Class-action lawsuit for breach of policy settled with Farmers

In January 2004, attorneys for Tucson resident Paul Schwam filed a class-action lawsuit against Farmers Insurance claiming a business practice enacted in 2001 was a breach of Schwam's policy and policies owned by certain other customers who made claims for medical expense coverage.

After he was the victim of a rear-end collision, Schwam learned Farmers Insurance only paid his doctors and other health-care providers at PPO levels even though he wasn't a PPO member, said Todd Jackson, one of Schwam's attorneys.

The plaintiffs' attorneys argued the company acted in "bad faith" between 2001, when the practice began, and August 2004, when the practice ended, Jackson said.

After years of battling in court, attorneys on both sides of the case decided to settle in March, and Judge Stephen Villarreal signed off on the settlement Wednesday.

According to court documents, Farmers has agreed to pay the plaintiffs a lump sum of $3 million. The plaintiffs' attorneys will receive $1.3 million of that amount in attorneys fees, plus an additional $394,000 for the cost of the litigation.

In addition, Schwam will receive $100,000 as an "incentive award."

One of Schwam's attorneys, Bruce MacDonald, told the judge Schwam was entitled to the incentive award because he spent thousands of hours with the attorneys on the case, sat through depositions and had to disclose all of his medical records.

In addition, Schwam was also told at one point that he was going to have to pay $1 million for defense attorney fees should Farmers Insurance end up victorious and yet Schwam continued to pursue the case, MacDonald said.

Farmers Insurance was not required to admit to any wrongdoing as part of the settlement, Jackson said.

Jackson estimated 2,500 people throughout Arizona will receive a portion of the settlement within the next six months. The payments will be based on the amount that should have been applied to each person's claims and the secured interest on that amount.

Richard Halloran, an attorney who represented Farmers Insurance, declined to comment after Wednesday's hearing.