Bad Faith

According to a story in the Charleston Gazette, AIG is being sued for refusing to pay a life insurance policy on an Iraq war veteran.  The veteran, Andrew White, served with the Marines in Iraq, as a combat engineer, disarming bombs and patrolling the Syrian/Iraqi border.  Upon returning from the war, White took out a life insurance policy with AIG in 2005.  White’s brother, who served in Afganastan, was killed in action before White took out the policy, and his brother’s death was the impetus for White deciding to purchase life insurance. 

In 2007, White was diagnosed with post traumatic stress disorder.  White subsequently died in his sleep.  The autopsy found normal levels of prescription medication in his body.  The coroner ruled White’s death accidental.  When presented with the claim, AIG denied the claim based on the fact that White failed to report he was involved in a car accident when he was 16 years old when he filed his application. 

Jack Tinney, the attorney for the family was quoted as saying, “(t)hey have gone back and searched for any reason whatsoever to deny the claim, rather than look for a valid reason”.   Sounds like the plaintiffs in this case have a good bad faith case against AIG.

“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, 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……… 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.”

According to a story in the Oklahoman, a jury in Oklahoma City awarded a woamn $10.8 million, for her bad faith claim on an American Fidelity cancer policy her son purchased.  Dolores Metger’s son, Michael Metzger, purchsed a cancer policy with American Fidelity in 1992.  The policy was to cover medical expenses in the event Michael was ever diagnosed with cancer.  In November 2004 Michael was diagnosed with cancer.  Michael passed away on January 4, 2005. 

When the expenses were submitted to the insurance company, they refused to pay the amount of actual medical expenses, claiming they should only pay the amount paid by Michael’s insurance company.  American Fidelity’s policy in 1992, when Michael purchsed his cancer policy, was to pay actual medical expenses, the amount the patient was billed, not the amount the medical insurer paid.  American Fidelity claimed they changed this policy in 1994 and only were responsible for the discounted health insurer amount. 

American Fidelity heavily marketed these cancer policies to teachers in Oklahoma.  Michael Metzger was an economist at the University of Central Oklahoma.  Speaking about Mrs. Metger, her attorney Tony Gould said “This was never about the money to her, she just wanted justice for Oklahoma educators.”   

In September Allstate Insurance Company was ordered by the Missouri Supreme Court to produce documents regarding their claims payment practices.  According to an article in the Kansas City Star, the documents show a pattern of abuse in regard to claims handling procedures at Allstate, a pattern that has allegedly allowed the company to reap huge profits at the expense of shortchanged customers.

Allstate incurs a $25,000 contempt fine each day they refuse to comply with the court’s order.  The price tag for its refusal to comply at this point, December 2007 is $2.4 million.  Obviously not complying with the court’s order is more valuable than $2.4 million to Allstate.  How much more valuable is still to be seen. 

State Farm policyholders in Nebraska have sued State Farm over Medpay policies the company wrote in Nebraska.  The suit alleges State Farm has wrongly denied claims under medpay since 1990.  According to an article in the Houston Chronicle, State Farm’s documents show that rather than allowing their insureds to go to the doctor of their choice, State Farm used a “managed care” approach and denied claims in order to obtain cost savings. 

Article on CNN regarding what victims of the CA wildfires can expect when they ask their insurance companies to help them by providing the services they paid for under their insurance policies. If the experience is anything like the gulf coast experience after Katrina and Rita, watch out. Tactics such as lowball offers, denials of valid claims, higher insurance premiums and long time policy holders dropped are likely around the corner for many.

CNN also has an article on strategies for dealing with insurers who try to lowball. Good tips.

Also, a trial lawyer in California has offered pro-bono legal services for fire victims who are getting the run around from insurance companies and need legal advice. His website is here.

Addendum: Looks like FEMA learned from its experience with Katrina.  FEMA decided that rather than doing a terrible job dealing with the press, like director Brown did during Katrina (see article in Times Picayune), they would set up a press conference where FEMA staffers played the role of news media and lob softballs for FEMA officials to knock out of the park (see story here at CNN).  Don’t know why FEMA would pull this stunt, don’t know who thought they would get away with it, but wow, that is a big one.

And another story, on LAW.COM about the possible lawsuits related to this tragedy.

Article in the Lexington Herald Leader about a bad faith trial against Allstate.  A former Allstate claims casualty manager, Debbie Niemer, took the stand in a case against Allstate, testifying about Allstate’s claims handling strategies.  The lawsuit, filed in Kentucky, alleges a pattern of bad faith in Allstate’s handling claims under Kentucky’s insurance laws. 

Niemer’s testimony involved Allstate’s practice of allegedly bullying injury victims into taking reduced payments for pain and suffering, such as using dehumanizing tactics aimed at maximizing Allstate’s bottom line.  Neimer also testified that Allstate does not include information in their claim file that would be damaging to their low ball analysis of the claim – a practice aimed at innoculating the file against bad faith lawsuits (this shows their knowledge they are in bad faith).  Niemer also recounted instances where Allstate altered numbers in the computer analysis of a claim, when the computer came up with a number that was too high.  The claims of this former Allstate employee are shocking if they are true.

Article in Houston Chronicle entitled “The Good Hands People Make a Fist”, outlines Allstate’s claim strategy.  The information about their claims strategy comes from confidential Allstate documents.  An outside company created a strategy for Allstate that involved denying, evading and delaying the payment of claims.  A quote from the article says it all:

“(The documents) propose a strategy that involves offering low-ball settlements to customers. Those who don’t agree to the initial offer can face protracted legal battles, as Allstate does everything it can to wear down its customers by delaying court cases.”

The Good Hands People indeed.

The New York Times has a story on insurance company tactics in dealing with their insureds in New Orleans (as well as the rest of the Gulf Coast area hit by Katrina and Rita).   The story speaks for itself.  The part that hit home was the statement by someone who said they were too tired to fight anymore.  Sickening tactics.  The insurers are there for you when it is time to accept your premium, but not so much when it is time to pay on their policies.  They have been grinding down the “little guys” in New Orleans since the storm, to the tune of millions.

Princeton Insurance refused to pay policy limits of $1 Million in a suit against a bar.  The suit was based on the acts of the manager of the bar who served himself alcohol, drove drunk, hit the victim who was working directing traffic, and fled the scene.  The acts of the tavern manager made the victim, Joseph Tuski, a quadriplegic.  Mr. Tuski had $1.6 million in past medical expenses, $2 million in lost earnings and the jury found he needed $18 million for future medical expenses.

The jury in the underlying case awarded a $75 million verdict.  The judge in the case reduced the jury’s verdict to $37.5 million.  The owners of the bar assigned the claim against their insurance company, for failing to pay Mr. Tuski’s claim timely, to the plaintiff, Mr. Tuski. 

In a story about the case, Plaintiff’s counsel said Princeton had actual knowledge of the serious injuries the plaintiff suffered from and knew there were no defenses to hide behind.  Princeton ignored the facts and law and refused to make an offer.  The insurance company could have avoided the verdict and the subsequent settlement had they done the right thing and paid the claim timely.  This is not an incident isolated to this insurance company, this is a nationwide trend, affecting consumers everywhere, especially here on the Gulf Coast, where consurmers have been at war with insurance companies over denial of claims since Katrina hit.