Texas Insurance Defense and Litigation

CNN trashes settlement practices of State Farm and Allstate regarding car accident claims

In early February 2007, CNN ran a story regarding the settlement strategies and practices of insurance companies regarding car accidents.  The story focused on the actions and behaviors of State Farm and Allstate.  Here are excerpts of the story:

• State Farm, Allstate employ consultant's strategy, CNN research finds
• Theme of strategy is "deny, delay, defend," former employee says
• Companies convince juries that claims are fraudulent
• Insurers, institute deny treating claimants unfairly

By Drew Griffin and Kathleen Johnston, CNN

ATLANTA, Georgia (CNN) -- If you are injured in a minor car crash, chances are good that you will be in the fight of your life to get the insurance company to pay all the medical costs you incur -- even if the accident was no fault of your own.

That's what CNN discovered in an 18-month investigation into minor-impact soft-tissue injury crashes around the country. Those are accidents in which there is little damage to the vehicle and the injuries to people are not easy to see by the naked eye or conventional medical tools like X-rays.

Since the mid-1990s, most of the major insurance companies -- led by the two largest, Allstate and State Farm -- have adopted a tough take-it-or-leave-it strategy when dealing with such cases.

The result has been billions in profits for insurance companies and little, if anything, for the public, according to University of Nevada insurance law professor Jeff Stempel.

"We can see that policyholders individually are getting hurt by being dragged through the court on fender-bender claims, and yet we don't see any collateral benefit in the form of reduced premiums even for the other policyholders," Stempel said.

"So I think now we can say to continue this kind of program is in my view institutionalized bad faith."

*****

If you have never heard of the strategy, it's because insurance companies don't want you to know that they are paying out less and less for minor crashes even while their profits soar and your premiums continue to rise.

But after a review of more than 6,000 company documents and court records, interviews with a dozen people nationwide, including former company insiders, and conversations with accident victims, the picture is clear: If you challenge the offer by some insurance companies you will be left with no option but to go to court, where you will be dragged through the wringer.

In an affidavit in a New Mexico case where Allstate is being sued, one of the company's former attorneys said the strategy is to make fighting the company "so expensive and so time-consuming that lawyers would start refusing to help clients."

Shannon Kmatz, a police officer and former Allstate claims agent, said company employees were encouraged to get rid of claims quickly and cheaply and even offered accident victims as little as $50, telling them to take it or leave it.

*****

For Allstate and State Farm, according to documents obtained by CNN, the strategy was developed in the mid-1990s with the assistance of consulting giant McKinsey & Co.

Looking for a way to boost profits, McKinsey focused on soft-tissue injuries incurred in minor crashes.

While the McKinsey documents -- numbered in the thousands -- are under seal in courts around the country, CNN saw several of them during a court hearing in Lexington, Kentucky.

Playing off Allstate's signature slogan, one document recommends the insurer put boxing gloves on its "good hands" for those who insist on going to court.

The strategy, according to former Allstate and State Farm employee Jim Mathis, relies on the three D's -- denying a claim, delaying settlement of the claim and defending against the claim in court.

*****

Robert Hartwig, president of the Insurance Information Institute, told CNN insurers do not have a strategy of blanket denial of claims. He also said strategies to limit expenditures on minor-impact crashes are needed to fight fraud.

Hartwig specifically singled out lawyers who he claims make a living on car accident victims, saying those lawyers are upset because "the gravy train is over."

Illegal aliens and recovery of future lost wages

Oklahoma Attorney Robert B. Coffee, Jr. presented a paper at the last mini-conference of the Trucking Industry Defense Association.  The paper explored the issue of illegal aliens recovering for future lost earnings in personal injury actions.  He makes the following points:

The question should be framed as follows:  "When the plaintiff is an illegal alien, why should the defendant have to pay for future wages that could only be earned in violation of federal law?"

The jurisdictions are split on the issue of whether an injured illegal alien can recover "lost United States wages".

The following courts held that the answer is no: the New Hampshire Supreme Court; a U.S. District Court in Kansas; the U.S. Middle District of Florida; and, the Second Department of New York Supreme Court’s Appellate Division.

The following courts held that the answer is yes:  the Fifth Circuit (in a case that pre-dated a seminal U.S. Supreme Court which ruled that undocumented workers could not recover damages on an award from the National Labor Relations Board); the U.S. District Court in the Southern District of New York (construing New York law); and, the First Department of the Appellate Division of the Supreme Court of New York (note the contrast with the other New York state court, above).

DOT to allow Mexican trucks access to U.S. highways

The Department of Transportation announced that it will allow Mexican trucks to deliver on U.S. highways.  They will be subject to “tough” inspection programs.  The story was reported on TTnews.com:

EL PASO, Texas — The United States will grant Mexican trucks access to U.S. highways under a pilot program, Transportation Secretary Mary Peters announced here today.

Peters said the program would be “a limited year-long demonstration program that will permit up to 100 Mexican trucking companies to make deliveries beyond the commercial zone” near the border.

