AIken v USAA: The Verdict

Hailed in some circles as a major victory for insurers, the jury has spoken and awarded David and Marilyn Aiken $64,000 in their suit against USAA. We certainly respect the jury verdict and will no doubt find irony in the praise accorded our gulf coast based jury by some who previously had written us off as incapable of fairly dispensing justice. That praise will last until Nguyen v State Farm begins next month, but that is a different case with different fact patterns. A tip of the hat also to David Rossmiller for his analysis of the verdict though I would add the “jury pummeling” of Allstate in Weiss was deserved despite Mr. Rossmiller’s earlier protestations to the contrary. As I mentioned yesterday the fact the Aiken’s received anything from the jury indicates they felt USAA was not monetarily fair in how this claim was adjusted.

In any event here is the story in today’s Sun Herald on the Aiken verdict and link to the jury instructions as we close the curtain on Aiken and await Nguyen.

By ANITA LEE [email protected]

A jury in U.S. District Court awarded USAA Casualty Insurance Co. policyholders only $64,000 for wind damage to their Pass Christian vacation home, which was destroyed by Hurricane Katrina.

David W. and Marilyn M. Aiken already had received $178,205 from USAA, including loss of use, but sought total coverage for their home, boat house and contents. Full payment would have amounted to $427,087 more.

The Aikens also sought damages to punish the insurance company, claiming USAA purposely minimized their claim. But District Judge L.T. Senter Jr. did not allow the jury to consider punitive damages, ruling USAA had legitimate reasons for its decision.

The Aikens maintained a tornado destroyed their home long before Katrina’s tide, covered by federal flood insurance, surged ashore. However, USAA said it covered damage that could have been caused by wind and excluded from payment any damage caused by tidal surge or by wind and tide acting together. The property was subjected to 20 feet of water, minus wave action, according to USAA’s experts.

The plaintiffs argued those experts were biased, but the evidence failed to support this contention.

Senter told the eight jurors before deliberations that they should take into account the Aikens’ acceptance of $278,000 in coverage from the National Flood Insurance Program, which indicates they acknowledged some damage from the tide. The jury also had to consider the previous USAA payment and could not award the Aikens more than the total policy coverage.

That left the jury to consider an amount from $0 to $272,238 for structural damage and $0 to $154,849 for destruction of contents. Based on the evidence, the jury awarded $17,000 for structural damage and $47,000 for contents.

Senter also told the jury the Aikens had met their initial burden under the insurance policy of showing windstorm caused an accidental direct physical loss of their property.

USAA then had the burden to prove the portion of the loss excluded by its policy, which is storm surge or a combination of surge and wind.

Tidal surge damage is excluded from coverage, Senter instructed, “even if wind contributed to cause this flood damage.” He explained to the jury: “All damage to the property that was caused by storm surge flooding is excluded even if the storm winds concurrently or in any sequence caused or contributed to this excluded storm surge flood damage.”

Senter’s instruction on the so-called “anti-concurrent cause” exclusion dovetailed with a recent ruling from the 5th U.S. Circuit Court of Appeals in the lawsuit Tuepker vs. State Farm, a Katrina case from the Coast. The ruling clarified when a homeowner can expect to recover wind damage. As State Farm argued, the appeals court found the wind damage must occur independently of storm surge for coverage to apply.

A Different State Farm Battle

State Farm has another battle on its hands and this one has morphed into a constitutional battle. This battle is with a whole group of State Attorney Generals and State Banking Officials of the twelve states that regulate mortgage brokers.

The case started with State Farm trying to finagle its way around some requirements in the State of Ohio, that were put in place to reign in some of the worst excesses of the current lending mess.

You see, State Farm has a bank. A thrift to be exact. And it likes to offer loans, and other banking products to its insurance customers. But the people that they do this through are not employees of State Farm. They are the various independent agents (as State Farm likes to call them) that run State Farm offices.

Ohio’s Bank Supervisor said “If they are independent, then they are brokers. And if they are brokers, they must license as mortgage brokers and follow our laws.” We would like to know who the are and that they have a clue what they are doing. State Farm did what any business that wants to avoid regulation in this day and age does: they went to their friendly do-nothing federal regulator and got a letter from the Chief Counsel of the Office of Thrift Supervision (OTS) saying that State Farm independent agents were exempt from state regulation.

