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Insurance Bad Faith

THE “TOP” TEN INSURANCE COMPANIES IN AMERICA
(Raising Premiums, Denying Claims, and Refusing Insurance to Those Who Need It Most)

      This article discusses a study conducted by the American Association for Justice (AAJ) in 2008 about the worst insurance companies for consumers. In its effort to identify these insurers, researchers at the AAJ undertook a comprehensive investigation of thousands of court documents, records from the Securities and Exchange Commission (SEC) and Federal Bureau of Investigation (FBI), state insurance department investigations and complaints, news accounts from across the country, and testimonies of former insurance agents and adjusters.

      The AAJ’s study showed that the ten insurance companies they ranked had a pattern of refusing to pay reasonable claims, employing hardball tactics against policyholders, rewarding executives with extravagant salaries, and raising premiums while amassing profits.  The list of rankings includes homeowners and auto insurers, health insurers, life insurers and disability insurers. 

      The AAJ’s ranking is as follows:

      10.   Liberty Mutual – The study reports that Liberty Mutual relies on lowering claims payments, even if the claims were valid, in order to boost its profits. The company leads the way in complaint rankings and stories of short-changed victims. The study also reported that Liberty Mutual engaged in “massive corporate fraud” centered on submitting fake bids in order to garner artificially inflated rates. It continues to claim that its business practices were lawful and that the regulators’ settlement demands were “excessive.”

      Like other big casualty insurers, Liberty Mutual has also begun abandoning policyholders across the country, pulling out of hurricane susceptible states like Florida and Louisiana and not renewing insurance from northern states like Connecticut, Rhode Island, Maryland, Massachusetts and much of New York. Liberty Mutual and its big name competitors have left more than 3 million homeowners stranded in the last few years.

      9.   Torchmark – Torchmark reportedly preyed upon low-income Southern residents, engaging in various schemes and tactics, including race-based underwriting, refusing insurance to non-English speakers, and deliberate overcharging of premiums. In the 1990s Torchmark subsidiary Liberty National Insurance was forced to pay several millions of dollars in a lawsuit involving fraud in the sale of cancer insurance policies. The company marketed the policies in the 1980s promising lifetime benefits, yet changed the policies without telling their customers.

      Torchmark subsidiaries (Globe Life and United American) also came under fire for selling replacement health insurance policies that did not actually replace a person’s coverage. Company agents informed policyholders that their current policies will be discontinued when they reach age 65 even though the policies were guaranteed for life. Agents then offered new policies that were not worth as much. Agents would also offer “low-cost” policies at rates that quickly shot up.

      For years, Torchmark and its affiliates have also been involved in lawsuits involving race-based pricing over “burial policies.”  In the mid-1980s, half of all Alabama residents who died had a burial policy from Torchmark. These policies were sold for a higher price to black policyholders. In 2006, Torchmark subsidiary Liberty National Life paid $6 million to resolve a 2,000 member class action lawsuit.  Other Torchmark transgressions involved defrauding senior citizens in the sale of Medicare policies.

      8.   UnitedHealth – There are rising complaints about UnitedHealth’s wrongful denial of claims and failure to timely reimburse claims. In one case, the company denied a doctor’s request for an enclosed bed to protect a four-year old patient with an abnormally small head. Doctors report that UnitedHealth’s reimbursement rates are so low and delayed that patient health is being compromised.

      UnitedHealth also used AARP’s image as a trusted advocate for senior citizens’ rights, to induce seniors into buying UnitedHealth plans. These plans are often higher in premiums but are not better in value and quality than other non-UnitedHealth products.    

      7.   Farmers – Farmers’ internal company documents and testimonies from former employees reveal that Farmers prioritized profits at the expense of its policyholders. Farmers even has an incentive program which offers its adjusters gift certificates and pizza parties if they meet goals such as low payments and convincing claimants not to retain attorneys. Employees who consistently low-balled claims are financially rewarded, and the rest are encouraged to “resist the temptation of paying more” and are taught to say “Sorry, no more” to paying claims regardless of validity.

      Ethel Adams, a Farmers policyholder from Washington, was involved in a multi-vehicle accident that put her in a coma for nine days and left her with devastating injuries which eventually confined her to a wheelchair. Farmers denied Adams’ claim reasoning that the driver at fault in the accident acted in a moment of intentional road rage and, therefore, the crash was not an accident. This denial caused an outcry among policyholders who threatened to boycott the company. Farmers only gave in when the state of Washington threatened it with legal action.

      Farmers’ most high-profile run-in with state regulators occurred in California after the 1994 Northridge earthquake. Despite paying out over $1.9 billion for 37,000 claims, Farmers was sued several times for failing to pay policyholders the full value of their homes. One of the cases involved a Farmers-insured condominium owned mostly by minorities. Farmers refused to rebuild the severely damaged building. A former claims adjuster testified that a supervisor told him to settle the claim for a target amount, despite never having seen the damage firsthand. Farmers ultimately agreed to settle the case for $20 million.

