANCE §
COMPANY, FARMERS TEXAS COUNTY §
MUTUAL INSURANCE CO:rvt:P ANY, §
TRUCK INSUR.A_NCE EXCHANGE, and §
TRUCK UNDERWRITERS § 261ST JUDICIAL DISTRICT
ASSOCIATION,
Defendants.
ORDER OF PRELIMINARY APPROVAL
This matter came on for hearing May 19-22, 2003, for preliminary approval of the
Settlement Agreement and Stipulation of December 18, 2002, as amended on June 13, 2003,
("Settlement Agreement") between the State of Texas, the Texas Department of Insurance, and
'l the Texas Commissioner of Insurance, on behalf of Texas policyholders of the Defendants in the
classes defined below (collectively, the "State") and Fire Underwriters Association, Farmers
Group, Inc. d/b/a Fanners Underwriters Association, Fanners Insurance Exchange, Fire
Insurance Exchange, Texas Farmers Insurance Compaf!Y~ ~i.~tw.y ~surance Company of
Texas, Mid-Century Insurance Company, Farmers ~lW~tYPf1-UW.al Insurance Company,
(._• 04
1
-J 30491649.1
Truck Insurance Exchange, and Truck Underwriters Association (collectively, the "Fann~rs
Parties"). The State and the Farmers Parties have moved jointly, pursuant to Texas Rule of Civil
Procedure Rule 42( e) and Texas Insurance Code article 21.21 § 18(g), for an Order of
Preliminary Approval (the "Order") (1) preliminarily approving the settlement of all claims
asserted in the above-captioned cause (the "Action"), the terms of which are set forth in the
Settlement Agreement which has been filed with the Clerk of the Court, and (2) approving the
proposed notice to the Classes.
,] The Court having read and considered the Settlement Agreement and attached exhibits,
including the proposed Notice of Proposed Class Settlement, the proposed Claim Form, the
l proposed form of Final Judgment, exhibits, pleadings and record in this case, the evidence and
other materials presented at the hearing, and argument of counsel and applicable authorities,
finds that there exists substantial and sufficient grounds for entering this Order.
IT IS THEREFORE ORDERED, ADJUDGED, AND DECREED THAT:
l
. l
1. The Court, for purposes of this Order, adopts all defined terms as set forth in the
Settlement Agreement.
2. Pursuant to Rule 42 and Texas Insurance Code article 21.21 §§ 17 & 18, this
Court hereby certifies, only for purposes of effectuating the Settlement Agreement, the following
Settlement Classes (the "Settlement Classes"):
j
J (i) All of the Exchanges' Texas homeowners insurance policyholders (a)
whose homeowners insurance policy incepted (including renewals) from
December 28, 2001, through and including December 27, 2002, or (b)
who received a notice at any time after November 14, 2001, that their HO-
B policy would not be renewed (the "Rate Class");
(ii) All of the Exchanges' Texas homeowners insurance policyholders who
according to Farmers' records were eligible to receive discounts for
FPRA, age of home, or territory from November 16, 2000, through and
including December 10, 2002 (the "Discount Class"); and
30491649.1
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(iii) All Texas homeowners or automobile insurance policyholders of the
Exchanges or the Automobile Insurance Providers who according to
Farmers' records were provided or should have been provided a Credit
Usage Notice from October 1, 1999, through February 28, 2003 (the
"Credit Usage Notice Class").
3. The Court hereby acknowledges and confirms the State, through the Office of the
. l
I
r
I Attorney General, to fulfill the role of the Settlement Classes' Counsel. The Court finds that the
Attorney General's office is authorized to bring this class action by the parens patn·ae authority
granted in section 17 of article 21.21 of the Insurance Code and Rule 42 of the Texas Rules of
. 1
Civil Procedure.
1
4. Alternatively, if the requirements of Rule 42(a) & (b) and article 21.21 § 18(a) &
(b) must be satisfied, then, with respect to the Settlement Classes, this Court finds and concludes
that each of those requirements has been met, specifically: (a) each of the Settlement Classes is
so numerous that joinder of all members is impracticable; (b) there are questions of law or fact
common to the Settlement Classes which predominate over any individual questions; (c) the
claims or defenses brought by the State on behalf of Fanners'. policyholders are typical of the
claims or defenses of the Settlement Classes and the State is authorized to bring claims on behalf
of the Settlement Classes; (d) in negotiating and entering into the Settlement Agreement, the
State has fairly and adequately represented and protected the interests of the Settlement Classes;
(e) the questions of law or fact common to the Settlement Classes predominate over any
'j questions affecting only individual members; and (f) certifying this Action as a class action is
superior to other available methods for the fair and efficient adjudication of the controversy.
5. The Court further finds that there has been no collusion between the State and the
Farmers Parties with respect to negotiating the Settlement Agreement and that the State has
J
represented, and will continue to represent, the interests of the Farmers' policyholders fairly and
J adequately and without a conflict of interests. Accordingly, the Court preliminarily approves:
30491649.1 -3-
J
(a) the Settlement Agreement, including the terms and the releases set forth therein, as being f~r,
just, reasonable, and adequate as to each of the parties thereto, and (b) the Settlement Funds
described therein, including the Prospective Rate Reduction, Retrospective Rate Reduction,
Individualized Discount Adjustment, and Credit Usage Notice Adjustment Fund, and the
proposed additional consideration, subject to the right of any member of the Settlement Classes
to exclude himself or herself from the Settlement Classes in accordance with the terms set forth
in the Settlement Agreement, and to show cause, if any exists, why a Final Judgment should not
'l
j be entered in accordance with the terms of the Settlement Agreement.
6. A hearing (the "Settlement Hearing") shall be held before this Court on
September 29, 2003, at 9:00 a.m. in the 53rd Judicial District Court Room: (a) to determine
whether the proposed Settlement Agreement is fair, reasonable, and adequate and should be
approved, and whether the Final Judgment should be entered as to claims asserted therein, or
which could have been asserted, against the Released Parties on the merits; (b) to determine
whether the Settlement Classes members' right to adequate representation has been satisfied; and
(c) to reserve jurisdiction to effect and enforce the Settlement Agreement.
7. The Fanners Parties shall disseminate notice of the proposed Settlement
Agreement and Settlement Hearing to putative members of the Settlement Classes within thirty
(30) days of the date of this Order. A copy of the Notice of Proposed Class Settlement (the
(
... "Notice"), together with a copy of the Claim Form, substantially in the form attached hereto as
1 Exhibit A, shall be mailed by first-class U.S. mail, postage prepaid, to all members of the
-j
Settlement Classes at the address of each such person as set forth in the records of the Released
Parties or as otherwise may be identified through reasonable effort. In addition, commencing
l within seven (7) days of the date of this Order and continuing until the date of the Settlement
,J
30491649.1 -4-
.J
.l
I
i
Hearing, the Office of the Attorney General, the Texas Department of Insurance, and the
Farmers Parties shall post on their respective Internet web-sites (www.oag.state.tx.us,
l www.tdi.state.tx.us and www.farmers.com) the Notice and a Summary Notice of Settlement,
j
substantially in the form attached hereto as Exhibit B ("Summary Notice").
8. The Court approves the form of Notice, the Summary Notice, and the Claim
Form, and finds that the procedures established for mailing and distributing such notices
substantially in the manner and form set forth in paragraph 7 of this Order meet the requirements
of Rule 42 of the Texas Rules of Civil Procedure, article 21.21 § 18 of the Texas Insurance
Code, and due process, and constitute the best notice practicable under the circumstances.
9. To effectuate the provision of notice provided in paragraph 7 hereof, the Fanners
Parties shall be responsible for the receipt of all responses from the members of the Settlement
Classes and, until further order of this Court, shall preserve all entries of appearance, Claim
Forms, requests for exclusion, and any and all other written communications from members of
the Settlement Classes or any other person in response to the Notice. The costs of notification of
the Settlement Classes as provided herein, including printing, mailing, and posting on the
Internet of all required notices, shall be borne by the party charged with the responsibility for
such actions in paragraph 7 of this Order.
10. Three (3) days before the date fixed by this Court for the Settlement Hearing, the
l
j State and the Fanners Parties shall cause to be filed with the Clerk of the Court affidavits or
declarations of the person or persons under whose general direction the mailing of the Notice and
the distribution of the Surtrmary Notice by posting on the web-sites identified in paragraph 7
shall have been made, showing that such mailing and publication have been made in accordance
with this Order.
J
30491649.1
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11. Each member of the Settlement Classes will be bound by the proposed settlement
provided for in the Settlement A~eement, and by the Final Judgment or any other determination
by this Court affecting the Settlement Classes, unless such member shall mail, by first-class U.S.
mail, a written request for exclusion from the Settlement Classes, post-marked no later than
August 29, 2003, addressed to "Exclusion Requests", c/o Rust Consulting, Inc.; P.O. Box 9348;
Minneapolis, MN 55440-9348. Such request for exclusion must state (a) the name, address and
telephone number of the person seeking exclusion; (b) whether such person has a homeowners or
l automobile insurance policy from the Farmers Parties, or both; (c) the date of inception of such
policy(ies) and the most recent date of renewal for such policy(ies), if available; (d) the policy
l number(s), if available; and (e) that the person making the request wishes to be excluded from
the Settlement Classes. Because the Settlement Agreement is intended to be a resolution of all
Released Claims, any person requesting exclusion must either exclude himself or herself from
the Settlement Agreement in its entirety, or submit to the Settlement Agreement in its entirety. A
request for exclusion shall not be effective unless it is made in the manner and within the time set
forth in this paragraph and in the Notice. If a member of the Settlement Classes requests to be
excluded, that person will not receive any benefit from the Retrospective Rate Reduction, the
Individualized Discount Adjustment, or the Credit Usage Notice Adjustment Fund provided for
in the Settlement Agreement, in the event the Settlement Agreement is approved by the Court,
nor will such person· be permitted to participate further in the Action. Any Class Member who
does not request exclusion in the manner provided for herein may, but need not, enter an
appearance in this Action at his or her own cost through counsel of his or her own choice. If a
member of the Settlement Classes does not enter an appearance, that person's interests will be
.J represented by the State in the Action .
J
30491649.1 -6-
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12. Any member of the Settlement Classes who has not requested exclusion from ti:e
Settlement Classes may appear at the Settlement Hearing, in person or through counsel, to object
and be heard in opposition to any of the matters to be heard at the Settlement Hearing, including
- l
(a) the requested approval of the Settlement Agreement as fair, adequate, and reasonable, and/or
lI
(b) the requested entry of the Final Judgment. A member of the Settlement Classes cannot
request exclusion from the Settlement Classes AND object to the Settlement Agreement. For
any objection to be considered by the Court, the objector must mail a valid written objection, and
it must be postmarked by no later than August 29, 2003. In order to be valid, the written
objection must set forth (a) a reference, at the top, to "State of Texas v. Farmers, Cause No.
GV20250 1," (b) a statement as to whether the objector intends to appear at the Settlement
Hearing, either in person or through counsel, (c) a detailed statement of the specific basis for the
objection, (d) the name that is set forth on the Notice that was sent to the objector, (e) the
objector's current name, if different from the name set forth on the Notice, (f) the objector's
current address, (g) the objector's current telephone number and, if available, telecopier number,
(h) the objector's type of policy and policy number, and (i) the objector's signature or that of his
or her authorized representative. Three copies of the written objection must be sent, the first
addressed to the District Clerk of Travis County, Texas, 1000 Guadalupe Street, Austin, Texas
78701, the second addressed to David C. Mattax, Chief, Financial Litigation Division, P.O. Box
j
J 12548, Austin, Texas 78711-2548, and the third addressed to Richard N. Carrell, Fulbright &
Jaworski L.L.P ., 1301 McKinney, Suite 5100, Houston, Texas 77010-3095. If an objection does
not include all of the required information or if it is not timely mailed to the three correct
addresses, then it shall be invalid and it will not be considered by the Court. Any member of the
Settlement Classes who does not object in the manner provided shall be deemed to have waived
30491649.1
-7-
such objection and shall forever be foreclosed from making any objection to the fairnes.s,
adequacy, or reasonableness of the Settlement Agreement and the proposed Final Judgment.
13. If the Court gives final approval to the Settlement Agreement and enters a final
judgment, in order to be entitled to participate in the Credit Usage Notice Adjustment Fund
portion of the Settlement Agreement, a member of the Credit Usage Notice Class who has not
requested exclusion from the Settlement Classes must submit a Claim Form, substantially in the
form attached as Exhibit C hereto, to the Farmers Parties at the address set forth in the Notice.
Such Claim Form must be completed and postmarked on or before May 15, 2004. Any member
of the Credit Usage Notice Class who does not submit a completed Claim Form shall not be
entitled to share in the Credit Usage Notice Adjustment Fund but nonetheless shall be bound by
the terms of the Settlement Agreement and by the Final Judgment and any other Order of this
Court approving the Settlement Agreement, including all releases therein, and shall be barred
and enjoined in this or any other action from asserting any Released Claims.
14. Members of the Rate and Discount Classes shall automatically receive their share
of Settlement Funds upon final approval of the Settlement Agreement and entry of final
judgment, unless they file a written request for exclusion from the Settlement Classes as
provided in paragraph 11 herein.
15. The Court expressly retains the power to adjourn the Settlement Hearing, without
any further notice other than an announcement at the Settlement Hearing of adjournment thereof,
and to approve, modify, or disapprove the Settlement Agreement without further notice to
members of the Settlement Classes. The Court retains jurisdiction over this Action to consider
all further applications arising out of or connected with the proposed settlement herein.
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30491649.1
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16. The administration of the Settlement Agreement, and the decision of all disput~d
questions of law and fact with respect to the validity of any claim or right of any person to
participate in the distribution of the Settlement Fund, shall be under the authority of the Court.
The parties to this Settlement Agreement, counsel herein in any capacity in which they may act
hereunder, and any employees or agents of such law firms or the parties to the Settlement
Agreement (including, without limitation, those employees who may furnish services in
connection with the proposed Settlement) shall not be liable for anything done or omitted in
l connection with the Settlement Agreement and the administration thereof except for their own
willful misconduct.
l 17. The parties to the Settlement Agreement are directed to carry out their obligations
under the Settlement Agreement.
18. In the event that the Settlement Agreement is not approved by the Court, or the
Court enters the Final Judgment and it is vacated or modified on appeal, or otherwise altered in a
material way, or the Effective Date for any other reason does not occur, and if any party to the
Settlement Agreement thereafter exercises its right to terminate the Settlement Agreement as
provided therein, then the Settlement Agreement and any actions to be taken in connection
therewith shall be vacated and terminated and shall become null and void for all purposes, and
all negotiations, transactions and proceedings connected with it (a) shall be without prejudice to
J the rights of any party hereto; (b) shall not be deemed or construed as evidence or an admission
by any party of any fact, matter or thing; and (c) shall not be admissible in evidence or used for
any purpose in any subsequent proceeding in the Action, or any other action or proceeding in this
or any other forum, judicial, administrative, or otherwise, except proceedings to enforce the
Settlement.
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SIGNED 0UJu 21 '2003.
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30491649.1 -10-
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CAUSE NO. GV20250 1
THE STATE OF TEXAS, THE TEXAS § IN THE DISTRICT COURT
DEPARTMENT OF INSURANCE, AND §
THE TEXAS COMMISSIONER OF §
.. 1 INSURANCE, §
! §
Plaintiffs, §
§
v. §
§
FARMERS GROUP, INC., FARMERS §
'l UNDERWRITERS ASSOCIATION, FIRE
UNDERWRITERS ASSOCIATION,
§
§
OF TRAVIS COUNTY, TEXAS
FARMERS INSURANCE EXCHANGE, §
] FIRE INSURANCE EXCHANGE, TEXAS
FARMERS INSURANCE COMPANY,
§
§
MID-CENTURY INSURANCE COMPANY §
OF TEXAS, MID-CENTURY INSURANCE §
COMPANY,FARMERSTEXASCOUNTY §
!vfUTUAL INSUR.A.1'-1CE COMP.A.NY, §
TRUCK INSURANCE EXCHANGE, AND §
TRUCK UNDERWRITERS §
ASSOCIATION, § 261 ST ruDICIAL DISTRICT
l Defendants .
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NOTICE OF PROPOSED CLASS SETTLEMENT
THIS NOTICE AFFECTS YOUR RIGHTS.
PLEASE READ THE COMPLETE NOTICE CAREFULLY.
TO: ALL FARMERS INSURANCE EXCHANGE OR FIRE INSURANCE EXCHANGE
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TEXAS HOMEOWNERS POLICYHOLDERS (A) WHOSE HO-A POLICIES
(INCLUDING TDP-1) INCEPTED OR WERE RENEWED AT ANY TIME DURING
THE PERlOD OF DECE11BER 28, 2001 THROUGH AND INCLUDING DECEMBER
27, 2002, OR (B) WHO RECEIVED A NOTICE AT ANY TIME AFTER NOVEMBER
14, 2001, THAT THEIR HO-B POLICY (INCLUDING HO-PROTECTOR PLUS (PTP),
H0380 ENDORSEMENT, TDP-2, TDP-3, DF-BUILDER'S RlSK, AND HO-A WITH
H0-170 ENDORSEMENT (COLLECTIVELY REFERRED TO HEREIN AS "HO-B"))
WOULD NOT BE RENEWED.
ALL FARMERS INSURANCE EXCHANGE OR FIRE INSURANCE EXCHANGE
..J TEXAS HOMEOWNERS POLICYHOLDERS WHO ACCORDING TO FARMERS
_,.a1 30491674.1 -1-
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RECORDS WERE ELIGIBLE TO RECEIVE DISCOUNTS FOR F ARlv1ERS
PROPERTY RISK ASSESSMENT (FPRA"), AGE OF HO:tv1E, OR TERRJTORY
FROM NOVEMBER 16,2000 THROUGH AND lNCLUDING DECEMBER 10,2002.
ALL TEXAS HOMEOWNERS OR AUTO INSURANCE POLICYHOLDERS OF
FA.RM:ERS INSURANCE EXCHANGE, FIRE INSURANCE EXCHANGE, MID-
CENTURY INSURANCE COMPANY OF TEXAS, MID-CENTURY INSURANCE
COMPANY, FARMERS TEXAS COUNTY MUTUAL INSURANCE COMPANY, OR
TRUCK INSURANCE EXCHANGE WHO ACCORDING TO FARlv1ERS RECORDS
WERE PROVIDED OR SHOULD HAVE BEEN PROVIDED A NOTICE OF
ADVERSE ACTION BASED ON CREDIT HISTORY AT ANY TIME FROM
OCTOBER 1, 1999 THROUGH FEBRUARY 28,2003.
A lawsuit is pending in the 261 st Judicial District Court of Travis County, Texas (Cause
No. GV202501) (the "Action") in which the Attorney General of the State of Texas has brought
1
suit in the name of the State of Texas, the Texas Department of Insurance, and the Texas
Commissioner of Insurance (hereafter collectively defined as the "State"), and has filed a class
action claiming that one or more of Fire Underwriters Association, Farmers Group, Inc. d/b/a
Farmers Underwriters Association, Farmers Insurance Exchange, Fire Insurance Exchange,
Texas Fanners Insurance Company, Mid-Century Insurance Company of Texas, Mid-Century
Insurance Company, Farmers Texas County Mutual Insurance Company, Truck Insurance
Exchange, and Truck Underwriters Association (collectively, "Farmers Parties") failed to
disclose information with respect to their calculation of premiums, committed unfair and
deceptive acts or practices in the business of insurance, and unfairly discriminated against Texas
1 policyholders of the Farmers Parties in the business of insurance. The State also alleges
anticompetitive practices with respect to the Fanners Parties' sale and marketing of their
homeowners and automobile insurance policies.
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The Fanners Parties have denied the State's allegations and alleged numerous affirmative
defenses. The Fanners Parties have also counterclaimed, seeking declaratory relief that its
practices do not violate Texas law.
The Court has conditionally ruled that this Action may be maintained on behalf of three
classes (collectively, the "Settlement Classes") defined as:
(1) Rate Class: All of the Exchanges' (Farmers Insurance Exchange and Fire
Insurance Exchange) Texas homeowners insurance policyholders (a)
whose homeowners insurance policy incepted (including renewals) from
:J December 28, 2001, through and including December 27, 2002, or (b)
who received a notice at any time after November 14, 2001, that their HO-
B policy would not be renewed;
]
(2) Discount Class: All of the Exchanges' Texas homeowners insurance
policyholders who according to Farmers records were eligible to receive
discounts for FPRA, age of home, or territory from November 16, 2000,
through and including December 10, 2002; and
(3) Credit Usage Notice Class: All Texas homeowners or automobile
insurance policyholders of the Exchanges or the Automobile Insurance
Providers (Texas Farmers Insurance Company, Mid-Century Insurance
Company of Texas, Mid-Century Insurance Company, Farmers Texas
1 County Mutual Insurance Company, and Truck Insurance Exchange) who
according to Farmers records were provided or should have been provided
a notice of adverse action based on credit history ("Credit Usage Notice")
from October 1, 1999, through February 28, 2003.
The purpose of this Notice of Proposed Class Settlement is to advise persons included in
the Settlement Classes of the filing and status of the Action and of your rights with respect to a
1 proposed settlement of the Action (including certain rights which you can lose if not protected).
If this notice is addressed to you, you are according to Farmers' records a member of one or
more of these classes. If this notice is not personally addressed to you and you believe that you
may be a class member, or have any questions, then you can contact Rust Consulting, Inc. at 1-
888-222-0691.
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30491674.1 -3-
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The rights of class members include the right to be excluded from the Settlement Classes.
If you do not request exclusion from the settlement, you will become a "Settlement Class
Member." Please read this entire Notice of Proposed Class Settlement carefully to
understand your rights and options.
TERMS OF PROPOSED SETTLEMENT
1. Subject to the Court's final ~pproval, on December 18, 2002, the State and the
Fanners Parties signed a Settlement Agreement and Stipulation, and subsequently signed an
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Amended Settlement Agreement and Stipulation, ("Settlement Agreement") which provides that
l Settlement Class Members within the Rate Class ("Rate Class Members") shall be eligible to
receive or participate in the following:
Retrospective Rate Reduction. Rate Class Members who were insured under an
HO-A policy form issued by the Exchanges at any time during the period
commencing on December 28, 2001 up to and including November 10, 2002 (the
"Credit Period"), shall receive a Retrospective Rate Reduction in the amount of
6.8% of the HO-A base premium earned by the Exchanges during those policies'
actual term .For the above referenced Rate Class Members whose policy is no
J longer in effect or is not renewed at the next renewal date after the 30th day
following the Effective Date (as defined in the Settlement Agreement), the
Retrospective Rate Reduction shall be paid by means of a refund check based on
) each individual HO-A policy's base rate premium earned during the Credit
Period. For the above referenced Rate Class Members whose policy is renewed at
the next renewal date after the 30th day following the Effective Date (as defined
in the Settlement Agreement), the Retrospective Rate Reduction shall be applied
as credit. Unearned policy premiums that may be returned to the policyholder
shall not include the credit. YOU DO NOT HAVE TO DO ANYTHING TO
QUALIFY AND RECEIVE THE RETROSPECTIVE RATE REDUCTION.
2. In addition, the Settlement Agreement provides that Settlement Class Members
within the Discount Class ("Discount Class Members") shall be eligible to receive or participate
in the following:
Individualized Discount Adjustment. Discount Class Members who did not
.J ~ receive discounts for FPRA, age of home, and territory at the level agreed to by
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... J 30491674.1 -4-
the State and the Farmers Parties as defined in the Settlement Agreement
("Agreed Discounts") shall receive an "Individualized Discount Adjustment"
payment. The Individualized Discount Adjustment payment for each Discount
Class Member shall equal the amount by which the premium actually charged for
the Discount Class Member's HO-A policy exceeded the premium that would
have been charged if the Farmers Parties had adopted discounts for FPRA, age of
home, and territory elements at the Agreed Discounts on a revenue neutral basis
("IDA Eligibility").
The amount of the Individual Discount Adjustment, if any, will be different for
each policyholder depending on insurance score, age of home and the territory in
which the home is located. As a result, the Individualized Discount Adjustment
will not be calculated until you renew your policy, or, if your policy is no longer
in effect or you choose not to renew your policy, until your refund check is due.
IF YOU ARE ELIGIBLE YOU DO NOT HAVE TO DO ANYTHING TO
RECEIVE THE INDIVIDUALIZED DISCOUNT ADJUSTMENT.
3. In addition, the Settlement Agreement provides that Settlement Class Members
within the Credit Usage Notice Class ("Credit Usage Notice Class Members") shall be eligible to
receive or participate in the following:
a) Revised Credit Usage Notice. For new and renewed Texas homeowners
and automobile policies, the Farmers Parties shall replace the existing
Credit Usage Notice with a new Credit Usage Notice, the terms of which
have been agreed upon jointly between the State and the Farmers Parties.
The new notice must be in a minimum of 12 point type and clearly marked
as "IMPORTANT INSURANCE INFORMATION." The text will be on
a separate piece of paper of any other writing and the notice will not be
attached to or incorporated into any other document.
b) Credit Usage Notice Adjustment Fund. Credit Usage Notice Class
Members are also eligible to assert a claim against the Credit Usage
j Notice Adjustment Fund. The Credit Usage Notice Adjustment Fund is a
.J
fund established by the Farmers Parties for the purpose of reimbursing any
overcharges that may have occurred to homeowners or automobile
insurance policyholders whose policies were issued by the Farmers Parties
in Texas and who paid a premium for automobile or homeowners
insurance that would have been less, but for erroneous credit information
on the individual's credit history maintained at the credit bureau which led
the Farmers Parties to provide premium discounts lower than would have
resulted from correct credit information or to assignment to a company
I affiliated with the Fanners Parties having a higher premium structure. If
.J you believe that you are eligible for recovery from the Credit Usage
30491674.1 -5-
Notice Adjustment Fund, you must submit the Claim Form attached to tills
Notice of Proposed Class Settlement as Exhibit A postmarked by May
15, 2004. .
\VITH REGARD TO THE INDIVIDUALIZED DISCOUNT
ADJUSTMENT AND THE CREDIT USAGE NOTICE
ADJUSTMENT FUND, RELEASED PARTIES HAVE
COMMITTED TO A PAYMENT OR CREDIT OF 100°/o OF ANY
PREMIUM DIFFERENTIAL RESULTING FROM THE
ADJUSTMENT PROCESS SET FORTH IN THE IMMEDIATELY
PRECEDING PARAGRAPHS 2 AND 3. IT IS NOT FEASIBLE TO
CALCULATE IN ADVANCE THE AMOUNT, IF ANY, TO BE
PAID TO EACH CLASS MEMBER. THESE CALCULATIONS,
WHICH WILL REQUIRE INDIVIDUALIZED CALCULATIONS,
WILL BE MADE BY RELEASED PARTIES AND REPORTED TO
THE OFFICE OF THE ATTORNEY GENERAL AND THE TEXAS
1 DEPARTMENT OF INSURANCE, AND WILL BE SUBJECT TO
VERIFICATION BY THE TEXAS DEPARTMENT OF
INSURANCE.
4. Prospective Rate Reduction. In addition, the Settiement Agreement provides that
the Exchanges' Texas homeowners insurance policyholders who renew or receive a new
homeowners insurance policy with the Fanners Parties after November 10, 2002 and prior to
September 1, 2003 shall pay premiums (or are paying premiums) calculated based on a 6.8%
reduction in the statewide average base rate indications for all classes in effect as of
November 10, 2002. This reduction, however, may be reduced and may not occur if legislation
or regulation subsequently requires rate reductions or rollbacks, but in no event will there be less
than a 6.8°/o base rate reduction through either the Settlement, legislation or a combination of the
two. The Fanners Parties also have agreed to refrain from any increase in those base rates that
would take effect prior to midnight on August 31, 2003, provided, however, that rates can be
changed to include charges for any existing endorsement or any new endorsements approved by
TDI or for coverage changes requested by policyholders. This 6.8o/o reduction in the base rate
will .not necessarily result in a 6.8o/o reduction in each policyholder's premium upon renewal,
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because each policy's premium depends on a number of variables, including the coverages ·a
policyholder may choose, an increase or decrease in the value of the home insured, and other
factors. However, the 6. 8% reduction in the base rate will reduce the amount of the premium
that otherwise would have been charged by the Exchanges. The Exchanges shall adopt
discounts, applicable through August 31, 2003, based on FPRA, age of home, and territory
elements in consultation with the State and consistent with sound actuarial principles. The effect
of the new discount will vary from one policyholder to another. Because some policyholders
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who do not receive the Individualized Discount Adjustment benefited from the way the
] Exchanges calculated rates under the previous system, they may see a net increase in their
premium under the new adopted discounts at their next policy renewal. Collectively, the relief
described in this paragraph is referred to as the Prospective Rate Reduction.
5. Any policyholder whose HO-B policy was non-renewed by Farmers Insurance
Exchange and who accepted an HO-A policy from Fire Insurance Exchange between December
.J 28, 2001 and March 20, 2002, upon request, will be offered an HO-A policy from Farmers
Insurance Exchange, if they qualify.
6. Pursuant to the Settlement Agreement, the Farmers Parties also agree, for the
benefit of all Settlement Class Members, (a) not to require that individuals desiring to purchase
homeowners insurance from the Farmers Parties also purchase automobile insurance from the
t
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Fanners Parties, or vice versa, and not to refuse to deal in good faith with any homeowners
l insurance customer who purchases automobile insurance from another carrier, or vice versa; (b)
not to enter into any contracts, combinations, or conspiracies in restraint of trade to boycott
homeowners insurance consumers or competitors, whether directly or by artificially reducing and
. constricting the vmting of mold and water-damage-related homeowners insurance coverages;
30491674.1 -7-
and (c) not to enter into any contracts, combinations, or conspiracies in restraint of trade to raise,.
standardize or otherwise fix prices by artificially reducing and constricting the writing of mold
and water-damage-related homeowner's coverages. The agreements by the Farmers Parties
described in this paragraph are collectively referred to as the "Injunctive Relief."
7. In addition to these settlement terms, the Fanners Parties have agreed to pay a
total of $2 million to the State for its attorneys' fees, expenses, and costs of investigation.
. '\ 8. Under the terms of the Settlement Agreement, the State ofTexas, the Office of the
i
Attorney General, the Texas Department of Insurance, the Texas Commissioner of Insurance,
l and the Settlement Class Members, on behalf of themselves and their heirs, assigns and
successors, FULLY RELEASE AND FOREVER DISCHARGE the following entities
("Released Parties"):
Farmers Group, Inc., individually and d/b/a Fanners Underwriters Association,
and Fire Underwriters Association, Farmers Insurance Exchange, Fire Insurance
Exchange, Texas Fanners Insurance Company, Mid-Century Insurance Company
of Texas, Mid-Century Insurance Company, Fanners Texas County Mutual
Insurance Company, Truck Insurance Exchange, and Truck Underwriters
Association, as well as their affiliates, officers, employees, agents, directors or
governors, representatives, attorneys, predecessors, successors and assigns,
from any and all "Released Claims," which is defined in the Settlement Agreement as follows:
"Released Claims" means and includes, with respect to homeowners insurance
offered or sold by the Released Parties, all existing, known and unknown claims,
demands and causes of action against the Released Parties, whether pending or
threatened, suspected or unsuspected, contingent or non-contingent, for all
existing, known and unknown damages and remedies that arise out of or relate to
the acts and/or occurrences alleged in the AG Lawsuit, or in the Cease and Desist
Order or the Administrative Proceedings, or in the OAG CIDs to the extent any
such acts or occurrences took place prior to November 30, 2002 including but not
limited to issues concerning or related to a management fee or fees, the placement
of policyholders in a particular insuring entity, the age of home discount, the
unfunded catastrophe load, the decision to no longer offer HO-B policies
(including HO-Protector Plus (PTP), H0380 endorsement, TDP-2, TDP-3, DF-
.J Builder's Risk, and HO-A with H0-170 endorsement (collectively referred to
herein as "HO-B")), the offering of HO-A policies in place of HO-B policies,
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... J 3049\674.1 -8-
territorial discounts, credit scoring, the use of the Farmers Property Risk
Assessment, or the rates that the Released Parties have charged for homeowners
policies and endorsements and all notices and statements that the Released Parties
have made or issued in connection with the above, including but not limited to the
notices of non-renewal of the HO-B policies and notices issued pursuant to the
. 1
Fair Credit Reporting Act. The State's release of claims against Texas Farmers
\
Insurance Company related to credit scoring is expressly based on Texas Fanners
Insurance Company's representation that it does not and has not used credit
scores, insurance scores, credit reports or any other method of calculating
premiums based on credit history. "Released Claims" also include any claims,
demands, or causes of action to the effect that the discounted rates adopted by the
Exchanges from November 11, 2002 through and including August 31, 2003, are
unfair, unreasonable, discriminatory, misleading or excessive. With respect to the
automobile insurance offered or sold by the Released Parties, "Released Claims"
includes all existing claims, demands, and causes of action related only to the
disclosure or nondisclosure of consumer credit information or the disclosure or
nondisclosure of the use or effect of using consumer credit information, including
claims under the Fair Credit Reporting Act. ''Released Claims" does not include
individual claims or complaints about claims payments, handling or processing
pursued by individual claimants directly or such individual claims or complaints
about claims payments, handling or processing as may be pursued by TDI under
Article 21.55, Texas Insurance Code, which are identified in a schedule which has
been provided by TDI to the Fanners Parties. Remedies for any such scheduled
claims or complaints, if pursued by the TDI, shall be limited to the payment of
interest under article 21.55, section 6, of the Texas Insurance Code (which interest
is not part of the total value of this settlement), as the result of non-compliance
with that statute, and may not include fines or penalties or any other relief, except
relief may include corrective action respecting procedures. "Released Claims"
also does not include claims that have been asserted in Cause No. GV000271,
State of Texas v. Texas Farmers Insurance Company, et al., which is pending in
the 200th Judicial District Court of Travis County, Texas, and which relates to
betterment in the context of automobile insurance in the Texas market.
The Prospective Rate Reduction, the Retrospective Rate Reduction, the Individualized
J Discount Adjustment, the Revised Credit Usage Notices, the Credit Usage Notice
Adjustment Fund, the Injunctive Relief, and the payment of costs and fees to the State, as
described above, are the only consideration, fees, costs, or expenses that the Farmers
Parties or the Released Parties shall be obligated to give to any Settlement Class Member,
the State, or counsel for the State or any Settlement Class Member, or other attorney in
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... J 30491674.1 -9-
connection with the settlement and release of the Released Claims and/or the payment of
attorneys' fees and expenses.
The Released Parties do not admit any wrongdoing or liability. The proposed
settlement is a compromise of disputed claims and does not mean that the Released Parties are
guilty of the charges made by the State. The terms of the settlement and the Settlement
Agreement itself are matters of public record and are not confidential. Any terms used in this
Notice of Proposed Class Settlement that are not defined herein shall have the meaning specified
in the Settlement Agreement.
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30491674.1 -10-
RIGHTS AND OPTIONS OF CLASS MEMBERS
As a Class Member, you have the following rights and options:
1. You may become a Settlement Class 1\'Iember. If you do not request exclusion
from the Settlement Classes, you will become a Settlement Class Member. Your interests will
be represented by the State, through the Office of the Attorney General. You will not be charged
for their services. The Office of the Attorney General cannot by law represent you individually,
but you are free to seek legal advice from a private attorney at your own expense. As a
Settlement Class Member, you will be bound by the -Final Judgment or other disposition of this
Action.
A. Rate and Discount Class Members. If the settlement is approved by the Court
and the Final Judgment becomes final, and if you are a Rate or Discount Class
Member, you will be entitled to receive the benefits described above for which
you qualify, including the Prospective Rate Reduction, the Retrospective Rate
Reduction, and the Individualized Discount Adjustment, without doing anything.
B. Credit Usage Notice Class Members. If the settlement is approved by the Court
and the Final Judgment becomes final, you may be entitled to benefits from the
Credit Usage Notice Adjustment Fund. To determine whether you are entitled to
benefits, you must:
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1. Contact Trans Union Corp. by calling 1-800-736-5808, or by writing to
Trans Union Corp. at P. 0. Box 400, Woodlawn, PA 19094, and request a
copy of your consumer report. The Farmers Parties have arranged for
Trans Union Corp. (hereafter "Trans Union") not to charge you a fee if
you make your request through the special procedures in this Notice,
established in connection with the Settlement. Please note that if you
make your request by telephone, you will need to provide the
I
following identifying information: the name, Social Security number,
date of birth, and numeric address information for the policyholder
.J whose credit is in issue, plus the identifying number from the mailing
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label on this Notice. The identifying number also appears on th~e
Claim Form itself. If you make your request in writing, you must
include the name, Social Security number, date of birth, and complete
address for the policyholder whose credit is in issue, plus the
identifying number from the mailing label on this Notice. By
requesting a copy of your credit report, you are giving Trans Union
permission to notify the Fanners Parties that you have made this request
and to provide the Fanners Parties with a copy of your current credit
report. The Farmers Parties will need this information to assist in
processing any claim that you may have under the Credit Usage Notice
Adjustment Fund. The Farmers Parties will keep this information
confidential.
2. Review your consumer report carefully.
3. (a) If your consumer report does not contain any errors, then you
are not entitled to any benefits from the Credit Usage Notice Adjustment
Fund and you do not need to do anything else.
(b) If you believe your consumer report contains errors that may
have worked against you, you should:
(i) Contact Trans Union to resolve the errors, following the
procedures that accompany the consumer report. By making this
request, you are authorizing Trans Union and the Fanners Parties to
review and reconsider your credit report. After Trans Union has
processed your request for correction, Trans Union will send you a
new consumer report;
(ii) If your new consumer report from Trans Union indicates
that the information in your original consumer report was correct
and that no changes or corrections have been made, you need do
nothing further, as you do not qualify to .make a claim under the
Credit Usage Notice Adjustment Fund. However, if you disagree
with Trans Union's conclusion and establish thereafter that your
original consumer report was incorrect, then you may proceed to the
next step;
(iii) If you receive a new consumer report from Trans Union
indicating that corrections have been made to your original credit
report and believe that the new consumer report corrects errors that
may have worked against you, then complete the attached Claim
Form, attach a copy of the new consumer report that you received
from Trans Union, and mail the Claim Form and attached consumer
report to Personal Lines Credit Usage Notice Administrator,
,] Fanners Insurance, P.O. Box 149199, Austin, Texas 78714-9199,
30491674.1 -12-
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postmarked no later than May 15, 2004. The Fanners Parties will
recalculate your premium based upon the new credit report and
send you a refund check from the Credit Usage Notice Adjustment
Fund, if you qualify.
(iv) If you fail to complete and send in the Claim Form,
postmarked by the date indicated, you will lose your right to make
a claim under the Credit Usage Notice Adjustment Fund. As a
Settlement Class Member, you will be bound by the Final
Judgment or other disposition of this Action, even lf you do not
mail in a Claim Form .
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2. You may request exclusion from the Settlement Classes. If you request
exclusion from the Settlement Classes, you will not be bound by any judgment or settlement of
this Action, and you will not receive the benefits of the settlement provided, however, that if you
renew your homeowners policies with either of the Exchanges, the Prospective Rate Reduction
will be reflected in your premium if the Settlement Agreement is approved. If you wish to be
excluded from the Settlement Classes, you must send in a request for exclusion by first-class
U.S. mail stating: (I) your name, address, and telephone number; (2) whether you have or had a
homeowners or automobile insurance policy from the Farmers Parties, or both; (3) the date of
inception of your policy(ies), an~ the most recent date on which the policy(ies) was renewed, if
you know; (4) that you wish to be excluded from the Settlement Classes; and (5) the policy
number(s), if you know. The Settlement Agreement is intended to be a final resolution of all
disputes, and thus you must either exclude yourself from the Settlement Agreement in its
entirety, or submit to the Settlement Agreement in its entirety. Requests for exclusion must be
J sent to "Exclusion Requests", c/o Rust Consulting, Inc.; P.O. Box 9348; Minneapolis, 1v1N
55440-9348, by first-class U.S. mail, postmarked on or before August 29, 2003. Requests will
]
not be accepted if made verbally, by fax, e-mail, or other means. Failure to follow these
instructions for requesting exclusion will result in waiver of your right to exclude yourself
from the Settlement Classes. Even if you provide written notice of your election to opt out of
J the class by August 29, 2003, you have the right to revoke that request for exclusion in writing
up to September 21,2003.
3. You may object to the Settlement. Settlement Class Members may appear, in
person or through counsel, to object and be heard in opposition to any of the matters to be heard
l at the Settlement Hearing, including (a) the requested approval of the Settlement Agreement as
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J 30491674.1 -14-
fairt adequate, and reasonable, andJor (b) the requested entry of the Final Judgment. You cannot
request exclusion AND object to the settlement. Only Settlement Class Members may
object to the settlement For his or her objection to be considered by the Court, the objecting
.1
Settlement Class Member must mail by U.S. first-class mail a valid written objection, and it
I
must be postmarked by no later than August 29, 2003. In order to be valid, the written objection
must set forth (a) a reference, at the top, to "'State of Texas v. Farmers, Cause No. GV202501 ,"
(b) a statement as to whether the objecting Settlement Class Member intends to appear at the
Settlement Hearing, either in person or through counsel, (c) a detailed statement of the specific
basis for the objection, (d) the name that is set forth on the notice that was sent to the objecting
Settlement Class Member, (e) the objecting Settlement Class Member's current name, if different
from the name set forth on the notice, (f) the objecting Settlement Class Member's current
j address, (g) the objecting Settlement Class Member's current telephone number and, if available,
telecopier number, (h) the objector's type of policy and policy number, and (i) the objecting
J
Settlement Class Member's signature or that of his or her authorized representative. Three
copies of the written objection must be sent, the first addressed to the District Court Clerk of
Travis County, Texas, 1000 Guadalupe Street, Austin, Texas 78701, the second addressed to
David C. Mattax, Chief, Financial Litigation Division, P.O. Box 12548, Austin, Texas 78711-
2548, and the third addressed to Richard N. Carrell, Fulbright & Jaworski L.L.P., 1301
J
McKinney, Suite 5100, Houston, Texas 77010-3095. All such objections must be postmarked
on or before August 29, 2003. IF AN OBJECTION DOES NOT INCLUDE ALL OF THE
REQUIRED INFORMATION OR IF IT IS NOT TIMELY MAILED BY U.S. FIRST-
CLASS MAIL TO THE THREE CORRECT ADDRESSES, THEN IT SHALL BE
j ·INVALID AND IT WILL NOT BE CONSIDERED BY THE COURT. ANY MEMBER
l 30491674.1 -15-
OF THE SETTLEMENT CLASSES WHO DOES NOT OBJECT IN THE MANNER
PROVIDED SHALL BE DEEMED TO HAVE WAIVED SUCH OBJECTION AND
SHALL FOREVER BE FORECLOSED FROM MAKING ANY OBJECTION TO THE
FAIRNESS, ADEQUACY, OR REASONABLENESS OF THE SETTLEMENT
AGREE1VIENT AND THE PROPOSED FINAL JUDGI\'IENT TO BE ENTERED
APPROVING THE SETTLEMENT.
SETTLEMENT HEARING
The Court has g1ven its preliminary approval to the proposed settlement and has
conditionally certified the Settlement Classes. The Court will hold a hearing in the District Court
of Travis County, Texas, 1000 Guadalupe Street, Austin, Texas, on the 29th day of September,
2003, at 9:00 o'clock a.m. to determine whether, as recommended by the Parties, it should give
final approval to the proposed settlement.
Any objections to the proposed settlement by Settlement Class Members will be
L .l considered by the Court, but only if such objections are filed in writing with the Clerk
postmarked on or before the 29th day of August, 2003, and mailed to the individuals at the
:I addresses stated herein. Attendance at the hearing is not necessary; however, any Settlement
Class Member wishing to be heard orally in opposition to the proposed settlement must indicate
this intention in his or her objection. Settlement Class Members who support the proposed
settlement do not need to appear at the hearing or take any other action to indicate their approval.
SETTLEMENT DISTRIBUTION
If the settlement is approved by the Court, and if you are a Rate or Discount Class
Member, you will receive any benefits to which you are entitled as follows: (a) you will receive
the Prospective Rate Reduction at the time of renewal of any HO-A homeowners policy from
LJ
30491674.1 -16-
November 11, 2002 through August 31, 2003, inclusive; (b) if you choose to renew your HO-A
policy at the next time that it comes up for renewal, you will receive the Retrospective Rate
Reduction as a credit at the next renewal date after the 30th day following the Effective Date
(described below); (c) if you choose not to renew your HO-A policy at the next time that it
comes up for renewal, or if you do not currently have an HO-A policy provided. by the Farmers
Parties, you will receive a refund check on the later of: (1) 45 days after the end of the original
annual term covered by the policy in question, which schedule will apply even if the policy is
l terminated prior to the end of the policy period, or (2) 30 days after the date by which all of the
I following have occurred: (i) an Order of Preliminary Approval has been entered by the Court in
the Action; (ii) the Court has approved the settlement in all respects; (iii) an order and final
judgment shall have been entered by the Court and not vacated, stayed, or modified in any
material way, upon appeal or otherwise; and (iv) either the time to appeal or otherwise seek
review of the order and final judgment has expired without any appeal having been taken or
review sought, or if an appeal is taken or review sought, the expiration of five days after such an
appeal or review shall have been finally determined by the highest court before which appeal or
review is sought and is not subject to further judicial review ("Effective Date"); and (d) credits
and payment of the Individualized Discount Adjustment shall be made in the same manner and at
the same time as the Retrospective Rate Reduction listed above.
If the settlement is approved by the Court, and if you are a Credit Usage Notice Class
Member, any payments you are entitled to from the Credit Usage Notice Adjustment Fund shall
be made by means of a refund on the later of (1) thirty (30) days after the receipt of a completed
Claim Form, or (2) thirty (30) days after the Effective Date.
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:.1 30491674.1 -17-
In the event that the settlement, or the terms provided by the Settlement Agreement, is
not approved by the Court, or if the Effective Date for any other reason does not occur, and if
any Party to the Settlement Agreement exercises their rights to terminate the Settlement
Agreement, as provided therein, then any actions to be taken in connection therewith shall be
vacated and terminated and shall become null and void for all purposes, and all negotiations,
transactions, and proceedings connected with it (a) shall be without prejudice to the rights of any
party thereto; (b) shall not be deemed or construed as evidence or an admission by any party of
any fact, matter or thing; and (c) shall not be admissible in evidence or used for any purpose in
any subsequent proceeding in the Action, or any other action or proceeding in any forum,
judicial, administrative, or otherwise, except proceedings to enforce the settlement.
ADDITIONAL INFORMATION: OBTAINING A COPY
OF THE SETTLEMENT AGREEMENT AND RELEASE
Any questions you have about the matters in this Notice should be directed in writing to
Office of the Attorney General, Consumer Protection Division, P.O. Box 12548, Austin, Texas
l
78711-2548. Questions may not be directed to the Court. The foregoing is only a summary
. 1
J
of the Action and the Settlement Agreement and does not purport to be comprehensive. If you
wish to obtain a copy of the Settlement Agreement (including the Release and the Agreed
Discounts), you may do so by requesting it in writing from the same address, or a copy may also
be secured through the Texas Department of Insurance web site at "www.tdi.state.tx.us".
You may, of course, seek the advice and guidance of your own attorney if you desire.
The pleadings and other records in this litigation may be examined and copied at any time during
regular office hours at the office of the District Clerk, Travis County, Texas, 1000 Guadalupe
Street, Austin, Texas 78701.
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I 30491674.1 -18-
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TIME LJMITS
1. IF YOU WISH TO BE EXCLUDED FROM THE SETTLEMENT CLASSES,
YOU MUST SEND YOUR WRITTEN REQUEST FOR EXCLUSION BY FIRST CLASS
UNITED STATES MAIL TO "EXCLUSION REQUESTS" C/0 RUST CONSULTING, INC.;
P.O. BOX 9348; MINNEAPOLIS, MN 55440-9348, POSTMARKED ON OR BEFORE THE
29th DAY OF AUGUST, 2003.
2. IF YOU WISH TO OBJECT TO THE PROPOSED SETTLEMENT, YOU
MUST MAIL YOUR WRlTTEN OBJECTION TO THE CLERK OF THE COURT AND TO
THE OTHER PERSONS IDENTIFIED ABOVE BY FIRST-CLASS UNITED STATES MAIL,
POSTMARKED ON OR BEFORE THE 29th DAY OF AUGUST, 2003. YOU MUST
INCLUDE A REQUEST FOR ORAL ARGUMENT IF YOU WANT TO BE HEARD
ORALLY AT THE SETTLEMENT HEARING.
3. TO BE ELIGIBLE FOR BENEFITS FROM THE CREDIT USAGE NOTICE
ADJUSTMENT FUND, YOUR CLAllvf FORM (ATTACHED HERETO AS EXHIBIT A)
MUST BE POSTMARKED ON OR BEFORE MAY 15, 2004.
