Property Insurance Coverage Law Blog : Florida Insurance Lawyer & Attorney : Merlin Law Group Law Firm : Tampa, Houston, Coral Gables, Gulfport

In one particular case, Safeco was ordered to produce hundreds of thousands of pages specifically regarding its claims handling practices. In that case, documents were produced without a protective order and they were not subject to a confidentiality agreement. Despite this, Safeco fights tooth and nail in other lawsuits to prevent the production of the same documents. Safeco seemingly employs other tactics when it comes to producing discoverable information or documents and it might be happening in a case out in California

In California, a complaint was filed with the Department of Insurance against Safeco. Despite the fact that the Department of Insurance wrote to Safeco regarding the complaint, Safeco failed to timely produce a copy of that correspondence in a pending lawsuit. Why not produce the letter in a timely fashion? Why delay even more when the material has already been made public?

No one call tell the story better than the attorney representing the policyholder in that California case. He has posted quite a bit about it on his website: Safeco Litigation .com I recommend that those who are interested peruse the site and decide whether Safeco appears to be "hiding the ball."

The Court explained that when an insurer has “reasonable proof” to establish that it is not responsible for payment, payment is not to be deemed “overdue.” “Reasonable proof” is defined as an amount of information that is “sufficient to allow a reasonable insurer to conclude that it may not be responsible for payment of a claim.” In an earlier part of the decision, Safeco unsuccessfully argued that the Millers’ case was fairly debatable. The Court relied upon that prior finding and explained that Safeco lacked reasonable proof of non-responsibility for payment and payment owed to the Millers was deemed overdue for purposes of § 628.46. Additionally, the Court held that any argument that interest should not begin to accrue until a final judgment is entered with respect to the entirety of the case is belied by the statute itself as well as the policy behind it. The Wisconsin Court of Appeals has expressly disavowed the proposition that interest cannot accrue until judgment if final:

Moreover, § 628.46 is unrelated to the tort of bad faith and permits the imposition of interest even where bad faith is not present [citation omitted]…The fact that § 628.46 interest bears no relation to bad faith damages undermines the notion that it would be premature to find payment overdue before the bad faith phase of the case has concluded. Any award for prejudgment interest is based on Safeco’s decision to deny coverage (regardless of whether it was done in bad faith), and any bad faith damages are not determinative of an award of prejudgment interest.

The Court’s analysis was not limited, however, to the language of the statute. An important consideration was the policy behind the prejudgment interest statute:

Wisconsin courts have recognized that prejudgment interest reflects the value of the use of money. [citation omitted] Because Safeco has not paid the Millers what is owed to them under the terms of the Policy, Safeco has benefitted from the value of the use of such monies while the Millers have been deprived of that value. If interest were not awarded, Safeco would effectively have had an interest free loan from the Millers from the time it denied payment without any reasonable basis until judgment is rendered.

After a more detailed analysis of the various dates from which interest could have started accruing, the Court determined that the Millers were entitled to prejudgment interest on $485,100.64 that began accruing on June 29, 2008, thirty days after the Court’s May 30, 2008, decision regarding coverage. The Court’s calculations reflected that the Millers were entitled to a total of $145,295.39 in prejudgment interest.

I would like to congratulate Anthony Murdock, Esquire, with Halloin & Murdock, S.C. and his legal team in Milwaukee, Wisconsin, for their success in this case. I would also like to thank Mr. Murdock for contacting me and sharing this decision with me. I wish the Millers the best of luck with getting their home back in order and moving on with their lives. I hope to hear from other policyholders’ attorneys regarding favorable bad faith decisions against insurance companies.

Please tune in next week for another bad faith discussion.

[Click here to read the entire series on this case]

The Court began its decision about damages with the following:

When an insurer acts in bad faith by denying benefits, it is liable to the insured in tort for any damages which are the proximate result of that conduct. As a result of Safeco’s bad faith, the Millers were forced to maintain two residences and incur some duplicate costs.

The Court determined that the following costs, totaling approximately $229,704.59, were proximately caused by Safeco’s bad faith and were awarded to the Millers: duplicate tax payments in the amount of $11,609.91; duplicate water and sewer payments in the amount of $1,494.97; duplicate electrical and gas payments in the amount of $2,997.32; and attorneys’ fees and expenses in the amount of $213,602.59. The Court did not grant the Millers’ claim for duplicate mortgage payments because the Court had already awarded the Millers $456,250.00 for the value of their property following the coverage trial. The Court did, however, award the Millers the interest portion of the mortgage payments totaling $68,181.52.

The Court also awarded the Millers their mitigation expenses, explaining as follows:

The Millers’ Policy provided the following: “We will pay up to $5,000 for the reasonable cost you incur for necessary repairs made solely to protect covered property from further damage, following a covered loss. This coverage does not increase the limit of liability applying to the property being repaired.” The Millers’ mitigation expenses, while not necessarily incurred for “repairs” in the ordinary sense of the term, were incurred solely to protect covered property from further damage. In fact, Safeco imposed a duty upon the Millers to “use all reasonable means to save and preserve property at and after the time of a loss, or when property is endangered.” Safeco offers no reason to suggest that the amount expended in this regard was unreasonable.

As such, the Court awarded the Millers the $3,000.00 that they incurred in mitigation expenses.

The Court did not award the Millers’ expenses incurred with respect to another property they owned called the Laramie Lane residence. The Millers argued that they had to take the Laramie Lane property off the market and live there and, as a result, lost an opportunity to sell that property. In rejecting this claim, the Court noted that the sale of that property was dependent on other factors that were beyond Safeco’s control.

The Court also declined to award the Millers the money they spent pursuing their claims against the seller of the damaged property. After a detailed analysis, the Court held that because Safeco’s bad faith did not proximately cause the expenses incurred in pursuing claims against the seller, these expenses would not be awarded as bad faith damages.

The Court awarded other damages, which I will discuss next week in my final post about this decision. Please tune in.

Another ground upon which Safeco denied the Millers’ claim was that the Millers discovered “additional” water damage shortly after closing on the property and did not report the loss until four months later. As discussed in last week’s post titled A Wisconsin Policyholder's Success in a Bad Faith Lawsuit Against Safeco, Part II, the inspection report prepared in connection with the sale of the property to the Millers did not prove Safeco’s allegation that the Millers were on notice of the damages before, during or shortly after the date upon which they purchased the property. Mytas, the Safeco adjuster who prepared the report upon which coverage was denied, concluded in his report that he thought the damages reported by the Millers had only recently been discovered. Mytas did not specify what “only recently discovered’ meant in terms of when the damages were discovered:

There is nothing in Mytas’ notes that would suggest he thought the loss was discovered before the Millers bought the Property. Thus, the Mytas Report does not provide Safeco with a reasonable basis upon which to deny coverage for the Millers’ loss.

Safeco also argued that the Abshire Report confirmed that the Millers were aware of the damages before purchasing the property. The Abshire Report was prepared in September 2005, the month after the Millers purchased the property. It was prepared at the Millers’ request in order to obtain cost proposals for repair work after they began the renovations to their new home. Safeco claimed that the Abshire Report confirmed the roof as a main factor in the water infiltration that caused the damages. However, the Abshire Report was prepared after the Miller’s purchased the property, after they moved in, and after they began renovations. It was only after they received the Abshire report that they discovered the damages. As such, the Court determined that it was unreasonable for Safeco to deny coverage based on this report.

