The Indiana Court of Appeals affirmed a $14.5 million dollar defamation verdict against State Farm in State Farm Fire & Casualty Company v. Radcliff.1 State Farm was found guilty of defaming a roofing contractor following hail storms in Indiana in 2006. Roofers, restoration construction contractors, State Farm policyholders, and consumer advocates should study this case because it demonstrates the mindset of the largest personal lines insurance carrier.

The facts indicated in part:

On Good Friday, April 14, 2006, central Indiana suffered a large hailstorm that caused millions of dollars in property damage, generating almost 50,000 State Farm claims. State Farm’s handling of these hailstorm claims led to the events in this case.

After the hailstorm, the Indiana Department of Insurance received 425 complaints from State Farm policyholders, and in March 2007, the Department of Insurance initiated a “Market Conduct Examination.” . . . The Market Conduct Examination revealed “areas of concern” regarding State Farm’s handling of the claims in the wake of the hailstorm . . . .At about the same time, a class-action lawsuit was filed on behalf of more than 7000 State Farm policyholders whose hail claims had been denied. During the same time, Indianapolis’s rtv6 Call 6 investigative reporter Rafael Sanchez televised reports about State Farm’s refusal to pay claims related to the hailstorm and reported the backlash against State Farm from its policyholders . . . .As the pressures grew, State Farm became concerned with the public’s perception of its image.

Several months after the storm, Radcliff created Coastal Property Management LLC (CPM) to repair the storm-damaged homes….Radcliff was retained by approximately 300 State Farm policyholders whose claims had been denied…By late 2006, Radcliff saw other insurance companies approving claims when the homeowners next door—insured by State Farm—had their claims denied.

Radcliff took his clients’ concerns to the Department of Insurance, where he learned that State Farm was already being investigated for unfair-claims practices…The Department of Insurance asked Radcliff for evidence in its investigation of State Farm….

Around this same time, Radcliff contacted Rafael Sanchez with rtv6 because he had seen a story on the news about State Farm and the April 2006 hailstorm….Rafael Sanchez interviewed Radcliff at his office.

Radcliff learned that many roofing contractors were unwilling to work with homeowners who had State Farm for their insurance company because of the claims-denial issue…In fact, contractors put advertisements in the newspaper discouraging State Farm policyholders from calling them…Radcliff, however, wanted to “let people know that there was somebody that would help them” and posted signs in and around Marion County stating that CPM would “fight State Farm.” State Farm complained about these signs.

Tom Cockerill and Karl Benz are the State Farm employees who allegedly defamed Radcliff and CPM by forwarding their insurance-fraud investigation to the National Insurance Crime Bureau (NICB), which is a not-for-profit organization that acts as a liaison between insurers and law enforcement. The NICB turned over its investigation to the Indianapolis Metropolitan Police Department (IMPD), and a probable-cause affidavit was prepared, which both Cockerill and Benz reviewed for accuracy. Cockerill and Benz work in State Farm’s Special Investigative Unit (SIU), which investigates insurance claims involving indications of fraud referred by adjusters…

Around February 2007, Angie Rinock, State Farm’s media specialist for the Great Lakes Zone, learned that Radcliff was meeting with Rafael Sanchez as part of rtv6’s ongoing inquiry into State Farm’s practices…Rinock made a note to herself that there would be an investigation into Radcliff and CPM and that there were concerns about the “professional business ethics of this particular group.”

During this same time, Rinock and State Farm Regional Claims Manager Neil Fritze regularly exchanged emails regarding a public-relations strategy.2 CPM Ex. 161, 163, 167. In March 2007, they received an internal email explaining that State Farm’s attempts to defray the negative media attention had failed and “[u]nfortunately, th[e] story will not go away . . . . Our partners are requesting a change to a more aggressive strategy.”
According to State Farm internal emails, rtv6 ran a story about State Farm on July 16, 2007…(“Based on last night’s Channel 6 story it appears Ra[f]ael has taken a softer tone regarding State Farm’s handling of hail claims. What do you think about approaching Rafael to see if he would like to do a story on ‘mechanical damage to roofs?’” (email dated July 17, 2007)). Rinock responded to this email on July 18 and said that when she had Rafael Sanchez visit the Indianapolis office, they discussed mechanical damage, but at this point in time she thought that it was best “to lay as low as possible in Indianapolis.” Benz, however, responded to Rinock’s email that same day, explaining that “[s]ome of the negative press that has been occurring in Indy has been generated by . . . questionable contractors in efforts to put pressure on us to simply pay . . . questionable claims. A good, positive story to indirectly expose some of these practices and help protect consumers could go a long way to helping change the public’s attitudes and perceptions.” When Benz wrote this email to Rinock, State Farm had already begun a formal investigation of Radcliff and CPM.