'j
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:l 30491674.1 -19-
1
J
'1 I
CAUSE NO. GV202501
THE STATE OF TEXAS, THE TEXAS § IN THE DISTRICT COURT
DEPARTMENT OF INSURANCE, AND §
THE TEXAS COMMISSIONER OF §
mSURANCE, §
§
Plaintiffs, §
§
v. §
§
FARMERS GROUP, INC., FARMERS §
UNDERWRITERS ASSOCIATION, § OF TRAVIS COUNTY, TEXAS
FIRE UNDERWRITERS §
ASSOCIATION, FARMERS §
INSURANCE EXCHANGE, FIRE §
INSURANCE EXCHANGE, TEXAS §
FARMERS INSURANCE COMPANY. §
MID-CENTURY INSURANCE §
COMPANY OF TEXAS, MID- §
CENTURY INSURANCE COMPAt~Y, §
FARMERS TEXAS COUNTY §
MUTUAL INSURANCE COMPANY, §
TRUCK INSURANCE EXCHANGE, § 261ST nJDICIAL DISTRICT
I
,, ·l
AND TRUCK UNDERWRITERS
ASSOCIATION,
'l Defendants.
CLAIM FORM
INSTRUCTIONS (YOU MUST READ THESE INSTRUCTIONS CAREFULLY;
IF YOU FAIL TO FOLLOW THESE INSTRUCTIONS, YOU MAY LOSE
CERTAIN BENEFITS TO WHICH YOU WOULD OTHERWISE BE
ENTITLED):
In order to receive proceeds from the Credit Usage Notice Adjustment Fund,
you must complete and mail this Claim Form to Personal Lines Credit Usage Notice
Administrator, Farmers Insurance, P.O. Box 149199, Austin, Texas 78714-9199,
postmarked on or before the 15th day of May, 2004. IF YOU DO NOT RETURN A
CLAIM FORM POST:MARKED BY THIS DEADLINE, YOUR CLAIM WILL BE
REJECTED AND YOU WILL BE DEEMED TO HAVE WAIVED ALL RIGHTS
TO RECEIVE ANY CONSIDERATION UNDER THIS PORTION OF THE
.SETTLEMENT. If you do not request exclusion from the Settlement Class, you are
30372690.7
bound by the terms of the Settlement Agreement and Release and Final Judgmen.t
entered pursuant to the settlement whether or not you return a Claim Form.
Must Be Postmarked No Deliver to: Personal Lines Credit Usage
Later Than May 15, 2004 Notice Administrator
Fanners Insurance
P.O. Box 149199
Austin, Texas 78714-9199
CLAIM FORM
A. PERSONAL INFORMATION
' )
Name (Last) (First, Middle)
' 1
1
Address (Street Name and Number, Apartment Number, If Applicable)
City State Zip Code Daytime Phone #
I B. HOMEOWNERS' POLICY INFORMATION (If Applicable)
I Names(s) oflnsured(s), if
different from above
Effective Date of Policy(ies)
'l Address of Insured Premises Policy Number(s)
I
Name of Agent
,I
:J 30372690.7
C. AUTOMOBILE POLICY INFORMATION (If Applicable)
Names(s) ofinsured(s), if Effective Date of Policy(ies)
different from above
Address ofinsured(s), if Policy Number(s)
Different from above
Name of Agent
l
Vehicle Identification Number
l (VIN) of Insured Vehicle
D. YOU IVIUST ATTACH A NEW CREDIT REPORT FROM THE
CONSUMER REPORTING AGENCY (tRANS UNION) INDICATING THAT
CORRECTIONS HAVE BEEN MADE TO ;YOUR ORIGINAL CREDIT REPORT.
I E. CERTIFICATION UNDER PENALTY OF PERJURY
'
I hereby affirm and declare under penalty of perjury that:
i .l
1. I have not opted out of the S~ttlement Classes in this case and will not
.l request exclusion from the Settlement Classes; .
2. I have read and understand the contents of this Claim Form; and
3. I am voluntarily submitting to the jurisdiction of the 261 st Judicial District
Court of Travis County, Texas for purposes of this claim.
,I
DATED , SIGNED
~l
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:..J 30372690.7
.l
I
ATTENTION
Your rights may be affected by a cl~9.: action
In the 261 st Judicial District of Travis C()ilf,Dty, Texas
SUMMARY NOTICE OF SETTL~IENT
TO: ALL FARMERS INSURANCE EXCHANGE OR Fgill INSURANCE EXCHANGE
r 1
TEXAS HOMEOWNERS POLICYHOLDERS (t1)): WHOSE HO-A POLICIES
(INCLUDING TDP-1) INCEPTED OR WERE RENJt'tfED AT ANY TllvfE DURING
THE PERlOD OF DECEMBER 28, 2001 THROUGH~zAtill INCLUDING DECEMBER
27, 2002, OR (B) WHO RECEIVED A NOTICE AT~ TIME AFTER NOVEMBER
14, 2001, THAT THEIR HO-B POLICY (INCLUDIN~fiO-PROTECTOR PLUS (PTP),
H0380 ENDORSEMENT, TDP-2, TDP-3, DF-BUILipER'S RISK, AND HO-A WITH
H0-170 ENDORSEMENT (COLLECTIVELY REFEI}:BED TO HEREIN AS "HO-B"))
WOULD NOT BE RENEWED ("RATE CLASS MEMf3ERS").
"] ALL FARMERS INSURANCE EXCHANGE OR Fglli INSURANCE EXCHANGE
TEXAS HOMEOWNERS POLICYHOLDERS WHQ_y\CCORDING TO FARMERS
. 'I RECORDS WERE ELIGIBLE TO RECEIVE +Jj:SCOUNTS FOR FARMERS
PROPERTY RISK ASSESSMENT ("FPRA"), AGJ1E9F HOME, OR TERRITORY
I
FROM NOVEMBER 16, 2000 THROUGH AND INCJp1JDING DECEMBER 10, 2002
("DISCOUNT CLASS MEMBERS"). .~\R
ALL TEXAS HOMEOWNERS OR AUTO INSlJ%NCE POLICYHOLDERS OF
FARlviERS INSURANCE EXCHANGE, FIRE IN~f!RANCE EXCHANGE, MID-
·.
l
I
CENTURY INSURANCE COMPANY OF TEXAS~I\¥fiD-CENTURY INSURANCE
COMPANY, FARMERS TEXAS COUNTY MUTUA\f;INSURANCE COMPANY OR
TRUCK INSURANCE EXCHANGE WHO ACCOR4JiNG TO FARMERS RECORDS
WERE PROVIDED OR SHOULD HAVE BEENo~ROVIDED A NOTICE OF
ADVERSE ACTION BASED ON CREDIT HIST)ORY AT ANY TllvfE FROM
OCTOBER 1, 1999 THROUGH FEBRUARY 28, 20pi3 ("CREDIT USAGE NOTICE
CLASS").
NOTICE IS HEREBY GIVEN of the settlement of a laws1:1it.; pending in the 261st Judicial
.j District Court of Travis County, Texas (Civil Action No. GV2p250 1) ("the Action"), in which
the Attorney General of the State ofTexas has brought suit in t~ft_~name ofthe State ofTexas, the
Texas Department of Insurance, and the Texas Commissioner ofrlnsurance (hereafter collectively
defined as the "State"), and has filed a class action claiming that one or more of Fire
Underwriters Association, Farmers Group, Inc. d!b/a Farr;Q;~rs Underwriters Association,
Farmers Insurance Exchange, Fire Insurance Exchange, Te:x;~ Farmers Insurance Company,
Mid-Century Insurance Company of Texas, Nlid-Century Ins~:rance Company, Farmers Texas
County Mutual Insurance Company, Truck Insurance Exch~ge, and Truck Underwriters
Association (collectively, the "Farmers Parties") failed to discl;ose information with respect to
their calculation of premiums, committed unfair and deceptive ~q:ts or practices in the business of
·insurance, and unfairly discriminated against Texas policyhold.:~rs of the Farmers Parties in the
30491657. t
' 1
business of insurance. The State also alleges anticompetitive practices with respect to the
Fanners Parties' sale and marketing of their homeowners and automobile insurance policies.
The Fanners Parties have denied the State's allegations and alleged numerous affmnative
defenses. On December 18, 2002, the State and the Fanners Parties executed a Settlement
Agreement and Stipulation and subsequently an Amended Settlement Agreement and Stipulation
("Settlement Agreement"), providing for the certification of certaiut< ·settlement classes
("Settlement Classes") who would receive or be eligible to apply for certain financial and other
' l benefits. These benefits and the Settlement Classes contemplated by the s·~ttlement Agreement
! (including the Rate Class, the Discount Class, and the Credit Usage Notice'~CJass) are more fully
described in the ~'Notice ofProposed Class Settlement."
IF, AT ANY TllvfE AFTER OCTOBER 1, 1999, YOU WERE INSUREDll3'Y THE FARM:ERS
PARTIES THEN YOU MAY BE ELIGIBLE TO SHARE IN THE BENEFITS OF THE
SETTLEMENT. P<
l The· proposed settlement provides benefits that vary based on which class y¢'U are in. Rate Class
Members are eligible for a 6.8o/o refund of earned base premiums paid on HO-A policies
incepted or renewed from December 28, 2001, up to and including NovemlH:r 10, 2002, either in
the form of a refund check or a credit upon renewal after approval of the :§,i?ttlement. Discount
Class N1embers who did not receive discounts for FPRA~ age of home, an¢.J~,erritory at the level
agreed to by the State and the Farmers Parties are eligible to receive an In~t'yidualized Discount
Adjustment p-ayment. Credit Usage Notice Class Members are eligible to cy?J916 S.W.2d 949, 958 (Tex. 1996).
IV. GRIGSON’S SUBSTANTIVE OBJECTIONS TO THE 2015 SETTLEMENT
Grigson objects to the 2015 Settlement as being a product of collusion, conflicts of
interest, and inadequacy of putative class counsel.
The Settling Parties have demonstrated actual collusion; multiple conflicts of
interest; an absence of adequate legal representation for putative class members; and
multiple breaches of fiduciary duties: all of which, jointly or severally, prevent the
preliminary approval and class certification sought for the 2015 Settlement by the
Settling Parties. See Exhibit C.
Reprehensible greed and self-dealing by Farmers Group, Inc. (“FGI”) has resulted
in this blatant attempt to loot current Policyholders’ Surplus of $84.38 million dollars
allowing FGI to obtain a global release from 1.8 million Texas policyholders. 11 Such
scheme has been crafted by the Farmers Defendants’ and implemented by their conflicted
lawyers taking advantage of a compliant and inadequate putative class counsel. See
Exhibit C.
SASA at 13.
11
This is precisely the kind of “disparity” that the Texas Supreme Court used to affirm the rejection of
the class settlement in GMC v. Bloyed, 916 S.W.2d 949, 956 (Tex. 1996) [“In essence, the court of
appeals overturned the settlement because it decided that the potential windfall to GMC outweighed all
the reasons supporting approval”].
-7-
The primary mechanism of this scheme is the tainted agreement between the
Settling Parties and their conflicted lawyers to have innocent policyholders pay a
settlement which allows the rogue fiduciary, FGI, to get off scot-free 12 by using a
collusive class action as a device to obtain a global release from 1.8 million policyholders
that FGI has harmed. 13
V. PROCEDURAL OBJECTION
The 82 page patchwork settlement – including its confusing format – is the
product of collusion between the Settling Parties.
No red-line copy is provided for an amalgamation of a 2015 Supplement (with
exhibits) together with portions of the rejected 2013 SASA (with exhibits) which requires
the reader to cross back-and-forth between eighty-two pages of separate documents in
order to glean the terms of the new settlement. The cumbersome format of this
patchwork settlement is deliberate. From this “jumble” of terms, no one can determine if
(1) they are a member of a class; (2) if so, which one; (3) are they entitled to money; and
(4) if so, how much?
Two things, however, are clear: this Settlement has neither been approved – nor
certified. We are at “square one” according to the Court. “So it seems to me we’re back
at square one with no settlement, no certified class, because you were the party who
12
“Scot-free” is an old English term dating from 1528 meaning “without deserved punishment.” Merrill-
Webster’s Dictionary.
13
The 1.8 million policyholder figure comes from the Settling Parties themselves. Joint Motion Exhibit
B to the March 14, 2015 Supplement at 5.
-8-
asked for it, and now you don’t agree to it, according to your own signed document.”
9/4-2014 Tr. at 55:13-17. Exhibit B.
Settling Parties Joint Motion should be denied.
VI. RELIEF SOUGHT
As a current policyholder and putative class member, Grigson seeks the protection
of this Court from the irreparable harm he will sustain from depletion of his share of
current Policyholders’ Surplus which will immediately result from court approval of the
Settling Parties collusive agreement. Putative class members, including Grigson, cannot
avoid this irreparable harm by opting out. That option is only afforded putative class
members after notice has been sent.
Accordingly, Grigson seeks the Court to deny the Joint Motion for Preliminary
Approval.
VII. CONCLUSION
Due to the procedural and substantive objections set forth above, the proposed
2015 Settlement cannot be maintained and/or certified under either §541.249 Texas
Insurance Code or Rule 42, Tex. R. Civ. P.
Accordingly, the Court should deny Settling Parties Joint Motion for Preliminary
Approval by entry of an appropriate order.
WHEREFORE, PREMISES CONSIDERED, Grigson prays that the Court deny Settling
Parties Motion for Preliminary Approval. Grigson further seeks such other and further relief to
which he may show himself justly entitled.
-9-
Respectfully submitted,
CHARLES O. “CHUCK” GRIGSON
INTERVENOR
LAW OFFICES OF JOE K. LONGLEY
_______/s/ Joe K. Longley__________
Joe K. Longley
State Bar No. 12542000
1609 Shoal Creek Blvd. #100
Austin, Texas 78701
512-477-4444 PHONE
512-477-4470 FAX
LAW OFFICE OF PHILIP K. MAXWELL
Philip K. Maxwell
State Bar No. 13254000
1609 Shoal Creek Blvd #100
Austin, Texas 78701
512-947-5434 PHONE
ATTORNEYS FOR INTERVENOR,
CHARLES O. “CHUCK” GRIGSON
-10-
CERTIFICATE OF SERVICE
The undersigned hereby certifies that a true and correct copy of the above
and foregoing document was served on the following counsel of record by email
transmission on this the 15th day of May, 2015.
Joshua Godbey Marcy Greer
Office of the Attorney General of Texas Alexander Dubose Jefferson &
P. O. Box 12548 Townsend, LLP
Austin, TX 78711-2548 515 Congress Ave., Suite2350
Austin, TX 78701
Sara Waitt
General Counsel Michael J. Woods
Texas Department of Insurance 8620 N. New Braunfels, Ste. 522
P. O. Box 149104 San Antonio, TX 78217
Austin, TX 78714-9104
Joseph C. Blanks
Richard N. Carrell PO Box 999
Norton Rose Fulbright Doucette, TX 75942
1301 McKinney, Suite 5100
Houston, TX 77010-3095
M. Scott Incerto
Norton Rose Fulbright
98 San Jacinto Blvd #1100
Austin, TX 78701
_______/s/ Joe K. Longley__________
Joe K. Longley
-11-
EXHIBIT 4
TO APPELLANT GRIGSON’S RESPONSE TO
APPELLEES’ JOINT MOTION TO DISMISS APPEAL FOR
LACK OF APPELLATE JURISDICTION
5/15/2015 4:54:53 PM
Velva L. Price
District Clerk
Travis County
CAUSE NO. D-1-GV-02-002501 D-1-GV-02-002501
CHARLES O. “CHUCK” GRIGSON, § IN THE DISTRICT COURT
§
Intervenor – Plaintiff §
§
v. §
§
THE STATE OF TEXAS, THE TEXAS §
DEPARTMENT OF INSURANCE, AND §
THE TEXAS COMMISSIONER OF § OF TRAVIS COUNTY, TEXAS
INSURANCE, §
§
Plaintiffs, §
v. §
§
FARMERS GROUP, INC., et al. §
§
Defendants. § 261ST JUDICIAL DISTRICT
INTERVENOR GRIGSON’S RESPONSE IN OPPOSITION TO
CLASS CERTIFICATION AND PRELIMINARY APPROVAL
OF CLASS SETTLEMENT
TO THE HONORABLE JUDGE OF SAID COURT:
COMES NOW, INTERVENOR CHUCK GRIGSON and, subject to his
objections to the proceedings set forth below, files his response in opposition to class
certification and preliminary approval of class settlement. 1
1
When the words “Attorney General” are used in this court document, it does not mean Ken Paxton,
Greg Abbott, or John Cornyn, but rather the office of attorney general (“OAG”), a legal entity. Being
barred from formal discovery restricts our ability to prove as unfounded the serious ethical issues raised
by the uncontroverted evidence presented herein.
I.
OBJECTION TO THE DENIAL OF DISCOVERY, THE REQUIREMENT THAT
OBJECTIONS BE FILED BEFORE DISCOVERY, AND THE SCHEDULING OF
THE PRELIMINARY APPROVAL HEARING WITHOUT CONSENT AND
WIHTOUT ADEQUATE TIME FOR DISCOVERY
Contrary to the Supreme Court’s ruling in Bloyed v. General Motors, 916 S.W.2d
949 (Tex. 1996), guaranteeing to class settlement objectors the right to discovery,
contrary to the Court’s 2003 procedures and rulings upholding free and open discovery
into first settlement proposal in this case, and contrary to the Court’s current concern over
the lost benefit of the adversary system in determining the rights of citizens who are not
here to protect themselves, the Court has thus far refused to lift a discovery stay entered
over 12 years ago when a now abandoned settlement agreement was on appeal. Thus
Grigson—who was not a party then—is forced to proceed blindfolded in objecting to a
new settlement. 2 The settling parties know the details of the settlement negotiations, but
Grigson and his fellow objectors don’t. Thus, the outcome of the hearing on the new
settlement—which the Court has scheduled for July 1, a scant 47 days from the date of
this filing—will be determined, not by what the facts reveal, but by what facts are
concealed.
2
At 10:50 AM yesterday, May 14, 2015, the State delivered 116 pages of what appear to be “shared
documents” that passed between the “Settling Parties.” These came only after the Commissioner of
Insurance and the Assistant Attorney General were subpoenaed for the May 28 Lift stay hearing. The
Assistant AG actually objected to Grigson’s informal discovery requests as “neither reasonable nor
targeted.” Ex. A. Grigson has requested other “shared documents” that he believes to exist – but have
not been voluntarily produced. Ex. B.
-2-
Contrast the Court’s procedures now—no formal discovery at all—with the
procedure the Court ordered in 2003, described accurately by the State and Farmers in
their joint motion now before the Court:
The Court continued the hearing for four months, allowing the
intervenors to conduct discovery on their objections. Thousands of
pages of documents—representing all contemporaneous
communications between the State and Farmers relating to this
litigation—were exchanged. The intervenors were also afforded the
opportunity to take depositions and other forms of discovery relating
to the settlement. As a result, they were allowed to discover, in
advance of the initial hearing, precisely what transpired in the
settlement negotiations.
(Emphasis added).
Without such an open process, due process is denied and the settlement, whatever its
terms, cannot be approved. Grigson objects to the Court’s ban on discovery, the setting
of the hearing on preliminary approval, without his consent, the time allotted to the
hearing, and the requirement that Grigson file his objections without discovery.
II.
INCORPORATION OF OTHER DOCUMENTS
Grigson seeks judicial notice, of and incorporates herein as if fully set forth (a) all
objections made to the settlement agreements submitted for Court approval in this case;
(b) Grigson’s motion to lift stay3 and his reply to the settling parties’ response; 4 (c)
3
Intervenor Grigson’s Motion to Lift Stay on Discovery filed May 22, 2014. (Judicial notice requested
of the filing with exhibits).
4
Grigson’s Reply to Farmers’ Opposition to Motion to Lift Stay on Discovery filed on August 4, 2014.
(Judicial notice requested of the filing with exhibits).
-3-
Grigson’s amended motion to lift stay 5 and his reply to the settling parties responses; 6 (c)
Grigson’s motion to disqualify7 and his reply to the settling parties’ responses; 8 and (d)
the letter to Judge Jenkins dated May 11, 2015 and filed on that date. 9
III.
OBJECTION TO FAILING TO MAKE A DETERMINATION THAT THE
SETTLEMENT CLASSES MAY BE CERTIFIED
Grigson objects to preliminary approval of the proposed settlement without a
hearing on whether the settlement classes can be certified and a Court determination on
that issue. That is precisely what the State and Farmers are asking the Court to do—
simply ignore the class certification issue today and just use the conditional class
certification back in 2003. The 2003 certification, however, has been abandoned and
vacated, as the following discussion will show.
On June 27, 2003, the Court issued its order 10 giving preliminary approval to the
State’s and Farmers’ “Amended Settlement Agreement and Stipulation dated June 13,
2003.” 11 The Court’s order conditionally certified three settlement classes, required that
5
Intervenor Grigson’s Second Motion to Lift Stay on Discovery filed March 13, 2015. (Judicial notice
requested of the filing with exhibits).
6
Intervenor Grigson’s Reply to Settling Parties’ Response to Grigson’s Motion to Lift Stay filed April
27, 2015. (Judicial notice requested of the filing with exhibits).
7
Intervenor Grigson’s Motion to Disqualify Counsel filed September 19, 2014. (Judicial notice
requested of the filing with exhibits).
8
Grigson’s Reply to “Plaintiffs’ Response to Intervenor Grigson’s Motion to Disqualify Counsel” and to
“Defendants’ Opposition to Motion to Disqualify Counsel” filed November 3, 2014. Ex. C.
9
May 11, 2015 letter to Judge Jenkins from Joe Longley. Ex. D
10
ORDER OF PRELIMINARY APPROVAL (June 27, 2003) (the “2003 Order”). Ex. E.
11
AMENDED SETTLEMENT AGREEMENT AND STIPULATION (June 13, 2003)(the “2003 Settlement
Agreement”). (Judicial notice requested of the filing with exhibits).
-4-
notice be sent to the class within thirty days, and set September 29, 2003 for the hearing
“to determine whether the proposed Settlement Agreement is fair, reasonable, and
adequate and should be approved and whether the Final Judgment should be entered[.]” 12
The Court’s order further provided that, if the settlement agreement was not approved or
if “for any reason” the effective date of the agreement (a defined term requiring final
approval and a final judgment) 13 did not occur, either party could terminate the
agreement and the actions taken under it “shall be vacated and terminated and shall
become null and void.” 14 Similarly, the settlement agreement provided that Farmers
agreed to the certification of the settlement classes only to effectuate “this Settlement
Agreement” 15 and that if “this Settlement Agreement” was terminated or if “for any
reason” the effective date did not occur for any reason, “the conditional certification of
the Settlement Classes shall be vacated.” 16 The Court never entered a final judgment
approving the 2003 settlement agreement and the effective date of the 2003 settlement
agreement never occurred. Accordingly, under the provisions of the 2003 settlement
agreement and the Court’s 2003 order, the conditional certification of the settlement
classes was vacated.
12
2003 Order, paras. 2, 6-7.
13
The 2003 Order, in paragraph 1, “adopts all defined terms as set forth in the Settlement Agreement[,]”
which defines “Effective Date” as the date by which several things must have occurred, among them
preliminary and final court approval of the settlement and a final judgment. 2003 Settlement Agreement
at 2.
14
2003 Order, para. 18.
15
2003 Settlement Agreement at 7, para. III.2.
16
Id., para. III.5.
-5-
On August 29, 2013, the State and Farmers signed the “Second Amended
Settlement Agreement and Stipulation” (“SASA”). 17 SASA states that it “amends and
supersedes” the 2003 settlement agreement 18 and that “All other agreements and
understandings between the Parties, including the MOU, are superseded by this
Settlement Agreement.” 19 SASA thus vacated the 2003 agreement (though it had already
terminated by its own terms) and thus vacated the 2003 conditional certification of the
settlement classes (though the certification was already vacated). SASA recognized that
there were no certified classes by providing that “[t]he Parties agree that the Court may
enter an order conditionally certifying the Settlement Classes and appointing the State of
Texas, through the Attorney General, as the representative and counsel for the Settlement
Classes[]” and that “[t]he State shall file an amended motion for preliminary approval
that requests the Court to enter an Amended Order of Preliminary Approval substantially
in the form of Exhibit A hereto.” The order at Exhibit A states that, “Pursuant to Rule 42
and the Texas Insurance Code §§ 541.251 - .267, this Court hereby certifies, only for the
purposes of effectuating the Settlement Agreement, the following Settlement
Classes[.]” 20 SASA also stated that the Farmers parties “do not agree to certification of
the Settlement Classes” except to “effectuate the Settlement Agreement” and that “[i]f
this Settlement Agreement is terminated pursuant to its terms, or if the Effective Date
does not occur for any reason, the conditional certification of the Settlement Classes shall
17
SECOND AMENDED SETTLEMENT AGREEMENT AND STIPULATIONS (“SASA”) (Ex. F) (w/o exhibits)
18
Id. at 1 (first para.).
19
Id. at 17 (para. 2).
20
Proposed Order of Preliminary Approval attached as Exhibit A to SASA. Ex. G.
-6-
be vacated.” SASA’s definition of “Effective Date”, like the 2003 Settlement’s, required
preliminary approval, final approval and final judgment.
On April 29, 2014, the Court denied preliminary approval of SASA, thus vacating
(again) the conditional certification of the Settlement Classes.
On September 4, 2014, at the hearing on Grigson’s motion to lift stay, Mr. Incerto
said he didn’t think the Court had actually disapproved of SASA. The Court disagreed.
THE COURT: Well, I haven't approved this settlement agreement.
In fact, I rejected it. So you are now in a posture where you don't
agree with the class action. And in fact, you were the party who
wanted the class action 12 years ago. So it seems to me we're back at
square one with no settlement agreement, no certified class . . . . 21
THE COURT: I thought I was pretty clear on April 29th I'm
declining to approve the second amended settlement agreement. I
thought that was pretty clear, and I thought that you and I had that
sort of meeting of the minds at the beginning of this hearing, but I
guess if I wasn't clear, I'm hopefully clear now. 22
On March 4, 2015, the State and Farmers entered into a “Supplement to the
Second Amended Settlement Agreement and Stipulation” (the “Supplement”). The
Supplement states that the State and Farmers “reaffirm their obligations and
commitments made in the Settlement Agreement (SASA) subject to the enhancements,
modifications, and conditions in this Supplement.” 23 But unlike SASA—which obligated
the parties to seek a court order conditionally certifying the settlement classes—the
Supplement rescinds that obligation.
21
09/14/2014 Tr. at 55:9-15.
22
Id. at 57:9-15.
23
SUPPLEMENT TO THE SECOND SETTLEMENT AGREEMENT AND STIPULATION (the “Supplement”) (Ex.
H) at 1 (second para.).
-7-
As to Section III of the Settlement Agreement [SASA] on
“Certification of Settlement Classes,” the Parties acknowledge and
agree that the District Court has certified the Settlement Classes in
its Order of Preliminary Approval (June 27, 2003), that was
appealed to the Third Court of Appeals and the Supreme Court,
which affirmed the Order of Preliminary Approval, and the case was
ultimately remanded to the District Court on March 9, 2010.
Accordingly, the Parties have satisfied the requirement of seeking
certification of the Settlement Classes for purposes of Paragraphs 1-
4 of Section III of the Settlement Agreement, although the other
conditions of Paragraph 2 still apply.
Thus, the Supplement effectively amends SASA to say “The State shall not file a
motion for preliminary approval that requests the Court to enter an Amended Order of
Preliminary Approval substantially in the form of Exhibits A” (which does conditionally
certify the settlement classes), and to say “[t]he parties do not agree that the Court may
enter an order conditionally certifying the settlement classes and appointing the State,
through the Attorney General, as class representative and class counsel.”
The Supplement further provides that:
This Settlement Agreement, this Supplement, and the exhibits
attached to both agreements constitute the entire agreement among
the Parties. All other agreements and understandings between the
Parties, including the MOU and 2014 MOU, are superseded by the
Settlement Agreement and this Supplement. To the extent there is
any conflict between the Settlement Agreement and this Supplement,
the Supplement will control. 24
Thus, again, SASA and all prior agreements, including the 2003 settlement
agreement, are terminated and thus, again, any conditional certification of the settlement
classes based on the 2003 settlement agreement is vacated.
24
Id. at 4, para. 2.
-8-
On March 6, 2015, the State and Farmers filed their Joint Motion to approve the
Supplement. 25 Consistent with the State’s and Farmer’s new, “no certification” strategy
agreed to in the Supplement, the Joint Motion prays only for preliminary approval of the
settlement, approval of the class notice, and the setting of a date for the final approval
hearing. 26 The State and Farmers ignore the Court’s statement that, because he rejected
SASA, there is “no settlement and no certified class.” They offer no analysis of the
contractual language they chose in SASA that would prove the Court wrong. Instead
they try to breathe life into SASA by referring to the new Supplement that “reaffirms”
SASA, apparently believing that they can agree SASA back to life and that, in turn, will
bring the 2003 certification back to life too. 27 Here’s what they say in a paragraph called
“Other Updates in the Supplement.”
The parties have also clarified and acknowledged that: the Court has
approved and certified the Settlement Classes as affirmed by the
Texas appellate courts and as carried forward without change in the
Second Amended Settlement Agreement; the parties have satisfied
the requirement of seeking certification, as set forth in Paragraph of
Section III of the Second Amended Settlement Agreement; and
therefore the parties agree that the stipulations and agreements made
in that Agreement have not terminated and remain in effect. 28
25
STATE OF TEXAS AND FARMERS PARTIES’ JOINT MOTION FOR PRELIMINARY APPROVAL OF SECOND
AMENDED SETTLEMENT AGREEMENT AND STIPULATION, SUPPLEMENT THERETO, AND CLASS NOTICE
(the “Joint Motion”) (Ex. I) (w/o exhibits).
26
Joint Motion at 12. (Ex. I).
27
The State’s and Farmers’ strategy to pretend that SASA is not terminated so they can say the 2003
class certification is not terminated explains the cumbersome manner they have presented the new
settlement—by a “Supplement” that makes “modifications and enhancements” to SASA, requiring the
reader to constantly flip back and forth between voluminous documents—rather than as a rather than as a
stand-alone “amended settlement” as was SASA itself. The State and Farmers agreed in the 2014 MOU
that the settlement could be presented either way. 2014 MOU at 2, para. 8. (Ex. J).
28
Joint Motion at 20, para. F. (Ex. I).
-9-
Using the 2003 certification, the State and Farmers tell us, is a good idea because the
Court can now do a better job in reviewing the settlement.
As noted by this Court, affirmed by the appellate courts, and
acknowledged and agreed to by the parties, this Court has already
certified the Settlement Classes defined in the Second amended
Settlement Agreement, so the Court need not revisit that issue,
allowing it to focus on the preliminary approval. 29
These preposterous passages from the Joint Motion demonstrate just how
desperate—and how wrong—the State and Farmers are in asking the Court to avoid a
proper class certification analysis. But why are they so desperate? It’s certainly not to
sharpen the Court’s “focus on the preliminary approval.” Here are the real reasons. First,
they don’t want the Court to certify a settlement class because that grants the objectors
the right to an interlocutory appeal. Second, they don’t want to try to defend an
obviously inadequate class counsel who vowed to the Court never to submit a settlement
for approval without requiring that “independent” counsel advise the Exchanges and then
did the exact opposite, first agreeing with Farmers that Locke Lord—who also represents
FGI—would be the counsel advising the Exchanges, then papering that choice by
agreeing in the MOU to just “separate” counsel rather than “independent” counsel, and
then agreeing with Farmers to make no mention at all that any counsel would be advising
the Exchanges in the Supplement, which expressly supersedes the MOU. The State and
Farmers also don’t want to try explaining away class counsel’s gaping conflict of interest
in requiring—in violation of the Supreme Court’s holding in Highland Homes LTD. v.
29
Joint Motion at 23, n. 13. (Ex. I). (Emphasis added).
-10-
State 30--that the Exchanges transfer what will be millions of dollars of policyholder
money to the black hole of the State’s swollen “unclaimed property fund” where it will
never be claimed and instead will be spent by the State as soon as it is deposited. Nor do
the State or Farmers want to deal with defense counsel’s glaring conflict of interest in
aiding and abetting FGI’s self-dealing misappropriation of policyholder money held in
the Exchanges’ accounts which it controls in order to buy its immunity for the wrongs it
has done. And the State and Farmers don’t want to have to torture a path around the
intra-class conflict of interest (identified by Intervenor Woods) between non-current
policyholders being paid with surplus funds that only current policyholders own, an intra-
class conflict that afflicts all three Exchanges. Just as serious is the conflict between the
current policyholders in Truck Insurance Exchange, who does not issue homeowners
policies, yet are paying at least $5 million dollars of their policyholders’ surplus to fund a
settlement to be paid to holders of homeowner policies. These facts speak loudly against
certification of the settlement classes. So loudly that it would be an abuse of discretion to
refuse to determine whether the settlement classes that were certifiable in 2003 are still
certifiable in 2015.
30
448 S.W.3d 403 (Tex. 2014).
-11-
IV.
OBJECTION TO THE APPOINTMENT OF THE STATE OF TEXAS
AND/OR THE ATTORNEY GENERAL AS CLASS REPRESENTATIVE
OR CLASS COUNSEL
First, the Attorney General and the State have a serious, disabling conflict of
interest with the interests of the policyholders in the class with regard to the disposition
of the tens of millions of dollars of the settlement that will never be negotiated by the
class. Second, and most importantly, the Attorney General has displayed remarkably bad
judgment and rank disregard for the ethical commands of the profession in the handling
of this case. These two things require the Court to deny appointment of the Attorney
General as class counsel.
To begin with, the proposed settlement anticipates that not all of the checks drawn
on the surplus of the Exchanges and sent to the class will be negotiated. It is in the
interest of the State of Texas for the undistributed Exchange surplus to go to the State’s
unclaimed property fund, for there it earns no interest for the owner of the money, is
spent by the State as fast as it can be deposited, 31 and, because of the low claim rate for
31
See Clark v. Strayhorn, 184 S.W.3d 906, 908 (Tex.App.—Austin 2006, rev’d den.), cert. den. 549
U.S.995 (2006), a class action against the Comptroller for not paying interest on money that owner’s
successfully reclaim. The trial court granted the Comptroller’s pre-certification motion for summary
judgment. In affirming, the court of appeals said:
In response to an open records request, the Comptroller had initially reported
earning millions of dollars of interest on unclaimed property. This report had
been corrected in writing before the hearing, and witnesses for the Comptroller
testified that no interest had been earned because unclaimed property is deposited
into an account that has a negative balance. The Comptroller asserts that the
money is spent the moment it is received.
(Emphasis added).
-12-
small amounts, the State can keep the money in perpetuity. 32 On the other hand, it is in
the interests of the current policyholders who own the surplus to retain the undrawn
surplus, where it can earn a return and be available to pay claims. The State and the
Attorney General, with the consent of Farmers, has chosen the State over the
policyholders, providing in the settlement agreement that any “checks that are uncashed,
unclaimed, undeliverable, or not negotiated after 120 days after issuance shall be subject
to Texas Property Code, § 72.001 et seq.” 33, the Unclaimed Property Act.
Last year in Highland Homes LTD. v. State, 34 the Supreme Court ruled that
undistributed class settlement proceeds are not “unclaimed” property and thus are not
subject to Unclaimed Property Act. The State, represented by the Attorney General, was
the losing party in the case. The winning party, Highland Homes, was represented by
Marcy Greer (both as a Fulbright lawyer and an Alexander Dubose lawyer). The
Attorney General knows that class proceeds are not “unclaimed property” and yet
continues to sponsor a settlement agreement that unlawfully deems them to be so, all to
detriment of the policyholders. Grigson objects to the undistributed settlement proceeds
going to the State’s unclaimed property fund.
Second, the OAG is inadequate and unqualified to serve as class counsel as
illustrated by misrepresentations to the Court concerning the independence of the lawyer
Farmers has selected to give legal advice to the Exchanges on whether they should agree
32
There is $3.9 Billion in unclaimed property. http://comptroller.texas.gov/up/about.php.
33
See SASA at 18, para. 4 of Section IV. Ex. F.
34
448 S.W.3d 403 (Tex. 2014).
-13-
to the proposed settlement now before the Court and other issues much graver. The
following narrative timeline sets forth chronology of the last 24 months and describes the
conduct we believe bars appointment of the OAG as class counsel.
The misrepresentation occurred on December 4, 2014, when the Court heard
Grigson’s motion to disqualify the Farmers’ lawyers grounded upon the serious conflict
of interest between the policyholder-owned Exchanges, who in all versions of the
settlement from 2002 to the present are required to pay all of the settlement, while FGI,
who committed all of the acts claimed unlawful by the State pays nothing. Grigson’s
motion told the Court that a conflict of interest between FGI and the Exchanges had
existed from the beginning of the case because the Attorney General had expressly pled a
conflict of interest in his original suit—that FGI had conflicts of interest and engaged in
self-dealing by charging excessive management fees that, in turn, caused the Exchanges
to charge excessive premiums. In other words, the Attorney General pled that it was FGI
who caused the Exchanges to violate state law. Farmers’ lawyers responded that they
had no conflict of interest because they had never advised the Exchanges on the
“allocation” of the settlement. This meant, Grigson replied, that the Exchanges had no
lawyers to advise them on whether to settle or what to pay, the most important issues
facing the Exchanges.
Grigson’s motion to disqualify brought to a head the concern the Court expressed
on April 29, 2014, when it rejected SASA—what the Court termed the “representational
conflict” and the “potential for unfairness to the exchanges vis a vis the corporation.”
-14-
The Court told the State and Farmers this issue would have to be addressed before the
Court could grant even preliminary approval of a settlement in the case. 35
The State and Farmers did nothing to “address” this issue, or any other raised by
the Court, until Grigson filed his Motion to Disqualify the Farmers’ lawyers. The motion
was filed September 19, 2014 and the notice of hearing was filed October 3, 2014,
informing the State and Farmers that the motion would be heard on December 4, 2014 at
2 p.m.
On December 1, 2014—three days before the hearing on the motion to
disqualify—the State and Farmers met with Patrick Keel, a lawyer mediator. Grigson
and his lawyer declined to attend. 36 Intervenor Woods (unrepresented) and Joe Blanks
35
The Court said it could not remember whether this issue had been dealt with in 2003, and asked
assistant attorney general Mattax whether it had. Mattax said he didn’t remember and wanted to defer to
Farmers’ lawyers.
MR. MATTAX: I don't recollect. And let me, if I could, defer to Norton Rose
and see if they have a recollection, if that's okay, or should we do that later?
THE COURT: No, let's finish yours.
MR. MATTAX: Okay.
THE COURT: But they'll make a note, and they'll know they're going to have to
explain that if it was in that trial, because I don't have enough of a recollection to
be confident going forward that I can approve the settlement given this issue that
I'm now discerning about the potential for unfairness to the exchanges vis-a-vis
the corporation. That's something I don't remember anybody briefing for me ten
plus years ago.
MR. MATTAX: Let me --
THE COURT: And I'm going to need that to be satisfied that I can ever approve
this settlement or give preliminary approval, so somebody's going to have to
address that.
MR. MATTAX: Very good, Your Honor.
04/29/2014 Tr. at 50:3-22 (Ex K).
36
Longley emailed Keel that he would not attend the Mediation eight days before the Mediation because
of the pending motion to disqualify. See infra fn. 42
-15-
(lawyer for Intervenor Hooks) did attend. There was no plenary session at the mediation.
Keel met briefly with Woods and Blanks at the beginning and briefly with them at the
end. Between the beginning of the mediation in the morning and the end of the
mediation between 3:30 and 4 PM, Keel met only with lawyers for the State (Godbey)
and Farmers (Incerto and Carrell) while Woods and Blanks waited. Keel did not tell
Woods or Blanks anything about the negotiations between Farmers and the State or
whether there was anything that the State and Farmers agreed on. At the end of the
mediation in the afternoon, Keel told Woods and Blanks that he needed to confirm their
authorization that he could make a report to the Court and that he would send an email
for that confirmation. Keel did not call or email Longley to say that he was going to call
the Court or to ask Longley for his authorization.
On December 3, 2014, at 6:30 or 7:00 p.m. on the evening before the hearing on
Grigson’s motion to disqualify, Keel called the Court at 6:30 or 7:00 p.m. Grigson does not
know if Keel afterwards called Incerto or Godbey to report that the call to the Court had
been made or what was said. But at 7:30 p.m. that same evening, Incerto emailed
Godbey the new MOU. 37
David & Josh,
Attached is a term sheet/MOU setting out the terms of
settlement. Please note that paragraph no. 5 is to rectify a
mistake carried over into the 2nd Amended SA. Please let me
know if you have any questions or concerns about this
provision. The rest of the deal terms are self-explanatory and
are intended to reflect our discussions and agreements from
37
Incerto email to Godbey, December 3, 2014, 7:30 p.m. (Ex. L). (Emphasis added).
-16-
mediation. Should you have any changes to the MOU please let
me know; otherwise, please execute the MOU on behalf of The
Plaintiffs and return a copy to me, as I will do on behalf of the
Defendants.
Best, regards,
Scott
On December 4, 2014, at the hearing on the motion to disqualify and after the
opening statements of Longley and Bob Newman (who represented the Farmers at the
hearing), Godbey rose to speak.
MR. GODBEY: Your Honor, Joshua Godbey from the Texas
Attorney General's Office representing the State of Texas, the Texas
Department of Insurance and the commissioner of insurance. I will
be the only one speaking as it stands right now. Mr. Mattax has been
delayed with some transition meetings, so I hope to fill in. But I
know he did want me to briefly let the Court know that in part
because of Your Honor's urging and in part because we thought it
would be fruitful, the State, the Farmers defendants, Mr. Blanks and
Mr. Woods engaged in a mediation earlier this week on Monday that
we believe has been very fruitful. And there are two issues from
there that I think bear for the Court and are important to note in
terms of agreements in principle that have been reached. 38
The Court did not take this opportunity to announce on the record that Keel had called
him the night before to report on the mediation. Instead, the Court said:
THE COURT: Well, then I think that you'll have to communicate
that to the Court as part of the motion. If that's important for the
purposes of the motion today, then I will let them decide, that is the
Farmers lawyers to decide, whether to share time in order to
incorporate that information for my purposes today. Otherwise, I
would ask that you make a report to the Court as necessary for any
future proceedings or scheduling. All right? 39
38
12/04/2014 Tr. at 11:10-12:15 (Ex. M). (Emphasis added).
39
Id. at 12:2-11. (Emphasis added).
-17-
During his argument, lawyer Newman made several references to a settlement that
had been reached between the State and Farmers that he said would solve the problem
raised by the motion to disqualify. This was one.
MR.NEWMAN: The reality is a settlement in this case, which Mr.
Godbey can inform the Court of in just a moment, where we are on
that issue, will unquestionably entail an evaluation by -- for a very
colloquial inexact term, a guardian ad litem. It will involve an
evaluation by an independent counsel. And additionally a settlement
in this case will absolutely not include, as the State has said in its
briefing and as we've said, an interparty release between FGI and the
exchanges. So there is no conflict at this time. 40
When Mr. Newman was through, he passed the argument to Mr. Godbey to tell the
Court about the two issues that the State and Farmers has settled “in principle:”
MR. GODBEY: Then, Your Honor, I'll be as brief as I can to not
take any extra time from Mr. Newman. The question before that Mr.
Newman did a good job of not opining on, I think the State would
believe that -- in the affirmative, that there would be nothing in the
current settlement or in the agreements in principal to be reached
that would preclude the type of action after this settlement that Your
Honor had asked about. And that is in part because -- and as we have
briefed, and we did leave something open in our briefing, which we
have reached agreement in principal [sic] on after our mediation on
Monday, is that there will be no interparty release in any further
amendments to the settlement that are made. It will remain a cross-
party release where the State and TDI and the commissioner are
releasing the Farmers parties. There is no release between the
exchanges and FGI. And there will be none inserted in any
amendment down the road.
THE COURT: And you mediated with Patrick Keel, former Judge
Patrick Keel.
MR. GODBEY: We did.
40
Id. at 54:5-14.
-18-
THE COURT: And all of the people who decided to participate in
mediation suggested that he let me know that you reached an
agreement in principal [sic] without giving me any details about it.
MR. GODBEY: That's correct.
THE COURT: And he did, just for the sake of transparency, let me
know. I spoke with him briefly last night at 6:30 or so, 6:30 or 7:00.
It's not common for me to do that, but for the sake of everybody
knowing, I did. All the people who participated in the mediation I
understood authorized him to do that, and so I did briefly. I didn't get
the details, but I understand that you're dealing with some of these
issues and hope to present -- potentially present a proposed
settlement for preliminary approval assuming we get farther down
the road after this hearing.
MR. GODBEY: That is correct, Your Honor. And we do believe it
was very fruitful and productive. The other point that was agreed to
in principal at the mediation and I believe is bearing on this, as Mr.
Newman has alluded to, is the notion sort of like the guardian ad
litem example that has been raised. Any settlement and the
agreement in fact – any settlement going forward is conditioned on
the fact that the board of governors of the exchanges will approve of
the settlement with the advice and consultation of independent
counsel.
THE COURT: Apart from Fulbright.
MR. GODBEY: That's correct, Your Honor.
THE COURT: I understand.
MR. GODBEY: So there will be -- they will have to sign off on it
and it will not happen -- it will not be -- it will not reach the point of
being brought to this Court if it has not been signed off on and they
have had the chance to consult and have been advised by
independent counsel other than Fulbright before that happened.
THE COURT: And even with that, what I'm inferring so far from
what you're saying and what I understand, is that you've been
dealing with the very issues Mr. Longley's raised about how much
should be paid in this settlement by the exchanges vis-a-vis the
corporation?
-19-
MR. GODBEY: Those are points that came up in the mediation at
well, and we still working on things, but by and large, we do have an
agreement, and we are working towards agreements on those as well
that we would put down in writing to bring forward to the Court.
THE COURT: Anything else I need to know?
MR. GODBEY: Nothing else from the State, Your Honor.
Hopefully I used no more than two or three minutes of Mr.
Newman's time. 41
A fair reading of this exchange leads to three disturbing conclusions: First, the
night before the Court was to decide whether to disqualify Farmers’ lawyers the Court
received an ex parte communication from the State and Farmers (courtesy of Keel 42 who
they requested make the communication) that Farmers and the State had reached an
agreement on an alternate way to deal with the conflict raised in the motion. The Court
knew Longley had not authorized Keel to call because the Court knew Longley was not
at the mediation and that it was “the people who participated in the mediation authorized
[Keel] to do that.
Second, Godbey, who represented the State at the mediation, colluded with
Farmers’ lawyers to make the ex parte communication to the Court through Keel.
41
Id. at 65:3 – 67-8. (Emphasis added). Ex. M.
42
At the time Keel made the call to the Judge, presumably at home, he (Keel) had knowledge of
Grigson’s Motion to Disqualify and that it was to be heard on the next day, December 4. Ex. N.
-20-
Third, the purpose of the ex parte communication was to predispose the Court to
deny the motion, which is exactly what the Court did. What other purpose could there
have been? If the purpose of having Keel update the Court on the status of settlement
talks, why have Keel call before the hearing? Why have Keel call at all? Why not just
wait until the next day and have Godbey make the report, which is exactly what Godbey
did?
Fourth, the purpose of the mediation itself was not to resolve the four concerns the
Court had expressed in rejecting the settlement on April 29. It was to get a deal on juse
one of the concerns—the “representational conflict” of the lawyers. Godbey rose at the
beginning of the hearing not to make a general report to the Court about the progress at
the mediation on the Court’s four concerns. He rose to tell the Court that the State and
Farmers had agreed to wire around the conflict so the motion did not need to be granted.
Godbey reported nothing on whether FGI would be contributing to the settlement, the
prejudgment issue, or excluding the Geter class. They were just “points that came up in
the mediation as well that they were still working on.” The State’s and Farmers’
negotiating priority and orchestrating the call by Keel the night before the hearing, were
conceived and executed to kill the motion and to save the conflicted lawyers. Nothing
would have blown the conspiracy of the settling parties more decisively than the hiring of
new, skilled and aggressive litigators to pursue FGI on behalf of the policyholder-owned
Exchanges. The State and Farmers couldn’t stand that. And they didn’t.
-21-
These facts support the conclusion that the colluding lawyers for the Settling
Parties violated the Rules of Professional Conduct. Rule 3.05 states that:
A lawyer shall not:
(a) seek to influence a tribunal concerning a pending matter by
means prohibited by law or applicable rules of practice or procedure;
(b) except as otherwise permitted by law and not prohibited by
applicable rules of practice or procedure, communicate or cause
another to communicate ex parte with a tribunal for the purpose of
influencing that entity or person concerning a pending matter[.]” 43
Comment 3 to the Rule states:
Ex Parte Contacts
3. Historically, ex parte contacts between a lawyer and a tribunal
have been subjected to stringent control because of the potential for
abuse such contacts present. For example, Canon 3A(4) of the Texas
Code of Judicial Conduct prohibits many ex parte contacts with
judicial officials. A lawyer in turn violates Rule 8.04(a)(6) by
communicating with such an official in a manner that causes that
official to violate Canon 3A(4). This rule maintains that traditional
posture towards ex parte communications and extends it to the new
43
TEXAS DISCIPLINARY RULES OF PROFESSIONAL CONDUCT, RULE 3.05(emphasis added).
-22-
settings discussed in paragraph 2 of this Comment [dealing with
communications with arbitrators] 44.
