Wiping the Lipstick Off the Pig: A Big Slabbed Two Thumbs Up on the MID Market Conduct Exam

No wonder Commissioner Chaney sat on this for so long as the results are damning towards State Farm and the way they handled claims after Katrina. The lipstick in the title was applied by Mr Chaney’s himself via his remarks on the exam as he tapped danced his way around the results. Let’s start with the press release:

Although there were questionable decisions and irregularities by State Farm in handling claims, no scheme or plan to systematically mistreat policyholders was found.

After numerous complaints and accusations by policyholders, State Farm agreed to reopen all slab cases through a MID-monitored program, which resulted in an additional $88 million dollars being paid to policyholders.

Chaney added; “Hurricane Katrina was an extremely trying situation for everyone involved. The real brunt was borne by the people on the coast who lost their homes and businesses. We do not and should not expect insurance companies to pay claims that are not covered by the policy, however, we expect them to promptly pay every penny that policyholders are owed on policies paid in good faith. To this end, I will continue to advocate and require that policies be written in plain, simple understandable language. I am committed to working with insurance companies to provide a good business environment in Mississippi, but I won’t tolerate unfair treatment of policyholders. I’m confident we can use findings of the exam as a constructive tool to help make policyholders’ lives easier the next time disaster strikes.”

I have my doubts captured regulators in the vast the majority of state insurance commissioners will use this report to benefit consumers. Mr Chaney immediately went back on his major campaign promise to make the office appointed and we’ve duly noted the GOP controlled Mississippi Senate steadfastly refuses to pass a policyholder bill of rights. IMHO this is classic politics, say one thing and do another and hope people don’t pay attention.

Let’s start with a major conclusion of the examination and then blow that up against the detailed test results:

Although the examination team identified certain areas and instances where some policyholders could have been treated more appropriately, no specific violations of the Unfair Trade Practices statute were identified.

Bear in mind denying a claim without basis (a proper adjustment) is civil bad faith by definition. The results of the examiner’s statistical testing tells the story:

The investigation of the claims files in conjunction with knowledge obtained from the review of thousands of pages of claims related documents revealed that on multiple occasions the Company failed to completely fulfill its obligations to its policyholders in the lower three counties where wind and water were at issue. On occasions, this resulted in a failure to pay portions of the damage attributable to wind. These failures are outlined in detail under the captions below. It should be noted that, at times, the failures were related to each other and may be discussed in more than one of the captioned areas.

The results are overwhelming, a full 25% of their sample lacked documentation the claim was adjusted at all beyond it being denied:

As referenced in the table above, 173 of the claim files reviewed did not contain adequate documentation to support a full or thorough investigation such as: adequate photographs of the loss or neighboring structures; notes or diagrams evidencing the adjusters’ investigation; evidence gathered from eyewitnesses; documentation of physical evidence or water lines; or, incomplete activity log entries. On multiple occasions claims were denied plior to the receipt of engineer reports.

The report continues:

….the Company’s documentation of its activities, or lack thereof, was all that the examiners had to review. The Company’s own Operation Guide states that “claim files should always completely reflect all activities and support the conclusions reached.” Stated succinctly by one of the Company’s Team Managers, “the file speaks for itself.” Another Team Manager acknowledged that all pertinent information used to make a coverage determination should be in the file. The examiners reviewed the claim files and considered the adequacy, or not, of the applicable investigation under this premise.

And now the damning part, purposeful bad faith:

As shown in the table, 64 claim files or 63.3 percent of these files contained indications of wind damage either to the insured’s property, neighboring property, or simply the existence of damaging wind in the area of the loss. Of the remaining 37 files, some claims also appeared in the category of claims lacking adequate documentation of a full or thorough investigation making it impossible to know whether wind damage occurred or not.