With regard to the timeliness of the notice given by the Millers, the Court again found Safeco’s argument meritless. The four month delay was attributable to the Millers contacting their attorney and retaining the appropriate inspectors to assess the damage. This was supported by the documents that the Millers provided to Safeco at the time that they filed their claim. The Court explained further that the Millers’ delay in reporting their loss did not serve as a legitimate reason for denying the claim because Safeco did not demonstrate that it was in any way prejudiced by the delay.

Such being the case, this reason simply does not provide a reasonable basis for denying benefits under the policy, and Safeco acted with knowledge or reckless disregard for its lack of a basis to deny coverage because of the Millers’ delay in reporting their claim.

The Court rejected Safeco’s argument that no covered loss occurred to trigger the additional coverage for fungi, wet or dry rot.

Even assuming Safeco was correct in stating that the “Additional Property Coverage for Fungi, Wet or Dry Rot, or Bacteria only applies if a covered loss occurs” (citation omitted) its reason for denying the additional coverage cannot save the day for Safeco because its rationale rested upon a flawed premise, i.e., that no covered loss occurred. Just as its underlying decision with respect to whether the Millers sustained a covered loss was without a reasonable basis, so too was its decision to deny the additional mold coverage.

The Court also rejected Safeco’s argument that the Millers did not mitigate their damages. Safeco’s own report, prepared by Mytas, reflected that the Millers installed plastic sheeting where the drywall was removed. Further, the Court found that:

The Millers made reasonable efforts to mitigate their damages by winterizing the house, running dehumidifiers, making repairs to the roof, and installing plastic sheeting.

With regard to making any other repairs or mitigating damages to a greater extent, the Court explained that the estimated cost of repair to the home exceeded $315,000, and it is unreasonable to expect insureds who sustained a total loss to expend that amount in repairs. The Court also pointed out that, at no time, did Safeco ever specify any action that the Millers should have taken to protect the property – there was nothing in the claims file nor was there anything disclosed through trial testimony.

Safeco’s inability to identify measures that should have been taken is consistent with Mytas’ testimony that he was not sure whether anything could have been done to prevent further damage. Indeed, if before it denied coverage Safeco had asked Mytas whether the Millers took proper precautions in protecting their home, it would have learned that there was no reasonable basis to deny coverage on this ground. Instead, Safeco blindly denied coverage because of its ill-founded claimed belief that the Millers failed to protect the property from further damage. Such decision was made in reckless disregard of the lack of reasonableness of such ground for denying coverage.

For those who have been following my posts, it may be apparent now why I am dedicating a few weeks to this decision. Please tune in next week for more.

Craig and Nancy Miller were the owners of a residence in Wisconsin and had a homeowner’s insurance policy with Safeco. The Millers began renovating the property and, after discovering severe inner wall water leaks at their home, they submitted a claim to Safeco. Safeco denied the claim and the Millers subsequently filed a lawsuit against Safeco. The trial on the plaintiffs’ breach of contract/coverage claim was conducted from April 7-9, 2008. On May 30, 2008, the court issued a decision and order. The parties then began discovery and started preparing for a trial on the bad faith claim.

The Court began its analysis of the bad faith issues with a few general principles:

Bad faith is the “absence of honest, intelligent action or consideration based upon a knowledge of the facts and circumstances upon which a decision in respect to liability is predicated.” In other words, “the knowing failure to exercise an honest and informed judgment constitutes the tort of bad faith.” Bad faith is comprised of a two part test. To demonstrate that an insurance company has committed a tortuous bad faith refusal to honor a claim of an insured, a plaintiff must show (1) the absence of a reasonable basis for denying benefits of the policy and (2) the defendant’s knowledge or reckless disregard of the lack of a reasonable basis for denying the claim.

The Court explained that the first prong of the test is objective. An insurer lacks a reasonable basis for denying a claim when the claim is not “fairly debatable.” Whether a claim is “fairly debatable” implicates the questions of whether the facts necessary to evaluate the claim are properly investigated and developed or recklessly ignored and disregarded. The inquiry focuses on whether a reasonable insurer under the circumstances would have denied or delayed payment of the claim under the facts and circumstances.

The second prong of the test is subjective – the insurer’s knowledge or reckless disregard of the lack of a reasonable basis. The Miller Court relied upon the analysis in Brown v. Labor and Indus. Review Comm’n, 267 Wis. 2d 31, 671 N.W. 2d 279 (2003) when explaining that the nature of the tort of bad faith is intentional and that implicit in the two-part test is:

Our conclusion that the knowledge of the lack of a reasonable basis may be inferred and imputed to an insurance company where there is a reckless disregard of a lack of a reasonable basis for denial or a reckless indifference to facts or to proofs, submitted by the insured. The focus for determining whether an insurer is liable for bad faith is the sufficiency or strength of its reasoning.

Because I will address this decision as part of a series, I will stop here and pick up next week with the reasons upon which Safeco denied the claim and the Court’s analysis of same. Please tune in next week for a continued discussion of this decision in Wisconsin.

A Product Line Manager for Safeco explained that there is more than one type of severity:

I have three severity goals, an APD which was property damage on auto for third parties; an ABI {Auto Bodily Injury} goal that’s capped for Colorado; and an ABI goal that is uncapped for Colorado.

(Deposition of Sean Vizyak, a Product Line Manager for the Personal Lines Liability Department for Safeco in 2005; in the matter of Brown v. American States Preferred Insurance Company).

He went on to explain that “capped” severity is where the insurer takes all the ABI payments and then ascertains whether any particular individual accounted for more than a certain dollar amount in an effort to get a more consistent look at how the payments are being made. “Uncapped severity” is looking at pure dollars paid, divided by the number of claims settled, over a certain period. Typically, these figures are monitored on a monthly basis and on a 12-month rolling basis. As mentioned last week, the lower the severity for an adjuster, the better the adjuster’s performance is deemed to be.

Liberty Mutual has implemented a program that works very much like Safeco’s severity. A claims Manager for Liberty Mutual defined severity as a “median of all claims” and went on to explain how it morks. (Deposition of Jay Anderson, at one time a Liberty Mutual Claims Manager for Property Claims, in the matter of O’Toole v. Liberty Mutual Insurance Company). Annually, Liberty Mutual makes sure that the property loss payments are within the goals or established limits. When evaluating the performance of a claims employee, one of the business objectives was to control property loss payments. The objective criteria used to evaluate how the claims operation was controlling property loss payments was called “pure premium.” “Pure premium” is the total amount paid on claims, exclusive of claims expenses, divided by the number of homes insured by Liberty Mutual. A reduction in pure premium is favorable to Liberty Mutual. As such, claims adjusters were evaluated upon how much they were able to reduce their pure premium payments within a particular time period.

Claims handling experts will tell you that programs like Safeco’s severity goals and Liberty Mutual’s pure premium criteria have both been used to measure company profitability and to evaluate employee performance. They are both well thought out processes that involve a very detailed analysis of claims handling. They may vary in terms of how the calculations and formulas are set up, but the end result is virtually the same.

The problem arises when those well thought out processes are aimed at increasing company profits at the expense of policyholders who paid a pretty premium for coverage. You can see the conflict: claims adjusters receive bonuses and job security by paying less on claims, while policyholders need prompt payment of the insurance they purchased so that they can put their home or business back together. It is this conflict that many find offensive and it is the reason claims handling experts opine that severity should not be used to evaluate the performance of claims personnel or as a basis for bonuses.

In the world of insurance, some Safeco representatives will tell you the following:

Severity may be considered in the performance evaluation of an adjuster, unit manager and/or product manager... ’severity’ refers to the average paid claim.