Canon 3 of the Texas Code of Judicial Conduct has been revised so that the ex
parte communications rule now appears in Canon 3(B)(8), which provides:
A judge shall not initiate, permit, or consider ex parte
communications or other communications made to the judge outside
the presence of the parties between the judge and a party, an
attorney, a guardian or attorney ad litem, an alternative dispute
resolution neutral, or any other court appointee concerning the
merits of a pending or impending judicial proceeding. A judge shall
require compliance with this subsection by court personnel subject to
the judge's direction and control. 45
Matching the plain meaning of these rules with the known conduct in this case, it
is clear that the Rules have been violated. Whether further action regarding these
violations should be taken is worthy of serious consideration. But one thing is clear, the
OAG has forfeited any claim or right to be class counsel.
44
Id., COMM. 3 (emphasis added).
45
TEXAS CODE OF JUDICIAL CONDUCT, CANON 3B(8). The rule imposes on court staff the obligation to
prevent ex parte communications to the court. That may explain why Keel made his call to the Court
after the close of business at the courthouse. The Court has an experienced, well-trained, highly capable
and loyal staff. They are well-known for strictly screening calls to the Court and handling virtually all
calls themselves. If the Court talks to anyone calling his office, it will only be after the staff has
determined that the Court needs to talk to the caller and has cleared that decision with the Court.
-23-
Moreover, everything Godbey told the Court about the lawyer Farmers would hire
for the Exchanges--that the lawyer would be “independent” and would act like an
“attorney ad litem” to advise the Exchanges whether they should settle—was not true.
Not one word of it. FGI picked Locke Lord, and the OAG agreed. Locke Lord currently
represents FGI and has for years. 46 Except for FGI’s lawyers in Fogel, there is no set of
lawyers on the planet less “independent” of FGI and its influence than Locke Lord.
Professor Charles Silver testified, without contradiction, that Locke Lord could not
represent the Exchanges in this case because a lawyer cannot advise one of his clients
whether to sue another of his clients. Even Mr. Newman, Farmers lawyer at the hearing,
said the same thing. 47
THE COURT: That gets to the question I asked him. Are they
precluded from subsequent litigation assuming somebody has
standing to bring the litigation and wishes to bring it between the
two defendants to determine who should reimburse the other for
whatever payments flow in this case?
MR. NEWMAN: Judge, the short answer is I'm not in a position
without creating a conflict to opine as to whether or not one of my
clients can sue another one of my clients.
THE COURT: There you go.
MR. NEWMAN: Thank you, Your Honor.
THE COURT: Very careful answer.
MR. NEWMAN: Thank you.
46
Locke Lord cases representing FGI: 2012 to present. Exhibit O.
47
12/4/2014 at 53:11-24. (Ex. M). (Emphasis added).
-24-
To reach a sound decision whether you should accept a settlement that requires
you pay all of a settlement and for your co-defendant to pay nothing requires, at the least,
legal advice whether you have a claim against your co-defendant that might lessen or
extinguish the settlement demand of the plaintiff. In the Exchanges case, reaching such
a sound decision requires, at the least, legal advice whether FGI charged excessive
management fees that caused the Exchanges to charge excessive premiums that the State
demands be refunded, and whether that conduct breached FGI’s fiduciary duty to the
Exchanges entitling the Exchanges to damages or fee forfeiture. 48 A competent
“independent” lawyer called to give that opinion today would have to say yes, and cite
Fogel v. FGI which netted a settlement for $445 million for 12.5 million policyholders.
Locke Lord can’t do that because it represents FGI. FGI, by any stretch of the
imagination, is not an “independent” lawyer that can “act like an attorney ad litem.”
At the time Godbey made his “independent” lawyer representation to the Court, he
had already received Incerto’s email and attached MOU that stated:
9. Defendants' acceptance of this settlement is expressly
conditioned on approval of the settlement term s and conditions
by the Audit Committee of the Boards of Governors of each of
the Exchange Defendants, which the State understands will be
advised by separate counsel. 49
48
Attorney General Wenzel argued in opening for the State at the 2003 hearing that their discussions
prior to the settlement “raised a question whether there was a conflict between Farmers Group and the
Exchanges and their subscribers because the more premium that is charged in the policy, the more
money the management fee company, Farmers Group, makes whether there was any conflict of interest
or self-dealing involved in that.” 5/19/03 CR Vol. 1 82:14-20.
49
2014 MOU at 2, para. 9. (Ex. J). (Emphasis added)
-25-
Having only gotten the Exchanges a “separate” lawyer in the MOU, Godbey then
signed the “Supplement” settlement now before the Court, which expressly supersedes
the MOU. 50 So Godbey not only failed to get the Exchanges an “independent” lawyer, he
invalidated the only contract that got them any lawyer at all. This is textbook inadequate
representation. 51
In conclusion, the OAG is neither a competent, nor an adequate class counsel.
And as shown by the ex parte contact with the Court, the OAG has been, in a “best base”
scenario, wholly oblivious to the ethical obligations required of a competent and adequate
class counsel.
Moreover, the OAG labors under a conflict that forces it to demand that the
undistributed funds of the settlement, which will be in the tens of millions of dollars, be
“subject to” the Unclaimed Property Act when the Texas Supreme Court has held that
undistributed class funds are “claimed” funds not “subject to” the Act. The OAG cannot
serve as class counsel.
50
Supplement at 4, para. 2. (Ex. H).
51
The concern over the true independence of the lawyer selected to advise on the current settlement is
important, but at the same time misses the bigger picture --the independent lawyer may be 12 years late
coming to the aid of his client. As Farmers and the State say in their Joint Motion urging approval of the
new settlement, the new settlement “does not re-trade the deal; it maintains much of the substance of the
Second Amended Settlement Agreement and thus the 2003 Settlement Agreement.” Joint Motion at 16.
Farmers and the State are absolutely right. The two main parts of the settlement—who pays and how
much—were decided in the negotiations in the closing days of 2002 and memorialized in the 2003
settlement approved by the Court that year. The Exchanges had no lawyer representing their interest at
that time—when it really would have made a difference. From the beginning this case has been all about
settling and settlements, and never about developing the State’s—and hence the Exchanges’ claim—
against FGI, action that would have improved the outcome for the Exchanges. The Attorney General pled
a startlingly strong claim against FGI in 2003, but had no stomach to pursue it, and there was no lawyer
for the Exchanges to pick up the sword and keep charging. The Farmers’ lawyers’ conflict of interest
today is real and should be addressed, but the most serious damage their conflict has inflicted on the
Exchanges occurred when the original settlement was signed.
-26-
CONCLUSION
Every problem in this case stems from one simple fact – the Exchanges are paying
the settlement and FGI, excepting its vaguely worded obligation to reimburse the
Exchanges in the future, is paying nothing. This core fact guarantees the conflict of
interest suffered by the lawyers because FGI controls the Exchanges subject only to the
common law fiduciary duty imposed on attorneys-in-fact to not engage in self dealing.
The State and Farmers have suggested that the answer to this problem is not to
disqualify the lawyers and hire the Exchanges new ones that will prepare the clearly
available case against FGI and start real, arms-length bargaining with FGI, but to let the
Exchanges pay now and sue FGI later if they want to. That answer, of course, does not
respond to the question, “Do the lawyers have a clear conflict of interest? (of course they
do) and “Is the conflict such that the lawyers should be disqualified?” (of course it is).
The “let them sue later if they want to” answer is not an answer at all to the lawyers clear
conflict, but a way to wire around it. And it isn’t really that either, because FGI and its
powerful parent Zurich Insurance Group control the Exchanges, and they’re never going
to allow the Exchanges to sue them.
So, since the State and Farmers continue to seek the Court’s blessing of a wire
around solution, let us suggest one that at least has a hope of working. Require FGI to
pay the whole settlement and let FGI sue the Exchanges later “if it wants to.” Do for FGI
what the OAG says to do for the Exchanges—make sure the settlement doesn’t contain a
release that would prevent FGI from suing the Exchanges “later if it wants to.” And
consider this. FGI doesn’t even have to sue the Exchanges to get their money back.
-27-
They can get their money back by bumping their management fee, selling the Exchanges
more reinsurance, or in some other way it will figure out at the next company meeting in
Zurich. Judge Highberger mused during the approval hearing in Fogel that:
The other money that’s coming off the books of Zurich and going
into the Exchanges, can’t be reversed out as readily as just putting it
back there in January 2nd or April 2nd. It’s going to be slower and
harder for Farmers to get its greedy little fingers on it over time by
repricing the attorney in fact fee.
FGI’s actions to get back their money may be breaches of fiduciary duty, but they
won’t have to be dealt with until later.
The Court can make this far superior wire around solution a reality. Just say no to
the current settlement and strongly suggest that it happen.
WHEREFORE, PREMISES CONSIDERED, Grigson prays that the Court deny Settling
Parties Joint Motion for Preliminary Approval. Grigson further prays for such other and further
relief to which he may show himself justly entitled.
Respectfully submitted,
CHARLES O. “CHUCK” GRIGSON
INTERVENOR
LAW OFFICES OF JOE K. LONGLEY
_______/s/ Joe K. Longley__________
Joe K. Longley
State Bar No. 12542000
1609 Shoal Creek Blvd. #100
Austin, Texas 78701
512-477-4444 PHONE
512-477-4470 FAX
-28-
LAW OFFICE OF PHILIP K. MAXWELL
_______/s/ Philip K. Maxwell__________
Philip K. Maxwell
State Bar No. 13254000
1609 Shoal Creek Blvd #100
Austin, Texas 78701
512-947-5434 PHONE
ATTORNEYS FOR INTERVENOR,
CHARLES O. “CHUCK” GRIGSON
CERTIFICATE OF SERVICE
The undersigned hereby certifies that a true and correct copy of the above and
foregoing document was served on the following counsel of record by email transmission
on this the 15th day of May, 2015.
Joshua Godbey Marcy Greer
Office of the Attorney General of Texas Alexander Dubose Jefferson &
P. O. Box 12548 Townsend, LLP
Austin, TX 78711-2548 515 Congress Ave., Suite2350
Austin, TX 78701
Sara Waitt
General Counsel Michael J. Woods
Texas Department of Insurance 8620 N. New Braunfels, Ste. 522
P. O. Box 149104 San Antonio, TX 78217
Austin, TX 78714-9104
Joseph C. Blanks
Richard N. Carrell PO Box 999
Norton Rose Fulbright Doucette, TX 75942
1301 McKinney, Suite 5100
Houston, TX 77010-3095
M. Scott Incerto
Norton Rose Fulbright
98 San Jacinto Blvd #1100
Austin, TX 78701
_______/s/ Joe K. Longley__________
Joe K. Longley
-29-
EXHIBIT 5
TO APPELLANT GRIGSON’S RESPONSE TO
APPELLEES’ JOINT MOTION TO DISMISS APPEAL FOR
LACK OF APPELLATE JURISDICTION
CAUSE NO. GV202501
THE STATE OF TEXAS, THE TEXAS § IN THE DISTRICT COURT
DEPARTMENT OF INSURANCE, AND §
THE TEXAS COMMISSIONER OF §
INSURANCE, §
§
Plaintiffs, §
v. §
§
FARMERS GROUP, INC., FARMERS §
UNDERWRITERS ASSOCIATION, FIRE §
UNDERWRITERS ASSOCIATION, §
FARMERS INSURANCE EXCHANGE, §
FIRE INSURANCE EXCHANGE, TEXAS § OF TRAVIS COUNTY, TEXAS
FARMERS INSURANCE COMPANY, §
MID-CENTURY INSURANCE COMPANY §
OF TEXAS, MID-CENTURY INSURANCE §
COMPANY, and FARMERS TEXAS §
COUNTY MUTUAL INSURANCE §
COMPANY, §
§
Defendants. §
§
§ 261ST JUDICIAL DISTRICT
STATE OF TEXAS AND FARMERS PARTIES' JOINT MOTION FOR PRELIMINARY
APPROVAL OF SECOND AMENDED SETTLEMENT AGREEMENT AND
STIPULATION AND CLASS NOTICE
DAVID C. MATTAX RlCHARD N. CARRELL
Director of Defense Litigation State Bar No. 03871000
JOSHUA GODBEY FULBRIGHT & JAWORSKI L.L.P.
Assistant Attorney General 1301 McKinney, Suite 5100
JAMES R. WENZEL Houston, Texas 77010-3095
Assistant Attorney General, Consumer Telephone: 713-651-5151
Protection Division Telecopier: 713-651-5246
OFFICE OF THE ATTORNEY GENERAL OF TEXAS
P.O. Box 12548 M. SCOTT lNCERTO
209 West 14th Street State Bar No. 10388950
Austin, Texas 78711-2548 MARCY HOGAN GREER
State Bar No. 08417650
FULBRIGHT & JAWORSKI L.L.P.
98 San Jacinto Blvd., Suite 1100
Austin, Texas 78701
Telephone: 512-474-5201
Telecopier: 512-536-4598
TABLE OF CONTENTS
TABLE OF CONTENTS ................................................................................................................ i
OVERVIEW .................................................................................................................................... 1
BACKGROlJND FACTS ................................................................................................................ 2
A. History of the State's Claims 4
B. Recovery for the Class Members 7
C. The Court Conducts a Thorough Preliminary Hearing 8
D. The Seven-Year Appeals Process Ultimately Vindicates the Attorney General's
Authority I0
E. The Nationwide Class Action Settlements in Fogel and Mobbs I0
1. The Fogel Action-Management Fee Claims II
2. The Mobbs Action-FCRA Claims 12
EXPLANATION OF CHANGES TO SETTLEMENT AGREEMENT AND NOTICE ............. 13
I. The Second Amended Settlement Agreement is Ripe for Preliminary Approval 13
A. FCRA Claims Process Update and Carve-Outs I4
B. Updating ofTerms 15
C. FCRA Adverse Action Notices 15
D. Injunctive Relief 16
E. Class Notice 16
ARGUMENT AND AUTHORITIES ............................................................................................ 17
I. Preliminary Approval is the First of a Two-Step Approval Process 17
II. The Proposed Settlement is Well Within the "Range of Possible Approval" I8
A. The Terms of the Second Amended Settlement Agreement Track the Favorable Terms
of the 2003 Settlement Agreement 20
B. The Bloyed Factors That Will Be Considered at the Ultimate Fairness Hearing Counsel
in Favor of Preliminary Approval 2I
I. There is no evidence of collusion 22
2. The complex issues presented would undoubtedly result in protracted litigation if not
settled 22
3. The facts and legal theories were sufficiently developed to permit a proper analysis
of the settlement terms 22
4. Ther~is a significant chance that the State will be unable to establish liability or
damages 23
5. The Settlement Agreement actually exceeds the anticipated recovery, considering the
highly uncertain nature of liability and the damages sought 24
55935052.6 - 1-
6. The opinions of experienced counsel confirm the fairness of the settlement to the
class members 24
III. The Court Should Approve the Class Notice 25
CONCLUSION AND PRAYER ................................................................................................... 27
CERTIFICATE OF SERVICE .................................................................................................. 29
55935052.6 - 11 -
OVERVIEW
In 2003, after an extensive hearing lasting four days, this Court issued preliminary
approval of a $117,500,000 settlement-one of the largest property and casualty insurance
settlements in Texas history. The settlement resolved a bitterly fought dispute between the State
of Texas and the Farmers Parties that had threatened Farmers' ability to continue business in the
Texas market. A series of appeals lasting almost a decade delayed further implementation of this
landmark agreement, but those appeals have now been resolved in favor of this Court's original
ruling. In the interim, nationwide class actions in California and Oklahoma have raised and
settled claims that overlap some of the issues addressed in the 2003 Settlement Agreement in this
case, and in so doing have entirely disposed of a number of Intervenors' objections to the 2003
Settlement Agreement.
The State and Farmers have amended the 2003 Settlement Agreement to bring it current
to 20 13. The parties now seek preliminary approval of the Second Amended Stipulation and
Settlement Agreement ("Second Amended Settlement Agreement"). 1 The Second Amended
Settlement Agreement is an update-not a renegotiation-of the 2003 Settlement. This update
in large part simply reflects the fact that the parties have already voluntarily implemented all the
prospective relief terms agreed in 2003. With respect to the still-outstanding retrospective
monetary relief agreed in 2003, the Second Amended Settlement Agreement provides the same
recovery to the class as the 2003 Settlement Agreement. Only where the passage of time has
made the proposed claims process for the Credit Usage Class unworkable (as explained below)
1
The executed Second Amended Settlement Agreem~nt is attached as Exhibit 1. A redlined
copy of the Second Amended Settlement Agreement is provided as Exhibit 2, showing the
changes from the Amended Settlement Agreement- executed in 2003 and preliminarily approved
by the Court. The exhibits to the settlement agreement tha~ were changed to conform to the
amendments are also attached to Exhibit 2.
55935052.6 -I -
have the parties adopted a substantively similar recovery mechanism that has previously been
approved by the federal court in the Oklahoma class action addressing similar claims.
Additionally, in recognition of the overlap between the Oklahoma and California actions and this
case, the Second Amended Settlement Agreement permits the Texas policyholders included ·in
the other class actions to maintain their recovery here despite overlapping claims.
Because the Second Amended Settlement Agreement is as fair and beneficial to Texas
insureds as the 2003 Settlement Agreement, which this Court has already preliminarily approved,
the State and Farmers respectfully request that this Court grant preliminary approval of the
Second Amended Settlement Agreement and approval of class notice.
BACKGROUND FACTS
The genesis of this lawsuit was the State of Texas' commencement of an investigation of
Farmers' homeowners insurance practices in the fall of2001. That investigation led to a number
of complex, interrelated civil lawsuits and administrative proceedings. The Attorney General
brought this action under his parens patriae authority provided by the Insurance Code to
represent the Farmers policyholders in Texas. His authority was vigorously contested in seven
years of appeals, but has been definitively settled by the appellate courts, see Farmers Grp., Inc.
v. Lubin, 222 S.W.3d 417 (Tex. 2007) (Exhibit 3), and the settlement classes have been upheld
against a variety of challenges by objectors. See Lubin v. Farmers Grp., Inc., No. 03-03-00374-
CV, 2009 WL 3682602 (Tex. App.-Austin Nov. 6, 2009, no pet.) (Exhibit 4).
After weeks of vigorous and intensive litigation on multiple fronts-on the eve of the
effective date of an onerous ex parte cease and desist order·issued by TDI-the Farmers parties
and the State reached an agreement over the Thanksgiving holiday in 2002. A $117 million
settlement agreement was executed in January of 2003. The settlement was designed to be
55935052.6 -2-
comprehensive and to conclude completely the litigation surrounding the challenged insurance
practices. To insure this global peace, the State converted this action from a pure parens patriae
to a class action under a provision of the Insurance Code. This change did not alter the nature of
the. claims or the State's representation of all Farmers' policyholders statewide-only the
procedural vehicle through which the global peace would be implemented.
Some of the claims the State had been pursuing on behalf of the Farmers policyholders
overlapped with private class and individual actions. Before the preliminary approval hearing,
eleven law firms representing five policyholders intervened and submitted objections to the
settlement agreement-Gilberto Villanueva, Michael Paladino, Jan Lubin, and Gerald and Lesly
Hooks (collectively, "Intervenors").
The Court continued the hearing for four months to permit the Intervenors discovery and
an opportunity to brief the issues. After an unprecedented four-day evidentiary hearing, the
Court certified the settlement classes and preliminarily approved the settlement, overruling each
of the myriad objections raised by the Intervenors.
The certification order was appealed by the Intervenors, commencing an appellate
process that lasted seven years. After the court of appeals' final decision in 2009, the case was
remanded to this Court, and the parties jointly requested that it be informally stayed so that
overlapping class actions in California and Oklahoma involving some of the particular claims
could be resolved on a nationwide basis. As explained below, those nationwide settlements are
now final, and the State and Farmers have amended their settlement agreement to explain both
the interplay of those settlem~nts on the one presented and some other matters that needed
revision due to the passage of time.
55935052.6 - 3-
A. History of the State's Claims
A bit of context is necessary to fully understand the circumstances that gave rise to the
controversy. As a result of a vast increase in claims for mold and water damage in the late
1990s, rates for homeowners insurance across the State of Texas began to rise. Farmers and
other Texas insurers were offering homeowners policies under the HO-B policy form that, at the
time, was asserted by policyholders to provide coverage for mold and water damage claims. 2 As
the number of these claims under HO-B policies rose sharply, so did HO-B rates.
Because no insurer in Texas may offer a homeowners policy that has not been approved
by TDI, in November 2001, the homeowners insurance industry asked for TDI's approval to
offer a new HO-A homeowners policy. Responding to the growing crisis, TDI approved the new
HO-A policy form that excluded coverage for most mold and water damage claims. Farmers,
like virtually all Texas insurers, ceased offering HO-B policies and instead began offering its
policyholders HO-A policies as the HO-B policies came up for renewal.
In October 2001, the Office of Attorney General initiated a series of Civil Investigative
Demands ("CIDs") directed to various Farmers entities on a variety of insurance practices and
alleged conduct in Texas. In addition to the numerous CIDs, TDI also conducted a Ma1;ket
Conduct Examination beginning in January 2002, inquiring into many of the practices that later
formed the basis of the State's suit against Farmers. In connection with these information
requests, the Farmers entities collectively produced to the State approximately I 0,000 pages of
documents-many of which were proprietary and confidential-in cooperation with the State's
investigation and engaged in a dialogue with TDI about its concerns. In addition, TDI .
2
The primary distinction between the HO-A and HO-B policies was the perception that the HO-
B policy covered mold damage and the HO-A policy did not provide that coverage. In late 2006,
the Texas Supreme Court concluded that the HO-B policy did not provide mold coverage. See
Fiess v. State Farm Lloyds, 202 S.W.3d 744, 753 (Tex. 2006).
55935052.6 -4-
representatives were allowed to go to the Farmers' regional office to review documents and
conduct computer searches.
On August 5, 2002, the State of Texas and the Commissioner filed suit against Farmers
Insurance Exchange and Fire Insurance Exchange ("Exchanges"), as well as related entities,
complaining of Farmers' homeowners' insurance practices in Texas, seeking permanent
injunctive relief and monetary "restoration" of alleged overpayments made by insureds, as well
as civil penalties and attorneys' fees.
Within a w~ek of filing the lawsuit, TDI' s staff prepared and presented to the
Commissioner an application for emergency cease and desist order, requesting the Commissioner
to order the Exchanges to change their rate practices under TDI's authority to regulate "unfair
methods of competition" or "unfair practice[s]." Emergency Cease and Desist Order (Exhibit 5).
The Exchanges were given no prior notice and were not provided an opportunity to participate in
the ex parte process leading to the issuance of the cease and desist order on the same day. The
cease and desist order restricted the Exchanges' rate practices-specifically requiring them to
cease and desist from increasing their rates and seeking to regulate the components of their new
rates-and threatened the Exchanges with civil penalties of $25,000 "for each act of violation"
of the order. The order compelled the Exchanges to alter their policy practices by imposing
significant conditions on all new or renewal policies that were to take effect in 90 days. Farmers
sought review of the order both through the administrative process and in the courts.
The principal challenge to Farmers homeowners' practices was based on policyholder
complaints that the new HO-A forms provided less coverage-excl':Jding mold and limiting
coverage for water damage-and charged excessive rates. Although the policy forms were
regulated and approved by TDI, as noted above, the rates that the Exchanges charged were
55935052.6 -5-
statutorily exempt from TDI regulation at the time. See TEX. INs. CODE ANN. art. 19.12(a)
(repealed).
While Farmers vigorously defended its actions and was confident of its legal position, it
risked losing its franchise in the struggle. Farmers was left with three difficult choices:
(i) withdraw from the Texas market; (ii) comply with, but continue to challenge, the cease and
desist order; or (iii) settle its differences with the State.
The Exchanges had already lost $1.3 billion in the Texas homeowners lines in the
approximate two-year period prior to this time. As the litigation and other tensions mounted,
Farmers made the reluctant decision on September 25, 2002, to announce its withdrawal from the
Texas homeowners' insurance market. Although settlement communications continued
throughout this time period, no resolution was apparent.
By early October, the situation had become critical for Farmers. Several onerous
requiren1ents under the Cease and Desist Order were about to go into effect on November 6,
2002, that would have significantly compromised Farmers' ability to write homeowners'
insurance without also jeopardizing its ability to meet obligations to other insureds. Acting at the
request of their constituents, two state senators attempted to bring the parties back to the
negotiating table. These discussions sparked renewed settlement efforts between the parties, and
Farmers and the State continued to engage in numerous, lengthy face-to-face settlement
discussions in an effort to reach a compromise. The parties continued their negotiations almost
daily over the course of the next few weeks and, through·· that process, exchanged more
documents and information. On November 30, 2002, they executed a Memorandum of
Understanding ("MOU").
55935052.6 - 6-
Based upon that MOU, the parties began to prepare a formal settlement agreement,
meeting on an almost daily basis to iron out the remaining details of the settlement. Several
weeks later, the original Settlement Agreement and Stipulation was executed. It provided that
the settlement would be effectuated through a class ~ction so that (i) court approval would be
obtained to confirm the fairness of the agreement, (ii) the insureds would have both notice and an
opportunity either to object or to "vote" by opting out of the class, and (iii) Farmers would have
greater certainty and a "global resolution" of the pending matters. The agreement also contained
a bilateral "blow-up" provision allowing either the State or Farmers to terminate the settlement if
more than 2% of the insureds decided to opt out, meaning that if the settlement were rejected by
a sufficient number of policyholders, the State also had the option to terminate.
B. Recovery for the Class Members
The Settlement Agreement provided for three settlement classes, each of which would
receive a different form of compensation, although Farmers insureds could be members of more
than one class. The first class of Farmers' insureds received a 6.8% premium abatement both
prospectively and retrospectively. Exhibit 2 § IV(l) & (2). The Attorney General believed that
Farmers' rates were approximately 12% too high and explained to the Court that Farmers would
not have paid more, and "given the vagaries of litigation," he believed the settlement was fair
and adequate. Ltr. of Ltr. of David C. Mattax to Joe K. Longley dtd. March 12, 2003 ("Mattax
Letter") (Exhibit 6).
The members of the second ciass received full restitution for any discrepancies in their
premiums as a result of certain challenged discounts. Exhibit 2 § IV(3). This recovery was
designed to resolve TDI's challe!lge to the manner in which Farmers had instituted a series of -
discounts off premiums for such things as age of home and location of home.
55935052.6 - 7-
The third class of insureds, the Credit Usage Class, alleged that they failed to receive
adequate notice that their credit reports might have adversely affected their insurance premiums
in violation of the Fair Credit Reporting Act ("FCRA"). Under the settlement, a Credit Usage
Fund was established, and these class members could receive full restitution on a claims-made
basis, but had to prove that their credit reports contained erroneous information. Jd § IV(4). A
prerequisite to any recovery from the fund was the policyholder's ability to retrieve a copy of his
or her contemporaneous credit report, and with the passage of so much time while the settlement
has been stayed, this provision had to be changed. The third-party credit agencies have indicated
it is no longer possible to provide individual credit reports going back so far in time, and so this
provision has been amended in the Second Amended Settlement Agreement to match the
recovery provided in the Mobbs case, discussed below.
The estimated total value of the Settlement Agreement was $117,500,000. !d. § IV(9).
The State of Texas recovered $2,000,000 in attorneys' fees, costs of investigation, and expenses.
!d. § IV(8). The claims released included issues as to homeowners rating and renewal practices
that had been raised in the various lawsuits between the State and Farmers.
C. The Court Conducts a Thorough Preliminary Hearing
The State and Farmers then requested the Court to certify settlement classes and
preliminarily approve the Settlement Agreement. At that point, Lubin, Paladino, Villanueva, and
the Hooks intervened to challenge the proceedings.
The ·court allowed the Intervenors to conduct discovery, and thousands of pages of
documents-representing all communications between. the State and Farmers relating to this
litigation-were exchanged. They were also afforded the opportunity to take depositions and
other forms of discovery relating to the settlement. As a result, the Intervenors were allowed to
55935052.6 - 8-
discover, In advance of the initial hearing, precisely what transpired In the settlement
negotiations.
The principal objections to the Settlement Agreement involved: (i) suggestions of
c~llusion; (ii) the authority of the Attorney General to bring and settle the claims; (iii) the
management fee component of the homeowners rates; (iv) the policyholders claims under the
FCRA; and (v) Farmers' withdrawal from the HO-B line of policies in favor of offering the
newly approved HO-A form of homeowners coverage. The Court found that there was "not ...
a scintilla of evidence of collusion," 5 RR 48 (Exhibit 7), and, as noted,. the appellate courts have
upheld the Attorney General's authority to bring and settle the claims on behalf of the Texas
policyholders.
On May 19-22, 2003, the Court conducted a preliminary approval and class certification
hearing with three full days of testimony. Prior to the hearing, hundreds of pages of briefing
were provided to the court regarding the propriety of preliminarily approving the settlement and
certifying the settlement classes. At the hearing, numerous witnesses and thousands of pages of
exhibits were proffered by the parties. Professor Satnuel Issacharoff, a leading national class
action expert, testified that the hearing was "the most elaborate preliminary approval hearing I've
ever been a part of." The Court actively participated in the hearing by questioning witnesses,
and the Intervenors were allowed full participation as parties to the proceeding. At the
conclusion of the hearing, the Court certified the settlement classes (with some changes to class
definitions based upon testimony at the hearing) and preliminarily approved the Settlement
Agreement. In several pages Lubin, 222 S.W.3d at 424-28 (Exhibit 3). 3
The case was remanded to the court of appeals to address the remaining challenges to the
certification order. The court of appeals upheld the settlement classes against every other
challenge to certification and eventually remanded to this Court. See generally Lubin, 2009 WL
3682602 (Exhibit 4).
E. The Nationwide Class Action Settlements in Fogel and Mobbs
While the Lubin case was on appeal through the Texas appellate system, nationwide class
actions progressed in California and Oklahoma. In particular, these class actions included the
same management fee and FCRA related objections raised by the Intervenors with regard to the
2003 Settlement Agreement, and the Intervenors who raised them in this case have dismissed
their claims and objections with prejudice.
3
Justice Hecht concurred in pari and dissented in part from the majority's analysis, but agreed
that the Attorney General was statutorily authorized to bring and settle the claims.
55935052.6 - 10-
1. The Fogel Action-Management Fee Claims
A nationwide class action challenging the management fee charged by Fanners Group
4
Inc. ("FGI") to the Exchanges was filed in the Superior Court for the State of California for the
County of Los· Angeles, styled Benjamin Fogel v. Farmers Group, Inc., et al., Case No. BC
300142 ("Fogel Action") ..
The Exchanges are reciprocals, sometimes referred to as inter-insurance exchanges,
created under California law. They are not corporations, but rather, a different type of business
entity through which individuals, partnerships, and corporations pool premiums to indemnify
each other from loss. They are managed by FGI in exchange for a percentage of premiums,
referred to as the management fee.
The Fogel action, filed in August 2003, after preliminary approval of the Lubin
settlement agreement, asserted that the management fee was excessive and made claims for
breach of fiduciary duty, violation of California's Unfair Competition Law, fraud, and deceit
against FGI. The same claims asserted in the Fogel Action were also pursued by Intervenor Jan
Lubin in intervening and objecting to the 2003 Settlement Agreement in this case. The
Villanueva and Paladino Intervenors likewise adopted those claims here.
After a vigorous contest in both the trial and appellate courts and following multiple
mediations over the course of a year, a substantial settlement was reached in the Fogel Action.
A final judgment approving the settlement agreement on behalf of a nationwide class was signed
by the Fogel court on December 21, 2011.
Recognizing the overlap between the nationwide Fogel class claims and the claims of the
Texas settlement class here, Farmers has agreed that it will not assert the defenses of release,
4
Farmers Group Inc. does business as Fanners Underwriters Association, and Fire Underwriters
Association is its subsidiary. These entities will be referred to collectively as "FGI."
55935052.6 - 1I -
accord and satisfaction, estoppel, collateral estoppel (issue preclusion), res judicata (claim
preclusion), or any similar defense that is based on the Fogel settlement agreement or the final
judgment in the Fogel Action to preclude any recovery under the Settlement Agreement in this
case. As a result, the Fogel class members in Texas may participate in, and ~o not need to opt
out of, the benefits provided by this Settlement Agreement even if they were members of the
class certified in Fogel.
2. The Mobbs Action-FCRA Claims
Another nationwide class was certified in In re: Farmers Insurance Co., Inc. FCRA
Litigation, Case No. CIV-03-158-F, including all cases consolidated and coordinated in MDL
No. 1564, before the United States District Court for the Western District of Oklahoma ("Mobbs
Action"). The claims in that case revolved around allegations that the Farmers defendants
violated the FCRA by taking adverse action against their insureds without providing sufficient
notice as required under the federal statute, and the class sought statutory damages as a result. A
final judgment approving the settlement agreement in Mobbs was entered by that court on
September 29, 2011. The claims settled and released on a nationwide basis in Mobbs paralleled
the FCRA claims and objections raised by some of the Intervenors as to the proposed 2003
Settlement Agreement in this case.
Except as to the class members who timely filed a completed claim form in Mobbs, the
Farmers Parties have agreed that they will not assert the defenses of release, accord and
satisfaction, estoppel, collateral estoppel (issue preclusion), res judicata (claim preclusion), or
any similar defense that is based on the Mobbs settlement agreement or the final judgment in the
Mobbs Action to preclude any recovery under the Settlement Agreement in Lubin. Those class
55935052.6 - 12-
-·
members who filed a proof of claim may still receive the other benefits provided under the Lubin
Settlement Agreement if they are otherwise eligible to receive them.
The only intervention and objection that has not been dismissed at this point is the one
filed by Intervenors Gerald and Lesly Hooks, w~o are also members of a class certified by
another Texas court, styled Sandra Geter v. Farmers Group, Inc., et al., No. No. E-0 167872, in
the 172d Judicial District Court of Jefferson County, Texas ("Geter Action"). The Geter class
was not certified until after the Settlement Classes were certified in this case. The Hooks'
counsel was present and given the opportunity to argue and question witnesses at the preliminary
approval hearing in this case. See 2 RR 126-27; 3 RR 114-120 (Exhibit 8). None of the other
Intervenors joined this objection. The Court has previously overruled their objections to this
settlement in preliminarily approving the 2003 Settlement Agreement.
EXPLANATION OF CHANGES TO SETTLEMENT AGREEMENT AND NOTICE
I. The Second Amended Settlement Agreement is Ripe for Preliminary Approval
Now that the appellate process has resolved all challenges to the certification of the
proposed settlement classes, and the Mobbs and Fogel Actions have put to rest the key objections
that were raised (and overruled) in the context of preliminary approval of the 2003 Settlement
Agreement, the time has come to implement the agreement the parties negotiated so long ago.
The Second Amended Settlement Agreement does not re-trade the deal or change the fine print.
In fact, the parties have been operating since 2003 in compliance with many of the terms of the
original 2003 Settlement Agreement, including the prospective relief to the Rate Class, the
revised FCRA _notices, and injunctive relief. See, e.g., Proposed Class Notice- (Exhibit 1-B). 5
5
A redlined version of the class notice reflecting the chang~s from the approved notice in 2003
is attached as Exhibit 2-B.
55935052.6 - 13 -
The Second Amended Settlement Agreement simply brings the settlement current in only a few
ways.
A. FCRA Claims Process Update and Carve-Outs
As noted, in the 2003 Settlement Agreement, a Credit Usage Fund was established to
compensate the insureds who allegedly failed to receive adequate notice that their credit reports
might have adversely affected their insurance premiums for any overpayments they might have
made based upon erroneous credit information, provided that they could show that their credit
reports contained erroneous information. Exhibit 1 § IV (4). A necessary prerequisite to this
recovery was the policyholder's ability to retrieve a copy of his or her contemporaneous credit
report, and with the passage of so much time while the settlement has been stayed, this provision
had to be changed. Because the third-party credit agencies have indicated it is no longer possible
to provide individual credit reports going back so far in time, this provision has been amended in
the Second Amended Settlement Agreement to match the recovery provided in the Mobbs
Action, which resolves the same FCRA issues for a nationwide class.
Notably, none of the Mobbs class members is precluded from participating in this
settlement unless they previously filed a proof of claim in Mobbs. Exhibit 1 § IV(4)(a). Those
class members who filed a proof of claim in Mobbs may still receive the other benefits provided
under the Second Amended Settlement Agreement if they are otherwise eligible to receive them.
Additionally, for those class members who did not file a proof of claim in Mobbs, but whose
claims overlap the Mobbs class claims, the Farmers Parties have agreed that they will not assert
the defenses of release, accord and satisfaction, estoppel; collateral estoppel (issue preclusion),
res juqicata (claim preclus-ion), or any similar defense that is based on the Mobbs settlement
55935052.6 - 14-
agreement or the fmal judgment in the Mobbs Action to preclude any recovery under the Second
Amended Settlement Agreement.
The Second Amended Settlement Agreement provides a similar carve-out for members of
~e Fogel class-who will likewise be permitted to participate in this settlement notwithstanding
any recovery in Fogel. See Exhibit 1-B, "Other Class Actions That May Impact Your Rights."
B. Updating of Terms
No other settlement provisions required updating as extensive as the FCRA claims
process, but, as noted, the prospective relief has already been provided, Exhibit 1 § IV(l )(a),
(c)(3), and the retrospective rate relief warranted some updating due to the passage of time. For
example, the refund checks can be issued thirty days after the effective date of the Second
Amended Settlement Agreement, as the alternative date noted in the original agreement for
policies that had not yet expired is no longer necessary. Exhibit 1 § IV(2)(a). Second, to reflect
the fact that some of the policyholders covered by the Settlement Class are no longer Farmers
insureds, language was added allowing Farn1ers to issue the rate reduction as a refund instead of
a credit, where appropriate. !d. at § IV (2)(b ).
Some terms were brought current because the events have already passed or
circumstances have changed. See id. at§§ VII(l) (August 31, 2003, date has already passed);
VII(5) (time for renewal of 2001-02 HO-A policies has long passed); IX( 6) (TDI no longer uses
a "benchmark" rate process).
C. FCRA Adverse Action Notices
Farmers has used the. forms previously n~gotiated with the State in the 2003 Settlement
Agreement for adverse action notices issued under the FCRA since the time of the initial
settlement. See Exhibit I § IV(4)(i). Those notices required Farmers to disclose to its insureds
55935052.6 - 15 -
the discounts they would have received if they had excellent credit scores. Since the time these
forms were initially agreed, two major developments have occurred in this area of the law. First,
the Texas Legislature has statutorily decreed what is required in such notices, see TEX. INS. CODE
ANN. § 559.05I et seq., and the requirement is that the insured be advised that their credit was
considered and how it was used in underwriting or rating the policy. !d. at § 559.053. The
Texas statute does not require the notice to include any differentials showing what the rate would
have been without consideration of the credit score.
Second, the U.S. Supreme Court has made clear that the "highest available discount" is
not the standard for notices under the FCRA. See Safeco v. Burr Ins. Co., 55 I U.S. 47, 65, 127
S. Ct. 220 I, 22I3 (2007). Instead, the standard is whether the credit information "adversely
affected" the policyholder. As a result, the parties have agreed that Farmers can cease using the
exemplar forms once they have submitted replacement forms to TDI and provided a 30-day
window for TDI to object. Exhibit I § IV(4)(i).
D. Injunctive Relief
Finally, the agreed proposed Final Judgment provided for injunctive relief relating to the
State's antitrust claims (that were not brought by any of the Intervenors). Farmers has abiqed by
this injunction since at least 2003, and the parties agree that ten years has been sufficient.
Consequently, the State and Farmers Parties haves agreed that Farmers should not have to
operate under a consent order in Texas any longer, but will continue to comply with the antitrust
laws of the United States and the State of Texas.
· E. Class Notice
The proposed class notice that the Court approved in 2003 needed more substantial
revisions to help communicate the reasons for the decade-long delay and what has happened as a
55935052.6 - 16-
result to the class members. Further, the notice needs to inform the class members about the
multiple other class actions affecting their rights and advise them of their options so that they can
make informed decisions. The parties have endeavored to make the class notice as clear and
understandable as possible for the class members, taking into account the complexities of an
already complicated settlement whose implementation has been delayed by the passage of so
much time and impacted by other competing class actions.
Because the Second Amended Settlement Agreement maintains the full substantive
recovery to Texas policyholders that was negotiated in 2003, the State and Farmers respectfully
request that the Court grant preliminary approval to the Second Amended Settlement Agreement
so that notice can be provided to the class members.
ARGUMENT AND AUTHORITIES
I. Preliminary Approval is the First of a Two-Step Approval Process
Court approval is required before any action brought as a class action may be settled.
TEX. INS. CODE ANN. art. 21.21, § 18(g); TEX. R. CIV. P. 42(e). Courts generally look with favor
on the voluntary resolution of litigation through settlement, particularly so in the context of a
class action: "[C]lass action damage suits should be settled -whenever possible, as soon as
possible." In re Corrugated Container Antitrust Litig., 556 F. Supp. 1117, 1157 (S.D. Tex.
1982); see also In re Chicken Antitrust Litig., 669 F.2d 228, 238 (5th Cir. 1982) (noting that
public policy strongly favors pretrial settlement of class actions).
Approving a class action settlement as to a putative class is generally a multi-step
process. MOORE'S FEDERAL PRACTICE: MANUAL FOR COMPLEX ~ITIGATION (FOURTH) § 21.632
(2004) ("MANUAL FOR COMPLEX LITIGATION"). 6 Only the first step is to occur at_ the upcoming
55935052.~ - 17-
hearing-preliminary approval of the proposed settlement and conditional certification of a
temporary class. McAllen Med Ctr., Inc. v. Cortez, 66 S.W.3d 227, 234 (Tex. 2001); O'Reilly v.
Brodie, 975 S.W.2d 57, 59 & n.1 (Tex. App.-San Antonio 1998, pet. denied).
Upon preliminary approval, the court directs that notice be given to cl~ss members before
proceeding with the second step of the process-a formal "fairness hearing" at which class
members can be heard regarding the settlement and at which evidence and argument concerning
the fairness, adequacy, and reasonableness of the settlement is presented. See MANUAL FoR
COMPLEX LITIGATION § 21.632. 7 This notice will provide the class members an opportunity to
be heard at the final "fairness hearing" or to opt out of the classes.
The fairness hearing is the final step in the approval process where the Court will
determine whether the settlement should be approved as fair, adequate, and reasonable, and
whether it should be certified for the class. E.g., Amchem Prods., Inc. v. Windsor, 521 U.S. 591,
619-20 (1997); Gen. Motors Corp. v. Bloyed, 916 S.W.2d 949, 954-55 (Tex. 1996).
II. The Proposed Settlement is Well Within the "Range of Possible Approval"
The issue currently before the Court is limited to the first step in the approval process.
The preliminary approval stage constitutes an "initial evaluation" of the fairness of the proposed
6
Although commercially published as part of the MOORE'S FEDERAL PRACTICE papers, the
MANUAL FOR COMPLEX LITIGATION is actually a manual prepared by the Federal Judicial Center,
which compiled the experiences and counsel of federal judges having expertise in complex case
management issues.
7
Professors Newburg and Conte suggest that the Court's preliminary approval at this stage is not
required in order to send the notice, but certainly desirable to avoid a costly notification. See 4
ALBA CONTE AND HERBERT NEWBERG,_ NEWBERG ON CLASS ACTIONS ("NEWBERG ON CLASS
ACTIONS") § 11.25 (4th ed. 2002) ("Because notice to the class, with its attendant expenses, and
a hearing will be futile gestures if the court feels that some of the settlement terms are
unacceptable at the outset, the parties are well advised to seek informally a preliminary court
response in a pretrial conference that the proposed settlement is within the range. of possible
judicial approval.")~
55935052.6 - 18 -
settlement, which can be made by the Court on the basis of written submissions and informal
presentation from the settling parties. MANUAL FOR COMPLEX LITIGATION § 21.632, 321 and n.
976 (citing In re Amino Acit Lysine Antitrust Litig., MDL No. 1083, 1996 U.S. Dist. LEXIS
5308, *II (N.D. Ill. Apr. 22, I996)) (the first step o~the process is the preliminary ascertainment
of whether the settlement appears to fall within the "range of possible approval").
The nature of the decision at the preliminary step of the settlement approval process is
limited:
At this preliminary stage, the Court need only determine whether the settl~ment is
"within the range of possible approval." Gautreaux v. Pierce, 690 F.2d 616, 62I
n.3 (7th Cir. 1982). Preliminary approval does not require the district court to
answer the ultimate question of whether a proposed settlement is "fair,
reasonable, and adequate." Armstrong v. Bd. ofSch. Dirs. OfMilwaukee, 616 F.2d
305, 3I4 (7th Cir. I980). Rather, that determination is made only at the final
approval stage, after notice of the settlement has been provided to the class
members and they have had an opportunity to voice their views of the settlement
or to exclude themselves from the settlement.
City of Greenville v. Syngenta Crop Prot., Inc., No. 3:10-cv-188-JPG-PMF, 20I2 U.S. Dist.
LEXIS 74305, *11-12 (S.D. Ill. May 30, 2012) (citing MANUAL FOR COMPLEX LITIGATION §
21.632).; see also Bloyed, 916 S. W .2d at 954 (quoting 2 NEWBERG ON CLASS ACTIONS § 11.27 at
I1-50 (3d ed~ 1992), for the proposition that '" [t]he actual class ruling is deferred in [settlement
class actions] until after the hearing on the settlement approval, following notice to the
class .... '"). The standard for approval-"[ w]ithin the range of possible approval"-"is simply
a determination that there is, in effect, 'probable cause' to submit the proposal to members of the
class and to hold a full-scale hearing on its fairness, at which all interested parties will have an
opportunity to be. heard and after which a formal finding on the fairness of the_proposal will be
made." In re Mid-Atlantic Toyota Antitrust Litig., 564 F. Supp. I379, 1384 (D. Md. 1983); se~
also Peters v. Blockbuster, Inc., 65 S.W.3d 295, 305 (Tex. App.-Beaumont 2001, no pet.)
55935052.6 - 19-
(upholding trial. court's preliminary finding that certification requirements had been met and
finding that approval of the settlement agreement was not reviewable until after the fairness
hearing). The Court held that this standard was met in 2003, and the changes made in the
Second Amended Settle~ent Agreement provide no reason for coming to a different conclusion
now.
A. The Terms of the Second Amended Settlement Agreement Track the
Favorable Terms of the 2003 Settlement Agreement
The Second Amended Settlement Agreement easily falls within "the range of possible
approval." The updated agreement maintains the same significant concessions negotiated in
2003, including: (1) a significant rate reduction for homeowners insured by the Exchanges in
Texas going forward-a rate reduction the Exchanges actually implemented in 2003; (2) a
similarly significant, retrospective rate reduction for homeowners' policyholders; (3) a fund for
individualized discount adjustments; (4) a fund to compensate any insureds whose credit reports
contained adverse, but erroneous, credit information, without which the insureds would have
paid lower premiums; and (5) attorneys' fees and investigative costs. See generally Exhibit 1
§IV.
The core terms of this settlement have already been vetted and approved in a detailed
evidentiary hearing and the Court's thorough, well-reasoned ruling that has stood the test of the
appellate process. Both this Court and the Austin Court of Appeals found persuasive the fact
that the A~omey General believed the settlement was fair and adequate after a thorough and
vigorously contested fight. See Lubin, 2009 WL 3682602, at *7 at n.9 (Exhibit 4); see also
Mattax Letter (Exhibit 6). By executing the Second Amended Settlement Agreemen(, the
Attorney General and. TDI continue to stand behind this settlement as being in the best interests
of the policyholders.
55935052.6 -20-
B. The Bloyed Factors That Will Be Considered at the Ultimate Fairness
Hearing Counsel in Favor of Preliminary Approval
In General Motors Corp. v. Bloyed, the Texas Supreme Court outlined six considerations,
known as the Ball factors, that are considered by a court in evaluating the fairness of a proposed
settlement: (1) whether the settlement was a product of fraud or collusion; (2) the complexity,
expense, and likely duration of the litigation; (3) the stage of the proceedings and amount of
discovery; (4) the factual and legal obstacles to prevailing on the merits; (5) the possible range of
recovery and the certainty of damages; and (6) the respective opinions of the participants,
including class counsel, class representatives, and the absent class members. 916 S.W.2d at 955
(citing Ball v. Farm & Home Sav. Ass'n, 747 S.W.2d 420,423-24 (Tex. App.-Fort Worth 1988,
writ denied)). The Ball/Bloyed factors remain the gold standard for settlement fairness review in
Texas today. See, e.g., Hall v. Pedernales Elec. Coop., Inc., 278 S.W.3d 536, 548-549 (Tex.
App.-Austin 2009, no pet.) (citing Bloyed, 916 S.W.2d at 955) ("The Texas Supreme Court has
provided six factors that a trial court must take into account when determining whether a
proposed class settlement is fair, adequate, and reasonable."); Johnson v. Scott, 113 S.W.3d 366,
371 (Tex. App.-Beaumont 2003, pet. dism'd) (same); see also Rocker v. Centex Corp., 377
S.W.3d 907, 913 (Tex. App.-Dallas 2012, judgm't vacated pursuant to settlement by Rocker v.
Centex Corp., No. 12-0797, 2012 Tex. LEXIS 1015 (Tex. Nov. 30, 2012)) (same).