The Company, through sworn testimony and correspondence to the MID, stated that when there was “credible evidence” of wind damage or “discemable” wind damage, the company would pay for this. Although “discemable” is not found in the Company’s homeowners policies, the Company appeared to use this as the determining factor as to whether or not a payment was made for wind damage. This relates closely to the issue of lack of adequate documentation to support a full or thorough investigation. At least some State Farm supervisors, team managers and independent adjusters appear to have chosen a narrow interpretation when it applied the standard of “discernable.” As one State Farm team manager stated, “If you can’t see the damage, we can’t pay for it.” One State Farm manager stated that his “take on discernable just means sometlling you can see with your own eyes.” Obviously if there was nothing but a slab remaining, you may not be able to see the wind damage, but that is not conclusive evidence that there “was no wind damage, especially in an area where there were millions of dollars of wind damage in close proximity. This relates closely to the caption ”Failure to Prove Exclusion.”

The investigation also revealed a few instances where claims representatives advised policyholders that “State Farm had informed him that it would be the company policy to deny wind coverage to every policy holder in MY GENERAL AREA” or “if water touched it, we were told not to pay for wind.” These quotes came directly from the Company’s claims files or from specific complaints filed by policyholders with the MID. Despite these direct quotes, every State Farm representative that was questioned under oath regarding this practice, denied this was the policy. It should be noted that although these instances were not widespread, similar statements were made by more than one adjuster on more than one occasion.

As I continue through the document I’ll update this post and ask our readers and my fellow blog partners to do likewise as I’m out of blogging time today. This report is damning toward State Farm despite the lipstick applied by the Insurance Commissioner. IMHO this report indicates the market conduict exam was conducted to a high standard of professionalism and to that extent we give props to the Department of Insurance examiners as well as Commissioner Chaney.

12 thoughts on “Wiping the Lipstick Off the Pig: A Big Slabbed Two Thumbs Up on the MID Market Conduct Exam”

  1. Excellent, Sop, I started the day “out of time” and have had only one earlier break which I used to catch up on my reading of new posts and comment.

    I also tried to find an old post that refutes State Farm’s response quoted in Anita’s story – it’s the one where Chaney explained the delay in releasing the report.

    If you recall, it (the delay) was because State Farm had not completed their review and comment. Now they’re saying they can’t comment further because they’re still reviewing (Anita’s story).

    That’s just more of the usual State Farm bullshit – they’ll have some sort of fact-twisting press release shortly no doubt, just as they always do.

    I think this report – like the OIG report – proves the Rigsby qui tam claim with it’s data – regardless of what is written trying to explain the data away.

    If I can see that, I’m sure their legal team can – and the fact that government investigators can’t find the “evidence of fraud” suggests the Rigsby’s catching them in the process made them do a better job of covering up – particularly after they got Acker to give them the documentation needed to know exactly which files to work on.

    You can take the scheme the Rigsby sisters outlined and match it with the data/findings of these two reports point-by-point.

    Hopefully, I’ll have time to do some of that tonight.

  2. So, the market conduct study also confirms the ambiguity of the ACC language! Whoot!

    That reminds me to mention how obvious it was in OIG report and now this one that those investigating/writing these reports didn’t really understand the issues.

    They’ve done more to make the case against State Farm than Dick Scruggs could have ever hoped for – and without even realizing it apparently.

    The lipstick isn’t off the pig, it’s just wearing lip gloss now!

  3. Although the Fifth Circuit Court of Appeals (Tuepker v. State Farm Fire and Casualty, 507 F.3d 346 (5th 01′.2007)) has ruled that State Fann’s Allti-Concurrent
    Causation (ACC) language is not ambiguous, its application in Katrina claims appeared confusing, even to its own employees and claims epresentatives. One State Farm manager who was designated as an expert witness in one case interpreted the clause to
    say that if water would have taken the whole property that nothing was covered, even if wind got there first and caused dai:nage first. (This appears to corroborate testimony from some claims representatives that if water touched it, wind was not covered.) The State Farm Catastrophe Section Manager stated, ”I believe that the anti-concurrent cause language in paragraph 2 of the policy says that if you have a covered event working, you know, in any sequence, before or after, with a non-covered event or noninsured event, then that means that it’s not a payable loss”. When given a scenario where there was
    evidence of wind .damage to a roof and the structure had surge damage, all from the storm, he stated the roof would be covered. This appeared to be contradictory to his interpretation and further evidence of confusion.