Under the program, “an equal number of U.S. trucking companies will be able to cross the border and compete in the Mexican market place for the first time ever,” Peters said.

“In 1995, we let fear trump common sense along the nation’s southern border when we put the trucking provision of the North American Free Trade Agreement on hold,” the secretary said in a written statement.

“I am here today to right a 12 year-old wrong,” she added.

Carriers wishing to enter the United States from Mexico will be subjected to a “tough” inspection program, including examinations of both truck and drivers, Peters said.

Phillip Morris punitive damages case may actually be good for plaintiffs

Howard J. Bashman, an appellate lawyer in Philadelphia, has some interesting thoughts regarding the recent Phillip Morris case.  He agrees that the case limiting punitive damages is good for defendants.  But he also argues that it’s good for subsequent plaintiffs, i.e., those plaintiff who are not the first to sue a defendant who has harmed multiple parties:

To appreciate what I'm discussing, assume that a defendant engaged in conduct that harmed 10 separate potential plaintiffs and that the conduct was egregious enough to subject the defendant to punitive damages. Assume further that all 10 plaintiffs sue the defendant separately, and that each plaintiff's lawsuit seeks punitive damages. If the first plaintiff to reach a jury is allowed to request punitive damages that are intended to punish the defendant for having harmed all 10, then the defendant in theory would have a valid argument as to why the other nine should not be permitted to recover punitive damages when their claims reach a jury.

However, in the aftermath of the Philip Morris ruling, each plaintiff in my 10-plaintiff hypothetical will only be able to ask a jury to award punitive damages intended to punish the defendant for having caused harm to that individual plaintiff. Correspondingly, the defendant will lose the ability to argue that it should not be subjected to repeated punitive damage assessments in each of the 10 lawsuits.

Accordingly, the high court's ruling in Philip Morris is good news for defendants because now an individual plaintiff can no longer receive a punitive damages award intended to punish a defendant for having harmed others similarly situated to the plaintiff. But the ruling is also good news for plaintiffs who are not the first to reach a jury, because the defendant will no longer be able to persuasively argue that earlier punitive damages awards aimed at punishing the same conduct at issue in the current plaintiff's lawsuit extracted a punishment sufficient to mandate the dismissal of that particular plaintiff's punitive damages claim.

U.S. Supreme Court limits punitive damages

As reported in Law.com:

The Supreme Court on Tuesday tossed out a $79.5 million punitive damage award won by a smoker's widow against Philip Morris, ruling that Oregon jurors improperly considered harm to other smokers in punishing the tobacco giant.

By a 5-4 vote, the Court said that a state violates the Constitution's due-process clause when it uses a punitive damage award to punish a defendant for injuries suffered by "strangers to the litigation," in the words of Justice Stephen Breyer, who wrote the majority opinion.

"A defendant threatened with punishment for injuring a nonparty victim has no opportunity to defend against the charge," Breyer wrote.

Business advocates applauded the ruling as a major body blow, grounded in the Constitution, against high punitive damage awards.

"This is a huge, huge win for corporate defendants," said Lori Nugent, chair of the enterprise risks practice of Cozen O'Connor in Chicago, and author of a state-by-state guide on punitive damages. "Lawyers who exhort jurors to send a message; that has to stop now. It rips the guts right out of a case."

But plaintiffs groups say the decision won't change much, especially since the Court on Tuesday also said that harm to others could still be considered by jurors in determining the defendant's level of "reprehensibility."

"Ultimately, I don't think this is going to be very significant. The Court was slaying dragons that don't exist," said Robert Peck, who argued the case on behalf of Mayola Williams, widow of longtime Oregon smoker Jesse Williams, whose estate won the case against Philip Morris. On remand to Oregon, Peck said, the case could still result in a significant punitive damage award.

The ruling also disappointed some business groups because it explicitly stopped short of setting numerical limits on excessive punitive damages -- a holy grail for critics of the tort system. The Court's sidestep caused some tobacco-company stocks to dip on Wall Street after the ruling.

The decision in Philip Morris USA v. Williams represented the first time Chief Justice John Roberts Jr. and Justice Samuel Alito Jr. showed their stripes on an issue that scrambles the usual alliances on the Court. Both Roberts and Alito joined the Breyer majority, along with Justices Anthony Kennedy and David Souter. In dissent were Justices Clarence Thomas -- who sees no limit to punitive damages written in the Constitution -- and Justices John Paul Stevens, Antonin Scalia and Ruth Bader Ginsburg.

It was also the first time that evidence of tobacco-company misconduct, dug up by years of discovery in litigation, was before the Court, albeit in the background. But Breyer's majority made scant mention of the evidence or of any particulars of Williams' case.

Commentators and dissenters questioned how the Court's ruling will be applied in real courtrooms. Breyer said judges will have to be vigilant in ensuring that jurors only consider harm to others in assessing reprehensibility, not in deciding the level of punitive damages. "State courts cannot authorize procedures that create an unreasonable and unnecessary risk of any such confusion occurring," Breyer said.