      6.   WellPoint – In March 2007, California fined Blue Cross of California and its parent company, WellPoint, $1 million after an investigation revealed that the insurer routinely canceled individual health policies of pregnant women and chronically ill patients. This practice, known as rescission, is illegal in California. In order to drop individual policies, the insurer must show that the policyholder lied in their insurance application. During their investigation, state regulators randomly selected 90 cases where the insurer had dropped the policyholder. In every single one of the 90 cases, regulators found the insurer had violated the law. During the investigation, regulators also uncovered more than 1,200 violations of the law by the insurer involving unfair rescission and improper claims processing practices.

      In December 2007, California announced that it will impose a $12.6 million fine against Blue Shield for various violations involving improper rescissions, failure to timely pay claims, failure to provide required information when denying a claim, failure to pay interest on claims where required, and mishandling of member appeals. California’s Insurance Commissioner, Steve Poizner, said that Blue Shield “committed serious violations that completely undermine the public trust in our healthcare delivery system.”

      Despite a series of fines and reprimands from California, Anthem continued to improperly rescind policies, forcing the City of Los Angeles to sue Anthem Blue Cross for fraud, violation of state and federal insurance regulations, and violation of truth-in-advertising laws. Los Angeles City Attorney, Rocky Delgadillo, claimed that in its practice of canceling policies of sick patients, Anthem “has engaged in an egregious scheme to not only delay or deny the payment of thousands of legitimate medical claims but also to jeopardize the health of more than 6,000 customers by retroactively canceling their health insurance when they needed it most.” Delgadillo also claimed that “more than 500,000 consumers have been tricked into purchasing largely illusory healthcare coverage based upon the company’s false promise.” The City is seeking civil penalties which could add up to over $1 billion.

      WellPoint and its subsidiaries are also facing legal actions from other states over their claims-processing practices involving systematic overcharging of policyholders, inaccurate Medicare claims payments to seniors and disabled people, and routine underpayment of some 800,000 doctors who provided care to WellPoint policyholders. Recently, Blue Cross of California sent letters to California physicians instructing them to inform the company of any pre-existing conditions doctors discover when evaluating patients. Outraged, the California Medical Association promptly forwarded the letter to state regulators complaining that the insurance company “is asking doctors to violate the sacred trust of patients to rat them out for medical information that patients would expect their doctors to handle with the utmost secrecy and confidentiality.”

      5.   Conseco – Conseco sells long-term care policies to the elderly. Long-term care insurance policies assure seniors that they will be able to afford living in a nursing home when they are no longer capable of living on their own. Unfortunately, Conseco takes advantage of the deteriorating health of its policyholders by delaying or denying valid claims. As one former senior executive at the National Association of Insurance Commissioners (NAIC) summarized: “Insurance companies make money when they don’t pay claims… They’ll do anything to avoid paying, because if they wait long enough, they know the policyholders will die.” This claims-handling practice was corroborated by one former subsidiary-agent who said that Conseco and its subsidiary Bankers Life “made it so hard to make a claim that people either died or gave up.”

      In May 2008, the NAIC reached a settlement between Conseco and 39 states and the District of Columbia over allegations of abuses in Conseco’s long-term care business. Conseco and its subsidiaries were fined $2.3 million and ordered to pay $4 million in restitution to its policyholders. Conseco also agreed to invest $26 million to improve its claims processing system; if it fails to do this, it will be fined an additional $10 million. Aside from meeting its monetary obligations, Conseco must review its handling of past claims and set up systems to insure that future claims are treated fairly and handled timely.

      4.   State Farm – State Farm is the biggest casualty insurance company in America and has become known for its deny and delay tactics in order to minimize claims payments and boost profits.

      In the aftermath of Hurricane Katrina, State Farm’s and other insurance companies’ responses were widely criticized and numerous policyholders were dissatisfied at the way their claims were handled. One of the most telling example was that of the Nguyen family who lost their Mississippi home in the hurricane. State Farm’s own engineers concluded that the damage to the home was caused by wind when another house was picked up by the wind and thrown into the Nguyen home. State Farm hired another engineering firm to testify that the home was damaged by flooding and used this to deny the Nguyen’s claim. State Farm’s attempt to unduly influence the engineers assessing other Katrina damages was exposed during litigation. State Farm has also stopped insuring and renewing policies in Florida and Mississippi after Hurricane Katrina.

      Conservative U.S. Senator Trent Lott was another angry State Farm policyholder who went on to sponsor a law requiring insurers to provide “plain English” summaries of what the insurance policies did and did not cover. Hurricane Katrina highlighted insurance company use of things like anti-concurrent clauses which lead policyholders to believe they were covered from the peril of hurricanes but that subsequent flooding might prevent their claim being paid. Senator Lott said “They don’t want you to know what you really have covered.”

