Alaska Injury Law Blog

In an insurance bad faith case, a retired judge, sitting as an arbitrator, has found a willful scheme to cheat the insured and imposed punitive damages against a health insurer for post-claim underwriting. Post-claim underwriting is a scheme where an insurer facing a claim for benefits “investigates” the policy application and rescinds the policy on the ground that some important information was not disclosed by the insured. Post-claim underwriting is discussed in more detail in an earlier article by the Alaska Personal Injury Law Group.

In the case reported upon here, the insured incurred medical bills of more than $125,000 for breast cancer treatment. While she was still being treated, the health insurance company did its post-claim underwriting and cancelled her policy. The poor insured was left facing not only a life-threatening event, but also huge medical bills with no way to pay them.

The ultimate unfairness was that this policy had been sold to her to replace a policy that unquestionably would have covered these bills. She did not need this new, replacement policy but the insurance company’s agent sold it to her anyway. The most likely reasons were to generate new business for the company and a commission for himself. It was the insurance company’s own agent, not the insured, who had filled out the application that the insurance company later used to cancel the coverage. None of that caused the insurance company to hesitate in the least when it came time to save $125,000 by canceling the policy.

Fortunately, the insured found a lawyer experienced in insurance bad faith cases. That bad faith insurance claims attorney uncovered evidence that the insurance company employees who do the post-claim underwriting were paid bonuses based in part on how many policies they cancelled. Those same employees were given goals for how many rescissions they were expected to make. One year, an employee was to rescind 15 policies a month. The next year that same person was to rescind 25 policies a month, 300 rescissions for the year. In following years, the goals were stated in terms of an annual goal of money the employee was expected to save the company by rescinding policies after claim were made. One employee's target goal was $6 million of savings one year, $6.5 million the next. Of course, those savings were to come at the expense of the insureds who had faithfully paid the insurance company for the health insurance they now drastically needed.

The arbitrator clearly explained what a nefarious scheme this was. The insurance company’s scam attacked the insureds when they were most defenseless and most in need of the insurance benefits they had paid for. He found that the insurance company was in bad faith because it paid no attention to its own guidelines when it came to rescinding these policies. The insurer also acted in bad faith by ignoring state statutes that explicitly prohibited post-claim underwriting. The arbitrator also believed some of the insurance company’s bad faith actions rose to the level of criminal conduct. Based on all this wrongdoing, he awarded the insured almost $130,000 for the medical bills that had not been paid, $750,000 in compensatory damages for what the insurer had put her through by wrongfully canceling her coverage, and $8,400,000 in punitive damages.

Fortunately, that is not the end of the story. The Los Angeles City Attorney is investigating criminal charges arising out of this scheme. I say fortunately, because insurance companies generally treat such scams as an economic game. Insurance companies who engage in such bad faith practices may get caught occasionally, but they play the odds. They fight such claims tooth and nail. If they ultimately lose and have to pay, it is just a minor offset against the huge profits they make by using these bad faith schemes against many insureds all across the country. The insurance company that gets caught has to pay a little bit, like the Las Vegas casino paying off the few winners, but it knows it typically will not get caught and that the odds overwhelmingly favor the house. Even $8.4 million in punitive damages pales in comparison to the profits generated by such bad faith insurance company scams. Maybe potential criminal liability will make insurers hesitate before cheating the insureds most in need of the protection they purchased.

Wouldn’t it be great if you could get paid for making a promise to do something in the future, but when the time came to keep your side of the bargain you could cancel the contract and not have to pay? The person you made the promises to might be upset at paying you for all those years for nothing, but you get free money! Ignoring the moral and ethical flaws with the scheme, it would be a great way to improve your financial position. Of course, that’s how insurance companies often operate these days. One tool they use is “post-claim underwriting.” It is a terrible, dishonest practice that reneges on the insurer’s promises when the insured most needs the benefits promised in the insurance policy.

What is post-claim underwriting? In its simplest form, an insurance company takes a cursory look at your application, sells you a policy, collects premiums until you make a claim, and then does an “investigation” to determine that they should not have sold you the policy in the first place. Instead of doing a true underwriting analysis before issuing the policy, the insurer waits until after you make a claim and then decides you tricked them into insuring you. The insurance company then rescinds the policy, claiming you misrepresented something or failed to disclose something on your application for the insurance.

