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Tricks of the trade: dealing with insurers

Too often, insurance companies refuse to pay fair and just claims to policyholders. Indeed, some companies have rewarded employees who successfully denied claims, replaced employees who would not, and when all else failed, engaged in outright fraud to avoid paying claims. When they do, the only way to hold them accountable is through the civil justice system.

Many insurance companies refuse to pay just claims, employ hardball tactics against policyholders, reward executives with extravagant salaries, and raise premiums while hoarding excessive profits. At the same time, the insurance industry has enjoyed its highest yearly profits ever, all at the expense of consumers.

The American Association of Justice (AAJ) has conducted extensive research to examine insurance company greed and how consumers can hold them accountable. AAJ has issued a report called “Tricks of the Trade: How Insurance Companies Deny, Delay, Confuse and Refuse.” It contains several tips for consumers to aid in handling claims. You can view the report by clicking here.

Ten worst insurance companies

Allstate ranks as the worst insurer for consumers, according to a comprehensive investigation of thousands of legal documents and financial filings released by the American Association for Justice.

The rankings show a distinct pattern of insurance industry greed amongst 10 companies that refuse to pay just claims, employ hardball tactics against policyholders, reward executives with extravagant salaries, and raise premiums while hoarding excessive profits.

“While Allstate publicly touts its ‘good hands’ approach, it has instead privately instructed its agents to employ a ‘boxing gloves’ strategy against its policyholders,” said American Association for Justice CEO Jon Haber. “Allstate ducks, bobs and weaves to avoid paying claims to increase its profits.”

Allstate (NYSE: ALL) set the standard for insurance company greed and placing profits over policyholders. Allstate contracted with consulting giant McKinsey & Co. in the mid-1990s to systematically force consumers to accept lowball claims or face its “boxing gloves,” an aggressive strategy designed to deny claims at any cost. One Allstate employee reported that supervisors told agents to lie and blame fires on arson, and in turn, were rewarded with portable fridges.

Thousands of court documents, materials uncovered from litigation and discovery, testimony, complaints filed with state insurance departments, SEC and FBI records, and news accounts were reviewed to compile the rankings and statistics.

The rest of the rankings are as follows:

2. Unum (NYSE: UNM) – Unum’s actions are even more shameful considering the type of insurance it sells: disability. Unum’s behavior was epitomized when it denied the claim of a woman with multiple sclerosis for three years, stating her conditions were “self-reported,” contrary to doctors’ evaluations. In 2005, Unum agreed to a settlement with insurance commissioners from 48 states over their practices.

3. AIG (NYSE: AIG) – The world’s biggest insurer, AIG’s slogan was “we know money.” AIG, described by commentators as “the new Enron,” has engaged in massive corporate fraud and claims abuses. In 2006, the company paid $1.6 billion to settle a host of charges.

4. State Farm – State Farm is notorious for its deny and delay tactics, and like Allstate, hired McKinsey consultants. State Farm’s true motives became apparent during Hurricane Katrina; for example, it employed multiple engineering firms until they could deny the claims of the Nguyen family of Mississippi. In April 2007, State Farm agreed to re-evaluate more than 3,000 Hurricane Katrina claims.

5. Conseco (NYSE: CNO) – Conseco sells long-term care policies, typically to the elderly. Amongst its egregious behavior, the insurer “made it so hard to make a claim that people either died or gave up,” said a former Conseco-subsidiary agent. Former Conseco executives were fined when they admitted to filing misleading financial statements with regulators.

6. WellPoint (NYSE: WLP) – Health insurer WellPoint has a long history of putting profits ahead of policyholders. For instance, California fined a WellPoint subsidiary in March 2007 after an investigation revealed that the insurer routinely canceled policies of pregnant women and chronically ill patients.

7. Farmers – Swiss-owned Farmers Insurance Group consistently ranks at or near the bottom of homeowner satisfaction surveys, and for good reason. For example, Farmers had an incentive program called “Quest for Gold” that offered pizza parties to its adjusters that met low claims payments goals. Like Allstate, it also hired the McKinsey consultants.

8. UnitedHealth (NYSE: UNH) – The SEC opened an investigation into former UnitedHealth CEO William McGuire for stock backdating, which ultimately led to his ouster in 2006 and returning $620 million in stock gains and retirement compensation. Physicians have also reported that their reimbursements are so low and delayed by the company that patient health is being compromised.

9. Torchmark (NYSE: TMK) – According to Hoover’s In-Depth Company Records, Torchmark’s very origins were little more than a scam devised to enrich its founder, Frank Samford. Torchmark has preyed on low-income Southern residents and charged minority policyholders more than whites on burial policies.