Now it should be understood that FEDERAL courts do not normally pull back the reigns on FEDERAL agencies. But the Federal District Judge Edmund A. Sargus had a very hard time understanding the methodology of State Farm and the OTS. In his opinion and order he noted that a letter from the chief agency’s attorney hardly complies with the Administrative Procedures Act as set out by congress. He goes on to note that at no time prior had the OTS had any interest in the area of regulating mortgage brokers and that for the State of Ohio to hear about it for the first time when State Farm hands it a letter from the OTS is a little bit unusual.

So the Judge ruled against State Farm in their request for a declaratory judgment. State Farm has taken the case to the 6th Circuit Court of Appeals. We are currently at the point where various parties are submitting their amicus briefs. The OTC has already filed one for State Farm, and it is expected that various State Attorney General Offices, and some group from the Conference of State Banking Supervisors will submit one for the State of Ohio.

While we wait for the dust to settle, I am curious as to one point: I understand why The Federal Reserve Bank (The Fed), the Office of the Comptroller of the Currency (OCC), and OTC have done nothing to reign in the current mortgage mess. But why do only twelve States regulate mortgage brokers?

In case the link above doesn’t work here is the url: http://www.goodwinprocter.com/Files/CFSA/07/rm_07_10_9_Ohio.pdf

Washington State Voters Say No to Big Insurance and Yes to Ending Institutionalized Claims Abuse

This past November, despite insurance companies spending millions on the election, Washington State Votes passed the “Insurance Fair Conduct Act” which allows for treble damages against insurance companies that treat their customers in bad faith. Predictably the insurers played from the old script of threatening higher rates if they were forced to behave responsibly. Not as predictable were the voters that ratified the law, evidently tired of being mistreated by insurance companies.

“Companies (that) act in good faith are not going to have a problem, its not going to cost any more money , its not going to be any legal action and its not going to cost them treble damages because if companies deal with their customers in good faith, there is no penalty.” said Mike Kreidler, Washington State Insurance Commissioner when interviewed about Washington State Fair Claims Act.

Why would any business be against treating it’s customers fairly? One look at the profit made from institutionalized customer/claimant abuse reveals the answer.

Anderson Cooper has reported on the issue of insurance bad faith repeatedly since Hurricane Katrina, possibly because he was moved by the treatement of ordinary men and women here in Mississippi by their insurers after the storm. The following video clip is from a report on CNN on the Washington State Vote and is well worth watching. Enjoy.

sop

Shareholders strike back: McKinsey Not Good for Owners

We note with some disappointment that Cowboy’s efforts to enlist the help of another insurance law blogger with a case document went unanswered but in this day and age of the internet even non legal lay people can come by case documents. Such is the case in Fojas v. Ackerman et al and Allstate Corporation, a shareholder derivative lawsuit filed January 18, 2008. This news broke on the Allstate Message Board at Yahoo Finance where the authors of this blog have become board regulars telling our story of insurance bad faith and was confirmed yesterday evening by Forrestgrump55i, an ally in this battle between ordinary citizens and the insurance giants.

The suit contains a well written account of the institutionalization of claimant abuse as part of the big insurance business model:

In 1992, Allstate hired McKinsey & Co. (“McKinsey”), a global management consulting company which assists corporate executives in identifying ways to improve the performance of the company, to “redesign” Allstate’s claims handling procedures. The “new” claims handling procedure was implemented by Allstate in 1995. According to the McKinsey reports, the claims handling procedure would increase Allstate’s stock price and add $700 million to Allstate’s revenue.

The engagement of McKinsey lasted approximately five years, during which time McKinsey constantly updated Allstate management in reports and power-point presentations (“McKinsey reports”). Certain of the McKinsey reports came to light in Geneva Hager v. Allstate Ins. Co., 98-cl-2482, Fayette Circuit Court Kentucky, a civil action filed by an Allstate policyholder against the Company alleging bad faith claims handling. During the trial in October, 2007, the plaintiff’s lawyer outlined how the McKinsey reports essentially detail a course of action designed to avoid paying claims, and when claims were paid – – pay less.

According to a July 9, 2006 article in the Lexington Herald-Leader, the McKinsey reports were obtained by lawyers in several additional civil cases, but were all subject to protective orders, until a bad faith claim was asserted in New Mexico (“New Mexico litigation”). In the New Mexico litigation, the plaintiff’s attorney refused to consent to a protective order. Allstate argued that the McKinsey reports were trade secrets, and appealed the trial court’s findings that they did not constitute trade secrets. Following the unsuccessful appeal on that order two years later, Allstate refused to turn over the McKinsey reports, leading to the entry of a default judgment against Allstate, which again Allstate appealed.