From the insurer’s perspective, it’s the perfect scam. The insurer gets to collect premiums on a policy, but does not have to pay the benefits promised. Of course, it is also a bad faith practice, a flagrant breach of the covenant of good faith and fair dealing that is part of every insurance policy, and may be a crime. Unfortunately, those problems will not deter an insurer who cares more about its bottom line than for the rights and interests of its insureds.

Unlike Alaska, some states have a statute that expressly prohibits post-claim underwriting. California has such a statute, but that did not stop health insurers from doing post-claim underwriting. The language of the statute is very explicit—it requires an insurer to complete its underwriting investigation before issuing the policy, not wait until after a claim is made. Might seem like a common sense requirement to you as an insurance consumer, but not to an insurance company who wants to cancel a policy. This is illustrated by the recent case of Hailey v. California Physician’s Service, 158 Cal.App.4th 452 (Ct. App. 4th Div 2007). Blue Shield contended that the statute requiring it “to complete medical underwriting” before issuing the policy really meant it could just look at the application, assign values to the risks disclosed, and issue a policy. Although it had a medical release from the prospective insured, it did no underwriting investigation to determine if it should insure the person. Blue Shield argued it could then do a “postclaim investigation” after a claim was made, and rescind the policy. The California court rejected that assertion, viewing the “postclaim investigation” as basically the same thing as “postclaim underwriting.” The court ruled that the insurer must do a reasonable underwriting investigation before issuing the policy or it will lose its ability to rescind the policy later, unless the insured willfully misrepresented something in the application. A wonderful rule to protect insurance consumers.

Beware that post-claim underwriting is not limited to health insurance. Insurance companies use it to avoid paying benefits under many forms of insurance. Post-claim underwriting is common in disability insurance, a policy that pays when a person is unable to work. Insurance companies even use post-claim underwriting to try to avoid liability on automobile policies.

The Alaska legislature should follow California’s lead and enact an express prohibition against post-claim underwriting. Although the California case shows that even a statute will not prevent this terrible, bad faith practice, an Alaska statute would at least give the insured a valuable tool to use to obtain some justice when her policy is wrongly rescinded. Even if the Alaska legislature fails to act, post-claim underwriting can be challenged in Alaska under common law principles. If you believe you are a victim of wrongful rescission of your policy, talk to an attorney at the Alaska Personal Injury Law Group experienced in insurance bad faith claims. We will gladly help you fight this reprehensible insurance practice.

A federal jury today convicted the president of Berkeley Nutraceuticals, Steve Warshak, on charges of conspiracy to commit mail fraud, bank fraud, and money laundering. Warshak’s mother, Harriett Warshak, was also convicted. They now face more than 20 years in prison, and the company could be forced to forfeit tens of millions of dollars. Seven former company officials pled guilty to conspiracy charges before the trial began.

The company bilked thousands of customers out of millions of dollars using fake product warranties, fake medical spokesmen, and fake credit card transactions. The company's main product, Enzyte, was advertised as a "natural male enhancement" and was hawked on TV ads by a constantly grinning character nicknamed Smiling Bob.

We suspect that Bob isn't smiling anymore.

Source: AP Wire, February 22, 2008:
http://ap.google.com/article/ALeqM5gk4wBhEIdtWWF7hvr9C3Jl7pZ1XQD8UVNMKG0

Under the dubiously named Dietary Supplement Health and Education Act (DSHEA), diet supplements and herbal preparations are not approved by the Food and Drug Administration for medical use in humans. Thus, safety and formulation are solely the responsibility of the manufacturer; evidence of safety and efficacy is not required as long as they are not advertised as a treatment for a medical condition. As we have seen in diet supplement litigation (Talbert v. E'ola Products, Inc.), diet supplement manufacturers often promise the moon in selling their products to the consumer, while having little other than anecdotes to show when it comes to providing data for the safety or effectiveness of their products. Even assuming that the products are not adulterated (because of shoddy manufacturing protocols), have not been spiked (pharmaceutical drugs intentionally put into the supplement), and actually contain the ingredient at the levels claimed (often the “active” ingredient is missing or varies wildly), it is the exception, not the rule, that the manufacturer will have evidence that the supplement is safe for human consumption and actually works. With pharmaceutical drugs, the manufacturer foots the bill for such research. In the world of diet supplements, however, it is often independent researchers or the government (read: the taxpayer) that is burdened with the duty and cost of proving the safety and efficacy of a particular diet supplement.