10. Liberty Mutual – Like Allstate and State Farm, Liberty Mutual hired consulting giant McKinsey to adopt aggressive tactics. Liberty’s tactics were highlighted when a New York couple’s insurance was “nonrenewed” by Liberty, even though they lived 12 miles from the coast and never experienced weather-related flooding.

Financial documents also revealed extravagant profits and executive compensation while policyholders’ claims were routinely delayed and denied:

• Over the last 10 years, the property / casualty and life / health insurance industries have each enjoyed annual profits exceeding $30 billion.

• The insurance industry takes in over $1 trillion in premiums every year. It has $3.8 trillion in assets, more than the GDPs of all but two countries.

• The CEOs of the top 10 property / casualty firms earned an average of $8.9 million in 2007. The CEOs of the top 10 life / health insurance earned an average of $9.1 million.

• The median insurance CEO’s cash compensation is $1.6 million per year, leading all industries.

To see how consumers can hold the insurance industry accountable and view a full copy of the study, click here.

Wal-Mart drops subrogation lawsuit

Wal-Mart Stores Inc. is dropping a controversial effort to collect over $400,000 in health-care reimbursement from a former employee who is confined to a southeast Missouri nursing home since she suffered brain damage in a traffic accident.

The world’s largest retailer said Tuesday in a letter to the family of Deborah Shank it will not seek to collect money the Shanks won in an injury lawsuit against a trucking company for the accident. For a complete report on Wal-Mart’s change of heart decision, click here.

We originally blogged about this story in November 2007 (click here to see that piece) after a federal appeals court in Missouri gave the green light to Wal-Mart’s egregious collection practices through subrogation. The efforts by Wal-Mart were condemned on many fronts. The LA Times called the move legal, but wrong (click here to read that opinion piece). The folks at Wal-Mart Watch called it moral bankruptcy (click here to read that opinion piece). The American Bar Association warned that some people who are injured and receive a settlement or verdict are getting a big surprise: more litigation from the health plan that paid their benefits and now wants the money back.

It’s good to see that the pressure paid off and that the family can move on with their lives.

Allstate suspended in Florida

Florida Insurance Commissioner Kevin McCarty announced that he is suspending the certificate of authority of Allstate Companies to write new insurance in Florida until they fully comply with the subpoenas served October 16, 2007 by the Office of Insurance Regulation (Office). A copy of the order is available by clicking here.

The decision by the commissioner follows Tuesday’s (January 15, 2008) action when he abruptly halted the scheduled two-day hearing into the Allstate Companies’ reinsurance program, their relationships with risk modeling companies, insurance rating organizations and insurance trade associations. The subpoenas seek disclosure of the McKinsey Documents, in which McKinsey & Co. instructed Allstate how to systematically underpay claims starting in the mid 1990s. The content of the documents is so explosive that Allstate has already ignored a $25,000 per day fine in Missouri for its ongoing failure to provide the McKinsey Documents in that state.

The McKinsey documents were the subject of a previous blog which can be viewed by clicking here.

“In view of Allstate’s ongoing, blatant disregard of our subpoenas, I have little choice but to take an action that will send a clear message about how seriously I am taking this issue,” said Commissioner McCarty. “Suspending their certificate of authority to write new business in our state should make my point.

“If Allstate is willing to pay $25,000 per day in fines to a Missouri court for its ongoing failure to provide similar documents, it’s obvious to me that it will take more than a monetary sanction to get them to comply with our subpoenas.”

Allstate was to have provided all appropriate company documents related to the above topics at or before Tuesday’s hearing, but failed to do so. Instead, the Office received 51 pages of objections to the subpoenas.

The suspension applies to Allstate Insurance Co., Allstate Indemnity Co. and Allstate Property and Casualty Co., and it only suspends the companies from writing new business in Florida.

Existing policyholders will not be affected. Allstate must continue to service them and the companies must make all required statutory filings including, but not limited to, audited annual financial statements, quarterly financial statements and rate filings.

“The duration of the suspension is up to them,” added McCarty. “It will be lifted when I am satisfied that we have received each and every document we need to properly investigate the important issues before us.

“It continues to trouble me that Allstate has not complied with our subpoenas and is not willing to explain to us their relationships with rating agencies, modeling companies and trade groups and how these relationships might have influenced the huge rate increases they have requested. This clearly cannot be in the best interests of Florida consumers.”

This is the first time the Florida Office of Insurance Regulation has suspended a company for failure to “freely” provide documents as required by Florida law.

A copy of the subpoena is available by clicking here.

A copy of Allstate’s response is also available by clicking here.

