Mr. O'Donnell recently successfully concluded an insurance "bad faith" case against Allstate Insurance Company. After a two-week trial, the jury found that Allstate had failed to disclose and pay Mr. O'Donnell's client $100,000 in Underinsured Motorist Coverage that was available from a prior class action settlement. The jury not only awarded Mr. O'Donnell's client the underlying $100,000, but also awarded an additional $300,000 for financial distress resulting the delayed payment of the claim. The jury further found that Allstate had acted with reckless disregard of its insured's interests. In Alaska, a jury can only hear evidence of the defendant's financial condition, and determine the amount of a punitive damage award, after first finding that the plaintiff is entitled to an award of punitive damages. In that situation, the jury reconvenes to hear evidence of the defendant's financial condition. The case settled here for a confidential amount the morning that the punitive damage phase of the trial was to begin with plaintiff's CPA expert witness about to testify that Allstate made $2.4 billion last year. Mr. O'Donnell has handled, and continues to handle, numerous insurance "bad faith" cases against Allstate. The attorneys at the Alaska Personal Injury Law Group, including Mr. O'Donnell, have extensive experience with claims against insurance companies for failing to fulfill the special fiduciary duties they owe their insureds.
Over the years we have handled numerous "insurance bad faith" claims against auto insurers. These cases often involve situations where, following a serious auto accident, the insurance company fails to disclose and pay all the insurance coverage that is owed to the injured insured. We have seen that auto insurers often treat insureds as if they are adverse parties. They leave it up to the injured person to figure out which insurance policies apply. They leave it up to the injured insured to figure out what benefits they are entitled to under a 30-page or longer fine print contract. This approach to claims handling is both improper and illegal. Insurance companies owe their insureds an obligation of good faith and fair dealing. Alaska insurance regulations specifically require insurance companies to "fully disclose" to insureds "all relevant benefits and other provisions of coverage under which a claim may be covered."
Determining what insurance policies and what coverages apply is often a complicated task, particularly in the event of a death or a serious injury. In a recent case, Allstate's handling of a claim where a woman's husband died in a head-on collision came to our attention many years after the fact. Our investigation determined that Allstate had denied underinsured motorist (UIM) coverage to the widow under a second household auto policy through a tortured and self-serving "interpretation" of the policy that the Allstate claims managers never disclosed to the widow. Indeed, Allstate never even told the widow (who was not represented by an attorney) about the possibility of coverage under this policy. After Allstate's conduct came to light and we filed suit, the court granted summary judgment in the widow's favor ruling that a "coverage determination based on arcane legal doctrine [followed by Allstate] is at odds with Alaska's reasonable-lay-interpretation doctrine, which expresses clear Alaskan public policy." The moral of the story is that unfortunately there is a need, in the event of a serious injury or death, to verify that you are actually receiving the "Good Hands" treatment your insurer promised and is required to provide as a matter of Alaska law.
The Alaska Personal Injury Law Group recently successfully resolved the claims of a client who was injured in a 2010 crash of a Dehavilland Beaver float plane at a remote fishing lodge is Southwest Alaska.
The crash occurred after the pilot failed to back-taxi an adequate distance on a lake before turning and attempting a takeoff run. Despite reaching his predetermined abort point without having achieved takeoff, the pilot continued toward the shoreline under full power and simply hoped for the best. The best did not occur and the plane slammed into the lake embankment under full power. Alaska Personal Injury Group attorney Neil O'Donnell successfully resolved the claim against the lodge and successfully negotiated resolution of the various lien claims by the client's medical providers and health care insurers. This matter is one of the many aviation matters the Alaska Personal Injury law group has handed over the years. The practice group has extensive experience with aviation cases involving pilot error, inadequate pilot training, mechanical problems, and design defects.
Congratulations to my partner Mike Moody, and his co-counsel Dennis Mestas, for their excellent work in the Ennen v. Integon Insurance case. The Alaska Supreme Court recently held in Ennen v. Integon Insurance Corp., Opinion No. 6637 (1/20/12 Alaska), that insurance companies owe a duty of good faith and fair dealing to all their insureds, not just to the individual or the business which happens to be listed as the named insured on the policy. This is a very important decision. Insurance companies are liable for damages in tort when they breach their duty of good faith and fair dealing by, for example, hiding coverages from the insured, unreasonably low-balling the value of a claim, or unreasonably delaying or denying payment of a valid claim. This cause of action is called an insurance bad faith claim. It allows the insured to recover not just what the insurance company should have paid to begin with (before years of litigation finally made them do it), but also the additional damages the insured suffered in the meantime by not having the insurance policy benefits they should have promptly received from the insurance company. If the insurance company's improper conduct was reckless or intentional, the insurance company may also be liable for punitive damages.