At the Alaska Personal Injury Law Group, we are frequently asked to help those with serious orthopedic injuries. And our clients commonly face the debilitating consequences of arthritic changes that come from these injuries. So a discussion about glucosamine is in order. Luckily, unlike ephedra and other more dangerous diet supplements, glucosamine has not had a string of serious adverse events (it is not without side effects, however, so you need to read carefully before using glucosamine). But does it work?

Glucosamine is a natural compound that is found in healthy cartilage. Glucosamine sulfate is a normal constituent of glycoaminoglycans in cartilage matrix and synovial fluid (this is the “hydraulic” fluid in your joints). It is believed that the sulfate moiety provides clinical benefit in the synovial fluid by strengthening cartilage and aiding glycosaminoglycan synthesis. The question is, if you take the supplements, will the body put the critical compounds into your blood stream and use them where the arthritis lies? There have been multiple clinical trials of glucosamine as a medical therapy for osteoarthritis, but the results have been conflicting. Early clinical trials sponsored by a European patentholder, as expected, demonstrated a benefit from glucosamine. However, these studies were of poor quality due to shortcomings in their methods, including small size, short duration, poor analysis of drop-outs, and unclear procedures for blinding. Subsequent independent studies did not detect any benefit of glucosamine. This situation led the National Institutes of Health (yes, you the taxpayer) to fund a large, multicenter clinical trial studying reported pain in osteoarthritis of the knee, comparing groups treated with chondroitin sulfate, glucosamine, and the combination, as well as both placebo and celecoxib (Celebrex). The results of this 6-month trial found that patients taking glucosamine HCl, chondroitin sulfate, or a combination of the two had no statistically significant improvement in their symptoms compared to patients taking a placebo.

Today’s news is that the Annals of Internal Medicine has just published a study concerning the effect of glucosamine sulfate on the symptoms and structural progression of hip arthritis. Following 222 patients over a 2-year period, the researchers evaluated the patients’ pain, function and stiffness at regular intervals in the 2-year period. They concluded that “glucosamine sulfate was no better than placebo in reducing symptoms and progression of hip osteoarthritis.” Translation: glucosamine supplements will do nothing for the pain in your hip—the pain is likely coming from what the cost of the supplements did to your wallet.

Source: Annals of Internal Medicine, Effect of Glucosamine Sulfate On Hip Osteoarthritis, 19 February 2008, Volume 148 Issue 4, at 268-277, >http://www.annals.org/cgi/content/abstract/148/4/268.

Glucosamine/Chondroitin Arthritis Intervention Trial (GAIT), http://www.clinicaltrials.gov/show/NCT00032890; AND http://www.ncbi.nlm.nih.gov/pubmed/16495392.

Alaska Personal Injury Law Group member, Richard E. Vollertsen, has been selected for inclusion in the 2008 edition of America’s Leading Litigation Firms and Attorneys. Those selected are identified by Benchmark’s research team, which conducts extensive face-to-face and telephone interviews with the nation's leading private practice lawyers and in-house counsel in the preceding 12 month period. The purpose of the ranking is to identify those firms and attorneys best able to handle complex litigation matters. The rankings include identification of "local litigation stars" for each state, reflecting only those individuals who were recommended consistently as incontrovertible stars by clients and peers. Mr. Vollertsen was identified in this ranking as a “local litigation star”.

The research results for law firms were also broken down into “highly recommended” and “recommended” categories. All listed firms were consistently mentioned by peers and clients, but the "highly recommended" firms received the most mentions, and were held up as being definitively dominant in their particular jurisdiction. Atkinson, Conway & Gagnon, Inc., of which the Alaska Personal Injury Law Group is a division, was identified as “highly recommended” in this ranking, as well. Atkinson, Conway & Gagnon, Inc. was one of only 3 firms in Alaska selected as "highly recommended."

Source: Benchmark: Litigation, America's Leading Litigation Firms and Attorneys, 2008, >www.benchmarklitigation.com

If the march of history has shown us anything, it is that technological advances are often the result of armed conflict. We have seen that in striking detail in the Iraq and Afghanistan conflicts. One of the most unfortunate consequences of these conflicts is that they have dramatically highlighted the armed services’ inability to effectively screen and treat traumatic brain injury (TBI) and post traumatic stress disorder (PTSD) in returning soldiers. Another consequence is that the fact that soldiers have suffered TBI and PTSD in ever increasing numbers has forced research forward concerning these intractable disorders. In recent weeks, several articles of note crossed our desks here at the Alaska Personal Injury Law Group.