In the Hager litigation, the judge ruled in 2001 that the McKinsey reports were not trade secrets; in order to avoid the inevitable appeal, however, the parties agreed to treat the documents confidential to keep the litigation proceeding. Eventually, certain pages of the McKinsey report were made public during the October 2007 trial, but the majority remains confidential.

Allstate continues to attempt to maintain the confidentiality of the McKinsey reports, no matter what effect it has on the Company, its reputation or its finances.

In a September 12, 2007 order entered in an action styled Dale Deer v. Allstate Ins. Co., Case No. 0516-CV24031, Circuit Court of Jackson County, Missouri, Allstate failed to respond to an Order to Show Cause issued to address, in part, Allstate’s prior violations of two court orders requiring responses to discovery, and was found in civil contempt of court. The court ordered Allstate to pay $25,000 per day beginning September 14, 2007 until the discovery sought was produced. Allstate instead appealed, and the appeal is pending. If penalties accrue to date, Allstate would be faced with sanctions of approximately $3 million at this juncture.

This suit represents an important new front in this battle of profits and corporate greed over people. Settling claims should not be a game of low ball and hard ball; rather claims should be adjusted fairly to the proper amount.

sop

A Big Mississippi Coast Welcome to Russell

Our readers will notice we have added Russell to our blog family as a moderator. Russell is a friend of mine from the financial blogosphere with a specialty expertise in financial services issues, mainly banking and options trading. After Katrina, Russell was one of the first people to step in and help my family in those dark early days; later he came down on helped me catch up the work in my construction practice as a field expert doing job site visits. If his lovely wife would let me, I’d steal them away from North Carolina in a heartbeat. Drago’s almost sealed the deal……:)

Besides his acumen understanding the complex world of financial service companies he also brings invaluable experience working with FEMA as a disaster field employee in locales such as Puerto Rico and the Carolinas. Russell also broadens us geographically as the issues surrounding coastal insurance also impact his home state of North Carolina.

Russell is also a member of the Order of Davichy, a very select group of investors known for their range of blogging and investing expertise. I’ve got the gin covered Bro. 😉

sop

Aiken v USAA: Rimkus Gets a Free Pass

Rimkus skates because they were not hired by the Aiken’s according to a ruling yesterday in Aiken v USAA. I will certainly remember Judge Senter’s ruling letting Rimkus off the hook next time one of my colleagues is hit with a malpractice suit by a third party over an audit report. On it’s face this decision means its open season on us consumers by the hired guns of big insurance since they appear “not accountable” for their work product to third parties.

Rimkus and James W. Jordan had a contract with USAA to adjust the claim, notwith the Aikens. As a result, Rimkus did not have a duty under Mississippi law to deal fairly and in good faith with the Aikens, as does USAA. The insurance policy USAA provided the Aikens is considered a contract.

Even if the Aiken’s prevail in their suit monetarily this will be a loss for the greater cause of fairness in claims adjusting so long dominated by claimant abuse since the McKinsey recommendations were adopted as the new gold standard by the insurance industry.

In any event today’s Sun Herald story.

Judge dismisses Rimkus from USAA suit

Senter said there was no proof of gross negligence
By ANITA LEE

GULFPORT –Insufficient evidence of gross negligence and fraud led a judge to dismiss Rimkus Consulting Group Inc. and a company engineer from an insurance lawsuit after the policyholders’ case was presented to a jury in U.S. District Court.

USAA Casualty Insurance Co. hired Rimkus to inspect the Pass Christian vacation home of David W. and Marilyn M. Aiken, which was destroyed by Hurricane Katrina. USAA is still presenting its arguments, and the case could go to the jury as early as today.

Rimkus and James W. Jordan had a contract with USAA to adjust the claim, not with the Aikens. As a result, Rimkus did not have a duty under Mississippi law to deal fairly and in good faith with the Aikens, as does USAA. The insurance policy USAA provided the Aikens is considered a contract.

The Aikens maintain USAA ordered an engineering report that would minimize wind damage to their property, insured for more than $680,000. USAA paid them $178,205 for wind damage. They received maximum benefits of $278,000 for damage from tidal surge under a federal flood insurance policy. USAA also adjusted the flood claim.

U.S. District Judge L.T. Senter Jr. noted the Aikens accepted the flood insurance money even though they contend a tornado destroyed their vacation home and boat house before Katrina moved ashore.