Deposition of Michael Burton, a Large Loss Claims Property Unit Manager for Safeco in 2006; in the matter of Price v. Safeco Insurance Company of America, et al.

Another Safeco employee explains that:

Claim payment severity is used to monitor the performance of individual Safeco claims personnel.

Deposition of Sean Vizyak, a Product Line Manager for the Personal Lines Liability Department for Safeco in 2005; in the matter of Brown v. American States Preferred Insurance Company.

It doesn’t sound that bad, right? Kind of like when you first think about the reserves discussed a few weeks ago in Reserves Are Important in Insurance Coverage and Bad Faith Claim Disputes. At first blush, it might actually sound like a good idea: “reserves” - a safety net set up to make sure the carrier sets aside enough money to cover the claim; “severity” – a way for the carrier to monitor the performance of its claims adjusters. But why is the insurer monitoring severity? To make sure the adjusters are complying with applicable statutes and regulations? To make sure the insurance company is looking out for its insureds? Not really.

Unfortunately, severity does not evaluate whether the claims adjuster’s performance consisted of a timely and thorough investigation of a claim. Severity is not intended to make sure that the claims adjusters are looking out for the best interest of the insureds. A claims handling expert explains that some insurers have used severity to measure a claims employee’s performance based on his/her ability to reduce severity – in other words, a measure of how much a particular claims employee reduced the average amount paid on claims. You got it – the lower the average paid on claims by a particular employee means a greater performance by that employee. Now it doesn’t sound like such a good idea, right? Well, at least not for the insured…

A few weeks ago, in The Fantasy of "the Good Ole Days" When Insurance Companies Adjusted Claims Fairly and Paid on Time, I wrote about the way that insurers have extraordinarily diminished the human element in claims handling. Severity is another manner in which the human element of evaluating and investigating claims has been decreased. Claims handling experts explain that severity imposes artificial goals on an adjuster for the handling of claims. If severity is implemented, the claims handler is typically instructed to handle claims within a certain monetary range, and annual goals are set up raising the expectations for an adjuster to reduce severity year to year. Similar to performance based incentives and bonus plans that financially reward adjusters for paying less on claims, severity is also used by some insurers to improperly evaluate the performance of an adjuster.

So this concept of “severity” is probably not the first thing that came to mind when you read the title, right? Please tune in next week for a more on the severity of an insurance claim.

Happy Friday!

In Boone, the Boones alleged that because Safeco unconditionally denied some of their claims, the denial waived Safeco’s right to seek appraisal. In its analysis, the Court referenced a recent Texas Supreme Court decision, State Farm Lloyds v. Johnson, 290 S.W. 3d 886 (Tex. 2009), which held that an insurer may dispute the extent of coverage and deny certain claims without waiving the right to appraisal. The Court followed the Texas Supreme Court’s ruling in State Farm Lloyds, and ruled in favor of Safeco on this issue.

The Boones also argued that Safeco waived appraisal by anticipatorily breaching the contract by failing to comply with another policy provision, however, the Court also found that argument unpersuasive. The Court noted that at least one Texas court had explicitly rejected breach of contract as grounds for finding that an insurance company had waived its right to seek appraisal. The Court quoted the recent decision in Sanchez v. Prop. & Cas., Ins. Co. of Hartford, No. H-09-1736, 2010 WL 413687 (S.D. Tex. January 27, 2010):

If insureds could escape appraisal by merely alleging an anticipatory breach (or repudiation) whenever there is a dispute over coverage or claims handling, appraisal clauses would be virtually a nullity. Such a result is in direct contravention of the strong public policy in favor of enforcing such clauses.

The Court noted that for the Boones’ argument to be successful, they would have to show that the insurance company’s failures with respect to complying with other policy provisions constituted an “intentional relinquishment of the right to seek an appraisal by evidencing an intent to dispense with the policy’s requirements that enable the insurer to arrive at the amount of the loss.” The Court concluded that the alleged breaches by Safeco did not show waiver and, therefore, did not preclude its invocation of appraisal.

As you can tell from Boone v. Safeco Ins. Co. of Indiana, Texas maintains a strong public policy in favor of appraisal. In Boone, the Plaintiff’s lawyers presented these two interesting arguments in favor of waiver, but the Court shot both of them down. Policyholder lawyers will continue to pursue innovative arguments to persuade Texas courts to find waiver of appraisal by the insurer.

The Court noted the basic facts:

This is the third case to come before this court involving plaintiff Victoria Migaldi (Migaldi)'s homeowner insurance claim for windstorm damage caused by Hurricanes Frances, Jeanne and Wilma. Defendant Safeco Insurance Company of America ("Safeco") did not dispute coverage of the claim, but instead declined to pay the full amount claimed and invoked the policy's mandatory appraisal provision to determine the sum payable for losses that were disputed as to value.
...

On February 9, 2009, the court granted Safeco's renewed motion for summary judgment, concluding that Florida's VPL did not apply to Migaldi's claim because there was no "total constructive loss" of her residence, and that without a VPL override both parties remained bound by the appraisal award. Accordingly, the court entered final declaratory judgment in favor of Safeco in Migaldi I declaring that Safeco's full payment of the appraisers' award satisfied its indemnity obligations toward its insured under the policy...

On February 24, 2009, Migaldi filed a second action, Migaldi v Safeco Insurance Company of America,..."Migaldi II," seeking to hold Safeco liable for breach of contract for failing to pay further sums allegedly due under the policy for the same loss. In her second filed suit, Migaldi acknowledged that these claims were previously submitted to appraisal, but contended that "[t]he appraisal process failed to address all of the damages caused by the hurricane [sic] as they inappropriately applied a $ 10,000 mold cap to the building and personal damages."... On August 11, 2009, this court dismissed Migaldi II, with prejudice, finding the suit barred by the doctrine of res judicata because it involved a scope of coverage issue which was actually litigated and necessary to the judgment entered in Migaldi I....

On January 12, 2010, Migaldi filed the present suit, "Migaldi III," alleging a Florida Statute § 624.155 bad faith claim against Safeco relating to the same insurance claim. Here, Migaldi alleges that Safeco engaged in bad faith in the appraisal process by misrepresenting pertinent facts relating to coverages and facts of the loss at issue, including misrepresentations regarding the applicability of the policy's mold cap, and misrepresentations regarding damages from the first appraisal of the claims, leading to a "mishandling" of plaintiff's second appraisal. Migaldi also charges Safeco with improper delay in the adjustment of her losses through use of multiple independent adjusters, and improper delay in the appraisal process itself. Thus, in part, the current complaint attacks the validity of the appraisers' award on ground of "improper" procurement through bad faith claims handling techniques and tactics on the part of Safeco, and seeks to charge Safeco with liability for the alleged resulting diminution in the appraisers' valuation of her claim under the Florida first party bad faith statute.

This matter is currently before the court on Safeco's motion to dismiss on ground of res judicata. Safeco essentially contends that because Migaldi failed to challenge the appraisers' award or to appeal the judgment which confirmed the award in Migaldi I, her subsequent bad faith suit relating to Safeco's handling of her original windstorm claim is barred under principles of res judicata.

The Court granted Safeco's motion in part, but allowed much of the wrongful claims practice action to continue:

...the court concludes, in the context of the instant appraisal proceedings, that Migaldi may pursue a statutory bad faith claim against Safeco based on alleged unreasonable delay: (1) from the time Migaldi initially submitted her claim to the time Safeco initiated the appraisal proceedings; (2) for the time during the appraisal; and (3) for the time between confirmation of the appraisers' award (i.e. entry of final declaratory judgment in Migaldi I) and the time that Safeco tendered full payment the award to its insured...On the other hand, Migaldi may not challenge whether information submitted by Safeco to the appraisal panel regarding policy coverages and limitations, or facts relating to the losses at issue was relevant or accurate, or properly within the panel's scope or authority...