In two earlier blog posts, we discussed how pervasive this type of improper claims handling is. The first post discussed the results of an 18-month investigation by CNN which concluded that many insurance companies engaged in systematic bad faith claims handling. The second post discussed an American Association for Justice Report which showed that such hardball claims tactics had gone hand-in-hand with record industry profits.
The Ennen v. Integon Indemnity decision is extremely important in light of these problems because many insurance companies (including Integon and Allstate) have taken the position that they owe no duty of good faith and fair dealing to their insureds who are not the named policy holder. A motor vehicle insurance policy typically protects many types of insureds who are not the named insured on the policy. For example, permissive drivers are covered under the liability coverage for any accidents they cause and medical payments coverage if they are injured. If they are injured by the negligence of another driver, they may be entitled to uninsured or underinsured motorist (UM/UIM) coverage. The policyholder's spouse and other resident relatives of the named insured and guest passengers are expressly included as insureds for UM/UIM coverage. If Integon's (and Allstate's) position had been accepted by the Alaska Supreme Court, they would have been insulated from bad faith claims by any of these insureds. Insurers in Alaska could have hidden policy benefits from these types of insureds; delayed their claims for years; or denied their claims entirely for no valid reason and faced no penalty whatsoever. If the insurance company got caught, it would only have to pay what it should have paid to being with.
Being able to sue for insurance bad faith, in addition to pursuing a contract claim for the original policy benefits, is an extremely important check on abusive practices of insurance companies. The Alaska Supreme Court noted that in the seven years that Integon Indemnity had failed to pay the seriously injured Jacob Ennen his rightful insurance benefits, he was at times on public assistance, unable to afford heating oil, and short on food. Insurance is supposed to protect insureds in their time of need. The Ennen v. Integon Indemnity decision creates an important, and extremely necessary, economic incentive for insurance companies to do what they promised to do in return for the premium dollars paid by the insured.
Most individuals who call our office recognize they can recover damages when they have been injured through the negligence of others. The wrongful conduct could be any number of things: drunk driving, running a stop sign, speeding, crashing a plane, marketing a defective product, creating a dangerous work environment. They understand the defendant will typically deny he was negligent. They are not surprised when the defendant next argues that even if he was negligent, the plaintiff's problems don't really exist, or were caused by something else, or were all pre-existing anyway. They understand that the defendant will finally argue that even if he was negligent, and even if he did cause the plaintiff's injuries, the resulting damages are nowhere as significant as plaintiff claims. Clients expect that if they ultimately prevail over all these defenses, they have won the war. Unfortunately, this is not necessarily the case.
Over the last decade, insurers and government agencies have become much more assertive in claiming priority repayment ("subrogation") rights from individuals who have received insurance or government benefits and subsequently recover damages in a personal injury or wrongful death lawsuit. This is a marked change from the traditional common law. Historically courts put the interests of the injured person ahead of the interests of insurance companies and government programs under what is called the "made whole" doctrine. Under the "made whole" doctrine, an injured person is entitled to be fully compensated for his loss before the health insurance company that paid plaintiff's medical bills is entitled to be repaid those expenses out of the proceeds of a lawsuit. For example, if a jury awarded a plaintiff $50,000 for medical expenses, $50,000 in lost wages and $50,000 for impairment, pain and loss of function, but the defendant only had $100,000 in insurance and no other assets, the plaintiff would receive the entire available $100,000 under the principle that insurance is first supposed to protect the insured.
Times have changed. Many health insurance policies and government programs have invested a great deal of effort over the past decade into re-writing policies and regulations in an attempt to abolish the "made whole" doctrine and limit other legal and equitable doctrines that place the interests of the injured person first. In general, they want to be paid first out of the funds you recover in your lawsuit, and they do not want to share any of the costs and attorney fees you incurred in producing that recovery. This has now become a very complicated area of the law. The rules that apply to one government program (Medicare) may not apply to other government programs (Medicaid, Veterans' Benefits, Workers Compensation, etc.). The interpretation and enforcement of contractual terms in insurance policies is also subject to a set of specialized statutes, regulations and case authorities. Sometimes finding an attorney with expertise in these types of specialized "subrogation" issues is as important as finding an attorney who can handle the traditional part of your claim. Now obtaining adequate compensation in a personal injury or wrongful death lawsuit often requires fighting a "two front war."