Insurers overcharge, underpay

The property/casualty insurance industry continued in 2007 to systematically overcharge consumers and reduce the value of home and automobile insurance policies, leading to profits, reserves, and surplus that are at or near record levels. The study, released by the Consumer Federation of America, estimates that insurer overcharges over the last four years amount to an average of $870 per household.

The report provides extensive data demonstrating that property/casualty insurance companies are paying out lower claims in relationship to the premiums they charge consumers than at any time in decades. The pure loss ratio, the actual amount of each premium dollar insurers pay back to policyholders in benefits, was only 54.6 cents in 2007. Over the past 20 years, the amount paid back as benefits has dramatically declined from over 70 cents per premium dollar, indicating a huge loss in the value of insurance to consumers.

“Consumers ultimately pay the price for the unjustified profits, padded reserves, and excessive capitalization that exist right now in the insurance industry,” said J. Robert Hunter, the Director of Insurance for the Consumer Federation of America (CFA) and author of the study. Hunter is an actuary, former state insurance commissioner, and former federal insurance administrator.

“The insurance industry reaped record profits in 2004 and 2005, despite significant hurricane activity,” said Hunter. “Profits in 2006 rose to unprecedented heights and 2007 may set a fourth consecutive profit record,” he said. “Unfortunately, a major reason why insurers have reported record-high profits and low losses in recent years is that they have been methodically overcharging consumers, cutting back on coverage, underpaying claims, and getting taxpayers to pick up some of the tab for risks the insurers should cover,” said Hunter.

You can view the full study by clicking here.

Wal-Mart and the evils of subrogation

One of the more frustrating aspects of the personal injury practice is explaining the concept of subrogation to clients. Last week, Wal-Mart insured that subrogation will continue to be an evil in the tort world.   The Wal-Mart’s, and those of their ilk, have cultivated a new breed of subrogationist — the catfish of the industry.

Subrogation is one of those “fine print” aspects of health insurance policies that gives insurers and employers a legal claim on a client’s recovery in a tort case. That is, the health insurer is able to get first dibs on any money paid before the injured person can recover for his/her personal loss. To make matters worse, the health insurers don’t care whether the injured person is made whole and refuse to contribute to attorney’s fees and costs incurred.

It is, indeed, one of the most blatant abuses of tort law by corporations, and the courts have refused to step in and put an end to this practice. As a result, many claimants not only suffer physical injuries, but they lose the right to recover fully by greedy insurance companies.

Last week, a federal appeals court in Missouri gave the green light to these egregious collection practices by health insurers. Last year, the Supreme Court in Sereboff v. Mid Atlantic Medical Services, ruled that a health plan could sue for recovery of settlement money held in a separate, identifiable fund under ERISA provisions allowing suits for “equitable relief.” As the Missouri case demonstrates, recoveries under subrogation clauses are anything but equitable.

Last week’s case involved a collision with a semi-trailer truck seven years ago that left 52-year-old Deborah Shank permanently brain-damaged and in a wheelchair. Her husband, Jim, and three sons found a small source of solace: a $700,000 accident settlement from the trucking company involved. After legal fees and other expenses, the remaining $417,000 was put in a special trust. It was to be used for Mrs. Shank’s care.

Instead, all of it is now slated to go to Mrs. Shank’s former employer, Wal-Mart Stores Inc. under a subrogation clause hidden in the plan that covered her medical bills. The details of the case were reported in the Wall Street Journal on November 20, 2007. The article can be viewed by clicking here.

The efforts by Wal-Mart have been condemned on many fronts. The LA Times has called the move legal, but wrong (click here to read that opinion piece). The folks at Wal-Mart Watch have called it moral bankruptcy (click here to read that opinion piece). The American Bar Association has warned that some people who are injured and receive a settlement or verdict are getting a big surprise: more litigation from the health plan that paid their benefits and now wants the money back.

The ABA also noted that insurers recover some $1 billion a year, according to the industry group, American Benefits Council and America’s Health Insurance Plans (See amicus brief filed by ABC, at p. 3, n. 3). A “cottage industry” of subrogation lawyers and benefit-recovery firms help companies go after the money.

It appears that unless Congress steps in, subrogation will be an obstacle that will prevent injured people from recovering, and pad the pocketbooks of greedy health insurers.