As discussed above, the standard for this hearing's determination is whether the
Settlement Agreement is "within the range of possible approval." MANUAL FoR COMPLEX
LITIGATION§ 21.632, 321 and n. 976; City of Greenville, 2012 U.S. Dist. LEXIS 74305 at *11-
12 .. Accordingly, the Ball/Bloyed factors are not applicable at this time. Bloyed, 916 S.W.2d at
954. However, whether viewed through the lens of preliminary approval or the ultimate fairness
inquiry, this Settlement Agreement is fair and adequate.
55935052.6 - 21 -
1. There is no evidence of collusion
The settlement was the product of serious, arm's-length negotiations between the State
and Farmers over an extended period of time after a great deal of discovery and conducted by
competent counsel. The Court has previously found that there was "not . . . a scintilla of
evidence of collusion." 5 RR 48 (Exhibit 7).
2. The complex issues presented would undoubtedly result in protracted
litigation if not settled
The decade-long appellate process to determine issues relating to this settlement
agreement-itself the product of years of investigation and legal battles on multiple fronts-is
the best evidence of the complexity and uncertainty of litigating this complex of related cases to
conclusion. The vast and hotly contested discovery disputes related to the settlement agreement
are only a taste of what would follow if the merits were to be litigated. Not only is this litigation
unavoidably complex and inevitably protracted, but the practical stakes are enormous, with over
one million policyholders affected by the litigation.
By settling the litigation, the parties will conserve substantial time and expense if the
cases were to go forward, and the class members will receive relief much sooner than would be
possible with further drawn-out litigation. In fact, if this Settlement were not approved and
litigation were to continue, the policyholders may-and in Farmers' view would-recover
nothing.
3. The facts and legal theories were sufficiently developed to permit a
proper analysis of the settlement terms
As the Court ·heard and considered in preliminarily approving the 2003 Settlement
Agreement, Famiers has produc~d thousands of pages of documents both formally and
informally to the State in connection with the CIDs, the Market Conduct Examination, and other
55935052.6 - 22-
discovery requests. These documents included a number of highly confidential materials from
which the State could evaluate the strength of its case against Farmers. Further, the State
interviewed Farmers' representatives both for further information in connection with the Market
Conduct Examination and in connection with the Settlement Agreement. The State had ample
information from which to make informed decisions about the strength of its claims. 8 The
Intervenors were afforded substantial opportunity for discovery during the 2003 preliminary
approval process. Even now, with the unusual benefit of over ten years of time to reflect on it,
the State and the Attorney General have reaffirmed the deal they made in 2003, believing it to be
fully informed and in the best interests of the policyholders.
4. There is a significant chance that the State will b.e unable to establish
liability or damages
As explained above, the settlement terms are generous; they should be considered even
more so when the Court weighs into the fairness equation the fact that it is highly questionable
whether either liability or damages could be established. First, there are serious questions as to a
number of critical issues, including: (i) whether the State has the authority to examine, regulate,
and/or enjoin the rate practices enumerated in the cease and desist Order and in the
administrative proceedings; (ii) whether Farmers made any misrepresentations to its insureds;
(iii) whether any policyholders relied to their detriment upon any alleged misrepresentations;
(iv) whether any action of Farmers was a producing cause of damages to any policyholder;
(v) whether any policyholders could prove damages (or at least damages in any significant
8
The Court should consider the entire context of the parties' cont~oversy, especially when
considering that the State began its investigation-with the attendant powers to compel
discovery-in late 2001. Compare Bloyed, 916 S.W.2d 949 (case had been pending for nine
months and trial court agreed that sufficient discovery and case development had occurred to
evaluate settlement).
5593505~.6 - 23-
amount) as a result of an unlawful practice as opposed to universal changes in the marketplace;
and (vi) whether any cause of action for unfair discrimination lies under the facts alleged.
5. The Settlement Agreement actually exceeds the anticipated recovery,
considering the highly uncertain nature of liability and the damages
sought
In its review of the fairness of the proposed settlement, the Court has already considered
(i) the risks of establishing liability and damages, and (ii) the range of reasonableness of the
settlement in light of the best possible recovery and the attendant risks of litigation. In Re
Prudential Ins. Co. Am. Sales Practice Litig. Agent Actions, 148 F.3d 283, 317 (3d Cir. 1998).
The purpose of this inquiry is to balance the likelihood of success on the merits and the potential
damage award if the case were taken to trial against the benefits of an immediate settlement. I d.
at 319.
Here, Farmers believes that the issues of liability would likely have been disposed of as a
matter of law because the practices underlying the claims were not unlawful and that the
magnitude of the Settlement Agreement is attributable not to the legal or factual merit of the
claims, but rather to a confluence of n1yriad political, media, and litigation pressures that
threatened Farmers' ability to remain in the Texas homeowners' marketplace. The State agreed
that the benefits to the class members of the settlement reached exceeded the risks of continued
litigation.
6. The opinions of experienced counsel confirm the fairness of the
settlement to the class members
Both representatives and counsel for the State and Farmers support this Settlement
Agreement as a fair and appropriate way to resolve what will otherwise. become protracted
litigation. There does not appear to be. any dispute that counsel for both sides are well
experienced with complex litigation and in a position to evaluate the objective fairness of the
55935052.6 -24-
proposal. Further, counsel for the State has prepared a detailed and comprehensive evaluation of
the strengths and weaknesses of the claims and issues, explaining why the State supports the
Settlement Agreement. See generally Exhibit 6.
In sum, the Second Amended Settlement Agreement that this Court is asked to
preliminarily approve has already been determined to be the result of these serious and arms'
length discussions, and it continues to represent a number of hard-fought compromises that are
designed to benefit the Farmers' insureds in Texas. As the Court can see from the terms of the
parties' agreement, the settlement falls easily within the range of possible approval as is
necessary for notice to be provided to Farmers' insureds and for this litigation to proceed-at
last-to a fairness hearing to grant final approval and implement the settlement.
III. The Court Should Approve the Class Notice
The proposed form requires class notice to be disseminated via direct mail to the class
members' most recent addresses in the Farmers' records. In addition, the State and Farmers will
disseminate a Summary Notice of Settlement in the form attached as Exhibit 1-E by posting it on
their respective websites-www.farmers.com, www.oag.state.tx.us, and www.tdi.state.tx.us, and
www.TexasFarmersSettlement.com-beginning as soon as practicable after the Court's entry of
the Order of Preliminary Approval and continuing through the date of the fairness hearing. The
full Notice of Proposed Class Settlement will also be made available on the respective websites,
and the Settlement Agreement itself will be posted on TDI's website. See, e.g., Peters, 65
S.W.3d at 308 (finding notice to be sufficient where it directed class members to website with
full copy of the_ settlement agreement and informed them of their right to opt out and the
consequences of not doing so).
55935052.6 -25-
The Manual for Complex Litigation recommends that, under circumstances like the ones
presented-where preliminary approval and temporary certification decisions are made in one
proceeding-the certification and settlement notices should be combined, reducing both the
likelihood of confusion _and the expense of notice. MANUAL FOR COMPLEX LITIGATION § -21.633
at 321-22.
The form of notice is reasonably calculated to apprise members of the Settlement Classes
of the terms and conditions of the Settlement Agreement, the background of the litigation and the
nature of these proceedings, the nature of the claims asserted and the proposed release, the
identity of class counsel, and the rights and responsibilities of class members. The notice need
only be the best notice practicable under the circumstances. Peters, 65 S.W.3d at 308 ("[T]he
notice must 'contain information that a reasonable person would consider to be material in
making an informed, intelligent decision of whether to opt out or remain a member of the class
and be bound by the final judgment."' (quoting In re Nissan Motor Corp. Antitrust Litig., 552
F.2d 1088, 1105 (5th Cir. 1977)); see also Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340,
355 n.22 (1978) (speaks favorably of the use of second-class mail to provide notice to class
members). It also affords sufficient time for the class members to prepare to appear at the final
approval hearing and present any objections to the Settlement Agreement they may have.
Finally, the notice fulfills the requirement of neutrality in class notices. See 3 NEWBERG ON
CLASS ACTIONS § 8.39. It summarizes the pertinent information in an informative and coherent
manner ·and makes clear that the settlement does not constitute an admission of liability by
Farmers. It further provides instruction about how to opt out of the class or raise objections at
the fairness hearing. · Accordingly, the notice complies with the standards of fa:imess,
55935052.6 -26-
completeness, and neutrality required of a combined settlement-certification class notice
disseminated under the authority of the Court. Id §§ 8.21 & 8.39.
CONCLUSION AND PRAYER
For these reasons, the State of Texas and the Fanners Parties jointly request that the
Court:
(1) grant preliminary approval of the Settlement Agreement for the purpose of
providing notice to the Settlement Classes of the terms of the Settlement Agreement and the date
of the fairness hearing before the Court when a final determination of the adequacy and fairness
of the Settlement Agreement will be made;
(2) approve the notice to be sent to the class members; and
(3) grant such other and further relief to which the State and Farmers are entitled.
55935052.6 - 27-
Respectfully submitted,
OFFICE OF THE ATTORNEY GENERAL OF
TEXAS
D .n·ector o fD e1ense
.c L.. .
Itigation Ml
State Bar No . 1320 1600
J OSHUA GODB EY
Assistant Attorney General
State Bar No . 24049996
J AMES R. W ENZEL
Assistant Attorney General, Consumer Protection
Division
State Bar No. 2 11 79370
P.O. Box 12548
209 West 14th Street
Austin, Texas 7871 1-2548
FULBRIGHT & JAWORSKI L.L.P.
State BarNo. 0387 1000
130 I McKinney, Suite 5 100
Housto n, Texas 77010-3095
Te lephone : 713-651 -5151
Te lecopier: 713-651-5246
MA RCY H OGAN G RE ER
State Bar No. 08417650
M. S COTI }NCERTO
State Bar No. 10388950
98 San Jacinto Blvd. , Suite 1100
Austin, Texas 78701
Telephone: 5 12-474-520 1
Telecopier: 512-536-4598
55935052.6 - 28 -
CERTIFICATE OF SERVICE
The undersigned hereby ce11ifies that a true and correct copy of the above and foregoing
was served on the following counsel of record on this the 2 ``day of August, 2013, via certifi ed
mail, return.receipt requested and email:
Joseph C. Blanks
blanx lex @gmail. com
('y\```` Jr.0±:
Marcy Hogan & ;'
55935052.6 - 29 -
EXHIBIT 6
TO APPELLANT GRIGSON’S RESPONSE TO
APPELLEES’ JOINT MOTION TO DISMISS APPEAL FOR
LACK OF APPELLATE JURISDICTION
SECOND AMENDED SETTLEMENT AGREEMENT AND STIPULATION
This Second Ar1.ended Settlement Agreement and Stipulation ( "Settlement Agreement"),
entered into on the L.q11'bf August, 2013, amends and supersedes the Settlement Agreement and
Stipulation entered into on the 18th day of December, 2002, as amended on 13th of June, 2003
("2003 Amended Settlement Agreement"), by and among the State of Texas ("Texas"), the
Office of the Attorney General ("OAG"), the Texas Department of Insurance ("TDI"), including
the Texas Commissioner of Insurance ("Commissioner") (hereafter sometimes refened to
collectively as the "State"), and defendants Fire Underwriters Association, Farmers Group, Inc.,
individually and d/b/a Farmers Underwriters Association, Farmers Insurance Exchange, Fire
Insurance Exchange, Texas Farmers Insurance Company, Mid-Century Insurance Company of
Texas, Mid-Century Insurance Company, Farmers Texas County Mutual Insurance Company,
Truck Insurance Exchange, and Truck Underwriters Association (hereafter sometimes referred to
collectively as the "Farmers Parties"). The State and the Farmers Parties (hereafter collectively
the "Parties") agree as follows:
I. DEFINITIONS
For purposes of this Settlement Agreement, the following terms have the meanings
specified below:
"Administrative Proceeding" means the Notice of Public Hearing, Docket No. 454-03-
0193 .D, To Consider Whether Commissioner's Emergency Cease and Desist Order No. 02-0844
Should Be Affirmed and Whether Disciplinary Action Should Be Taken Against Farmers
Insurance Exchange and Fire Insurance Exchange, which TDI issued on or about September 18,
2002.
"AG Lawsuit" means Cause No. GV202501, The State of Texas and The Texas
Commissioner of Insurance v. Farmers Group, Inc., Farmers Underwriters Association, Fire
Underwriters Association, Farmers Insurance Exchange, and Fire Insurance Exchange, in the
26lst Judicial District Court of Travis County, Texas, filed on or about August 5, 2002, and
including all amendments thereto.
"Agreed Discounts" means the discounts described in Section IV, Paragraph 3(b), below.
"Associations" means defendants Fire Underwriters Association and Farmers Group, Inc.
d/b/a Farmers Underwriters Association, acting as the Exchanges' attorneys in fact.
"Amended Order of Preliminary Approval" means an order substantially in the form
attached as Exhibit A.
"Automobile insurance" means private passenger automobile insurance.
"Automobile Insurance Providers" means defendants Texas Farmers Insurance Company,
Mid-Century Insurance Company of Texas, Mid-Century Insurance Company, Farmers Texas
County Mutual Insurance Company, and Truck Insurance Exchange.
55935068 2
··cease and Desist Order'" means the Cease and Desist Order. No. 02-0844. which the
Co1i1missioner signed and entered against the Exchanges. on or about August 13, 2002.
"Claim Form·· means the form to be used by applicants for the Credit Usage Notice Fund,
attached as Exhibit E hereto and addressed in Section IV. Paragraph 4(b) below.
·'Commissioner'' means the Texas Commissioner of Insurance.
"Court'' means the 261 st Judicial District Court of Travis County, Texas. in which the
AG. Lawsuit was tiled.
"Credit Period" shall have the 1neaning given it in Section IV. Paragraph 2, below.
'·Credit Usage Notice Fund" shall have the meaning given it in Section IV, Paragraph 4,
below.
"Credit Usage Notice" means a notice of adverse action under the Fair Credit-Reporting
Act.
"Effective Date" means the date by which all of the following have occurred: (i) an
Order of Preliminary Approval has been entered by the Court in the AG Lawsuit giving notice of
a hearing on the Settlement of the Settlement Classes' claims; (ii) the Court has approved the
Settlement in all respects; (iii) a Final Judgment as described below shall have been entered by
the Court and not vacated, stayed, or modified in any material way, upon appeal or otherwise;
and (iv) either the time to appeal or otherwise seek review of the Final Judgment has expired
without any appeal having been taken or review sought, or if an appeal is taken or review sought,
the expiration of tive days after such an appeal or review shall have been finally determined by
the highest court before which appeal or review is sought and is not subject to further judicial
review.
"Exchanges" means Farmers Insurance Exchange and Fire Insurance Exchange.
"Exchanges Lawsuit" means Cause No. GN-203156, Farmers Insurance J::'xclwnge and
Fire Insurance Exchange v. .Jose Montemayor, individually and in his capacity us Texus
Commissioner (~/'Insurance, am/ Texas Department (?/'Insurance. in the 353rd Judicial District
Court of Travis County, Texas.
"FARA" means Farmers Auto Risk Assessmeilt.
"FCRA" means the Fair Credit Reporting Act.
"Fogel Action" means /3enjumin Fogel v. Farmers Group. Inc .. et a!.. Case No. BC
300142. in the Superior Court for the State of California for the County of Los Angeles. in which
a !ina! judgment was signed on December 21, 20 II.
"FPRA .. means Fanners Property Risk Assessment.
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.. Homeowners insurance" means and includes policies written on TDl-promulgated forms
described as 1-10-A (including TOP-I), HO-B (as detined in '·Released Claims''). HO-B-CON,
and HO-B-T. and all endorsements, promulgated or approved. for use with such forms.
'·IDA Eligibility" shall have the meaning given it in Section IV. Paragraph 3(a). below.
··Individualized Discount Adjustment" shall have the meaning given it in Section IV,
Paragraph 3, below.
'·Final Judgment" means a tina! judgment to be rendered by the 261 st Judicial District
Court ofTravis County, Texas. substantially in the form attached as Exhibit K hereto.
'·iHobbs Action" means In re Fctrmers Insurance Co, Inc. FCRA Litig., No. CIV -03-158-
F. including all cases consolidated or coordinated in MDL No. 1564, before the U.S. District
Court for the Western District of Oklahoma, in which a final judgment vvas entered on
September 29, 20 II.
"MOU" means the Memorandum of Understanding between and among the Parties,
which was signed by authorized representatives of the Parties on November 30, 2002.
"Notice of Proposed Class Settlement" means the notice of this Settlement Agreement
and of the Settlement Hearing substantially in the form of Exhibit B hereto that is to be made
available to all persons in the Settlement Classes pursuant to Section III, Paragraph 7 below.
"OAG CIDs" means all Civil Investigative Demands that OAG has served on the
Released Parties that are listed in the attached Exhibit N.
"Opt-Out Claimant" means a member of the Settlement Classes who submits a timely
and valid request for exclusion in accordance with the Amended Order of Preliminary Approval
and the Notice of Proposed Class Settlement, and who docs not revoke that request for exclusion
in writing at least seven (7) days prior to the Settlement Hearing. Such requests for exclusion
shall apply to all of the Released Claims which a given Opt-Out Claimant has against the
Released Parties.
"Opt-Out Claims" means Released Claims that belong to Opt-Out Claimants. Opt-Out
Claims are not settled by this Settlement Agreement.
.. Order of Preliminary Approval'' means the Order signed by the District Court on June
27, 2003. certifying the Settlement Classes and preliminarily approving the 2003 Settlement
Agreement.
'·Prospective Rate Reduction" shall have the meaning given it in Section IV. Paragraph I.
below.
·'Released Claims·· means and includes. with respect to homeowners insurance offered or
sold by the Released Parties. all existing. known claims and Unknovm Claims. demands and
causes of action against the Released Parties. whether pending or tlm:atencd. suspected or
unsuspcctctL contingent or non-contingent, for all existing. known and unknown damages and
"
. - .l-
remedies that arise out of or relate to the acts and/or occurrences alleged in the AG Lawsuit, or in
the Cease and Desist Order or the Administrative Proceedings, or in the OAG CIDs to the extent
any such acts or occurrences took place prior to November 30, 2002, including but not limited to
issues concerning or related to a management fee or fees, the placement of policyholders in a
particular insuring entity, the age of home discount, the unfunded catastrophe load, the decision
to no longer offer HO-B policies (including HO-Protector Plus (PTP), H0380 endorsement,
TDP-2, TDP-3, OF-Builder's Risk, and HO-A with H0-170 endorsement (collectively referred
to herein as ·'I-10-B")), the offering of HO-A policies in place of HO-B policies, territorial
discounts, credit scoring, the use of the Farmers Property Risk Assessment, or the rates that the
Rekased Parties have charged for homeowners policies and endorsements and all notices and
statements that the Released Parties have made or issued in connection with the above, including
but not limited to the notices of non-renewal of the HO-B policies and notices issued pursuant to
the Fair Credit Reporting Act. The State's release of claims against Texas Farmers Insurance
Company related to credit scoring is expressly based on Texas Farmers Insurance Company's
representation that it did not and has not used credit scores, insurance scores, credit reports or
any other method of calculating premiums based on credit history until 2011, at which time it
began using the credit model that is on file with TDI. "Released Claims" also include any
claims, demands, or causes of action to the effect that the discounted rates adopted by the
Exchanges from November 11 , 2002, through and including August 31 , 2003, are unfair,
unreasonable, discriminatory, misleading or excessive. With respect to the automobile insurance
offered or sold by the Released Parties, "Released Claims" includes all existing claims, demands,
and causes of action related only to the disclosure or nondisclosure of consumer credit
information or the disclosure or nondisclosure of the use or effect of using consumer credit
information, including claims under the Fair Credit Reporting Act. "Released Claims" does not
include individual claims or complaints about claims payments, handling or processing pursued
by individual claimants directly or such individual claims or complaints about claims payments,
handling or processing as may be pursued by TDl under Article 21 .55, Texas Insurance Code,
which are identified in a schedule which has been provided by TDI to the Farmers Parties.
Remedies for any such scheduled claims or complaints, if pursued by the TDI, shall be limited to
the payment of interest under article 21.55, section 6 (now § 542.060), of the Texas Insurance
Code (which interest is not part of the total value of this settlement), as the result of non-
compliance with that statute, and may not include lines or penalties or any other relief, except
relief may include corrective action respecting procedures. "Released Claims" also does not
include claims that have been asserted in Cause No. GY000271 , State (~j'Texas v. Texas Farmers
Insurance Company. et a!., which was pending in the 200th .Judicial District Court of Travis
County, Texas, relates to betterment in the context of automobile insurance in the Texas market,
and was dismissed in 2003.
''Released Parties" means and includes Farmers Group, Inc., individually and d/b/a
Fanners Underwriters Association, Fire Underwriters Association, Farmers Insurance Exchange,
Fire Insurance Exchange. Texas Farmers Insurance Company. Mid-Century Insurance Company
or Texas, Mid-C\:ntury Insurance Company. Farmers Texas County Mutual Insurance Company.
Truck Insurance Exchange, and Truck Underwriters Association, as well as their affiliates.
onicers. employees. agents. directors or governors. rcprcsentatiws, attorneys. predecessors,
successors and assigns.
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''Releasing Parties'' means and includes Texas, the OAG (both on behalf of Texas and,
subject to Court approval, the members of the Settlement Classes defined below), the TDI, and
the Commissioner.
'·Retrospective Rate Reduction" shall have the meaning given it in Section IV. Paragraph
2. below.
"Settlement" shall have the meaning given it in Section II, below.
"Settlement Classes" means and includes (I) all of the Exchanges' Texas homeowners
insurance policyholders (a) whose homeowners insurance policy incepted (including renewals)
from December 28, 200 I, through and including December 27, 2002, or (b) who received a
notice at any time after November 14, 200 I , that their HO-B policy would not be renewed (the
"Rate Class"); (2) all of the Exchanges' Texas homeowners insurance policyholders who
according to Fanners records were eligible to receive discounts for FPRA, age of home, or
territory from November I 6, 2000, through and including December I 0, 2002 (the " Discount
Class"); and (3) all Texas homeowners or automobile insurance policyholders of the Exchanges
or the Automobile Insurance Providers who according to Farmers records were provided or
should have been provided a Credit Usage Notice from October I , 1999, through February 28,
2003 (the "Credit Usage Notice Class").
"Settlement Class Members" means all members of the Settlement Classes except for
Opt-Out Claimants.
"Settlement Fund" shall have the meaning given it in Section IV, below.
"Settlement Hearing" means the hearing to be held before the District Court of Travis
County, Texas, to determine (a) whether this Settlement Agreement, including the Settlement
Fund and the attached exhibits, should be approved as fair, adequate and reasonable; and (b)
whether the final Judgment should be entered.
·'Summary Notice of Settlement" shall have the meaning given it m Section Ill,
Paragraph 7, below.
"Unknown Claims'' means any and all provisions, rights, and benefits conferred either
(a) by section 1542 of the California Civil Code, or (b) by any federal law or law of any state or
territory of the United States, or by any principle of common law that is similar, comparable, or
equivalent to section 1542 of the Calif(Hnia Civil Code, with respect to the Claims released
pursuant to part II.B. Section 1542 of the Calil(nnia Civil Code reads:
A GENERAL RELEASE DOES NOT EXTEN D TO CLAIMS
WHICH TilE CREDITOR DOES NOT KNOW OR SUSPECT
TO r-:XIST IN IllS OR HER FAVOR AT THE ·riME OF
EXECUTING TilE RELEAS E, WIIICH IF KNOWN BY HIM
OR I IER MUST I lAV E MATERIALLY AFFECTED HIS OR
I IER SLTTLEMENT WITH TilE DEBTOR.
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II . REC ITA LS
WHEREAS, on or about October 1, 1999, the FARA discount program was introduced in
Texas for the Farmers Parties' automobile policyholders;
WHEREAS, on or about November 16, 2000. the FPRA discount program was
introduced in Texas for the Farmers Parties' homeowners policyholders;
WHEREAS, on or about November 9, 200 I, the Exchanges announced they would no
longer renew Texas 110-B homeowners policies;
WHEREAS, on or about November 14, 2001, the Exchanges began issuing notices of
non-renewal of HO-B policies to Texas HO-B homeowners insureds;
WHEREAS, on or about January, 2002, the TDI initiated a market conduct examination
of the Farmers Parties pursuant to article 1. 15 of the Texas Insurance Code;
WHEREAS, on or about December 28, 2001, Fire Insurance Exchange began offering
Texas HO-A homeowners policies for former HO-B insureds;
WHEREAS, on or about March 20, 2002, Farmers Insurance Exchange began offering
Texas HO-A homeowners policies for former HO-B insureds;
WHEREAS, on or about August 5, 2002, the OAG, on behalf of Texas and the TDI,
brought the AG Lawsuit against the Farmers Parties;
WHEREAS, on or about August 13, 2002, the TDI brought an Application for
Emergency Cease and Desist Order against the Exchanges;
WHEREAS, on or about August 13 , 2002, the Commissioner entered the Cease and
Desist Order against the Exchanges;
WHEREAS, on or about August 14. 2002, the TDI f'iled a Report to the Commissioner of
Insurance concerning the Exchanges;
WHEREAS, the OAG has served the "OAG CIDs" on the Released Parties;
WHEREAS, on or about August 30, 2002, the Exchanges brought the Exchanges Lawsuit
against the Commissioner and TDI, appealing fi·om the Cease and Desist Order and also seeking
a declaratory judgment that, inter alia, the Commissioner and TDI lack the authority to issue the
Cease and Desist Order and to institute disciplinary action as outlined in the Report to the
Commissioner of Insurance tiled by TDI on or about August 14, 2002:
· WIIEREAS. on or about September 18. 2002, the TDI commenced the Administrative
Prm:eedings against the Exchanges;
WHEREAS. on or about September 24. 2002. the Exchanges gave notice to their Texas
homeowners insureds that the Exchanges would not be offering coverage or renewmg
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homeowners insurance policies, with effective dates of such non-renewal action falling between
November 11, 2002 and November 10, 2003, and also notified their agents they would accept no
new business after November 11 , 2002;
WHEREAS, on November 13, 2002, TO! agreed to extend the effective date of the Cease
and Desist Order for thirty days through December 10, 2002. to allow the Parties an opportunity
to negotiate a settlement of these matters and the Exchanges, in turn, agreed to continue offering
coverage and renewing homeowners insurance policies until December 10, 2002, with a base
rate reduction of 6.8% from the rate structure used in the period immediately prior to November
2002;
WHEREAS, after considering the benefits to be gained under the Settlement Agreement,
the risks associated with continuing to prosecute this complex and time-consuming litigation, the
likelihood of success on the merits of the litigation, the public interest in an efficient market for
homeowners and automobile insurance, the welfare of Texas' consumers, and to avoid further
expense and inconvenience, the State believes this Settlement Agreement is fair, adequate,
reasonable, and in the best interests of the Settlement Classes;
WHEREAS, the Farmers Parties, while denying each of the claims alleged herein and
further denying wrongdoing of any kind whatsoever, and without admitting liability, have agreed
to enter into the Settlement Agreement to avoid further expense, inconvenience, and the
distraction of a burdensome and lengthy litigation, and in order to be completely free of any
further controversy with respect to the Released Claims;
WHEREAS, the Patties have agreed that there should be a global settlement of all of the
Released Claims, as herein defined, and this document sets forth the terms of the Parties'
settlement agreement, which was reached after arms' length negotiations between the State and
the Farmers Parties (the "Settlement");
WHEREAS, the Court has certified the Settlement Classes and preliminarily approved
the 2003 Amended Settlement Agreement by order of June 27, 2003 ('"Order"), which was
appealed to the Third Court of Appeals and the Texas Supreme Court, which affirmed the Order,
and the case was ultimately remanded to this Court on March 9, 201 0;
WHEREAS, upon its remand to the Court, this case was stayed pending the resolution of
certain nationwide class actions involving some of the claims made in the AG Lawsuit, including
the Fogel and Mohhs Actions, in which final judgments approving settlement agreements were
issued on September 29, 20 II, and December 21. 2011, respectively:
WHEREAS the passage of time caused by the lengthy appeal and the settlement
agreements in the Fogel and Mobbs Actions have necessitated certain limited changes to the
2003 Amended Settlement Agreement;
NOW THEREFORE IT IS AGREED by the Parties that subject to approval or the
.Judicial District Court ofTruvis County. Texas. the AG Lavvsuit, the Administrative Proceeding.
the Exchanges Lawsuit. and the other matters in Section IX below arc conditionally settled, on
the following terms and conditions:
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III. CERTIFICATION OF SETTLEMENT CLASSES
1. The Parties shall promptly and jointly submit this Settlement Agreement.
including the exhibits hereto. to the Court for preliminary approval.
2. The State has sought, and the Fanners Parties have agreed to. conditional
certification of the Settlement Classes pursuant to this Settlement Agreement, which the Court
granted in its June 27, 2003 Order. The Farmers Parties do not agree to certitication of the
Settlement Classes for any purpose other than to effectuate this Settlement Agreement. In the
event that the Court were not to approve and certify the Settlement Classes in all respects as
defined in this Settlement Agreement, ( 1) any stipulations and agreements made herein are null
and void and (2) it is understood that the Farmers Parties would challenge the certification of a
litigation class and nothing relating to this Settlement Agreement will be introduced into
evidence or used in any way to impede the exercise ofthat right.
3. The State shall tile an amended motion for preliminary approval that requests the
Court to enter an Amended Order of Preliminary Approval substantially in the form of Exhibit A
hereto.
4. The Parties agree that the Court may enter an order conditionally certifying the
Settlement Classes and appointing the State of Texas, through the Attorney General, as
representative and counsel for the Settlement Classes.
5. If this Settlement Agreement is terminated pursuant to its terms, or if the Effective
Date does not occur for any reason, the conditional certification of the Settlement Classes shall
be vacated.
6. In additional proceedings before the Court (and before any appellate courts, if
necessary). the State shall continue to affirmatively present their support for certification of the
Settlement Classes and for final judicial approval of the Settlement Agreement.
7. Subject to the Court' s prior preliminary approval of the Settlement Agreement
(including the exhibits hereto), the Farmers Parties shall assume responsibility for identifying,
locating, and providing a copy of the Notice of Proposed Class Settlement, substantially in the
form attached as Exhibit B hereto, to as many members of the Settlement Classes as is
reasonably practicable by means of a direct mailing to such Settlement Classes members ' most
recent address in the Farmers Parties' records. In addition. the OAG, TDI and the Farmers
Parties shall disseminate a Summary Notice of Settlement, in the form attached hereto as Exhi bit
C, by posting the Summary Notice of Settlement through their respective web-sites
(www.farmcrs.com. www.oag.state.tx .us, and www. tdi.state.tx.us), as well as at
www.TexasFarmersSettlement.com, beginning as soon as practicable after the Court' s entry of
the Order of Preliminary Approval and continu ing until the date of the Settlement Hearing. ·rhc
full Notice of Proposed Class Settlement also sha ll be made available through these websites
over the same period of time. In order to avoid any confusion, no other documents interpreting
the Settlement Agreement or the Notice of Proposed Class Settlement. or the provisions or cl'fl:ct
of such documents, wi II be posted on the Parties' websites '-'vithout prior Court approva l.
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IV. SETTLEMENT FUND
In conjunction with the settlement of the Released Claims, the Released Parties agree to
create a settlement fund (.. Settlement Fund") with the follovving components:
I. Prospective Rate Reduction. Subject in all respects to Paragraph I (b) below, the
Exchanges agreed (I) to reduce their HO-A primary contract homeowners insurance (excluding
endorsements) base rates in effect as of November I 0, 2002 in the overall average amount of
6.8%, based on a statewide average rate indication for all classes, effccti ve as of November II ,
2002 (the '·Prospective Rate Reduction''), (2) to refrain from any increase in those base rates that
would take effect prior to midnight on August 31, 2003. provided, however, that rates can be
changed to include charges for any existing endorsement or any new endorsements approved by
TDI or for coverage changes requested by policyholders, and (3) for the period December 11 ,
2002 through August 31 , 2003, to adopt the Agreed Discounts described in Section IV,
Paragraph 3(b) hereof.
a. The reduction in premiums contemplated by the Prospective Rate
Reduction was undertaken for all Texas policyholders who renewed an existing HO-A
homeowners' insurance policy through the Exchanges or obtained a new policy.
b. · It is understood and agreed to by the Parties that adopting the Agreed
Discounts as contemplated under this settlement will change each customer's rate even
though the 6.8% reduction is made to the base rate;
c. If legislation or regulation is hereafter enacted that has the effect of
requiring or compelling the Exchanges to implement a rate reduction or rollback, then:
(I) The Exchanges' obligation to issue or grant credits or refunds
under the Prospective Rate Reduction and, if the legislation or regulation is
retroactive, under the Retrospective Rate Reduction, will be reduced by the
amount of the rate reduction or rollback to customers mandated by such
legislation or regulation;
(2) ln the event any such rate reduction or rollback is enacted or
adopted, the Exchanges' rates and rate structures on the day before the effective
date of any such rate reduction or rollback shall be deemed to revert back to the
rates and rate structures in effect as of November I 0, 2002. Under no
circumstances would such rate reduction or rollback be applied to the Exchanges'
rates in effect as the result of the Prospective Rate Reduction. the Retrospective
Rate Reduction. or any other term of this Settlement Agreement.
(3) This consideration was previousl y provided to the Class Members
pursuant to the Parties' agreement.
2. Retros pective Rate Reduction. In addition to the Prospective Rate Reduction.
for all Texas policyholders who were insured under an 110-A policy f(mn issued by the
Exchanges at any time during the period commencing on December 28. 200 I up to and including
November I 0. 2002 (the "Credit Period'"). the Exchanges agree to fund a Retrospective Rate
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Reduction in the amount of 6.8% of the base premium .for the I-10-A policy form earned by the
Exchanges during those policies' actual term ('·Retrospective Rate Reduction").
a. For those Texas policyholders who were insured under an HO-A policy
form issued by the Exchanges during the Credit Period but such policy is no longer in
effect or is not renewed at the next renewal date after the 30th day following the EtTective
Date, the Retrospective Rate Reduction shall be paid by means of a refund check based
on each individual HO-A policy's base rate premium earned with appropriate release
language in favor of the Released Parties as an endorsement. Refund checks in payment
of the Retrospective Rate Reduction 'vVill he processed and paid on: thirty (30) days after
the Effective Date.
b. For those Texas policyholders who were insured under an HO-A policy
form issued by the Exchanges during the Credit Period with coverage going forward
beyond the next renewal date after the 30th day following the Effective Date, the
Retrospective Rate Reduction shall be applied as either a credit or a refund check, at
Farmers' election. Unearned policy premiums that may be returned to the policyholder
shall not include the credit or refund. If a credit is used, the credit shall be applied to the
first premium notice for such HO-A policies renewed after the 30th day following the
Effective Date.
3. Indiv idualized Discount Ad justment. In addition to the Prospective Rate
Reduction and Retrospective Rate Reduction described above, and with respect to Texas
homeowners insurance policyholders who did not receive the Agreed Discounts for FPRA, age
of home, and territory at any time during the period commencing November 16, 2000,
continuing through and including December I 0, 2002. the day immediately preceding the
adoption of the Agreed Discounts described in Paragraph J(b) below, the Exchanges agree to
fund an " Individualized Discount Adjustment" payment.
a. Payments to individual Texas homeowners insurance policyholders for the
Individualized Discount Adjustment shall be determined in the following h1shion: The
Individualized Discount Adjustment payment for each Texas policyholder equals the
amount by which the premium actually charged for the Texas policyholder's policy
exceeded the premium which would have been charged if the Exchanges had adopted
discounts for FPRA, age of home. and territory clements at the Agreed Discounts on a
revenue neutral basis. rather than the lesser discounts which were actually adopted on a
revenue neutral basis (the ''IDA Eligibili ty'') as provided in Paragraph 3(b) below. In
calculating each policyholder's IDA IJigibility. if the aggregate of the three discount
factors (FPRA. age of home. or territory) results in a negati ve value for that individual.
then the Individual Discount Adjustment shall he considered a zero.
b. The Parties' actuaries have met and agreed on discounts for FPR/\ and age
of home. as wdl as territorial rate revisions. to be applied f())' purposes or the
Indi vidualized Discount Adjustment and also to be applied to the same factors for the
period idcntilicd in Section IV. Paragraph I hereof (the "/\greed Discounts''). For
informational purposes. schedules setting f(Jrth the /\greed Discounts l()r the FPR/\ and
age or home discounts and the territorial rate revisions to be applied for purposes of the
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Individualized Discount Adjustment are attached as Exhibits D-1 and D-3. and schedules
setting forth the Agreed Discounts for the FPRA and age of home discounts and the
territorial rate revisions to be applied commencing December 11, 2002, and continuing
through and including August 31,2003. are attached as Exhibits D-2 and D-3.
c. No Individualized Discount Adjustment benefits shall be paid or credited
prior to the Effective Date.
d. Credits and payment of the Individualized Discount Adjustment shall be
made in the same manner and at the same time as the Retrospective Rate Reduction listed
above.
e. Thirty (30) days after the final payment is made or credit provided under
this section dealing with the Individualized Discount Adjustment, the Released Parties
shall report to the OAG and TDI the amounts so paid and credited.
4. Credit Usage Notice Fund. In addition to the Prospective Rate Reduction, the
Retrospective Rate Reduction, and the Individualized Discount Adjustment, the Released Parties
further agree initially to provide funds in the total amount of $3.0 million, but will provide
additional funds if necessary (''Credit Usage Notice Fund"), as well as certain non-cash benefits,
to compensate eligible Settlement Class Members who allege that adverse actions were taken by
the Fanners Parties without providing sufficient notice as required by the Fair Credit Reporting
Act, 15 U.S.C. § 1681 m, resulting in credit report inaccuracies going undetected and potentially
resulting in FPRA or FARA discounts lower than would have resulted from correct credit
information or to assignment to a company at1iliated with the Farmers Parties having a higher
premium structure.
a. Eligibility for the Credit Usage Notice Fund is limited to Credit Usage
Notice Class Members who were issued an automobile or homeowners insurance policy
by one or more Released Parties during the time period October 1, 1999. through
February 28, 2003; provided however, that any eligible Settlement Class Member who
mailed a timely claim form (or on whose behalf such a claim form was submitted)
pursuant to the settlement agreement in the 1Vfobhs Action is not eligible for any
additional benefits, including cash payments, described in this component (part IV.4) of
the Settlement Agreement.
b. Submission of a completed Claim Form in the form attached hereto as
Exhibit E ("Claim Form") is a prerequisite to any individual receiving n credit report
code to obtain a tl·ee copy of his or her credit report fl·om Equifax and any payment from
the Credit Usage Notice Fund. Eligible Settlement Class Members will have until 60
days allcr the Settlement Hearing to mail-in the Claim Form. A timely submitted and
completed Claim Form entitles the eligible Settlement Class Member to access and
review at no cost his or her individual credit report as maintained by Equil~lx. Inc. A
Claim Form will be considered complete if it provides all of the requested information
except a policy number. so long as the inl'ormation provided is sufficient to identify the
claimant l!·om the records or the Released Parties after a good l~1ith effort. Each eligible
Scttkment Class Member will receive on ly one Claim Form with the Class Notice and is
-II-
· eligible to receive only one credit report code and one payment as provitkd in paragraph
(d) below.
c. Within 15 business days after the deadline to mail-in the Claim Form,
each eligible Settlement Class Member who timely completes and submits a Claim Form
\viii be mailed a credit report code and accompanying letter on how class members may
use the credit report code to review their individual credit report for accuracy. The credit
report code will expire 30 days from the date of mailing.
d. Settlement Class Members who use the credit report code and review their
credit reports will be given the opportunity to certify online that they reviewed their
individual credit reports for accuracy within 45 days from the date of mailing of the letter
described in paragraph IV.4(c) above. The certification will read as follows: ''I certify
that I have reviewed my Equifax consumer credit report for errors and inaccuracies."
Each eligible Settlement Class Member who so certifies will be mailed a check in the
amount of thit1y-five dollars ($35.00 US) within 60 days following receipt of the
Settlement Class Member's certification, assuming the Effective Date has passed.
e. Each eligible Settlement Class Member who timely submits a Claim Form
shall also receive an educational credit brochure, explaining the importance of accurate
credit reports and the Settlement Class Member's right to review his or her credit report
and dispute any inaccuracies or errors contained in it.
f. The Credit Usage Notice Fund shall terminate 180 days after the Effective
Date. To the extent that there is a remaining balance in the Credit Usage Notice Fund as
of this termination date, such remaining balance shall revert to the Released Parties.
g. In agreeing to create the Credit Usage Notice Fund, the Parties agree that
the Released Parties have denied that there have been any overcharges to Texas
policyholders as the result of erroneous FPRA or FARA assignments. The Parties further
agree that neither this Settlement Agreement, nor the MOU. nor anything stated herein or
in the MOU or in connection with the Settlement should be construed or interpreted as an
admission or evidence of any wrongdoing or liability by any of the Released Parties or of
any violation of state or federal law, including without limitation the Fair Credit
Reporting Act.
h. Within 30 days after the last payment is made under the Credit Usage
Notice Fund, the Released Parties shall provide a report to the OAG and TDI which
reflects the total number of Claim forms submitted; the total dollar amount or payments
made to persons eligible to participate in the Credit Usage Notice Fund: the total number
of persons who were mailed checks; and the total number and dollar amount of
negotiated checks.
i. The Parties acknowledge that as of February 2003, Farmers has used the
Forms attached as Exhibits F, G, II, and I for new and renewed Texas homeowners and
automobile policies. The Parties further agree that Farmers can cease using these
exemplar forms of notice thirty (30) days after they have submitted replacement notice
-12-
forms for Farmers Texas homeowners and automobile policies to TDI, provided that TDI
does not object to the replacement forms.
5. Payment or Credit of too•x>. With regard to the Individualized Discount
Adjustment, Released Parties have committed to a payment or credit of I 00% of any premium
differential resulting from the adjustment process set forth in Section IV, Paragraph 3. These
calculations, which require individualized calculations, have been made by Released Parties and
will be reported to the OAG and the TDL and will be subject to verification by the TDJ.
6. Unclaimed Funds. The cash components of the Settlement Fund shall be
evidenced by a check that shall be valid for not less than 120 days atlcr issuance. Any such
checks that are uncashed, unclaimed, undeliverable, or not negotiated after 120 days from
issuance shall be subject to Texas Property Code § 72.00 I et seq.
7. Mailing of Checks. All checks to Settlement Class Members mailed under this
Settlement Agreement must be accompanied by a letter and release language in the form attached
as Exhibit J.
8. Attorneys' Fees and Investigative Costs. No later than 30 days after the
Effective Date, the Farmers Parties shall pay a total of $2 million to the State of Texas for its
attorneys' fees, expenses, and costs of investigation.
9. Estimated value. Based upon the Parties' assumptions and projections, the
estimated total value of the Settlement is $117,500,000.
I 0. Accounting Treatment for Settlement Fund Payments and Credits. All
amounts paid or credited to policyholders for the Retrospective Rate Reduction, the
Individualized Discount Adjustment, and the Credit Usage Notice Fund components shall be
treated and accounted for by the Fanners Parties as a return of written premiums. The Farmers
Parties shall also prepare such amendments as necessary to their previously reported statistical
plan filings to reflect a reduction in direct written premiums for amounts paid for the above-
referenced components.
V. RELEASE
On the Effective Date, the State, for itself and for the Settlement Class Members,
RELEASES , ACQUITS, and FOREVER DISCHARGES the Released Parties from all Released
Claims.
VI. FINAL ,JUDGMENT
;\t the Settlement I !caring, a Final Judgment, substantially in the form attached as Exhibit
K hereto. will be submitted to the Court. and entry requested. J\mong other things, the Final
.I udgment d irccts that the .I ud icial District Court or Travis County, Texas. express! y rctai ns
jurisdiction to enforce and modify the relief granted in the Final Judgment, including injunctive
relief. to the fullest extent allowed by Texas law. The Parties also specifically agree that the
venue for ~m y dispute arising under this Settlement Agreement shall be in the District Court of
Travis County. Texas.
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VII. OTHER CONSIDERATIONS REGARDING SETTLEMENT CLASSES
1. In the event that the Court were to alter or make any change in the Settlement
Classes or this Settlement Agreement (including the Settlement Fund) or to decline to approve
the Settlement Classes and this Settlement Agreement (including the Settlement Fund) in all
respects, any of the Parties to this Settlement Agreement shall have the right to terminate the
Settlement and this Settlement Agreement. In the event of such termination. no further payments
or credits will be made under the Settlement Fund and all releases and dismissals executed
hereunder will become null and void.
2. Any person within the Settlement Classes as defined may request not to
participate as a member of the Settlement Classes, by submitting a timely request for exclusion
in accordance with the Amended Order of Preliminary Approval and the Notice of Proposed
Class Settlement. To be effective, any person requesting exclusion from the Settlement Classes
must submit a timely written request for exclusion. Such written request must contain all of the
information described in the discussion of Exclusion Requests that is contained in the Notice of
Proposed Class Settlement, and it must be sent to the address specified in the Notice of Proposed
Class Settlement, by tirst class mail, postmarked no later than thirty (30) days before the date
scheduled for the Settlement Hearing. Any person who submits such a timely written request
and who does not revoke that request for exclusion in writing at least seven (7) days prior to the
Settlement Hearing, is an Opt-Out Claimant. An Opt-Out Claimant thereby elects not to
participate in any benefits or payments under the Settlement Fund or this Settlement Agreement
and is deemed to have waived any and all claims to any part ofthe Settlement Fund.
3. A Settlement Classes member who does not opt out may submit objections, if any
to (a) certification of the Settlement Classes; (b) the terms of the Settlement Agreement.
including the exhibits hereto; or (c) the proposed form of Final Judgment. In order for any such
objection to be considered by the Court at the Settlement Hearing, the o~jection must (a) contain
all of the information described in the discussion of Objections that is contained in the Notice of
Proposed Class Settlement and (b) be sent to the addresses spec ified in the Notice of Proposed
Class Settlement, by first class U.S. mail, postmarked no later than the date specified by the
Court.
4. All Parties shall undertake to encourage part1c1pation of the putative class
members in the Settlement Classes. In the event that more than 2% of the policyholders eligible
to receive benefits tl·om the Retrospective Rate Reduction or Individualized Discount
Adjustment portions of the Settlement Fund were to opt out of the Settlement Classes, any of the
Parties to this Settlement Agreement shall have the right to terminate the Settlement and this
Settlement Agreement.
VIII. NO ADMISS ION OF LIABILITY
In enterin g into this Settlement Agreement, the Parties agree that the Released Parties
have denied, and continue to tkny. any wrongdoing or liability wit h respect to the claims that
have been made in the /\G Lawsuit. the Cease and Desist Order. the Administrative Proceedings
and the 0/\G C!Ds, or that ha ve been made or could have been made by or on bchal r or the
Exchanges· individual policyholders in any ot her forum arising out or or relating to the sulzjcct
-14-
matters or the AG Lawsuit. the Cease and Desist Order. the Administrative Proceedings or the
OAG C!Ds. The Parties further agree that neither this Settlement Agreement nor anything stated
herein or in connection with the Settlement should be construed or interpreted as an admission or
evidence of any wrongdoing or liability by any of the Released Parties. The Released Parties are
entering into this Settlement Agreement and the Settlement in order to avoid the further expense
and burden of protracted liti gation.
IX. RE LATED PROCEE DINGS
I. Dism iss al With Prejudice of Administrative Proceeding, Setting Aside of
Cease and Desist Order, and Related Matters. TDI will request that the Administrative Law
Judge in the Administrative Proceeding dismiss with prejudice TDI 's claims in the
Administrative Proceeding, substantially in the form attached hereto as Exhibit L, and the
Commissioner will enter a final order, substantially in the form attached as Exhibit M hereto,
. that dismisses those claims with prejudice and that also provides (a) the findings of the
Commissioner in the Cease and Desist Order are set aside in their entirety; (b) the Cease and
Desist Order is set aside in its entirety; (c) the findings and order shall be of no further force and
effect whatsoever; and (d) neither the findings nor the order may be utilized as evidence ot: or be
used or relied upon by any person in any proceeding as evidence ot: any alleged violation of law
or breach of contract by the Released Parties. The State agrees that the Application for
Emergency Cease and Desist Order, dated August 13, 2002, by Karen A. L. Barratt
("Application") is of no further force and effect whatsoever, and neither the Application nor the
Order may be used as evidence of, or be used or relied upon by any person in any proceeding as
evidence ot: any violation of law or breach of contract by the Released Parties. TDI also will set
aside in its entirety and with prejudice, substantially in the form contained in the Commissioner's
Order attached as Exhibit M hereto, the (1) the Report concerning Farmers Insurance Exchange
and Fire Insurance Exchange dated August 14, 2002, and (2) the "Notice of Repoti to
Commissioner; Alleged Violations by Fanners Insurance Exchange and Fire Insurance
Exchanges:· dated August 14, 2002. The State agrees that, upon such setting aside. the Report is
of no further force and effect whatsoever; and that such Report may not be used as evidence of,
or be used or relied upon by any person in any proceeding as evidence of, any violation of law or
breach of contract by the Released Parties.