“At most, the evidence against Rimkus and Jordan would support no more than a finding of simple negligence in the investigation of the claim,” Senter said in dismissing them from the case. “The testimony and evidence are not sufficient to support a finding that these defendants handled this matter in a grossly negligent or wanton matter with malice or with reckless disregard for the rights of the insureds.”

A report Rimkus sent USAA in December 2005 concluded Katrina’s wind or water was sufficient to destroy the house and boat house, saying the percentage of damage wind caused before the storm surge arrived could not be determined.

At USAA’s request, Rimkus issued a supplemental report in March 2006 that detailed construction components wind could have destroyed before tidal surge destroyed the building superstructures. USAA based its payment to the Aikens on the March report. Rimkus and USAA witnesses said the supplemental report was meant to clarify how much the Aikens were owed, not to deny coverage.

Pink Pig: How Insurance Crooks View You the Customer/Claimant

Folks this Cowboy has been educatin’ the public for almost a year now on how these fancy insurance crooks masqueradin’ as honest businessmen screw the public. Welp folks, nothing says how these miscreants view their own customers better than their own words. In today’s installment of “As the Pink Pig Turns” we hear how a insurance company was actually proud of screwin’ their customers, including a man so badly injured in a car accident he couldn’t work for a year yet these crooks wouldn’t give him anything. He had to sue and the rest is history. For Nick Peressini Pink Pigs do fly. But what about the countless untold others – the 80-90% that just take their screwin’ from Big Insurance unable to fight back?

Here is some deposition quotes from one of them crooks. Though he admits he done wrong he is still ain’t sorry for what he done.

In the deposition video, it is clear that Scott is not sorry for how Peressini’s claim was handled.

Livingston: “For each one of those months, April through October, you violated the regulation, correct?”
Scott: “Yes.”
Livingston: “And that wasn’t fair to Mr. Peressini, was it?”
Scott: “No.”
Livingston: “So you think she’s lying under oath about what she did, or do you think maybe you ought to accept what she said under oath and apologize to this guy?”
Scott: “I’m not going to apologize.”
Livingston: “Why not?”
Scott: “‘Cause I’m not going to.”
Livingston: “Why not?”
Scott: “‘Cause I’m not going to.

So there you have it folks, these insurance claims adjustin’ crooks think you are a rube, a conquest, another notch on their belt buckle on their way to collectin’ their big fat Christmas bonus and they don’t care if they cheat you. It makes this Cowboy sick to his stomach! Pull up a chair and watch the news story embedded on the web page courtesy of 7news Denver.

We’re all supposed to have insurance and at one time we will all likely need to file a claim. Ever wonder how the companies decide what to pay and when to pay?

7NEWS looked into a company’s practice that the state’s insurance commissioner calls “inappropriate and unprofessional conduct.”

The company, American Family Insurance, said it’s done nothing wrong

But a Boulder jury said there was something wrong and handed down a $3 million verdict against American Family Insurance.

Breaking News: Hood Opens New Criminal Investigation of State Farm

Well wouldn’t you know it if good ole Jim Hood ain’t steppin’ in to do Dunn Lampton’s job and bring them crooks at State Farm to justice for dumpin’ their wind obligations on the us taxpayers via the flood program. This Cowboy did a post on the topic and Sop did one with pictures to show how them crooks did it and stole from Uncle Sam hisself.

Jim Hood has been listenin’ folks and has heard our cries for justice. If George Bush and his political band of big business boot lickers at the US Justice Department in DC won’t brings these crooks to justice thank God we got Jim Hood!

Hood, Moore moving into action against State Farm

By ANITA LEE[email protected]

Mississippi’s current and former attorneys general are back on the offensive against State Farm insurance companies.

Attorney General Jim Hood is asking a federal judge to dissolve a court order that prevents him from continuing a criminal investigation involving State Farm. Hood says the investigation is not related to a 2006 criminal probe by his office into State Farm’s handling of policyholders’ Hurricane Katrina claims.

The suspended investigation is secret, but court records indicate State Farm sued to stop it after Hood tried to subpoena company records.

Meanwhile, former Attorney General Mike Moore said in a sworn statement that he and Hood did not use the threat of criminal prosecution in late 2006 to coerce State Farm into settlement of policyholders’ Hurricane Katrina claims, as State Farm alleges.

Instead, Moore’s statement said, State Farm insisted Hood agree to drop his prosecution of the company before it would sign on to a proposed global settlement of policyholders’ claims reached in early January 2007.