Pattern of greed

While the insurance industry enjoys record profits and bulging bank accounts, too many people in the Gulf region are left waiting for the settlements that will help them get back on their feet. A full two years after Hurricane Katrina, Gulf Coast policyholders are still fighting for fair and just resolution of their claims. The abuses of the insurance industry must not be forgotten. To ensure this, the American Association for Justice (AAJ) has released a compelling new report, Pattern of Greed 2007 , which documents the insurance industry’s consistent practice of denying policyholders what they are due. As this report relates, the insurance industry has made a practice of collecting billions of dollars from policyholders over the years and then abandoning them in their time of greatest need. View the complete report by clicking here.

For decades, insurance companies have used questionable tactics to delay and deny the payment of fair and just claims to policyholders in their time of greatest need, putting profits ahead of fairness.

Financially devastated victims of Hurricane Katrina are left waiting for settlements while the insurance industry has demonstrated a clear pattern of greed with record profits. In fact, insurance companies continue to increase their profits, posting a record profit of more than $60 billion in 2006 – an increase of $20 billion over their record profit of $40 billion in 2005.

As long as the government fails to reign in the insurance industry, the courts will be the last resort for people to seek justice and ensure they receive fair compensation for their claims.

Demand that the industry clean up its act and pay fair and just claims. Urge your state officials to hold a public state hearing on the abuses of the insurance industry. Ensure that the insurance industry does not practice the same unfair practices should a natural disaster occur in your state. As insurers record massive profits using your hard earned money, the least they can do is fairly pay claims.

Demand that your State Officials hold the Insurance Industry accountable

Like Katrina and Rita, victims of other natural disasters, including past hurricanes, tornadoes and earthquakes have found themselves bullied by the insurance industry into accepting less compensation than they deserved or had their claims rejected for apocryphal reasons, all in an effort to boost the insurance companies’ bottom line. In fact, insurance companies continue to increase their profits, posting a record industry-wide profit for the second year in a row of more than $60 billion in 2006 – an increase of $20 billion from 2005’s record profits.

With all that money handy, the industry still can’t make equitable payments to compensate for the damaged dreams of the people of the Gulf Coast.

To learn more and to see how you can help fight these abuses, view the People Over Profits website by clicking here.

Call & Tell Congress: Support the Insurance Industry Competition Act

Urge your Senators to Co-Sponsor S. 618! Urge your Representatives to Co-Sponsor HR 1081!

Whether it is home, auto, property or commercial insurance, American families and businesses all rely on insurance. Americans have a right to be confident that if they are paying for insurance coverage, their insurance carrier will be there for them if tragedy strikes.

The “Insurance Industry Competition Act” has been introduced in both the U.S. House of Representatives and in the Senate, respectively. For more than 6 decades, the insurance industry has operated beyond the reach of Federal anti-trust laws. This critical legislation would repeal the industry’s anti-trust exemption and give the Department of Justice and the Federal Trade Commission the authority hold insurance companies accountable for their behavior.

In the Senate, the legislation is already sponsored by Senators Leahy, Specter, Lott, Reid and Landrieu. In the House, the measure is sponsored Representatives DeFazio, Taylor, Jindal, Melancon, Alexander and Jones.

Please call your Member of Congress and U.S. Senators today and urge them to co-sponsor this legislation today!

For more information on the bill, click here.

Auto insurers play hardball in minor-crash claims

If you are injured in a minor car crash, chances are good that you will be in the fight of your life to get the insurance company to pay all the medical costs you incur — even if the accident was no fault of your own. That is the finding from an 18 month investigation conducted by CNN on so-called minor-impact soft-tissue injury crashes around the country. Those are accidents in which there is little damage to the vehicle and the injuries to people are not easy to see by the naked eye or conventional medical tools like X-rays.

According to documents obtained by CNN, the strategy was developed in the mid-1990s with the assistance of consulting giant McKinsey & Co. Looking for a way to boost profits, McKinsey focused on soft-tissue injuries incurred in minor crashes. Playing off Allstate’s signature slogan, one document recommends the insurer put boxing gloves on its “good hands” for those who insist on going to court. The McKinsey work was the subject of a May 2006 BusinessWeek article. Entitled In Tough Hands at Allstate, the article highlights a new book by plaintiff’s lawyer David Berardinelli of Sante Fe, New Mexico. In the book, From Good Hands to Boxing Gloves, Berardinelli tells the story of the key role played by management consultant McKinsey & Co. in reengineering auto insurance claims operations at Allstate Corp. — and it’s a story Allstate doesn’t want told.

The strategy, according to former Allstate and State Farm employee Jim Mathis, relies on the three D’s — denying a claim, delaying settlement of the claim and defending against the claim in court.

The premise underlying the three D defense is seriously flawed. That is, it is widely acknowledged in medical practice, that a person’s injuries are not correlated to the amount of damage to their vehicle.

