To the Trenches: The Tort War Is Raging On
Daniel Rosenbaum for The New York Times
Thomas Donohue, chief executive of the United States Chamber of Commerce, and Lisa Rickard, president of its Institute for Legal Reform, have helped to lead the charge against trial lawyers.

By JONATHAN D. GLATER
Published: June 22, 2008
IN a Washington ballroom bedecked with flags honoring explorers who overcame oceans and mountains to pursue international trade, Thomas J. Donohue congratulated the assembled modern merchants — a group of executives, lobbyists and lawyers — for challenging a more mundane adversary.

There were plenty of reasons for self-congratulation at the dinner, held earlier this month to commemorate the 10th anniversary of the chamber’s Institute for Legal Reform. Some of the best-known plaintiff-side lawyers in the country — Richard F. Scruggs, Melvyn I. Weiss and William S. Lerach — have all pleaded guilty to charges that they tried to manipulate the justice system. The very phrase “trial lawyer” has become associated with unadulterated greed; the Association of Trial Lawyers of America now calls itself the American Association for Justice.

But it is still too early to declare an end to the so-called tort wars, a decades-old conflict over the rules governing civil lawsuits. Corporate interests have won several potent victories, but trial lawyers continue to try to undo legislation restricting litigation and are pursuing new strategies of their own.

Businesses count among the victories federal legislation passed in 2005 that made it harder to file class-action lawsuits in state courts, where judges and juries were often perceived as hostile to business. In state courts, where most civil litigation plays out, the number of suits involving auto accidents, allegations of medical malpractice and the like fell steadily from 1995 to 2005, according to the National Center for State Courts. The Chamber of Commerce says the number of megaverdicts for more than $100 million dropped to 2 last year, from 27 in 2000.

NEVERTHELESS, there are battles in individual states over judicial campaigns and legislative initiatives. The number of class-action lawsuits filed in 88 federal courts rose 72 percent from 2001 to 2007, partly because of that 2005 law. (Presumably, the number of class actions in state courts has fallen, although this data is hard to come by.) And while a study released in December by Towers Perrin, the consulting firm, found that total “tort costs” fell in 2006, it predicted that costs would rise as a souring economy prompts more lawsuits.

The chief executive of the American Association for Justice, Jon Haber, is skeptical of the results of spending by the Chamber of Commerce and its members to hobble lawsuits. And he defends the new name of his organization as reflecting what it does, rather than who its members are.

“The chamber’s political portfolio looks a lot like the portfolio of many Wall Street banks these days — a large number of bad bets that did not pay off but cost their members an awful lot of money,” Mr. Haber said.

He can rattle off recent victories for trial lawyers as quickly as he can list the goals his members hope to achieve. Voters in Washington State, for example, last year approved a bill that allows people to collect triple damages if an insurer unreasonably denies a claim.

In Colorado, an initiative to limit lawyers’ fees was answered with a barrage of proposals that would limit executive compensation, cap real estate sales commissions and raise the maximum amount of damages payable as a result of shoddy construction, among other things. All the initiatives were eventually withdrawn.

At the federal level, trial lawyers are pushing for a law that would make it easier for consumers to sue instead of having to submit to binding arbitration, as many contracts — for credit cards, for example — now require. The trial lawyers are also trying to make it harder for defendants to keep legal proceedings secret. “There are a number of things that are very much pro-civil justice that are starting to work through Congress,” Mr. Haber said.

Strikingly absent from debates over who should be able to sue whom, when and for how much is any discussion of the fairest and most effective way to make sure that true victims are appropriately compensated for injuries and that people without authentic injury are not compensated.

“That’s not the conversation we’re having,” because the only voices heard belong to advocates of one side or the other, said Robert L. Rabin, a law professor at Stanford. “Those advocates reflect advocacy interests — that is, either defense-side interests or plaintiff-side interests — rather than some overview of global fairness.”

Civil lawsuits seek to compensate victims of negligence or wrongdoing, like the unlucky passer-by hit by a falling piano. But how much of a penalty should such suits exact, above and beyond compensation, in order to deter wrongdoing? What about someone traumatized by the sight of the accident, or maybe a whole class of potential victims? And whom can these people sue — the movers, the piano’s maker, its owner?

The tort wars over such questions have waxed and waned for decades since the Industrial Revolution and the concurrent growth in industrial-scale accidents, said John Witt, a law professor at Columbia University.

“There are commencement addresses at law schools in the 1890s,” Professor Witt said, “where old railroad lawyers are lamenting the rise of a new class of oftentimes immigrant lawyers who don’t have access to the old ways of getting clients, and they strike out on this new business model” of actively seeking clients and charging them a fee that is a percentage of whatever was won in court.

The fight to change tort laws has developed into a big business in itself, with plenty of people invested in keeping the battle going. Neither Mr. Haber nor Mr. Donohue would say flatly that his side was winning. Doing so would make it harder to lure contributions — a point made by people on both sides of the debate.

Officials at the Institute for Legal Reform, the chamber unit, would not specify how much it spends annually on media and publicity campaigns, except to say it’s in the millions. And many organizations, nationally and in the states, lobby on both sides.

But the chamber itself, which represents millions of businesses of all sizes, is the biggest spender on the lobbying. In 2006, it spent $72.7 million, according to the Center for Responsive Politics, a nonprofit research group that tracks money in politics. On the trial lawyers’ side, the American Association for Justice spent $8.3 million that year.

Those numbers do not paint a complete picture, though. For years, business lobbyists say they focused on getting favorable legislation passed. But the restrictions enacted often proved vulnerable to legal challenges — and in states that elected judges, trial lawyers were historically more active in contributing to judges’ campaigns.

Business advocates needed to adjust their thinking, said Steven B. Hantler, chairman of the American Justice Partnership, another organization that is seeking to change the civil justice system in opposition to the trial bar.

“If you were to ask a corporate lawyer, when does the litigation process start, the corporate lawyer would say, when the lawsuit is filed,” said Mr. Hantler, a former head of the chamber’s legal reform institute. “The trial lawyer would say, not at all. It starts when judges are appointed or judges are elected, and when laws are made.”

AS an assistant general counsel at the former DaimlerChrysler, Mr. Hantler was ordered by Robert J. Eaton, then co-chairman, to come up with a way to help shield from legal challenge any new laws curbing litigation.

“I remember sending Bob an e-mail shortly after the Ohio Supreme Court — this must be in 1999 — struck down tort reform legislation,” Mr. Hantler recalled. “Within an hour and a half, I was summoned to his office.”

Mr. Hantler told his boss that focusing on legislation was not enough. Mr. Eaton then instructed him, Mr. Hantler said, to develop a comprehensive strategy for changing the law.

On DaimlerChrysler’s dime, Mr. Hantler convened a meeting in the Washington offices of Gibson Dunn & Crutcher, a law firm. Among those present, Mr. Hantler said, were Theodore B. Olson, a partner at the firm who was later named solicitor general; Mike Murphy, who was a top strategist for John McCain’s presidential campaign in 2000; Clark S. Judge, a former speechwriter for Ronald Reagan who went on to the White House Writers Group, a communications firm; and Robert H. Bork Jr., who is the son of the former Supreme Court nominee and has his own firm, now called the Bork Communication Group.