  4. I’m trying to imagine what it would take for Chaney and Harrell to find a systmatic plan to deny claims. The legal requirement to prove the exclusion is very old law and Harrell and Dale reminded State Farm of it in bulletins and letters long before Scruggs and Hood forced State Farm to seek the safe haven of the MID process. Does everyone get a year and a half free pass to try to get desparate disaster victims to settle for next to nothing?

  5. You’d probably wait to until morning to imagine as it would keep you up all night if you figured out why they can’t find the obvious.

  6. Good question Brian. I’m just delighted they did not cook the test results which are damning. The methodology used by the MID examiner made what the OIG did look like a sample drawn by grade school kids.

    The results bear out what the Branch adjsuters found and what the Rigsby sisters have alleged. The documents that were not in an astounding 25% of the sample were shredded. An empty file is better than one with a sticky note that says Do Not Pay Do Not Discuss.

    Soon Democrats will be in charge of Congress and the White House and there will be an accounting at the federal level of insurer conduct here after Katrina. If Mr Chaney is content to marginalize himself in that coming discussion that is his choice. Here at slabbed we’re going to make certain the consumer’s voice is heard by our Federal Government and this MID Market Conduct Exam will be our Exhibit A of why federal regulation of insurers is absolutely necessary.

    Somebody needs to get a copy to the Mississippi Supreme Court too. Is ACC is ambigious? According to the report even State Farm’s own employees did not understand it.


  7. I’m still reading Sop but the contrast between here and La is what I’m thinking…courts there have been getting State Farm on claim delays but here the MID partnered with State Farm to get claims re-evaluated and policyholders got locked out of future claims.

    I’m wondering if this evidence would not be enough for Judge Senter to negate that agreement and let cases move forward. It’s certainly “new evidence of damage”.

    Chaney’s not a lawyer so maybe the legal implications of what they found got by him – Harrell is but…

  8. I want to know about the 27 claims filed that did not meet the deductible.

    In any case they have 167 poorly documented files, and a comparative result of engineered versus non-engineered reports that come out so closely together in results as to be absolutely stunning.

    If there were no real differences, and random sorting ruled the day, you would expect one or the other to have differing results but not for them to come out equal.

    If you flip a coin 100 times, you don’t actually expect the results to come out 50 heads and 50 tails.

    Taking a guess, I would say that they were using cookie cutter formulas and giving everyone the same deal regardless of circumstances. One way to do this would be to take your number of expected caseloads and generate a number of equal (presumably bell curved) results. Then do your best to get the real cases to fit in with your generated results. It helps keep you within budget, without making the results look too outwardly out of whack.

    That would be very hard to pull off, but if you are of a conspiratorial mind, they presumably started practicing with Hurricane Floyd in 1999.

  9. Didn’t Tammy Hardison’s deposition testimony say that the amount of wind damage was “determined” back in the office based on the Haag Engineering flood and wind “data” so they did not need to document downed trees and other evidence of wind damage?

  10. Absolutely Brian she said that. That would explain the anomoly Russell noticed that escaped the MID examiners.

    Mr Chaney and this report reminds me of Officer Barbrady on South Park – all hell is breaking loose behind him yet he says, “Nothing to look at people just move along….”


  11. I got the feeling reading the report, Sop, that unless something had been stamped “indications of fraud found here” the examiners weren’t going to see it.

    That’s what happens when you have people like Dale for a boss accusing people on the Coast of demanding more than their policy provided and Harrell leading the investigation – toward discrediting anything said or done by/with Scruggs just as fast as he could.

    The examiners did a good job with the data but they either didn’t know how to read it or borrowed Chaney’s blinders.

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