Appeals court upholds $16 million verdict against Allstate

By DAN MARGOLIES, The Kansas City Star

On March 24, 2000, Wayne Davis Jr. got into his pickup while intoxicated, crossed the center line on U.S. 54 in Camden County and hit a compact car head-on.

The force of the collision pushed the car back more than 100 feet. The driver and the passenger, Edward Johnson and his wife, Virginia, survived but suffered life-threatening injuries. Virginia was hospitalized for 40 days and Edward for 35 days. Their combined hospital bills totaled $320,000.

Although the Johnsons offered to settle for Davis’ minimal insurance policy limits of $50,000, his carrier, Allstate Insurance Co., did not respond until six months later. That was after the statutory 60-day limit for accepting had expired.

Now Allstate is paying dearly. On Tuesday, the Missouri Court of Appeals in Kansas City upheld a jury verdict that socked the insurer with more than $16 million in damages.

After Allstate failed to settle, the Johnsons sued Davis. He consented to a judgment in their favor of more than $5 million — $2.5 million in actual damages, $1.5 million in punitive damages and more than $1 million in prejudgment interest.

The Johnsons, however, agreed not to execute on the judgment in return for Davis’ assignment to them of most of his claim against Allstate for its refusal to settle.

The couple and Davis then sued Allstate in Jackson County Circuit Court, alleging the insurer had acted in bad faith when it did not respond in a timely fashion to the Johnsons’ initial settlement offer.

Allstate claimed it lost the letter proposing the offer and responded late because it did not receive the Johnsons’ medical records, which it had sought to determine the extent of the Johnsons’ injuries.

The jury was unconvinced. On Nov. 8, 2006, it found that Allstate had acted in bad faith and unanimously awarded compensatory damages of $5.8 million plus 9 percent interest since the date of the judgment to the Johnsons. By a vote of 10-2, it also hit Allstate with $10.5 million in punitive damages.

Allstate appealed, and on Tuesday a three-judge panel of the Missouri Court of Appeals held that the evidence was sufficient to justify the verdict.

“Allstate’s failure to recognize the severity of the Johnsons’ injuries and the probability that the claim would far exceed Davis’s policy limits; its failure to investigate the claim and respond to the demand in accordance with insurance industry standards and its own good faith claim handling manual; and its failure to advise Davis of the demand, his likely exposure for an excess judgment, and his right to retain counsel, are all circumstances supporting a reasonable inference that Allstate’s refusal to settle was in bad faith,” Judge Paul Spinden wrote.

Although Allstate argued that it was unsure the crash had caused the Johnsons’ injuries, Kansas City lawyer Walter Simpson, testifying as an expert witness, pointed out that they had to be cut out of the wreckage, were flown by helicopter to the hospital and received intensive care.

“The fortunate thing is that this verdict obviously takes care of some people that badly need taking care of,” said Kansas City lawyer Kirk Presley, who represented Davis in the action against Allstate. “And I think, under the facts, this was the only appropriate result. This was a case where (Allstate) offered no evidence whatsoever, and I think it’s because they were in an indefensible position in how they treated this client.”

Mike Siemienas, a spokesman for Allstate, said the company was “disappointed the verdict was not overturned.”

“We need to review the opinion to determine our next steps,” he said.

The appeals court’s decision comes just a few weeks after Allstate settled another bad faith case in Kansas City on undisclosed terms. In that case, Jackson County Circuit Judge Michael Manners fined Allstate $25,000 per day — a penalty that ultimately grew to more than $7 million — for failing to comply with a court order directing it to turn over internal documents concerning its claim handling procedures.

Manners last week agreed to expunge the fine after finding that Allstate eventually complied with the order. Allstate had blamed its attorney, whom it later fired, for failing to inform it of the order.

The attorney, Paul Hasty Jr., also represented Allstate in the Johnson case. He did not return a call seeking comment.

 

 

Insurance Industry Employs “Deny, Delay, Defend” Strategy, Puts Profits Over Policyholders

FOR IMMEDIATE RELEASE

July 9, 2008

CONTACT:

Ray De Lorenzi, American Association for Justice

WASHINGTON, DC – Allstate ranks as the worst insurer for consumers, according to a comprehensive investigation of thousands of legal documents and financial filings.

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, visit http://www.justice.org/docs/TenWorstInsuranceCompanies.pdf.