April 2008

The CPSC has issued a recall on BECO “Butterfly” baby carriers.  These are the “papoose” type of carriers, where the baby can hang on the parent’s chest.  The buckles on the carrier are defective and can loosen to the point that the straps slip, posing a risk that the baby will fall to the ground.  The carriers were sold at specialty stores and onlone stores between January and February 2008.  The following carrier styles are included in the recall: Mia, Pony Express, Carnival, Addison, Ethan, Sophia, Cameron, Ava and Joshua.  The defective carriers can be returned to the manufacturer for repairs.

Reuters reports that suit has been filed against CBS, the toy maker – Planet Toys, and retail toy sellers, regarding the “CSI Crime Scene Investigation” toy crime fighting kit.  The lawsuit alleges the fingerprint dusting powder contains deadly amounts of tremolite asbestos.

Asbestos is a known carcinogen.  It is a mineral that was used heavily in this country during the middle of the last century.  Asbestos was used as thermal insulation by workers in industrial plants and shipyards, and as a brake lining by mechanics in garages all across the US.  Asbestos was used in households across the country as well.  Vinyl flooring contained asbestos, joint compound used on sheetrook contained asbestos, popcorn on ceilings contained asbestos, and transite siding on the outside of houses contained asbestos.  There were even unfortunate areas of the country where asbestos was used to pave roads and driveways.  The death toll from asbestosis, a lung disease caused by asbestos, as well as asbestos related cancers such as lung cancer and mesothelioma is astronomical.

Planet Toys has issued a “stop sale” on their toys.  They claim that none of their testing on the toy was positive for asbestos.  The original testing, which found the asbestos in the product, was done by the non-profit Asbestos Disease Awareness Organization.  The ADAO filed suit to halt the sale of the toys and allow customers who purchased the toys to receive a refund. 

“Zero sum economic game.  Allstate gains… others must lose”, is a quote from the Mckinsey documents, recently released on Allstate’s website.  According to a story on the HeraldTribune.com, an appeals court in the State of Florida ruled that Allstate would not be able to write new insurance in the state, if it did not turn over the documents to state investigators.  Allstate officials claim they are releasing the documents to “dispel inacurate portrayals” of the documents in the media and by lawyers and investigators.  Why did Allstate fight tooth and nail to prevent the documents from being released, if they are harmless?  Why did they refuse to comply with a court order, to the point that they were found to be in contempt court for not producing the documents?

Because the documents show Allstate to be taking an adversarial position with their customers.  Allstate gains, others must lose.  In this zero sum analysis, it is the customer who loses.  That is what Allstate wants to prevent from coming out.  In the documents there is a power point presentation that shows a pair of boxing gloves, meant to show that Allstate is putting on the gloves for a fight.  The people they are fighting are those who pay them premiums.  The documents say that when a policyholder hires an attorney, Allstate should “align alligators” and “sit and wait”.  Ouch.  Using their “good hands” to feed their customers to deadly alligators.  Not exactly a great PR move.

Allstate Corporate Spokesman Mike Siemenas said in the article, “we will offer to settle the claim for a fair and reasonable amount” then says in the next breath that when victims get an attorney, “just because we are being threatened doesn’t mean we will negotiate. We will go to trial.”  The act of hiring an attorney is not a threat.  It is something a victim is forced into when Allstate is not being fair with them.  Allstate does not offer to settle for a fair and reasonable amount, either before or after a victim hires an attorney.  The documents show that it is not the act of threatening that keeps Allstate from negotiating fairly, it is the act of being a customer that triggers their refusal to neglotiate.

The article states that Allstate’s profits in 2006 set a record for the company, at $4.9 billion.  Allstate’s profits in 2007 weren’t too bad – $4.6 billion.  Allstate’s Chairman Ed Liddy spoke at a business meeting a couple of years ago, saying “We obviously pay what we owe, that is a given.  But we do it more efficiently, and we avoid overpayments …”. 

Given the information released in the documents, given the fact that Allstate started using a system in the mid-90s that reduced their payments on all claims by 20 percent of the previous average and given their record profits, Liddy’s statement doesn’t ring true.  The documents, coupled with the facts, seem to show they regularly pay less than they owe and are not willing to negotiate with their own policyholders.  This is born out by the fact that Allstate has been sanctioned in South Carolina and Virginia for these practices.  Additionally Allstate has been sued for bad faith by numerous policyholders, including a man who received a $20 million verdict against Allstate in 2006.   The following note posted on a Yahoo message board sums up Allstate’s “good hands” approach:

I am posting below a note I got in just today from a former agent who had to use the product he sold………..to himself:

“I retired from Allstate in 2000, still insured by Allstate and involved in a major auto accident just over 3 years ago. A piece of equipment came off a commercial vehicle hit us and totaled our vehicle (truck and travel trailer property damage $55,000+) and caused my wife and I injuries which we will live with for the rest of our lives. The physical pain we suffer from back injuries is contant and always with us. My personal Allstate insurance policy included coverage for $100,000 medical payments which I believed would take care of all of our needs. Was I wrong!!! We have fought Allstate, our personal auto insurance company, from the very beginning to get our medical needs taken care of. Our claims office acted like they were working for the other insurance company and not us. After 12 months of limited care they refused to reimburse me or pay for any further care for me (my medical paid was something near $15,000). After 2 years they limited my wifes what they would pay for my wife’s care (her medical was near $45,000). What is so amazing is that they based their refusal on an examination conducted by a chiropractor (I.M.E. ordered by Allstate) completed 6 months after the accident.  That is our horror story of how well Allstate takes care of their own, both as an insured and as a retired agent.”

Disability insurers have been sued for clogging the Social Security Disability system with unnecessary claims, according to a story in the New York Times.  Disability insurance companies include provisions requiring people on their disability insurance to exhaust all other methods of income, including applying for Social Security disability, or risk getting their payments cut by the amount they might qualify for under SS disability. 

The problem is that the qualifications for SS disability are much more stringent than for disability insurance.  Disability insurance pays short term claims, as well as long term claims.  SS disability is only for those who can demonstrate the inability to work for the past 12 months or that they will not be able to work for 12 months in the future.  It is not for a person who is only not able to work for 6 months.

However, the insruance companies are requiring those who are only going to be disabled for a short time to apply and appeal their denials.  This clogs up the SS system and prevents those who have valid disability claims from getting their hearing date.

“Anybody who is forced to come into this system, and who doesn’t need to be there, is affecting someone else,” said Ken Nibali, a former administrator from the Social Security Disability system, “(t)hey’re holding up cases for the people who have been waiting for months and years, who in many cases are much worse off.”

According to the article, the number of disability cases waiting for a hearing in front of an administrative law judge has doubled since 2000 and the average wait time has risen from 258 days in 2000 to 512 days.

The lawsuits were filed against the Unum Group and Cigna.  The suit claims that the insurance companies require people to file claims and pursue appeals, eeven when the insurance company has evidence that the person could never qualify for SS disability.  The cost to the SS system is staggering.  It article puts the cost of processing one SS disability action at $1,180.  If the claimant goes to the administratice law judge for relief the cost is $4759. 

Insurers benefit financially from this practice in several ways, according to the article.  They can stop paying the claim if the insured refuses to apply.  The insurer can reduce its claims reserves when claimants apply for SS disability, which raises profits.  Also, if the claimant applies over and over for SS, their claim might be accepted, which cuts the amount the insurer pays for the claim.