They came up with what Mr. Hantler described as a multipronged strategy, involving advertising aimed at voters picking judges and continued lobbying of lawmakers. This “demonstration project,” as Mr. Hantler called it, was successful enough that the Institute for Legal Reform has expanded it over the years. At the same time, businesses have become more active in state supreme court judicial campaigns and, in the 2006 election cycle, gave twice as much as lawyers did, according to the National Institute on Money in State Politics. (In previous cycles, sometimes companies gave more, sometimes lawyers gave more.)

To help deliver a pro-business message, advocates have hit upon a ranking system. One list ranks “judicial hellholes,” as compiled by the American Tort Reform Association, and another identifies those states deemed by corporate general counsels to be most and least friendly to businesses. (That list comes from the Chamber of Commerce.)

In Mississippi, which received the worst ranking on the chamber’s list, advocates of limits on lawsuits made a special effort. In 2002 and 2004, state lawmakers passed legislation that, among other things, capped how much plaintiffs could recover in punitive damages and in noneconomic damages — compensation for pain and suffering, for example.

But Lance L. Stevens, a Mississippi lawyer and former president of the state’s association of trial lawyers, said that even after the changes to the tort laws, the state has moved up in the ranking by only a few spots. General counsels at big corporations are not critical of Mississippi because of its legal system, he said. “It is the corporate lawyers for the Fortune 500 companies expressing their general disgust for Mississippi and their mistaken belief that we are culturally retarded.”

Lisa Rickard, president of the chamber’s Institute for Legal Reform, said that the new laws limiting lawsuits in Mississippi had not been on the books long enough to have more of an effect. “It takes a long time to come out of it,” she said.

Corporate executives say they want limits on noneconomic damages in order to reduce unpredictability in jury verdicts. But the caps hurt the very people who most need help — low-income people who sustain injuries, Mr. Stevens said. People who earn a lot of money can claim significant lost income as part of their injury. The unemployed, children, the elderly or anyone else with little earning potential stands to recover less for the same injury than someone in the work force. Plaintiffs’ attorneys often get a percentage of the amount awarded to a client, so the limits mean they have a greater incentive to sue on behalf of a rich injured victim than a poor one.

“I have not filed a lawsuit for a child or a stay-at-home mom in a medical malpractice claim since 2002, because they regrettably lack economic value in the tort reform scheme” now in place in Mississippi, Mr. Stevens said.

At the federal level, legislation making it easier to move class-action lawsuits out of state courts was the major achievement for business advocates. They wanted to prevent lawyers from filing nationwide class actions in courts in counties, like Madison County in Illinois, that were perceived as hostile to corporate defendants.

But all of the consequences of that law, passed in 2005, are not yet clear. Although the number of lawsuits that defendants shifted to federal courts rose after the law was passed in 2005, a report released in April by the Federal Judicial Center, a research and education agency created by Congress, found that the number of such shifts has since fallen. On the other hand, the number of class-action suits filed initially in federal courts has risen. And no one has reliable data on the total number of class-action suits filed in state courts.

PLAINTIFF-SIDE lawyers are innovating. Some firms are looking to courts outside the United States.

“If, for example, you have a company that defrauds its shareholders, shareholders around the world who invested in that company in any market should have the same rights to recover,” said Michael D. Hausfeld, partner at Cohen Milstein Hausfeld & Toll, which has opened an office in London and is allying with law firms in several countries. While the firm itself is not lobbying for legal changes to make it easier to sue in foreign courts, Mr. Hausfeld said, “we are involved with others who are doing that.”

So, despite some very high-profile casualties, the tort wars aren’t over. They may just be going global.

Defense experts using controversial ‘malingering’ test
By Sylvia Hsieh

Staff writer
Published: April 7, 2008

A controversial test that is supposed to detect “malingering” is gaining popularity among defense experts in personal injury, workers’ compensation and other cases.

The “Fake Bad Scale” is being offered by medical experts as evidence that plaintiffs are fabricating or exaggerating their pain or other medical symptoms.

Critics attack the test’s validity, and claim it is biased against women, the disabled and victims of post-traumatic stress.

A few courts have ruled on the admissibility of the test, including three Florida courts that excluded testimony about it last year.

In one of those cases, a trial judge in Hillsborough Country, Fla. ruled after a Frye hearing that the test was “not an objective measurement of effort, malingering or over-reporting of symptoms” because there was no manual for administering or scoring the test. It also held that the name “fake bad scale” is itself “pejorative and derogatory and thus prejudicial.” (Williams v. CSX Transportation Inc., No. 04-CA-008892.)

The test is still relatively unknown among the plaintiffs’ bar, but attorneys who are following the issue say the test is often used in workers’ comp cases. More recently, it has appeared in suits brought under the Defense Base Act involving contractors who claim post-traumatic stress after returning from Iraq or other military assignments.

How the test works

The fake bad scale was created in 1991 by Dr. Paul Lees-Haley, a neuropsychologist in Woodland Hills, Calif. who testifies as an expert witness for the defense.

The test has gained traction in defense circles because it was recently included by the University of Minnesota as one of the scales in its MMPI-2 personality test.

The fake bad scale is a series of 43 true or false questions such as “I have very few headaches,” “I have nightmares every few nights” and “My sex life is satisfactory.”

Each response of a symptom adds a point toward the total score.

A total score of 23 out of 43 would be considered a “high score” and should “raise suspicions of over-reporting of symptoms,” said Dr. Manfred Greiffenstein, a proponent of the test. He added that it would be virtually impossible for anyone who is not exaggerating to score 30 or higher.

However, critics note that the cut-off score has changed. The author previously recommended a cut-off of 20, while others have suggested a cut-off score of 26 for women.

Greiffenstein acknowledged that the test is scored on a “sliding scale.”

A leading critic of the test, Dr. James Butcher, PhD, a senior author of the MMPI-2 and a professor at University of Minnesota, said that the fake bad scale does not meet the standards set by other MMPI-2 scales and “greatly overestimates” malingering.

In one study, Butcher tested over 2,000 women in a care center for eating disorders and found that 44 percent would have been misclassified as malingerers using the 23 point cut-off score.

He also criticized the test for not taking into account gender-based norms, noting that, for example, women in the general population report more headaches than men, as well as hot flashes, another question on the fake bad test.

Just because women report more symptoms “does not mean that women are more likely to malinger than men,” Butcher said.

Admissibility arguments

Plaintiffs’ attorneys are just beginning to attack the test in court.

Richard Berman, a Fort Lauderdale, Fla. workers’ comp attorney, represents a teacher with several injuries who is not seeking monetary compensation, but requesting that her psychiatric care be reinstated.

“The defense expert testified in his deposition that based on the fake bad scale … my client was faking,” said Berman. He stated that his client, a woman in her 40s, was unfairly penalized by questions on the test that give points toward faking for honestly answering questions related to anxiety, depression and hot flashes.

At a Frye hearing scheduled for April 28, he will argue that the fake bad scale lacks scientific validity, is gender-biased and takes issues of credibility away from the fact finder.

