Are You Covered?

David Dietz and Darrell Preston wrote a September article for Bloomberg entitled “The Insurance Hoax“.  The article discusses various property and casualty insurance tactics used to reduce payments on valid claims.  A focus of the article is Allstate’s and State Farm’s use of McKinsey & Co., a New York based consulting firm, in order to determine how to increase profits.  McKinsey & Co. basically came up with a method for insurance companies to handle claims:  (1) sit and wait; (2) pay as little as possible; and (3) put on the boxing gloves. 

What do these mean?  Sit and wait refers to the delay of settlements and court proceedings.  This wears down the insured so they will fold and take the low settlement.  Pay as little as possible is self explanatory and goes along with the third category.  The insurance carrier will make a low ball offer, and if the claimant refuses to accept, the carrier will put on the boxing gloves and fight them all the way.

The article is a good illustration of how the insurance industry is pulling the wool over people’s eyes.  It goes into the low offers to insureds on their homes which have been destroyed by fires and natural disaster.  The authors discuss the concept that insurers are not supposed to be maximum profit centers because they have a special relationship to their insured.  Once they become focused on the bottom line, they become in conflict with their own customers.  We are talking about people’s homes and lives.  These customers purchase insurance for “peace of mind” not for a two year legal battle, and insurance companyies know this on the front end.  So, when they put on the boxing gloves, the insurance carriers are taking advantage of people who are in a weak position.

What is happening?  Mr. Dietz and Mr. Preston point out two glaring statistics in their article which show the bottom line is more important than the customer.  What are those statistics?  Read the article.

Just kidding!  One statistic involves the profits of the insurance industry which I discussed in a previous blog.  According to the article, Property- casualty insurers, which cover damage to homes and cars, reported their highest- ever profit of $73 billion last year, up 49 percent from $49 billion in 2005, according to Highline Data LLC, a Cambridge, Massachusetts-based firm that compiles insurance industry data.  This includes payouts on Hurricane Katrina!!!  In fact, Allstate’s profits rose from $2.08 billion in 1996 to $4.99 billion in 2006. 

The other statistic:  what these insurance companies are doing with a lot of our premiums.  The insurance industry spent $98 million on lobbying in Washington in 2006, according to PoliticalMoneyLine, a unit of Congressional Quarterly. That’s the second-largest amount spent on lobbying by any group, behind $114.4 million by pharmaceutical companies.  $98 million!!  That figure doesn’t even include amounts paid for state lobbying.

When is enough enough?  When juries start waking up and telling the insurance industry they have gone to far.  That’s why we have courts.  That’s why we have juries composed of our peers.  The legal system is a method by which we can check these practices.  But, if the insurance industry has its way, and $98 million seems to talk, we won’t be able to access the legal system much longer.

Georgia vs. Alabama

They are similar states located right next to each other, but their laws are so different.  In Alabama, if an individual is killed in an accident, the damages available to the family are strictly punitive.   In other words, the family can only ask a jury to punish the person at fault.  No compensatory damages are available to the family.  So, if a father of two who was 38 years old and earned $60,000.00/year was killed by a person who ran a red light, the family could not ask the jury to compensate them for the present value of his future earnings over his life expectancy (approximately 37 years).  In addition, if he was not killed instantly and spent two or three months in the hospital, the family could not ask a jury to compensate them for his medical expenses or pain and suffering (unless a lawsuit was filed while he was alive).

In Georgia, things are much different.  Not only could the family ask for the father’s future life earnings, but they could also ask for his pain and suffering, the cost of his medical care, and the value of his life.  In addition, if the person at fault deserved punishment, the family could ask for punitive damages as well.

In Alabama, if two people are in a car accident, the insurance company for the person at  fault (assuming they have insurance which is a big assumption in Alabama) usually pays the damages.  However, if the injured party is forced to file suit, that party cannot mention the other party’s insurance carrier.  For example, if John Doe runs his vehicle into Mary Smith’s vehicle and injures Mary Smith, Mary Smith can only file a lawsuit against John Doe, not against his insurance company, say Allstate.  Mary Smith can never tell the jury that John Doe has insurance with Allstate, but John Doe can tell the jury that Mary Smith had BlueCross BlueShield to cover her medical expenses.  So, some juries are left wondering if John Doe has insurance to cover the claim.