The Government Accounting Office (GAO) just released a report that underscored the Dept. of Veteran’s Affairs’ (VA) continuing inability to identify and provide services to affected veterans. This is true despite a pledge by the VA Secretary, Jim Nicholson, last April to promote new screenings for brain injury and a personal promise to see the changes through. The GAO reviewed nine VA medical centers, and found that there were problems in securing follow-up appointments after the veterans initially tested positive under the VA’s TBI screening tool. Two of the medical centers did not follow the screening tools protocol because they failed to use the symptom checklist, which they said was because they didn’t know the checklist existed or because they had inadequate staffing. The GAO also identified poor rural access to services resulting in a 50% decrease in the ability to provide care. It is estimated that as many as 20% of US combat troops who fought in Iraq and Afghanistan are believed to leave with signs of TBI.

At the end of January, the New England Journal of Medicine published a study submitted by specialists at the Walter Reed Army Institute of Research that added further to the controversy about how veterans should be screened and treated upon their return. Studying outcomes for over 2500 soldiers, the researchers found that soldiers with mild traumatic brain injury, particularly those who had suffered loss of consciousness, were significantly more likely to report poor general health, missed workdays, medical visits, and a high number of somatic and post-concussive symptoms than were soldiers with other injuries. After the data was adjusted, the researchers concluded that mild traumatic brain injury with loss of consciousness was strongly associated with PTSD and depression. Over 43% of soldiers reporting TBI with loss of consciousness met criteria for PTSD, compared with 27% of those with the lesser brain injury from an altered mental status following their injury. TBI with loss of consciousness was also significantly associated with major depression. The difficulties the soldiers faced may therefore be more attributable to the result of intense psychiatric reactions to battlefield events, rather than a structural injury to the brain. This may be good news in that there are treatments for PTSD and depression, and very few medical treatments available to those who have suffered a structural injury to the brain.

Finally, the February issue of the Journal of Nervous and Mental Disease published research concerning the link between PTSD and chronic inflammation and early death. Studying veterans diagnosed with PTSD after the Vietnam conflict, the researchers found high erythrocyte sedimentation rates (ESR), white cell counts (WBC), and cortisol/dehydroepiandrosterone sulfate ratios (DHEA-s). Death rates between the comparison groups was 13.6% among those suffering from PTSD and 5% for those without the diagnosis. In addition to PTSD predicting an increased all-cause mortality rate, PTSD and a high erythrocyte sedimentation rate were also associated with increased death rates from cardiovascular conditions. Thus, having PTSD, a high ESR, a high WBC count, and a high cortisol/DHEA-s ratio were associated with all-cause disease mortality. These study results suggest that physicians treating veterans should routinely screen for PTSD and these associated increased risks. The article provided further scientific explanation as to why the archaic mind-body duality relied upon by the law is medically unsupportable. This is simply because, if one’s mind (PTSD) is affected, one body will surely suffer consequence, as well.

Source:

VA Health Care: Mild Traumatic Brain Injury Screening and Evaluation Implemented for OEF/OIF Veterans, but Challenges Remain, GAO-08-276 February 8, 2008; http://www.gao.gov/docsearch/abstract.php?rptno=GAO-08-276.

Mild Traumatic Brain Injury in U.S. Soldiers Returning from Iraq, New England Journal of Medicine, Volume 358:453-463 January 31, 2008 Number 5; http://content.nejm.org/cgi/content/full/358/5/453.

Psychobiologic Predictors of Disease Mortality After Psychological Trauma: Implications for Research and Clinical Surveillance,
Journal of Nervous & Mental Disease. 196(2):100-107, February 2008.

When we represent clients at the Alaska Personal Injury Law Group, we do our homework. When serious injuries occur, we have to become experts ourselves in the particular medicine being used to treat our clients. We thus comb through and rely extensively on medical literature in virtually every case we handle. We use it in our work with the medical experts we engage to help our clients, and we also share it with our clients.

And whether you realize it or not, you rely on medical literature every time you see a doctor or take any medication. This is because the engine of medicine runs on the data from medical literature. That data is what the FDA uses to decide whether to allow a medication or medical device to be sold, and what your doctor relies on to decide if a treatment, medical device, or medication will help you. Extraordinary rules and guidelines are put in place to make sure that the scientific findings in a particular study are objective and scientifically verified.