The attorneys at the Alaska Personal Injury Law Group have extensive experience in insurance matters including these types of subrogation issues. We have adopted novel responses to insurer and government subrogation priority claims. One approach relies on the unusual rule in Alaska that the prevailing party is entitled to reasonable partial attorney fees. We have told insurers that if they will not compromise the amount and priority of their subrogated interest, we will join them in the litigation as an additional defendant and make them hire an attorney and share the risk of an adverse fee award. Since insurance companies just want to sit back, share none of the risks and costs of the litigation, and have you send them a check at the end of the case, this puts them outside their comfort zone and creates a potent negotiating weapon. Winning the "second front" requires this type of strategic thinking from the outset of case.
As noted in a recent post here, Allstate has instituted a systematic, nation-wide claims handling system designed to drive down the amount of money it pays on personal injury claims. That system came under review in a recent New Mexico case where five individuals sued Allstate for "low balling" their auto personal injury claims. The Court found that Allstate had violated fair claims handling requirements "by not attempting to effectuate . . . prompt, fair and equitable settlement[s]," "compelling each of the plaintiffs to litigate their claims through a jury trial to final judgment," and improperly using the judicial system in "an attempt to delay or extort each of the plaintiffs into accepting less than the full value of their benefits under their policy." The Court found Allstate's conduct constituted "malicious abuse of process." Martinez et. al. v. Allstate, Case No. D-0101-CV-200400963, County of Santa Fe, First Judicial District, oral order dated 11/13/09). This case illustrates that injured individuals often receive Allstate's promised "Good Hands" treatment only if they accept Allstate's "low ball" settlement offers. Otherwise they are subject to -- as an Allstate consultant put it -- the "Boxing Gloves" treatment. Be prepared to put on your boxing gloves when dealing with Allstate!
Over the last decade, Allstate and other insurance companies have adopted highly standardized claims handling systems designed to drive down the amount of money they pay on personal injury claims. These systems generally involve (1) reducing the percentage of injured individuals who hire an attorney by quickly contacting such individuals, building rapport with them, and making early (and low) settlement offers; (2) using main-office-controlled computer programs to provide low "recommended" claim settlement values to their adjustors; and (3) implementing a policy of vigorously litigating with injured individuals who do not accept the insurer's low-ball settlement offers. For example, the Montana Supreme Court last year noted that there was a "high probability" under Allstate's claims handling system that "an unrepresented claimant would receive less than a represented claimant." Jacobsen v. Allstate, 215 P.3d 649, 659 - 60 (Montana 2010). Likewise, the federal district court stated in Wells v. Allstate, 210 F.R.D. 1, 4 (D. D.C. 2002), that "Allstate concedes that claimants represented by counsel receive settlements two to three times greater than those who proceed without counsel, and admits that the goal of [its redesigned claims system] was to reduce the level of attorney representation." If anything, these observations are understated. Internal Allstate documents from that redesign effort state, for example, that "Opportunity [to save Allstate money] is driven by attorney involvement . . . Payments on represented claims is on average five times the size of uprepresented claims . . . Attorney representation can be reduced." Insurance companies do not want to you to consult with an attorney for a reason, and that reason is to save them money.
Recent congressional testimony by the Legislative Director of the Consumer Federation of America (CFA) catalogued several major trends in the insurance industry over the past two decades. Most of these trends are extremely adverse to consumers including small businesses. The first trend is the "hollowing out" of the benefits provided in many insurance policies through more restrictive coverage provisions and expanding exclusions that are poorly understood by the insureds who purchase these legally complex documents. The second trend is that many major insurance companies have turned their "claims operations into 'profit centers' by using computer programs and other techniques designed to routinely underpay policy holder claims." As a result, the percentage of each premium dollar that goes to pay claims has fallen dramatically over the past 20 years, producing "unprecedented profits" for insurance company shareholders and insurance company executives at the expense of the insureds. The full report can be found at:
Testimony of Travis V. Plunkett, Legislative Director, Consumer Federation of America, 7/29/08.