“In order to pass the Frye test, [a test] must be not controversial and be based on scientific validity. This test is highly controversial, and how can it be valid if you don’t have a protocol or a cut-off score that stays the same?” said Berman.

Leopoldo Garcia, a Miami attorney who heads the workers comp’ division at Angones, McClure & Garcia and is defending the case, said the test should be allowed in and then subject to cross examination.

“There are a lot of psychologists who believe [the fake bad scale] merits being used. It’s been around for years and has been used all over the country,” he said, noting that six of eight panel members believed it merited inclusion in the MMPI-2.

Attorneys who handle brain injury cases have also been active in challenging the test’s admissibility.

“People with brain injuries have problems with attention, concentration, memory loss, depression and fatigue, so they would legitimately have a high score,” said Bruce Stern, an attorney at Stark & Stark in Lawrenceville, N.J., who has lectured about the fake bad scale.

Michael Phelan, an attorney at Butler, Williams & Skilling in Richmond, Va., said he represented a 57 year-old woman who failed the fake bad scale even though a car collision left her with a broken leg and brain swelling that required cutting open her skull.

“The test …invades the province of the jury. From a common-sense perspective, if a person is truly disabled by either physical and/or psychological injuries, you can’t take the test and not fail it. The result is to be categorized as a faker,” Phelan said.

His case settled in December 2007 for $3.5 million, after mediation.

He noted that his client passed the other MMPI-2 scales for malingering.

How a get-tough policy lifted Allstate’s profits

By Paige St. John
Published Sunday, April 6, 2008 at 4:30 a.m.

For more than a decade, Allstate Insurance Co. kept a secret from its auto policyholders — a national strategy to force customers to accept reduced cash payouts or face years in court.

For more than a decade, Allstate Insurance Co. fought to keep under wraps work papers and other documents that describe how the insurer has made money by reducing payments to some policyholders.

That changed abruptly late Friday, when Allstate unexpectedly posted 150,000 pages of the documents on its Web site. The insurer declared it had had enough of media reports based on inflammatory “snippets” taken from the files.

“We still believe the documents deserve protection,” said spokesman Mike Siemienas, “but it’s outweighed by the need to address the misunderstanding of the public.”

In that act, Allstate reversed its longstanding policy to fight the release of documents that show how it determines payouts. Among the most contested documents are the so-called McKinsey files.

From 1992 through 1997 and beyond, a team of Allstate executives and their consultants from McKinsey & Co. huddled at the insurer’s Northbrook, Ill., campus, to craft a top-to-bottom overhaul of Allstate’s claims system.

After each session, Allstate and its consultants were careful to retrieve and pack up the confidential files that had been handed out with their references to zero sum games and “boxing gloves.”

It was not until midway through this decade that trial lawyers realized a treasure trove lay buried in those records … if they could get them.

The originals were kept in guarded locations, and trial lawyers’ efforts across the country to obtain copies for litigation were blocked through a Phoenix, Ariz., firm. Where Allstate failed to convince a judge to seal the files, it took default judgments or defied orders for production — including in a Missouri case where the contempt fine now exceeds $4.1 million.

At one point, Allstate said, it even sought criminal prosecution of those attempting to publish the files.

According to an Allstate lawyer testifying before the New Mexico Supreme Court last month, the sequestered records were akin to the secret recipe for Coca-Cola.

“And that formula has been kept secret for 100 years,” said Ben Cooper.

Until Friday, the clearest public insight to what lay within Allstate’s McKinsey files was the product of a 2000 accident injury case in New Mexico.

Santa Fe attorney David Berardinelli obtained temporary possession of four boxes of Allstate’s claims files, and made copious notes before returning the records in 2004.

Berardinelli’s plan to publish a book for the general public next month, and a Florida appellate court decision against Allstate on Friday, may have finally convinced Allstate it was losing the war.

Florida Insurance Commissioner Kevin McCarty last year ordered Allstate to produce the McKinsey files and other documents. The insurer balked. On Friday, an appeals court upheld McCarty’s punitive order for Allstate to cease writing new policies in Florida.

The court said the state had the right to demand the McKinsey documents because they might prove or disprove the allegation that Allstate had arbitrarily cut auto insurance claims by 20 percent — an allegation that, if true, posed an “immediate danger to the public health, safety or welfare.”

Within hours, Allstate posted its documents.

The announcement was a striking reversal of Allstate’s past efforts, including its stance when the Herald-Tribune sought the documents.

In Indiana, Allstate was fined $10,000 for disobeying a judge who ordered a public production of the files. The fine is unpaid while the insurer’s appeal is before the Indiana Supreme Court. In Missouri, Allstate faces a $25,000-a-day contempt fine that now tops more than $4.1 million for defying a similar demand. An appeal is on hold until a trial on the underlying car accident claim.

As recently as early March, Allstate argued in New Mexico that releasing the files would give its competitors an unfair edge.

Allstate over the weekend said it would now advise the appropriate judges of its new position on the files.

Listening to Cooper’s arguments in court a month ago was Jose Pincheira, the 78-year-old Santa Fe man whose 1997 accident fueled much of the national battle over Allstate’s claims system.

Pincheira worked at a Sears store in 1961, when that company owned Allstate. Allstate agents helped teach him English at night. In 1997, Pincheira and his wife were injured in an accident, but Allstate rejected his claim and is still contesting medical payments.

During his case, some of Allstate’s McKinsey documents have briefly been forced open only to be closed again after court arguments.

Come Monday, Berardinelli said, he will file a new motion that Allstate be sanctioned “for abusing the court system.”

“Why have they taken years and years of the court’s time and resources? As recently as a month ago, they were telling courts they would suffer financial harm if these documents were released,” Berardinelli said.

For Pincheira, the battle over files is eclipsed by his sense of a personal wrong.

“I don’t care if they ever pay me,” he said outside the New Mexico Supreme Court last month. “I care they lose, because they are crooks. You are in good hands, what a lie.”
Thousands of pages of Allstate documents reviewed by the Herald-Tribune detail how the nation’s second-largest insurer systematically cut payments to customers as a way to boost profits.

The documents describe a two-pronged strategy.

First, the company evaluates claims with a computer program designed to reduce payouts by as much as 20 percent of what the company once paid for the same injuries.

Second, Allstate pushes policyholders to accept quick settlements without the help of lawyers. Policyholders who try to fight for more money face Allstate attorneys coached to refuse to negotiate and to drag out litigation.

The approach often forces car accident victims to take what Allstate offers right away or spend years in court while their bills go unpaid — a strategy Allstate spelled out in guidelines for claims adjusters that “forces the claimant and attorney to think about the obstacles they must overcome …”

The Herald-Tribune examined summaries and transcripts meticulously re-created from more than 12,000 pages of what were then secret Allstate records describing the system, as well as ex-employees’ depositions and company documents from suits across the nation.

Allstate has since made those documents public, unexpectedly posting some 150,000 pages of its internal business files to its Web site.

An Allstate spokesman said Friday the company decided to release the full documents to “dispel inaccurate portrayal” of its claims practices by lawyers, regulators and others around the nation. Taken as a whole, he said, the documents show Allstate’s aggressive efforts to fight fraud.