...the prior appraisal proceedings and declaratory judgment entered in Migaldi I do not preclude her current bad faith claims to the extent premised on allegations of unreasonable delay in the adjustment of the loss, appraisal of claim, or payment of claim, as more specifically articulated above. See Dadeland Depot, Inc., supra; Bullard Building Condominium Association, Inc. v Travelers Property Casualty Co. of America, 2009 U.S. Dist. LEXIS 70663, 2009 WL 2423436 (M.D. Fla. 2009).

The Court noted and followed authority from another jurisdiction:

As observed by the court in Wailua Associates v Aetna Casualty & Surety Company, 27 F. Supp. 2d 1211 (D. Hawaii):

[The insurer's] submission to the appraisal does not absolve it from liability for bad faith as 'the trier of fact could reasonably conclude that .. [the insurer] intentionally delayed the appraisal process.' Green v International Ins. Co., 238 Ill. App.3d 929, 179 Ill. Dec. 111, 605 N. E.2d 1125, 1129 (Ill. App. 1992). … '[I]f an insurer could utilize the apprisal process to shield itself from the consequences of failing to make a reasonable settlement offer … it would defeat the principles' underlying a separate cause of action for liability outside the insurance policy. Smithson v United States Fidelity & Guaranty Co., 186 W. Va. 195, 411 S.E2d 850 (W. Va. 1991) 27 F. Supp. 2d at 1220. Thus, an insurer who ultimately pays a claim may be held liable for bad faith in the event of unreasonable delay in the processing and adjustment of the claim. Id., citing Best Place Inc. v Penn America Ins. Co., 82 Hawaii 120, 920 P.2d 334, 347 (Haw. 1996). (emphasis added)

Delay is the number one complaint about claims adjustment from policyholders. It is caused by a number of actions and failures to act by insurance companies. Insurance companies have a legal duty to provide a sufficient number of motivated, trained and experienced adjusters with authority to promptly investigate facts of coverage, evaluate damages, explain the benefits and options available to the , and quickly pay those benefits to the policyholder. Lately, some insurers have been hiding unfair claims behavior of failing to conform to this duty by conducting a second adjustment through appraisal. This holding by Judge Hurley is important because it recognizes that payment of a disputed claim resolved by appraisal and paid within the time permitted by the policy following an appraisal does not provide an insurer immunity from wrongful claims conduct.

As one may discern, Safeco is battling a policyholder attorney that does not easily give up. Kelly Kubiak of Merlin Law Group represents the policyholders in this case. I am very proud of her zealous advocacy.

Kelly will be sharing our Safeco and Liberty Mutual claims practice materials with other policyholder attorneys at the Bad Faith Litigation Group meeting at the Annual Convention of the American Association for Justice next week. Please call her or David Pettinato for information about joining this organization if you represent policyholders who have been subject to delayed or improperly handled insurance claims.

Last week, the federal District Court ruled that discovery would continue in the litigation and while the appraisal was still pending:

The abatement sought here would be contrary to the cardinal principle of the Federal Rules of Civil Procedure that cases be administered "to secure the just, speedy, and inexpensive determination of every action." FED. R. CIV. P. 1; see 5C, WRIGHT & MILLER, FEDERAL PRACTICE AND PROCEDURE § 1360, at 78 (3d ed. 2004) ("[A]lthough a given motion might raise a valid point, unless its determination would have the effect of promoting 'the just, speedy, and inexpensive determination' of the action as mandated by Rule 1, the district court should probably deny the application and thereby avoid any delay."). Because the parties have until March 1, 2011 to complete discovery, this case need not be held hostage while the parties engage in the appraisal process.. (emphasis added)

You can bet that the policyholder attorneys in Tran will have the benefit of internal Safeco claims directives we obtained as a result of my large case against Safeco.
 

In what proved to be a successful effort to flesh everything out for the judge, the attorney provided detailed information about the type of programs that likely affected the manner in which the client’s claim was handled:

During the time period when the underlying claims were at issue and being handled by Safeco, it [Safeco] developed institutional policies aimed an increasing profits through their claims handling practices. This includes development and implementation of various ‘new’ programs created in consultation with Accenture. These various programs, called ‘Safeco Way’, ‘Quantum Leap’, ‘Calibration Program’ and more have been the subject of discovery in other cases.

What is the first thought that comes to mind?

• “This attorney sounds like he knows he’s talking about”?
• Are you wondering “What is ‘Safeco Way’? Or
• “What is ‘Quantum Leap’ about?

Yes, this attorney does, in fact, know what he’s talking about, so does Safeco, and now the judge does as well. This attorney did his homework and learned about the various programs that were implemented in the insurer’s business. Then he educated the judge about programs and how their implementation directly affected the way his client’s claim was handled. He showed the judge why these documents were directly relevant to the issues before the court and demonstrated the client’s right to see them.

For those of you who are first learning about these programs by way of this blog, these are the types of programs and policies that the right expert can help you with. My June 18, 2010, blog titled “Getting the Inside Scoop on Insurance Company Claims Practices,” discussed the type of expert that you should consider retaining in a bad faith case. This kind of expert can tell you about these programs and explain in careful detail how your client’s claim was affected by each. It is only when you understand the intricate and strategic workings of the insurer and the goals set for the adjuster who handled your client’s claim that you will understand exactly what you need to obtain through discovery and how to get it. When you understand that there were multiple programs very carefully crafted, each with its own very effective manner of chipping away at the amount paid on your client’s claim, then you will understand that your client was very likely fighting a losing battle from very beginning. That is, of course, until someone like our plaintiff’s attorney came to the rescue.

Getting back to our attorney, the judge entered an order compelling discovery. The Order states:

Safeco shall supplement production in compliance with this Court’s prior order compelling, without protection, all responsive documents, including but not limited to documents related to Accenture, Quantum Leap Initiative, Caliber, Safeco Way, LEO, best practices, PDFR etc…

But the court did not stop there.

Safeco shall submit declarations in 30 days explaining why these documents were not previously produced pursuant to this Court’s September 2005 order.

For this judge, it wasn’t enough for Safeco to produce the documents. The judge wanted an explanation for Safeco’s failure to produce the documents pursuant to the court’s previous order. No, courts don’t take kindly to parties who do not comply with their orders. Again folks, judges are taking notice and they are not always pleased with what they see insurers doing or trying to pull off.

So don’t let the insurer or its attorneys intimidate you. Defense counsel is human, just like you. And the insurer is a business that has rules to follow just like all the others. Help your judge see through the insurer’s unfounded objections, its plethora of meaningless production and defense counsel’s circular arguments.

Had enough of motions to compel for now? Me too.

Tune in next week for another discussion of bad faith litigation.

Happy Friday!

More and more courts are realizing that insurers have gone too far for too long. Those same courts are applying laws that hold insurance companies responsible for their improper claims handling procedures. How? Courts are granting plaintiffs’ motions to compel and ordering insurers to turn over their top secret “attorney-client” “work product” “confidential” and, sometimes, “trade secret” materials. So how do you get your hands on the goods? Remember the “time, extra effort and investment” from last week’s blog? Well, we here are a few more examples of how that works.

