Class action claims discriminatory rate pricing by Texas county mutual insurance companies

TEXARKANA, Texas -- In a class action seeking more than $5 million, several Texas county mutual insurance companies are accused of violating the anti-discrimination provisions of the Texas Insurance Code by charging consumers higher policy fees on similar automobile insurance.

On behalf of themselves and others similar situated, plaintiffs Toni Hollinger, Bertha Johnson, Fernando De Luna, Norma Holder, Sandra Duplant and Patricia Randolph filed a class action against Home State Mutual, Old American Mutual, Consumers Mutual, Southern Mutual and 26 re-insurer companies on Aug. 17 in the Texarkana Division of the Eastern District of Texas.

The lawsuit alleges that the defendants charged some consumers higher policy fees for automobile insurance than they charged others of the same class and hazard.

Texas county mutual insurance companies sell automobile insurance and are loosely regulated by the Texas Department of Insurance. According to the class action, compared to ordinary insurance companies, county mutual insurance companies are able to insure risks greater in relation to their capital and paid-in surplus as long as those risks are re-insured.

"Ownership of a county mutual insurance company is, therefore, a very valuable asset, especially since the state of Texas has not agreed to charter a new one for over half a century," the complaint states.

The plaintiffs allege that the companies changed from genuine insurance companies that were owned by their policyholders, into "simple fronts" for other entities to sell automobile insurance without regulations to "desperate and usually unsophisticated clientele."

The defendants' "fronts" are managing general agents, property and casualty insurance agents and other insurance companies, the suit claims.

According to the allegations,the degeneration of the county mutuals is a result of the companies not being limited by their capital and surplus requirements in the amount of risk they can write, the nearly unregulated yet high demand market and the small number of companies.

Within the non-standard automobile insurance program, companies such as the defendants issue policies and then reinsure the risk.

The plaintiffs believe the defendants are violating the anti-discrimination provision of the Texas Insurance Code as a result of using multiple re-insurers and granting those companies discretionary authority.

The defendants delegate the authority to underwrite policies, pay claims, bind policies and collect premiums to the re-insurers. As a result, the plaintiffs allege that the county mutual insurance companies charge whatever policy fees are set by the agent and these fees differ from agent to agent even though the terms are the same and the consumer is of the same class and hazard.

"There is no actual justification for the differences," the plaintiffs maintain.

The defendants are accused of knowing that these policy fees vary depending on which agent is selling the policy or whether the policy is sold directly to consumers and are thus committing price-discriminatory practices.

The plaintiffs argue that they are suffering price discrimination and actual damages.

The proposed class will include all persons who purchased automobile insurance policies in Texas from Home State County Mutual Insurance, Old American Mutual Fire Insurance, Consumers County Mutual Insurance, Southern County Mutual Insurance and those policies were in effect on or after Aug. 17, 2008.

Questions of law include "whether the defendants have engaged in unfair price discrimination between individuals of the same class and of essentially the same hazard, what individuals are of the same class, what individuals are of essentially the same hazard, whether a defendant's price discrimination is based upon sound actuarial principles, and whether the price discrimination was done knowingly."

Arguing they are suffering price discrimination and actual damages, the proposed class is seeking damages that "vastly exceed" $5 million.

Houston attorneys Scott M. Clearman and Brian D. Walsh of The Clearman Law Firm

PLLC, Fort Worth attorneys Frank E. Goodrich and Dallas attorney Alan B. Rich are representing the proposed class.

U.S. District Judge David Folsom will preside over the litigation.

Case No 5:09cv00118