2. Termination of OAG CIDs . All OAG CIDs issued to the Released Parties
(listed in Exhibit N hereto) shall be withdrawn and all associated investigations as to the
Released Parties shall be terminated. The investigations associated with the time periods
covered by each CID are concluded and there will be no new investigations or C!Ds for these
time periods. The Farmers Parties also will dismiss with prejudice their challenges that have
been tiled in the district courts of Travis County to certain of the 0/\G C!Ds, substantially in the
form of the example attached as Exhibit 0 hereto.
J. Termination of Market Conduct f:xamination . The market conduct
examination of the Exchanges commenced by TIJI in January 2002 pursuant to article 1.15 (now
revised to Section 40 I .051 ct. seq.) of the Texas Insurance Code. and all associated
investigations, shal l be terminated and no new investigation wi ll commence concerning Released
Claims. The m.arkct conduct examination report has never been linalizcd and shall be \Vithdrawn
in its entirety and with prejudice. in the form attached as Exhibit M hereto. and shall not be used
-I 5-
in evidence of or relied upon by any person in any proceeding as evidence of any violation of
law or breach of contract by the Released Parties.
4. Dismissal \Vith Pre judice of Exchanges' Lawsuit and C ounterclaim. The
Exchanges agree that they will dismiss with prejudice the claims that the Exchanges made
against TDI and the Commissioner and Jose Montemayor, individually, in the Exchanges
Lawsuit, substantiall y in the form attached as Exhibit 0 hereto. The Farmers Parties also will
dismiss with prejudice their counterclaim in the AG Lawsuit, substantially in the form contained
in the Final Judgment attached as Exhibit K hereto. The dismissal of the Farmers Parties'
counterclaim in the AG Lawsuit shall have no effect on obligations set forth in the Protective
Orders entered therein regarding the Parties' continuing duties regarding confidential documents
or documents produced under seal or in camera.
5. A batement Pending Effective Date. Upon execution of this Settlement
Agreement, counsel for the Parties in the legal proceedings referenced in this Section IX,
Paragraphs I -4 above, wi II take all appropriate steps to stay or abate the matters that are the
subject of this Settlement Agreement until either (a) the Final Judgment entered in accord with
Section VI of this Settlement Agreement becomes final and no longer subject to appeal or
review, or (b) the Court refuses or declines to enter the Final Judgment in accord with this
Settlement Agreement, or (c) such a Final Judgment is reversed or vacated on appeal, or (d) it
becomes impossible for the Etlective Date to occur for any reason. If the Effective Date occurs,
then the Parties agree that, within thirty (30) days after the Effective Date, they will take the
appropriate steps in the cases listed in this Section IX to enter the ind icated dismissals with
prejudice.
6. Management Fee. For the Released Parties and any other company or reciprocal
or inter-insurance exchange associated or affiliated with the Released Parties, and regardless of
whether such entity is or is not subject to rate regulation in Texas, TDI agrees henceforward that
it will not consider the mam1gemcnt fee (profits or expenses) as a separate element in its
evaluation of such company's expense structure or consider such management tee in the rate
process generally, but may consider the over-all expense component of the rate as it compares
the companies' expenses with other agency distribution companies doing business in Texas.
This section does not preclude TDI from evaluating overall rate levels as authorized by law.
X. OTHER PROVISIONS
I. Cooperation. It is the mutual intent of the Parties to consummate this Settlement
Agreement promptly. 'fhe Parties therefore agree to cooperate and to exercise their best efforts
to the extent necessary to effectuate and implement all of its terms and conditions as quickly as
possible. The OAG, TD l, and the Commissioner further agree to comply with all reasonable
requests for assistance that the Released Parties may make in order to give effect to the purposes
of the Settlement. including (without limitation) providing affidavits and/or testimony in
connectio n with any lawsuits. claims or demands that have been made or could have been made
by or on behalf or the Released Parties· policyhokkrs in any forum arising out or or relating to
the subject matters of the AG Lmvsuit (as amended), the Cease and Desist Order. or the
Administrative Proceedings. The intent and spi rit or this Settlement Agreement is to terminate
all or the disputes arising out or and relating to the Released Claims, except as provided herein.
-16-
and to permit the Farmers Parties to continue to provide insurance in the Texas market. The
Parties agree to take all reasonable steps and exercise best efforts to achieve that goal. As an
initial step towards the restoration of a correct and constructive relationship between the
Released Parties and the TDI, the TDI agrees that should it have concern in the future about any
practice undertaken by the Released Parties, it will use its best efforts as authorized by statute to
contact the appropriate representative of the Released Parties to discuss and hopefully resolve
any such concerns. The Released Parties will use their best efforts to notify the TDI, in advance,
of any material changes in their course of conduct.
2. This Settlement Agreement and the Exhibits hereto constitute the entire
agreement among the Parties. All other agreements and understandings between the Parties.
including the MOU, are superseded by this Settlement Agreement.
3. This Settlement Agreement may be amended or modified only by a written
instrument signed by or on behalf of the Parties or their successors in interest.
4. Except as otherwise expressly provided in this Settlement Agreement, each Party
shall bear its own costs, including taxable court costs.
5. The undersigned each represent that he or she is fully authorized to execute this
Settlement Agreement on behalf of the Parties for which he or she signs.
6. This Settlement Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective agents, representatives, successors and assigns. This
Settlement Agreement can be signed in multiple counterparts.
THE STATE OF TEXAS, AND THE OFFICE OF
THE ATTORNEY GENERAL
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..
WSURANCEEXCHANGE
FIRE UNDERWRITERS ASSOCIATION
FARMERS GROUP, INC., INDIVIDUALLY AND
DIBIA FARMERS UNDERWRITERS
ASS ·ION
· , ERS INSURANCE COMPANY
MID-CENTURY . SURANCE COMPANY OF
TEXAS
55935068.2 -18-
MID-C NTURY INSURANCE COMPANY
(/
FARMERS TEXAS COUNTY MUTUAL
INSURANGECOMPANY
,.,..... .
'( /r-;an fOc.cu f
()
,$'_~-:7
TRUCK UNDERWRJTERS ASSOCIATION
55935068.2 -19-
EXHIBIT 7
TO APPELLANT GRIGSON’S RESPONSE TO
APPELLEES’ JOINT MOTION TO DISMISS APPEAL FOR
LACK OF APPELLATE JURISDICTION
I
/
CAUSE NO. GV202501
THE STATE Of TEXAS, THE TEXAS IN THE DISTRICT COURT
DEPARTMENT OF INSURANCE. and
THE TEXAS COMMISSIONER OF
INSURANCE,
Plaintiffs,
v.
FARMERS GROUP. INC. , FARMERS
UNDERWRITERS ASSOCIATION, FIRE OF TRAVIS COUNTY, TEXAS
UNDERWRITERS ASSOCIATION,
FARMERS INSURANCE EXCHANGE,
FIRE INSURANCE EXCHANGE, TEXAS
FARMERS INSURANCE COMPANY,
MID-CENTURY INSURANCE COMPANY
OF TEXAS, MID-CENTURY INSURANCE
COMPANY, FARMERS TEXAS COUNTY
MUTUAL INSURANCE COMPANY,
TRUCK INSURANCE EXCHANGE, and
TRUCK UNDERWRITERS 261 ST JUDICIAL DISTRICT
ASSOCIATION,
Defendants.
ORDER OF PRELIMINARY APPROVAL
This matter came on for hearing on October 18, 2013, at 9:00 a.m. for preliminary
approval of the Second Amended Settlement Agreement and Stipulation of December 18, 2002,
as amended on June 13, 2003, and as further amended on August_, 20 13 ("Second Amended
Settlement Agreement") bet-vvcen the State of Texas. the Texas Department of Insurance, and the
Texas Commissioner of Insurance. on lx:hal f of ·rcxas policyhoh.krs of the Defendants in the
classes defined below (collectively. the ''State") and Fire Underwriters Association. Farmers
Group. Inc. d/b/a Farmers Untk rwritcrs Association. Farmers Insurance Exchange, !-'ire
Sel'ond Amended Settlement
Agrcl'lllent and S tipulation
EXHIBIT A
I
l
I
I
!
•.
Insuranc~ Exchange. T~:-:as Farmers Insurance Company, Mid-Century Insurance Company of
Texas, Mid-Century Insurance Company. Fanners Texas County Mutual Insurance Company,
Truck Insurance Exchange, and Truck Underwriters Association (collectively. the ·'farmers
Parties''). The State and the Fanners Parties have moved jointly, pursuant to Texas Rule of Civil
Procedure Rule 42(e) and Texas Insurance Code § 54 1.266, for an Order of Preliminary
Approval (the "Order'') (I) preliminarily approving the settlement of all claims asserted in the
above-captioned cause (the "'Action''), the terms of which are set forth in the Second Amended
Settlement Agreement which has been filed with the Clerk of the Court, and (2) approving the
proposed notice to the Classes.
The Court having read and considered the Second Amended Settlement Agreement and
attached exhibits, including the proposed Notice of Proposed Class Settlement, the proposed
Claim Form, the proposed form of Final Judgment, exhibits, pleadings and record in this case,
the evidence and other materials presented at the hearing, and argument of counsel and
applicable authorities, finds that there exists substantial and sut1icient grounds for entering this
Order.
IT IS THEREFORE ORDERED, ADJUDGED, AND DECREED THAT:
I. The Court. for purposes of this Order. adopts all deJined terms as set forth in the
Settlement Agreement.
2. Pursuant to Rule 42 and Texas Insurance Code §§ 541.25 I -.267, thi s Court
hereby certi lies. on! y for purposes of cf'fectuat ing the Settlement Agreement, the following
Settlement Classes (the "'Settlement Classes''):
( i) A 11 (l f the F:-:changcs. Te:-:as homeowners insurancc pol icyhokkrs
(a) whose lwmcowners insurance policy incepted (including renewals)
from December 2X. 200 I. through and including December 27. 2002. or
-2-
(b) who received a notice at any time after November 14, 2001, that their
HO-B policy would not be renewed (the "Rate Class''):
(ii) All of the Exchanges' Texas homeowners insurance policyholders who
according to Farmers' records were eligible to receive discounts for
FPRA, age of home, or territory from November 16, 2000. through and
including December l 0, 2002 (the "Discount Class"): and
(iii) All Texas homeowners or automobile insurance policyholders of the
Exchanges or the Automobile Insurance Providers who according to
Farmers' records had a homeowners or automobile insurance policy in
effect with Fanners from October l, 1999. through February 28, 2003 (the
"Credit Usage Notice Class").
3. The Court hereby acknowledges and confirms the State. through the Oftice of the
Attorney General, to fulfill the role of the Settlement Classes' Counsel. The Court tinds that the
Attorney General's office is authorized to bring this class action by the parens patriae authority
granted in sections 541.251 and 541.256-57 of the Insurance Code and Rule 42 of the Texas
Rules of Civil Procedure. See Farmers Group, Inc. v. Lubin, 222 S.W.3d 417 (Tex. 2007).
4. This Court additionally finds and concludes that each of the requirements of Rule
42(a) & (b) and §§ 541.256 and 541.257 of the Texas Insurance Code has been met, specifically:
(a) each of the Settlement Classes is so numerous that joinder of all members is impracticable:
(b) there arc questions of law or fact common to the Settlement Classes which predominate over
any individual questions; (c) the claims or defenses brought by the State on behalf of Farmers·
policyholders are typical of the claims or defenses of the Settlement Classes and the State is
authorized to bring claims on behalf of the Settlement Classes; (d) in negotiating and entering
into the Settlement Agreement, the State has f~tirly and adequately represented and protected the
interests of the Settlement Classes; (c) the questions of law or f~tct common to the Settlement
Classes predominate over any questions affecting only individual members; and (I) certifying
this Action as a class action for settlement purposes is superior to other available methods for the
lttir and cnicient adjudication or the controversy.
-.1 -
5. Tht! Court further tinds that there has been no collusion between the State and the
Farmers Parties with respect to negotiating the Settlement Agreemt'!nt and that the State has
represented. and will continue to represent, the interests of the Farmers' policyholders fairly and
adequately and without a conflict of interests. Accordingly, the Court preliminarily approves:
(a) the Second Amended Settlement Agreement, including the terms and the releases set forth
therein, as being fair, just, reasonable, and adequate as to each of the parties thereto, and (b) the
Settlement Funds described therein, including the Prospective Rate Reduction, Retrospective
Rate Reduction, Individualized Discount Adjustment, and Credit Usage Notice Adjustment
Fund, and the proposed ~dditional consideration, subject to the right of any member of the
Settlement Classes to exclude himself or herself from the Settlement Classes in accordance with
the terms set forth in the Settlement Agreement, and to show cause, if any exists, why a Final
Judgment should not be entered in accordance with the terms of the Settlement Agreement.
6. A hearing (the ''Settlement Hearing'') shall be held before this Court on January
22, 2014, at 9:00 a.m. in the 53rd Judicial District Court Room: (a) to determine whether the
proposed Second Amended Settlement Agreement is l~1ir, reasonable, and adequate and should
be approved, and whether the Final .I udgment should be entered as to claims asserted therein. or
which could have been asserted, against the Released Parties on the merits; (b) to determine
whether the Settlement Classes members' right to adequate representation has been satisfied; and
(c) to reserve jurisdiction to effect and enforce the Settlement Agreement.
7. The Farmers Parties shall disseminate notice of the proposed Second /\mended
Settlement Agreement and Settlement !·!caring to putati ve members of the Settlement Classes
within thirty (30) days of the date of this Order. !\ copy or the Notice or Propnscd Class
Settlement (the "Notice"), together with n copy of the Claim Form. substantially in the form
-4-
attached hereto as Exhibit I. shall he mailed by tirst-dass U.S. mail, postage prepaid, to all
members of the Settlement Classes at the address of each such person as set forth in the records
of the Released Parties or as otherwise may be identitiecl through reasonable effort. In addition,
commencing within seven (7) clays of the date of this Order and continuing until the date of the
Settlement Hearing, the Office of the Attorney General, the Texas Department of Insurance, and
the Farmers Parties shall post on their respective Internet web-sites (www.oag.state.tx.us,
vvww.tdi.state.tx.us and www.farmers.com), as well as at www.TexasFarmersSettlement.com,
the Notice and a Summary Notice of Settlement, substantially in the form attached hereto as
Exhibit B (''Summary Notice").
8. The Court approves the form of Notice, the Summary Notice, and the Claim
Form, and finds that the procedures established for mailing and distributing such notices
substantially in the manner and form set forth in paragraph 7 of this Order meet the requirements
of Rule 42 of the Texas Rules of Civil Procedure and §§ 541.261 and 541.267(b) of the Texas
Insurance Code and due process, and constitute the best notice practicable under the
circumstances.
9. To etiectuate the provision of notice provided in paragraph 7 hereot: the Farmers
Parties shall be responsible for the receipt of all responses from the members of the Settlement
Classes and, until further order of this Court, shall preserve all entries of appearance, Claim
Forms, requests for exclusion, and any and all other written communications from members or
the Settlement Classes or any other person in response to the Notice. ·rhe costs of notification or
the Settlement Classes as provided herein. including printing. mailing, and posting on the
Internet of all requ ired notices. shall be borne by the party charged with the responsibility ror
such actions in paragraph 7 or this Order.
-5-
I0. Three (3) days before the date tixed by th is Court for the Settlement Hearing. the
State and the Farmers Parties shall cause to be filed with the Clerk of the Court affidavits or
declarations of the person or persons under whose general direction the mailing of the Notice and
the distribution of the Summary Notice by posting on the web-sites identified in paragraph 7
shall have been made. showing that such mailing and publication have been made in accordance
with thi s Order.
I I. Each member of the Settlement Classes will be bound by the proposed settlement
provided for in the Settlement Agreement, and by the Final Judgment or any other determination
by this Court affecting the Settlement Classes, unless such member shall mail, by first-class U.S.
maiL a . written request for exclusion from the Settlement Classes, post-marked no later than
December 23, 2013, addressed to State v. Farmers Settlement Administrator, Rust Consulting,
Inc.: P.O. Box 9348; Minneapolis, MN 55440-9348. Such request for exclusion must state
(a) the name. address and telephone number of the person seeking exclusion; (b) whether such
person has a homeowners or automobile insurance policy tl·om the Farmers Parties, or both;
(c) the date of inception of such policy(ies) and the most recent date of renewal for such
policy(ies), if availnble; (d) the policy number(s), if available: and (e) that the person making the
request wishes to be excluded from the Settlement Classes. Because the Settlement Agreement
is intended to be a resolution of all Released Claims. any person requesting exclusion must either
exclude himself or herself fl·om the Settlement Agreement in its entirety. or submit to the
Settlement Agreement in its entirety. J\ request for exclusion shall not be efl\::ctive unless it is
made in the manner and within the time set forth in this paragraph and in the Notice. If a
member of the Scttkmcnt Classes requests to be excluded. that person \viii not receive any
bcnclit from the Retrospective Rate Reduction. the Individualized Discount ;\djustmcnt. or the
Credit Usage Notice Adjustment Fund pro\'ided for in the Settlement Agreement. in the event the
Settlement Agreement is approved by the Court, nor will such person be permitted to participate
further in the Action. Any Class Member who docs not request exclusion in the manner
provided for herein may, but need not, enter an appearance in this Action at his or her own cost
through counsel of his or her own choice. If a member of the Settlement Classes does not enter
an appearance, that person's interests will be represented by the State in the Action.
12. Any member of the Settlement Classes who has not requested exclusion from the
Settlement Classes may appear at the Settlement Hearing, in person or through counsel, to object
and be heard in opposition to any of the matters to be heard at the Settlement Hearing, including
(a) the requested approval of the Settlement Agreement as fair, adequate, and reasonable, and/or
(b) the requested entry of the Final Judgment. A member of the Settlement Classes cannot
request exclusion from the Settlement Classes AND object to the Settlement Agreement. For
any objection to be considered by the Court, the objector must mai l a valid written objection, and
it must be postmarked by no later than December 23, 20 I J. In order to be valid, the written
objection must set forth (a) a reference. at the top, to .. State of Texas v. farmers, Cause No.
GV202501," (b) a statement as to whether the objector intends to appear at the Settlement
Hearing. either in person or through counsel. (c) a detailed statement of the specitic basis forth~
objection, (d) the name that is set forth on the Notice that was sent to the objector. (e) the
objector's current name, if different from the name set t~)rth on the Notice, (t) the objector's
current address. (g) the objector' s current telephone number and, if available, telecopier number,
(h) the objector's type or policy and policy number. and (i) the objector's signature or that of his
or her authorized representative. Three copies of the written objection must be sent. the lirst
addressed to the District Clerk of Travis County. Texas. I000 Guadalupe Street. Austin. Texas
-7-
7870 I, the second addressed to David C. Mattax, Director of Defense Litigation, Oftlce of the
Attorney GeneraL P.O. Box 12548, Austin, Texas 78711-2548, and the third addressed to Marcy
Hogan Greer, Fulbright & Jaworski L.L.P., 98 San Jacinto Boulevard, Suite II 00. Austin, Texas
78701. If an objection does not include all of the required information or if it is not timely
mailed to the three correct addresses, then it shall be invalid and it ·will not be considered by the
Court. Any member of the Settlement Classes who does not object in the manner provided shall
be deemed to have waived such objection and shall forever be foreclosed from making any
objection to the fairness , adequacy, or reasonableness of the Settlement Agreement and the
proposed Final Judgment.
13. If the Court gives final approval to the Settlement Agreement and enters a final
judgment, in order to be entitled to participate in the Credit Usage Notice Adjustment Fund
portion of the Settlement Agreement, a member of the Credit Usage Notice Class who has not
requested exclusion from the Settlement Classes must submit a Claim Form, substantially in the
form attached as Exhibit C hereto, to the Claims Administrator at the address set forth in the
Notice. Such Claim Form must be completed and postmarked on or before March 24, 2014.
Any member of the Credit Usage Notice Class who does not submit a completed Claim Form
shall not be entitled to share in the Credit Usage Notice Adjustment Fund but nonetheless shall
be bound by the terms of the Second Amended Settlement Agreement and by the final Judgment
and any other Order of this Court approving the Second Amended Settlement Agreement.
including all releases therein, and shall be barred and enjoined in this or any other action from
asserting any Released Claims.
14. Members or the Rate and Discount Classes shall automatically receive their share
or Settlement Funds upon linal approval or the Second Amended Settlement Agreement and
~WI· IX0' . 2
-X-
~ntry of tina! judgment, unll!ss they tile a written request tor exclusion tl·om the Settlement
Classes as provided in paragraph 11 herein.
15. The Court expressly retains the power to adjourn the Settlement Hearing, without
any further notice other than an announcement at the Settlement Hearing of adjournment thereot:
and to approve, modify, or disapprove the Second Amended Settlement Agreement without
further notice to members of the Settlement Classes. The Court retains jurisdiction over this
Action to consider all further applications arising out of or connected with the proposed
settlement herein.
16. The administration of the Second Amended Settlement Agreement, and the
decision of all disputed questions of law and fact with respect to the validity of any claim or right
of any person to participate in the distribution of the Settlement Fund, shall be under the
authority of the Court. The parties to this Second Amended Settlement Agreement, counsel
herein in any capacity in which they may act hereunder, and any employees or agents of such
law firms or the parties to the Second Amended Settlement Agreement (including, without
limitation. those employees who may furnish services in connection with the proposed
Settlement) shall not be I iable for anything done or omitted in connection with the Second
Amended Settlement Agreement and the administration thereof except lor their own willful
misconduct.
17. The parties to the Settlement Agreement arc directed to carry out their obligations
under the Second Amended Settlement Agreement.
18 . In the event that the Second /\mended Sdtlemcnt Agreement is not approved by
the Court. or the Court enters the Final Judgment and it is vacated or modilied on app~al. or
otherwise alter~d in a material way. or the Effecti ve Date for any other reason docs not occur,
-9-
and if any party to the Second Amended Settkment Agreement thereafter t!Xen:ises its right to
terminate the Settlement Agreement as provided therein, then the Second Amended Settlement
Agreement and any actions to be taken in connection therewith shall be vacated and terminated
and shall become null and void for all purposes, and al l negotiations, transactions and
proceedings connected with it (a) shall be without prejudice to the rights of any party hereto:
(b) shall not be deemed or construed as evidence or an admission by any party of any fact, matter
or thing; and (c) shall not be admissible in evidence or used for any purpose in any subsequent
proceeding in the Action, or any other action or proceeding in this or any other forum, judicial,
administrative, or otherwise, except proceedings to enforce the Settlement.
SIGNED_ __ _ __ _ __ __, 2013.
PRESIDING JUDGE
-10-
EXHIBIT 8
TO APPELLANT GRIGSON’S RESPONSE TO
APPELLEES’ JOINT MOTION TO DISMISS APPEAL FOR
LACK OF APPELLATE JURISDICTION
CAUSE NO. D-1-GV-02-002501
CHARLES 0. "CHUCK" GRIGSON, § IN THE DISTRICT COURT
§
Intervenor - Plaintiff §
§
v. §
§
THE STATE OF TEXAS, THE TEXAS §
DEPARTMENT OF INSURANCE, AND §
THE TEXAS COMMISSIONER OF §
INSURANCE, §
§
Plaintiffs, §
v. § OF TRAVIS COUNTY, TEXAS
§
FARMERS GROUP, INC., FARMERS §
UNDERWRITERS ASSOCIATION, §
FIRE UNDERWRITERS §
ASSOCIATION, FARMERS §
INSURANCE EXCHANGE, FIRE §
INSURANCE EXCHANGE, TEXAS §
FARMERS INSURANCE COMPANY, §
MID-CENTURY INSURANCE §
COMPANY OF TEXAS, MID- §
CENTURY INSURANCE COMPANY, §
and FARMERS TEXAS COUNTY §
MUTUAL INSURANCE COMPANY, §
Defendants. 261ST JUDICIAL DISTRICT
CHARLES 0. "CHUCK" GRIGSON'S PLEA IN INTERVENTION
AND OBJECTION TO PRELIMINARY APPROVAL OF
SECOND AMENDED SETTLEMENT AGREEMENT
TO THE HONORABLE JUDGE OF SAID COURT:
COMES NOW, CHARLES 0. "CHUCK" GRIGSON, pursuant to Rule 60, Tex.
R. Civ. P., who intervenes in this Cause for the purpose of opposing the Joint Motion for
Preliminary Approval of their 2013 Second Amended Settlement Agreement ("20 13
Agreement"). This new 2013 Agreement, which supersedes all others, is not within the
"range of possible approval," therefore approval should be denied:
I. DISCOVERY- LEVEL 2
Charles 0. "Chuck" Grigson ("Grigson"), Plaintiff-Intervenor, seeks and intends
to conduct Level2 discovery under Tex. R. Civ. P. 190.3 and will abide by the Protective
Order entered in this case.
II. STANDING- GRIGSON IS A
SUBSCRIBER/POLICYHOLDER/OWNER
Grigson at all material times relevant to this case has been a policyholder of
various insurance policies issued by Farmers Insurance Exchange ("Farmers Exchange");
Fire Insurance Exchange ("Fire Exchange") and/or Truck Insurance Exchange ("Truck
Exchange"). He is a current subscriber and policyholder in one (or more) of the
Exchanges. Zurich Insurance Group, the Parent-Owner of Farmers Group, Inc. ["FGI"],
show these Exchanges to be owned by their policyholders. See Exhibit "A." Grigson
seeks protection of his financial interest as an owner of Exchange assets, including the
capital and surplus, of the Exchanges. He objects to any dilution of his policyholder
capital & surplus resulting from the proposed new 20 13 Agreement.
III. FARMERS GROUP, INC. ("FGI") IS
ATTORNEY-IN-FACT ("AIF") FOR GRIGSON
The Attorney-in-Fact (AIF) for Grigson and his fellow policyholder/subscribers is
Defendant FGI. FGI' s relationship with Grigson and the other policyholders in the
Exchanges is that of a fiduciary. See Fogel v. FGI, 74 Cal. Rptr. 3d 61, 66 (Cal. App.
2008, pet. denied).
-2-
In their live pleadings, the State and the Commissioner describe the scope ofFGI's
fiduciary duties to the policyholders as one of "utmost good faith, fair dealing, honest
performance and strict accountability ... for all material matters and conflicts of
interest." Plaintiffs' Second Amended Petition at 6, ~ 18 (filed February 18, 2003 -
verified by Sara Shipley Waitt). (Emphasis supplied).
IV. 2013 AGREEMENT SUPERSEDES ALL OTHERS
On August 23, 2013, Plaintiffs and Defendants ("Settling Parties") entered into a
"Second Amended Settlement Agreement and Stipulation" which is attached as Exhibit 1
to their "Joint Motion for Preliminary Approval" and referred herein as "the 2013
Agreement."
The 2013 Agreement ... "amends and supersedes the Settlement Agreement and
Stipulation entered into on the 18th day of December, 2002, as amended on the 13th day of
June 2003." (Second Amended Settlement Agreement at 1- Introductory~).
The 20 13 Agreement further provides
This Settlement Agreement and the Exhibits hereto constitute the
entire agreement among the parties. All other agreements and
understandings between the Parties, including the MOU, are
superseded by this Agreement.
Id at 17 ~ X.2:: Emphasis supplied].
-3-
Because this 20 13 Settlement is not the same as the one approved in 2003 1, it must
undergo this Court's "rigorous analysis" before obtaining preliminary approval. Lubin
IIL 2009 WL 3682602 (2009) at 9.
v. THE COURT CANNOT APPROVE THE NEW SETTLEMENT
WITHOUT A NEW CERTIFICATION ORDER
The Settling Parties correctly state in their jointly filed Motion, that "Court
approval is required before any action brought as a class action may be settled." Joint
Motion at 17 [Emphasis supplied].
They further correctly note (citing Cortez) that approval is "generally a multi-step
process":
Only the first step is to occur at the upcoming hearing - preliminary
approval of the proposed settlement and conditional certification of
a temporary class."
Joint Motion at 17-18 [Emphasis supplied]. 2
The new Agreement notes at page 9 that payment of the previous "prospective rate
reduction" component of the 2003 Settlement has been "consideration previously
provided." Because past consideration is no consideration - no release can be given
pursuant to this component of any settlement.
This 2013 Agreement differs in every material respect from the now abandoned agreement
approved in 2003: Different Class Members; Different Settlement Terms; Different Relief; Different
Release; Different Class Notice; Different Order.
2 It is a fact that the Joint Motion seeks approval of the 2013 Second Amended Settlement
Agreement - not the abandoned 2003 Settlement Agreement. "Factual matters" relating to the 2013
agreement have not been heard, much less determined. "The doctrine of the law of the case only applies
to questions of law and does not apply to questions of fact." Hudson v. Wakefield, 711 S.W.2d 628, 630
(Tex. 1986).
-4-
Consequently, the 2013 Agreement, if approved, requires a new certification of the
classes meeting the new terms of the 2013 Agreement. Previous certification of the 2003
Classes did not certify anything pursuant to this 20 13 Agreement.
VI. FATAL CONFLICTS OF INTERESTS
PREVENT PRELIMINARY APPROVAL
The 2013 Agreement is not within the "range of possible approval" due to fatal
conflicts of interest. The Supreme Court has recognized that the Attorney General may
have conflicts so serious that adequacy of representation is called into question. Such
conflicts now infect the 2013 Agreement presented here.
The conflicts of interest infecting the 2013 Agreement are three fold:
1. The "dynamic conflict" between FGI and the Exchanges;
2. The conflict created by one law firm, Fulbright & Jaworski representing
both FGI and the Exchanges; and
3. The State of Texas agreemg to terms directly antagonistic to the
policyholders that it purports to represent.
A. The "dynamic conflict" between Zurich/FGI- and the Exchanges.
Paul Hopkins, the President of FGI who signed the now abandoned 2003
Settlement Agreement, described the "conflict" best in 2005:
Reporter's Question: It seems that there's a conflict between
the best interest of the management company and the best
interest of the Exchanges there. I just wonder, is that true,
and how do you manage that?
Hopkins' Answer: When you just look at the model, you can
definitely ascertain there seems to be some dynamic conflict
-5-
that sits between the motivation of the Exchanges and the
motivation of the management company. That really falls right
back to here. We are fiduciaries to the Exchanges. We
completely understand that it is the golden goose that lays the
eggs that we harvest.
September 14, 2005 Paul Hopkins at Zurich's Investor Day Presentation. (Video
supplied).
Last Thursday, April24, 2014, Tom Schrader- President of the Farmers Agents'
Association brought the "conflict" current:
One has to wonder when the AIF (Attorney-In-Fact/Management
Company) sent Zurich approximately 3.5 Billion in management fee
profits from the Exchanges in 20 13 and the Exchanges lost
1,251,000 Net PIP and $1,251,000,000 in lost premium from the loss
of policies, whether the best interest/needs of the Exchanges are
actually being taken into consideration by the AIF or is the AIF
more interested in their fees?
April24, 2014 The Voice; UFAA Publication p.2. (Emphasis supplied).
The Settling Parties now seek Court approval requiring the Exchanges - to pay
the 2013 settlement - thereby depleting the policyholder capital and surplus in the
Exchanges.
Such an approval would benefit only FGI -not the policyholders
It is undisputed that the Exchanges and FGI are represented by the same lawyers -
Fulbright & Jaworski. Hence, the Exchanges, owned by the policyholders, have had
no separate and independent lawyers to protect their interests in negotiating the
2013 agreement.
-6-
Lawyers' Conflicts of Interest are governed by Rule 1.06; Texas Rules of
Professional Conduct, which provides:
(a) A lawyer shall not represent opposing parties to the same
litigation.
(b) In other situations and except to the extent permitted by ~(c) a
lawyer shall not represent a person if the representation of that
person:
(1) involves a substantially related matter in which that
person's interests are materially and directly adverse to the interest
of another client of the lawyer or the lawyer's firm; or
(2) reasonably appears to be or become adversely limited by
the lawyer's or law firm's responsibilities to another client or to a
third person or by the lawyer's or law firm's own interests.
Here, the Settling Parties references to the 2011 Fogel Settlement demonstrate the
attorneys' conflict:
Exchanges policyholders participated in the Fogel settlement by recetvmg
payment from FGI - and its parent company Zurich Financial Services (now Zurich
Insurance Group). In Fogel the interests of the Exchanges were represented by its
independent counsel - Lock Lord Bissell & Liddell, LLP. FGI was represented by
independent counsel - Skadden, Arps, Slate, Meagher & Flom LLP; and the now defunct
Dewey LeBoeuf independently represented Zurich Financial Services.
As a result of the separate representation of Zurich/FGI on the one hand versus the
policyholder-owned Exchanges on the other, Zurich/FGI paid the entire $527 million
settlement which included $294 million going to the policyholders as an increase to
the Exchanges' policyholder capital and surplus. This result was reached because the
interests between the two were allegedly antagonistic.
The 2013 Agreement here stands in stark contrast to Fogel.
-7-
Here, where the Exchanges are represented by F & J - the same counsel as FGI -
the Exchanges pay everything - decreasing their capital and surplus. FGI thereby
benefits it own self-interest at the expense of the policyholders. 3
Stated differently, when the Exchanges and FGI are represented by separate
counsel - FGI pays. When the Exchanges and FGI are represented by the same counsel
-the policyholders pay.
B. Conflict between State of Texas and Policyholders.
1. Waiving TDI's ability to separately contest management fees.
The State and TDI's agreement to "henceforward" not separately regulate FGI's
management fees in rate hearings, besides being unconstitutional, benefits no one but
FGI at the expense of the Policyholders. See Sec. IX. 6 at 16; 2013 Agreement.
Such an "agreement", if approved, would defeat the entire purpose of the
"Exchange" form of doing business. See Chapter 422, Tex. Ins. Code.
In the late 1800's, Reciprocal Exchanges were formed for the very purpose of
allowing individuals and companies to "exchange" promises to pay for each other's risk
losses without the huge expense encountered by the for profit stock companies. See (D.
Reinmuth, Ch. 8 The Regulation of Reciprocal Insurance Exchanges, University of
Pennsylvania ( 1967)4 • Keeping expenses at a minimum was critical to the functions of an
In Fogel, Zurich/FGI obtained a release from the Exchanges thereby documenting the
antagonism between the two. See Hooks Objection; Ex. "D" at 12; 17; 43.
4
Even in 1967, Reinmuth was critical that " ... the attorney-in-fact will use more sophisticated
methods of increasing its compensation * * * another method of increasing income is to
transfer of shift some of the expenses which were to be borne by the attorney-in-fact to the exchange with
no corresponding decrease in management fee." Reinmuth Id at 148.
-8-
Exchange if it were to survive.
Today, even Farmers' agency force is critical of the $3.5 billion dollars that FGI
receives yearly from policyholders as an "expense" as being excessive by one billion
dollars. See Exhibit B (4-24-2014) Issue of The Voice.
Moreover, the Office of Public Insurance Counsel ("OPIC") is currently
contesting the "excessiveness" of FGI's management fees before TDI. See Exhibit C;
Dec. 2013 OPIC Letter Deeia Beck contesting Farmers' Proposed Rate Hike. Should the
Court approve this agreement, TDI would be voluntarily "handcuffed" to ignore this vital
item as an "individual expense." FGI management fees deserve more TDI scrutiny- not
less.
2. State gets $2 Million Dollars from the Policyholders.
Finally, the policyholders would also pay two million dollars ($2,000,000) to the
State of Texas. These are the same policyholders Attorney General, Gregg Abbott,
purports to represent.
These conflicts of interest are so fraught with antagonism to policyholders that
they rise to the level of inadequate representation by the State. See FGI v. Lubin, 222
S.W.2d 417, 426 (Tex. 2007).
VII CONCLUSION
This Court should not approve the 20 13 Agreement. The Joint Motion to Approve
should be denied. WHEREFORE, PREMISES CONSIDERED, Intervenor Grigson
prays that the Court deny the Joint Motion for Preliminary Approval of Second Amended
-9-
Settlement Agreement, and for such other and further relief to which he may show
himself justly entitled.
Respectfully submitted,
LAW OFFICES OF JOE K. LONGLEY
. Longley
State Bar No. 12542000
1609 Shoal Creek Blvd. #100
Austin, Texas 78701
512-477-4444 PHONE
512-477-4470 FAX
LAW OFFICE OF PHILIP K. MAXWELL
Philip K. Maxwell
State Bar No. 13254000
1609 Shoal Creek Blvd #100
Austin, Texas 78701
512-947-5434 PHONE
-10-
CERTIFICATE OF SERVICE
The undersigned hereby certifies that a true and correct copy of the above
and foregoing document was served on the following counsel of record by facsimile
transmission on this the 28th day of April, 2014
David C. Mattax Marcy Greer
Chief, Financial Litigation Division Alexander Dubose Jefferson &
Joshua Godbey Townsend, LLP
Office of the Attorney General of Texas 515 Congress Ave., Suite2350
Financial Litigation Division Austin, TX 78701
P. 0. Box 12548
Austin, TX 78711-2548 Michael J. Woods
8620 N. New Braunfels, Ste. 522
Richard N. Carrell San Antonio, TX 78217
Fulbright & Jaworski, LLP
1301 McKinney, Suite 5100 Rudlfo Vela
Houston, TX 77010-3095 Anna Vela
1001 Coffeyville Tr.
M. Scott Incerto Grand Prairie, TX 75052
Fulbright & Jaworski, LLP jackvela@yahoo .com
98 San Jacinto Blvd #1100
Austin, TX 78701
-11-
EXHIBIT 9
TO APPELLANT GRIGSON’S RESPONSE TO
APPELLEES’ JOINT MOTION TO DISMISS APPEAL FOR
LACK OF APPELLATE JURISDICTION
1
1 REPORTER'S RECORD
VOLUME 1 OF 1 VOLUME
2 TRIAL COURT CAUSE NO. D-1-GV-02-002501
3
STATE OF TEXAS, THE TEXAS ) IN THE DISTRICT COURT
4 DEPARTMENT OF INSURANCE, )
AND THE TEXAS )
5 COMMISSIONER OF )
INSURANCE, )
6 Plaintiffs, )
)
7 VS. )
)
8 )
FARMERS GROUP, INC., )
9 FARMERS UNDERWRITERS ) TRAVIS COUNTY, TEXAS
ASSOCIATION, FIRE )
10 UNDERWRITERS ASSOCIATION, )
FARMERS INSURANCE )
11 EXCHANGE, FIRE INSURANCE )
EXCHANGE, TEXAS FARMERS )
12 INSURANCE COMPANY, )
MID-CENTURY INSURANCE )
13 COMPANY OF TEXAS, AND )
FARMERS TEXAS COUNTY )
14 MUTUAL INSURANCE COMPANY, )
Defendants. ) 261ST JUDICIAL DISTRICT
15
-------------------------------------------------
16
HEARING ON JOINT MOTION FOR
17 PRELIMINARY APPROVAL OF
THE SECOND AMENDED SETTLEMENT AGREEMENT
18 AND STIPULATION OF CLASS NOTICE
19 --------------------------------------------------
20 On the 29th day of April, 2014, the following
21 proceedings came on to be heard in the above-entitled
22 and numbered cause before the Honorable Scott H.
23 Jenkins, Judge presiding, held in Austin, Travis County,
24 Texas;
25 Proceedings reported by machine shorthand.
29
1 MR. MATTAX: I would suggest two things,
2 Your Honor. One, to agree to go forward with the deal
3 you made to me is not collusion. When you negotiate a
4 deal and you're adverse to the parties as the Court
5 realized back in 2003 and you make a deal, that's the
6 deal that was done.
7 THE COURT: Okay.
8 MR. MATTAX: Now, have I -- have I hinted
9 at the interest? Have I raised the specter of interest
10 since then? Yes.
11 THE COURT: Yes. And since we --
12 MR. MATTAX: And the response has been --
13 THE COURT: And since we had a whole
14 hearing on what you did behind the scenes, including
15 Senator Duncan's participation in it --
16 MR. MATTAX: Yes.
17 THE COURT: -- so that your negotiations
18 were all revealed, it was an open story, something that
19 was fought at the time, but I thought it was right to
20 make it an open book, that's why I'm opening the book
21 now. Did you argue this to Farmers at all? Did you
22 say, you know, I know a deal's a deal, but we've got
23 this judge who may just be hard on this, and these
24 consumers have been waiting for the money more than ten
25 years; we think you ought to tweak and sweeten this deal
30
1 with the time value of money? Did you make that
2 argument to Farmers?
3 MR. MATTAX: Without sort of -- I'm trying
4 to understand how to reveal this, but as late as last
5 night I mentioned interest.
6 THE COURT: Okay.
7 MR. MATTAX: And the answer was no.
8 THE COURT: Well, what you say between you
9 and Farmers is not privileged --
10 MR. MATTAX: Right.
11 THE COURT: -- in this hearing.
12 MR. MATTAX: Correct.
13 THE COURT: What you say between you and
14 the department --
15 MR. MATTAX: Exactly.
16 THE COURT: -- may be, but not between you
17 and Farmers.
18 MR. MATTAX: Right. I raised the issue
19 that in retrospect there should have been an inclusion
20 of interest because the time had passed, and that was
21 not accepted.
22 THE COURT: Okay.
23 MR. MATTAX: Now, did I say I'm not going
24 to do the deal because of that? No.
25 THE COURT: Okay.
31
1 MR. MATTAX: Because we did the deal
2 without that, for better or worse, and now we're here
3 before the Court.
4 THE COURT: Now you can tell reason number
5 one that you can now negotiate is that this judge
6 doesn't like it, and this judge needs to wrap his arms
7 around a possible settlement that the judge can
8 contemplate approving at some point. And without any
9 calculation for the time value of money, since Farmers
10 has had the benefit of all that money for more than a
11 decade and the consumers haven't, it's not within the
12 range of something I think I could approve.
13 Now, you can keep putting on a record
14 about that today if you want or in the future, but you
15 need to know that's one of the problems I listed as I
16 worked on this this weekend.
17 MR. MATTAX: Very good. Well, let me then
18 close with the first element of the settlement agreement
19 with the caveat that interest is up in the air, and that
20 was with, as I said, the retrospective rate relief. The
21 Court also put its finger on another aspect of the
22 original settlement, the prospective rate relief. And
23 in the prospective rate relief, that actually was
24 basically intended to be sort of a stop-gap between the
25 time of the settlement and the time the Legislature had
49
1 working on this for a decade. I've had a thousand cases
2 since then and haven't.
3 MR. MATTAX: Right.
4 THE COURT: So tell me what's in there.
5 MR. MATTAX: Well, my recollection is that
6 the question really came down to with respect to funding
7 the settlement, how does that funding occur, and the
8 thought process was that it's the exchanges that are the
9 people that charge the rates.
10 THE COURT: Yes. Here's my question. I
11 don't remember anybody challenging whether that was fair
12 to the exchanges vis-a-vis the corporation. I don't
13 remember that issue of the tension between the exchanges
14 and the corporation being flushed out in that trial.
15 MR. MATTAX: I would -- I would agree with
16 your recollection.
17 THE COURT: And now even an argument that
18 a single law firm can't represent them because of the
19 internal conflicts. That's really interesting, and I'm
20 sure it is to all of us lawyers, and concerning.
21 MR. MATTAX: Well, let me do this, Your
22 Honor.
23 THE COURT: So I don't remember any of
24 that. And you're confirming for me now it was not dealt
25 with in that trial?
50
1 MR. MATTAX: Let me do it this way.
2 THE COURT: Is that right?
3 MR. MATTAX: I don't recollect. And let
4 me, if I could, defer to Norton Rose and see if they
5 have a recollection, if that's okay, or should we do
6 that later?
7 THE COURT: No, let's finish yours.
8 MR. MATTAX: Okay.
9 THE COURT: But they'll make a note, and
10 they'll know they're going to have to explain that if it
11 was in that trial, because I don't have enough of a
12 recollection to be confident going forward that I can
13 approve the settlement given this issue that I'm now
14 discerning about the potential for unfairness to the
15 exchanges vis-a-vis the corporation. That's something I
16 don't remember anybody briefing for me ten plus years
17 ago.
18 MR. MATTAX: Let me --
19 THE COURT: And I'm going to need that to
20 be satisfied that I can ever approve this settlement or
21 give preliminary approval, so somebody's going to have
22 to address that.
23 MR. MATTAX: Very good, Your Honor.
24 THE COURT: Thank you.
25 MR. MATTAX: And I think the best answer I
56
1 Farmers ever had the contractual right to terminate the
2 HOB policies. And what was fascinating to me in this is
3 that Farmers -- and Justice Burgess was astounded by it
4 too -- made the -- what I wrote was "amazing" last
5 night -- made the amazing argument that the contract was
6 ambiguous and therefore you couldn't have a class about
7 that. And yet, that's the very argument they're making
8 here, is that they want a declaration in your class
9 settlement that they had the right to cancel the
10 policies. Those are diametrically opposite arguments by
11 Farmers. And so -- and I understand. These are really
12 great lawyers for Farmers, really great lawyers.
13 They're making -- they're fighting hard for their
14 client. That's their job. Their job is not to do your
15 job to protect this consumer class.
16 So what I want to know is why wouldn't you
17 as class counsel argue for in this settlement let's
18 carve out Geter because it's not about money, it's been
19 certified, Justice Burgess has affirmed it, and why not
20 let those people get that declaration -- or Justice
21 Sondock thinks they'll lose; Farmers thinks they'll
22 lose -- and let that be decided? Let it be decided.
23 Why would we just obliterate that cause of action and
24 not let them get that be decided and you as class
25 counsel never even wanted to make the argument because
143
1 REPORTER'S CERTIFICATE
2
3 THE STATE OF TEXAS )
4 COUNTY OF TRAVIS )
5 I, Chavela V. Crain, Official Court
6 Reporter in and for the 53rd District Court of Travis
7 County, State of Texas, do hereby certify that the above
8 and foregoing contains a true and correct transcription
9 of all portions of evidence and other proceedings
10 requested in writing by counsel for the parties to be
11 included in this volume of the Reporter's Record, in the
12 above-styled and numbered cause, all of which occurred
13 in open court or in chambers and were reported by me.
14 I further certify that this Reporter's Record of
15 the proceedings truly and correctly reflects the
16 exhibits, if any, offered in evidence by the respective
17 parties.
18 WITNESS MY OFFICIAL HAND this the 12th day of May,
19 2014.
20
/s/ Chavela V. Crain
21 Chavela V. Crain
Texas CSR 3064, RMR, CRR
22 Expiration Date: 12/31/2015
Official Court Reporter
23 53rd District Court
Travis County, Texas
24 P.O. Box 1748
Austin, Texas 78767
25 (512) 854-9322
EXHIBIT 10
TO APPELLANT GRIGSON’S RESPONSE TO
APPELLEES’ JOINT MOTION TO DISMISS APPEAL FOR
LACK OF APPELLATE JURISDICTION
1
1 REPORTER'S RECORD
VOLUME 1 OF 1 VOLUME
2 TRIAL COURT CAUSE NO. D-1-GV-02-002501
3
STATE OF TEXAS, THE TEXAS ) IN THE DISTRICT COURT
4 DEPARTMENT OF INSURANCE, )
AND THE TEXAS )
5 COMMISSIONER OF )
INSURANCE, )
6 Plaintiffs, )
)
7 VS. )
)
8 )
FARMERS GROUP, INC., )
9 FARMERS UNDERWRITERS ) TRAVIS COUNTY, TEXAS
ASSOCIATION, FIRE )
10 UNDERWRITERS ASSOCIATION, )
FARMERS INSURANCE )
11 EXCHANGE, FIRE INSURANCE )
EXCHANGE, TEXAS FARMERS )
12 INSURANCE COMPANY, )
MID-CENTURY INSURANCE )
13 COMPANY OF TEXAS, AND )
FARMERS TEXAS COUNTY )
14 MUTUAL INSURANCE COMPANY, )
Defendants. ) 261ST JUDICIAL DISTRICT
15
-------------------------------------------------
16
HEARING ON MOTIONS TO STRIKE
17 AND MOTION TO LIFT STAY ON DISCOVERY
18 --------------------------------------------------
19 On the 4th day of September, 2014, the following
20 proceedings came on to be heard in the above-entitled
21 and numbered cause before the Honorable Scott H.
22 Jenkins, Judge presiding, held in Austin, Travis County,
23 Texas;
24 Proceedings reported by machine shorthand.
25
55
1 judgment on the settlement that went up through appeals.
2 That has not occurred at this point. This language was
3 brought forward and, you know --
4 THE COURT: What am I to make of the
5 language farther up the page, though, that he didn't
6 cite, Farmers parties do not agree to certification of
7 the settlement classes for any purpose other than to
8 effectuate this settlement agreement?
9 Well, I haven't approved this settlement
10 agreement. In fact, I rejected it. So you are now in a
11 posture where you don't agree with the class action.
12 And in fact, you were the party who wanted the class
13 action 12 years ago. So it seems to me we're back at
14 square one with no settlement agreement, no certified
15 class, because no party -- I mean, you were the party
16 who asked for it, and now you don't agree to it,
17 according to your own signed document, and the State
18 really wasn't the one who asked for it to begin with.
19 So what am I to make of all that?
20 MR. INCERTO: Well, I have to respectfully
21 disagree with the Court's analysis on that. I think we
22 do have a class action. I believe it's law in the case
23 from the Supreme Court. I believe that this particular
24 provision --
25 THE COURT: Well, then is this just
57
1 MR. INCERTO: -- if this Court denies the
2 preliminary approval.
