1

2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
GIRARDI THOMAS tgirardi@girardikeese.com GRAHAM glippsmith@girardikeese.com 1126 Los Tel: Fax: Angeles, Wilshire (213) (213) V. B. KEESE 977-0211 481-1554 California GIRARDI, LIPPSMITH, Boulevard

90017 SBN SBN 36603 221984 ENGSTROM, WALTER wlack@ellaw.com DANIEL dwhalen@ellaw.com 10100 Los Tel: Fax: Angeles, Santa (310) (310) G. J. WHALEN, Monica LACK, 552-3800 552-9434 California LIPSCOMB SBN Blvd, 90067 SBN 57550 12th & 126487 LACK Floor Attorneys for Plaintiff Benjamin Fogel and the Class

SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF LOS ANGELES BENJAMIN FOGEL, on behalf of himself and the Class, Plaintiff, v. FARMERS GROUP, INC.; FIRE UNDERWRITERS ASOCIATION; TRUCK UNDERWRITERS ASSOCIATION; ZURICH FINANCIAL SERVICES; and Does 2 through 100, Defendants. CASE NO. BC300142
DECLARATION OF WALTER J. LACK IN SUPPORT OF THE CLASS AND PLAINTIFFS MOTION FOR FINAL APPROVAL OF SETTLEMENT

Date: September 7, 2011 Time: 9:00 a.m. Dept: CCW 307

1 DECLARATION OF WALTER J. LACK

2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
DECLARATION OF WALTER J. LACK I, WALTER J. LACK, declare:

1. I am a principal in the law firm of Engstrom, Lipscomb & Lack (ELL). I am an attorney licensed to practice in the State of California and admitted to practice before this Court. I am counsel of record for Plaintiff Benjamin Fogel and make this declaration in support of the Class Motion for Final Approval of Settlement filed herewith. Except as expressly stated, I have personal knowledge of the facts set forth below and, if called as a witness, could and would testify accurately to their veracity. 2. Class Counsel in this case is comprised of myself, Graham B. LippSmith and Thomas V. Girardi of Girardi | Keese, Philip K. Maxwell of the Law Offices of Philip K. Maxwell and Joe K. Longley of the Law Offices of Joe K. Longley. We also worked with, among other lawyers, David Burrow of the Law Offices of David Burrow, Dan Downey of Dan Downey, P.C., R. Martin Weber of Crowley Norman LLP, and Mike Gallagher of Gallagher Law Firm. 3. As a team we worked tirelessly on this case investing tens of thousands of hours over the span of eight years. Our team of lawyers researched and investigated the claims and defenses through both documents obtained from the Lubin proceedings and public sources, propounded and responded to substantial discovery, engaged in and successfully litigated several rounds of motion practice, reviewed tens of thousands of pages of documents, conducted numerous meetings with counsel and the Court, amended the complaint several times to reflect new information from our ongoing investigation and prevailed on an appeal resulting in a published opinion by the California Court of Appeal at Fogel v. Farmers Group, Inc. (2008) 160 Cal.App.4th 1403. 4. While Defendants refused to respond to the discovery propounded on them (as merits discovery was and continues to be stayed), Class Counsel conducted a substantial investigation of claims by reviewing and analyzing more than 50,000 pages of documents obtained though an

intervention in a State of Texas action against Farmers Group, Inc, as well as a wealth of publicly disclosed information supporting the Class claims including Defendants voluminous SEC filings, investor presentations and documents from various state insurance regulatory proceedings. 5. The breadth of our investigation on the merits of this case enabled Class Counsel to file a
2 DECLARATION OF WALTER J. LACK

2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
very strong and detailed motion for class certification and ultimately enabled us to make informed

decisions with knowledge of the strengths and weaknesses of the case. 6. Heavily contested issues of both liability and damages made apparent to me that this case could be a major win for the Class or a total loss. The parties disagree on the scope of the fiduciary duty between FGI as the attorney-in-fact and the subscribers, and the courts have yet to rule definitively on this issue, creating the risk of an all or nothing result in this case. Because of the uncertainty of the outcome of these issues, the risks and costs of further litigation and the absence of a clear middle ground, Class Counsel engaged in a year of arms-length negotiations with Defendants in order to obtain a fair settlement. 7. I am extremely pleased with the Settlement that resulted from these efforts and the remarkable benefit that it offers to the Class and to the general public. Defendants have agreed to a $455 million cash payout to the Class and not one penny of that fund will revert back to Defendants. The Settlement also provides for a separate fund for up to $90 million to be paid in attorneys fees, costs and an incentive award to the Class Representative. The Settlement also requires Defendants to pay for the comprehensive notice plan and hybrid-claims process, costing Defendants an additional approximately $20 million that will not be taken out of the cash fund available to the Class. Any funds not claimed in the hybrid-claims process will go to the Exchanges, providing an additional benefit to the Class because the Exchanges receipt of additional cash can be used to, for example, reduce premiums, pay dividends to subscribers and provide security for future claims. This distribution is greatly preferable to a typical reversion to the defendants or donation to an entity or cause only loosely associated with the Class. 8. The terms of the Settlement are set forth fully in the Settlement Agreement attached hereto.

