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An allegation that Farmers Insurance Group withheld “troublesome” files on mold claims from the state did not persuade the Texas office of the attorney general to withdraw the state’s $117.5 million settlement with the insurer. The settlement should proceed as preliminarily approved by 53rd District Judge Scott Jenkins, said David Mattax, chief of the financial litigation division at the OAG, in a Nov. 18 letter to Alice Oliver-Parrott, an attorney for Gilbert Villanueva and Michael Paladino, two of the Farmers policyholders who intervened to challenge the settlement of Texas v. Farmers Group. The policyholders’ appeal of Jenkins’ decision is pending in Austin’s 3rd Court of Appeals, which will hear arguments in Lubin, et al. v. Farmers Group, et al., on Dec. 15. (Jan Lubin is another Farmers policyholder who intervened to stop the settlement.) Media reports prompted Oliver-Parrott’s request that the OAG “pull down” the settlement and reopen its investigation of Farmers. Oliver-Parrott, a partner in Houston’s Burrow & Parrott, wrote in a Nov. 14 letter to Attorney General Greg Abbott that recent stories aired on KHOU-TV in Houston and published in the Austin Chronicle raise questions about how forthcoming Farmers was with information sought in a civil investigative demand (CID) the OAG made in January 2002. In her letter, Oliver-Parrott focused on a March 11, 2002, fax from Thomas T. Rogers, a partner in the Austin office of Jackson Walker who represents Farmers, to Tony Melchionne at Farmers’ National Catastrophe Center in Kansas. Rogers, who did not return three telephone calls seeking comment before press time on Nov. 20, wrote in the fax that a number of claim files reviewed by his paralegal for submission to the OAG’s Consumer Protection Division contained “a variety of problems in the handling of the claim.” In the fax, a copy of which Texas Lawyer obtained from the Austin Chronicle‘s Web site, Rogers wrote that it was his understanding that the problems were the result of the extraordinary volume of water damage claims being filed. While Farmers could not refuse to produce claim files involving individuals named in the CID, “what we have endeavored to do here is furnish a sample to the Consumer Protection Division, leaving out the more troublesome files,” Rogers wrote in the fax. Jeffrey Beyer, Farmers’ chief communications officer, says in a written statement that the fax dealt with an OAG investigation into allegations that mold remediators, public adjusters, lawyers and others were submitting fraudulent insurance claims to Farmers and other insurers. “Farmers was not [the] subject of the investigation by the Texas attorney general,” Beyer wrote. Mattax wrote in his letter to Oliver-Parrott that the OAG is concerned by Rogers’ fax. “However, there is no justification for not proceeding with the settlement in Farmers. The mold claims handling investigation was not related to the lawsuit against Farmers,” wrote Mattax, who, through OAG spokesman Tom Kelley, declines a request for an interview. Oliver-Parrott was involved in out-of-town mediations during the week of Nov. 17 and was not available for comment on the OAG’s response to her request, an assistant in her office says. But R. Martin Weber Jr., another attorney representing Villanueva and Paladino, says, “The OAG mouths the words “we are concerned,’ but how concerned can they really be if they are moving forward without any further investigation into whether they got hoodwinked?” Joe Longley, Lubin’s lawyer, says a CID is like a subpoena. “You can’t just intentionally cherry-pick what you’re going to respond to and what you’re not,” he says. “Here you’ve got an admission that [Farmers] failed to comply with a CID and the state gives up on all of its investigations,” says Longley, a partner in Austin’s Longley & Maxwell. Former Texas Attorney General John Cornyn, now a U.S. senator, filed the suit against Farmers in August 2002. In Texas v. Farmers Group, the state alleged deceptive trade and discriminatory practices in the company’s homeowners insurance in Texas. Officials for the state and Farmers announced on Nov. 30, 2002, that they had reached a settlement in the case. As part of the settlement, the OAG agreed to expand the suit to cover auto insurance and to convert it to a class action. “It is not readily apparent to me how the OAG can fulfill its role as class counsel by simply brushing off these latest revelations,” says Weber, an associate with Houston’s Davis & Davis. Mattax wrote in his letter to Oliver-Parrott that the OAG knew its investigation of the handling of mold claims was not complete at the time it settled but decided it was in the best interest of Farmers’ policyholders to “achieve this landmark settlement.” However, Mattax stated policyholders still can pursue causes of action against Farmers with regard to the handling, processing or payment of their claims. Longley says he’s concerned because the OAG is giving up its rights to continue any of the CID investigations as part of the settlement. But all state investigations of Farmers won’t end if the settlement goes through. Sara Waitt, Texas Department of Insurance senior associate commissioner for legal and compliance, says TDI is pursuing some cases against Farmers with regard to mold claims. Notes Waitt: “This story’s not over yet regarding the mold claims. “

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