Our first insightful plaintiff’s attorney started planning his Motion to Compel against Safeco before he even drafted his discovery requests. This attorney researched extensively until he found a case compelling an insurer to produce the kind of materials he needed in his case. The opinion he found included details of the specific discovery requests at issue, and he modeled his own discovery requests after those in the opinion. After serving his discovery requests, he got the usual “work product” and “attorney client” objections, along with a few others that you can expect to see when insurers respond to discovery. Our colleague then filed his Motion to Compel citing, as persuasive authority (and among other things), the case upon which he had modeled his discovery requests. His “merely persuasive” authority consisted of facts and issues so similar to those in his case and presented an analysis so precise that the Judge ordered Safeco to produce a complete and unredacted portion of its claims file. 

The Court’s Order compelling production from Safeco explained that in a bad faith case, an insured is entitled to the insurer’s work product and attorney-client material containing information relevant to how the insured’s claim was handled. This information that is discoverable includes the insurer’s internal determination to deny benefits, its evaluation as to how a jury may value the insured’s claim and the insurer’s approach to settlement. The Order also ruled that the materials within the claims file that were generated before the date of Safeco’s denial letter are not protected by either the attorney-client or work product privileges because those materials bear directly on how and why Safeco handled the insured’s claim the way that it did. As such, the Court ordered Safeco to produce, in their entirety, any and all materials from the claims file that are dated up to and including the date of Safeco’s denial letter.

The Judge in our colleague’s case also ordered the production of certain materials after the date of Safeco’s denial letter because they were relevant to the plaintiff's bad faith claim and were not protected by the attorney-client and work product privileges. This ruling, however, is not one of a kind.

A few weeks ago, Chip mentioned in his blog post, Liberty Mutual Claims Documents Ordered Produced, the similar success of a second plaintiff’s attorney in West Virginia who has a case against Liberty Mutual. The Court Order in that case compelled Liberty Mutual to produce the following: the insurer’s employees’ performance evaluations; the manuals containing explanations and abbreviations and other claims handling procedures; the personnel files of employees who worked on the case, no matter how small their role, including, bonuses, job descriptions, work responsibilities, training, experience on the job, work qualifications/history and any discipline relating to work. Great progress, right?

It gets better.

The Court also ordered Liberty Mutual to:

…disclose the McKenzie [sic] documents, upon which defendant bases its claims handling procedures…and other documents relevant to defendant’s business model of claims handling…

Courts are now forcing insurers to divulge documents and information regarding consulting services that they received for their claims handling practices. Remember, in a bad faith case, how the insurer handled the claim is at the heart of the lawsuit. It only makes sense for the plaintiff to obtain any and all materials regarding the manner in which the adjuster(s) handled the claim. It makes even more sense to obtain information regarding how the company, as a whole, evaluates, implements and provides training for claims handling practices and what consulting services, if any, were used in doing so. If a plaintiff’s attorney is not entitled to such critical discovery, then what’s the point of allowing a plaintiff to file a lawsuit for bad faith? It’s like putting a chef in a kitchen with a stove that doesn’t boil water and an oven with a maximum temperature of 200 degrees.

These attorneys are only two examples of colleagues across the country who are putting their nose to the grindstone and making discovery work in their cases. Keep in mind, though, that these motions are not your “form” motions. Remember that our first plaintiff’s attorney started strategizing and preparing his case to win on a motion to compel discovery from day one. For our colleague in West Virginia, it took five (5) motions to compel to get the order compelling the production of discovery that he was entitled to.

Strategic planning and perseverance were the secret to these attorneys’ success and there is no reason why you can’t succeed in a similar situation. (By the way, wouldn’t you like to know which one of these brilliant attorneys also worked closely with one of the experts we talked about in last week’s blog?)

Bottom line folks: it works, and it can work really well for you too.

Tune in next week for a continued discussion of rulings across the country regarding information that is discoverable in a bad faith lawsuit.

Happy Friday!

So how do you battle devious discovery tactics? First, do you have an expert? Let me guess - you’re thinking “sure, I have a great roof engineer who put together a detailed report with pictures and a thorough calculation of damage to the property….” Well, that’s not the kind of expert I’m thinking about. Get yourself someone who knows the insurance business – someone who knows the tricks of the trade - someone that is going to stump those smart and cunning defense attorneys. Find an expert who has some particular knowledge about the insurer you are up against. If it’s State Farm, you might want to give Steve Strzelec a call. If it’s Safeco or Liberty Mutual, consider Charles Miller.

Now, what can folks like the masterful Mr. Strzelec and the very capable Mr. Miller do for you? First, they can educate you on what you can and should be looking for and why it is critical to your case. You must first become educated about your client’s insurer and its internal policies that affect the way your insured’s claim was handled. Let your expert teach you about the types of policies and procedures that the insurer implemented to decrease payments on claims in general and to provide incentives to employees for paying less. Is each adjuster required to turn over a certain percentage of his/her claims to SIU? Is each adjuster required to turn over a certain percentage of his/her claims to the subrogation department? What type of monetary bonus does an adjuster get for meeting the SIU referral goals? How much does an adjuster get for each claim referred to subrogation? These types of internal policies will almost certainly reflect the menial amount paid on your insured’s claim, and whether your insured’s claim was turned over to SIU or subrogation merely for the purpose of meeting the adjuster’s quota. Once you learn about the specific procedures for the insurance adjuster or claims handler, work with your expert to draft specific discovery requests which target the policies and programs (by name, no less) that will help you demonstrate to the judge and jury how your insured’s claim was improperly and unfairly handled by the insurer.

Once you have served your carefully tailored discovery requests, get ready for the “overbroad, unduly burdensome and not likely to lead to the discovery of admissible evidence” objections. And prepare yourself for the production of a plethora of useless documents, as discussed in last week’s blog. But never fear - this is where your expert comes to the rescue, again.

In a number of cases across the country, expert affidavits have been instrumental in the discovery battle against insurers, including Safeco and Liberty Mutual. Charles Miller, for example, has provided both deposition and affidavit testimony regarding claims practices for insurers, including but not limited to, Safeco and Liberty Mutual. The overriding theme in his affidavits is how the insurer intentionally and brazenly implemented practices and policies to cheat insureds.

In one of his affidavits in a case against Safeco, Mr. Miller’s affidavit reflects, in part, as follows:

Based on my thirty plus years of knowledge and experience regarding insurance company claims handling it is my opinion that the documents and information requested…are highly relevant to the operations of a claims department including the handling of individual claims such as this one…The documents and information that I reviewed with regard to several other insurers describe their respective programs to reduce claim payments in order [to] improve corporate profitability. Such programs are improper when it comes to the handling of insurance claims [footnote omitted]. Programs which emphasize profit in the handling of claims put the claims handler in a conflict of interest, wherein the claims handler can either fulfill the insurer’s full obligation to its insured or act in the insurance company’s interest because the claims handler will be financially or otherwise rewarded if he/she does so. In my opinion, and based on my experience in reviewing handling thousands of claims files, when placed in such a conflict claims handlers will handle a claim in a manner that benefits the insurance company to the detriment of the policyholder.

In a case against Liberty Mutual, Mr. Miller’s affidavit reflected, in part, the following:

Through consultation with consultants like McKinsey and Accenture, insurers have sought to turn their claims operation into profit centers by seeking to reduce claims payment through artificial measurements such as leakage coupled with goals to reduce average paid claims and/or the combined ratio.