3 THE COURT: Exactly. Since I've denied
4 it, it seems to me now there's no agreement. I've got
5 the State who didn't want to do it -- didn't ask to do
6 it to begin with, Farmers who wanted to do it because
7 they wanted to effectuate a settlement, and now the
8 Court has declined to approve the settlement. I'm just
9 thinking that that language is significant. You don't
10 think that it is, apparently.
11 MR. INCERTO: Your Honor, I don't think
12 the Court has denied preliminary approval. There's no
13 order denying preliminary approval of the current
14 settlement agreement. The Court has expressed some
15 concerns and some issues --
16 THE COURT: Well, actually, that's what we
17 started off with at this hearing. I thought I was
18 pretty clear on April 29th I'm declining to approve the
19 second amended settlement agreement. I thought that was
20 pretty clear, and I thought that you and I had that sort
21 of meeting of the minds at the beginning of this
22 hearing, but I guess if I wasn't clear, I'm hopefully
23 clear now. So what does that mean?
24 MR. INCERTO: Well, Your Honor, what it
25 means is we've got -- we've -- the parties have been
102
1 REPORTER'S CERTIFICATE
2
3 THE STATE OF TEXAS )
4 COUNTY OF TRAVIS )
5 I, Chavela V. Crain, Official Court
6 Reporter in and for the 53rd District Court of Travis
7 County, State of Texas, do hereby certify that the above
8 and foregoing contains a true and correct transcription
9 of all portions of evidence and other proceedings
10 requested in writing by counsel for the parties to be
11 included in this volume of the Reporter's Record, in the
12 above-styled and numbered cause, all of which occurred
13 in open court or in chambers and were reported by me.
14 I further certify that this Reporter's Record of
15 the proceedings truly and correctly reflects the
16 exhibits, if any, offered in evidence by the respective
17 parties.
18 WITNESS MY OFFICIAL HAND this the 10th day of
19 September, 2014.
20
/s/ Chavela V. Crain
21 Chavela V. Crain
Texas CSR 3064, RMR, CRR
22 Expiration Date: 12/31/2015
Official Court Reporter
23 53rd District Court
Travis County, Texas
24 P.O. Box 1748
Austin, Texas 78767
25 (512) 854-9322
*
EXHIBIT 11
TO APPELLANT GRIGSON’S RESPONSE TO
APPELLEES’ JOINT MOTION TO DISMISS APPEAL FOR
LACK OF APPELLATE JURISDICTION
SUPPLEMENT TO THE SECOND AMENDED
SETTLEMENT AGREEMENT AND STIPULATION
This is a Supplement, entered into on the Lj 1!J. of March, 2015, ("Supplement") to the
Second Amended Settlement Agreement and Stipulation ("Settlement Agreement"), which was
entered into on 25Jth of August, 2013, by and among the State ofTexas ("Texas"), the Office of
the Attorney General ("OAG"), the Texas Department of Insurance ("TDI"), including the Texas
Commissioner of Insurance ("Commissioner") (collectively referred to as the "State"), and
defendants Fire Underwriters Association, Farmers Group, Inc., individually and d/b/a Farmers
Underwriters Association, Farmers Insurance Exchange, Fire Insurance Exchange, Texas
Farmers Insurance Company, Mid-Century Insurance Company of Texas, Mid-Century
Insurance Company, Farmers Texas County Mutual Insurance Company, Truck Insurance
Exchange, and Truck Underwriters Association (collectively referred to as the "Farmers
Parties"). Any reference to "Settlement Agreement" in the Settlement Agreement or any of the
Exhibits to the Settlement Agreement, including the Order of Preliminary Approval, Notice of
Proposed Class Settlement, and Final Judgment, is meant to include this Supplement.
The State and the Farmers Parties (collectively referred to as the "Parties") reaffirm their
obligations and commitments made in the Settlement Agreement subject to the enhancements,
modifications, and conditions in this Supplement. The Parties further agree as follows:
I. DEFINITIONS
For this Supplement, all the terms have the same meanings as set forth in the Settlement
Agreement, except that the definition of Released Claims is modified to add the following
sentence at the end of the definition:
Notwithstanding the foregoing, the claim for declaratory relief only without any
claim for damages, which has been certified as a class action, and as set forth in
the Order ofNovember 23, 2010, in the pending Geter v. Farmers Group, Inc., et
al., No. E-0167872 in the 172nd District Court of Jefferson County, Texas, is not
released by this definition. All other class claims are released.
The following definition is added after the definition for "MOU":
The "2014 MOU" is the Memorandum of Understanding executed by the Parties
on December 17, 2014.
II. RECITALS
In Section II of the Settlement Agreement, entitled "Recitals," the following is added at
the end ofthe Recitals:
WHEREAS, at the hearing on April 29, 2014, the Court raised certain issues to be
considered.
Page1of5
SUPPLEMENT TO TilE SECOND AMENDED
SETTU:MENT AGREEMENT AND STIPULATION
WHEREAS, the Parties reaffirm the Second Amended Settlement Agreement in
its entirety, but have agreed to the enhancements, modifications, and conditions
set forth in this Supplement.
III. CERTIFICATION OF SETTLEMENT CLASSES
As to Section III of the Settlement Agreement on "Ce1iification of Settlement Classes,"
the Parties acknowledge and agree that the District Comi has ce1iified the Settlement Classes in
its Order of Preliminary Approval (June 27, 2003), that was appealed to the Third Court of
Appeals and the Texas Supreme Comi, which affirmed the Order of Preliminary Approval, and
the case was ultimately remanded to the District Comi on March 9, 2010. Accordingly, the
Pmiies have satisfied the requirement of seeking certification of the Settlement Classes for
purposes of Paragraphs 1-4 of Section III of the Settlement Agreement, although the other
conditions of Paragraph 2 still apply.
Further to Section III of the Settlement Agreement, Exhibit B (Notice of Proposed Class
Settlement), Exhibit C (Summary Notice of Settlement) and Exhibit E (Claim Form) have been
revised and the Exhibit B and Exhibit C, attached to this Supplement, are substituted in their
place.
IV. SETTLEMENT FUND
In Section IV of the Settlement Agreement, entitled "Settlement Fund," the Parties agree
to the following changes:
The following is substituted for Paragraph 8:
8. Attorneys' Fees and Investigative Costs. This Paragraph is no longer
operative.
The following is substituted for Paragraph 9:
9. Estimated Value. Class members who renewed or received a new HO-A
insurance policy from the Defendants after November 11, 2002 and before
September 1, 2003, received a 6.8% "prospective" reduction in their premiums.
The value of undistributed benefits to the eligible Rate and Discount Class
Members under this Settlement is $84.38 million. In addition, eligible Credit
Usage Notice Class Members can apply to receive a payment of $35.
The following is substituted for Paragraph 10:
10. Accounting Treatment for Settlement Fund Payments and Credits.
All amounts paid or credited to policyholders for the Retrospective Rate
Reduction and the Individualized Discount Adjustment components shall be
treated and accounted for by the Farmers Parties as a return of written premiums.
The Farmers Pmiies shall also prepare such amendments as necessary to their
previously repmied statistical plan filings to reflect a reduction in direct written
Page 2 of 5
SUPPLEMENT TO THE SECOND AMENDED
SETTLEMENT AGREEMENT AND STIPULATION
premiums for amounts paid for the above-referenced components. At the time the
payment of the Retrospective Rate Reduction and Individual Discount
Adjustment is made to the Settlement Class Members, Farmers Group, Inc. shall
cause to be paid to the Farmers Exchanges a reimbursement of the attorney-in-fact
fee related to those returned premiums, including the enhancement of return
premium set out in Paragraph II below, in an amount to be determined by the
Exchanges.
The following Paragraph is added as Paragraph 11:
11. The Farmers Parties will provide a total of $10 million (TEN MILLION
US DOLLARS AND N0/100) in additional consideration to eligible Rate and
Discount Class Members. These additional funds will be distributed on a
proportionate basis based on the aggregate of the amounts that the individual class
member will be receiving for the rate and discount components.
IX. RELATED PROCEEDINGS
In Section IX in the Settlement Agreement entitled "Related Proceedings," the Parties
agree to the following change:
The following is substituted for Paragraph 6:
6. Management Fee. This Paragraph is no longer operative.
The following is added as a new Paragraph 7:
7. Geter. The Farmers Parties agree that the settlement of this case will not
be used to argue that the declaratory relief claim, which was ce1iified as a class
action and as set forth in the Order of November 23, 2010, in the pending Geter v.
Farmers Group, Inc., No. E-0167872, in the 172nd District Court of Jefferson
County, Texas, is barred by the doctrines of res judicata, collateral estoppel, or
release; provided that this exception to the scope of the release and effect of the
final judgment in this case is limited solely to the previously certified class claim
for declaratory relief in the Geter case.
X. OTHER PROVISIONS
In Section X of the Settlement Agreement, the Parties agree to the following changes:
The following is substituted for Paragraph 1:
1. Cooperation. The Parties and their undersigned counsel agree to
undertake their best eff01is and to cooperate with each other to effectuate the
prompt consummation of the proposed settlement, including taking all steps and
efforts contemplated by their written agreements, and any other reasonable steps
and efforts that may become necessary by order of the Court or otherwise.
Page 3 of 5
SUPPLEMENT TO THE SECOND AMENDED
SETTLEMENT AGREEMENT AND STIPULATION
The following is substituted for Paragraph 2:
2. This Settlement Agreement, this Supplement, and the exhibits attached to
both agreements constitute the entire agreement among the Patties. All other
agreements and understandings between the Parties, including the MOU and the
2014 MOU, are superseded by the Settlement Agreement and this Supplement.
To the extent there is any conflict between the Settlement Agreement and this
Supplement, the Supplement will control.
The following are added as Paragraphs 7-8:
7. The Patties will present the Settlement Agreement and this Supplement to
the Court for preliminary approval at the earliest practical time after execution of
this Supplement.
8. The parties agree and recognize that each of the foregoing provisions is
subject to preliminary and final approval by the Travis County District Court.
This Supplement may be executed in counterparts, and a signature by facsimile or email
shall have the same weight and effect as an original signature.
Once fully executed, this Supplement satisfies the requirement of Section X, Paragraph 3,
of the Settlement Agreement that permits the Settlement Agreement to be amended or modified
by a written instrument signed by or on behalf of the Parties or their successors in interest.
By: Joshua Godbey
Senior Attorney for Financial Litigation
Office of the Attorney General
D~ISSIONER
TEXAS DEPARTMENT OF JNSURANCE
Page 4 of 5
SUPPLEMENT TO THE SECOND AM ENDED
SETTLEMENT AGREEMENT AND STJPULATJON
FARMERS INSURAN E EXCHANGE, FIRE
INSURANCE EXCHANGE, TRUCK
INSURANCE EXCHANGE, TEXAS FARMERS
INSURANCE COMPANY, MID-CENTURY
INSURANCE COMPANY OF TEXAS, MID-
CENTURY INSURANCE COMPANY,
FARMERS TEXAS COUNTY MUTUAL
INSURANCE COMPANY
FARM~IDUALLY,
AND D/B/A FARMERS UNDERWRITERS
ASSOCIATION, FIRE UNDERWRITERS
ASSOCIATION, AND TRUCK
UNDERWRITERS ASSOCIATION
Page 5 of5
SUPPLEMENT TO THE SECOND AMENDED
SETTLEMENT AGREEMENT AND STIPULATION
EXHIBIT 12
TO APPELLANT GRIGSON’S RESPONSE TO
APPELLEES’ JOINT MOTION TO DISMISS APPEAL FOR
LACK OF APPELLATE JURISDICTION
1
1 REPORTER'S RECORD
VOLUME 2 OF 2 VOLUMES
2 TRIAL COURT CAUSE NO. D-1-GV-02-002501
3 STATE OF TEXAS, THE TEXAS ) IN THE DISTRICT COURT
DEPARTMENT OF INSURANCE, )
4 AND THE TEXAS )
COMMISSIONER OF )
5 INSURANCE, )
Plaintiffs, )
6 )
VS. )
7 )
)
8 FARMERS GROUP, INC., )
FARMERS UNDERWRITERS ) TRAVIS COUNTY, TEXAS
9 ASSOCIATION, FIRE )
UNDERWRITERS ASSOCIATION, )
10 FARMERS INSURANCE )
EXCHANGE, FIRE INSURANCE )
11 EXCHANGE, TEXAS FARMERS )
INSURANCE COMPANY, )
12 MID-CENTURY INSURANCE )
COMPANY OF TEXAS, AND )
13 FARMERS TEXAS COUNTY )
MUTUAL INSURANCE COMPANY, )
14 Defendants. ) 261ST JUDICIAL DISTRICT
15 -------------------------------------------------
16
HEARING ON JOINT MOTION FOR
17 PRELIMINARY APPROVAL OF SECOND AMENDED
SETTLEMENT AGREEMENT
18
19 --------------------------------------------------
20 On the 2nd day of July, 2015, the following
21 proceedings came on to be heard in the above-entitled
22 and numbered cause before the Honorable Scott H.
23 Jenkins, Judge presiding, held in Austin, Travis County,
24 Texas;
25 Proceedings reported by machine shorthand.
116
1 THE COURT: Well, I asked questions
2 because of the very -- for the very same reason I'm
3 asking now, does anybody know that answer, and I
4 think --
5 MR. LONGLEY: I don't know of any
6 empirical evidence that's in this record.
7 COURT'S RULING
8 THE COURT: Okay. Thank you. That
9 answers my question. You both answered my question the
10 same way. Thank you. And that's my only question.
11 All right. You need to submit to my staff
12 proposed orders. I know your proposed order will be to
13 grant the joint motion for preliminary approval.
14 And I know your motion -- or your order
15 will be to deny the joint motion for preliminary
16 approval. It might even have more in it such as to sign
17 an order that decertifies the class. I don't know.
18 But do you, as you sit here now, have in
19 your possession the very proposed order that you wish
20 for this Court to sign after I go back and think about
21 whether I'm prepared to sign your proposed order? Do
22 you have your order?
23 MS. GREER: We do, Your Honor.
24 THE COURT: Would you hand that to my
25 court operations officer? And I assume you've already
117
1 tendered that to the opposing parties.
2 MS. GREER: No, we weren't presuming at
3 this point.
4 THE COURT: That's okay. Please do that
5 now.
6 MS. GREER: And I have provided it to the
7 State.
8 THE COURT: Thank you. Do the intervenors
9 have a proposed order to conclude this hearing?
10 MR. LONGLEY: No, Your Honor. We were
11 relying upon the form of the order that was attached to
12 their moving motion, which is obviously far different
13 from this order.
14 THE COURT: Okay. That's great. Well,
15 let's just take a moment to look at it and see what it
16 is they're asking the Court to do at the conclusion of
17 this hearing.
18 This question is directed to the moving
19 parties. Exhibits 1, 2 and 3 to this order are
20 identical to the forms that were already submitted in
21 your joint motion materials, correct?
22 MS. GREER: Yes, Your Honor.
23 THE COURT: Thank you. I'm not going to
24 go reread --
25 MS. GREER: Although I did note, being
118
1 completely detail oriented here, one typographical error
2 in the notice that we might as well address now.
3 THE COURT: On which exhibit is this?
4 MS. GREER: That would be Exhibit 1,
5 Your Honor.
6 THE COURT: Yes, the notice.
7 MS. GREER: There's a reference --
8 THE COURT: What page are you on?
9 MS. GREER: I am on Page 5 under Question
10 No. 9. At the end of that first paragraph, it says see
11 Question 14, and that actually should be Question 13.
12 Since we're here I thought we could correct it.
13 THE COURT: Oh, I see. At the end of the
14 first paragraph?
15 MS. GREER: Yes, Your Honor.
16 THE COURT: Question 14 is a mistake. It
17 should be Question 13.
18 MS. GREER: Yes, sir.
19 THE COURT: Okay. Otherwise, these are
20 identical to what you submitted before?
21 MS. GREER: Correct.
22 THE COURT: And in fact, it is identical,
23 but it contains a mistake, and so it now needs to be
24 corrected.
25 MS. GREER: Correct.
119
1 THE COURT: I get it.
2 MS. GREER: And, Your Honor, the State has
3 pointed out a couple of small nits in the order itself
4 just with website names on Page 4.
5 THE COURT: At the bottom?
6 MS. GREER: Yes, Your Honor. The Texas
7 Attorney General has changed its website to
8 www.texasattorneygeneral.gov.
9 THE COURT: All spelled out?
10 MS. GREER: All spelled out. And the
11 next --
12 THE COURT: And then it's still dot state
13 dot TX, et cetera?
14 MR. GODBEY: No, Your Honor.
15 THE COURT: Okay. So it's just
16 www.texasattorneygeneral --
17 MS. GREER: Dot gov.
18 THE COURT: -- dot gov. Yes, we changed
19 ours here in the County also, which causes no end to
20 problems, although most of it's seamless, but not
21 entirely.
22 MS. GREER: And Your Honor, there's a typo
23 in the next website, and I apologize because it's mine.
24 It should be TDI.state.tx.
25 THE COURT: I'm sorry. It should be --
120
1 MS. GREER: TDI, Texas Department of
2 Insurance.
3 THE COURT: Of course, instead of just TI.
4 MS. GREER: Correct.
5 THE COURT: Got that.
6 MR. MINDELL: Your Honor, actually the TDI
7 website is now www.TDI.Texas.gov.
8 MS. GREER: We got the Norton Rose one
9 right.
10 THE COURT: Well, that's nice. That's
11 good. All right. Anybody else find any other typos?
12 I mainly wanted to make sure -- because I
13 did not take the time to reread Exhibits 1, 2 and 3,
14 because I've already read those things. I only wanted
15 to read with some care the proposed order that you want
16 me to sign, and I've done that.
17 And so I'm prepared to tell you -- because
18 I've spent a lot of time on this, we all have, for many,
19 many years. I've read everything you've asked me to
20 read, every case you've asked me to read, and thought
21 about everything you wanted me to think about, and I
22 really do appreciate what you said, but I'm now about to
23 rule in a way that the intervenors are asking me not to.
24 I'm about to grant this joint motion for preliminary
25 approval.
121
1 And there are some blanks that will have
2 to be filled in which will involve all of us. Certainly
3 it will involve the moving parties and the Court. And
4 so -- and you're going to get out the notice within
5 60 days of the signature on this order. And I'll be
6 signing it with corrections no later than Monday, maybe
7 sooner if I finish this work today, but I've got other
8 work to do, and so we'll just see. But I'd like to get
9 this done. So we need to figure out what date this will
10 be set. I need to ask them that question first. Thank
11 you, Mr. Longley.
12 MR. INCERTO: We have proposed dates if
13 the Court wants to --
14 THE COURT: Would you hand that to the
15 court operations officer with a copy to the -- do you
16 have copies for the other side?
17 MR. INCERTO: It's a little confusing.
18 The yellow highlighted are --
19 THE COURT: Well, I always like to walk
20 back -- begin with the end in mind.
21 MR. INCERTO: Right.
22 THE COURT: Walk back to the end, just
23 like we do on a trial scheduling order, and figure out
24 what needs to be done in advance of that and how far in
25 advance it needs to be accomplished.
122
1 MR. INCERTO: I think the end --
2 THE COURT: Do we need to discuss all
3 these time periods on the record or may I give the
4 court reporter a break now?
5 MR. LONGLEY: I want to make an objection
6 on the record before we go off the record, Your Honor,
7 regarding the form of the order that you're about to
8 sign. We object to the form.
9 THE COURT: Then tell me what the defect
10 is in the form of the order.
11 MR. LONGLEY: The defect is that, number
12 one, we were just handed this order. It was not
13 attached as part of the moving papers. The one that was
14 attached to the moving papers in Paragraph 2 says this
15 Court hereby certifies classes, and this is the first
16 time we've seen an order that does not certify classes.
17 THE COURT: That's because their position,
18 as you know, all along in this joint motion has been
19 that the class was previously certified -- or the Court
20 gave preliminary approval before, it's come back to the
21 Court and that the class has never been decertified.
22 That's -- has that been your argument?
23 MS. GREER: Yes, Your Honor.
24 MR. GODBEY: Yes, Your Honor.
25 THE COURT: And so what you like about
123
1 that other order is that it suggests that I have to go
2 back and recertify the class, and that's what you'd like
3 me to put in the order, right?
4 MR. LONGLEY: Either that or that you
5 refuse to certify a class in this particular order for
6 the reason that you're adopting their view that it's
7 already been certified and you're applying that
8 certification in 2003 to this new 2015 settlement.
9 THE COURT: No, I understand what they're
10 doing in this order, and I thought about that very thing
11 as I read it, just as you did, and I am going to sign
12 the order as they've presented it.
13 MR. LONGLEY: And --
14 THE COURT: But I understand why you don't
15 like that.
16 MR. LONGLEY: Well, the point -- the
17 reason we don't like it is it's an attempt through
18 collusion to deny these -- let me finish, please.
19 THE COURT: Well, I'm not going to morph
20 into argument. I'm only going to talk about the form of
21 the order. And I understand why you don't want me to
22 sign the order, but I don't want to morph into argument
23 now, which it sounds like you want to do, and I
24 understand that, but we're not going to do that.
25 Is there any other defect in the form of
124
1 the order, that is, errors, bad grammar, misstatement of
2 the record? I don't believe that does misstate the
3 record, and I am going to sign that.
4 MR. LONGLEY: I have not had time to read
5 the new order, and I would request respectfully that we
6 have a red lined copy of what the differences are
7 between the order they just handed us and the order they
8 attached to their moving papers for this hearing,
9 because I've seen nothing except what I've just told the
10 Court, and I want to see what's been added, what's been
11 subtracted, because I went through this whole hearing
12 without having a copy of this.
13 THE COURT: I understand.
14 MR. LONGLEY: And I object to it as a
15 matter of form.
16 THE COURT: I understand. But I had read
17 it so thoroughly before, things jumped out at me just as
18 they jumped out to you because you and I have both read
19 this so carefully. I understand it. Let me ask them if
20 they have a red lined copy. And if they do, I will
21 certainly ask them to give you one. And if they don't,
22 I will give you this afternoon to read this and compare
23 it to the previous one and send electronically to the
24 Court by, I would say, 3:00 or 4:00 -- I mean, you're
25 going to need to work now side by side and compare it,
125
1 what form errors there are -- I know you have
2 substantive disagreements; I'm not going to go backwards
3 on that -- form errors you have on the form of the order
4 given your comparison of the previous form and this
5 form, and I will certainly read that, if not today then
6 tomorrow, if not tomorrow then Saturday, because I want
7 to get this done before I start a trial on Monday.
8 MR. LONGLEY: Well, I respectfully request
9 that they provide us with a red lined because they have
10 these documents on their computers.
11 THE COURT: I just mentioned I'm going to
12 ask them that. And if not, I'll let you do the green
13 eye shade work of looking back and forth, but let's see
14 if they have it.
15 MR. LONGLEY: Okay.
16 THE COURT: Thank you. Do you have that?
17 MS. GREER: No, Your Honor, we haven't
18 created that.
19 THE COURT: Okay. Never have created it.
20 They say they haven't created it. And I know you take
21 them at their word that they've never created that.
22 This is simply -- this is their new and improved
23 proposed order. And I understand that you see
24 differences. I do, too. But that's why I wanted to
25 take enough time so that I felt comfortable knowing
126
1 what's in this that was not in the previous order.
2 Amazingly I do. I guess I'm still able to move that
3 quickly. And so I'll keep reading it, though, but I
4 wanted to let you know while you're all here that having
5 read it, though I discerned some differences too, I'm
6 prepared to approve it. But I want to give you the next
7 two or three hours to go through it yourself and see if
8 you find any other errors in it and submit that
9 electronically simultaneously copying the other side,
10 because I would like to get this, you know, out of the
11 court along with all the other findings of fact and
12 conclusions of law on other trials I've got that I'm
13 going to be working on today and this weekend. Okay.
14 MS. GREER: Your Honor --
15 THE COURT: Anything else?
16 MS. GREER: Your Honor, the document that
17 has the colored lines on it that has the dates is in the
18 form of an Excel spreadsheet, and we can manipulate
19 those numbers if the Court --
20 THE COURT: Let's talk about the final
21 fairness hearing and work back from that, okay?
22 MS. GREER: Okay.
23 THE COURT: Because you need me for that.
24 MS. GREER: Correct.
25 THE COURT: And you only get me at certain
127
1 times. Can we now go off the record and give the
2 court reporter a break? I don't want to do that if you
3 want to keep the scheduling discussions on the record.
4 I can go back and repeat it on the record what we've
5 agreed to, but I thought I'd give her a break if we can
6 be conversational for a moment about scheduling the
7 final fairness hearing. Is that okay or do you want to
8 keep -- do you want to stay on the record about
9 discussing our calendars?
10 MR. LONGLEY: We can go off the record for
11 a few minutes, Your Honor.
12 THE COURT: Okay. Great. You should
13 enjoy that.
14 All right. Let's talk about my calendar
15 and your calendar.
16 (Discussion off the record)
17 THE COURT: All right. We're back on the
18 record, Counsel. We've had a discussion about timing
19 and giving everyone ample time in advance of the final
20 fairness hearing to file objections and to file any
21 briefing about those objections so that the Court can
22 thoroughly consider that. And having consulted and
23 worked collegially about this, I think everyone's in
24 agreement that we can give more than ample time for all
25 of that to be accomplished if we set the final fairness
128
1 hearing for February 1st. And if no one says they
2 disagree with that, I think I just summarized correctly
3 what everyone has worked together to ensure that the
4 Court is going to do, and that is to have a thorough
5 opportunity to consider any objections to final fairness
6 in advance of that hearing and to begin that hearing on
7 February 1st. So that date will be put in this order,
8 and then you will back up from that date and put
9 briefing -- you're going to add a briefing schedule to
10 this order, correct?
11 MR. INCERTO: That's correct.
12 THE COURT: And you're going to add, are
13 you, a subpoena deadline to this order, or do you want
14 to think about that?
15 MR. INCERTO: I think we'll add the
16 subpoena deadline and we'll add the briefing deadline as
17 the 14th of December.
18 THE COURT: All right. Well, I want to
19 review that order. And if there's some -- and I ask you
20 to send that to Mr. Longley and his colleagues so that
21 you can, again, collegially discuss any deadlines to
22 make sure that everyone's had an opportunity to think
23 about who they want to subpoena. But then, for
24 everyone's sake, and especially the witnesses, so we
25 don't have the last-minute subpoenas we've had in this
129
1 preliminary fairness hearing, I would like to cook some
2 deadlines in there. Do you have any questions about
3 what I'm going to do?
4 MR. LONGLEY: No, Your Honor, I don't.
5 What I would request is that the nits that you have
6 requested, that they be included in whatever they send
7 over to us so that we don't -- I haven't written all
8 these down as we've gone through here informally. So
9 just correct whatever it is they're going to correct and
10 send it over to us. As to form, we have no objection
11 with the date the Court has said that you want to have
12 the final fairness hearing. We're not agreeing to it.
13 THE COURT: I understand.
14 MR. LONGLEY: Yeah.
15 THE COURT: But you have no objection
16 to --
17 MR. LONGLEY: We have no objection to the
18 setting.
19 THE COURT: To the setting. And you have
20 no objection to baking into this order deadlines for
21 subpoenas, deadlines for briefing provided those are
22 reasonable. And we've talked about roughly six or more
23 weeks before the final fairness hearing having the final
24 briefs submitted. Given how far in advance we're
25 setting this final fairness hearing, you have during our
130
1 discussions offered no objections to the idea that we
2 would bake in some deadlines so that the Court has an
3 ample opportunity to have us all prepared for the final
4 fairness hearing.
5 MR. LONGLEY: We understand thoroughly,
6 Your Honor, the need for dates to be in there, and as to
7 that part of the form we have no objection.
8 THE COURT: Thank you for saying that.
9 And I know you're speaking on behalf of the other
10 intervenors, too. Thank you.
11 Anything else we need to say on the record
12 about this so that I can then review this order you're
13 going to get to me hopefully later today and I can sign
14 it sometime today or over the weekend? The next time
15 it'll be filed if it's not filed by 5:00 p.m. today --
16 the clerk's office shuts down, so they won't be filing
17 it until Monday no matter what I'm signing, but I will
18 get it signed no later than Monday. And you're going to
19 be getting that to me this afternoon; is that correct?
20 MR. INCERTO: That is correct.
21 THE COURT: And Mr. Longley requested just
22 now, could you -- when you redo this, correcting the
23 nits, could you shoot that over to his office and his
24 co-intervenors in a form that allows them to quickly
25 see --
131
1 MR. INCERTO: We'll red line --
2 THE COURT: -- the nit corrections you've
3 done?
4 MR. INCERTO: We'll red line the original
5 order to show the corrections and the nits.
6 THE COURT: Thank you. I know he
7 appreciates that. Anything else we need to say on the
8 record?
9 MR. INCERTO: Nothing further, Your Honor.
10 MR. GODBEY: Nothing, Your Honor.
11 MR. LONGLEY: I think we're finished,
12 Your Honor. Do we need to report back to you tomorrow?
13 Is that what you were asking?
14 THE COURT: First I need to let the
15 court reporter know she's through. Is there anything
16 else we need to say on the record? No?
17 MR. LONGLEY: Only when you want us to
18 report back to you with regard to what they're going to
19 send to us so that we know the deadline that we've got
20 to get you something, objections or something about this
21 order.
22 THE COURT: Well, they're not going to
23 give you a red line comparing this order today with the
24 previous order.
25 MR. LONGLEY: I understand that.
132
1 THE COURT: They're only going to give you
2 a little red line with the nit corrections.
3 MR. LONGLEY: Right.
4 THE COURT: So your job now is to go back
5 now, which you're already doing, and I am too -- I've
6 already compared it in my mind because I remember what
7 was in the previous order, and that's why you and I both
8 knew one of the changes in this order. You now need to
9 go back and compare this to the previous order, and you
10 also need to let me know by the end of the day what
11 corrections, even before you get the nit red lines, you
12 are finding in this order. Then if there's something
13 about their -- so you'll need to do that this afternoon
14 also. I suggest at 4:00 o'clock that you need -- but I
15 would like it no later than 4:00. I'd prefer it
16 earlier.
17 How long is it going to take you to go
18 back and read the order that you already argued on the
19 record is different from this order in some material
20 way, especially as it references the certification of
21 the class? You know what I'm referring to now.
22 MR. LONGLEY: Yes, sir, I do.
23 THE COURT: Anything else like that you
24 want me to understand that you think I might not have
25 understood -- I believe I have, but if you don't think I
133
1 have, I want to know by what time this afternoon you're
2 going to put that in an e-mail to the Court so I can
3 give one last thought to that. I'm not going to rethink
4 my decision, but I am thinking about the form of the
5 order.
6 MR. LONGLEY: I think I can meet that
7 timetable so long as I get what they're going to send
8 over to me reasonably soon.
9 THE COURT: Well, that's just nit
10 corrections with dates. I need to know anything in
11 addition to the thing that you said earlier such as,
12 well, this changes what you're saying about the class
13 certification. Yes, yes it does, in some respects, and
14 I'm signing it. If there's anything else like that, I
15 need to know by 3:00, 4:00 at the latest. I would hope
16 by 3:00. I would hope you could go back right now and
17 compare it and tell me anything else that you
18 couldn't -- because I know you've read this thoroughly
19 before.
20 MR. LONGLEY: I guess what I need to know
21 is the Court is not going to entertain any alternative
22 order to refuse with regard to what we might want to
23 submit?
24 THE COURT: I'm not going to entertain any
25 substantive differences, that's correct.
134
1 MR. LONGLEY: Such as the certification.
2 THE COURT: That's correct. That's
3 exactly right.
4 MR. LONGLEY: We're addressing that right
5 now.
6 THE COURT: Exactly, we are addressing
7 that right now. And I understood that from the briefing
8 you gave me in advance of this hearing that you were
9 each trying to spin my prior comments on the record to
10 be a "oh, we need to recertify this class" from your
11 perspective and "no we don't" from their perspective. I
12 understood that completely.
13 MR. LONGLEY: And I think I do, too,
14 Your Honor, that this particular settlement that you're
15 approving will not have a separate certification or
16 refusal to certify.
17 THE COURT: It's going to be the order
18 they've proposed.
19 MR. LONGLEY: I gotcha. And I can get
20 back to you by 5:00 o'clock today or to e-mail
21 Ms. Daniel.
22 THE COURT: No.
23 MR. MAXWELL: 4:00 o'clock, Joe.
24 THE COURT: No, by 4:00 o'clock.
25 MR. LONGLEY: 4:00 o'clock. Okay. Sorry.
135
1 THE COURT: Okay. Good. All right. Any
2 other questions or statements on the record before I let
3 the court reporter get a well-deserved break?
4 MR. INCERTO: Nothing further.
5 MR. GODBEY: Nothing further, Your Honor.
6 MR. LONGLEY: Nothing further.
7 MR. BLANKS: Nothing from the Hooks,
8 Your Honor.
9 MR. WOODS: Nothing.
10 THE COURT: All right. Thank you all.
11 (Court adjourned)
12
13
14
15
16
17
18
19
20
21
22
23
24
25
136
1 REPORTER'S CERTIFICATE
2
3 THE STATE OF TEXAS )
4 COUNTY OF TRAVIS )
5 I, Chavela V. Crain, Official Court
6 Reporter in and for the 53rd District Court of Travis
7 County, State of Texas, do hereby certify that the above
8 and foregoing contains a true and correct transcription
9 of all portions of evidence and other proceedings
10 requested in writing by counsel for the parties to be
11 included in this volume of the Reporter's Record, in the
12 above-styled and numbered cause, all of which occurred
13 in open court or in chambers and were reported by me.
14 I further certify that this Reporter's Record of
15 the proceedings truly and correctly reflects the
16 exhibits, if any, offered in evidence by the respective
17 parties.
18 WITNESS MY OFFICIAL HAND this the 12th day of July,
19 2015.
20
/s/ Chavela V. Crain
21 Chavela V. Crain
Texas CSR 3064, RMR, CRR
22 Expiration Date: 12/31/2015
Official Court Reporter
23 53rd District Court
Travis County, Texas
24 P.O. Box 1748
Austin, Texas 78767
25 (512) 854-9322
EXHIBIT 13
TO APPELLANT GRIGSON’S RESPONSE TO
APPELLEES’ JOINT MOTION TO DISMISS APPEAL FOR
LACK OF APPELLATE JURISDICTION
SECOND AMENDED SETTLEMENT AGREEMENT AND STIPULATION
This Second Amended Settlement Agreement and Stipulation (the "Settlement
Agreement"), entered into on the gm_ of June, 2003 ,August. 20 13, amends and supersedes
the Settlement Agreement and Stipulation entered' into on the 18th day of December, 2002, .as_
amended on 13th of .Tune. 2003 ("2003 Amended Settlement Agreement"). by and among the
State of Texas ("Texas"), the Office of the Attorney General ("OAG"), the Texas Department of
Insurance ("TDI"), including the Texas Commissioner of Insurance ("Commissioner") (hereafter
sometimes referred to collectively as the "State"), and defendants Fire Underwriters Association,
Farmers Group, Inc., individually and d/b/a Farmers Underwriters Association, Farmers
Insurance Exchange, Fire Insurance Exchange, Texas Farmers Insurance Company, Mid-Century
Insurance Company of Texas, Mid-Century Insurance Company, Farmers Texas County Mutual
Insurance Company, Truck Insurance Exchange, and Truck Underwriters Association (hereafter
sometimes referred to collectively as the "Farmers Parties"). The State and the Farmers Parties
(hereafter collectively the "Parties") agree as follows:
I. DEFINITIONS
For purposes of this Settlement Agreement, the following terms have the meanings
specified below:
"Administrative Proceeding" means the Notice of Public Hearing, Docket No.
XXX-XX-XXXX.D, To Consider Whether Commissioner's Emergency Cease and Desist Order No.
02-0844 Should Be Affirmed and Whether Disciplinary Action Should Be Taken Against
Farmers Insurance Exchange and Fire Insurance Exchange, which TDI issued on or about
September 18, 2002.
"AG Lawsuit" means Cause No. GV202501, The State of Texas and The Texas
Commissioner of Insurance v. Farmers Group, Inc., Farmers Underwriters Association, Fire
Underwriters Association, Farmers Insurance Exchange, and Fire Insurance Exchange, in the
261st Judicial District Court of Travis County, Texas, filed on or about August 5, 2002, and
including all amendments thereto.
"Agreed Discounts" means the discounts described in Section IV, Paragraph 3(b), below.
"Associations" means defendants Fire Underwriters Association and Farmers Group, Inc.
d/b/a Farmers Underwriters Association, acting as the Exchanges' attorneys in fact.
"Amended Order of Preliminary Approval" means an order substantiallv in the form
a_ttac_M_d~ Exhihi.tA
"Automobile insurance" means private passenger automobile insurance.
"Automobile Insurance Providers" means defendants Texas Farmers Insurance Company,
Mid-Century Insurance Company of Texas, Mid-Century Insurance Company, Farmers Texas
County Mutual Insurance Company, and Truck Insurance Exchange.
30491689.155935068 2
"Cease and Desist Order" means the Cease and Desist Order, No. 02-0844, which the
Commissioner signed and entered against the Exchanges, on or about August 13, 2002.
"Claim Form" means the form to be used by applicants for the Credit Usage Notice-
A.djustment Fund, attached as Exhibit E hereto and addressed in Section IV, Paragraph 4(b)
below.
"Commissioner" means the Texas Commissioner oflnsurance.
"Court" means the 26lst Judicial District Court of Travis County, Texas, in which the
AG Lawsuit was filed.
"Credit Period" shall have the meaning given it in Section IV, Paragraph 2, below.
"Credit 1. Jsa~e Noti ce.l:\Jllc:C.,~ll~tUJ1@Y~.JJ:u:;__J11CJJDJJJ,g,_~gj_:-z~lLitit.1_-4'ikQtiJJ1LlY~J)_ar__agraP.h-~4.__
.bs~l-02~
"Credit Usage Notice" means a notice of adverse action under the Fair Credit Reporting
Act.
"Effective Date" means the date by which all of the following have occurred: (i) an
Order of Preliminary Approval has been entered by the Court in the AG Lawsuit giving notice of
a hearing on the Settlement of the Settlement Classes' claims; (ii) the Court has approved the
Settlement in all respects; (iii) a Final Judgment as described below shall have been entered by
the Court and not vacated, stayed, or modified in any material way, upon appeal or otherwise;
and (iv) either the time to appeal or otherwise seek review of the Final Judgment has expired
without any appeal having been taken or review sought, or if an appeal is taken or review sought,
the expiration of five days after such an appeal or review shall have been finally determined by
the highest court before which appeal or review is sought and is not subject to further judicial
review.
"Exchanges" means Farmers Insurance Exchange and Fire Insurance Exchange.
"Exchanges Lawsuit" means Cause No. GN-203156, Farmers Insurance Exchange and
Fire Insurance Exchange v. Jose Montemayor, individually and in his capacity as Texas
Commissioner of Insurance, and Texas Department of Insurance, in the 353rd Judicial District
Court of Travis County, Texas.
"F ARA" means Farmers Auto Risk Assessment.
"FCRA" means the Fair Credit Reporting Act.
"Credit Usage Notice Adjustment~ shalllmv-e-46-1``-gtve.R--ii-i£-&e~,L,-­
P-afagr-apft-4,-hckctW-;
3049!689.155935068 2 - 2-
"}(Jf!el Action" means Be1zjamin Fogel v. Farmers Group. bx.. et al.. Case No. BC
3 0014 2. in the Superior Court for the State of California for the County of Los Angeles. in which
a final judgment was signed on December 21. 2011.
"FPRA" means Farmers Property Risk Assessment.
"Homeowners insurance" means and includes policies written on TDI-promulgated forms
described as HO-A (including TDP-1), HO-B (as defined in "Released Claims"), HO-B-CON,
and HO-B-T, and all endorsements, promulgated or approved, for use with such forms.
"IDA Eligibility" shall have the meaning given it in Section IV, Paragraph 3(a), below.
"Individualized Discount Adjustment" shall have the meaning given it in Section IV,
Paragraph 3, below.
"Final Judgment" means a final judgment to be rendered by the 26P1 Judicial District
Court of Travis County, Texas, substantially in the form attached as Exhibit K hereto.
"Mohhs Action" means In re Farmers Insurance Co. Inc FCRA Litig.. No.
CIV-03-158-F. including all cases consolidated or coordinated in MDL No. 1564. before the U.S.
District Court for the Western District of Oklahoma. in which a final judgment was entered on
September 29. 2011.
"MOU" means the Memorandum of Understanding between and among the Parties,
which was signed by authorized representatives of the Parties on November 30, 2002.
"Notice of Proposed Class Settlement" means the notice of this Settlement Agreement
and of the Settlement Hearing substantially in the form of Exhibit B hereto that is to be made
available to all persons in the Settlement Classes pursuant to Section III, Paragraph 7 below.
"OAG CIDs" means all Civil Investigative Demands that OAG has served on the
Released Parties-aftE! that are outstanding as of the date of this Settlement l . .greement. These
OAG CIDs are listed in the attached Exhibit N.
"Opt-Out Claimant" means a member of the Settlement Classes who submits a timely and
valid request for exclusion in accordance with the Amended Order of Preliminary Approval and
the Notice of Proposed Class Settlement, and who does not revoke that request for exclusion in
writing at least seven (7) days prior to the Settlement Hearing. Such requests for exclusion shall
apply to all of the Released Claims which a given Opt-Out Claimant has against the Released
Parties.
"Opt-Out Claims" means Released Claims that belong to Opt-Out Claimants. Opt-Out
Claims are not settled by this Settlement Agreement.
"Order of Preliminary Approval" means an order substantially in the form attached as
Exhibit A heretothe Order signed by the District Court on June 27. 2003. certifying the
Settlement Classes and preliminarily approving the 2003 Settlement Agreement.
30491689.155935068 2 - 3-
"Prospective Rate Reduction" shall have the meaning given it in Section IV, Paragraph 1,
below.
"Released Claims" means and includes, with respect to homeowners insurance offered or
sold by the Released Parties, all existing, known and unknovm claims and Unknown Claims,
demands and causes of action against the Released Parties, whether pending or threatened,
suspected or unsuspected, contingent or non-contingent, for all existing, known and unknown
damages and remedies that arise out of or relate to the acts and/or occurrences alleged in the AG
Lawsuit, or in the Cease and Desist Order or the Administrative Proceedings, or in the OAG
CIDs to the extent any such acts or occurrences took place prior to November 30, ``
including but not limited to issues concerning or related to a management fee or fees, the
placement of policyholders in a particular insuring entity, the age of home discount, the unfunded
catastrophe load, the decision to no longer offer HO-B policies (including HO-Protector Plus
(PTP), H0380 endorsement, TDP-2, TDP-3, DF-Builder's Risk, and HO-A with H0-170
endorsement (collectively referred to herein as "HO-B")), the offering of HO-A policies in place
of HO-B policies, territorial discounts, credit scoring, the use of the Farmers Property Risk
Assessment, or the rates that the Released Parties have charged for homeowners policies and
endorsements and all notices and statements that the Released Parties have made or issued in
connection with the above, including but not limited to the notices of non-renewal of the HO-B
policies and notices issued pursuant to the Fair Credit Reporting Act. The State's release of
claims against Texas Farmers Insurance Company related to credit scoring is expressly based on
Texas Farmers Insurance Company's representation that it Eleesdid not and has not used credit
scores, insurance scores, credit reports or any other method of calculating premiums based on
credit history until 2011. at which time it began using the credit model that is on file with TDI.
"Released Claims" also include any claims, demands, or causes of action to the effect that the
discounted rates adopted by the Exchanges from November 11, 2002, through and including
August 31, 2003, are unfair, unreasonable, discriminatory, misleading or excessive. With respect
to the automobile insurance offered or sold by the Released Parties, "Released Claims" includes
all existing claims, demands, and causes of action related only to the disclosure or nondisclosure
of consumer credit information or the disclosure or nondisclosure of the use or effect of using
consumer credit information, including claims under the Fair Credit Reporting Act. "Released
Claims" does not include individual claims or complaints about claims payments, handling or
processing pursued by individual claimants directly or such individual claims or complaints
about claims payments, handling or processing as may be pursued by TDI under Article 21.55,
Texas Insurance Code, which are identified in a schedule which has been provided by TDI to the
Farmers Parties. Remedies for any such scheduled claims or complaints, if pursued by the TDI,
shall be limited to the payment of interest under article 21.55, section 6,6 (now§ 542.060). of the
Texas Insurance Code (which interest is not part of the total value of this settlement), as the
result of non-compliance with that statute, and may not include fines or penalties or any other
relief, except relief may include corrective action respecting procedures. "Released Claims" also
does not include claims that have been asserted in Cause No. GV000271, State ofTexas v. Texas
Farmers Insurance Company, eta!., which is:w.a..s. pending in the 200th Judicial District Court of
Travis County, Texas, and which relates to betterment in the context of automobile insurance in
the Texas market-. and was dismissed in 2003.
30491689.155935068 2 - 4-
"Released Parties" means and includes Farmers Group, Inc., individually and d/b/a
Farmers Underwriters Association, Fire Underwriters Association, Farmers Insurance Exchange,
Fire Insurance Exchange, Texas Farmers Insurance Company, Mid-Century Insurance Company
of Texas, Mid-Century Insurance Company, Farmers Texas County Mutual Insurance Company,
Truck Insurance Exchange, and Truck Underwriters Association, as well as their affiliates,
officers, employees, agents, directors or governors, representatives, attorneys, predecessors,
successors and assigns.
"Releasing Parties" means and includes Texas, the OAG (both on behalf of Texas and,
subject to Court approval, the members of the Settlement Classes defined below), the TDI, and
the Commissioner.
"Retrospective Rate Reduction" shall have the meaning given it in Section IV, Paragraph
2, below.
"Settlement" shall have the meaning given it in Section II, below.
"Settlement Classes" means and includes (1) all of the Exchanges' Texas homeowners
insurance policyholders (a) whose homeowners insurance policy incepted (including renewals)
from December 28, 2001, through and including December 27, 2002, or (b) who received a
notice at any time after November 14, 2001, that their HO-B policy would not be renewed (the
"Rate Class"); (2) all of the Exchanges' Texas homeowners insurance policyholders who
according to Farmers records were eligible to receive discounts for FPRA, age of home, or
territory from November 16, 2000, through and including December 10, 2002 (the "Discount
Class"); and (3) all Texas homeowners or automobile insurance policyholders of the Exchanges
or the Automobile Insurance Providers who according to Farmers records were provided or
should have been provided a Credit Usage Notice from October 1, 1999, through February 28,
2003 (the "Credit Usage Notice Class").
"Settlement Class Members" means all members of the Settlement Classes except for
Opt-Out Claimants.
"Settlement Fund" shall have the meaning given it in Section IV, below.
"Settlement Hearing" means the hearing to be held before the District Court of Travis
County, Texas, to determine (a) whether this Settlement Agreement, including the Settlement
Fund and the attached exhibits, should be approved as fair, adequate and reasonable; and (b)
whether the Final Judgment should be entered.
"Summary Notice of Settlement" shall have the meaning given it in Section III, Paragraph
7, below.
"Unknown Claims" means any and all provisions. rights. and benefits conferred either (a)
by section 1542 of the California Civil Code. or Cb) by any federal law or law of any state or
territory of the United States. or by any principle of common law that is similar. comparable. OL
equivalent to section 1542 of the California Civil Code. with respect to the Claims released
pursuant to part II. B. Section 1542 of the California Civil Code reads:
30491689.155935068 2 - 5-
A_GENERAL RELEASE DOES NOT EXTEND TO CLAIMS
WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT
TO EXIST IN HIS OR HER FAVOR AT THE TIME OF
EXECUTING THE RELEASE. WHICH IF KNOWN BY HIM OR
HER MUST HAVE MATERIALLY AFFECTED HIS OR HER
SETTLEMENT WITH THE DEBTOR.