The Alaska Personal Injury Law Group has frequently warned injured Alaska consumers about various bad faith tactics used by insurance companies. A new study just released by the American Association for Justice documents many of the bad faith and fraudulent tricks and tactics insurance companies use to evade paying valid claims. Tricks of The Trade: How Insurance Companies Deny, Delay, Confuse and Refuse. All Alaskan consumers, but especially injured Alaskans making claims against an insurance company, need to read this revealing study.
The study details the bad faith tricks and tactics insurance companies use to delay and deny claims the policy requires the insurer to pay. It illustrates its findings with examples of tricks the insurers used against real people to deny their valid claims. These true stories involve outrageous conduct by insurance companies, reminiscent of John Grisham’s novel The Rainmaker. Unfortunately for the poor victims of this insurance company bad faith, the stories are not fiction. They illustrate well the depths to which insurers will stoop to enhance profits at the expense of the insured victims.
These sinister tactics are not limited to liability claims or automobile insurance. The horror stories include insureds who had their health insurance policies revoked in the middle of cancer treatment. The wrongful cancellations resulted in suspension of the critical treatment, delay in resuming crucial treatment, and the burden of unpaid bills totaling hundreds of thousands of dollars. Other true stories involve insureds who had their long term care policies revoked when they finally needed care, after paying premiums for the insurance for many years. In one instance, the family business had to be sold to cover the unpaid bills the insurance company wrongly refused to pay.
These horror stories are not isolated occurrences. Investigating whether an insurer engaged in wrongful post-claim underwriting to cancel health policies, California insurance regulators randomly selected 90 cases where Anthem Blue Cross cancelled policyholders who made a claim. In every single one of those 90 randomly selected cases, the regulators found that Blue Cross had violated state law in cancelling the policy. Study at p. 13.
Insurance companies use these same bad faith tactics to deny claims for damage for many different kinds of insurance. They are used on claims under homeowners’ policies, health insurance policies, long term disability policies, and others. The study names companies that engage in these bad faith schemes and gives specific examples of the bad faith, fraud, and the internal insurance company programs used to implement these tactics. Some of the companies discussed are Farmers Insurance Company, Allstate Insurance Company, State Farm Insurance Company, and AIG Insurance Company.
For example, Farmers Insurance Company had an employee incentive plan called “Quest for Gold” used to reward employees who met goals for low payments.
The Alaska Personal Injury Law Group has previously discussed some of Allstate’s bad faith practices, for example Institutional Bad Faith 101 -- How Allstate's DOLF Program Works, and Study Finds Institutional Bad Faith at Allstate, State Farm and Other Major Insurers. A new study just released by a national consumer’s group has now found that Allstate’s institutional bad faith practices and mistreatment of policyholders make it the worst insurance company in America. The Ten Worst Insurance Companies in America.
The new study by the American Association for Justice was a comprehensive investigation of insurance companies across a wide variety of types of insurance. The investigation included review of thousands of court documents, FBI records, SEC records, records of state division of insurance complaints and investigations, and sworn testimony of former insurance adjusters. Based on that review, “One company stood out above all others. Allstate’s concerted effort to put profits over policyholders has earned its place as the worst insurance company in America.” The Ten Worst Insurance Companies in America p. 1.
Although Allstate beguiles consumers with its “good hands” advertising, the study examined Allstate internal documents that instruct claim handlers to use hardball “boxing gloves” tactics against its own policyholders. The Ten Worst Insurance Companies in America p. 3-4. The boxing gloves approach includes lowball offers and hardball litigation, backed up by Allstate’s huge financial might which it asserts against insureds who have the gall to seek the full compensation promised by Allstate’s insurance policy. Former employees describe the boxing gloves approach as the “three Ds”, which are deny, delay, and defend.
Allstate implemented this system, called Claim Core Process Redesign, (CCPR) in 1995 at the urging of consultants McKinsey Company. McKinsey are the “profits above all else” folks who brought you Enron. They proposed a makeover so that Allstate’s processes would focus on profits and enhancing shareholder value over all else, particularly over an insurer’s traditional duties of good faith and fair dealing towards its insureds. For more information about this scheme, see Allstate Finally Releases Development Documents For Its "Boxing Gloves" Claims Adjusting Program.
