Is Farmers Insurance Discriminating Against Auto Insurance Policy Holders in Texas?
Lawsuit Claims Farmers Group, Inc. Illegally Overcharged Certain Policyholders for Auto Insurance
On February 8, 2017, Slack Davis Sanger, along with the Law Offices of Joe K. Longley and Lieff Cabraser Heimann & Bernstein, filed a class action lawsuit in the U.S. District Court for the Western District of Texas, Austin Division, against Farmers Insurance (Farmers), alleging that the auto insurer is unfairly and illegally discriminating against its existing auto insurance policy holders by intentionally offering lower premium auto policies to new customers only.
The suit alleges that as many as one million existing Farmers customers in Texas have sustained monetary damages as a result of the discriminatory scheme employed by Farmers. The scheme penalized their loyal customer base by knowingly and deliberately failing to include existing auto policy holders in a less expensive auto insurance program called “Smart Auto.” This policy was only extended to new customers.
The lawsuit alleges that Farmers illegally discriminates against existing policyholders and in favor of new customers by maintaining such policyholders in “two [separate] books” of business. The discriminatory scheme took effect in early 2016 when Farmers launched a new “Smart Auto” policy in Texas with much lower rates than Farmers’ existing auto (“FA2”) policies.
This setup has allowed Farmers to charge existing policyholders more than new policyholders with no legitimate, actuarial purpose, which is illegal under the Texas Insurance Code. Texas law prevents discrimination against individuals of essentially the same insurance risk. Farmers hopes to offer the deeply discounted Smart Auto rates as bait to attract customers from competing insurers but does not want to offer the same deal to its existing policyholders.
Instrumental to this scheme was that Farmers agents not disclose Smart Auto’s deeply discounted rates compared to those offered to existing policyholders. The Complaint alleges that Farmers intimidated agents with threats of reduced compensation, and even termination, if they disclosed the existence of Smart Auto to their existing policyholders. As a result, this created an ethical dilemma for Farmers agents across Texas. Each Farmers agent in Texas was forced to make the unwelcome choice of offering their policyholders the same coverages at a better rate and risking retaliation, or maximizing their own compensation from Farmers.
And indeed, the savings can be huge. Named Plaintiffs Charles Grigson and Robert Vale are among the lucky few existing policyholders who have managed to switch to Smart Auto. They saved 20% and 26%, respectively, by switching.
Farmers has a long history of engaging in conduct designed to maximize profits at the expense of its Texas policyholders. The State of Texas recently won approval of an $84 million settlement alleging that Farmers charged excessive premiums to Texas homeowners. Another case alleging that Farmers collected exorbitant management fees resulted in a whopping $500 million nationwide settlement—which included Texas.
The case is Grigson et al. v. Farmers Group, Inc., No. 1:17-cv-00088 (W.D. Tex. filed Feb. 8, 2017).
If you believe you may have been impacted, or if you have questions about the lawsuit, visit our FAQ page for more information.