Arkansas Law Review publishes article authored by Nathan

The Arkansas Law Review published an article in its Winter 2012 edition authored by Nathan Chaney. The article is entitled "A Survey of Bad Faith Insurance Tort Cases in Arkansas" and contains a summary of hundreds of bad faith cases decided by Arkansas state and federal courts.

Bad faith cases are unique to insurance companies. All contracts have an 'implied duty of good faith,' but the only time someone can sue for a breach of this duty is when an insurance company does the breaching. Since insurance companies usually dictate policy terms, insurance policies are considered 'contracts of adhesion' that consumers can either sign or reject as-is, and cannot negotiate terms. The consumer's absence of an ability to negotiate is why insurers are held to a higher 'bad faith' standard.

There are two types of bad faith. The first type is called 'third party bad faith.' When an insurance company must defend someone (such as when the policyholder causes a wreck), the insurance company owes a 'fiduciary duty' (the highest legal duty owed by one to another) to the insured. That duty requires the insurance company to settle the case if it has an opportunity to do so and settlement would be reasonable under the circumstances. If it does not settle in this situation, it can be liable for negligent refusal to settle or outright bad faith.

The other type of bad faith is 'first party bad faith.' That involves a situation where an insured makes a claim with the insurance company and the insurance company treats the insured with ill will, hatred, or outright malice. First party bad faith usually arises in one of two circumstances: (1) the insurance company denies the claim on the merits without conducting a proper investigation, or (2) the insurance denies the claim despite facts in the file showing that the claim should be paid.

In a nutshell, insurance companies are supposed to give insureds the benefit of the doubt in the absence of hard evidence that they shouldn't. When they don't, they commit bad faith.

Like a good neighbor, State Farm is there - with piles of cash to buy its own judge

State Farm recently made the news for getting caught buying justice in Illinois. The insurer paid millions to a judge's campaign in order to get a billion-dollar verdict against it reversed.

In 1999, State Farm lost a $1,056,180,000 verdict (yes, that's a billion dollars) for repairing insured vehicles with cheaper, aftermarket parts instead of OEM parts.

State Farm appealed to the Appellate Court of Illinois and lost in 2001. The insurer then appealed to the Supreme Court of Illinois in 2002. While this appeal was pending, the insurer campaigned for and donated money to the Republican candidate in a race for the Supreme Court of Illinois, the very court that would decide State Farm's appeal. The candidate backed by State Farm ultimately won the election, which was the most expensive state supreme court race in U.S. history. The judge, with State Farm's help, raised $9.3 million for the race.

When the policyholders who won the verdict objected to this judge deciding the appeal, State Farm told the court it had only donated $350,000 to the judge's campaign. The judge refused to sit the case out and allow it to be decided by impartial judges. Instead, the judge cast the deciding vote to overturn the verdict against State Farm, which occurred in 2005.

Years later, a former FBI agent discovered that State Farm lied when it said it only donated $350,000 to the judge's campaign. State Farm actually donated between $2.4 and $4 million to the campaign. So, State Farm provided between 26% and 43% of the campaign's total budget, yet lied to the Supreme Court of Illinois by saying it made a routine donation amounting to just 4% of the total campaign budget.

Recently, attorney and former Republican senator from Tennessee Fred Thompson (among others) filed a class action lawsuit to reinstate the $1 billion verdict against State Farm.

At the very least, the Supreme Court of Illinois should acknowledge its mistake and reconsider the tainted judgment. It will be interesting to see what becomes of State Farm and the Illinois Supreme Court judge. One would think that punitive damages in the class action, as well as criminal prosecution and hefty fines for perjury and bribing a judge, might deter State Farm from lying the a state's highest court in the future. As for the judge, a criminal sentence for obstruction of justice would seem to be in order.

Nathan teaches class on victory in recent appeal

Nathan Chaney taught a CLE hosted by the Arkansas Trial Lawyers Association last Friday. The theme of the day of CLE was insurance coverage issues, and Nathan taught about his recent appeal in which he disqualified a lawyer employed by an insurance company.

The seminar followed the format of the one Nathan gave last summer to the Arkanas Bar Association. However, this seminar focused more on the fallout surrounding the disqualification of the Farmers Insurance Company lawyer (you can download the presentation here). Essentially, Farmers will have to fulfill its bargain with its policyholders by hiring independent lawyers to represent them. Furthermore, Farmers may have defaulted its policyholders on many cases in which its employee-attorneys answered lawsuits. Fortunately, Farmers alone will be the responsibility of taking this calculated risk, not the policyholders.

