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A Brief Look Inside An Insurance Company’s Secret Playbook
Picking a good insurance company is important, but avoiding the wrong ones is more important. This brief article will discuss a case out of Utah, Campbell v. State Farm, 2001 UT 89. In it, the Utah Supreme Court discusses the business practices employed nationwide by State Farm intended to maximize profits while minimizing expenses. The Court’s decision is quite detailed in its discussion of State Farm’s practices which may or may not have changed since this decision was published over fifteen years ago.
Campbell v. State Farm After a trial, a Utah jury found that State Farm’s documented business model was so outrageous, they awarded the plaintiff $145,000,000 ($145 million) in punitive damages which are intended to punish a defendant for its malicious and/or fraudulent conduct. The question becomes, what did State Farm do that caused a jury to punish it so harshly? The answer is that the jury was able to hear secret information about State Farm’s “national scheme to meet corporate fiscal goals by capping payouts on claims company wide. This scheme was referred to as State Farm’s ‘Performance, Planning and Review,’ or PP & R, policy.” Id. at ¶ 11. This nationwide “PP & R” program involved numerous strategies used to reduce State Farm’s costs while maximizing its profits. Keep in mind that these strategies were nationwide, meaning the practices State Farm engaged in were not limited to Utah or any other state. Below are a few quotes from the Utah Supreme Court about what State Farm’s PP & R program actually meant for insureds and consumers. Keep in mind that these are quotes from the court and not opinions. Some of the Court’s language will be emphasized. 1. First, State Farm repeatedly and deliberately deceived and cheated its customers via the PP & R scheme. For over two decades, State Farm set monthly payment caps and individually rewarded those insurance adjusters who paid less than the market value for claims.o Agents changed the contents of files, lied to customers, and committed other dishonest and fraudulent acts in order to meet financial goals.
§ For example, a State Farm official in the underlying lawsuit in Logan instructed the claim adjuster to change the report in State Farm’s file by writing that Ospital was “speeding to visit his pregnant girlfriend.” There was no evidence at all to support that assertion. Ospital was not speeding, nor did he have a pregnant girlfriend. Id. The only purpose for the change was to distort the assessment of the value of Ospital’s claims against State Farm’s insured.
o State Farm’s fraudulent practices were consistently directed to persons—poor racial or ethnic minorities, women, and elderly individuals—who State Farm believed would be less likely to object or take legal action. Campbell at ¶ 29 (internal citations omitted).
2. Second, State Farm engaged in deliberate concealment and destruction of all documents related to this profit scheme. State Farm’s own witnesses testified that documents were routinely destroyed so as to avoid their potential disclosure through discovery requests.
o Such destruction even occurred while this litigation was pending.
o Additionally, State Farm, as a matter of policy, keeps no corporate records related to lawsuits against it, thus shielding itself from having to disclose information related to the number and scope of bad faith actions in which it has been involved. ¶ 30 (internal citations omitted).
3. Third, State Farm has systematically harassed and intimidated opposing claimants, witnesses, and attorneys.
o For example, State Farm published an instruction manual for its attorneys mandating them to “ask personal questions” as part of the investigation and examination of claimant in order to deter litigation. Several witnesses at trial […] testified that these practices had been used against them..
o Specifically, the record contains an eighty-eight page report prepared by State Farm regarding [one of these witnesses’] personal life, including information obtained by paying a hotel maid to disclose whether DeLong had overnight guests in her room.
o There was also evidence that State Farm actually instructs its attorneys and claim superintendents to employ “mad dog defense tactics”—using the company’s large resources to “wear out” opposing attorneys by prolonging litigation, making meritless objections, claiming false privileges, destroying documents, and abusing the law and motion process. ¶ 31 (internal citations omitted).
4. Taken together, these three examples show that State Farm engaged in a pattern of “trickery and deceit,” “false statements,” and other “acts of affirmative misconduct” targeted at “financially vulnerable” persons … Moreover, State Farm has strategically concealed “evidence of [its] improper motive” to shield itself from liability, which was furthered by State Farm’s treatment of opposing witnesses and counsel … Such conduct is malicious, reprehensible, and wrong. ¶ 32 (internal citations omitted).