The release came on the heels of a Florida appeals court ruling that state regulators have the right to ban Allstate from writing new policies because of its refusal to turn over those and other documents to state investigators.

The files reviewed by the Herald-Tribune, and those now revealed by Allstate, tell how the company succeeded in its effort to “redefine the game” of insurance as architects of the strategy had coached in the mid-1990s.

It was a “Zero Sum Economic Game. Allstate gains … others must lose,” declared a consultant’s PowerPoint slide from a 1994 presentation to executives.

During the next five years of Allstate’s claims overhaul, the same consultant, New York-based McKinsey & Co., chose confrontational words to describe the new system. In PowerPoint presentations and discussion papers drawn up for Allstate executives, McKinsey used “boxing gloves” to characterize how Allstate should treat policyholders who balk at settlements. For customers who hired lawyers, McKinsey urged, “align alligators,” adding these instructions: “sit and wait.”

The documents also show:

Allstate removed much of the discretion of local claims agents to set payouts, requiring them to base their recommendations on a computer program called Colossus. Under that program, average payouts for bodily injuries dropped more than 20 percent in the first few years, internal documents show, a big step toward reaching McKinsey’s goal of “establishing a new fair market value” of such injuries.

Allstate recognized that when an injured driver hired a lawyer, the insurer lost money. In repeated presentations to Allstate executives, McKinsey coached tougher and increased legal action. By 1996, Allstate had doubled its legal force, hiring 225 more lawyers. “The bottom line is that Allstate is trying more cases than ever before,” a corporate newsletter said.

Policyholders claiming injuries from minor-impact accidents and who hired lawyers were suspected of fraud, and therefore often targeted for reduced payments. In 1998, Virginia insurance regulators cited evidence: corporate guidelines that called for agents in such cases to “make a nominal offer, if warranted; or deny claim.” The purpose, Allstate stated, was “to send a message to attorneys … It forces the claimant and attorney to think about the obstacles they must overcome to recover a significant settlement or the benefits of a smaller ‘walkaway’ settlement.”

Allstate set goals to contact policyholders who filed claims within three days, to speed settlements and increase customer satisfaction. But documents show the insurer also tracked how speedy contact reduced the number of lawyers hired by accident victims — by as much as 20 percent in some markets.

The insurance company saw reduced payouts as a way to increase profits. Early on, consultants promised that driving down the “fair market value” of soft-tissue injuries, such as a fractured spine, chronic pain or limited mobility, would generate profits “shareholders will notice.” Combined with similar changes to Allstate’s home insurance and collision programs, they predicted, the yearly gain could reach $1.1 billion.

Allstate rewrote its claims policies at a time when the entire industry was grappling with legal cases it felt were out of control. Accident victims were hiring lawyers to push for more money for hard-to-prove injuries such as whiplash and back pain. An Allstate memo shows that accident victim lawyers were involved in two-thirds of the company’s bodily injury claims.

An Allstate spokesman in Northbrook, Ill., said that the company’s claims policies are legal and fair to its customers, and that its push to reduce payouts is aimed at rooting out fraud and overpayments for questionable injuries.

Allstate says it never crossed the line between what it called “holding the line” on claims and underpaying them. The insurer also says it did not adopt everything its management consultants recommended, including the phrases “boxing gloves” or “alligators.”

But Allstate acknowledges it does embrace a tough legal strategy designed to curb insurance fraud, “abusive medical testing” and “unnecessary plaintiff attorney payments.”

“We will offer to settle the claim for a fair and reasonable amount,” said corporate affairs spokesman Mike Siemienas.

When victims hire a lawyer and sue, he said, “just because we are being threatened doesn’t mean we will negotiate. We will go to trial.”

Throughout the redesign, McKinsey said the changes were key for increasing profits and the value of Allstate’s stock. The consultant described Allstate’s “customers” as shareholders, not policyholders.

The result a decade later closely resembles what Allstate and McKinsey said they were aiming for — an insurer so notorious for sticking to its settlement offers that lawyers are reluctant to take cases involving Allstate.

“There are many lawyers who won’t take an Allstate case,” said Sarasota trial attorney David Shapiro. Even when they do, he said, clients give up as they realize they will have to wait years while Allstate forces their case to trial.

“It’s that boxing thing,” he said. “They just get tired. They lose their resolve more often than they get stronger.”

Redefining the game

Allstate’s attempt to redefine the claims game for the more than 2 million households it insures in Florida and 16 million it covers nationwide dates back to 1992.

The insurer hired consultants from McKinsey & Co. — one of the world’s largest management consulting firms — to guide an overhaul of its claims practices, and hopefully, improve flat profits.

McKinsey drafted an often adversarial relationship between Allstate and its customers.

Paying policyholders more than needed was “leakage” and later “opportunity.”

“Win by exploiting the economics of the practice of law,” a slide encouraged.

McKinsey’s “claims organization of the future” revolved around two axes — standardizing claims awards across the board; and stopping policyholders from hiring lawyers.

The first was accomplished with Allstate’s adoption of Colossus, replacing subjective claims agents who the redesign plan labeled as prone to giving policyholders too much.

The program, created by Computer Sciences Corp. and now a mainstay in the insurance industry, calculates injury awards based on factors such as severity of injury and policyholder age. Individual insurers can then “tune” the unregulated software to change payout amounts, making adjustments based on hundreds of factors.

Allstate concedes that it has tuned Colossus numerous times, but says that it has never done so unfairly.

A 15-year-old memo — not included in the files Allstate has made public — shows Colossus was set to produce claim awards that were, across the board, 20 percent below the prior average. Further, it instructs that claims agents and their managers “will want to stay within the Colossus range or below it in most cases.”

Allstate said the memo was created by one regional office only, and “does not represent Allstate’s official position or views,” Siemienas said. “Colossus was not uniformly tuned to recommend 20 percent less than average claims settlements.”

Current records are not available to show how Allstate uses the computer program to set cash payouts nationwide. Insurers are not required to provide details of the computer programs they use to drive claim settlements, and they fight fiercely to keep those records private. Allstate, court affidavits show, has even sought criminal prosecution of those trying to publish details of its claims system.

Though details are not available, Allstate’s own records show the insurer’s average payment for bodily injury cases dropped 20 percent as it adopted Colossus nationwide. Automation put Allstate at the forefront of a change in the insurance industry — most major insurers now use the software to evaluate claims. At a business conference in 2006, Allstate announced it was spending another $95 million to add to the technology.

The movement caused some discomfort within Allstate. A 1996 presentation by the McKinsey team noted resistance from some of Allstate’s claims agents, saying there was a “lack of buy-in in some markets due to belief that tuning is not proper.”

Colossus is just one of many tools used to determine fair payouts, spokesman Siemienas said. Allstate also uses programs to evaluate the medical care claimants receive and the bills their doctors submit.

“Using Colossus assists claim personnel to more consistently and objectively evaluate casualty claims,” Siemienas said.

Cracking down on lawyers

PowerPoint slides show the McKinsey consultants also advised Allstate to convince policyholders they did not need lawyers, and then to target those who disregarded that advice for denials, delays and litigation.

Other claims were to be marked early on for trial “to send a message to the market.”

In this new game, the consultants said, 90 percent of Allstate’s claimants would get a settlement check within weeks — “good hands” treatment.

