Zurich Financial Services Group said its subsidiary, Farmers Group has agreed in principle to a $545 million settlement of a class action lawsuit that had accused the insurance group of overcharging for fees paid by the Farmers Exchanges.
According to Zurich, it will expect a charge of about $295 million from the settlement to be reflected in third-quarter net earnings, to be released on Nov. 4.
The agreement settles Fogel vs. Farmers Group Inc., a nationwide class action pending in Los Angeles Superior Court.
In a conference call, Zurich Financial Services Chief Executive Officer Martin Senn said the case is not about premiums paid by Farmers customers, but about management services fees paid by the Farmers Exchanges to the Farmers Group.
Mr. Senn said the company rejects that these fees are unreasonable, but chose to settle the class action lawsuit to avoid the expenses associated with litigation and the logistics involved in defending itself against allegations from claims filed up to a decade ago.
"We wanted to settle the case to reduce damaging our reputation and business," he added. He said the settlement will have no effect on Farmers' business.
The proposed settlement agreement resolves all claims dating back to 1999, including those within the lawsuit filed in August 2003. Under the terms, $455 million will potentially go to 13 million policyholders who may qualify for a payment under the settlement. This averages to about $35 per class member, Zurich said.
Up to $90 million will pay plaintiffs' attorney fees, the company said. Plaintiffs agreed to drop all claims against Farmers Group and Zurich.
Mr. Senn said that to "put to rest" issues brought up in the lawsuit, Zurich has launched new initiatives to educate Exchange policyholders and Farmers agents about the agreement between Farmers and the Exchange.
Story updated to show Martin Senn as CEO of Zurich Financial Services, not Farmers.