      During the 1994 Northridge earthquake in California, State Farm did everything it could to avoid paying claims. A State Farm employee testified that company officials forged signatures on earthquake waivers to avoid quake-related claims. State Farm and other insurers accused of mishandling the Northridge quake claims were eventually penalized $3 billion; however, State Farm never actually paid this fine. In 1999, in the wake of tornadoes-related damages, Oklahoma homeowners sued State Farm in a class action alleging that State Farm undervalued damages to homes or else claimed that the damages were caused by other factors such as faulty construction. A jury eventually ruled that State Farm acted “recklessly” and “with malice” and disregarded its duties to its policyholders.

      3.   AIG – Most other insurance companies earn profits from investing its policyholders’ premiums. AIG, on the other hand, has always focused on earning its profits by taking in more premiums and paying out less claims. Former AIG claims supervisors testified that AIG used all kinds of tricks to deny or delay claims, including locking checks in a safe until claimants complained, delaying payment of attorneys’ fees for a year, disposing of important correspondence and routinely fighting claimants for years in court over mundane claims.

      In 1999, AIG began to systematically reject thousands of auto-warranty claims even when its own claims-handling contractor recommended that the claims be paid. AIG used any excuse to deny a claim, including ruling that installing manufacturer-approved tires was a “modification” that invalidated the auto warranty. When an AIG-insured Safeway burned down and neighboring residents claimed damages as a result of the fire, AIG denied the claims saying that the damage was not caused by fire but by smoke, which is a form of air pollution and thus not covered. AIG have fought other claims on tenuous bases, building its reputation as one of the most aggressive claims fighters in the industry.

      In 2006, AIG paid $1.6 billion to settle charges involving allegations of massive corporate fraud, which has led to AIG being billed as “the new Enron.” It has been fined millions of dollars by state insurance regulators and faces charges that it has bilked pension funds out of billions of dollars.

      2.   Unum –Unum is one of the nation’s leading disability insurers and has long had a reputation for unfairly denying and delaying claims. Its claims-handling abuses have consistently been the subject of investigations. Former Unum employees have testified that Unum ordered them to deny claims in order to meet cost-savings goals. Internal memos reveal the company’s plan to move from “a claims-payment to a claims-management approach.”

      Debra Potter, a financial services worker, developed multiple sclerosis and filed a disability claim with her insurer, Unum. Unum denied the claim saying Potter’s conditions were “self-reported.” Potter’s physician testified numerous times that her complaints were legitimate. The Social Security Administration concluded she was totally disabled. Unum continued to deny her claims. Only when Potter hired an attorney did Unum pay her claim. Ironically, Potter had faithfully sold Unum disability policies as part of a financial services package. She thought she was selling people a safety net and yet there she was unable to use it herself.

      In California, where one in every four claims for long-term care insurance was denied, the California Department of Insurance launched an investigation into Unum, which uncovered widespread fraud by the company. According to the report, Unum systematically violated stated insurance regulations and fraudulently denied or low-ballled claims using fake medical reports, policy misrepresentations, and biased investigations. California Insurance Commissioner John Garamendi described the insurer as an “outlaw company.”

      1.   Allstate – The company that touts its “good hands” approach privately instructs agents to employ a hardball “boxing gloves” strategy against its own policyholders, the AAJ reported. Allstate’s CEO declared: “our obligation is to earn a return for our shareholders.” Sadly this dedication to its shareholders is carried out at the expense of its policyholders. Allstate is focused on reducing the amount of money it paid in claims, regardless of validity.

      AAJ reported that Allstate uses a combination of lowball offers and hardball litigation. When policyholders file a claim, Allstate offers them an unjustifiably low payment for their injuries. Those who accept the low settlement offers are treated with “good hands” but are left with less money to cover medical bills or lost wages. Those who do not settle get the “boxing gloves,” which is an aggressive litigation strategy aimed to deny the claim at all cost. Delaying claims increase the likelihood that the claimant gives up the claim. According to a former Allstate agent, this would make the claims “so expensive and so time-consuming that lawyers would start refusing to help clients.”

      Complaints filed against Allstate are greater than almost all of its major competitors, according to data collected by the NAIC. Allstate had to pay $18.6 million to Maryland policyholders for raising premiums and changing policies without notifying policyholders. It had to pay $70 million to Texas homeowners for overcharging homeowners throughout the state. There were more complaints against Allstate than any other insurance company in the wake of Hurricane Katrina. During the 2003 wildfires that devastated Southern California, state insurance regulators received over 600 complaints about Allstate and other companies’ handling of claims.

      Allstate has dumped its policyholders in Louisiana and Florida and New York, leaving hundreds of thousands of homeowners stranded and without insurance. In California, Allstate demanded double-digit increases in premiums in what a former insurance commissioner described as an “exit strategy.”

      The AAJ study concluded that the insurance industry is in dire need of reform. Too many insurance companies have placed profits as a priority over fair dealing with policyholders. The industry has done all it can to maximize its profits and rid itself of claims. The time is due for insurance reform that will level the playing field for consumers.

© Law Offices C. Joe Sayas, Jr.