So it is always shocking when we learn that a manufacturer has taken liberties with the research data to make it appear that their product works when it really doesn’t. (We saw this repeatedly in the litigation against diet supplement manufacturers: Talbert v. E'ola Products, Inc.) We know why this happens: millions and sometimes billions of dollars are made by manufacturers in these endeavors, and greed can be a powerful motivator. Every time we learn about one of these situations, it reaffirms the need to vigilantly enforce the principles that guide regulators and researchers who develop research data. Western medicine is so profoundly effective because it is "evidence-based medicine". If we allow clinical researchers to get into bed with the manufacturers, how can we trust that the research data they create for the manufacturers is valid, objective and truly "evidence-based"?

Today’s when-the-cat’s-away lesson involves Synthes, the manufacturer of an artificial spinal disc called the Prodisc. It turns out that doctors at about half of the medical facilities conducting clinical trials, i.e., performing surgeries, using the Prodisc stand to profit handsomely if the Prodisc is approved by the FDA. For example, 12 of the surgeons involved in the study had also invested in Synthes. The concern is that the study results submitted by the manufacturer to the FDA did not contain data about a large number of patients, some of whom said they had poor outcomes. Those critical of this conflict of interest suggest that the data casts the Prodisc, scientifically speaking, in “an overly flattering light.” Was it because surgeons in the study were also investors in the device? We can’t know for sure, but we do know that the research data is now tainted because of this impropriety.

This situation gives us yet another example of how conflicts of interest can distort scientific data and why the FDA and other gatekeepers should vigilantly eradicate them. The FDA should not accept data from clinical trials conducted by those who would profit from market approval of the device or medication being studied. The hospitals and universities conducting such trials should not permit their researchers and physicians to financially benefit from the studies being conducted. As professionals, the physicians themselves should recognize such conflicts of interest and refuse to participate as researchers or investors—attorneys, for example, are ethically barred from representing clients when such conflicts exist and are professionally bound to recognize when a conflict exists and refuse to represent a client when a conflict is present.

This situation with Synthes is also remarkable because these issues have actually come to light—most such conflicts of interest do not. Until the clinical data on the Prodisc is substantiated by objective researchers, surgeons and potential patients should steer clear of this device. If you can’t trust your doctor, who can you trust?

Source: N.Y. Times:
http://www.nytimes.com/2008/01/30/business/30spine.html;
Association for Ethics in Spine Surgery:
http://ethicalspinesurgeon.org/

We recently reported on the CNN study that found insurers like Allstate and State Farm have systematic programs to force their insureds to settle for less insurance proceeds than the insurance company promised them in their insurance policies. CNN concluded that these programs have resulted in billions of dollars of excess profits for insurance companies. Allstate alone has given $23 billion of profits to its shareholders in only twelve years of using such a program.

How do those programs work? Let's look at Allstate's program, which it calls DOLF -- Defense of Litigated Files. Allstate makes the insured a lowball offer. If the insured refuses to settle for less than the insurance benefits she bought, the claim will be litigated. In fact, Allstate will send a letter telling the insured that this is the only offer they are going to get and that, if the lowball offer is not accepted, Allstate will vigorously litigate the claim. So, instead of the insurance benefits she paid for, the injured insured is threatened with years of litigation to get what she was promised and deserves.

There is a theoretical possibility that Allstate will increase its offer, but only if the insured provides documentation of some "value changing event." An example would be a doctor's report that the insured needs surgery. But even if there is a significant change, the system is tilted against you. In one case, Allstate representatives testified at trial that new information about a significant value changing event did not go back to the original adjuster. Instead, it went from the Allstate defense lawyer to the "gatekeeper" in the Allstate claim office. The gatekeeper decided the adjuster did not need to know about the new information. That made it impossible for the adjuster to reevaluate the claim on the basis of the new evidence. Such a reevaluation was required by the insurer’s duty of good faith and by state claim handling regulations.

Some of you may wonder if that "gatekeeper" just made a mistake. No, he did not. He played his role just as Allstate intended. The job title of the "gatekeeper" is Evaluation Consultant. Any value changing information was supposed to be reported to the Evaluation Consultant, who was to decide if it was important enough to pass on to the adjuster. One of the key functions of the Evaluation Consultant is to ensure that adjusters do not weaken and pay more than Allstate's lowball offer. The best way to do that is to keep them out of the loop in DOLFed cases. In that case, the adjuster was still assigned to the file, but was not even told of a court-ordered settlement conference—Allstate sent someone else, who knew very little about the file, in his place.