Mr. Miller artfully creates a very real and accurate picture for the judge and jury. What picture is that? The reality of the situation – the insurer will stop at nothing, will spend as much as it takes and will consider any opportunity to devise unprincipled, cost-cutting methods aimed at giving its insureds the shaft. So once your expert has taught you the particulars of the insurer’s internal procedures, and once you’ve applied what you learned to drafting carefully constructed discovery, don’t stop there. Take it to the next level. Work with your expert to prepare an expert affidavit that will provide the court with a thorough, precise and undeniable explanation for why the internal documents you seek are directly relevant to the claim(s) at issue.

So, what’s your “take away” from today’s blog? Your expert is your friend. Allow your expert to enlighten you and maximize the skills he has to offer. Be like the insurer – be creative and stop at nothing to get your hands on the discovery to which you are entitled and that may very well prove your case.

Your expert is one of many effective and powerful weapons at your disposal. Next week, I will write about how discovery motions and perseverance can win the case.

Happy Friday!

For example, have you ever seen a Safeco "Round Table," where your insured’s claim was discussed or evaluated? What about internal training materials suggestive of steering insureds away from retaining counsel? Have you ever seen documents regarding compensation programs that are set up to reward claims management who, on average, have their departments pay less on their claims? Have you ever seen the Safeco Accenture Consulting documents that changed the profitability of Safeco? Has any discovery made you aware of Safeco's PDRF or Lost Economic Opportunity claims management programs? No, you probably haven’t.

What you can expect NOT to see are the insurer’s internal claims handling procedures, internal claims department goals, discussions on how the claims department is performing, and items specifically explaining how an insured’s claim was handled. Many policyholders, policyholder counsel, and judges are not even aware that insurance companies have internal documents that reveal how claims decisions and actions impact the insurer's management goals.

What most policyholders and their counsel probably have seen in response to discovery requests are wordy, lengthy and completely useless privilege logs reflecting vague descriptions of otherwise relevant documents. Is the document about the amount of loss? Does it discuss an independent estimate/report such as an engineering report on a roof? Does the document contemplate the need for an expert? Is the document related to compliance with post-loss obligations? Does it address the expected outcome of a potential claims decision or action?

If you find yourself nodding your head thinking – “gosh, I know exactly what you’re talking about” – then it’s time to exchange some ideas and techniques to change this litigation gamesmanship. Tune in for weekly fun Fridays, when I will share about what I have learned from others on these matters. My weekly discussion will be about combating evasive discovery tactics, explaining what is found in these internal documents and how they impact good faith obligations and duties of insurers.

My job is to network around the country with other attorneys involved with Safeco and Liberty Mutual claims practice cases. In doing this, I have learned there are legions of practical examples of how others have successfully obtained important discovery which proves that claims actions and decisions were not done in good faith attempts to fully and promptly pay a claim. Also, internal insurance company documents reflect that insurers acknowledge broad duties of good faith conduct. Obtaining this information and evidence is crucial if policyholders are to be protected from wrongful claims handling.

In this battle against very bright insurance attorneys who are doing their best to protect their clients, it is important to remember that you are never going to get every piece of evidence which will prove your case. However, the wisdom of the Rolling Stones gives some optimism:

"You can't always get what you want,
You can't always get what you want,
You can't always get what you want,
But if you try sometimes, you might find,
You get what you need."

Have a great weekend.

Vivian Persand has been busy in our efforts to obtain information about how Safeco and Liberty Mutual operate their claims departments and make decisions on claims. I recently noted and published some of her efforts in Liberty Mutual Claims Documents Ordered Produced. As soon as we learned of the last minute deposition cancellations, we flew her from our Coral Gables office to review the discovery and documents produced by Safeco in Houston.

While not counsel to Safeco or Liberty Mutual, Vivian represented other insurance companies before coming to work with us. She is familiar with the practice of many insurance counsel to object to, rather than turn over, discovery that could otherwise help prove the policyholder's case. This discovery abuse is a significant problem in civil insurance coverage litigation, and there is usually no consequence. Despite the obviousness of the potentially important evidence, many insurance company coverage and claims counsel base objections on  trade secret or work product privileges.

After spending a day with Vivian and coming across three other cases where attorneys obtained affidavits from a claims expert supporting motions to compel the production of evidence against Safeco or Liberty Mutual, we decided that Vivian will post every Friday on the Property Insurance Coverage Law Blog regarding lessons and experiences gleaned from Safeco and Liberty Mutual claims practice cases.

Many of the insurance coverage litigation techniques and practices in these cases are just as applicable to other insurance carriers and insurance coverage cases. Vivian's weekly posts will also provide some recognition to the efforts and creativity of other insurance coverage and claims practice attorneys with whom we have the privilege of collegial discussion and learning.

An example of an insurance discovery technique which leads to evidence is a discovery declaration by insurance claims practice analyst Charles M. Miller of California. Policyholder attorneys should obtain these affidavits as a normal part of their insurance discovery practice. This type of affidavit can help courts understand why requested discovery is relevant and important in insurance coverage litigation. Regarding Safeco, Miller noted the following:

...the documents sought in Plaintiff’s First Request encompass documents which describe Safeco’s programs and policies, such as Quantum Leap, which are directed at reducing Safeco’s claims payments in order to improve Safeco’s profits. Programs which emphasize profit in the handling of claims put the claims handler in a conflict of interest, wherein the claims handler can either fulfill the insurer’s full obligation to its insured or act in the insurance company’s interest because the claims handler will be financially or other wise rewarded if he/she does so. In my opinion, and based on my experience in reviewing handling thousands of claims files, when placed in such a conflict claims handlers will handle a claim in a manner that benefits the insurance company to the detriment of the policyholder. Such conduct is directly contrary to any claims handling standard and practice that I am aware of, and would be, in my opinion, bad faith. This information would be relevant to evaluating Safeco’s claims handling in this case.
...

Plaintiffs also seek information concerning Safeco’s bonus and compensation programs...Bonuses are available to Safeco claims department employees depending on how the company as a whole does in reaching its corporate goals...Bonuses play an important role at Safeco in providing motivation to claims department employees to improve Safeco’s profits. As pointed out in Respondent’s and Cross-Appellant’s Brief in the matter of Parks v. Safeco, “[Safeco] claim representatives were instructed that they could increase profitability as well as increase their retirement benefits and personal bonuses by reducing claims payments.

The financial incentives and motivations of insurance claims managers and employees can be extremely important when explaining claims behavior. This discovery tool teaches what to look for and why the evidence impacts good faith claims conduct. Sharing these lessons, helping colleagues, and promoting justice, is why Vivian Persand's posts will be important to read every week.

An example of how networking and sharing of information helps policyholder litigants is found in a West Virginia discovery Order in Ebbert v. Liberty Mutual Insurance. There, the Court appointed a special Master to aid in the discovery and specifically noted:

The Court is quite concerned about Liberty Mutual's answers and responses to Plaintiff's discovery requests.

...

The Court is not precluding the possibility of fines.

Some insurance defense counsel and insurers provide little or no useful information in response to discovery requests. They hope that the policyholder's counsel will be lazy and not compel the production of good faith answers or that overworked Courts will not get around to ordering responses. A book I noted in The Value of Networking and Sharing Insurance Claims Information Between Policyholders, "Full Disclosure," explains these tactics and what to do about those insurance defense attorneys and insurers that operate in less than good faith during the discovery process.

The Order in Ebbert v. Liberty Mutual also required the production of specifically named internal claims management documents which alert the rest of the policyholder's bar to what they should specifically demand from Liberty Mutual. This includes:

documents regarding the CFR program, Claims Outcome Advisor ("COA"), as well as documents that deal with bonuses, incentives and the processes for claims settlements.