But the remaining 10 percent of accident victims would wait and wait — three years or more according to a chart drawn by McKinsey and labeled “boxing gloves.”

Tampa trial lawyer Robert Healy says the reality today of doing business with Allstate reflects McKinsey’s tactics.

“They pay less than every single insurance company, and they certainly will spend more on litigation,” said Healy, a former Allstate lawyer who was with the company after it implemented its current claims strategy.

“They put pressure on people by establishing that they are a bully in the market.”

Allstate contends it operates within the strictures of state insurance regulations, and points to a New Mexico review that found no fault with the company’s claims practices.

However, regulators in Virginia and South Carolina reviewing hundreds of claims files found that some policyholders, those who suffered contestable injuries in minor accidents and hired attorneys, were unfairly targeted for outright denials or “nominal” offers of $1,000.

“Allstate’s goal of paying only what is owed on any given claim is commendable,” Virginia regulators wrote in 1999. “However, the method the company chose to reduce overpayments has led to violations of the Unfair Claims Settlement Practices Act.”

A $36 billion insurer has the advantage in such games, contends David Berardinelli, a Santa Fe lawyer who has spent much of the past five years trying to force Allstate to make its claims handling practices public. The author of a trial guide on the subject, Berardinelli plans a consumer book this spring under the title: “From Good Hands to Boxing Gloves.”

“When you look at it from the policyholders’ point of view, here you are, your home is flattened. They come to you and offer (a low settlement) to you within the first 180 days. McKinsey knew that financial pressure in that first 180 days would be at its greatest,” Berardinelli said.

“They won’t walk away happy. They’ll just walk away. A lot of them won’t understand how badly they’ve been abused.”

National rollout

According to status reports given to Allstate executives, the McKinsey approach was tested in the mid-1990s with auto accident victims in markets such as West Palm Beach, Horsham, Penn., and Tustin, Calif., then rolled out nationally. By 1997, it was expanded to include claims on collision, home fire, water and roof damage.

With the first target of reform, the promised initial return was a 15 percent reduction in third-party bodily injury payouts — reimbursements for non-Allstate customers injured in by Allstate policyholders.

The reality was better.

A 1995 Allstate survey showed the “Colossus tuning process” lowered payments for subjective injuries such as back pain by 10 percent in Los Angeles, 14 percent in New Jersey, and 22 percent in Washington, D.C.

The biggest drop was in the Florida Atlantic region. Payouts fell 23 percent below the national average.

“Florida East and Florida West are getting phenomenal, never-seen-before results in terms of loss/cost management,” a 1997 Allstate newsletter declared.

Allstate today pays less than most other auto insurers in Florida for accident injuries, averaging $16,884 per claim in early 2007 compared with an $18,105 average for the industry. The insurer said it was not fair to compare the numbers because of potential differences in the policyholders Allstate recruits.

Beyond reduced payouts, McKinsey’s analysis showed Allstate’s biggest savings would come from removing policyholders’ lawyers from the equation.

Eliminating the lawyer in just half of cases involving soft-tissue injuries such as whiplash would boost Allstate’s profit by $240 a share, McKinsey calculated.

Allstate Chairman Ed Liddy touted the results at an international business conference in New York two years ago, showing Allstate had reduced its average check to a car accident victim by 20 percent, and held growth in other auto and home claims below industry averages.

“We obviously pay what we owe, that is a given,” Liddy told attendees, according to a transcript of his remarks. “But we do it more efficiently, and we avoid overpayments …”

Allstate has been sanctioned by regulators in at least two states, Virginia and South Carolina, and sued by policyholders claiming bad faith, forcing it into confidential settlements and large jury verdicts, including a $20 million award in 2006 (later reduced to $8 million) to an Indiana man hurt in a car accident 11 years earlier.

But Allstate’s incentives to keep the system have proven larger.

Since changing the way it regards claims, Allstate has reported the largest profits of its 77-year history. It had a record profit of $4.9 billion in 2006. In 2007, it reported a $4.6 billion profit.

From Randi Kaye
CNN

(CNN) — A former Wal-Mart employee who suffered severe brain damage in a traffic accident won’t have to pay back the company for the cost of her medical care, Wal-Mart told the family Tuesday.

Debbie Shank, 52, has severe brain damage after a traffic accident in May 2000.

1 of 3 “Occasionally, others help us step back and look at a situation in a different way. This is one of those times,” Wal-Mart Executive Vice President Pat Curran said in a letter. “We have all been moved by Ms. Shank’s extraordinary situation.”

Eight years ago, Debbie Shank was stocking shelves for the retail giant and signed up for Wal-Mart’s health and benefits plan.

After a tractor-trailer slammed into her minivan, the 52-year-old mother of three lost much of her short-term memory and was confined to a wheelchair. She now lives in a nursing home.

She also lost her 18-year-old son, Jeremy, who was killed shortly after arriving in Iraq. When Debbie Shank asks family members how her son is doing and they remind her that he’s dead, she weeps as if hearing the news for the first time.

Wal-Mart’s health care plan lets the retail giant recoup the cost of its expenses if an employee collects damages in a lawsuit. And Wal-Mart set out to do just that after Shank and her husband, Jim, won $1 million after suing the trucking company involved in the wreck. After legal fees, the couple received $417,000.

Wal-Mart sued the Shanks to recoup $470,000 it paid for her medical care. However, a court ruled that the company could only recoup about $275,000 — the amount that was left in a trust fund for her care.

The Shanks appealed to the U.S. Supreme Court, but the court declined in March to hear the case. CNN told the couple’s story last week, prompting thousands of angry blog responses and at least two online petitions to boycott the company.

Don’t Miss
Brain-damaged woman at center of Wal-Mart suit
On Tuesday, Wal-Mart said in a letter to Jim Shank that it is modifying its health care plan to allow “more discretion” in individual cases. Watch Wal-Mart reverse its decision »

“We wanted you to know that Wal-Mart will not seek any reimbursement for the money already spent on Ms. Shank’s care, and we will work with you to ensure the remaining amounts in the trust can be used for her ongoing care,” Curran said.

“We are sorry for any additional stress this uncertainty has placed on you and your family.”

Wal-Mart’s reversal came as shock to Shank.

“I thought it was an April Fool’s joke,” he told CNN.

“I (would) just like to let them know that they did the right thing. I just wish it hadn’t taken so long,” Shank said. “But I thank them and I hope they come through with all that they said they’re going to do.