II. RECITALS
WHEREAS, on or about October 1, 1999, the FARA discount program was introduced in
Texas for the Farmers Parties' automobile policyholders;
WHEREAS, on or about November 16, 2000, the FPRA discount program was
introduced in Texas for the Farmers Parties' homeowners policyholders;
WHEREAS, on or about November 9, 2001, the Exchanges announced they would no
longer renew Texas HO-B homeowners policies;
WHEREAS, on or about November 14, 2001, the Exchanges began issuing notices of
non-renewal of HO-B policies to Texas HO-B homeowners insureds;
WHEREAS, on or about January, 2002, the TDI initiated a market conduct examination
ofthe Farmers Parties pursuant to article 1.15 of the Texas Insurance Code;
WHEREAS, on or about December 28, 2001, Fire Insurance Exchange began offering
Texas HO-A homeowners policies for former HO-B insureds;
WHEREAS, on or about March 20, 2002, Farmers Insurance Exchange began offering
Texas HO-A homeowners policies for former HO-B insureds;
WHEREAS, on or about August 5, 2002, the OAG, on behalf of Texas and the TDI,
brought the AG Lawsuit against the Farmers Parties;
WHEREAS, on or about August 13, 2002, the TDI brought an Application for
Emergency Cease and Desist Order against the Exchanges;
WHEREAS, on or about August 13, 2002, the Commissioner entered the Cease and
Desist Order against the Exchanges;
WHEREAS, on or about August 14, 2002, the TDI filed a Report to the Commissioner of
Insurance concerning the Exchanges;
WHEREAS, the OAG has served the "OAG CIDs" on the Released Parties;
WHEREAS, on or about August 30,2002, the Exchanges brought the Exchanges Lawsuit
against the Commissioner and TDI, appealing from the Cease and Desist Order and also seeking
a declaratory judgment that, inter alia, the Commissioner and TDI lack the authority to issue the
30491689.155935068 2 - 6-
Cease and Desist Order and to institute disciplinary action as outlined in the Report to the
Commissioner oflnsurance filed by TDI on or about August 14, 2002;
. WHEREAS, on or about September 18, 2002, the TDI commenced the Administrative
Proceedings against the Exchanges;
WHEREAS, on or about September 24, 2002, the Exchanges gave notice to their Texas
homeowners insureds that the Exchanges would not be offering coverage or renewing
homeowners insurance policies, with effective dates of such non-renewal action falling between
November 11, 2002 and November 10, 2003, and also notified their agents they would accept no
new business after November 11, 2002;
WHEREAS, on November 13, 2002, TDI agreed to extend the effective date ofthe Cease
and Desist Order for thirty days through December 10, 2002, to allow the Parties an opportunity
to negotiate a settlement of these matters and the Exchanges, in tum, agreed to continue offering
coverage and renewing homeowners insurance policies until December 10, 2002, with a base rate
reduction of 6.8% from the rate structure used in the period immediately prior to November
2002;
WHEREAS, after considering the benefits to be gained under the Settlement Agreement,
the risks associated with continuing to prosecute this complex and time-consuming litigation, the
likelihood of success on the merits of the litigation, the public interest in an efficient market for
homeowners and automobile insurance, the welfare of Texas' consumers, and to avoid further
expense and inconvenience, the State believes this Settlement Agreement is fair, adequate,
reasonable, and in the best interests of the Settlement Classes;
WHEREAS, the Farmers Parties, while denying each of the claims alleged herein and
further denying wrongdoing of any kind whatsoever, and without admitting liability, have agreed
to enter into the Settlement Agreement to avoid further expense, inconvenience, and the
distraction of a burdensome and lengthy litigation, and in order to be completely free of any
further controversy with respect to the Released Claims;
WHEREAS, the Parties have agreed that there should be a global settlement of all of the
Released Claims, as herein defined, and this document sets forth the terms of the Parties'
settlement agreement, which was reached after arms' length negotiations between the State and
the Farmers Parties (the "Settlement");
WHEREAS. the Court has certified the Settlement Classes and preliminarily approved
the 2003 Amended Settlement Agreement by order of June 27. 2003 ("Order"). which was
appealed to the Third Court of Appeals and the Texas Supreme Court. which affirmed the Order,__
and the case was ultimately remanded to this Comi on March 9. 201 0:
WHEREAS. upon its remand to the Court. this case was stayed pending the resolution of
certain nationwide class actions involving some of the claims made in the AG Lawsuit. including
the Fogel and Mobbs Actions. in which final judgments approving settlement agreements were
issued on Ss~ptember 29. 2011. and December 21. 2011. respectively:
30491689.15593~0682 - 7-
WHEREAS the passage of time caused by the lengthy appeal and the settlement
agreements in the Fogel and Mobbs Actions have necessitated certain limited changes to the
2003 Amended Settlement Agreement:
NOW THEREFORE IT IS AGREED by the Parties that subject to approval of the
Judicial District Court of Travis County, Texas, the AG Lawsuit, the Administrative Proceeding,
the Exchanges Lawsuit, and the other matters in Section IX below are conditionally settled, on
the following terms and conditions:
III. CERTIFICATION OF SETTLEMENT CLASSES
1. The Parties shall promptly and jointly submit this Settlement Agreement,
including the exhibits hereto, to the Court for preliminary approval.
2. The State •.viii seek~ought, and the Farmers Parties agreehave agreed to,
conditional certification of the Settlement Classes pursuant to this Settlement Agreement. which
the Court granted in its June 27. 2003 Order. The Farmers Parties do not agree to certification of
the Settlement Classes for any purpose other than to effectuate this Settlement Agreement. In the
event that the Court were not to approve and certify the Settlement Classes in all respects as
defined in this Settlement Agreement, (1) any stipulations and agreements made herein are null
and void and (2) it is understood that the Farmers Parties would challenge the certification of a
litigation class and nothing relating to this Settlement Agreement will be introduced into
evidence or used in any way to impede the exercise of that right.
3. The State shall file aan amended motion for preliminary approval that requests the
Court to enter an Amended Order of Preliminary Approval substantially in the form of Exhibit A
hereto.
4. The Parties agree that the Court may enter an order conditionally certifying the
Settlement Classes and appointing the State of Texas, through the Attorney General, as=
representative and counsel for the Settlement Classes.
5. If this Settlement Agreement is terminated pursuant to its terms, or if the Effective
Date does not occur for any reason, the conditional certification of the Settlement Classes shall
be vacated.
6. In additional proceedings before the Court (and before any appellate courts, if
necessary), the State shall continue to affirmatively present their support for certification of the
Settlement Classes and for final judicial approval of the Settlement Agreement.
7. Subject to the Court's prior preliminary approval of the Settlement Agreement
(including the exhibits hereto), the Farmers Parties shall assume responsibility for identifying,
locating, and providing a copy of the Notice of Proposed Class Settlement, substantially in the
form attached as Exhibit B hereto, to as many members of the Settlement Classes as is
reasonably practicable by means of a direct mailing to such Settlement Classes members' most
recent address in the Farmers Parties' records. In addition, the OAG, TDI and the Farmers
Parties shall disseminate a Summary Notice of Settlement, in the form attached hereto as Exhibit
30491689.15593SOii8 2 - 8-
C, by posting the Summary Notice of Settlement through their respective web-sites
(www.farmers.com, www.oag.state.tx.us, and www.tdi.state.tx.us). as well as at
www.TexasFarmersSettlement.com. beginning as soon as practicable after the Court's entry of
the Order of Preliminary Approval and continuing until the date of the Settlement Hearing. The
full Notice of Proposed Class Settlement also shall be made available through these
web siteswebsites over the same period of time. In order to avoid any confusion, no other
documents interpreting the Settlement Agreement or the Notice of Proposed Class Settlement, or
the provisions or effect of such documents, will be posted on the Parties' websites without prior
Court approval.
IV. SETTLEMENT FUND
In conjunction with the settlement of the Released Claims, the Released Parties agree to
create a settlement fund ("Settlement Fund") with the following components:
1. Prospective Rate Reduction. Subject in all respects to Paragraph 1(b) below, the
Exchanges agreeagreed (1) to reduce their HO-A primary contract homeowners insurance
(excluding endorsements) base rates in effect as of November 10, 2002 in the overall average
amount of 6.8%, based on a statewide average rate indication for all classes, effective as of
November 11, 2002 (the "Prospective Rate Reduction"), (2) to refrain from any increase in those
base rates that would take effect prior to midnight on August 31, 2003, provided, however, that
rates can be changed to include charges for any existing endorsement or any new endorsements
approved by TDI or for coverage changes requested by policyholders, and (3) for the period
December 11, 2002 through August 31, 2003, to adopt the Agreed Discounts described in
Section IV, Paragraph 3(b) hereof.
a. The reduction in premiums contemplated by the Prospective Rate
Reduction ·.vill bewas undertaken for all Texas policyholders who fefleWrenewed an
existing HO-A homeowners' insurance policy through the Exchanges or~ a
new policy.
b. It is understood and agreed to by the Parties that adopting the Agreed
Discounts as contemplated under this settlement will change each customer's rate even
though the 6.8% reduction is made to the base rate;
c. If legislation or regulation is hereafter enacted that has the effect of
requiring or compelling the Exchanges to implement a rate reduction or rollback, then:
(1) The Exchanges' obligation to issue or grant credits or refunds
under the Prospective Rate Reduction and, if the legislation or regulation is
retroactive, under the Retrospective Rate Reduction, will be reduced by the
amount of the rate reduction or rollback to customers mandated by such
legislation or regulation;
(2) In the event any such rate reduction or rollback is enacted or
adopted, the Exchanges' rates and rate structures on the day before the effective
30491689.155935068 2 - 9-
date of any such rate reduction or rollback shall be deemed to revert back to the
rates and rate structures in effect as of November 10, 2002. Under no
circumstances would such rate reduction or rollback be applied to the Exchanges'
rates in effect as the result of the Prospective Rate Reduction, the Retrospective
Rate Reduction, or any other term of this Settlement Agreement.
L1) This consideration was previously provided to the Class Members
pursuant to the Parties' agreement.
2. Retrospective Rate Reduction. In addition to the Prospective Rate Reduction,
for all Texas policyholders who were insured under an HO-A policy form issued by the
Exchanges at any time during the period commencing on December 28, 2001 up to and including
November 10, 2002 (the "Credit Period"), the Exchanges agree to fund a Retrospective Rate
Reduction in the amount of 6.8% of the base premium for the HO-A policy form earned by the
Exchanges during those policies' actual term ("Retrospective Rate Reduction").
a. For those Texas policyholders who were insured under an HO-A policy
form issued by the Exchanges during the Credit Period but such policy is no longer in
effect or is not renewed at the next renewal date after the 30th day following the Effective
Date, the Retrospective Rate Reduction shall be paid by means of a refund check based
on each individual HO-A policy's base rate premium earned with appropriate release
language in favor of the Released Parties as an endorsement. Refund checks in payment
of the Retrospective Rate Reduction will be processed and paid on the later of:
8-j Forty five (4 5) days after the end of the original annual term
covered by the policy in question, vmich schedule '>vill apply even if the policy is
terminated prior to the end of the policy period, or GB- +hirty!hil:!x
(30) days after the Effective Date.
b. For those Texas policyholders who were insured under an HO-A policy
form issued by the Exchanges during the Credit Period with coverage going forward
beyond the next renewal date after the 30th day following the Effective Date, the
Retrospective Rate Reduction shall be applied as either a credit or a refund check._at_
Farmers' election. Unearned policy premiums that may be returned to the policyholder
shall not include the credit-:---+he or refund. If a credit is used. the credit shall be applied
to the first premium notice for such HO-A policies renewed after the 30th day following
the Effective Date.
3. Individualized Discount Adjustment. In addition to the Prospective Rate
Reduction and Retrospective Rate Reduction described above, and with respect to Texas
homeowners insurance policyholders who did not receive the Agreed Discounts for FPRA, age of
home, and territory at any time during the period commencing November 16, 2000, continuing
through and including December 10, 2002, the day immediately preceding the adoption of the
Agreed Discounts described in Paragraph 3(b) below, the Exchanges agree to fund an
"Individualized Discount Adjustment" payment.
30491689.155935068 2 -10-
a. Payments to individual Texas homeowners insurance policyholders for the
Individualized Discount Adjustment shall be determined in the following fashion: The
Individualized Discount Adjustment payment for each Texas policyholder equals the
amount by which the premium actually charged for the Texas policyholder's policy
exceeded the premium which would have been charged if the Exchanges had adopted
discounts for FPRA, age of home, and territory elements at the Agreed Discounts on a
revenue neutral basis, rather than the lesser discounts which were actually adopted on a
revenue neutral basis (the "IDA Eligibility") as provided in Paragraph 3(b) below. In
calculating each policyholder's IDA Eligibility, if the aggregate of the three discount
factors (FPRA, age of home, or territory) results in a negative value for that individual,
then the Individual Discount Adjustment shall be considered a zero.
b. The Parties' actuaries have met and agreed on discounts for FPRA and age
of home, as well as territorial rate revisions, to be applied for purposes of the
Individualized Discount Adjustment and also to be applied to the same factors for the
period identified in Section IV, Paragraph 1 hereof (the "Agreed Discounts"). For
informational purposes, schedules setting forth the Agreed Discounts for the FPRA and
age of home discounts and the territorial rate revisions to be applied for purposes of the
Individualized Discount Adjustment are attached as Exhibits D-1 and D-3, and schedules
setting forth the Agreed Discounts for the FPRA and age of home discounts and the
territorial rate revisions to be applied commencing December 11, 2002, and continuing
through and including August 31,2003, are attached as Exhibits D-2 and D-3.
c. No Individualized Discount Adjustment benefits shall be paid or credited
prior to the Effective Date.
d. Credits and payment of the Individualized Discount Adjustment shall be
made in the same manner and at the same time as the Retrospective Rate Reduction listed
above.
e. Thirty (30) days after the final payment is made or credit provided under
this section dealing with the Individualized Discount Adjustment, the Released Parties
shall report to the OAG and TDI the amounts so paid and credited.
4. Credit Usage Notice Adjustment Fund. In addition to the Prospective Rate
Reduction, the Retrospective Rate Reduction, and the Individualized Discount Adjustment, the
Released Parties further agree initially to provide funds in the total amount of $3.0 million, but
will provide additional funds if necessary (hereafter the "Credit Usage Notice Adjustment
Fund"), for the purpose of reimbursing any overcharges that may have occurred to homeov.ners
or automobile insurance policyholders v.rhose policies Vlere issued by the Released Parties in
Texas and v.rho paid a premium for automobile or homeovmers insurance that would have been
less, but for erroneous credit information on the individual's credit history maintained at the
30491689.155935068 2 -11-
credit bureau which led toFund"). as well as certain non-cash benefits. to compensate eligible
.s.ettkJMn! Class Members who allege that adverse actions were taken by the Farmers Parties
without providing sufficient notice as required by the Fair Credit Reporting Act. 15 1J.S.C. §
1681 m. resulting in credit report inaccuracies going undetected and potentiallv resulting in FPRA
or FARA discounts lower than would have resulted from correct credit information or to
assignment to a company affiliated with the Farmers Parties having a higher premium structure.
a. Eligibility for the Credit Usage Notice i . .djustment Fund is limited to
individualsCredit Usage Notice Class Members who were issued an automobile or
homeowners insurance policy by one or more Released Parties during the time period
October 1, 1999, through February 28, ~2003: provided however. that any eligible
&lllement Class Member who mailed a timely claim form Cor on whose behalf such a
claim form was _submitted) pursuant to the settlement agreement in the Mobbs Action is
not eligible for any additional benefits. including cash payments. described in this
component (part IV.4) of the Settlement Agreement.
b. Submission of a completed Claim Form in the form attached hereto
as Exhibit E ("Claim Form"), postmarked by May 15, 2004, is a prerequisite to any
individual receiving a credit report code to obtain a free copy of his or her credit report
from Equifax and any payment from the Credit Usage Notice Adjustment Fund. Eligible
Settlement Class Members will have until 60 days after the Settlement Hearing to mail-in
the Claim Form. A timely submitted and completed Claim Form entitles the eligible
Settlement Class Member to access and review at no cost his or her individual credit
report as maintained bv Ecwifax. Inc. A Claim Form will be considered complete if it
provides all of the requested information except a policy number, policy effective date,
agent's name, and vehicle identification number, so long as the information provided is
sufficient to identify the claimant from the records of the Released Parties after a good
faith effort. Each eligible Settlement Class Member will receive only one Claim Form
with the Class Notice and is eligible to receive only one credit report code and one
payment as provided in paragraph (d) below.
e-; Any fee charged by a credit agency to a Released Parties'
policyholder in order to provide credit history information in connection herev.1th that is
not 'vvaived shall be paid from the Credit Usage Notice Adjustment Fund..c...Within 15
business days after the deadline to mail-in the Claim Form. each eligible Settlement Class
Member who timely completes and submits a Claim Form will be mailed a credit report
code and accompanying letter on how class members may use the credit report code to
review their individual credit report for accuracy. The credit repmi code will expire 30
davs from the date of mailing.
d. Settlement Class Members who use the credit report code and
review their credit reports will be given the opportunity to certifY online that they
reviewed their individual credit reports for accuracy within 45 days from the date of
mailing of the letter described in paragraph IV.4Cc) above. The certification will read as
follows: "I cetiify that I have reviewed my Equifax consumer credit report for errors and
inaccuracies." Each eligible Settlement Class Member who so certifies will be mailed a
30491689.155935068 2 -12-
check in the amount of thirty-five dollars ($35.00 US) within 60 days following receipt of
the Settlement Class Member's certification. assuming the Effective Date has passed .
.e._ Each eligible. Settlement Class Member who timelv submits a Claim F__illlll_
shall also receive an educational credit brochure. explaining the importance of accurate
credit reports and the Settlement Class Member's right to review his or her credit report
and dispute anv inaccuracies or errors contained in it.
i The Credit Usage Notice Adjustment Fund shall terminate on the later of
June 15, 2004, or 30180 days after the Effective Date. To the extent that there is a
remaining balance in the Credit Usage Notice i\:djustment Fund as of this termination
date, such remaining balance shall revert to the Released Parties.
eg. In agreeing to create the Credit Usage Notice Adjustment Fund, the Parties
agree that the Released Parties have denied that there have been any overcharges to Texas
policyholders as the result of erroneous FPRA or FARA assignments. The Parties further
agree that neither this Settlement Agreement, nor the MOU, nor anything stated herein or
in the MOU or in connection with the Settlement should be construed or interpreted as an
admission or evidence of any wrongdoing or liability by any of the Released Parties or of
any violation of state or federal law, including without limitation the Fair Credit
Reporting Act.
fo Payments fromh._ Within 30 days after the last payment is made under
the Credit Usage Notice Adjustment Fund shall be made by means of a refund check.
Refund checks in payment of the Credit Usage Notice l . . djustment Fund '.vill be processed
and paid on the later of:
fB Thirty (3 0) days after receipt of a completed Claim Form, or
E2j Thirty (30) days after the Effective Date. g:- On or before
August 15, 2004,Fund. the Released Parties shall provide a report to the OAG and TDI
which reflects the total number of Claim Forms submitted; the total dollar amount of
payments made to persons eligible to participate in the Credit Usage Notice Adjustment
Fund; the total number of persons who were mailed checks; and the total number and
dollar amount of negotiated checks.
fr. 1\s soon as possible after January 15, 2003, but no later thank ~
Parties acknowledge that as of February-2-8, 2003, Farmers has used the Forms attached
as Exhibits F. G. H. and I for new and renewed Texas homeowners and automobile
policies, the Released Parties shall replace the existing Credit Usage Notice with
appropriate notices in the forms attached hereto as Exhibits F, G, H and I. Each notice
must be in a minimum of 12 point type clearly marked as IMPORTi\NT INSURANCE
Il'JFORMATION. The teKt will be on a separate piece of paper than any other '>-Vriting
and the notice '.Vill not be attached to or incorporated into any other document. The
Parties further agree that Farmers can cease using these exemplar forms of notice thiriy
(30) days after they have submitted replacement notice forms for Farmers Texas
30491689.155915068 2 -13-
homeowners and automobile policies to TDI. provided that TDI does not object to the
replacement forms.
5. Payment or Credit of 100%. With regard to the Individualized Discount
Adjustment and the Credit Usage Notice Adjustment Fund, Released Parties have committed to a
payment or credit of 100% of any premium differential resulting from the adjustment process set
forth in Section IV, Paragraphs 3 and 4. It is not feasible to calculate in advance the amount, if
any, to be paid to each class member.ParagraplL3~ These calculations, which-will require
individualized calculations, will behave been made by Released Parties and will be reported to
the Office of the Attorney GeneralQAG and the Texas Department of InsuranceTDI, and will be
subject to verification by the Texas Department oflnsuranceTDI.
6. Unclaimed Funds. The cash components of the Settlement Fund shall be
evidenced by a check that shall be valid for not less than 120 days after issuance. Any such
checks that are uncashed, unclaimed, undeliverable, or not negotiated after 120 days from
issuance shall be subject to Texas Property Code§ 72.001 et seq.
7. Mailing of Checks. All checks to Settlement Class Members mailed under this
Settlement Agreement must be accompanied by a letter and release language in the form attached
as Exhibit J.
8. Attorneys' Fees and Investigative Costs. No later than 30 days after the
Effective Date, the Farmers Parties shall pay a total of $2 million to the State of Texas for its
attorneys' fees, expenses, and costs of investigation.
9. Estimated value. Based upon the Parties' assumptions and projections, the
estimated total value ofthe Settlement is $117,500,000.
10. Accounting Treatment for Settlement Fund Payments and Credits. All
amounts paid or credited to policyholders for the Retrospective Rate Reduction, the
Individualized Discount Adjustment, and the Credit Usage Notice ! ...djustment Fund components
shall be treated and accounted for by the Farmers Parties as a return of written premiums. The
Farmers Parties shall also prepare such amendments as necessary to their previously reported
statistical plan filings to reflect a reduction in direct written premiums for amounts paid for the
above ;;;referenced components.
V. RELEASE
On the Effective Date, the State, for itself and for the Settlement Class Members,
RELEASES, ACQUITS, and FOREVER DISCHARGES the Released Parties from all Released
Claims.
VI. FINAL JUDGMENT
At the Settlement Hearing, a Final Judgment, substantially in the form attached as Exhibit
K hereto, will be submitted to the Court, and entry requested. Among other things, the Final
Judgment directs that the Judicial District Court of Travis County, Texas, expressly retains
30491689.155935068 2 -14-
jurisdiction to enforce and modify the relief granted in the Final Judgment, including injunctive
relief, to the fullest extent allowed by Texas law. The Parties also specifically agree that the
venue for any dispute arising under this Settlement Agreement shall be in the District Court of
Travis County, Texas.
VII. OTHER CONSIDERATIONS REGARDING SETTLEMENT CLASSES
1. In the event that the Court were to alter or make any change in the Settlement
Classes or this Settlement Agreement (including the Settlement Fund) or to decline to approve
the Settlement Classes and this Settlement Agreement (including the Settlement Fund) in all
respects, any of the Parties to this Settlement Agreement shall have the right to terminate the
Settlement and this Settlement Agreement. In the event of such termination, no further payments
or credits will be made under the Settlement Fund and all releases and dismissals executed
hereunder will become null and void. In addition, the Exchanges' obligation to reduce HO A
policy form base rates under the Prospective Rate Reduction and to refrain from any increase in
those rates prior to midnight on A:ugust 31, 2003 (as described in Section IV, Paragraph 1,
hereof) '>vould immediately terminate and no longer be binding on the Exchanges.
2. Any person within the Settlement Classes as defined may request not to
participate as a member of the Settlement Classes, by submitting a timely request for exclusion in
accordance with the Amended Order of Preliminary Approval and the Notice of Proposed Class
Settlement. To be effective, any person requesting exclusion from the Settlement Classes must
submit a timely written request for exclusion. Such written request must contain all of the
information described in the discussion of Exclusion Requests that is contained in the Notice of
Proposed Class Settlement, and it must be sent to the address specified in the Notice of Proposed
Class Settlement, by first class mail, postmarked no later than thirty (30) days before the date
scheduled for the Settlement Hearing. Any person who submits such a timely written request and
who does not revoke that request for exclusion in writing at least seven (7) days prior to the
Settlement Hearing, is an Opt-Out Claimant. An Opt-Out Claimant thereby elects not to
participate in any benefits or payments under the Settlement Fund or this Settlement Agreement
and is deemed to have waived any and all claims to any part of the Settlement Fund.
3. A Settlement Classes member who does not opt out may submit objections, if any
to (a) certification of the Settlement Classes; (b) the terms of the Settlement Agreement,
including the exhibits hereto; or (c) the proposed form of Final Judgment. In order for any such
objection to be considered by the Court at the Settlement Hearing, the objection must (a) contain
all of the information described in the discussion of Objections that is contained in the Notice of
Proposed Class Settlement and (b) be sent to the addresses specified in the Notice of Proposed
Class Settlement, by first class U.S. mail, postmarked no later than the date specified by the
Court.
4. All Parties shall undertake to encourage participation of the putative class
members in the Settlement Classes. In the event that more than 2% of the policyholders eligible
to receive benefits from the Retrospective Rate Reduction or Individualized Discount
Adjustment portions of the Settlement Fund were to opt out of the Settlement Classes, any of the
30491689.155935068 2 -15-
Parties to this Settlement Agreement shall have the right to terminate the Settlement and this
Settlement Agreement.
.§..;- Any policyholder whose HO B policy was non rene'vved by Farmers Insurance
Exchange and who accepted an HO /'._ policy from Fire Insurance Exchange bet'.veen December
28, 2001 through and including March 20, 2002, upon request, vlill be offered an HO A.- policy
from Farmers Insurance Exchange, if they qualify.
VIII. NO ADMISSION OF LIABILITY
In entering into this Settlement Agreement, the Parties agree that the Released Parties
have denied, and continue to deny, any wrongdoing or liability with respect to the claims that
have been made in the AG Lawsuit, the Cease and Desist Order, the Administrative Proceedings
and the OAG CIDs, or that have been made or could have been made by or on behalf of the
Exchanges' individual policyholders in any other forum arising out of or relating to the subject
matters of the AG Lawsuit, the Cease and Desist Order, the Administrative Proceedings or the
OAG CIDs. The Parties further agree that neither this Settlement Agreement nor anything stated
herein or in connection with the Settlement should be construed or interpreted as an admission or
evidence of any wrongdoing or liability by any of the Released Parties. The Released Parties are
entering into this Settlement Agreement and the Settlement in order to avoid the further expense
and burden of protracted litigation.
IX. RELATED PROCEEDINGS
1. Dismissal With Prejudice of Administrative Proceeding, Setting Aside of
Cease and Desist Order, and Related Matters. TDI will request that the Administrative Law
Judge in the Administrative Proceeding dismiss with prejudice TDI's claims in the
Administrative Proceeding, substantially in the form attached hereto as Exhibit L, and the
Commissioner will enter a final order, substantially in the form attached as Exhibit M hereto, that
dismisses those claims with prejudice and that also provides (a) the findings of the
Commissioner in the Cease and Desist Order are set aside in their entirety; (b) the Cease and
Desist Order is set aside in its entirety; (c) the findings and order shall be of no further force and
effect whatsoever; and (d) neither the findings nor the order may be utilized as evidence of, or be
used or relied upon by any person in any proceeding as evidence of, any alleged violation of law
or breach of contract by the Released Parties. The State agrees that the Application for
Emergency Cease and Desist Order, dated August 13, 2002, by Karen A. L. Barratt
("Application") is of no further force and effect whatsoever, and neither the Application nor the
Order may be used as evidence of, or be used or relied upon by any person in any proceeding as
evidence of, any violation of law or breach of contract by the Released Parties. TDI also will set
aside in its entirety and with prejudice, substantially in the form contained in the Commissioner's
Order attached as Exhibit M hereto, the (1) the Report concerning Farmers Insurance Exchange
and Fire Insurance Exchange dated August 14, 2002, and (2) the "Notice of Report to
Commissioner; Alleged Violations by Farmers Insurance Exchange and Fire Insurance
Exchanges," dated August 14, 2002. The State agrees that, upon such setting aside, the Report is
of no further force and effect whatsoever; and that such Report may not be used as evidence of,
30491689.155935068.2 -16-
or be used or relied upon by any person in any proceeding as evidence of, any violation of law or
breach of contract by the Released Parties.
2. Termination of OAG CIDs. All OAG CIDs issued to the Released Parties
(listed in Exhibit N hereto) shall be withdrawn and all associated investigations as to the
Released Parties shall be terminated. The investigations associated with the time periods covered
by each CID are concluded and there will be no new investigations or CIDs for these time
periods. The Farmers Parties also will dismiss with prejudice their challenges that have been
filed in the district courts of Travis County to certain of the OAG CIDs, substantially in the form
ofthe example attached as Exhibit 0 hereto.
3. Termination of Market Conduct Examination. The market conduct
examination of the Exchanges commenced by TDI in January 2002 pursuant to article 1.15 (now
revised to Section 401.051 et. seq.) of the Texas Insurance Code, and all associated
investigations, shall be terminated and no new investigation will commence concerning Released
Claims. The market conduct examination report has never been finalized and shall be withdrawn
in its entirety and with prejudice, in the form attached as Exhibit M hereto, and shall not be used
in evidence of or relied upon by any person in any proceeding as evidence of any violation of law
or breach of contract by the Released Parties.
4. Dismissal With Prejudice of Exchanges' Lawsuit and Counterclaim. The
Exchanges agree that they will dismiss with prejudice the claims that the Exchanges made
against TDI and the Commissioner and Jose Montemayor, individually, in the Exchanges
Lawsuit, substantially in the form attached as Exhibit 0 hereto. The Farmers Parties also will
dismiss with prejudice their counterclaim in the AG Lawsuit, substantially in the form contained
in the Final Judgment attached as Exhibit K hereto. The dismissal of the Farmers Parties'
counterclaim in the AG Lawsuit shall have no effect on obligations set forth in the Protective
Orders entered therein regarding the Parties' continuing duties regarding confidential documents
or documents produced under seal or in camera.
5. Abatement Pending Effective Date. Upon execution of this Settlement
Agreement, counsel for the Parties in the legal proceedings referenced in this Section IX,
Paragraphs 1-4 above, will take all appropriate steps to stay or abate these~ matters that are the
subject of this _settlement Agreem~ until either (a) the Final Judgment entered in accord with
Section VI of this Settlement Agreement becomes final and no longer subject to appeal or
review, or (b) the Court refuses or declines to enter the Final Judgment in accord with this
Settlement Agreement, or (c) such a Final Judgment is reversed or vacated on appeal, or (d) it
becomes impossible for the Effective Date to occur for any reason. If the Effective Date occurs,
then the Parties agree that, within thirty (30) days after the Effective Date, they will take the
appropriate steps in the cases listed in this Section IX to enter the indicated dismissals with
prejudice.
6. Management feeFee. For the Released Parties and any other company or
reciprocal or inter-insurance exchange associated or affiliated with the Released Parties, and
regardless of whether such entity is or is not subject to rate regulation in Texas, TDI agrees
henceforward that it will not consider the management fee (profits or expenses) as a separate
30491689.155935068 2 -17-
element in its evaluation of such company's expense structure or consider such management fee
in the benchmark rate process generally, but may consider the over-all expense component of the
rate as it compares the companies' expenses with other agency distribution companies doing
business in Texas. This section does not preclude TDI from evaluating overall rate levels as
authorized by law.
X. OTHER PROVISIONS
1. Cooperation. It is the mutual intent of the Parties to consummate this Settlement
Agreement promptly. The Parties therefore agree to cooperate and to exercise their best efforts
to the extent necessary to effectuate and implement all of its terms and conditions as quickly as
possible. The OAG, TDI, and the Commissioner further agree to comply with all reasonable
requests for assistance that the Released Parties may make in order to give effect to the purposes
of the Settlement, including (without limitation) providing affidavits and/or testimony in
connection with any lawsuits, claims or demands that have been made or could have been made
by or on behalf of the Released Parties' policyholders in any forum arising out of or relating to
the subject matters of the AG Lawsuit (as amended), the Cease and Desist Order, or the
Administrative Proceedings. The intent and spirit of this Settlement Agreement is to terminate
all of the disputes arising out of and relating to the Released Claims, except as provided herein,
and to permit the Farmers Parties to continue to provide insurance in the Texas market. The
Parties agree to take all reasonable steps and exercise best efforts to achieve that goal. As an
initial step towards the restoration of a correct and constructive relationship between the
Released Parties and the TDI, the TDI agrees that should it have concern in the future about any
practice undertaken by the Released Parties, it will use its best efforts as authorized by statute to
contact the appropriate representative of the Released Parties to discuss and hopefully resolve
any such concerns. The Released Parties will use their best efforts to notify the TDI, in advance,
of any material changes in their course of conduct.
2. This Settlement Agreement and the Exhibits hereto constitute the entire agreement
among the Parties. All other agreements and understandings between the Parties, including the
MOU, are superseded by this Settlement Agreement.
3. This Settlement Agreement may be amended or modified only by a written
instrument signed by or on behalf of the Parties or their successors in interest.
4. Except as otherwise expressly provided in this Settlement Agreement, each Party
shall bear its own costs, including taxable court costs.
5. The undersigned each represent that he or she is fully authorized to execute this
Settlement Agreement on behalf of the Parties for which he or she signs.
6. This Settlement Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective agents, representatives, successors and assigns. This
Settlement Agreement can be signed in multiple counterparts.
30491689.155935068 2 -18-
THE STATE OF TEXAS, AND THE OFFICE OF
THE ATTORNEY GENERAL
By: JeffreyS. BoydDavid Mattax
Director of Defense Litigation
DeputyQffice of the Attorney General
TEXAS DEPARTMENT OF INSURANCE
JOSE MONTEMAYOR, INDIVIDUALLY AJ'JD
M.HJLIA J. RATHGEBER. COMMISSIONER,-
TEXAS DEPARTMENT OF INSURANCE
FARMERS INSURANCE EXCHANGE
FIRE INSURANCE EXCHANGE
30491689.155935068 2 -19-
FIRE UNDERWRITERS ASSOCIATION
FARMERS GROUP, INC., INDIVIDUALLY AND
D/B/A FARMERS UNDERWRITERS
ASSOCIATION
30491689.155935068 2 -20-
TEXAS FARMERS INSURANCE COMPANY
MID-CENTURY INSURANCE COMPANY OF
TEXAS
MID-CENTURY INSURANCE COMPANY
FARMERS TEXAS COUNTY MUTUAL
INSURANCE COMPANY
TRUCK INSURANCE EXCHANGE
TRUCK UNDERWRITERS ASSOCIATION
3049Hi89.15593~068 2 -21-
EXHIBIT 14
TO APPELLANT GRIGSON’S RESPONSE TO
APPELLEES’ JOINT MOTION TO DISMISS APPEAL FOR
LACK OF APPELLATE JURISDICTION
3/6/2015 2:43:03 PM
Velva L. Price
CAUSE NO. GV202501 District Clerk
Travis County
THE STATE OF TEXAS, THE TEXAS § IN THE DISTRICT COURT D-1-GV-02-002501
DEPARTMENT OF INSURANCE, AND THE §
TEXAS COMMISSIONER OF INSURANCE, §
§
Plaintiffs, §
v. §
§
FARMERS GROUP, INC., FARMERS §
UNDERWRITERS ASSOCIATION, FIRE §
UNDERWRITERS ASSOCIATION, FARMERS §
INSURANCE EXCHANGE, FIRE INSURANCE § OF TRAVIS COUNTY, TEXAS
EXCHANGE, TEXAS FARMERS INSURANCE §
COMPANY, MID-CENTURY INSURANCE §
COMPANY OF TEXAS, MID-CENTURY §
INSURANCE COMPANY, TRUCK §
INSURANCE EXCHANGE, TRUCK §
UNDERWRITERS ASSOCIATION and §
FARMERS TEXAS COUNTY MUTUAL §
INSURANCE COMPANY, §
§
Defendants. § 261ST JUDICIAL DISTRICT
STATE OF TEXAS AND FARMERS PARTIES’ JOINT MOTION FOR PRELIMINARY
APPROVAL OF SECOND AMENDED SETTLEMENT AGREEMENT AND
STIPULATION, SUPPLEMENT THERETO, AND CLASS NOTICE
JOSHUA GODBEY RICHARD N. CARRELL
Assistant Attorney General State Bar No. 03871000
JAMES R. WENZEL NORTON ROSE FULBRIGHT US LLP
Assistant Attorney General, Consumer 1301 McKinney, Suite 5100
Protection Division Houston, Texas 77010-3095
OFFICE OF THE ATTORNEY GENERAL OF Telephone: 713-651-5151
TEXAS Telecopier: 713-651-5246
P.O. Box 12548
209 West 14th Street M. SCOTT INCERTO
Austin, Texas 78711-2548 State Bar No. 10388950
NORTON ROSE FULBRIGHT US LLP
98 San Jacinto Blvd., Suite 1100
Austin, Texas 78701
Telephone: 512-474-5201
Telecopier: 512-536-4598
Marcy Hogan Greer
State Bar No. 08417650
ALEXANDER DUBOSE JEFFERSON & TOWNSEND LLP
515 Congress Ave., Suite 2350
Austin, Texas 78701
Telephone: 512-482-9300
Telecopier: 512-482-9303
TABLE OF CONTENTS
Page
OVERVIEW .................................................................................................................................. 1
BACKGROUND FACTS .............................................................................................................. 3
A. History of the State’s Claims ................................................................................. 3
B. Recovery for the Class Members ........................................................................... 7
C. The Court Conducts a Thorough Preliminary Hearing .......................................... 8
D. The Seven-Year Appeals Process Ultimately Vindicates the Attorney
General’s Authority ............................................................................................... 9
E. The Nationwide Class Action Settlements in Fogel and Mobbs ......................... 10
1. The Fogel Action—Management Fee Claims ......................................... 10
2. The Mobbs Action—FCRA Claims......................................................... 12
F. The Parties Update Their Settlement in 2013 ...................................................... 13
G. New Round of Objectors Enters Case in 2014 .................................................... 13
H. The Parties Heed the Court’s Questions .............................................................. 14
I. Mediation Results in Supplemented Settlement Agreement ............................... 15
EXPLANATION OF CHANGES TO SETTLEMENT AGREEMENT AND NOTICE ........... 16
I. Updates in Supplement to Second Amended Settlement Agreement .................. 16
A. Time Value of Money Addressed by $10 Million Increase in
Recovery to Class Members .................................................................... 17
B. Settlement in This Case Will Not Impact Claim in Pending Geter
Action ....................................................................................................... 17
C. “Management Fee” Provision Eliminated ............................................... 18
D. Any Perceived Conflict is Addressed ...................................................... 18
E. Updated Class Notice ............................................................................... 19
F. Other Updates in the Supplement ............................................................ 20
II. Updates Made in 2013 Second Amended Settlement Agreement ....................... 20
ARGUMENT AND AUTHORITIES .......................................................................................... 22
I. Preliminary Approval is the First of a Two-Step Approval Process ................... 22
II. The Proposed Settlement is Well Within the “Range of Possible
Approval” ............................................................................................................. 23
A. The Terms of the Second Amended Settlement Agreement and the
Supplement Track the Favorable Terms of the 2003 Settlement
Agreement and Also Add Favorable Terms ............................................ 25
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TABLE OF CONTENTS
(continued)
Page
B. The Bloyed Factors That Will Be Considered at the Ultimate
Fairness Hearing Counsel in Favor of Preliminary Approval ................. 26
1. There is no evidence of collusion ................................................ 27
2. The complex issues presented would undoubtedly result in
protracted litigation if not settled ................................................. 27
3. The facts and legal theories were sufficiently developed to
permit a proper analysis of the settlement terms ......................... 28
4. There is a significant chance that the State will be unable to
establish liability or damages ....................................................... 29
5. The Settlement Agreement actually exceeds the anticipated
recovery, considering the highly uncertain nature of
liability and the damages sought .................................................. 29
6. The opinions of experienced counsel confirm the fairness
of the settlement to the class members ........................................ 30
III. The Court Should Approve the Class Notice ....................................................... 31
CONCLUSION AND PRAYER ................................................................................................. 32
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OVERVIEW
On September 4, 2014, twelve years after the filing of this lawsuit, the Court asked the
parties and intervenors to “avoid any unnecessary costs, motions, hearings and procedural
machinations and let’s get to fairness quickly.” Ex. 3, Sept. 4, 2014 Hearing, Tr. 78:4-11. With
their supplemented settlement agreement (Exhibits 1 and 2) and this joint motion, that is exactly
what the State of Texas and Farmers seek to accomplish.
The Court, the parties, and even intervenors’ counsel have been here before. In 2003,
after an extensive hearing lasting four days, this Court preliminarily approved the parties’
landmark settlement in this case, one of the largest of its kind in Texas history, and certified
three subclasses for settlement purposes with the Attorney General representing these classes.
Then came a series of appeals that lasted almost a decade, which were ultimately resolved
against the intervenors and in favor of this Court’s original ruling. In the interim, nationwide
class actions in California (Fogel) and Oklahoma (Mobbs) raised and settled claims that entirely
disposed of a number of intervenors’ objections to the parties’ 2003 Settlement Agreement.
Following the resolution of Fogel and Mobbs, in 2013, the State and Farmers updated their 2003
Settlement Agreement and jointly moved for preliminary approval of the Second Amended
Settlement Agreement. 1 That update in 2013 was not a renegotiation of any terms but simply
reflected the parties’ voluntary implementation of all the prospective relief terms agreed to in
2003 and, where the passage of time had made the proposed claims process for the Credit Usage
1
The executed Supplement to the Second Amended Settlement Agreement is provided as Exhibit 1,
adding provisions to and substituting provisions in the Second Amended Settlement Agreement, which is
attached as Exhibit 2. The exhibits to the Second Amended Settlement Agreement that were changed to
conform to the Supplement are also attached to Exhibit 1 as Exhibits B (Proposed Class Notice), C
(Proposed Summary Notice), and E (Claim Form). These exhibits are substantively the same as Exhibits
B, C, and E to the Second Amended Settlement Agreement, but have been rewritten in “plain English” to
provide greater clarity.
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Class unworkable, the parties’ adoption of a recovery mechanism similar to the one approved by
the Oklahoma federal court in Mobbs.
The Court heard the previous joint motion for preliminary approval on April 29, 2014.
Several intervenors also filed objections and appeared at that hearing. No objections were raised
or concerns expressed regarding the changes made to the Second Amended Settlement
Agreement. The Court, however, identified three potential concerns regarding (1) the impact of
the passage of time on the settlement amount; (2) the effect of the settlement agreement on the
Geter case pending in another Texas court; and (3) the alleged tension between the Farmers
defendants. As a result, the Court declined at that time to preliminarily approve the Second
Amended Settlement Agreement and advised the parties to address those issues at the next
preliminary approval hearing. The Court also advised the parties and intervenors about the
benefit of mediation, which the State and Farmers took to heart, and all of the intervenors were
invited to participate. Indeed, the mediation resulted in an executed Supplement to the Second
Amended Settlement Agreement (Exhibit 1) that addresses each of the issues raised by the Court
at the April 2014 hearing. Additionally, other valuable concessions and enhancements have been
incorporated into the Supplement, including an agreement by Farmers to provide additional
consideration to the Settlement Class members and to remove the provision previously dealing
with the Texas Department of Insurance’s examination of the management fee, an agreement by
the Attorney General to forgo its $2 million in fees so those funds could be used to enhance the
benefits to the class, and an updated class notice that conforms to the newer, “plain English”
format.
Since 2003, the State and Farmers have been ready to reach a final settlement in this case
and compensate the Texas policyholders that make up the Settlement Classes. More than a
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decade of appeals and other proceedings have delayed that resolution. But the parties, with
guidance from the Court, have nonetheless worked to update their settlement to ensure that it
remains fair and beneficial to Texas policyholders. Because the Second Amended Settlement
Agreement and its Supplement are well within the range of possible approval, the State and
Farmers respectfully request that this Court grant preliminary approval of the Second Amended
Settlement Agreement and the Supplement and grant approval of class notice to Texas
policyholders.
BACKGROUND FACTS
This Motion brings forward the Joint Motion for Preliminary Approval of the Second
Amended Settlement Agreement that the parties previously filed on August 23, 2013, and is
meant to be comprehensive, covering the relevant background and information that the Court
needs to grant preliminary approval. As a result, it supersedes the 2013 joint motion.
A. History of the State’s Claims
Some context is necessary to fully understand the circumstances that gave rise to the
controversy and settlement in this case. As a result of a vast increase in claims for mold and
water damage in the late 1990s, rates for homeowners insurance across the State of Texas began
to rise. Farmers and other Texas insurers were offering homeowners policies under the HO-B
policy form that, at the time, was asserted by policyholders to provide coverage for mold and
water damage claims. 2 As the number of these claims under HO-B policies rose sharply, so did
HO-B rates.
2
The primary distinction between the HO-A and HO-B policies was the perception that the HO-B policy
covered mold damage and the HO-A policy did not provide that coverage. In late 2006, the Texas
Supreme Court concluded that the HO-B policy did not provide mold coverage. See Fiess v. State Farm
Lloyds, 202 S.W.3d 744, 753 (Tex. 2006).
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Because no insurer in Texas may offer a homeowners policy that has not been approved
by the Texas Department of Insurance (“TDI”), in November 2001, the homeowners insurance
industry asked for TDI’s approval to offer a new HO-A homeowners policy. Responding to the
growing crisis, TDI approved the new HO-A policy form that excluded coverage for most mold
and water damage claims. Farmers, like virtually all Texas insurers, ceased offering HO-B
policies and instead began offering its policyholders HO-A policies as the HO-B policies came
up for renewal.
In October 2001, the Office of Attorney General initiated a series of Civil Investigative
Demands (“CIDs”) directed to various Farmers entities on a variety of insurance practices and
alleged conduct in Texas. In addition to the numerous CIDs, TDI also conducted a Market
Conduct Examination beginning in January 2002, inquiring into many of the practices that later
formed the basis of the State’s suit against Farmers. In connection with these information
requests, the Farmers entities collectively produced to the State approximately 10,000 pages of
documents—many of which were proprietary and confidential—and engaged in a dialogue with
TDI about its concerns. TDI representatives were also allowed to go to Farmers’ regional office
to review documents and conduct computer searches.
On August 5, 2002, the State of Texas and the Commissioner of Insurance filed this suit
against Farmers Insurance Exchange, Fire Insurance Exchange, and Farmers Group, Inc., as well
as related entities, complaining of Farmers’ homeowners’ insurance practices in Texas and
seeking permanent injunctive relief and monetary “restoration” of alleged overpayments made
by insureds, as well as civil penalties and attorneys’ fees.
Within a week of filing the lawsuit, TDI’s staff prepared and presented to the
Commissioner an application for emergency cease and desist order, requesting the Commissioner
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to order Farmers Insurance Exchange and Fire Insurance Exchange to change their rate practices.
The Exchanges were given no prior notice and were not provided an opportunity to participate in
the ex parte process leading to the issuance of the cease and desist order on the same day. The
cease and desist order restricted the Exchanges’ rate practices—specifically requiring them to
cease and desist from increasing their rates and seeking to regulate the components of their new
rates—and threatened the Exchanges with civil penalties of $25,000 “for each act of violation”
of the order. The order compelled the Exchanges to alter their policy practices by imposing
significant conditions on all new or renewal policies that were to take effect in 90 days. Farmers
sought review of the order both through the administrative process and in the courts.
The principal challenge to Farmers homeowners’ practices was based on policyholder
complaints that the new HO-A forms provided less coverage—excluding mold and limiting
coverage for water damage—and charged excessive rates. Although, as noted above, the policy
forms were regulated and approved by TDI, the rates that the Exchanges charged were statutorily
exempt from TDI regulation at the time. See TEX. INS. CODE ANN. art. 19.12(a) (repealed).
While Farmers vigorously defended its actions and was confident of its legal position, it
risked losing its franchise in the struggle. Farmers was left with three difficult choices:
(i) withdraw from the Texas market; (ii) comply with, but continue to challenge, the cease and
desist order; or (iii) settle its differences with the State.
The Exchanges had already lost $1.3 billion in the Texas homeowners lines in the
approximate two-year period prior to this time. As the litigation and other tensions mounted,
Farmers made the reluctant decision on September 25, 2002, to announce its withdrawal from the
Texas homeowners’ insurance market. Although settlement communications continued
throughout this time period, no resolution was apparent.
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By early October 2002, the situation had become critical for Farmers. Several onerous
requirements under the cease and desist order were about to go into effect on November 6, 2002,
and would have significantly compromised Farmers’ ability to write homeowners’ insurance
without also jeopardizing its ability to meet obligations to other insureds. Acting at the request
of their constituents, two state senators attempted to bring the parties back to the negotiating
table. These discussions sparked renewed settlement efforts between the parties, and Farmers
and the State continued to engage in numerous, lengthy face-to-face settlement discussions in an
effort to reach a compromise. The parties continued their negotiations almost daily over the
course of the next few weeks and, through that process, exchanged more documents and
information. Over the Thanksgiving holiday, on November 30, 2002, they executed a
Memorandum of Understanding (“MOU”).
Based upon that MOU, the parties began to prepare a formal settlement agreement,
meeting on an almost daily basis to iron out the remaining details of the settlement. Several
weeks later, the original Settlement Agreement and Stipulation was executed. It provided that
the settlement would be effectuated through a class action so that (i) court approval would be
obtained to confirm the fairness of the agreement, (ii) the insureds would have both notice and an
opportunity either to object or to “vote” by opting out of the class, and (iii) Farmers would have
greater certainty and a “global resolution” of the pending matters. This change did not alter the
nature of the claims or the State’s representation of all Farmers policyholders statewide; it altered
only the procedural vehicle through which the global peace would be implemented. The
agreement also contained a bilateral “blow-up” provision allowing either the State or Farmers to
terminate the settlement if more than 2% of the insureds decided to opt out, meaning that if the
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settlement were rejected by a sufficient number of policyholders, the State also had the option to
terminate.
B. Recovery for the Class Members
The Settlement Agreement provided for three settlement classes, each of which would
receive a different form of compensation, although Farmers insureds could be members of more
than one class. The first class of Farmers’ insureds received a 6.8% premium abatement both
prospectively and retrospectively. Ex. 2 § IV(1) & (2). The Attorney General believed that
Farmers’ rates were approximately 12% too high and explained that Farmers would not have
paid more, and “given the vagaries of litigation,” he believed the settlement was fair and
adequate. Ex. 4, Ltr. of David C. Mattax to Joe K. Longley, Mar. 12, 2003 (“Mattax Letter”).
The members of the second class received full restitution for any discrepancies in their
premiums as a result of certain challenged discounts. Ex. 2 § IV(3). This recovery was designed
to resolve TDI’s challenge to the manner in which Farmers had instituted a series of discounts of
premiums for such things as age of home and location of home.