By the way, this was not a case where Allstate's liability was in question. The insured had been injured by a drunk driver who ran a stop sign and then fled the scene of the wreck. This was a claim under the Allstate underinsured motorist (UIM) coverage. You would think that if anyone deserved the good hands treatment, it would be a young girl injured by a drunk driver. Obviously, Allstate did not. Do Allstate actions towards this poor girl sound like the caring, good hands treatment you hear about in all those fancy television ads where Allstate wants you to buy their policies?

We at the Alaska Personal Injury Group have seen it again and again with insurers, and have documented the practices in this blog: insurers mercilessly attempting to reduce costs by withholding policy benefits owed to policyholders, all the while justifying outlandish premium rate hikes by claiming that costs are too high. As insureds, we have almost become jaded to the extraordinary level of intrusion by insurers into our personal lives as they wage this campaign. For example, we think nothing of having to wrestle with an insurer who challenges our physician’s prescription for medication—the insurer intrudes into our relationships with our physicians as if it belongs in the room with us and our physician, challenging the physician's choice of medication, the length of prescription, and even whether we should have the medication at all.

One of the most outrageous moves by health insurers yet is a letter Blue Cross of California recently sent to physicians asking them to “rat out” (my wording) their patients who might have preexisting medical conditions, which, of course, would then allow Blue Cross to cancel the patient’s coverage for the treatment sought from the physician. WellPoint, Inc., the Indianapolis-based company that owns Blue Cross of California justified the move because it was (and where have we heard this before?) trying to hold down costs. This is apparently a justification for intruding upon one of the most sacred of relationships, that of physician and patient.

Blue Cross is actually forwarding to the physician the patient's insurance application (!) along with the letter instructing that:“Any condition not listed on the application that is discovered to be pre-existing should be reported to Blue Cross immediately.” To its credit, the California Medical Association contacted California insurance regulators immediately, explaining that the maneuver by Blue Cross was “deeply disturbing, unlawful, and interferes with the physician-patient relationship.”

The move by Blue Cross was its answer to recent fines imposed on it because of a systematic pattern of terminating policies when claims were made—it would accept applications and premiums from policyholders, but later cancel the policy based on mistakes in the applications, minor inconsistencies, and a poor application form designed to create the supposed failure to disclose preexisting conditions. (In the industry, this word for terminating the coverage is “rescission,” which hardly serves to capture the malice inherent in this practice.) Once a policyholder was terminated, the insured would be unable to obtain a new policy for the current illness because any other insurer would see the problem as a preexisting condition and would refuse to insure. Thus, those with serious illnesses like cancer were unable to obtain treatment or they faced financial ruin trying to pay for the necessary care out of pocket.

Another way for Blue Cross to have handled the problem, of course, is to have examined the applicant’s medical history at the time of the application to determine whether to accept the applicant as an insured. This process of analyzing the risk is called “underwriting,” and it is the insurer’s job to do this at the time the policy is sold. What Blue Cross is doing here is trying to force physicians to do their underwriting job for them, and to look for ways to keep from paying the costs of medical care long after it has already agreed to underwrite the risk and has already been paid its premiums by the policyholder for that very risk.

And another way for Blue Cross to cut costs is perhaps to cut executive salaries. Its outgoing CEO received in 2005 salary and bonus of $5.2m and a restricted stock award of $3.1m. Upon retirement, he received a lump sum of $31m, which did not include $55m in unexercised stock options he also received.

The physician’s job is to care for the patient, often at a time when that person is at their most vulnerable. The physician must be free to inquire about all medical history that might be relevant to care, and the patient must be free to trust the physician with that information. To make the physician an agent of the insurer so the insurer can, yet again, maximize profits at the expense of the insured who has already paid for their policy, is to destroy the foundation of the physician-patient relationship and ultimately to prevent the insured from getting effective medical care. Essentially, the physicians are being shanghaied by Blue Cross to help it defraud its own insureds.

This maneuver by Blue Cross is unconscionable. An insurer does not belong in the exam room with the physician and the patient. That relationship is sacrosanct and must remain so. Any physician worth his salt will tell Blue Cross this. And the California Department of Managed Health Care should let them have it with both barrels.