PERSONALITY CHECK
Malingerer Test Roils
Personal-Injury Law
‘Fake Bad Scale’
Bars Real Victims,
Its Critics Contend
By DAVID ARMSTRONG
March 5, 2008; Page A1
A test designed to expose fakers is roiling the field of personal-injury law, distressing plaintiffs and strengthening the hand of employers and insurers.
• The Focus: A test called the Fake Bad Scale is meant to spot litigants who may be feigning their injuries.
• Gaining Credibility: Use in personal-injury suits has grown since test became part of respected Minnesota Multiphasic Personality Inventory.
• Controversy: Some psychologists and plaintiffs’ lawyers protest that test identifies too many real victims as possible fakers.
Proponents hail the true-or-false test as a valid way to identify people feigning pain, psychological symptoms or other ills to collect a payout. In hundreds of cases, expert witnesses have testified that the test provided evidence that plaintiffs were lying about their injuries, just as suggested by the test’s colorful name: the Fake Bad Scale.
Use of the scale surged last year after publishers of one of the world’s most venerable personality tests, the Minnesota Multiphasic Personality Inventory, endorsed the Fake Bad Scale and made it an official subset of the MMPI. According to a survey by St. Louis University, the Fake Bad Scale has been used by 75% of neuropsychologists, who regularly appear in court as expert witnesses.
ON THE TEST

There seems to be a lump in my throat much of the time.
Once a week or oftener, I suddenly feel hot all over, for no real reason.
I have a great deal of stomach trouble.
See the full set of questions and answers to the Fake Bad Test and read a copy of Dr. Butcher’s critical article in the Archives of Clinical Neuropsychology. (Subscription required.)
But now some psychologists say the test is branding as liars too many people who have genuine symptoms. Some say it discriminates against women, too. In May, an American Psychological Association panel said there appeared to be a lack of good research supporting the test.
In two Florida court cases last year, state judges, before allowing the test to be cited, held special hearings on whether it was valid enough to be used as courtroom evidence. Both judges ended up barring it.
“Virtually everyone is a malingerer according to this scale,” says a leading critic, James Butcher, a retired University of Minnesota psychologist who has published research faulting the Fake Bad Scale. “This is great for insurance companies, but not great for people.”
The test asks a person to answer true or false to 43 statements, such as “My sleep is fitful and disturbed” and “I have nightmares every few nights.” Someone who suffers from, say, post-traumatic stress disorder might legitimately answer “true” to these questions. But doing so would earn the test-taker two points toward the total of 23 or so that marks a person as a possible malingerer.
Other test statements are “I have very few headaches” and “I have few or no pains.” These are false, someone who has chronic headaches would say. Again, those replies would incur two more points toward a possible assessment as a malingerer.
About a third of the questions relate to physical symptoms; there are questions about stress, sleep disturbance, and low energy. There is also a batch of questions related to denial of bad behavior. For instance, those who answer false to “I do not always tell the truth” get a point toward malingering.
Measuring Process
Paul Lees-Haley, the psychologist who created the test, say that while individual items “can be made to seem like evidence for a flawed” measuring process, what’s important is the total score. He says the scale has “been tested empirically and shown to be effective.”
Dr. Lees-Haley says criticism is being orchestrated by plaintiffs’ lawyers. One, Dorothy Clay Sims in Ocala, Fla., has written guides for other plaintiffs’ lawyers on how to challenge the Fake Bad test. She is leading an effort to reverse the decision that incorporated it into the Minnesota Multiphasic Personality Inventory, which is used in diagnosing and treating patients at mental-health facilities and in screening people for sensitive jobs like law enforcement.
Dr. Lees-Haley himself once testified frequently for plaintiffs in personal-injury lawsuits, but about 18 years ago he began to work mainly for the defense side. He says he devised his test because he saw so many claimants he believed to be faking mental or other distress, and existing tests didn’t spot them.
Working for litigants is Dr. Lees-Haley’s main source of income. He has said in court cases that 95% of this work is on behalf of the defense. He charges $3,500 to evaluate a claimant and $600 an hour for depositions and court appearances, his fee schedule says.
Dr. Lees-Haley didn’t dream up the 43 true-or-false statements in the Fake Bad Scale. He picked them from among the more than 500 true-or-false statements in the elaborate, decades-old MMPI.
He tested responses to the 43 questions on three groups. One was personal-injury litigants he said were malingering. A second group was people he asked to answer as if they were trying to fake emotional distress resulting from a car accident, toxic exposure or employment. A third group consisted of litigants he said had actually been injured.
The known fakers averaged a score of 27.6 on the Fake Bad Scale; those who had been instructed to try to fake emotional distress averaged 25; and the truly injured litigants averaged only 15.7, Dr. Lees-Haley wrote in a research report.
He also compared the scores with those of two large groups who had taken the MMPI; both averaged below 20.
Dr. Lees-Haley concluded that his test “appears to be a promising procedure” for detecting malingerers, and posited that anyone scoring over 20 tended toward fakery. He paid to have the results published in a small Montana-based medical journal, Psychological Reports, in 1991. Use of his Fake Bad Scale in litigation slowly grew.
It recently figured in the case of Steven Thompson, a onetime truck driver in Iraq for the KBR unit of Halliburton Inc. He said he hadn’t been able to hold a job since returning to the U.S. in 2004. Two doctors concluded Mr. Thompson had “chronic” and “fairly severe” post-traumatic stress disorder. He filed a disability claim that was denied by the insurer of Halliburton’s since-sold KBR unit.
Mr. Thompson appealed to the U.S. Labor Department, which has jurisdiction in such cases. He testified that memories of attacks on his convoys, seeing dead bodies and smelling burning flesh led to nightmares and sleeping problems that left him too irritable and difficult to work with to hold a job.
A psychiatrist hired by the defense, John D. Griffith of Houston, concluded Mr. Thompson was exaggerating his symptoms, and cited his score of 32 on the Fake Bad Scale. A Labor Department administrative-law judge denied Mr. Thompson’s claim, citing the test results along with inconsistencies in his testimony. Mr. Thompson is appealing.
Dr. Griffith won’t discuss the case but says the Fake Bad Scale is helpful in confirming fakers, who he estimates make up 40% of personal-injury plaintiffs.
In seven prior cases where Dr. Griffith worked for KBR or its insurer, he found five of the claimants to be malingering, court records show. Asked about the high percentage of Iraq truck drivers he found to be faking, he said: “When you come back to the States, you suddenly discover if you are sick you can make more money than if you were working.”
Cutoff Score
Dr. Butcher and some other researchers published a report critical of the Fake Bad Scale in 2003. They looked at more than 20,000 people, including several thousand psychiatric inpatients, who had taken the MMPI and calculated their Fake Bad Scale scores by checking their replies to the scale’s 43 questions.
More than 45% of psychiatric inpatients had Fake Bad Scale scores of 20 or more, meaning they were possible fakers, under Dr. Lees-Haley’s original cutoff score. Using a higher cutoff score, 24, the researchers still found that 23% of people were flagged as possible malingerers. In every subgroup, women had much higher scores than men.
The authors argued it was unlikely that so many psychiatric inpatients could or would have fooled doctors into diagnosing and admitting them to hospitals. It concluded that the Fake Bad Scale generated an “unacceptably high” rate of false verdicts of malingering, and also that it was biased against women.
Says Dr. Lees-Haley: “One of Dr. Butcher’s primary strategies for criticizing the FBS is to apply it to groups for which it was never intended, and then complain that it isn’t appropriate. Of course not. The FBS was designed for personal-injury claimants.”
In 2006, the publishers of the Minnesota Multiphasic Personality Inventory took a look at the Fake Bad Scale. Those who take the MMPI receive scores on various categories, such as paranoia, depression and social introversion. The question was whether to make the Fake Bad Scale one of these scored categories as well.
The University of Minnesota Press convened a panel of eight experts and pointed to two published reports for them to consider. One was a book chapter partly written by Dr. Lees-Haley himself. The other report was a review of existing research, concluding that the “preponderance of the current literature” supports the use of the test in litigation.
The review of existing research ended up looking at 19 studies, at least 10 of which had been done by Dr. Lees-Haley or other psychologists who do work for insurance companies. The review had excluded 21 other studies from consideration, including the negative analysis by Dr. Butcher’s team.
Dr. Butcher, a member of the advisory panel, opposed adding scores of the Fake Bad Scale to the results that are reported when a person takes the Minnesota Multiphasic Personality Inventory. Six of the eight panelists approved, although they differed on how the test should be used and what cutoff scores were appropriate. The University of Minnesota Press then did make the Fake Bad Scale a subset of the MMPI.
A few months later, the American Psychological Association’s committee on disabilities protested to the publisher that it had acted prematurely. The APA committee later said it hadn’t evaluated the test itself, but noted that the test was controversial and said: “Any test that over predicts malingering in persons with disabilities may result in their being denied necessary and due compensation, benefits or treatment.” The committee asked the MMPI publisher to have the Fake Bad Scale reviewed by a group at the University of Nebraska that specializes in evaluating psychological tests.
The University of Minnesota Press didn’t respond to a call. But in a letter to Ms. Sims, the Florida plaintiffs’ lawyer, a lawyer for the university said it “recognizes that the FBS is the subject of significant debate in the academic and professional community…. The University believes that the process leading up to the FBS’ release was sound.”
Courtroom Test
The experts’ disagreement spilled over into the courtroom in a case brought against a Florida gasoline carrier, Strawberry Petroleum Inc. Lloyd Davidson was sitting at a stoplight in May 2004 when his pickup was rear-ended by one of the gasoline company’s loaded tanker trucks, sending the pickup crashing into another truck ahead of him. His lawsuit said his head shattered the rear window and he ended up with diminished mental capacity and symptoms of depression and inattention.
A psychologist hired by the defense said in a deposition there was reason to believe Mr. Davidson was faking. The witness cited his “very high” score of 31 on the Fake Bad Scale.
Before the expert could testify at the trial, held in Hillsborough County Circuit Court, the plaintiffs moved for a hearing on the scientific validity of the Fake Bad Scale. Judge Sam Pendino ruled in June that “there is a genuine controversy surrounding use of this test” and “no hard medical science to support the use of this scale to predict truthfulness.” He said that drawing conclusions from a test that gives points for malingering when a plaintiff gives honest answers to questions based on actual injuries “has no place in this courtroom.”
In January, a jury determined that Mr. Davidson had suffered a permanent injury from the crash and awarded him $1.4 million from the gasoline carrier.