The NICB is a not-for-profit organization that acts as a liaison between insurers and law enforcement…The NICB is also actively involved in insurance legislation…The NICB screens suspicious claims referred by insurers to determine whether they warrant submission to law enforcement. State Farm is a member of the NICB and is one of the NICB’s largest financial contributors.

State Farm’s SIU refers a claim to the NICB when there are indicators of fraud. An SIU support person contacts the NICB, and the NICB assigns the claim a referral number. The NICB assigned referral numbers to all ten claims in this case. The NICB became involved in this investigation in either late 2007 or early 2008 when Cockerill, Benz, and others met with Todd Burris, a special agent for the NICB…Cockerill and Benz met with Burris again in March or April 2008 to transfer their investigative materials. The NICB requested State Farm’s “entire claim file,” even if it included evidence that undercut State Farm’s suspicions of fraud . . . .

Cockerill copied and assembled the materials to give to the NICB, which included the claim logs for each of the ten cases. Cockerill used a marker to redact from the claim logs those entries that he believed were protected by the attorney-client privilege. Radcliff claims that some of those entries were wrongly marked out, such as the entry on the Moll’s claim log discussed above. The NICB did not request unredacted copies of the claim logs. There were documents that Cockerill did not provide to the NICB even though State Farm was instructed to send the “entire claim file.”(Cockerill admitting that he did not send the entire claim file to the NICB)…(State Farm conceding on appeal that it did not turn over certain documents to the NICB but arguing that these documents were nonetheless referenced in the claim logs)…

…Benz claimed at trial that State Farm never requested that any criminal charges be brought against Radcliff as a result of its investigation and that he had no expectation of what the NICB would do with the information State Farm provided because the goal was to find the truth…In response to this claim by Benz, part of a rough draft of a letter addressed to the NICB that Cockerill sent to Benz for review was read aloud to Benz at trial:

‘State Farm Fire & Casualty Company alleges that CPM Construction of Indiana LLC and their representatives have conspired together to execute a scheme to commit insurance fraud and is a Racketeer Influenced and Corrupt Organization.

* * * * *
Further, evidence is enclosed which demonstrates five different occurrences involving this insurance fraud scheme. State Farm requests that CPM Construction of Indiana and the individuals listed above be named in an indictment for their involvement in a Racketeer Influenced and Corrupt Organization based upon the five predicate felonies referred to above.

…When asked if he still wanted to stand behind his statement that the goal of the investigation was not to get Radcliff arrested, Benz said yes, because it was a decision for the NICB to make…Benz did deny that the whole investigation was “put together by State Farm to get Mr. Radcliff arrested in order to fix a media problem.”

Radcliff said that while he was being arrested, a State Farm adjuster who was there…laughed at him…

[State Farm] issued the following public statement to rtv6 within hours of Radcliff’s arrest:

“We are cooperating with and assisting the authorities in their investigation. As the nation’s largest property and casualty insurance company, State Farm is committed to helping law enforcement in developing and implementing programs that help curb crimes like fraud because it impacts our business and our customers.”

Rinock explained that Radcliff’s arrest gave State Farm the “opportunity to tell [its] story in a positive light,” which assisted in defraying the negative media attention that it had received.
Radcliff’s arrest was front page news on The Indianapolis Star as well as the Orlando Sentinel, which is where his family lived, and was covered by “every news station” in Indiana. CNN even covered Radcliff’s arrest.

The day after Radcliff’s arrest, Cockerill spent part of his day forwarding news reports about the arrest…Three days after Radcliff’s arrest, Cockerill visited Radcliff’s wife’s MySpace page and found a picture that someone had posted depicting a stick-figure Radcliff behind bars being raped. Cockerill forwarded the link to Burris, the NICB special agent who had worked on the case, and told him to “enjoy.” (emphasis added)

Obviously, Readliff was never convicted of these charges. He won a hard fought civil trial.

So what are the lessons?

  1. State Farm gets “an attitude” regarding claims and will fight their own customers–even in very large numbers.
  2. State Farm tries to manipulate the media and hide its claims attitude.
  3. State Farm management allows a culture where its claims adjusters can be gleeful regarding other people’s misery.
  4. State Farm uses the NCIB as a puppet for police and legislative propaganda.
  5. State Farm is very organized and aggressive at the highest levels of management regarding its reputation, its attempts to “win” at litigation, and a culture of not paying a penny more than it has to on a claim.
  6. State Farm can be beat in court and this case adds to its long rap sheet of claims misconduct.

1 State Farm Fire & Cas. Co. v. Radcliff, 29A04-1111-CT-571 (Ind. Ct App. April 11, 2013).