On August 5th, Farmers Insurance announced a settlement of a nationwide class action in the District Court of Canadian County, Oklahoma, involving med-pay and PIP (personal injury protection) benefits under auto insurance policies. It was reported in a number of media sources, including the Insurance Journal. A class had been certified and the certification affirmed by the Oklahoma Court of Civil Appeals (see In re Farmers Med-Pay Litigation, 229 P.3d 551 (Okla. Civ. App. 2009)), with certiorari denied by the state supreme court.
This case involves a system whereby med-pay and PIP claims would be reviewed by Zurich Services Corporation (an affiliate of Farmers) for reasonableness. A computer database of charges for medical services was used, and a bill would be flagged as potentially unreasonable if it exceeded the 80th percentile for charges in the relevant geographic area. (This type of issue is fairly common in recent auto insurance class actions, see my prior blog posts on the Strawn v. Farmers decision by the Oregon Supreme Court, a new class action filing against Nationwide, and the Bemis v. Safeco decision by the Illinois Appellate Court.) While Farmers asserted that the database was used only as a guide and individual determinations would be made as to the reasonableness of the charges, the trial court had found evidence that individual determinations were not being made. The court of appeals found that the issue of what Farmers’ actual practices were was a “merits” issue not appropriate for decision at the class certification stage under Oklahoma law.
The key terms of the stipulation of settlement are: Class members (which include both insureds and medical providers) will be required to submit a notarized, detailed claim form asserting, among other things, that their claim was adjusted based on a recommended reduction from Zurich Services Corporation (I’m not sure how a typical insured would know that unless they received something explaining that). They will have 30 days from the final settlement hearing to submit the form. Class members who submit a valid form will receive essentially 60% of what they are claiming they are entitled to. The only notice of this settlement (other than to the named plaintiffs) is proposed to be by publication notice, on the grounds that Farmers does not have a list of people who were paid less on their claims because of a recommendation by Zurich Services Corporation, and the only type of list it could generate would be very overbroad in some respects and underinclusive in others. Attorneys’ fees are proposed at $6.5 million, without any explanation of how this compares to what the class is expected to receive.
I’m not going to try to assess the reasonableness of this proposal with the limited information I have, but the summary above should be helpful to readers of this blog who may want to gauge what plaintiffs’ attorneys in this kind of case will agree to in a settlement, after a class is certified and appellate courts have upheld certification. Some of the plaintiffs’ lawyers in this case have brought other prominent class actions against insurers.