Allstate suspended from writing new auto policies in Florida
By BRENT KALLESTAD
Associated Press Writer

TALLAHASSEE, Fla. (AP) — Florida Insurance Commissioner Kevin McCarty on Wednesday suspended Allstate companies from writing new automobile insurance policies in Florida for refusing to comply fully with a subpoena from the state.
McCarty abruptly ended a scheduled two-day meeting Tuesday after just two hours. He was angered that Allstate officials failed to turn over some information the state requested on property coverage rates. Company officials had described the state’s request as “irrelevant.”
Allstate was to have provided documents into its reinsurance program and its relationship with risk modeling companies, insurance trade associations and insurance rating organizations, but instead returned a 51-page letter of objections to the state’s subpoena.
“In view of Allstate’s ongoing, blatant disregard of our subpoenas, I have little choice,” McCarty said Wednesday. “Suspending their certificate of authority to write new business in our state should make my point.”
Messages left for Allstate executives to comment on the suspension were not immediately returned.
Gov. Charlie Crist, who has long criticized the insurance industry for its recalcitrance in lowering property insurance rates, immediately praised McCarty’s action against the Illinois-based carrier.
McCarty said existing policyholders will not be affected. Allstate must continue to service their clients and its companies must make all required statutory filings including, annual and quarterly financial statements and rate filings.
The suspension applies to Allstate Insurance Co., Allstate Indemnity Co. and Allstate Property and Casualty Co., and it only suspends the companies from writing new business in Florida.
The Allstate Corp. is based in Northbrook, Ill.
© 2008 The Associated Press.

CORPORATE CRIME REPORTER

Gerry Spence: Americans Being Lied to About Lawsuit Crisis

19 Corporate Crime Reporter 12(1), March 16, 2005

Americans are being lied to about the civil justice system.

That’s the message veteran trial attorney Gerry Spence brought to Washington, D.C. this week.

Spence, who last year led a successful fight to defeat a medical malpractice cap initiative in his home state of Wyoming, came to the National Press Club in Washington, D.C. as part of an effort to beat back a similar proposal being pushed by President Bush in Congress.

The national drive to cap injury awards is being led by the insurance industry, doctors, and the Bush administration.

They claim that the country is being overrun by “frivolous” medical malpractice lawsuits that are driving up insurance rates for doctors.

But Senate Majority Leader Bill Frist (R-Tennessee) admits that he lacks the votes to pass legislation through the Senate this year.

Spence spent the better part of an hour ripping the insurance industry, the national media, negligent doctors and the Chamber of Commerce.

“In my 53 years of practice, I have never seen a frivolous medical malpractice case that has made it to trial,” Spence said.

“It costs $250,000 to $300,000 to bring a case to trial,” Spence said. “You just can’t get into the courtroom for less money than that. And that money comes straight out of the lawyer’s pocket.”

Spence told the story of a woman who wanted to hire him to file a lawsuit against her doctor.

“A beautiful woman came to me at my office and sat down in a chair across from my desk,” Spence recalled. “She was a mother with three children. And she said – I’d like you to represent me for my injuries. I couldn’t see any injuries. She was a healthy looking woman. I said what are your injuries? And she said – I can’t see. I’m blind.”

“As I began to talk to her, I found out that she had been blinded by a simple operation to clear out her sinuses. But a doctor who didn’t know what he was doing had punctured into her brain and destroyed her vision.”

“And I said – you want me to sue. Where do you live? She said I live in Colorado. I immediately knew what the problem was. No Colorado attorney would take her case. Do you know why? Because Colorado has caps of $250,000. It would cost a good deal more than $250,000 to hire the experts and to do the years of work that would be necessary to even get the case to trial. And I said to her – I’m sorry, but I can’t take the case. I cannot take your case. You have a just case. But I cannot take it.”

“So, you ask me what does the doctor want? He wants immunity from lawsuit. He doesn’t want lower rates. If he wanted lower rates, he would be attacking the insurance industry. He wants immunity from lawsuits and a cap that makes it impossible for children who don’t work, for mothers who don’t work, for retired people who don’t work, for any human being who has no economic loss, to recover for their injuries. And that gives the doctor practical total immunity.”

Spence said the insurance industry and doctors are pushing for caps on non-economic damages.

“What are we talking about when we talk about caps on non-economic damages?” Spence asked. “The cap says that you can’t recover anything more than $250,000 for non-economic damages. If you are a mom and staying at home, and somebody runs over you and leaves you crippled in a wheel chair for life, you haven’t lost any economic damages. Because you don’t work. So guess what you get? What do you get? You get nothing.”