The third class, the Credit Usage Class, consisted of insureds who were alleged to have
failed to receive adequate notice that their credit reports might have adversely affected their
insurance premiums in violation of the Fair Credit Reporting Act (“FCRA”). Under the
settlement, a Credit Usage Fund was established, and these class members could receive full
restitution on a claims-made basis, but had to prove that their credit reports contained erroneous
information. Id. § IV(4). A prerequisite to any recovery from the fund was the policyholder’s
ability to retrieve a copy of his or her contemporaneous credit report, and with the passage of so
much time while the settlement has been stayed, this provision had to be changed. The third-
party credit agencies have indicated it is no longer possible to provide individual credit reports
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going back so far in time, and so this provision was amended, and remains so, in the Second
Amended Settlement Agreement and Supplement to match the recovery provided in the Mobbs
case, discussed below.
C. The Court Conducts a Thorough Preliminary Hearing
With their hard-fought settlement in hand, the State and Farmers requested the Court to
certify settlement classes and preliminarily approve the Settlement Agreement. But, before
preliminary approval, eleven law firms representing five policyholders—Jan Lubin, Gilberto
Villanueva, Michael Paladino, and Gerald and Lesly Hooks—intervened and submitted
objections to the settlement agreement. Their principal objections to the Settlement Agreement
involved: (i) suggestions of collusion; (ii) the authority of the Attorney General to bring and
settle the claims; (iii) the management fee component of the homeowners rates; (iv) the
policyholders’ claims under FCRA; and (v) Farmers’ withdrawal from the HO-B line of policies
in favor of offering the newly approved HO-A form of homeowners coverage. The Court
continued the hearing for four months, allowing the intervenors to conduct discovery on their
objections. Thousands of pages of documents—representing all contemporaneous
communications between the State and Farmers relating to this litigation—were exchanged. The
intervenors were also afforded the opportunity to take depositions and other forms of discovery
relating to the settlement. As a result, they were allowed to discover, in advance of the initial
hearing, precisely what transpired in the settlement negotiations.
From May 19 to 22, 2003, the Court conducted an unprecedented four-day evidentiary
hearing on preliminary approval and class certification. Prior to the hearing, hundreds of pages
of briefing were provided to the Court regarding the propriety of preliminarily approving the
settlement and certifying the settlement classes. At the hearing, the parties and intervenors
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examined numerous witnesses and proffered thousands of pages of exhibits. Professor Samuel
Issacharoff, a leading national class action expert, testified that the hearing was “the most
elaborate preliminary approval hearing I’ve ever been a part of.” The Court actively participated
in the hearing by questioning witnesses, and the intervenors were allowed full participation in the
proceeding.
At the conclusion of the 2003 hearing, the Court certified the settlement classes (with
some changes to class definitions based upon testimony at the hearing) and preliminarily
approved the Settlement Agreement, overruling each of the myriad objections raised by the
intervenors. Indeed, the Court found that there was “not . . . a scintilla of evidence of collusion.”
Ex. 5, 5 RR 48. In several pages of transcript, the Court also provided its reasons for
determining that the Attorney General of Texas was not only an appropriate and adequate, but a
vigorous and able, advocate for the interests of the Farmers’ policyholders. Id., 5 RR 45-58.
The intervenors appealed the certification order, obtaining a stay of class notice and further
settlement proceedings and commencing an appellate process that would last seven years. The
Court also imposed a stay of discovery at the outset of those appeals.
D. The Seven-Year Appeals Process Ultimately Vindicates the Attorney
General’s Authority
On appeal, the Austin Court of Appeals overturned the certification order. The State and
Farmers successfully sought review by the Texas Supreme Court, which unanimously upheld the
Attorney General’s authority to represent the Texas policyholders in this class action under the
Insurance Code. Farmers Grp., Inc. v. Lubin, 222 S.W.3d 417, 424-28 (Tex. 2007). 3 The
Supreme Court also explained, “While the opinions of class members are certainly relevant in
3
Justice Hecht concurred in part and dissented in part from the majority’s analysis, but agreed that the
Attorney General was statutorily authorized to bring and settle the claims.
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analyzing the settlement, their comments are generally solicited by notice and an opportunity to
be heard, not by turning over management of the class action to them.” Id. at 426.
The case was remanded to the court of appeals to address the remaining challenges to the
certification order. The court of appeals upheld the settlement classes against every other
challenge to certification and eventually remanded to this Court. See generally Lubin v. Farmers
Grp., Inc., No. 03-03-00374-CV, 2009 WL 3682602 (Tex. App.—Austin Nov. 6, 2009, no pet.).
E. The Nationwide Class Action Settlements in Fogel and Mobbs
While the Lubin case was on appeal through the Texas appellate system, nationwide class
actions progressed in California and Oklahoma. In particular, these class actions included the
same management fee and FCRA-related objections raised by the intervenors with regard to the
2003 Settlement Agreement. As discussed below, not only have the California and Oklahoma
actions been settled and dismissed with prejudice, so too have the claims and objections of nearly
all of the previous intervenors.
1. The Fogel Action—Management Fee Claims
A nationwide class action challenging the management fee charged by Farmers Group,
Inc. (“FGI”) 4 to Farmers Insurance Exchange, Fire Insurance Exchange, and Truck Insurance
Exchange (“Exchanges”) was filed in the Superior Court for the State of California for the
County of Los Angeles, styled Benjamin Fogel v. Farmers Group, Inc., et al., Case No. BC
300142 (“Fogel Action”). The Exchanges are reciprocals, sometimes referred to as inter-
insurance exchanges, created under California law. They are not corporations but, rather, a
different type of business entity through which individuals, partnerships, and corporations pool
4
Farmers Group, Inc. does business as Farmers Underwriters Association, and Fire Underwriters
Association and Truck Underwriters Association are its subsidiaries. These entities will be referred to
collectively as “FGI.”
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premiums to indemnify each other from loss. Pursuant to California law, the Exchanges are
managed by an attorney-in-fact, in this case FGI, in exchange for a percentage of premiums,
referred to as the management fee. See CAL. INS. CODE § 1305.
The Fogel Action, filed in August 2003 after preliminary approval of the 2003 Settlement
Agreement in this case, asserted that FGI’s management fee was excessive and brought claims
for breach of fiduciary duty, violation of California’s Unfair Competition Law, fraud, and deceit
against FGI. The same claims asserted in the Fogel Action were also pursued by Intervenor Jan
Lubin, and adopted by Intervenors Villanueva and Paladino, in intervening and objecting to the
2003 Settlement Agreement in this case. The overlap between the Fogel Action and this case
does not end there. Intervenor Lubin’s counsel and now counsel for current Intervenor Charles
Grigson, Joe Longley and Philip Maxwell, were also class counsel in Fogel.
After a vigorous contest in both the trial and appellate courts and following multiple
mediations over the course of a year, the parties in Fogel reached a substantial settlement where
FGI paid the entire amount of the settlement, around $50 million of which was attributable to
Texas policyholders’ claims. On December 21, 2011, the Fogel court signed the final judgment
approving the settlement agreement on behalf of a nationwide class. Class counsel in Fogel and
now Intervenor Grigson’s counsel, Longley and Maxwell, not only approved the Fogel
settlement as “fair, just, reasonable, and adequate” but also claimed attorneys’ fees in Fogel for
their work in this Texas case based on the overlapping nature of the two cases. Exs. 6, 7,
Declarations of J. Longley and P. Maxwell. And their current client, Grigson participated and
received compensation in Fogel.
Recognizing that same overlap between the nationwide Fogel class claims and the claims
in this case, Farmers agreed in the Fogel settlement that it would not assert the defenses of
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release, accord and satisfaction, estoppel, collateral estoppel (issue preclusion), res judicata
(claim preclusion), or any similar defense that is based on the Fogel settlement agreement or
final judgment to preclude any recovery under the Settlement Agreement in this case. As a
result, the Fogel class members in Texas may participate in, and do not need to opt out of, the
benefits provided by the Second Amended Settlement Agreement and Supplement even if they
were members of the class certified in Fogel.
2. The Mobbs Action—FCRA Claims
Another nationwide class was certified in In re: Farmers Insurance Co., Inc. FCRA
Litigation, Case No. CIV-03-158-F, including all cases consolidated and coordinated in MDL
No. 1564, before the United States District Court for the Western District of Oklahoma (“Mobbs
Action”). The claims in that case revolved around allegations that the Farmers defendants
violated FCRA by not providing sufficient adverse action notices as required under the federal
statute, and the class sought statutory damages as a result. On September 29, 2011, the Mobbs
court entered a final judgment approving a settlement agreement reached by the parties. The
claims settled and released on a nationwide basis in Mobbs paralleled the FCRA claims and
objections raised by some of the previous intervenors as to the proposed 2003 Settlement
Agreement in this case.
Except as to the class members who timely filed a completed claim form in Mobbs, the
Farmers Parties have agreed that they will not assert the defenses of release, accord and
satisfaction, estoppel, collateral estoppel (issue preclusion), res judicata (claim preclusion), or
any similar defense that is based on the Mobbs settlement agreement or final judgment to
preclude any recovery under the Settlement Agreement in this case. Those class members who
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filed a proof of claim may still receive the other (non-FCRA) benefits provided under the Second
Amended Settlement Agreement and Supplement if they are otherwise eligible to receive them.
F. The Parties Update Their Settlement in 2013
After the resolution of the Fogel and Mobbs Actions, the Farmers Parties reached
settlements with some of the remaining intervenors, including Jan Lubin, represented by Longley
and Maxwell. The parties then turned their attention back to the 2003 Settlement Agreement,
updating it to bring it current to 2013 (as explained below). The agreement’s terms otherwise
remained the same. On August 23, 2013, the State and Farmers jointly moved for preliminary
approval of and publicly filed their Second Amended Settlement Agreement.
At the time the parties jointly moved for preliminary approval in 2013, the only
intervention that remained in this case was of Intervenors Gerald and Lesly Hooks, who are also
members of a class in a separate matter, Sandra Geter v. Farmers Group, Inc., et al., No. E-
0167872, in the 172nd Judicial District Court of Jefferson County, Texas (“Geter Action”).
Although the Hooks filed their intervention just days before the 2003 preliminary approval
hearing, their counsel was present and given the opportunity to argue and question witnesses at
that hearing. See Ex. 8, 2 RR 126-27; Ex. 9, 3 RR 114-120. And, like the objections of other
previous intervenors, their objections were overruled by this Court in 2003. As discussed below,
the parties’ Supplement to the Second Amended Settlement Agreement resolves the Hooks’
stated objection related to the Geter Action.
G. New Round of Objectors Enters Case in 2014
Nine months passed between the August 2013 public filing of the Second Amended
Settlement Agreement and the scheduled preliminary approval hearing date of April 29, 2014.
Not until the eve of the hearing, April 28, did Charles Grigson file his intervention. Just two
56120560 - 13 -
weeks earlier, Michael Woods, proceeding pro se, had also filed a notice of intervention. 5 Their
interventions alleged that a conflict existed between the State and the policyholders it represents;
that a conflict existed between the Exchanges and FGI; that Farmers’ shared counsel of twelve
years was conflicted and should withdraw or be disqualified; and that the Court should
“decertify” and “start over.” Based on these objections, Grigson also moved to lift the stay on
discovery that the Court put in place in 2003. No intervenor claimed that the settlement
consideration was unfair or inadequate or outside the range of possible approval, and no
intervenor objected to any of the 2013 updates that the parties made in the Second Amended
Settlement Agreement. As this Court has noted, the objections that intervenors did assert were
either overruled by the Court in 2003 or raised by Grigson’s own counsel, Longley, in 2003 and
pursued no further in the intervening decade. See Ex. 10, Apr. 29, 2014 Hearing, Tr. 104; Ex. 3,
Sept. 4, 2014 Hearing, Tr. 43-46.
H. The Parties Heed the Court’s Questions
On April 29, 2014, the Court heard the parties’ 2013 joint motion for preliminary
approval. At the hearing, the Court informed the parties that it was “unprepared to approve” the
Second Amended Settlement Agreement at that time and instead raised several issues for the
parties to address at a future hearing:
• The time value of money in the settlement, given the passage of time;
• The settlement’s impact on the pending Geter Action, which has been
certified as a class and seeks declaratory relief only; and
• The alleged conflict between the Farmers Exchanges and Farmers Group, Inc.
5
The Velas also filed a notice in intervention around this time but they later moved for a non-suit on the
grounds that they lacked standing and the desire to intervene. The Velas’ intervention had sought to bring
their individual foundation and other claims that were not properly a part of this case.
56120560 - 14 -
See Ex. 10, Apr. 29, 2014 Hearing, Tr. 12:11-14, 25, 54-57, 75-77. Although not prepared to
grant preliminary approval, the Court advised the parties and intervenors that it had already
examined all of the class certification standards and granted certification in 2003; it did not want
to “redo” that. Id. at 104. The Court also encouraged the parties and intervenors to consider
mediation. Id. at 76-77.
I. Mediation Results in Supplemented Settlement Agreement
Once again, at the September 4, 2014, hearing on intervenors’ motion to lift the discovery
stay and Farmers’ motions to strike the interventions, the Court urged the parties and intervenors
to consider mediation to resolve the outstanding issues. Ex. 3, Sept. 4, 2014 Hearing, Tr. 73, 75-
78. The State thereafter initiated discussions with Farmers and intervenors about mediation. See
Ex. 11, Sept. 25, 2014 Ltr. from D. Mattax to Hon. Scott Jenkins. Although counsel for
Intervenor Grigson had initially asked to participate in settlement discussions, Grigson then filed
a Motion to Disqualify Counsel on September 19, 2014, 6 and thereafter refused to participate in
mediation. All other intervenors, together with the State and Farmers, agreed to participate in
mediation, which was conducted before former Judge Patrick Keel on December 1, 2014. As the
State informed the Court at the hearing on December 4, the mediation was fruitful and led to an
agreement in principle between the parties. A supplemented agreement was drafted, and on
March 4, 2015, these parties executed the Supplement to the Second Amended Settlement
Agreement (Exhibit 1). As discussed below, the Supplement addresses the issues raised by this
Court at the April 29, 2014 hearing. The parties are now ready to proceed with preliminary
approval and to issue notice to the class, and set a final fairness hearing.
6
The Motion to Disqualify was denied after a hearing on December 4, 2014.
56120560 - 15 -
EXPLANATION OF CHANGES TO SETTLEMENT AGREEMENT AND NOTICE
Since 2003, the parties’ settlement has undergone two updates. The first occurred in
2013 after the resolution of the Fogel Action in California, the Mobbs Action in Oklahoma, and
the previous intervenors’ objections in this case. Those updates produced the Second Amended
Settlement Agreement (Exhibit 2) and were spelled out in detail in the 2013 motion for
preliminary approval; they have never been challenged. The second set of updates arose out of
mediation and are contained in the Supplement to the Second Amended Settlement Agreement
(Exhibit 1). Like the Second Amended Settlement Agreement, the Supplement does not re-trade
the deal; it maintains much of the substance of the Second Amended Settlement Agreement and
thus the 2003 Settlement Agreement, 7 while responding to the issues raised by the Court at the
April 29, 2014 hearing. Because the changes in the Supplement address the issues raised by the
Court, these changes are described first, in Part I below. Thereafter, the uncontested changes
that were included in the Second Amended Settlement Agreement, which the parties previously
briefed, are highlighted for the sake of completeness in Part II.
I. Updates in Supplement to Second Amended Settlement Agreement
In the most recent round of updates, the parties have agreed to enhance significantly the
benefits to the Settlement Classes, notwithstanding: (1) the lack of any legal obligation either
under the Settlement Agreement or under Texas law; (2) delays caused mostly by intervenors’
failed appeals; and (3) the overall value of the legal claims in light of settlement carve-outs (i.e.,
Fogel, Mobbs, and now Geter) and a changed legal landscape. As the Supplement reflects, the
prospective rate abatement has previously been provided to the Rate Class, and the value of
7
In fact, the parties have been operating since 2003 in compliance with many of the terms of the original
2003 Settlement Agreement, including the prospective relief to the Rate Class, the revised FCRA notices,
and injunctive relief. See, e.g., Proposed Class Notice (Ex. 1-B).
56120560 - 16 -
undistributed benefits to the eligible Rate and Discount Class Members under the Settlement (not
including the already provided rate abatement) is $84.38 million. Ex. 1 § IV(9). In addition,
eligible Credit Usage Notice Class Members can apply to receive a payment of $35. Id.
A. Time Value of Money Addressed by $10 Million Increase in Recovery to
Class Members
To address the Court’s question regarding whether the settlement should be adjusted
given the passage of time, the parties negotiated an increase of $10 million in the payment to
class members as a result of the delay in effectuating the settlement from intervenors’ years of
appeals. 8 That consideration will be distributed on a proportionate basis to each Settlement
Class Member who will be receiving the Retrospective Rate Reduction component or the
Individualized Discount Adjustment component and will be based on the aggregate amount of
the two components received by the member. Ex. 1 § IV(11). This amount is not interest per se;
it is instead a figure that, considering all of the circumstances, the parties believe will fairly
compensate class members in light of the time that has passed in this case.
B. Settlement in This Case Will Not Impact Claim in Pending Geter Action
At the hearing on April 29, 2014, the Court correctly noted that the Geter Action “is not
about money” but is rather seeking declaratory relief only, without any claim of damages. Ex.
10, Apr. 29, 2014 Hearing, Tr. 55. The Court also expressed its view that the Geter Action
should be carved out of the parties’ settlement. Id. Considering the Court’s statements, as well
8
While Farmers does not agree that any interest or amount for the time value of money should legally or
fairly be assessed against it, Farmers has agreed to the additional consideration in the spirit of settling this
case and finally compensating policyholders. Ex. 1 § IV(11). This increase of $10 million includes an
additional $8 million contributed by Farmers and $2 million that Farmers originally agreed to pay to the
State in attorneys’ fees, but which the State has agreed to forgo for the benefit of the class. Although not
an issue raised by the Court previously, the parties’ Supplement changes the State’s attorneys’ fee to $0 in
order to enhance the recovery of the policyholders. Ex. 1 § IV(8). Thus, unlike private class actions,
where a large portion of the recovery is often paid to class counsel, in this case, all of the settlement
consideration is being paid directly to the class.
56120560 - 17 -
as the input received at mediation from counsel for the Hooks, who are class members in Geter,
the State and Farmers have agreed to exclude the declaratory-relief claim in the Geter Action
from the release of claims in the Second Amended Settlement Agreement in this case, as agreed
to in the Supplement. Ex. 1 § I. The Supplement also adds a new provision, precluding the
Farmers Parties from using the settlement here to argue that the Geter declaratory relief claim is
barred by the doctrines of res judicata, collateral estoppel, or release. Id. § IX(7). The parties
have also revised the Class Notice to reflect this update. Ex. 1-B at 6. Because this update fully
carves out the Geter declaratory relief claim that has been certified as a class action (but no other
claim) from the settlement’s release of claims, it fully addresses the Court’s previous concern
regarding the Geter Action.
C. “Management Fee” Provision Eliminated
The parties have agreed to remove the “Management Fee” provision that had appeared in
Section IX(6) of the Second Amended Settlement Agreement, Ex. 1 § IX(6), because current
laws regarding how rates are reviewed, which were not in effect at the time of the original
settlement, make this provision moot. This change eliminates the concerns raised by the Office
of Public Insurance Counsel or OPIC.
D. Any Perceived Conflict is Addressed
Any perceived conflict created by the funding of the settlement is addressed in the
Supplement. Farmers Group, Inc. will provide reimbursement to the Farmers Exchanges for the
attorney-in-fact fee related to those returned premiums paid to the Settlement Classes, including
the $10 million enhancement discussed above, in an amount to be determined by the Exchanges
according to their existing practices. Ex. 1 § IV(10).
56120560 - 18 -
Also, as the State explained to the Court at the December 4, 2014 hearing, the settlement
in this case will only effectuate a release in which the Plaintiffs (and the classes) release the
Farmers Defendants. Ex. 12, Dec. 4, 2014 Hearing, Tr. 64-65. Consistent with the parties’
original agreement in 2003, the Second Amended Settlement Agreement and Supplement do not
include any release between or among the Farmers Defendants.
Furthermore, the terms and conditions of the Supplement and Second Amended
Settlement Agreement have been approved by the Audit Committee of the Boards of Governors
of each of the Exchanges, 9 who have been advised by counsel separate from their litigation
counsel in this case. Ex. 13, D. Hohl Affidavit & Farmers Exchanges Audit Committee:
Certified Copy of Resolutions.
E. Updated Class Notice
Because the proposed class notice that the Court approved in 2003 needed more
substantial revisions to help communicate the reasons for the decade-long delay and what has
happened as a result to the class members, the parties updated the proposed notice in 2013. The
parties also updated the notice to inform the class members about the multiple other class actions
affecting their rights and to advise them of their options so that they can make informed
decisions. In the most recent updates, the parties have revised the notice to reflect the updates
made in the Supplement to the Second Amended Settlement Agreement and to again make the
class notice as clear and understandable as possible for the class members, taking into account
9
Each Exchange is governed by a Board of Governors that is independent from FGI. Exs. 14-16 at 3 §
III.2, Rules and Regulations of Farmers Exchanges. The Audit Committee of the Board of Governors is a
joint committee created by resolution of the three Boards of Governors of the Exchanges and is composed
only of Governors from the Exchanges’ Boards of Governors—meaning that none of its members is
affiliated with FGI or an attorney-in-fact either. Ex. 17 ¶¶ 3-4, Affidavit of R. Myhan. The Audit
Committee is specifically authorized to approve the settlement terms and conditions. Id. ¶ 5. Approval
from the Audit Committee confirms that the settlement reached has been considered and found to be in
the best interests of the Exchanges.
56120560 - 19 -
the complexities of an already complicated settlement whose implementation has been delayed
and impacted by other competing class actions. In addition, the proposed notice (both the “long-
form” version to be mailed to the Class Members and the summary notice) has been simplified
and translated into a “plain language” format that is recommended by the Federal Judicial
Center. The proposed class notice and summary notice are attached to Exhibit 1, as Exhibits B
and C.
F. Other Updates in the Supplement
The parties also agreed to the following additional updates in the Supplement. Additional
recitals have been added to Section II of the Second Amended Settlement Agreement. Exhibit 1
§ II. In addition to the changes discussed above, Paragraph 10 of Section IV has been updated,
deleting the reference to the “Credit Usage Notice Fund” component, to conform with the
recently clarified accounting requirements of FCRA. Id. § IV(10). Paragraph 1 of Section X has
been simplified in response to party and intervenor input given at the mediation. Id. § X(1).
Paragraphs 2, 7, and 8 have also been revised in or added to Section X. Id. §§ X(2), (7), (8).
The parties have also clarified and acknowledged that: the Court has approved and certified the
Settlement Classes as affirmed by the Texas appellate courts and as carried forward without
change in the Second Amended Settlement Agreement; the parties have satisfied the requirement
of seeking certification, as set forth in Paragraph 2 of Section III of the Second Amended
Settlement Agreement; and therefore the parties agree that the stipulations and agreements made
in that Agreement have not terminated and remain in effect. Id. § III.
II. Updates Made in 2013 Second Amended Settlement Agreement
The parties previously identified for the Court the limited ways in which the 2013 Second
Amended Settlement Agreement differed from the 2003 Settlement Agreement that the Court
56120560 - 20 -
preliminarily approved in 2003. None of those updates has been challenged by intervenors. For
purposes of completeness, the parties summarize the relevant aspects of the 2013 updates below
and adopt and incorporate by reference the State of Texas and Farmers Parties’ Joint Motion for
Preliminary Approval of Second Amended Settlement Agreement and Stipulation and Class
Notice, filed with the Court on August 23, 2013.
• FCRA Claims Process Update and Carve-Outs: Given the passage of time,
the Credit Usage Fund provision could no longer require individual credit
reports because those reports were no longer available. The provision was
therefore amended to match the recovery provided in the Mobbs Action. The
Settlement Agreement also carves out Mobbs class members (and similarly,
Fogel class members) from the Settlement’s release, unless they previously
filed a proof of claim in Mobbs. 10
• Updating of Terms: Some terms in the Settlement Agreement were brought
current because the events had already passed or circumstances had changed,
such as those surrounding the prospective relief and the retrospective rate
relief.
• FCRA Adverse Action Notices: Based on major developments in Texas
statutory law and U.S. Supreme Court precedent, the parties agreed that
Farmers could cease using the previously negotiated forms for the FCRA
adverse action notices once they have submitted replacement forms to TDI
and allowed for TDI objections.
• Injunctive Relief: Because Farmers has abided by the injunctive relief
relating to the State’s antitrust claims since the 2003 Settlement Agreement
was executed, the parties agreed that Farmers no longer needed to operate
under a consent order but will continue to comply with applicable antitrust
laws.
Because the Supplement addresses and alleviates each of the concerns raised by the Court
at the April 29, 2014, hearing and because the Second Amended Settlement Agreement, as
supplemented, continues to maintain the full substantive recovery (and more) to Texas
policyholders that was negotiated and preliminarily approved in 2003, the State and Farmers
10
Those class members who filed a proof of claim in Mobbs may still receive the other benefits provided
under the Settlement Agreement if they are otherwise eligible to receive them.
56120560 - 21 -
respectfully request that the Court grant preliminary approval of the Second Amended Settlement
Agreement and the Supplement so that notice can be provided to the class members.
ARGUMENT AND AUTHORITIES
I. Preliminary Approval is the First of a Two-Step Approval Process
Court approval is required before any action brought as a class action may be settled.
TEX. INS. CODE ANN. art. 21.21, § 18(g); TEX. R. CIV. P. 42(e). Courts generally look with favor
on the voluntary resolution of litigation through settlement, particularly so in the context of a
class action: “[C]lass action damage suits should be settled whenever possible, as soon as
possible.” In re Corrugated Container Antitrust Litig., 556 F. Supp. 1117, 1157 (S.D. Tex.
1982); see also In re Chicken Antitrust Litig., 669 F.2d 228, 238 (5th Cir. 1982) (noting that
public policy strongly favors pretrial settlement of class actions).
Approving a class action settlement as to a putative class is generally a multi-step
process. MOORE’S FEDERAL PRACTICE: MANUAL FOR COMPLEX LITIGATION (FOURTH) § 21.632
(2004) (“MANUAL FOR COMPLEX LITIGATION”). 11 Only the first step is to occur at the upcoming
hearing—preliminary approval of the proposed settlement. McAllen Med. Ctr., Inc. v. Cortez, 66
S.W.3d 227, 234 (Tex. 2001); O’Reilly v. Brodie, 975 S.W.2d 57, 59 & n.1 (Tex. App.—San
Antonio 1998, pet. denied).
Upon preliminary approval, the court directs that notice be given to class members before
proceeding with the second step of the process—a formal “fairness hearing” at which class
members can be heard regarding the settlement and at which evidence and argument concerning
the fairness, adequacy, and reasonableness of the settlement is presented. See MANUAL FOR
11
Although commercially published as part of the MOORE’S FEDERAL PRACTICE papers, the MANUAL
FOR COMPLEX LITIGATION is actually a manual prepared by the Federal Judicial Center, which compiles
the experiences and counsel of federal judges having expertise in complex case management issues.
56120560 - 22 -
COMPLEX LITIGATION § 21.632. 12 This notice will provide the class members an opportunity to
be heard at the final “fairness hearing” or to opt out of the classes. Those putative class members
who choose to opt out of the proposed settlement after preliminary approval will neither be
bound nor affected by the settlement that is later approved.
The fairness hearing is the final step in the approval process where the Court will
determine whether the settlement should be approved as fair, adequate, and reasonable, and
whether it should be certified for the class. E.g., Amchem Prods., Inc. v. Windsor, 521 U.S. 591,
619-20 (1997); Gen. Motors Corp. v. Bloyed, 916 S.W.2d 949, 954-55 (Tex. 1996).
II. The Proposed Settlement is Well Within the “Range of Possible Approval”
The issue currently before the Court is limited to the first step in the approval process.13
The preliminary approval stage constitutes an “initial evaluation” of the fairness of the proposed
settlement, which can be made by the Court on the basis of written submissions and informal
presentation from the settling parties. MANUAL FOR COMPLEX LITIGATION § 21.632, 321 and n.
976 (citing In re Amino Acid Lysine Antitrust Litig., MDL No. 1083, 1996 U.S. Dist. LEXIS
5308, *11 (N.D. Ill. Apr. 22, 1996)) (the first step of the process is the preliminary ascertainment
of whether the settlement appears to fall within the “range of possible approval”).
12
Professors Newburg and Conte suggest that the Court’s preliminary approval at this stage is not
required in order to send the notice, but certainly desirable to avoid a costly notification. See 4 ALBA
CONTE AND HERBERT NEWBERG, NEWBERG ON CLASS ACTIONS (“NEWBERG ON CLASS ACTIONS”)
§ 11.25 (4th ed. 2002) (“Because notice to the class, with its attendant expenses, and a hearing will be
futile gestures if the court feels that some of the settlement terms are unacceptable at the outset, the
parties are well advised to seek informally a preliminary court response in a pretrial conference that the
proposed settlement is within the range of possible judicial approval.”).
13
As noted by this Court, affirmed by the appellate courts, and acknowledged and agreed to by the
parties, this Court has already certified the Settlement Classes defined in the Second Amended Settlement
Agreement, so the Court need not revisit that issue, allowing it to focus on preliminary approval. See
Lubin, 2009 WL 3682602 (affirming this Court’s original certification order and finding that the
requirements for class certification had been met).
56120560 - 23 -
The nature of the decision at the preliminary step of the settlement approval process is
limited:
At this preliminary stage, the Court need only determine whether the settlement is
“within the range of possible approval.” Gautreaux v. Pierce, 690 F.2d 616, 621
n.3 (7th Cir. 1982). Preliminary approval does not require the district court to
answer the ultimate question of whether a proposed settlement is “fair,
reasonable, and adequate.” Armstrong v. Bd. of Sch. Dirs. Of Milwaukee, 616 F.2d
305, 314 (7th Cir. 1980). Rather, that determination is made only at the final
approval stage, after notice of the settlement has been provided to the class
members and they have had an opportunity to voice their views of the settlement
or to exclude themselves from the settlement.
City of Greenville v. Syngenta Crop Prot., Inc., No. 3:10-cv-188-JPG-PMF, 2012 U.S. Dist.
LEXIS 74305, *11-12 (S.D. Ill. May 30, 2012) (citing MANUAL FOR COMPLEX LITIGATION §
21.632); see also Bloyed, 916 S.W.2d at 954 (quoting 2 NEWBERG ON CLASS ACTIONS § 11.27 at
11-50 (3d ed. 1992), for the proposition that “‘[t]he actual class ruling is deferred in [settlement
class actions] until after the hearing on the settlement approval, following notice to the
class . . . .’”). “In other words, the preliminary certification of a settlement class action simply
means that the class action may proceed, and the certification does not address the fairness or
adequacy of a proposed settlement.” Lubin, 2009 WL 3682602, at *10.
The standard for approval—“[w]ithin the range of possible approval”—“is simply a
determination that there is, in effect, ‘probable cause’ to submit the proposal to members of the
class and to hold a full-scale hearing on its fairness, at which all interested parties will have an
opportunity to be heard and after which a formal finding on the fairness of the proposal will be
made.” In re Mid-Atlantic Toyota Antitrust Litig., 564 F. Supp. 1379, 1384 (D. Md. 1983); see
also Peters v. Blockbuster, Inc., 65 S.W.3d 295, 305 (Tex. App.—Beaumont 2001, no pet.)
(upholding trial court’s preliminary finding that certification requirements had been met and
finding that approval of the settlement agreement was not reviewable until after the fairness
56120560 - 24 -
hearing). The Court held that this standard was met in 2003, and the changes made in the
Second Amended Settlement Agreement provide no reason for coming to a different conclusion
now.
A. The Terms of the Second Amended Settlement Agreement and the
Supplement Track the Favorable Terms of the 2003 Settlement Agreement
and Also Add Favorable Terms
The Second Amended Settlement Agreement and the Supplement easily fall within “the
range of possible approval.” The updated agreement maintains the same significant concessions
negotiated in 2003, including: (1) a significant rate reduction for homeowners insured by the
Exchanges in Texas going forward—a rate reduction the Exchanges actually implemented in
2003; (2) a similarly significant, retrospective rate reduction for homeowners’ policyholders;
(3) a fund for individualized discount adjustments; and (4) a fund to compensate any insureds
whose credit reports contained adverse, but erroneous, credit information, without which the
insureds would have paid lower premiums. See generally Ex. 2 § IV; Ex. 1 § IV.
On top of those favorable terms, the recently executed Supplement includes additional
terms that will again significantly benefit class members: (1) the addition of $10 million by the
Farmers Defendants in consideration (which includes the elimination of the State’s $2 million in
attorneys’ fees and costs) to be proportionately distributed to class members; (2) a carve out of
the declaratory relief claim in the Geter Action from the settlement’s release of claims so that
eligible class members in Geter and in this case may pursue the defined relief in both cases; and
(3) the provision that FGI shall pay to the Exchanges a reimbursement of attorney-in-fact fees
related to returned premiums in an amount to be determined by the Exchanges.
The core terms of this settlement, including the certified Settlement Classes, have already
been vetted and approved in a detailed evidentiary hearing and the Court’s thorough, well-
56120560 - 25 -
reasoned ruling that has stood the test of the appellate process. Both this Court and the Austin
Court of Appeals found persuasive the fact that the Attorney General believed the settlement was
fair and adequate after a thorough and vigorously contested fight. See Lubin, 2009 WL 3682602,
at *7 n.9; see also Ex. 4, Mattax Letter. The Supplement does not alter any of the settlement’s
core terms; it instead seeks to address issues raised by this Court and to add to the favorable
terms of the original settlement. By executing the Second Amended Settlement Agreement and
the Supplement, the Attorney General and TDI continue to stand behind this settlement as being
in the best interests of the policyholders.
B. The Bloyed Factors That Will Be Considered at the Ultimate Fairness
Hearing Counsel in Favor of Preliminary Approval
In General Motors Corp. v. Bloyed, the Texas Supreme Court outlined six considerations,
known as the Ball factors, that are considered by a court in evaluating the fairness of a proposed
settlement: (1) whether the settlement was a product of fraud or collusion; (2) the complexity,
expense, and likely duration of the litigation; (3) the stage of the proceedings and amount of
discovery; (4) the factual and legal obstacles to prevailing on the merits; (5) the possible range of
recovery and the certainty of damages; and (6) the respective opinions of the participants,
including class counsel, class representatives, and the absent class members. 916 S.W.2d at 955
(citing Ball v. Farm & Home Sav. Ass’n, 747 S.W.2d 420, 423-24 (Tex. App.Fort Worth 1988,
writ denied)). The Ball/Bloyed factors remain the gold standard for settlement fairness review in
Texas today. See, e.g., Hall v. Pedernales Elec. Coop., Inc., 278 S.W.3d 536, 548-549 (Tex.
App.—Austin 2009, no pet.) (citing Bloyed, 916 S.W.2d at 955) (“The Texas Supreme Court has
provided six factors that a trial court must take into account when determining whether a
proposed class settlement is fair, adequate, and reasonable.”); Johnson v. Scott, 113 S.W.3d 366,
371 (Tex. App.—Beaumont 2003, pet. dism’d) (same); see also Rocker v. Centex Corp., 377
56120560 - 26 -
S.W.3d 907, 913 (Tex. App.—Dallas 2012, judgm't vacated pursuant to settlement by Rocker v.
Centex Corp., No. 12-0797, 2012 Tex. LEXIS 1015 (Tex. Nov. 30, 2012)) (same).
As discussed above, the standard for this hearing’s determination is whether the Second
Amended Settlement Agreement and Supplement are “within the range of possible approval.”
MANUAL FOR COMPLEX LITIGATION § 21.632, 321 and n. 976; City of Greenville, 2012 U.S.
Dist. LEXIS 74305 at *11—12.. Accordingly, the Ball/Bloyed factors are not applicable at this
time. Bloyed, 916 S.W.2d at 954. However, whether viewed through the lens of preliminary
approval or the ultimate fairness inquiry, the Settlement Agreement and Supplement are fair and
adequate.
1. There is no evidence of collusion
The settlement was the product of serious, arm’s-length negotiations between the State
and Farmers over an extended period of time after a great deal of discovery and conducted by
competent counsel. The Court has previously found that there was “not . . . a scintilla of
evidence of collusion.” Ex. 5, 5 RR 48. Not only that but the Supplement was a product of
mediation before an impartial third party, former Judge Patrick Keel, at the suggestion of this
Court. All intervenors (except Grigson, who refused to attend) accepted the parties’ open
invitation to participate in the mediation, and all who attended expressed satisfaction with the
additional recovery and accommodations in the Supplement.
2. The complex issues presented would undoubtedly result in protracted
litigation if not settled
The decade-long appellate process to determine issues relating to this settlement
agreement—itself the product of years of investigation and legal battles on multiple fronts—is
the best evidence of the complexity and uncertainty of litigating this complex of related cases to
conclusion. The vast and hotly contested discovery disputes related to the settlement agreement
56120560 - 27 -
are only a taste of what would follow if the merits were to be litigated. Not only is this litigation
unavoidably complex and inevitably protracted, but the practical stakes are enormous, with over
one million policyholders affected by the litigation.
By settling the litigation, the parties will conserve substantial time and expense if the
cases were to go forward, and the class members will receive relief much sooner than would be
possible with further drawn-out litigation. In fact, if this Settlement were not approved and
litigation were to continue, the policyholders may—and in Farmers’ view would—recover
nothing.
3. The facts and legal theories were sufficiently developed to permit a
proper analysis of the settlement terms
As the Court heard and considered in preliminarily approving the 2003 Settlement
Agreement, Farmers has produced thousands of pages of documents both formally and
informally to the State in connection with the CIDs, the Market Conduct Examination, and other
discovery requests. These documents included a number of highly confidential materials from
which the State could evaluate the strength of its case against Farmers. Further, the State
interviewed Farmers’ representatives both for further information in connection with the Market
Conduct Examination and in connection with the Settlement Agreement. The State had ample
information from which to make informed decisions about the strength of its claims. 14 The
Intervenors, including Intervenor Grigson’s current counsel, were also afforded substantial
opportunity for discovery during the 2003 preliminary approval process. Even now, with the
unusual benefit of twelve years of time to reflect on it, the State and the Attorney General have
14
The Court should consider the entire context of the parties’ controversy, especially when considering
that the State began its investigation—with the attendant powers to compel discovery—in late 2001.
Compare Bloyed, 916 S.W.2d 949 (case had been pending for nine months and trial court agreed that
sufficient discovery and case development had occurred to evaluate settlement).
56120560 - 28 -
reaffirmed the deal they made in 2003, believing it to be fully informed and in the best interests
of the policyholders.
4. There is a significant chance that the State will be unable to establish
liability or damages
As explained above, the settlement terms are generous; they should be considered even
more so when the Court weighs into the fairness equation the fact that it is highly questionable
whether either liability or damages could be established. First, there are serious questions as to a
number of critical issues, including: (i) whether the State has the authority to examine, regulate,
and/or enjoin the rate practices enumerated in the cease and desist Order and in the
administrative proceedings; (ii) whether Farmers made any misrepresentations to its insureds;
(iii) whether any policyholders relied to their detriment upon any alleged misrepresentations;
(iv) whether any action of Farmers was a producing cause of damages to any policyholder;
(v) whether any policyholders could prove damages (or at least damages in any significant
amount) as a result of an unlawful practice as opposed to universal changes in the marketplace;
and (vi) whether any cause of action for unfair discrimination lies under the facts alleged.
5. The Settlement Agreement actually exceeds the anticipated recovery,
considering the highly uncertain nature of liability and the damages
sought
In its review of the fairness of the proposed settlement, the Court has already considered
(i) the risks of establishing liability and damages, and (ii) the range of reasonableness of the
settlement in light of the best possible recovery and the attendant risks of litigation. In Re
Prudential Ins. Co. Am. Sales Practice Litig. Agent Actions, 148 F.3d 283, 317 (3d Cir. 1998).
The purpose of this inquiry is to balance the likelihood of success on the merits and the potential
damage award if the case were taken to trial against the benefits of an immediate settlement. Id.
at 319.
56120560 - 29 -
Here, Farmers believes that the issues of liability would likely have been disposed of as a
matter of law because the practices underlying the claims were not unlawful and that the
magnitude of the Settlement Agreement is attributable not to the legal or factual merit of the
claims, but rather to a confluence of myriad political, media, and litigation pressures that
threatened Farmers’ ability to remain in the Texas homeowners’ marketplace. The State agrees
that the benefits to the class members of the settlement exceeds the risks of continued litigation.
6. The opinions of experienced counsel confirm the fairness of the
settlement to the class members
Both representatives and counsel for the State and Farmers support the Second Amended
Settlement Agreement and Supplement as a fair and appropriate way to resolve what will
otherwise become protracted litigation. There does not appear to be any dispute that counsel for
both sides are experienced with complex litigation and in a position to evaluate the objective
fairness of the proposal. Further, counsel for the State prepared a detailed and comprehensive
evaluation of the strengths and weaknesses of the claims and issues, explaining why the State
supported the Settlement Agreement from the outset. See generally Ex. 4, Mattax Letter.
In sum, the Second Amended Settlement Agreement and Supplement that this Court is
asked to preliminarily approve are the result of the parties’ serious and arms’ length discussions,
and they continue to represent a number of hard-fought compromises that are designed to benefit
Farmers’ insureds in Texas. As the Court can see from the terms of the parties’ agreement, the
settlement falls easily within the range of possible approval as is necessary for notice to be
provided to Farmers’ insureds and for this litigation to proceed—at last—to a fairness hearing to
grant final approval and implement the settlement.
56120560 - 30 -
III. The Court Should Approve the Class Notice
The proposed order requires class notice to be disseminated via direct mail to the class
members’ most recent addresses in Farmers’ records. In addition, the State and Farmers will
disseminate a Summary Notice of Settlement in the form attached as Exhibit C to Exhibit 1, by
posting it on their respective websites—www.farmers.com, www.oag.state.tx.us,
www.tdi.state.tx.us, and www.TexasFarmersSettlement.com—beginning as soon as practicable
after the Court’s entry of the Order of Preliminary Approval and continuing through the date of
the fairness hearing. The Summary Notice will also be made available on the respective
websites, and the Settlement Agreement itself will be posted on TDI’s website. See, e.g., Peters,
65 S.W.3d at 308 (finding notice to be sufficient where it directed class members to website with
full copy of the settlement agreement and informed them of their right to opt out and the
consequences of not doing so). And, as part of the latest round of negotiations, both the Class
Notice and Summary Notice have been converted into a more modern, “plain language” format
and wording to make the terms of the Settlement more understandable to the Settlement Class
members.
The form of notice is reasonably calculated to apprise members of the Settlement Classes
of the terms and conditions of the Settlement Agreement, the background of the litigation and the
nature of these proceedings, the nature of the claims asserted and the proposed release, the
identity of class counsel, and the rights and responsibilities of class members. The notice need
only be the best notice practicable under the circumstances. Peters, 65 S.W.3d at 308 (“[T]he
notice must ‘contain information that a reasonable person would consider to be material in
making an informed, intelligent decision of whether to opt out or remain a member of the class
and be bound by the final judgment.’” (quoting In re Nissan Motor Corp. Antitrust Litig., 552
56120560 - 31 -
F.2d 1088, 1105 (5th Cir. 1977)); see also Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340,
355 n.22 (1978) (speaks favorably of the use of second-class mail to provide notice to class
members). It also affords sufficient time for the class members to prepare to appear at the final
approval hearing and present any objections to the Settlement Agreement they may have.
Finally, the notice fulfills the requirement of neutrality in class notices. See 3 NEWBERG ON
CLASS ACTIONS § 8.39. It summarizes the pertinent information in an informative and coherent
manner and makes clear that the settlement does not constitute an admission of liability by
Farmers. It further provides instruction about how to opt out of the class or raise objections at
the fairness hearing. Accordingly, the notice complies with the standards of fairness,
completeness, and neutrality required of a combined settlement-certification class notice
disseminated under the authority of the Court. Id. §§ 8.21 & 8.39.
CONCLUSION AND PRAYER
For these reasons, the State of Texas and the Farmers Parties jointly request that the
Court:
(1) grant preliminary approval of the Second Amended Settlement Agreement and
Supplement for the purpose of providing notice to the Settlement Classes of the terms of the
Second Amended Settlement Agreement and Supplement and the date of the fairness hearing
before the Court when a final determination of the adequacy and fairness of the Second
Amended Settlement Agreement and Supplement will be made;
(2) approve the notice to be sent to the class members; and
(3) grant such other and further relief to which the State and Farmers are entitled.
Dated: March 6, 2015.
56120560 - 32 -
Respectfully submitted,
OFFICE OF THE ATTORNEY GENERAL
OF TEXAS
Assistant Attome G eral
State Bar No. 24049996
JAMES R. WENZEL
Assistant Attorney General, Consumer
Protection Division
State Bar No. 21179370
P.O. Box 12548
209 West 14th Street
Austin, Texas 78711-2548
56120560 - 33-
IGI-lT US LLP
RI CI I/\R D . CARRELL
State Bar No . 0387 1000
1301 McKinney, Su ite 5100
Houston, Texas 770 I0- 3095
Te lephone: 7 13-65 1-515 I
Telecop ier: 7 13-651 -5246
M . SCOTT I CERTO
State Bar o. I 0388950
98 San .Jacinto Blvd ., Su ite II 00
Austin, Texas 7870 I
Te lephone: 5 12-474-520 I
Telecopier: 512-536-4598
ALEX/\ DER DUBOSE JEITERS0 1 &
TOWNSE ' 0 LLP
Marcy I logan Greer
State Bar No . 08417650
515 Congress !\ ve. , Suite 23 50
Austi n, Texas 7870 I
Telephone: 5 12-482-9300
Telecopier: 512-4 82 -9303
/\ttomcys for Defendants F ire Under·w riters
Association , Farmers Gr·oup, Inc., Fa r·mers
Undenvritcrs Association, Fanners Insurance
Excha nge, F'ire Insurance Exchange, Texas
Fa rmers Insurance C ompany, M id-Ccntur·y
Insur·ance Com pany of Texas , Mid-Century
In sura nce Compan y, F anners Texas County
M utual In suntnce Com pany, Truck
Insurance Excha nge, and T mck Underwriters
Association
56120560 - 34-
CERTIFICATE OF SERVICE
The undersigned hereby certifies that a true and correct copy of the above and foregoing
was served on the following counsel of record on this the 6th day of March, 2015, via certified
mail, return receipt requested, and via e-mail:
Joseph C. Blanks
P.O. Box 999
Doucette, TX 75942
blanxlex@gmail.com
Joe K. Longley
Philip K. Maxwell
1609 Shoal Creek Blvd. # 100
Austin, TX 78701
Michael J. Woods
8620 N. New Braunfels, Ste. 522
San Antonio, TX 78217
_______/s/ M. Scott Incerto_______
M. Scott Incerto
56120560 - 35 -
EXHIBIT 15
TO APPELLANT GRIGSON’S RESPONSE TO
APPELLEES’ JOINT MOTION TO DISMISS APPEAL FOR
LACK OF APPELLATE JURISDICTION
7/14/2015 www.search.txcourts.gov/SearchMedia.aspx?MediaVersionID=c6c99f3c­d903­42e2­b690­18de6704d196&coa=coa03&DT=Opinion&MediaID=8a6d891…
TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03­03­00374­CV
Jan Lubin, Gilberto Villanueva, and Michael Paladino, Appellants
v.
Farmers Group, Inc.; Farmer Underwriters Association; Fire Underwriters Association;
Farmers Insurance Exchange; Fire Insurance Exchange; Texas Farmers Insurance Company,
Mid­Century Insurance Company of Texas; Mid­Century Insurance
Company; et al, Appellees
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 261ST JUDICIAL DISTRICT
NO. GV202501, HONORABLE SCOTT H. JENKINS, JUDGE PRESIDING
O R D E R
PER CURIAM
Appellants seek an emergency stay of the sending of notices to the class preliminarily certified below by
the district court until this Court rules in this interlocutory appeal. Because the district court's preliminary
certification of a settlement­only class will cause immediate, significant and potentially irreparable
effects in this case and to prevent interference or impairment with this Court's jurisdiction or the
effectiveness of any appellate relief we may subsequently grant, the Order of Preliminary Approval,
signed by the district court on June 27, 2003, is hereby stayed in all respects until further order of this
Court.
It is ordered on this the 7th day of July, 2003.
http://www.search.txcourts.gov/SearchMedia.aspx?MediaVersionID=c6c99f3c­d903­42e2­b690­18de6704d196&coa=coa03&DT=Opinion&MediaID=8a6d8917­… 1/2
7/14/2015 www.search.txcourts.gov/SearchMedia.aspx?MediaVersionID=c6c99f3c­d903­42e2­b690­18de6704d196&coa=coa03&DT=Opinion&MediaID=8a6d891…
Before Justices B. A. Smith, Yeakel and Puryear
http://www.search.txcourts.gov/SearchMedia.aspx?MediaVersionID=c6c99f3c­d903­42e2­b690­18de6704d196&coa=coa03&DT=Opinion&MediaID=8a6d8917­… 2/2