Defendants total spend in the Settlement will require Defendants to pay 12.5% the gross AIF Fee profits from the proposed twelve-year class period. Because Defendants were likely entitled to collect at least some level of profit from the AIF services, the 12.5% return of AIF Fee profits actually represents a return of a much larger percentage of the portion of the profit that may be deemed excessive. I believe this high rate of return is more than fair, reasonable and adequate. 9. After the intervention of R.C. Heubelein (Intervenor), Class Counsel made many appearances before the Court to respond to Intervenors numerous objections and concerns. Intervenors appearances include (1) his opposition to preliminary approval (objecting to the claims form process,
3 DECLARATION OF WALTER J. LACK

2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
release, and so-called reversion), (2) his objections and requests to change the language of the notice, (3)

his requests to propounded discovery and take depositions, and (4) his attempt to recuse this Court from the case. At each of these hearings the Court upheld the Settlement, its terms and its procedures. 10. The Court granted preliminary approval of the Settlement, certified the Class and approved the proposed Notice Plan on March 2, 2011. 11. With the Courts approval, we began the massive undertaking of executing the notice plan and hybrid-claims process with the Claims Administrator, Rust Consulting, Inc. (Rust). 12. The notice plan and hybrid-claims process as negotiated and in execution has thus far exceeded what is required by the California Rules of Court, and the success and efficiency of the notice plan has surpassed my hopes and expectations with respect to its overall reach and the Class participation generated by the combination of claims forms, publication notice, web support and the 24-hour call center. The hybrid-claims process was critical to our efforts to ensure that every Class Member spanning the substantial class period has a fair opportunity to participate in the Settlement. This process was carefully designed to give Class Members a variety of options for participating in the Settlement including (1) signing and returning the Claim Form, (2) completing claims on a basic website and (3) signing and returning the Reminder Postcard. Based on the response thus far and the anticipated response before the claims period closes on December 6, 2011, I strongly believe the hybrid-claims process is the best possible plan for achieving a maximum reach to the Class as well as the maximum participation. 13. To date, more than 9% of the Class Members have made claims for nearly 19% of the total Settlement Fund. With the additional mailing of the Reminder Postcards and based on the weekly progress on claims thus far, I anticipate the claims rate will continue to rise each month through the December 6, 2011 claims deadline. 14. I am very satisfied with the work Rust has done and continues to do to distribute accurate

and helpful information to the Class. Their expertise is exemplified in the Class response to and success of the notice plan and hybrid-claims process thus far, and I expect Rust to continue to perform at the same high level throughout the pendency of its assignment in this case. 15. Class Counsel have promptly addressed all Class Members questions and concerns both directly and with Rusts assistance. We have made adjustments to the notice, website, call center, and
4 DECLARATION OF WALTER J. LACK

1 2

3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 process in response to feedback from both the Court and potential Class Members. 16. In light of the massive size of the Class (12.5 million Class Members), the objections and opt-outs have been very minimal. To date, only 470 Class Members have excluded themselves from the Settlement and only l26 Class Members have objected to the Settlement. Although many ofthe objections do not comply with the California Rules of Court procedural requirements or the Settlement Agreement procedural requirements, even assuming the Court were to consider every formal and informal objection to the Settlement, the objectors representa tiny percentage ofthe Class, namely 0.0000l% ofthe 12.5 million Class Members, to date. 17. The objections (both formal and informal) are summarized as follows: (1) the Settlement amount is not enough; (2) Defendants should be free to charge whatever they Want for their services; (3) the attorney fees are too high; and (4) there should not be any reversion of Settlement Funds. Every objection raised to date has already been addressed by the Court in the preliminary approval proceedings,

by the Court in proceedings by lnteiyenor and by Class Counsel in briefing on the Settlement. Class Counsel will formally respond to all in full after the August 18, 2011 deadline to object and by the September 2, 20ll deadline to respond to the objections. I declare under penalty of perjury under the laws of California that the foregoing is true and correct and that this declaration was executed August 2, 2011 in Los Angeles, California. DCLARATION OF WALTER J. LACK