"It seems, then, that jurors can think about harm to others in deciding that the conduct was awful enough to merit punitive damages" in the first place, said Michael Krauss, torts professor at George Mason University School of Law. "But then they can't think about it anymore, because when they set the amount of the damage award, the Court is saying it has to reflect only the harm to the plaintiff. You'll have to wash your brain out" between steps.

Krauss adds, "How you force the jury into this intellectual straightjacket isn't clear. What is clear is that this issue will be back before the Court."

Ginsburg in her dissent also predicted that the task of guiding jurors will be difficult. "A judge seeking to enlighten rather than confuse surely would resist delivering the requested charge."

She added that the majority should have shown greater respect to the Oregon Supreme Court and other state courts that have tried "diligently to adhere to our changing, less than crystalline precedent."

In another key business ruling from the Northwest on Tuesday, the Court ruled unanimously in favor of Weyerhaeuser, the timber company, in a dispute over "predatory bidding." Ross-Simmons, a sawmill company, claimed that Weyerhaeuser tried to drive it out of business by bidding up the price of red alder logs to a level that Weyerhaeuser could afford to pay, but Ross-Simmons could not.

In a ruling by Thomas, the Court agreed that the same standard used in antitrust "predatory pricing" cases should apply to bidding or buying cases -- a standard that is difficult for plaintiffs like Ross-Simmons to meet.

American Bar Association supports raising salaries of Federal Judges

The American Bar Association met recently and expressed support for raising the salaries of Federal Judges. The money quote: ABA president Karen Mathis pointed out that Federal Judges ought to make at least a much as first year lawyers at New York firms, whose salaries are now $160,000 per year. Federal Judges are currently paid $165,200 per year. Many Judges are leaving their jobs, where they are tenured for life, to obtain better paying jobs in the private sector.

Salaries for first-year associates goes to $160,000

That amounts to $667 per workday, just for the salary component of the compensation package. In other words, that doesn’t include the insurance, taxes, 401k, or other perks. And, just as importantly, it doesn’t include other overhead factors, such as office space, support staff, computers, library materials, etc.

One commentator, Larry Bodine, a marketing consultant, suggests that the actual cost of the associate will approach $2,000 per day. This ultimately has the effect of driving up the cost of legal services.

"How Business Trounced the Trial Lawyers"

BusinessWeek online recently posted a cover story about how juries have become for favorable for defendants. Their conclusion: due to concerted, organized efforts for liability tort reform on the part of the business community, Texas has been "flipped" and is now friendly to business efforts. The changes include limitations on punitive damages awards; a bar against lawsuits against manufacturers whose products are more than 15 years old; limits on "non-economic damages" awarded to plaintiffs in medical malpractice claims; and a Texas Supreme Court which is very sympathetic to the defendant:

According to Texas Watch, an Austin consumer advocacy group, of the 69 consumer cases accepted for appeal by the Texas Supreme Court during its 2005-06 term, it decided against the consumer in 57, or 83%, a trend Texas Watch says has been consistent for the past six years. "When you have a large verdict that you receive from a jury, you can't settle the case anymore because the defendants will walk in and say: We know we're going to win in the Supreme Court," says Frederick M. Baron, a Dallas attorney who has handled cases involving exposure to asbestos and industrial toxins.

We are a woman-owned business (“Women’s Business Enterprise”)

The owners of Connolly & Castagna, L.L.P. are Carla Connolly and Lynn Castagna. We are a woman-owned and operated business. In fact, currently, three of our four attorneys are women, and all of our staff are women.

The firm is in the process of obtaining its formal certification as a Women’s Business Enterprise.

New Jersey vacates $105 million dram shop award, including $75M for punitive damages

Law.com reports that the N.J. Supreme Court has declined to reinstate a $105 million dram shop verdict against a Giants Stadium beer vendor. Mothers Against Drunk Driving filed an amicus brief in the action.

In a Jan. 31 order with no commentary, the court denied a petition for certification by lawyers for Antonia Verni, now 9, who was paralyzed in a crash with a drunken fan after a Giants-Saints game in 1999.

Two years ago, a Bergen County Superior Court jury found the stadium vending company, Harry M. Stevens Inc., and its parent Aramark Corp., liable for $30 million in compensatory damages and $75 million in punitive damages.

The verdict was cited around the country as a warning to the sports industry, its vendors and its insurers of the potential cost of letting fans drink too much at games and tailgate parties.

But an appeals court vacated the award and ordered a retrial in August on grounds that dramatic testimony about the culture of drunkenness at the stadium was impermissible in a dram shop case and had the capacity to enflame the jury.

The Supreme Court's cert denial in Verni v. Harry M. Stevens of New Jersey, C-543, sets the stage for a trial along the lines mandated by the Appellate Division: concentration on whether the fan was served when he was visibly intoxicated, not whether a culture of drunkenness existed