Why would the good hands people secretly start using boxing gloves on the insureds who put their trust in them? Money. The boxing gloves approach has been incredibly lucrative for Allstate. Allstate’s profit in 2007 alone was $4.6 billion. By comparison, Allstate’s surplus in 1994, accumulated over the entire life of Allstate, was only $6.5 billion. Since implementing CCPR, Allstate’s average net income per year has been approximately $2.25 billion.
Alaska Personal Injury Law Group attorneys have waged many legal battles to force Allstate to produce documents that are relevant to insurance "bad faith" claims against the insurer by injured Alaskans. These claims have alleged that Allstate unfairly and unreasonably delayed and "low balled" their personal injury insurance claims. Significantly, the Florida Department of Insurance, Office of Insurance Regulation (OIR) recently suspended Allstate's license to write new insurance in that state because Allstate refused to produce documents requested by the Office of Insurance Regulation (OIR) regarding Allstate's claim practices. That suspension order was recently affirmed by the Florida Court of Appeals, which wrote that "Allstate's willful, indeed potentially criminal, failure to comply with its disclosure obligations has prevented OIR from adequately investigating its reasoned belief that Allstate is systematically defrauding its policyholders." Allstate Floridian, et. al. v. Office of Insurance Regulation, 2008 WL 2048349 (Fla. App., May 14, 2008) Forcing the insurer to produce the relevant documents is key to any successful insurance "bad faith" case. We have often gone back to court repeatedly to ensure that we get the evidence injured insureds need to prove their claim. We are encouraged by the Florida court's firm stance on this issue.
Allstate has finally made public its controversial "McKinsey Documents" which describe the development of its self-described "radical" claims handling program. Allstate made these documents public just days after a Florida court affirmed an order from the Florida Division of Insurance prohibiting Allstate from writing any new business in that state until it produced those documents to the Division of Insurance there. Download file The Alaska Personal Injury Law Group already has a copy of many of the McKinsey Documents, having obtained a court order requiring Allstate to produce them in litigation pending in Alaska. From these documents and other sources, the Alaska Personal Injury Law group is familiar with Allstate's self-described "radical" claims program designed by the international business consulting firm McKinsey & Company. According to Allstate records, this program has generated hundreds of millions of dollars in additional profit for Allstate's shareholders and executives. The program, called Claims Core Process Redesign or "CCPR," had three key components: (1) discouraging claimants from hiring attorneys because McKinsey's extensive closed-claim study showed that represented claimants, even after adjusting for the same type of claim, were paid far more than unrepresented claimants; (2) arbitrarily and systematically depressing claim valuations through a centrally "tuned" claims evaluation computer program with the not-so-friendly name of "Colossus;" and (3) vigorously litigating against claimants who did not submit to Allstate's new arbitrarily-lowered claim valuations (candidly called the "Boxing Gloves" treatment by McKinsey and Allstate, as contrasted with the "Good Hands" treatment given to claimants who agreed to Allstate's valuations). For the last 10 years, Allstate has doggedly refused to produce the McKinsey Documents in cases alleging bad faith claims handling. In the few cases in which courts have ordered Allstate to produce the McKinsey Documents (like one currently being handled by the Alaska Personal Injury Law Group), the court imposed strict confidentially rules based on Allstate's claim that the documents were allegedly important trade secrets. Allstate produced 12,929 pages of McKinsey Documents to the Alaska Personal Injury Law Group under protective order. The Alaska Injury Law Group is now looking forward to using these documents without the burdensome confidentiality restrictions previously advocated by Allstate.
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.
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:<
Blue Cross Letter:<
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’s Bad Faith Claim Practices and Rate Increases Are Being Investigated by Legislators and Regulators
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.
Allstate Using Same Discovery Dodges Against Regulators As It Uses Against Insureds in Bad Faith Cases
The attorneys of the Alaska Personal Injury Law Group continue to watch closely as the insurance commissioner of Florida battles to obtain documents that show Allstate’s institutional bad faith claim handling practices. Allstate is using the same tactics of delay and obfuscation against the regulators that it typically uses in bad faith cases against Allstate in Alaska. A good example is the 12,000 McKinsey & Company documents that Allstate finally produced to the Florida insurance regulators last week, stamped as “trade secrets.”