What’s Georgia’s answer to this issue?  Georgia has a “direct action” statute.  That statute says that an injured party may file a lawsuit against the party at fault AND his insurance company.  Consequently, in the example above, Mary Smith would file the lawsuit against both John Doe AND Allstate, and the jury is aware that John Doe has automobile insurance coverage.

Which laws make more sense? Alabama’s or Georgia’s?  Shouldn’t a family be able to recovery something to help them with the loss of the father and husband?  Even if it’s just a little bit, it helps the family get back on their feet while they suffer through their grief.  Shouldn’t we be above board with our juries?  Why hide the fact that a party has insurance coverage?  Isn’t that what it’s there for, and shouldn’t the jury be able to know that?  My answer is yes, what’s yours?

Jon E. Lewis, of the law firm Lewis & McAtee, P.C., is a licensed and practicing attorney in Alabama and Georgia.  You can read about these and many other issues at the firm’s many websites.

Mandatory Auto Insurance – Ha

Alabama instituted mandatory auto insurance in 1999.  A lot of good that did.  What good is mandatory insurance if it is not properly enforced.  What many have done is apply and obtain insurance only to let it lapse after they get their tag.

The Insurance Research Council has reported that twenty-five percent (25%) of Alabama drivers lacked insurance between 1999-2004.  According to the study, the percentage hasn’t changed from 1998, and Alabama is now tied for second in the country with California for the most uninsured drivers.  Thank you once again Mississippi (number 1).

The problem is in the statute’s penalty.  If someone’s license is suspended, they continue to drive, and their penalty if they are caught without insurance is a monetary fine.  They don’t pay the fine, and what happens?  Nothing. 

So, what do we do?  Begin monitoring the habitual offenders and begin making the penalty more severe.  People are injured in this State every day by uninsured motorists, and they need help financially as a result of their injuries.  We must do something to lower these uninsured figures, and while we are at it, we could increase the minimum limits from $20,000.00 to the $25,000.00 the legislature approved this year which Governor Riley vetoed.

Another Insurance Settlement

Twenty-three BlueCross BlueShield plans settled a class action lawsuit on behalf of physicians for $128 million according to the Birmingham News.  Archie Lamb, of Birmingham, Alabama was the lead attorney for the plaintiffs.  The lawsuit was one of several against various insurance carriers.  Many have already settled for huge sums of money. 

Why would these insurance carriers settle for such large sums?  Apparently, their practices have not been on the up-and-up.  Obviously, for $128 million, the insurance carriers could easily cover the legal fees to fight such a “frivolous” claim, OR maybe the claims aren’t so frivolous.  It is a shame that it takes a lawsuit to force an industry to do the right thing.  Maybe trial attorneys aren’t so bad after all.  It seems as though the doctors didn’t think so in this case.

Costs to Care for the Disabled

The Associated Press has reported that more than 40 million Americans have some sort of disability, and with the baby boom generation aging, that number will grow significantly over the next 30 years.  This number may be somewhat misleading because many disabled individuals are in their situation as a result of the negligence and wrongful acts of others.  Instead of our government covering the costs to care for these unfortunate people, the person or company responsible (or their insurance carrier) should have to bear the costs of their care. 

The purpose of our tort system and insurance coverage is to shift costs to the appropriate party.  This system also provides an incentive for people and companies to act with reasonable care.  Why should our government be burdened with additional Social Security and Medicare costs when someone else’s negligence caused the disabling injury?

The Big Lie

The insurance industry wants the public to think that attorneys are driving up the costs of premiums as a result of lawsuits and frivilous claims.  Nothing could be further from the truth.  In a March 27, 2007 Associated Press story in the Birmingham News, the insurance industry continues to reap incredible profits at the expense of consumers.  The net income for the property-casualty insurance industry was $49.0 BILLION in 2005.  The estimate for 2006:  $68.1 BILLION.  That’s a $19 BILLION dollar increase in net income notwithstanding Hurricane Katrina.  Hardly an industry that we can feel sorry for. 

But, that’s not enough for the insurance industry.  Take a look at the following expose from CNN:

http://www.cnn.com/2007/US/02/09/insurance.hardball/index.html

Next time you or someone you know is injured in an accident, keep these facts and figures in mind.  More importantly, the next time you sit on a jury involving a clear liability claim in a car accident, remember that the reason you are there is because the insurance company for the driver at fault probably wouldn’t agree to pay a reasonable amount.  If we don’t want insurance companies to have to pay claims, why should we have insurance at all?  I don’t enjoy paying the premiums, do you?