Having this information, the jury decided to punish State Farm for its conduct by awarding the plaintiffs $145 million in punitive damages. The purpose behind punitive damages is to punish a corporation for acting maliciously or fraudulently. Corporations only change their practices if the practices are not profitable, that is the nature of a corporation. So presumably, State Farm would have felt the hit of a $145 million award against it and changed its “malicious, reprehensible, and wrong” behavior to avoid ever being punished so substantially again, right? Not necessarily. Unfortunately, the story does not end here. While you and I would certainly feel such a huge financial hit and change our behavior (as is the purpose of punitive damages), State Farm is a truly massive corporation. So massive, in fact, that at the time of this case in 2001, “$145 million is only 0.26 of one percent of State Farm’s wealth.” Campbell at ¶ 29. State Farm is so massive, that even a penalty of $145 million is relatively insignificant and constitutes less than 1/4 of 1% of State Farm’s total wealth in 2001. With such massive resources, which have only grown more massive over the last decade and a half, the punitive damages awarded against State Farm were not so massive as to substantially effect the company. They could have easily paid the damages, corrected their behavior to avoid additional suits, and moved on with an emphasis on rehabilitating its image in the public’s eyes. But State Farm was not interested in paying the plaintiffs in Campbell $145 million. Worried that the decision inspire others who had suffered similar treatment to that of the Campbells to file similar suits, which would lead to more punitive damages, State Farm appealed the Utah Supreme Court’s decision to reinstate the $145 million punitive damages award against it (note: the jury’s award was initially reduced by the trial court, but after reviewing State Farm’s conduct, Utah’s Supreme Court reinstated the jury’s original punitive award). State Farm appealed to the United States Supreme Court, arguing that the amount of punitive damages violated its right to due process under the Constitution. Amazingly, the United States Supreme Court sided with State Farm and ruled that the size of the award was Constitutionally prohibited. The High Court’s ruling in Campbell has set the standard for what is Constitutionally permissible when a jury awards punitive damages against a corporation. It is important to note that a jury can award anything it wishes, but the Supreme Court’s decision in Campbell requires the trial court judge to reduce large awards of punitive damages to, at the most, 9 times the compensatory damages. Compensatory damages are damages that are intended to compensate an individual for things like medical expenses, emotional distress, lost wages, etc. EXAMPLESo, as an example of what the Supreme Court’s decision means, consider a case where the compensatory damages awarded by a jury against a defendant corporation (let’s call them “Insurance Company X,”) are $100k. Let’s also say that the jury found the Insurance Company X acted so unreasonably, so incredibly maliciously and fraudulently, that it has to be punished for its actions so that in the future, Insurance Company X will find its malicious (but very profitable) conduct ends up costing it more than it makes. That’s the idea behind punitive damages against a corporation: make the bad behavior unprofitable and it will stop. Let’s also say that after hearing all of the evidence, the jury finds the conduct of Insurance Company X so outrageous it decides to send it a message by punishing it with a $10 million dollar punitive award, as Insurance Company X is a big company, but not so big that it won’t feel the sting of losing $10 million. The jury members will go home thinking, “we just send a strong message to all insurance companies that their malicious and fraudulent actions are no longer going to be tolerated and that if they choose to subject people to that kind of malice, they will not be rewarded in the form of profits but instead will be punished in the form of punitive damages.”
