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.
Allstate Insurance Company “gave employees who denied valid claims rewards such as portable fridges, and used a ‘boxing gloves’ approach to policyholders who refused to accept lowball offers.” The Alaska Personal Injury Law Group has previously warned injured Alaskans about this bad faith “boxing gloves” scheme. To enhance profitability, AIG Insurance Company would form teams of staff “to systematically reject thousands of valid claims.”
The study also explains how insurers use complex language in insurance policies to trick insureds into paying high premiums for special coverage, which is cancelled by other language in the policy. An example is that homeowners who bought hurricane insurance had their claims denied after Hurricane Katrina because there was another obscure provision in the policy, an “anti-concurrent” clause, that negated coverage for any damage by flood, even if the flood was directly caused by and part of the hurricane!
Why would insurers engage in such wrongful practices to the harm of insureds who are in dire need of the protection they paid for? Greed, pure and simple. As recounted in the report, the goal of this insurance bad faith and fraud is to further increase the profits of the insurance companies. The insurance companies do this even though the liability insurance industry enjoys average profits of over $30 billion a year, and the life and health insurance industry also enjoys yet another average profit of over $30 billion a year. Study at footnote 1. “The insurance industry’s assets total $3.8 trillion, more than the [Gross Domestic Product] of all but two countries in the world (United States and Japan).” Study at footnote 1.
A former senior executive at the National Association of Insurance Commissioners (NAIC) aptly summarized why insurers engage in such bad faith tactics to deny valid claims, “[T]he bottom line is that insurance companies make money when they don’t pay claims. . . They’ll do anything to avoid paying, because if they wait long enough, they know the policyholders will die.” Study at 6. While she was speaking of long-term care insurance, the same principle holds true with respect to liability insurance for injuries, homeowners insurance, and all other forms of insurance. Insurers who deny valid claims get richer by keeping the money they promised to pay to their insureds who desperately need the protection they paid for with their premium dollars.
The AAJ study is a short but very enlightening document that all injured Alaskans and insurance consumers should read.