Texas Policyholders Win $52 Million Settlement After Farmers Insurance Charged Loyal Customers More Than New Ones

For years, Farmers Group Inc. sold auto insurance in Texas under two books of business. The older book, Farmers Auto 2.0 (FA2), was the only product available in the state until 2016, when Farmers introduced a new product called Farmers Smart Plan Auto (FSPA). The new product offered coverage that was essentially the same as FA2 but at materially lower rates. The catch: FSPA was open only to new customers. Existing FA2 policyholders were not informed that a cheaper option existed, and they were not offered the chance to switch.

In February 2017, Charles Grigson and Robert Vale filed a class action complaint in the U.S. District Court for the Western District of Texas, Austin Division (Case No. 1:17-cv-00088), alleging that Farmers Group had systematically charged loyal customers more than new customers for the same coverage in violation of the Texas Insurance Code. The plaintiffs sought to represent all Texas FA2 policyholders who had been paying the higher rates while a less expensive product sat just out of reach.

Farmers moved to dismiss, arguing that the filed-rate doctrine shielded its pricing decisions because both rate sets had been submitted to state regulators. Judge Lee Yeakel allowed the case to proceed. The parties then undertook discovery and eventually entered mediation with Deborah Hankinson, a former justice of the Texas Supreme Court. The mediation was extensive, spanning five in-person sessions and numerous telephone conferences before the parties reached agreement.

Michael L. Slack and John R. Davis of Slack Davis Sanger LLP in Austin, together with Paula Knippa, Joe K. Longley, and Roger N. Heller and Jonathan D. Selbin of Lieff Cabraser Heimann and Bernstein LLP, represented the plaintiff class.

Judge Yeakel granted preliminary approval on December 16, 2019. The settlement fund totaled $52 million, with approximately $40 million allocated for distribution to class members, roughly $11.5 million for attorney fees, and $500,000 for litigation costs. Final fairness approval came in 2020, and distribution of awards was substantially complete by mid-year. The class covered approximately 700,000 Texas FA2 policyholders. No post-settlement reduction or appeal has been reported in publicly available coverage.