As part of its public relations campaign, Allstate paints itself as the victim who is trying hard to find and produce the documents covered by the insurance regulators' subpoena. The truth is that these crucial documents about Allstate’s bad faith practices were readily available all along. The McKinsey documents had been catalogued, numbered and scanned in prior bad faith cases, long before the regulators subpoenaed them. These catalogued documents were available to Allstate as paper copies and had also been copied onto computer CD-ROM or DVD. They were available to produce to the Florida insurance regulators with no more effort than a phone call.
There is no valid excuse for Allstate failing to produce the McKinsey documents to the Florida insurance regulators before the January 15 hearing for which they were subpoenaed. Allstate just wanted to hide them from the public and not be questioned about them at the hearings.
Why did Allstate already have these documents readily available in this organized form? Allstate hired the huge international law firm Steptoe & Johnson to fight production of these documents in insurance bad faith cases against Allstate all across the country. That effort is coordinated through the firm’s Phoenix office. Steptoe & Johnson oversaw the organizing, numbering and scanning. When Allstate loses one of these battles and a court finally orders Allstate to produce this evidence of Allstate’s institutionalized bad faith, these documents are produced in this same sequence with the same numbers. It is a package of crucial documents that each insured must fight to see when they sue Allstate for bad faith claim handling.
Will Allstate finally have to make public its own internal documents about claim handling practices and procedures that many insureds allege are bad faith programs that cheat them of the insurance coverage they paid for? Attorneys of the Alaska Personal Injury Law Group are watching closely as insurance regulators try to obtain these documents. Many of these documents are the very same ones our lawyers have been trying to get from Allstate in Alaska cases alleging bad faith and fraud by Allstate against its own Alaska insureds when they made a claim for the coverage benefits they paid for.
As I reported in an earlier article, the Florida Office of Insurance Regulation (FLOIR) subpoenaed from Allstate documents about its bad faith program for systematically low-balling and underpaying claims. This program, instituted in Alaska and the rest of the country in 1995, was created with the help of the McKinsey Company. The Office of Insurance Regulation states in a brief to the court that the insurance statutes required Allstate to provide these documents in response to its subpoena. More importantly, the regulators state that Allstate purposefully failed to provide the documents and willfully violated the insurance code by withholding them.
FLOIR also states that Allstate made misrepresentations to the court about documents it did produce. As Allstate typically does in bad faith insurance claims against it in Alaska and elsewhere, Allstate pointed to the thousands of documents it had produced. Allstate's trick, of course, is to produce documents the opponent already has or that are meaningless, while sparing no effort to hide the important documents. FLOIR also stated to the court that many of the documents Allstate did produce were public documents it already had.
FLOIR also told the court that Allstate “falsely marked” as “Trade Secret” many documents that were publicly available, many even available on the internet. This "trade secret" ploy is a favorite of Allstate and other insurers in bad faith cases. Evidence harmful to the insurer is a “trade secret,” even if it is on the internet or otherwise publicly available. In our Alaska bad faith cases, Allstate has repeatedly claimed "trade secret" protection for documents we were able to find by investigating public sources.
Yesterday I wrote an article about Allstate’s failure to provide documents required by a subpoena from the Florida Office of Insurance Regulation. Some of those important documents are the same claim handling documents that members of the Alaska Personal Injury Law Group are trying to get from Allstate in a class action for bad faith and fraud against Alaska insureds.
The documents we are seeking have to do with special programs Allstate implemented in 1995. There have been assertions in bad faith cases across the country that these programs systematically underpay compensation Allstate owes to its own insureds under their Allstate policies.
As noted in my article yesterday, the Florida Commissioner of Insurance suspended what was supposed to have been a two day hearing after only a half day, so he could consider what sanction to impose on Allstate to make them produce the documents. Since a court in Missouri was already fining Allstate $25,000 a day for refusing to produce documents, he concluded a fine would have no effect on Allstate. So he suspended the authority of three Allstate companies to write new insurance in Florida. The companies were Allstate Insurance Company, Allstate Indemnity Company, and Allstate Property and Casualty Company. He later issued a Final Order that expanded the list to include all ten Allstate companies that had been served with the subpoena.
It will be very interesting to see how this plays out. How far will Allstate go to keep these important documents from the public eye? If they do not show an underpayment scheme, why is Allstate taking such risks to hide them from regulators and the public?
