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Thursday, February 14, 2008
New Mexico's Supreme Court to Review Award of $6.5 Million in Attorney Fees in Suits Against Insurer
By Thomas J. Cole
Copyright © 2008 Albuquerque Journal; Journal Investigative Reporter
The state Supreme Court, for the first time, is set to review approval of a settlement in a flood of class-action lawsuits brought in New Mexico against national insurance companies.
The settlement at issue before the court calls for plaintiffs' attorneys to receive $6.5 million in fees.
It was reached in one of several lawsuits over the past nine years accusing insurers of imposing hidden charges on policyholders who paid annual premiums in installments.
The cases have been a boon for the attorneys who have brought them, earning them more than $41 million in fees as insurers have settled rather than face trial.
The settlement before the Supreme Court, if upheld, would increase that figure.
The settlements have not been free of controversy, with even some policyholder-plaintiffs describing the lawsuits as frivolous and the attorney fees as excessive.
One policyholder described a settlement with his insurance company as a "poster child" for the national debate over tort reform.
Mel Eaves, an Albuquerque lawyer who has represented policyholders in several lawsuits, said insurers have agreed in settlements to fully disclose installment-payment charges and, in some cases, to make refunds to policyholders.
"These cases have served a very valuable purpose because companies were not being forthright with their policyholders," he said in a recent interview.
The Supreme Court has agreed to hear an appeal in a lawsuit filed in 2000 against First Colony Life Insurance, which has since merged into Genworth Life and Annuity Insurance.
Issues before the justices include whether a lower court erred in approving the settlement and whether the $6.5 million in fees awarded to attorneys for policyholders was reasonable.
'Lawyer-driven actions'
The class-action cases against insurers began with a lawsuit filed in 1998 in state District Court in Santa Fe against Massachusetts Mutual Life Insurance.
The lawsuit accused Mass Mutual of failing to disclose— in terms of a dollar amount or an annual percentage rate— the extra charges that it levied on policyholders who chose to pay annual premiums over time rather than in one lump sum.
While denying wrongdoing, MassMutual agreed to make additional disclosures about the installment charges and to provide policyholders with certificates good for $100 on purchases of MassMutual products or, subject to restrictions, $30 in cash.
How much did the plaintiffs' lawyers collect? $10.5 million.
Another early settlement in the lawsuits— this one with Primerica Life Insurance Co.— called for attorneys for policyholders to collect $7.5 million in fees and costs. Only two policyholders received money, each collecting $30,000.
By the summer of 2001, at least 21 sellers of life or disability coverage, including virtually every major national insurance company, faced a lawsuit in New Mexico over the issue of installment charges, according to the U.S. Chamber of Commerce.
The chamber has characterized the lawsuits as "unfounded class actions that allege consumer fraud but are actually 'lawyer-driven' actions meant to generate fees for plaintiffs' lawyers, rather than substantive relief" for policyholders.
According to one tally, at least 11 insurers have reached settlements with plaintiffs' attorneys.
Questionable figures
First Colony agreed to settle its case in the spring of 2004, and District Judge Carol Vigil later approved the deal.
Plaintiffs' attorneys, due to receive $6.5 million in fees under the settlement, reported they had incurred litigation costs of less than $55,000 from the time they filed the lawsuit until the settlement hearing.
The settlement also called for First Colony to provide 822,000 former or current policyholders with certificates good for up to $200 on purchases of additional life insurance or for cash payments of up to $50 each.
Seven policyholders objected and sought to intervene. When denied by Vigil, they appealed to the state Court of Appeals, arguing, among other issues, that the judge had erred in approving the settlement.
The objectors' attorneys argued that the settlement unduly benefits First Colony and the plaintiffs' lawyers, and that the benefits for policyholders were inadequate and misrepresented in court proceedings.
In a decision handed down in May, the Appeals Court scuttled the settlement, at least temporarily.
The court said that before approving a class-action settlement, a judge must find that the deal is fair, adequate and in the best interests of the class members.
And, the court said, the record in the case doesn't show that Vigil considered the factors necessary to make such a determination.
While noting that New Mexico hasn't adopted a standard to evaluate the fairness of a class-action settlement, the Appeals Court provided the District Court with factors to consider.
The factors included the recovery for policyholders under the settlement versus possible recovery at trial, expense and risk of a trial for the class and the merits of the litigation.
"Our review of the record ... indicated that the District Court may have abdicated its duty to carefully evaluate the settlement," said the opinion written by Judge James Wechsler.
The court instructed the District Court to re-evaluate the deal based on the factors it outlined and make a decision on its legality.
The Appeals Courts also said the record contained no indication of how Vigil reached the conclusion that $6.5 million in fees for plaintiffs' attorneys was reasonable.
The court said the judge appeared to have found the fees reasonable based on a comparison of the fees to the recovery for policyholders.
An expert testified in the case that if all eligible policyholders selected the cash certificates, the total payout by First Colony would be $33 million. If all instead used the certificates for additional insurance, the total discount for policyholders was estimated at $92.5 million.
But the Appeals Court said it was skeptical of those figures and said the District Court should have considered that the recovery for policyholders might be much less.
The Appeals Court instructed the lower court to reconsider the attorneys' fees.
Too late to turn back
In an unusual twist to the First Colony case, plaintiffs' attorneys and lawyers for the objecting policyholders who filed the appeal reached a deal after the Appeals Court decision.
The attorneys for the objectors agreed to ask the Appeals Court to withdraw their appeal.
They and the plaintiffs' lawyers asked the court not to publish its opinion or publish it with a note that the decision was moot.
The attorneys also wanted the Appeals Court to allow the lower court to implement the settlement.
In exchange for agreeing to seek to dismiss the appeal, objectors' lawyers are to receive a $1.7 million slice of the $6.5 million in proposed settlement fees for the plaintiffs' attorneys "to compensate them (objectors' lawyers) for their efforts in this matter and for their contribution to New Mexico class action jurisprudence."
The Appeals Court denied the request, setting the stage for plaintiffs' attorneys to ask the Supreme Court to overturn the Appeals Court opinion.
In yet another unusual twist, neither the objectors' lawyers nor the attorneys for First Colony opposed the Supreme Court review.
The Supreme Court has set a February deadline for the first of the major briefs in the case. A hearing by the justices, while possible but not certain, would come some weeks, if not months, after that.
Eaves, one of the plaintiffs' attorneys in the First Colony case, declined comment on the specifics of the lawsuit, as did a lawyer and a spokesman for the insurance company.
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