Vivian Persand will be following up with West Virginia attorney David Jividen, who obtained this order. I strongly encourage any policyholder attorney with litigation involving Safeco or Liberty Mutual to contact Vivian Persand at 305-448-4800. I also encourage policyholder counsel to join the American Association for Justice Bad Faith Litigation Group, which David Pettinato, of our firm, chairs. The Bad Faith Litigation Group will meet at the AAJ's Annual Convention July 10-14 in Vancouver. We plan to hold a networking meeting among the attorneys with Safeco and Liberty Mutual claims practice cases.

The important aspect of these internal documents is how close State Farm comes to complete agreement with me regarding the obligations of good faith claims conduct. Susan Hood, the top claims official for State Farm indicated in part:

• Explaining coverages. It's such an important part of our job in Claims to explain to our policyholders all coverages available to them. This can be complex sometimes, but we must take time to thoroughly review the policy and circumstances of the loss in order to ensure our policyholders receive the full benefits of their coverages according to the terms of their policy. This is just the right thing to do. When a claim is not covered, we must promptly and courteously explain why.

• Investigation and evaluation. Thorough investigation, evaluation, and timely resolution of a claim also are critical parts of what we do. By knowing the facts of the loss and understanding the terms of the policy, we are able to make sure our customers receive the benefits available to them. Our evaluations must be objective, and each claim must be evaluated on its own merits.

State Farm should be congratulated for teaching its adjusters these ethical practices. It is important for attorneys, judges and the public to appreciate that insurers recognize they owe these good faith obligations to their customers.

We are proud to announce the retention of attorney Vivian Persand, who will coordinate the networking and collection of information regarding Safeco and Liberty Mutual Insurance Company on a full time basis. I strongly encourage anybody with information about the claims practices of Safeco or Liberty Mutual, who may have a claim, former employees, vendors with problems, and those attorneys trying to help customers of Safeco or Liberty Mutual to contact Vivian at:

As previously indicated in Should Liberty Mutual and Safeco Insurance Company Customers Expect Great Rates for Poor and Wrongful Claims Performance:

"As a result of Safeco and Liberty Mutual delaying turning over information about reports and estimates...we have now uncovered over 150,000 claims manual operation procedures and guidelines which address how Liberty Mutual and Safeco go about their claims procedures and documents evidencing Safeco's profit oriented program of "quantum leap."

We think this information can be very important to explaining Safeco’s claims practices of Safeco and strongly encourage others to contact Vivian for them. There is no reason to reinvent the wheel and go through costly litigation when others have already blazed the trail. In addition, we have other evidence collected such as Charles Miller's affidavit, which explains some of Liberty Mutual's claims programs. We had an investigator obtain this from an Arizona Court.

Information is power. Transparency demonstrates whether insurers walk the walk, or simply talk the "good faith" talk, while routinely delaying or underpaying claims.

Nationwide's "Life Comes at You Fast" campaign had a number of hilarious ads. We use one of my favorites to show that insurers expect many losses to be caused by unique and multiple chains of events which should not give rise to an excluded occurrence:
 

I bet Allstate would think twice about using the "neglect" exclusions in its policies if it was reminded of this very funny commercial:
 

But these commercials were not always so entertaining, as this older Allstate commercial demonstrates:
 

I intend to use the words and message of this ad when Liberty Mutual and Safeco claims adjusters fail to act in the manner they advertise:
 

And the message by Liberty Mutual is not just "puffing," as the following video demonstrates:



 

Finally, there is a very funny video with a great point about not judging too quickly--a great thought to remember as we start out this fantastic year.
 

I suggest that every customer of Liberty Mutual and Safeco ask in advance what type of claims payment philosophy the insurer will follow before signing on the dotted line. Would you want to be a customer of a company that had its claims department taking a corporate "quantum leap" to bring back profits into an insurance corporation? That is exactly what Safeco and Liberty Mutual have been doing, and it is time that the insuring public is made aware of what type of treatment the public can expect with that company and its subsidiaries.

Every insurance company selling first party insurance has an obligation to investigate coverage and evaluate damages. That obligation requires the insurer to do so promptly, at its own expense, and in a completely honest manner. There are a lot of insurance company adjusters and insurance company attorneys that subscribe to this blog. Does anybody disagree?

If not, why don't Safeco and Liberty Mutual turn over all consultant reports to their customers in first party claims? Are they afraid to be honest? Why do Safeco insurance adjusters refuse to turn over draft reports of consultant reports, citing "work product" privilege? Maybe every Safeco and Liberty Mutual customer should do the following every night before a loss occurs:

We have had a number of Liberty Mutual policyholders, public adjusters, and policyholder attorneys contact us following our post, Safeco and Liberty Mutual Claims Practices Questioned on a National Basis: Policyholders Organize Against Wrongful Claims Practices.

Here is what one had to say:

Last year, my house caught on fire and liberty mutual has refused to pay invoking appraisal within one month without ever properly presenting or looking over the claim. Detectives, police, and their own cause and effect engineers say we had no fault in the fire. Yet, they have repeatedly used stall tactics.

This past year (they said) they didn't receive receipts or information that I have faxed verification showing successfully doing so. And then, they later admitted they had it the whole time saying "this is what we already had." While they have had beds to sleep in and warm food on the table, they have left me and my four kids homeless sleeping on the cold hard floor of one of the rooms that caught on fire. [They were] spending more money for detectives and fighting the claim than if they had paid and now because the adjuster that invoked appraisal and then found out the umpire sided more towards me and my children, they are arguing his decision [is wrong] and them selecting him. DSS is about to take my kids due to the living conditions and everyone is dragging their feet...what can be done??

This afternoon, I spoke with another Texas corporate policyholder attorney with a similar story. I have a corporate policyholder client whose CPA consultant has accused the Safeco adjuster of lying to her about facts of the adjustment.

As a result of Safeco and Liberty Mutual delaying turning over information about reports and estimates in that case, we have now uncovered over 150,000 claims manual operation procedures and guidelines which address how Liberty Mutual and Safeco go about their claims procedures and documents evidencing Safeco's profit oriented program of "quantum leap."

When I have asked Liberty Mutual and Safeco adjusters and attorneys if they agree they have an obligation to adjust in good faith and act honestly, promptly and in cooperation, they say, "yes." When I ask for them to do so or why they have not, this is the type of response I get and what others are reporting to me when they ask the same question:

If you are an insurance customer, I suggest a few companies that compete on service. For example, here is what I have had to say about Chubb in Chubb Calls Competitors Cheap And Unfair. Buy from companies you can trust. How cheap is insurance from Liberty Mutual if it does not pay fully, promptly or in good faith?

So, I found it quite fascinating to notice the Antitrust Statement issued by the Property Loss Research Bureau (PLRB)  and the Liability Insurance Research Bureau (LIRB) at their Large Loss Conference this week. The statement provided in part:

Presenters and attendees at the LARGE LOSS CONFERENCE must remember that their respective firms are competitors in the marketplace and the McCarran-Ferguson Act and the laws of some states provide the insurance industry with only a very limited immunity from federal and state antitrust scrutiny. Therefore, the presenters and attendees must exercise care during all presentations and discussions, since even the most innocuous discussions of certain topics might later be misinterpreted as evidence of collusion.

There are a number of important aspects to this statement. First, adjusters at conferences must appreciate that their colleagues from other businesses are competitors in the marketplace. Second, since they are competitors, antitrust laws apply to them. Third, the antitrust exemptions and immunities granted to insurance companies are very limited.

