Insurance Transparency Project

Uncover’d Periles and Casualties of Uncertaine Liabilitie,

We’ll be brief today. ITP and War Eagle are checked into the Omni here in Le Vieux Carre’. Eagle has already eaten the smoked almonds out of the mini-bar.

This Insurance Journal story reports that insurers are applauding the recent U.S. Supreme Court decision in which the court, 5-4, found that a $79.5-million punitive award against Philip Morris USA unconstitutionally punished the company for alleged injuries to non-parties, people other than the plaintiffs. Oregon’s courts had previously upheld plaintiffs’ arguments that the company had spent 40 years denying the link between smoking and cancer even though it knew smoking was deadly. The defendant argued that the damages amounted to a back-door class action.

David Synder, assistant general counsel for the American Insurance Association, weighs in:

“It’s important to lay down clear rules,” Snyder stated. “The Supreme Court has turned back efforts to muddy that clarity. We think this decision maintains fairness, protects competitiveness and should help to hold down costs.”

I’ve asked ITP’s attorney, Buck, to review the Williams decision; he hasn’t returned ITP’s email.

However, I will use this occasion to announce yet another addition to the Key Documents section of the site: The 2001 Utah Supreme Court decision in Campbell vs. State Farm (find it under “Utah”), which led to the last big SCOTUS case restricting punitive damages.

Advanced ITP scholars will remember that in 2003 the U.S. Supreme Court overturned their Utah brothers and sisters at the bar, throwing out a $145-million punitive award against State Farm for “dishonest and illicit conduct over the course of many years” stemming from a State Farm claims-handling system known as “Performance, Planning & Review,” or PP&R.

The 2001 decision makes interesting reading because the not-particularly-liberal Utah court here sounds like Amy Bach(1).

The Utah high court noted that the trial court “made nearly twenty-eight pages of extensive findings concerning State Farm’s reprehensible conduct” and goes on to summarize “State Farm’s most egregious and malicious behavior.”

“First, State Farm repeatedly and deliberately deceived and cheated its customers via the PP&R scheme… For over two decades, State Farm set monthly payment caps and individually rewarded those insurance adjusters who paid less than the market value for claims…Agents changed the contents of files, lied to customers, and committed other dishonest and fraudulent acts in order to meet financial goals.”

Again, this was company policy, not an accident, according to Utah. ITP likes this bit especially:

“For example, a State Farm official in the underlying lawsuit … instructed the claim adjuster to change the report in State Farm’s file by writing that Ospital (a driver not at fault in an accident) was “speeding to visit his pregnant girlfriend.” There was no evidence at all to support that assertion. Ospital was not speeding, nor did he have a pregnant girlfriend.“

Ospital died in the wreck.

The court continues:

“As the trial court found, State Farm’s fraudulent practices were consistently directed to persons–poor racial or ethnic minorities, women, and elderly individuals–who State Farm believed would be less likely to object or take legal action….”

As an ethnic minority himself, this makes War Eagle angry, but nothing so much as this:

“Second, State Farm engaged in deliberate concealment and destruction of all documents related to this profit scheme…State Farm’s own witnesses testified that documents were routinely destroyed so as to avoid their potential disclosure through discovery requests… Additionally, State Farm, as a matter of policy, keeps no corporate records related to lawsuits against it, thus shielding itself from having to disclose information related to the number and scope of bad faith actions in which it has been involved.”

State Farm keeps no corporate records of lawsuits against it? War Eagle says: “dat’s reedickerus!”

“Third, State Farm has systematically harassed and intimidated opposing claimants, witnesses, and attorneys,” etc., etc.

You get the gist. The Utah high court however made the important points that State Farm “corrupted” its own employees by forcing them to “engage in deceptive practices or lose their jobs” and, more importantly, “distorted” the insurance market by forcing other insurers to “adopt similar fraudulent tactics” or go out of business.”

The Utah high court – get this – reinstated the $145 million punitive damages awarded by the jury after the trial judge had reduced it to $25 million. If you’re wondering, Utah is not on the list of “judicial hellholes” published by the American Tort Reform Association. I don’t think they even allow the word “hell” in Utah.

In its 2003 Campbell decision, the U.S. Supreme Court reversed Utah and said punitive damages greater than 10 times the actual damages were probably unconstitutional. The ratio strikes some of us as arbitrary, but we’re not legal scholars.

Personally, I think State Farm should get credit for harassing attorneys.

A big foot business columnist called ITP yesterday and asked if I felt State Farm was deliberately doing the wrong thing after Katrina or was the company itself getting screwed. I told him there’s not enough data to know yet, but the Broussard case points toward the former and the Campbell and the recent Oklahoma decisions provide important context. Go to the site and search under “Broussard” and “Oklahoma.”

Ok, War Eagle and I are heading out for some beignets. Tonight, we’re going to Coop’s for some fried chick…some jambalaya!

(1) Amy Bach, executive director of United Policyholders, who still hasn’t met ITP’s sister in S.F.