Have you ever felt like insurance rates hardly ever go down, even when the insurance industry makes record profits? Funny you should feel that way. Two current news items may help explain why. Both involve attempts by Allstate Insurance companies to obtain very large rate increases.
The first occurred in Florida. Allstate submitted proposed rate increases for various Allstate companies that would have increased rates by a whopping 28 to 42 percent. Insurance regulators denied the rate applications and Allstate appealed. At the beginning of the appeal hearing, Allstate withdrew its applications for the huge rate increases. The Office of Insurance Regulation had subpoenaed many documents for the hearing, but Allstate failed to provide them. After half a day, the Insurance Commissioner cancelled the hearing to consider sanctions against Allstate.
Inquiring minds would ask: Why would an insurance company withdraw its request for such huge rate increases if they were truly justified by the actual loss experience? If the loss experience was that bad, wouldn’t the insurance company need those increases to stay in business? Wouldn’t the insurer fight for those necessary rate increases? Some in Florida must have been asking those same questions, as the state Senate immediately announced it would require Allstate to attend hearings and testify.
Despite beating a hasty retreat by withdrawing its rate filing, Allstate said it was happy to be at the division of insurance hearing. Employing a tactic familiar to lawyers who have handled bad faith cases against Allstate, the company also touted that it had produced thousands of documents. To the contrary, state officials responded that the documents Allstate provided were irrelevant and not the important documents they had requested. Lawyers experienced in bad faith cases against Allstate were not surprised that Allstate crowed about the thousands of unresponsive documents it had produced, since insureds suing Allstate for bad faith see these same tactics repeatedly.
The subpoena by the Florida insurance regulators listed many of the very same documents that lawyers of the Alaska Personal Injury Law Group have been trying to get from Allstate. Mr. O'Donnell and I are counsel in a class action against Allstate alleging various forms of fraud and bad faith claim handling. That case is focused in part on the Allstate claim handling program called Claim Core Process Redesign (CCPR) implemented by Allstate in 1995. Allstate itself described this as a "radical" change in the traditional claim handling handling process. Many lawsuits have been filed claiming that the system systematically underpays claims. An integral part of CCPR is the use of Colossus, a computer program that Allstate can "tune" to produce reduced claim evaluations. In categories 39 through 50, Florida insurance regulators are trying to get these same documents about CCPR and Colossus from Allstate.
The second curious rate application occurred in California, where Allstate sought a 9.3% increase in homeowners insurance rates, based on the assertion that Allstate had invested $82 million in low income housing in inner cities and rural areas. Bet you didn’t think an insurer could increase your rates based on an investment that had nothing to do with the actual loss experience and actual loss ratio on the coverage. In contrast to Allstate’s request for this hefty rate increase, its major competitors actually lowered their rates by up to 20%.
How do these rate matters from Florida and California apply to Alaska?
Alaska Supreme Court Issues New Ruling on Underinsured Motorist (UIM) Coverage for Personal Injuries.
The insured received serious personal injuries while riding in a car that was struck by another motor vehicle. She settled with Safeco, the insurance company of the negligent driver, for the facial policy limits of $50,000, without payment of any add-ons for interest or attorney fees. She then made a claim for her uncompensated damages under the underinsured motorist (UIM) coverage of her own policies with Allstate. After hearing all the evidence, the arbitrators found her damages to be $118,432.
A primary issue on appeal was whether Allstate was entitled to an offset of the $50,000 paid by Safeco. The Supreme Court ruled that Allstate was entitled to such an offset even though Allstate had not pled or otherwise asserted the right to an offset to the arbitrators. The offset was deemed proper based on the language of the Alaska statutes, the purpose of UIM coverage, and the terms of the Allstate policy.
A second issue was whether Allstate had to pay interest and attorney fees on the entire $118, 432, which included $50,000 of the insured’s damages that had been paid by Safeco. The Court ruled that Allstate did not; because these amounts could have been recovered under the Safeco policy, the insured was not "underinsured" as to those amounts. The Court thus created a crucial distinction in underinsured motorist claims. It reaffirmed the rule of the earlier Coughlin case that if a person obtains the policy limits of the adverse driver, they have exhausted that policy for purposes of qualifying to bring a claim for underinsured motorist coverage against their own insurance company, even though they did not obtain the add-ons available under that policy. But because they could have pursued the add-ons under the first policy, their claim for add-ons to the amount paid under the first policy is not a proper element of the subsequent UIM claim. Sidney v. Allstate Insurance Company, Opinion 6220, January 11, 2008.
