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.

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?

We should all be for personal accountability

Most places you look these days, someone is blaming medical malpractice claims, and the “clever trial lawyers” that bring them, for the high cost of health care in the United States. This argument is unsupported by actual research performed by the Congressional Budget Office, who says that med-mal claims account for a mere 2% of health care costs. Furthermore, the actual practices of med-mal insurance carriers shows this argument to be untrue. For instance, Texas has strict tort reform and thus far fewer medical malpractice claim filings, but doctors practicing in Texas have malpractice premium rates double that of neighboring Arkansas in many practice areas.

The argument for tort reform also ignores the real problem underlying medical malpractice cases: some hospitals, doctors, and nurses are injuring the patients they are charged to protect. Medical malpractice laws are on the books to ensure that injured patients are made as whole as possible for the health provider’s errors. However, in many medical malpractice cases, it is impossible for patients to be made completely whole for the life-changing injuries they sustain.

That’s where medical malpractice claims step in. Civil law only provides one way for injured parties to make themselves as whole as possible:  money. That’s it. For example, consider a mother whose heart stops during labor due solely to the fault of her doctor and who has brain damage such that she will need assistance and care for the rest of her life. There are but two options for her care: either the responsible doctor pays for his mistake, or the mother receives some form of public assistance through Medicaid, Medicare, or the like.

Self-described conservatives and insurance companies would have you believe that caps on malpractice awards would reduce the cost of medical care in this country. That’s simply not true, because injured patients will require assistance and care no matter who pays for it. The health insurance lobby would rather taxpayers pay for these costs. It seems to me that pushing more injured patients onto the rolls of government health care is the opposite of the conservative movement’s stated objective.

Insurance companies accuse trial lawyers of being the scourge of the health care industry. Those same companies want to have their cake and eat it too. Notice that you don’t hear insurance companies talking about their profit margins, since that would expose the fact that insurance companies profit far more from the health care industry than do trial lawyers. For what? Taking money from one side and handing it to the other, albeit in as slowly and painstaking a fashion as possible.

Instead of providing the care patients need, insurance companies balk. Instead of paying doctors promptly, insurance companies ask that doctors negotiate an insurer discount. Instead of paying malpractice claims to injured patients, insurance companies make those same patients fight to recover through years of court proceedings while trying to recover at the same time. Industry insiders and trial lawyers call this unethical strategy “delay, deny, defend,” and it has added billions of dollars to insurance companies’ bottom lines at the expense of policyholders and taxpayers.

While some sort of tort reform may be justified, insurance reform is a more pressing issue for health care reform in this country. Conceptually, insurance is a good idea. It spreads risk throughout the population so normal people can have access to care and funds in times of need. However, insurance companies today aren’t living up to the traditional insurance laws, which require the insurance companies to put their insureds’ interests ahead of their own and to give insureds the benefit of the doubt.

In fact, insurance companies are lobbying to change these traditional rules so they can be even more aggressive in denying claims and withholding funds that properly belong to their clients. So far, the federal and state governments have turned a blind eye to this activity by giving antitrust exemptions to insurers and failing to enforce regulations that prevent insurers from abusing their clients.

A good start toward reforming health care would be to make the insurance market more competitive by strictly enforcing regulations requiring insurance companies to provide fair and prompt coverage to their policyholders. Until this happens, insurance companies will continue to take the money from our wallets and withhold it when we need it most. The only ones protecting the rights of policyholders and taxpayers from insurance companies are trial lawyers. Count us among those proud to carry that title.