One question at the CLE was, "why do you care what the insurance companies do? After all, wouldn't it be better for an plaintiff's lawyer to have a 9-to-5 in-house lawyer on the other side, rather than a skilled lawyer in a big firm?" My answer to that question was this: all people who have a contractual right to a lawyer deserve skilled representation given with undivided loyalty. If I get sued, I want the best lawyer my insurance company can find to represent me — don't we all feel that way?

We, as lawyers, take an oath to uphold the justice system. And at the heart of our justice system are lawyers who exercise independent, professional judgment. Here at the Chaney Law Firm, we take our oath seriously, even when it's inconvenient. That's why we objected to Farmers appointing its own lawyer, and that's why I gave a CLE on the topic last week.

Chaneys win appeal in Arkansas Supreme Court

We've written several times about our ongoing case involving an insurance company trying to represent its customers using employee-attorneys. We're very pleased to announce that the Arkansas Supreme Court published its decision recently, and the Chaneys scored a complete win.

Our client was hit by a negligent driver. Farmers Insurance Company hired a well-known defense firm to represent the negligent driver. After about four months, however, Farmers tried to substitute its own in-house, employee-attorney into the case to represent the negligent driver. At that time, Nathan Chaney opposed this substitution on the grounds that it was illegal and unethical.

The Arkansas Supreme Court sided with Nathan's argument. The Court applied an Arkansas statute that has been on the books for over 50 years. According to the statute, what Farmers was trying to do is the unauthorized practice of law. While Farmers' lawyer challenged the constitutionality of the statute, it was upheld on appeal. Farmers also claimed that our firm could not raise this issue, but the Court summarily rejected that argument.

The Court's decision was split 4–3 (our Supreme Court only has 7 justices). The remaining 3 justices would have held the statute unconstitutional because only the Arkansas Supreme Court can govern the practice of law in our state. However, those 3 justices also sided with our argument, since they held in a concurring opinion that "[a]n attorney may not serve two masters" because the attorney's loyalties would be divided. A lawyer's client has the right to undivided fidelity from the lawyer, and a corporation cannot provide the required loyalty. However, the Court reserved its strongest language for the divergent interests an insured and his insurance company have:

Further, an insurance carrier, for example, is a business and is naturally concerned with profits and retaining as much of the insurance premiums as possible, which translates in a lawsuit into a desire to pay as little in fees, costs, and judgments as possible. The insured’s interests are not the same as the insurance company’s, and those interests may vary greatly.

* * *

The relation of an attorney to his client is pre-eminently confidential. It demands on the part of the attorney undivided allegiance, a conspicuous degree of faithfulness and disinterestedness, absolute integrity and utter renunciation of every personal advantage conflicting in any way directly or indirectly with the interest of his client.

As we have said in the past, this case is just one example of the way the Chaney Law Firm fights for the rights of individual Arkansans every day. The right to competent and unbiased counsel has been reaffirmed for every Arkansan who has an auto insurance policy, and we are proud to be protecting ordinary Arkansans against the interests of corporate greed.



Insurers defaming Arkansas doctors to curtail small claims

Yesterday, the Arkansas Supreme Court affirmed a $21,000,000 verdict against Allstate Insurance Company for defaming a Pine Bluff radiologist. Allstate repeatedly told injury victims, lawyers, and other doctors that this radiologist's practice was illegal and fraudulent because Allstate wanted to minimize payouts for smaller claims. The radiologist lost at least $8,000,000 in income over more than a decade due to this defamation by Allstate and other insurance companies, and for this reason a jury awarded significant punitive damages. Rather than taking its lumps, Allstate appealed, and the Arkansas Supreme Court found:

[T]his course of conduct was taken by a nationally recognized insurance agency and, apparently in accordance with their national claims practices and procedures to curb small, soft-tissue claims.

This ruling explicitly acknowledges that Allstate has a specific set of practices designed to minimize claim payouts on smaller claims at the expense of the injury victim. As discussed before on this blog, when insurance companies fail to pay fair value for claims, oftentimes the injury victim winds up receiving government healthcare to treat injuries. Why should the taxpayers foot the ultimate bill for negligent acts when the very purpose of insurance is to pay to make injury victims whole?