On January 9, 2008, a Texas judge sanctioned Texas Mutual Insurance Co. $30,000 for committing fraud on the court. In the litigation, a worker had prevailed against Texas Mutual in his claim seeking worker’s compensation coverage for his work-related injury. To defeat the worker’s claim, the court found that Texas Mutual falsified a medical record and intentionally used it throughout the litigation to prevent the worker from receiving his benefits. The trial court ruled inTexas Mutual Insurance Co. v. Juan Narvaez, that the insurer committed “fraud on this court and the defendant by falsifying a critical medical record, and then using that record throughout discovery, depositions and trial. This fraudulent conduct was committed knowingly and intentionally by agents and representatives of Texas Mutual Insurance Company.” In addition to the monetary sanctions, the court ordered the insurer to post the sanctions order on the insurer’s website, www.texasmutual.com, within seven days of the order and keep it up for 180 days. Remarkably, after being caught, the insurer then secretly solicited from a doctor yet another altered document which a hospital official later confirmed under oath was not a genuine record.
Another reason this case is remarkable is that Texas Mutual Insurance is well-known for its efforts lobbying for tort reform and limitations on bad faith claims against insurers. Here, the company’s own conduct makes the case for why insureds should be permitted to assert claims against insurers when acts in bad faith occur. Without the governance that litigation can bring, it would be open season on insureds by insurers willing to commit fraud to avoid paying legitimate claims.
Source: Texas Mutual Insurance Company v. Juan Narvaez (Cause No. 04-06061-C) in the 68th District Court of Dallas County, Texas.
A report just released by the Consumer Federation of America estimated that the average family in the U.S. has been overcharged for auto and home insurance over the last four years because companies have been charging excessive premiums and paying out proportionately less in claims.
The insurance industry reaped record profits in 2004 and 2005, and profits in 2006 rose to unprecedented heights. Profits in 2007 may also be recordbreaking. The CFA reported that the average percentage of premium payments paid back to cover losses has dramatically declined over the last 20 years – from a high of 70 percent to 54.6 percent last year – translating into a huge loss in the value of insurance to consumers. Insurers, on the other hand, had net income of $65 billion last year. Insurers thus paid out 34 percent of premiums to cover property losses – a figure that was topped in this decade only by the record low 27.7 percent loss ratio in 2004.
Regardless what type of insurance coverage is being discussed, insurers routinely claim that their losses are mounting because of unscrupulous lawyers, frivolous claims, and unexpected natural disasters. Such claims are then used to foment tort reform and explain away premium increases, neither of which are justified when the true loss experience of the insurer is examined. The critical reader is encouraged when hearing such claims by insurers to go to the data. More than likely it will be the case that the insurer’s decision to increase premiums will not be justified by the loss history. Moreover, the insurer will likely be sitting on extraordinary reserves and profits.
Sources: Dallas Morning News 1/10/08; www.consumerfed.org
A Missouri appeals court Tuesday upheld an $8 million punitive damages judgment imposed against State Farm Insurance. The case involved a lawsuit filed by two insureds who held an auto insurance policy with State Farm. The insureds accused State Farm of malicious prosecution and breach of contract.
As is common, the insurer was able to frustrate resolution of the claim for years. The case began over 10 years ago when the insureds reported the theft of a Toyota 4Runner, which was later found abandoned and burned in Miami County, Kan. State Farm declined to pay the $10,000 claim and, working through an industry investigative service, referred the case to Johnson County prosecutors, who charged Hampton and Vail with insurance fraud. This technique of getting the authorities to bring fraud charges is commonly used by insurers as a technique to intimidate insureds into abandoning even legitimate claims made against their policies.
After a jury acquitted the insureds of any wrongdoing in 2001, they filed the civil action against State Farm. In September 2005, the civil jury awarded them each $400,000. Later that year, a judge adjusted those amounts to $250,000 because of a statutory cap, and he also assessed the punitive awards.
State Farm appealed. The Court of Appeals for the Western District of Missouri upheld the judge’s actions. A State Farm spokeswoman said the company was disappointed by Tuesday’s ruling and thought the large punitive award was contrary to the evidence and represented an unconstitutionally unfair judgment.