Hood did agree to end his 2006 investigation of State Farm, but he says that promise hinged federal court approval for a global settlement of policyholder claims.

The proposed settlement failed to win court approval. State Farm contends it has honored its agreement by re-evaluating claims through the Mississippi Department of Insurance. However, Hood says the company failed to live up to standards set out in the original settlement proposal.

The legal dispute has been clouded by the indictment of policyholders’ attorneys from the Scruggs Law Firm, which withdrew from the legal partnership then renamed the Katrina Litigation Group. While the indictment was not directly related to policyholders’ lawsuits against State Farm, the company has accused Scruggs of ethical and legal violations in the lawsuits and questioned his relationship to Hood and his criminal proceedings.

Scruggs reached a settlement of 640 policyholder claims with State Farm in November 2006, according to a State Farm letter. The global settlement of other Coast claims, reached in January 2007, was rejected by U.S. District Court Judge L.T. Senter Jr.

From Insurance Regulator to Insurance Lobbyist: Incest in the System

It turns out George Dale is not the only local insurance commissioner going straight from his elected office to work in the Insurance Industrial Complex. Strangely Adams and Reese was silent on their hiring of Robert Wooley, the first insurance commissioner in Louisiana in several years not in jail because of corruption. This quote from the story sums up why none of the authors of this blog trust our insurance regulators and is the basis for our opinion that federal oversight of this industry is well past due:

“Bob Hunter, a former Texas insurance commissioner who is director of insurance at the Consumer Federation of America, said that Dale’s new job at a law firm that represents so many insurance interests is another unfortunate tale of regulators caring more about the industry than the people who elected them.

“Nothing surprises me any more. The insurance industry and the regulators are so intertwined. We’ve had now two presidents of the NAIC (National Association of Insurance Commissioners) go directly to lobbying jobs with the insurance industry, and we’ve had so many former insurance commissioners head off in that direction, it’s disgusting. How can the public trust state regulation with all this going on?” Hunter asked.”

sop

AIken v USAA Continues: More Employees Take the Stand

Yesterday the trial resumed after the holiday break with Rimkus and USAA employees taking the witness stand. From the looks of the Sun Herald story, yesterday was not very eventful as employees from Rimkus and USAA took the stand to deny the engineering reports were changed simply to save USAA money. Given what we have found regarding the McKinsey consulting recommendations regarding claims handling and its apparent widespread use across the insurance industry as the new claims adjusting bible I have a hard time believing those statements. This would never come out in Court but I’d love to see if just one of these altered engineering reports resulted in a favorable change for the claimant/insured. Forgive the sarcasm but I suspect if such were the case pink pigs really do fly…..

sop

USAA employees testify in case
By ANITA LEE [email protected]

GULFPORT –Employees testified that USAA Casualty Insurance Co. did not conspire with engineering firm Rimkus Consulting Group Inc. to deny coverage to a couple after Hurricane Katrina.

“Absolutely not,” said Rimkus manager Paul Colman, whose denial was echoed by two USAA claims managers testifying in the second week of the U.S. District Court trial.

The three were called to the stand Tuesday by the plaintiffs’ attorneys, who are trying to prove USAA pressured Rimkus to change reports that would minimize what the company owed for wind damage.

USAA paid David W. and Marilyn M. Aiken $178,205 for wind damage on a policy that exceeded $680,000 in coverage for their Pass Christian vacation home. The Metairie couple is seeking full coverage, plus punitive damages based on the allegation their claim was denied in bad faith.

USAA employee William McNamara, who supervises adjusters and coordinated work by engineering firms after Katrina, testified Tuesday afternoon. He said Rimkus provided reports for USAA on 200 properties. McNamara also verified he called Rimkus to request its engineering report on the damage be corrected and include more detail.

McNamara said he was not attempting to change the engineering company’s opinion about the cause of damage. Instead, he said, USAA needed the wind damage detailed in order to estimate what the Aikens were owed.

Rimkus had closed the file in December, after sending USAA a report that said, in part: “It cannot be visually determined from the remaining physical evidence the percentage of damage resulting from surge forces and the percentage of damage resulting from wind forces.” Federal flood insurance covered the Aiken’s damage from storm surge, paying them policy limits of $250,000 – less than half the home’s value.

A day after McNamara contacted Rimkus in March 2006, the engineering firm sent USAA a “supplemental report” that listed construction components most likely damaged by wind, including gutters, the roof, siding and trim. The supplemental findings also said a storm surge of 20 feet above ground, excluding waves, destroyed building super- structures.