But what the jury is never told is that Insurance Company X will never pay anything close to $10 million dollars for its behavior. Regardless of a corporations malicious, fraudulent or wrongful behavior, and without consideration of whether a punitive damage award of $10 million will even be felt by Insurance Company X because of its enormous wealth, the trial court will have to follow the US Supreme Court’s decision in Campbell and will reduce the punitive damages to, at the very most, 9 times the compensatory damages (in our example, the compensatory damages are $100k). Thus, Insurance Company X gets to escape the “punitive” portion of the damages by reducing that $10 million to no more than $900k (9 times the compensatory damage award). Insurance Company X can easily afford to pay that and because its business practices are so profitable (even though they are also malicious, fraudulent and wrong). In this example, Insurance Company X has no incentive whatsoever to cease acting maliciously or stop committing fraud against its insureds or claimants. However, the Supreme Court went a step further and stated that a punitive damages award of just 4 times the compensatory damages (meaning punitives of $400k when compensatory damages are $100k) is “close to the line of constitutional impropriety.” State Farm Mut. Automobile Ins. Co. v. Campbell, 538 U.S. 408 (2003). Insurers can easily afford to pay that amount of money if they are making huge profits by acting with malice and fraud. So, Insurance Company X continues its horrendous behavior and becomes even more wealthy as it defrauds consumers and destroys lives of innocent people injured by its insureds. CONCLUSION A corporation’s purpose is to maximize profits while minimizing costs. That is what makes shareholders wealthy. However the world of insurance is different than just about any other corporation. Insurance companies have legal and contractual obligations to take care of their insureds and deal fairly with injured people making claims. But that doesn’t always happen. The conflict inherent in acting for the benefit of an insured while also maximizing profits creates a very real problem. That problem is not theoretical, but as the Utah Supreme Court documented, it is very real and creates the opportunity for insurance companies to put their own financial gains ahead of all else, even the welfare of their paying customers. Do some research before selecting an insurance company. Not all are equal. And if you feel like you have been wronged by your insurer, no matter who it is, talk to a lawyer about it.The Anatomy of a Civil Lawsuit
Things you should know: Medical Malpractice Claims
Employment Laws Everyone Should know
Employment laws everyone should know
Note: this posting was an update and modification (to include Montana law) of a 2010 post written by Donna Marie Ballman. The original post is available at
https://www.avvo.com/legal-guides/ugc/employee-rights-overview
Discrimination
You have the right to be free from discrimination in several contexts. The most common context is employment, however anti-discrimination laws go far beyond that limited context. You DO have the right to not be discriminated against in housing, education, public accommodations, credit/finance/insurance and state and local government services. Federal anti-discrimination laws (which apply to employers with over a certain number of employees, usually 15) and the Montana Human Rights Act (which applies to all employers operating in Montana) do not prohibit all types of discrimination, however. To be covered under these laws, you must be a member of a “protected class” and the discrimination must be related to your membership in that class. These classes include the following:
- Race
- Age (if you are 40 or older)
- Sex (including pregnancy, maternity, sexual harassment, sexual orientation in Montana)
- National origin
- Disability
- Pregnancy
- Familial status (housing only)
- Religion
- Genetic information
You ALSO have the right to be free from any kind of discrimination or retaliation based on your objecting to any discriminatory practices of an employer or the government, and it is illegal to discriminate against a person because he or she is married to, or associated with, a member of any of the protected classes of individuals above. Montana State law protects all employees, but to be protected under federal law and the Americans with Disabilities Act (ADA), an employer must have at least 15 employees (for age, 20 employees). It is important to point out that you DON’T have the right to be free of discrimination against you for just being you. There are no protections for personality conflicts, appearance, non-religious beliefs, and other non-protected categories.
If you feel you have suffered discrimination based upon any of the classes listed above, you should contact an employment attorney or the Montana Human Rights Bureau at (800) 542-0807 or visit them at http://erd.dli.mt.gov/human-rights. Your time to file a complaint is very limited (usually only 180 days from the date of discrimination), so if you have any doubt, contact them sooner than later.
Harassment
You DO have the right to not be harassed due to your race, age, sex, national origin, disability, pregnancy, religion, genetic information, color, objecting to discrimination, or association with a person in one of these categories. All employers in Montana are subject to the Montana Human Rights Act, but only employers with 15 or more employees are subject to the ADA. You DO have the right not to be harassed if you’re a covered whistleblower, took covered Family and Medical Leave, made a worker’s compensation claim, or took some other legally protected action. You DON’T have the right to be free of a hostile work environment that isn’t based on one of the above categories. You DON’T have the right to be free of bullying or general harassment in the workplace. If you complain about harassment, you DON’T have the right to be free of retaliation unless what you complained about was legally-protected harassment in one of the categories above.
Right to Work
If you live in a “right to work” state, you probably think you have rights you don’t. Be careful about this. If your state is “right to work,” that means you DO have the right to work in most industries without joining a union. You DON’T necessarily have the right to work for a competitor of your employer’s. If you’re being asked to sign a non-compete agreement, Montana has limited the application of non-compete clauses to the county in which you are employed as well as adjacent counties. Right to work simply has no effect on non-compete clauses in employment agreements. Montana is the only state that is not an employment “at-will” state. In Montana, non-probationary employees can only be terminated if the employer has “good cause,” or a business related reason for the termination. Employers in Montana are allowed to set any reasonable probationary period for employees they wish. If the employer has no policy, the law presumes a 6 month probationary period during which employees can be terminated without cause. This does not mean, however, that employees can be terminated for any reason. Employers are still prohibited from terminating a probationary employee for discriminatory or retaliatory reasons. Other rights and responsibilities are contained in collective bargaining agreements (for members of a union) or employees under contract.