What are the implications of this ruling? In Arkansas, it is the first acknowledgment by our high court that insurance companies have adopted the delay, deny, defend business model of defending claims. This ruling follows an increasing public awareness of the problem of insurers becoming more concerned with shareholder profits than protecting policyholders and injury victims. As one example, CNN did three reports identifying Allstate as a prime offender (youtube of part 1, part 2, part 3). Long term, we should all hope that this opinion is the first step towards making insurance companies serve the people, and not the other way around.

Chaney Law Firm fights for the right of independent counsel for insurance policyholders

The Chaney Law Firm recently filed a brief with the Arkansas Court of Appeals advocating for the right of insurance policyholders to be represented by independent lawyers. The brief follows the Chaney Law Firm's successful opposition to an insurance company's attempt to employ its own lawyer to represent a policyholder, as reported here earlier this year.

The Chaney Law Firm is asking the Arkansas Court of Appeals to uphold the trial court's ruling that the inurance company's practice constitutes the unauthorized practice of law, and creates an impermissible conflict of interest for the insurance company's lawyer. Aside from the legal argument that corporations cannot practice law for others in our state, the brief argues that the insurance company lawyer cannot give his client undivided fidelity when, at the same time, he must answer to his superiors at his insurance company.

This case is just one example of the way the Chaney Law Firm fights for the rights of individual Arkansans every day. In this situation, we are trying to make sure that policyholders get an unbiased attorney so those policyholders get the full benefit of the bargain out of their insurance policies. Without an independent lawyer, the policyholder faces greater odds of being dragged through the court system for years as an innocent pawn, or winding up with a judgment against their personal assets. Insurance is for both economic and emotional security, yet too often policyholders have to fight desparately to get the benefits to which they are entitled.

The Chaney Law Firm's argument also seeks to uphold the professional independence of lawyers, even for lawyers who are afraid to represent themselves. Since many law firms represent insurance companies, they are afraid to take a stand on this important issue for fear of being blackballed by those insurance companies and losing future business. Even lawyers need other lawyers to stand up for their rights, and the Chaney Law Firm is proud to be doing just that.

Hospitals' treatment mistakes affect 1 in 7

A new study by the U.S. Department of Health & Human Services shows that 1 in 7 Medicare patients are harmed by treatment mistakes. The report estimates that these types of mistakes contribute to 180,000 deaths every year. What other type of business can get away with making serious mistakes with 1 out of every 7 customers?

How much is a year of life worth?

A recent report by the Associated Press attempted to answer this question by looking at the costs of prescription drugs. That report concluded the cost of extending the life of terminal cancer patients by just one year can be as high as $800,000. That's how much Medicare and insurance companies are willing to pay for drugs that keep cancer patients alive. A more commonly-seen figure is $50–100,000, which is still quite a bit of money to most Americans.

This question — how much is a year of life worth? — is a touchy subject in the practice of law. Every single one of my clients who have been injured, or who lost a family member, wouldn't take any amount of money if they could just put everything back to the way it was before the wrongful occurrence. That can't happen, so every case involving personal injury or death requires a jury to place a dollar amount on the value of human life. That's a hard thing to do, but our civil justice system has no other way of correcting wrongs. There is no "eye for an eye, tooth for a tooth" justice in civil cases. Making someone pay for their mistakes comes down to just that: money is the only remedy for physical harm permitted in our civil courts.

Health insurers refusing to insure children

According to a recent report of the LA Times, several major health insurers have elected to discontinue insuring children instead of complying with a federal mandate to cover children with preexisting conditions. "Insurers need to decide if they are in the business of providing care or denying coverage," according to one consumer advocate. It looks like they've already made their decision, and it doesn't favor sick children or anyone else who desparately needs timely benefits. For an industry that's supposed to give its customers the benefit of the doubt, this represents a step in the wrong direction.

Insurers stashing record surpluses, still hiking rates

By regulation in all 50 states, insurance companies must keep a certain amount of surplus funds (instead of distributing profits to stockholders). A recent report analyzing plans covering 1 in 3 Americans showed that in many states, insurers are keeping far more surplus funds than required by law, yet are still raising rates by as much as 18%. In many instances, the insurers could be using the surplus funds to minimize rate increases but are not doing so.

The report, from the Consumers Union (the publisher of Consumer Reports), urges state lawmakers and regulators to change insurance laws to either (1) set a maximum surplus amount or (2) permit regulators to take surplus amounts into account when approving or rejecting proposed rate increases.

At a time when most Americans are struggling to pay medical and other bills, insurers are substantially raising rates even though they already have tons of our money in the bank. Should companies who are supposed to be financing our health care be adding to our stress levels by jacking up our bills?