Source: Los Angeles Times:<
http://www.latimes.com/news/printedition/front/la-fi-bluecross12feb12,1,7937098.story;
Blue Cross Letter:<
http://www.calendarlive.com/media/acrobat/2008-02/35508226.pdf;
WellPoint Salaries:
http://www.signonsandiego.com/news/business/20070226-1336-wellpoint-glasscockretires.html

An 18-month study by CNN has confirmed that most of the major insurers, lead by Allstate and State Farm, are engaging in institutional bad faith claim practices. The study found that insurers, including Allstate and State Farm, have not been treating their insureds fairly. Instead of fair treatment for insureds, they follow a strategy of "deny, delay, defend." Deny the claim, do whatever they can to delay the claim, and defend the resulting lawsuit to the hilt.

The CNN findings focused on cases involving soft tissue injury and minor impact. Insurers have their own euphemisms for this type of claim, such as Allstate's MIST, which stands for Minor Impact Soft Tissue. The personal injury attorneys at the Alaska Personal Injury Law Group do not handle MIST cases, but we have seen the same tactics employed in Alaska in cases that are neither minor impact nor soft tissue cases. We also handle bad faith cases that arise when insurers like Allstate and State Farm break the promises they made when they took the insured's hard-earned premium dollars.

CNN's investigation found that the insurers' hardball approach to claims is the result of programs developed for insurers like Allstate and State Farm by The McKinsey Company. The Alaska Personal Injury Law Group and other lawyers throughout the country have been trying to get Allstate's McKinsey documents into the hands of the public, but Allstate has been successful in obtaining orders that keep the documents hidden. As we reported earlier, insurance regulators in Florida may be the public's best hope of seeing the McKinsey documents. CNN did confirm, however, the existence of the formal program where the good hands people at Allstate are told to use boxing gloves on the insureds who refuse to accept Allstate's lowball offers.

This Allstate program has nothing to do with justice or fairness. It is all about profits resulting from economic warfare against insureds. Allstate documents in the public domain show that it is also motivated by the insurance company's desire to prevent personal injury attorneys from trying to help the victims of these lowball take-it-or-leave-it offers. The insureds and the lawyers who help them get bludgeoned by one of the largest financial powerhouses in the world. As the CNN study shows, after Allstate and State Farm started using the McKinsey scheme against their insureds, other insurers followed.

That take-it-or-leave-it approach and the resulting lowball settlements have lead to soaring profits, while insurers pay out far less in claims but continue to charge higher premiums. Insurance rates are theoretically, but poorly, regulated by the states, so if Allstate is paying out less in losses, they should have to reduce premium rates. Instead, they are generating phenomonal profits.

As reported in earlier articles here, Allstate Insurance companies are under intense scrutiny by insurance regulators and legislators in Florida. The state officials suggest Allstate is gouging consumers with unjustified requests for rate increases as high as 42%. It is instructive to contrast the tale of woe Allstate is telling those Florida insurance officials to what Allstate tells investors. One thing Allstate told investors was that it has benefited from the lack of major hurricanes in 2006 and 2007.

The President and CEO of Allstate also touted how Allstate had reduced its hurricane exposure. This was partly by canceling hundreds of thousands of homeowners’ policies. Allstate also bought $900 million a year of reinsurance, which was a much larger amount of reinsurance than it had carried in the past. Undoubtedly that purchase ties in with concerns of Florida legislators that Allstate has wrongly failed to lower premiums after taking excessive advantage of the new Florida reinsurance program. That publicly funded program allows Allstate to shift the risk of major losses onto the citizens of Florida, many of them the same citizens who had their homeowners’ coverage cancelled by Allstate. The regulators and legislators believe Allstate has greatly reduced its hurricane risk by canceling most of its homeowners’ policies, and reduced its risk even further by foisting the risk onto the Florida reinsurance fund, so the huge rate increases Allstate requested are not justified.

The President and CEO also told investors that Allstate has done extremely well on the financial front for many years. In little more than a decade, Allstate has raised dividends an average of 11.7% annually. In that same timeframe, Allstate repurchased more than 40% of its outstanding common stock at a cost of almost $16 billion. In sum, those figures mean Allstate has returned more than $23 billion of “excess” capital to shareholders in less than twelve years. To put those outsized profits into perspective, Allstate’s market capitalization when it went public was only $19 billion. Allstate is still extremely well capitalized, even after giving $23 billion, almost $2 billion a year, to its shareholders.

How can those huge profits be justified when insurance rates are supposed to be regulated by each state’s division of insurance? If an insurance company has a lower loss experience payout than projected, that experience should result in lower premiums. Instead, Allstate has paid more than $23 billion dollars to its shareholders (and officers) while complaining that its rates are too low and must be increased.