Benefits
You DO have the right to get a description of your health insurance, pension, and other benefit plans. You DO have the right to enforce the duty of the people managing your benefit plans to administer them without fraud, self-dealing or kickbacks. You DON’T have the right to any specific benefits from your employer, unless you are granted these benefits in a collective bargaining agreement. Your employer doesn’t have to provide health insurance, vacation pay, sick pay, severance pay, pension or other benefits unless they have an existing plan.
Hours
You DO have the right to be paid for all hours worked and to be paid overtime for hours worked over 40 hours if you aren’t exempt. You DON’T have the right to a specific schedule, to not work extra hours, or to come in late. If you need assistance collecting unpaid wages you feel you are entitled to, contact the Montana Department of Labor, Wage and Hour Division at (406) 444-5600. Visit their website at http://erd.dli.mt.gov/labor-standards/wage-and-hour-payment-act.
Illness
You DO have the right to take Family and Medical Leave if you’ve worked at least a year, if you work enough hours, and if your employer has 50 or more employees. But there are lots of hoops to jump through, so read your handbook and know the employer’s requirements. You DON’T have the right to sick leave, excessive absenteeism, take care of a sick kid, or miss work due to illness (even with a doctor’s note) unless you are covered by Family and Medical Leave, or unless you suffer from a disability as discussed below.
Disability
You DO have the right to seek reasonable accommodations for your disability under the ADA that allow you to perform all the duties of your job if your employer has at least 15 employees. If your employer has fewer employees, you still have the same basic rights under Montana’s Human Rights Act. It is NOT a reasonable accommodation to eliminate an “essential function” of your position, nor do you have the right to an accommodation that would cause your employer an undue burden. If you request an accommodation, your employer should schedule a sit-down meeting with you to discuss the specifics of your limitations before denying any request. Denying an accommodation request that is reasonable constitutes discrimination under both state and federal law. If no accommodation is possible, you may be entitled to reassignment.
Whistleblower
You DO have the right to report illegal activities of the employer to specific government entities, to object to or refuse to participate in certain illegal activities of the employer, and to not be retaliated against for doing so. Whistleblower laws are diverse and have lots of requirements, so make sure you’re doing what is required before you report or object to the illegal activity. You DON’T have the right to complain about incompetence, coworkers ripping off the company, ethical violations, unprofessionalism, or general harassment without rising retaliation. Make sure you’re protected before you complain.
Privacy
You DO have the right to privacy in your phone calls unless your employer meets certain legal requirements. Montana law requires that each party expressly consent to being recorded. Surreptitious recording is illegal, unless you are recording a public official in a public place. If you think you’re being illegally recorded, contact an employment lawyer to find out your rights. You DO have some rights to privacy of your medical information. You DO have the right to not be subjected to a polygraph (except certain professions like law enforcement). While many employers use credit history in their employment decisions, both Montana and the EEOC consider this practice to be a legal violation. It’s illegal to discriminate against you based upon a bankruptcy. You DON’T have the right to keep your criminal record a secret unless it’s been expunged. You DON’T have the right to dress any way you want. You DON’T have the right to privacy in your off-duty behavior. You can be fired for things you do outside of work. If you work for government, you are protected from having your belongings searched. You DON’T have the right to privacy in your workplace internet use or email. You probably DON’T have the right to not be drug tested. No states prohibit employment drug testing, but some do require cause for the test if it’s done while you’re employed, as opposed to pre-employment. You DON’T have the right to free speech. Your postings on Facebook, Twitter, and other websites can get you fired. If you work for government, you have some free speech protections but they’re not unlimited.
Conclusion
We hope these basic tenants of employment law, especially with regard to the laws of Montana are helpful to you. There are many nuances to these laws and nothing contained herein should be construed as legal advice. These are laws and thus, they are subject to frequent change. If you have specific questions about your rights or the rights of your employees, contact an attorney who practices employment law.