The amount of damage sustained by the car bears little relationship to the force applied. To take an extreme example: If the car was stuck in concrete, the damage sustained might be very great but the occupants would not be injured because the car could not move forward, whereas, on ice, the damage to the car could be slight but the injuries sustained might be severe because of the rapid acceleration permitted.

MacNabb, I., “Acceleration Extension Injuries of the Cervical Spine,” Journal Bone/Joint Surgery, 46:A 1797-1799 (1964). In light of the fact that the scientific literature has stated there is no connection between property damage and extent of injuries, it is improper for insurers use photographs of property damage to argue that there is a connection, knowing the opposite to be true.

Because much of the science and literature surrounding the determination of injuries in low-impact collisions has only been around a few years, courts around the country are just now wrestling with the issues presented by misleading and unsupported property damage evidence. Many courts that have addressed this issue have found that such evidence is not admissible when it is not accompanied by supporting expert testimony to establish an adequate foundation. For example:

Davis v. Maute, 770 A.2d 36 (Del. 2001) (reversible error to admit evidence of property damage and allow counsel to argue serious injuries could not have resulted from a minor collision);

Hastie v. Dohar, 2002 Ohio App. LEXIS 808 (Ohio Ct. App. B 8th Dist. 2002) (finding trial court’s action proper in excluding photographs of property damage as well as argument correlating property damage and injury);

Sloan v. Clemmons, 2001 Del. Super. LEXIS 535 (Del. Super. 2001) (court excluded evidence of amount and extent of property damage, any evidence or argument correlating damage to injury, any evidence regarding force of impact or speed at impact, but allowed testimony of mechanisms of injury by expert witnesses);

Hovis v. Hughes, 2001 Del. Super. LEXIS 534 (Del. Super. 2001) (excluding evidence of property damage but allowing expert testimony about force of impact causing injuries);

The Davis court correctly found:

As a general rule, a party in a personal injury case may not directly argue that the seriousness of personal injuries from a car accident correlates to the extent of the damage to the cars, unless the party can produce competent expert testimony on the issue. Absent such testimony, any inference by the jury that minimal damage to the Plaintiff’s car translates into minimal personal injuries to the Plaintiff would necessarily amount to unguided speculation.

Davis, 770 A.2d at 42.

Until more courts come down on the three D’s, consumers will continue to be victimized in auto crashes.

You’re in “good” hands?

Have you ever had trouble handling a claim with an insurance company? If so, an article which appeared in the May 1, 2006 Businessweek magazine deserves your attention. Entitled In Tough Hands at Allstate, the article highlights a new book by plaintiff’s lawyer David Berardinelli of Sante Fe, New Mexico. In the book, From Good Hands to Boxing Gloves, Berardinelli tells the story of the key role played by management consultant McKinsey & Co. in reengineering auto insurance claims operations at Allstate Corp. — and it’s a story Allstate doesn’t want told. The book claims that the nation’s second-largest home and auto insurer treats some policyholders with “boxing gloves” during their time of financial and personal duress, rather than the reassuringly familiar “good hands” highlighted in its advertising. Here is an excerpt from the publisher’s web site:

In 1992 Allstate started a pilot project that has changed the way insurance companies in America treat their customers, leading to record profits for the company. Since that time, 50% of the insurance industry have scrambled to incorporated these techniques. The others, are desperate to catch up.

Now, three of the nation’s leading experts on Allstate’s claims practices divulge the change in Allstate, including the creation of CCPR, the implementation of the Minor Impact Soft Tissue (MIST) claims segregation, and the implementation of Colossus for the assessment of settlement values. David Berardinelli is the bad faith lawyer who diligently worked to become the first to obtain the “McKinsey Documents” unprotected, and discusses them here at length. Michael Freeman, co-author of West’s Litigating Minor Impact Soft Tissue Cases, and the nation’s leading expert on injuries in minor impact collisions, discusses Allstate’s creation and implementation of the MIST program. Aaron DeShaw, author of Colossus: What Every Trial Lawyer Needs to Know, and the nation’s leading expert on Colossus, discusses Allstate’s implementation of the program to cut claims settlements. The book provides instruction for every level of trial lawyer from those dealing with Allstate on a case by case basis on personal injury claims, to the most difficult bad faith and class action cases. It considers, why Allstate changed from dealing with policyholders with “good hands” to “boxing Gloves,” how to deal with the change at Allstate and other insurers, and how to win against the insurers implementing a “boxing gloves” mentality when handling of policyholder claims.

To see the article in Businessweek or the publisher’s site, click the links above. Pay close attention to the reader comments at the bottom of the article; it is particularly telling what a former Allstate atorney had to say…….