Looks like insurance regulators everywhere, including Alaska, need to take a much closer look at what Allstate’s actual loss experience has been and whether it has been allowed to charge excessive rates. Bear in mind that Alaska legislators passed a law that allows insurers to increase rates without prior approval by the Division of Insurance. That is certainly a formula for mischief, not only by Allstate, but by other insurers in Alaska.

As everyone knows, Florida suffered significant hurricane damage in 2004 and 2005. Since then, however, Florida has avoided major hurricane damage. Thus, Allstate has avoided significant hurricane losses over the last two years. In addition, new laws were passed in Florida to use billions of dollars of public funds to help insurers like Allstate avoid major hurricane losses . Seems like good news for property insurers like Allstate.

But despite that good news and the greatly reduced risk, Allstate’s Florida insurance companies are seeking rate increases of up to 42%. How do Allstate’s actuaries justify that huge increase in insurance rates when their risk has gone down? Global warming!

Florida regulators and legislators were shocked to discover Allstate is using a global warming model to justify these huge rate increases. The first reason they are shocked is that the global warming model is not approved by the state insurance regulators. There is a model that was approved by the Office of Insurance Regulation, but Allstate is not using it. They were also surprised that Allstate is using a short-term model that only looks at what might possibly happen in the next five years, rather than the approved model which looks at the long term history and actual trends of hurricanes. In addition, there is wide disagreement among scientists whether there is any basis to believe there will be more or worse hurricanes in the next five years. Finally, state officials are concerned because Allstate’s model is based on Allstate’s assumptions that hurricanes in the next five years will be more severe and more frequent than the historical data suggest. It’s the old “garbage in, garbage out” scenario. Make the correct assumptions and the computer will spit out whatever result you want.

To put this in perspective, consider what happens if you suffer personal injury and make a claim. Allstate will insist that you may only recover future damages that are "reasonably probable" or "reasonably certain." Those are the proper legal standards and Allstate will insist you meet them. If you tried to recover damages that were merely "possible," Allstate would laugh at you and reject that part of your claim.

Yet Allstate wants to base the rates it can charge on possibilities that are highly speculative and based on a novel actuarial approach. Should the regulators really be surprised that Allstate's analysis is biased to achieving higher rates for Allstate?

Allstate continues to be investigated for bad faith claim handling practices, wrongful termination of policies and excessive rates. Regulators and the Florida legislators who grilled Allstate representatives earlier this week have discovered that Allstate terminated the homeowners’ policies of thousands of insureds who had their auto coverage with an insurer other than Allstate. Those seeking answers contend that Allstate has been less than candid. One Senator said, “I haven’t seen so much bobbin’ and weavin’ since Muhammad Ali did the rope-a-dope.” Listen here.

Why did Allstate cancel those folks, but not cancel similar Allstate insureds who also had Allstate automobile insurance? Because Allstate’s auto insurance business is far more profitable for Allstate than its property insurance business, particularly in Florida. In typical Allstate double-speak, however, Allstate claims to have done it for the convenience of the terminated insureds—that way the terminated insureds would not have to deal with two insurance companies. Allstate said, in effect, “we terminated your policy for your own good!”

Over the last couple of years, Allstate has reportedly reduced the number of homeowners’ policies it writes in Florida from over 700,000 to less than 300,000. Those insureds were supposedly cancelled because they were high risks for hurricane damage. Allstate also reduced its risk even further by buying cheap reinsurance from the fund the state created. Having culled those supposedly bad risks and shunted off a lot of the loss exposure via cheap reinsurance, Allstate still claims it needs a rate increase of 42%. Regulators and legislators want to know why.

Allstate is seeking that 42% increase in rates for homeowners’ coverage despite the fact that the Florida legislature last year created a $12 billion public hurricane catastrophe fund. The purpose of that fund was to make it much cheaper for property insurers like Allstate to avoid the risk of huge hurricane losses by buying reinsurance. The justification for that huge assumption of liability by the citizens of Florida was that insurers would then cut rates to those citizens. The law anticipated a rate reduction of 25%, but Allstate claims it needs to raise rates by 42%! Sounds like a fat deal for Allstate shareholders and a raw deal for the good citizens footing the bill for that reinsurance fund.

As we all know, insurance is supposed to be the business of spreading risk. More and more, however, insurers like Allstate want to avoid risk but still collect outsized premiums for covering the reduced risk.