One impression I have of the public policy to allow antitrust exemptions is to provide for sharing of loss history and common form coverages to help regulators make certain that insurance companies would not charge too little and risk financial ruin in an attempt to gain market share. Insurance companies going broke and not paying claims after widespread disaster is never good for the public.

Nevertheless, the Antitrust Statement issued by these entities to the claims executives and adjusters attending this conference correctly warned that collusion can (and normally does) take place and of the specific subjects of discussion which should be avoided between adjusters working for different companies:

At the LARGE LOSS CONFERENCENCE, and all educational, social, and business development events connected with this meeting, there should be no discussion or agreement, formal or informal, express or implied, as to any matters which might give rise to an allegation of antitrust laws. Subjects to avoid include:

*rates;

*underwriting practices;

*marketing strategies;marketing responses to legislative, regulatory, or other developments;

*prices or costs of any products or services offered for sale by insurers or purchased by insurers;

*individual insurance company positions on coverage issues and other matters of insurance policy interpretation; agreements or understandings relating to claim practices, policies, or positions;

*standards by which the performance of any insurer could or should be judged; codes of ethics;

*advantages or disadvantages of doing business in particular states;

*refusal to deal with, or boycott of, potential insureds or suppliers of products or services; use of particular suppliers of products or services; and

*costs or profits of any aspect of any of the above.

I am no expert on antitrust laws. When I first read this, I thought, "what the heck can we talk and learn about from our peers and colleagues if we cannot talk about any of this?" Given this extensive list, I suppose you could talk with your colleagues only about the weather or the Yankees winning the World Series at the networking functions.

The PLRB in particular has excellent materials and information regarding coverage and adjusting issues. I encourage my colleagues in the insurance industry to attend so they can do a better job learning the policy coverages and how to adjust and apply the insurance product. While the PLRB presents one-sided views because it prevents policyholder representatives from attending PLRB conferences, it still has very valuable educational information for claims managers and adjusters.

For example, some of the educational sessions involved Chinese Drywall, Complexities in Adjusting and Measuring Builders Risk Losses with Delay, and First-Party Cyber Losses. These are all very important adjusting topics that adjusters need to learn how to approach and then get monies to their customers suffering from these calamities.

Yet, if the purpose of the PLRB is to educate adjusters to do a better job, and if the adjusters are supposed to be concerned with promptly paying the full amount of benefits to policyholders, why are the PLRB proceedings and educational topics a secret only for the insurance industry? The PLRB claims that antitrust laws are supposed to be obeyed, but the educational information concerning how the products of the insurance industry work is withheld from the customers of these PLRB insurers.

Why would the insurance industry want to keep secrets from its customers about how the customers can expect to be treated if they have a claim? From the consumer's skeptical viewpoint, some may question if the motive is to prevent the insurance product form paying as much as it should. The PLRB and all exclusive insurance industry organizations discussing how their products perform should have their leaders and legal counsel determine whether the secrecy is in violation of law and is to help promote a collusive impact to pay consumers less than what is owed. Otherwise, why have the secrecy? Are insurance claims executives afraid that their customers may learn they are not paying all that is owed? In a scenario where the competitors meet together and can learn from each other, but exclude the parties to the other side of the deal, many should question what is really going on and the reason for the policy of exclusion.

As readers noted in my recent post, Safeco and Liberty Mutual Claims Practices Questioned on a National Basis: Policyholders Organize Against Wrongful Claims Practices, where I informed others of our consumer networking activities regarding Safeco’s and Liberty Mutual's claims handling processes and cases, the customers of Safeco and Liberty Mutual would want to know how certain aspects of their property insurance claims may be handled. The PLRB had a seminar, "Ordinance or Law: A Review of the Additional Coverage" that was taught in part by Fritz Lander and Jamie Minich---large loss quality assurance specialists from Liberty Mutual. Many Safeco and Liberty Mutual policyholders with disputes on these issues may wonder what its claims quality assurance specialists say behind closed doors to insurance insiders versus what their hired attorneys argue in open court.

Is the PLRB just paying lip service to the antitrust laws of this country? Remember a topic to be avoided--"advantages or disadvantages of doing business in particular states?" I wonder if the keynote speaker to this conference, lobbyist and insurance industry legislative strategist, Sam Miller of the Florida Insurance Council, touched on this topic when he presented, "Florida: Hurricane Alley & The Country's Trendsetter in Response & Recovery."

Chances are that if such a claims program were in place and advertised to potential purchasers, nobody would buy from that insurance company. Revenues would drop and losses would incur. So, when Safeco Insurance Company started on such a claims program to increase overall corporate profits, do you think the Safeco executives wrote their customers, agents, and potential purchasers about such a program if it were really in the customer’s interest as well? Of course not. But, this is exactly what happened at Safeco.

Last year, Liberty Mutual Insurance Company purchased Safeco Insurance Company. After doing due diligence, the managers and executives at Liberty Mutual knew that Safeco’s claims philosophies fit within Liberty Mutual’s. Liberty Mutual had its own claims payment reduction programs as well. Similar to Allstate, Liberty Mutual hired outside claims consultants to develop claims philosophies that added to corporate profit through claims reduction programs. The purchase of Safeco Insurance Company by Liberty Mutual Insurance Company is a match made in heaven for the short term investors of Liberty Mutual and the executives of those companies.

Our firm has been retained on a number of property insurance disputes involving these companies. As a result of my involvement in one particular matter where I have received no response from Safeco, I have decided to do something about these companies claims problems in the same manner I approached Allstate Insurance Company when I was chair of the Bad Faith Litigation Group for two years in the mid 1990s and Allstate was underpaying claims based upon its wrongful claims program known as Claims Core Process Redesign. I will help organize a cooperative effort of those that have been victimized by these companies to publicly warn other consumers of these companies’ claims practices and raise knowledge with regulators interested helping insurance customer interests.

While Chair of the Bad Faith Litigation Group, I presented numerous seminars regarding Allstate’s claims practices. An example is my 1997 presentation to the Montana Trial Lawyers Association, “Overcoming Allstate's Trade Secrets and Work Product Objections.” The results of these networking activities regarding Allstate were documented in part on previous posts:

1. "Deal, or No Deal?"
2. The Good Hands Gets the Iron Fist
3. Ed Liddy
4. David Berardinelli's Fight Against Allstate's Claims Culture
5. Allstate Does the Right Thing
6. Allstate Testifies Today
7. States Seek McKinsey Reports

My intention is to create similar networking and transparency with Safeco and Liberty Mutual and share the 150,000 internal documents we have already collected regarding the secret claims practices of these companies. In this manner, other victimized policyholders will not suffer the similar consequences without understanding why the claims programs were not isolated just to them and the real motive for the delays and denials by Safeco and Liberty Mutual. Possibly, executives at Liberty Mutual will stop these practices and do right to their customers. If not, at least brokers and customers will know what Safeco and Liberty Mutual are about when it comes time to pay fully and promptly following a loss.

On December 17, 2009, our firm with other consumer law firms will host a claims practice seminar in Houston that will focus on Hurricane Ike claims practices as well as Safeco and Liberty Mutual claims practices. Computerized legal databases now allow us to find all federal and most state lawsuits against Safeco and Liberty Mutual which involve property insurance or bad faith lawsuits. Those attorneys representing the policyholders will start getting their invitations today.

Websites about Safeco and Liberty Mutual along with Facebook sites will be up and running by next week so claims practice information may be shared among consumers, whistleblowers, and victims of these insurance companies. Honest and trustworthy insurance companies should applaud our efforts because companies that cheat on claims should not be allowed to gain market share by having lower rates by such practices than those that fully and promptly pay their claims.