“If you are a retired worker and you are not working, you are home hoeing the garden and taking the grandkids fishing, which is what you have always wanted to do all of your life, that is what you worked for in those stinking factories, and now you have your free time, and a drunk runs over you, or a doctor destroys your last days by his negligence because he’s drunk, well, what do you get? Nothing.”

Spence said that caps aren’t necessary because “every judge in the country has the power to throw out every lawsuit before it gets to a jury.”

“I have never seen a frivolous lawsuit in a malpractice action in 53 years,” he said. “And there isn’t a single bit of evidence that there is any frivolity going on – it is a lie.”

Spence read from a Wall Street Journal from earlier this year that reported that “lawyers are turning away cases involving victims that don’t represent big economic losses, most notably, retired people, children and housewives.”

“But you don’t see ads from children, and women and older people saying – with caps on non economic damages, we have no value,” Spence said. “We have been silenced. It is time for a revolution of truth. There is a crisis. There is no question about that. It is a horrible crisis. It is the best guarded secret in America. It is a crisis in medical malpractice.”

“If you are covering a crisis of a profession that is causing as many deaths than are caused by heart attacks and cancer, and you want to cover that up, what do you do? You create a crisis on the other side against the people’s lawyers who will fight for them.”

One reason the people aren’t hearing about this crisis in medical malpractice is because “we don’t have a free press in the country – the press is owned by those who pay for their advertisements and regular people don’t have the money needed to advertise for their rights,” Spence said.

Spence helped defeat caps on non-economic damages in Wyoming by traveling around the state and speaking to packed town meetings.

“We had town meetings across the state of Wyoming,” Spence said. “And I asked the folks in attendance – do you think that if you save your doctors some money on his insurance policy that he’ll deduct it from the bill that he gives you? Will he reduce his fees? Do you think the hospitals that charge these ungodly, outrageous bills that break most people if they have even a tiny little injury of any kind – do you think that the hospitals will reduce their fees, or their charges to you if you are injured or hurt? Do you think that your children will stay in Wyoming now that the doctors have a break on their insurance rates? What do you think about these statements? Do you think people are telling you the truth, or do you think these are dastardly lies?”

Spence made the case that doctors are more dangerous than gun owners.

“Mr. Bush is a gun-toting president,” Spence said. “I’m a gun-toting lawyer. We have a lot of guns in Wyoming. I grew up with a gun. We hunted for our food when I was a kid. I hunted for food when I was a young beginning lawyer in Wyoming. I raised my family on wild game.”

“I went to 14 of these towns in Wyoming to carry this message that I’m trying to give to you today. We had huge crowds. People would come out. They know they are being lied to. They are yearning for the truth.”

“I would say to these people – how many people here own a gun? Every hand went up. There isn’t anybody who doesn’t have a gun in Wyoming. I suspect it would have been the same in President Bush’s state.”

“There are 700,000 physicians in the United States. Accidental deaths by physicians per year are 120,000 – that’s being conservative. So, the accidental death rate per year by physicians is 0.171. That means a doctor only kills 1.7 persons in ten years.”

“The number of gun owners in the United States is 80 million. The number of accidental gun deaths per year for all age groups is 1,500 per year. So, the accidental death rate per year by gun owners with guns is 0.0000188.”

“So, statistically, doctors are approximately nine thousand times more dangerous than gun owners.”

Despite this, Spence said that he loves doctors.

“When you get to be my age, you love doctors,” he said. “The warranty that came with this old body has expired. Everything goes wrong and you spend as much time talking with the doctors as you do talking with your spouse. I can’t talk with you today, honey, I’m off to see the doctor. We love doctors. We all love our doctors. We all need our doctors. And most of our doctors are good doctors.”

“We have to be careful not to do to the doctors what the insurance industry has done to us,” Spence warned. “Trial lawyers are the fighters and the warriors for the people of this country. There are a few trial lawyers that we look at with disdain. There are bad lawyers, just like there are bad doctors. And if there are bad lawyers, they get disbarred, even if they are the President of the United States, they get disbarred if they are bad lawyers.”

“What about bad doctors? Five percent of the doctors in this country are causing 55 percent of the payouts by insurance companies. I was just reading this in the New York Times. Of the 2,774 doctors who had made payments in five or more malpractice cases, only 463 – one out of six was disciplined.”

“When I ask doctors in my home state – why don’t you do something about the bad ones – they say – we know who they are. And I say – why don’t you do something about it? And they say – we don’t want to do that. We might be next. We are afraid to do anything. It is politics. I don’t look at your mistakes and you don’t look at mine.”

“The first thing doctors might do to help would be to discipline their own. Why do we injure people and then say we have to take their rights away? Why don’t we say – when doctors injure people, take away the doctor’s rights? Isn’t that what makes sense? How about a three strikes and your are out law for doctors? On the third one you are out doctor. Get out.”

But Spence professed no love for the insurance companies.

“They own America,” Spence said. “We are taking on the king when we take on the insurance industry. They own the banks. We are taking on the king and all of his troops when we take on the insurance industry. And what kind of power do they have? They have the power that says we don’t even have to be subject to the antitrust laws of this nation. We are so powerful that we got an exemption for our industry from the antitrust laws of this nation. Every other corporation and business is subject to the antitrust laws of this nation, but not the insurance companies.”

“What would happen if the people rose up into a revolution of truth and said – we want protection from this industry? We want you subjected to the antitrust laws of this country. And then we need to have them subjected to scrutiny on the state level for every attempt they have made to increase rates. We need open rate hearings and they have to show that they have a need for a rate increase. Not because they are entitled to these kinds of profits, and these kinds of excesses in the billions, but that they actually deserve and are entitled to the rate increase.”

Spence said that the insurance commissioner in Wyoming is like the insurance commissioner of many other states – “he has no power.”

“He has the power to smile,” Spence said. “And the insurance companies come in and they say – we want an rate increase, and he smiles. That’s all he does. He can’t hold hearings. He can’t reject rates. He can’t do anything.”

Former lawyers, clients allege unethical activity
By Greg Moran
UNION-TRIBUNE STAFF WRITER

November 25, 2007

With its highly visible, nonstop advertising, the four-year-old Pacific Law Center in La Jolla has made itself one of San Diego’s best-known law firms.
By the firm’s estimate, it has represented 10,000 clients in drunken-driving and other criminal cases, bankruptcy, and personal injury lawsuits since opening here in 2003.

PROFILE: PACIFIC LAW CENTER
The law firm’s high-profile advertising campaign promises aggressive representation and often features testimonials from satisfied clients. Its Web site claims the company’s lawyers have more than 250 years of combined legal experience.

Established: 2003

Main office: La Jolla

Lawyers: 25

Clients served: 10,000 since opening

Types of cases: Criminal, DUI, personal injury, bankruptcy, medical malpractice, pharmaceutical.

SOURCE: Pacific Law Center

The advertising campaign promises aggressive representation and “little or no money down” and features testimonials for the center and its lawyers.

But in recent months, that picture has been clouded by lawsuits, a judge’s ruling and action by the Better Business Bureau.

Former clients say it was difficult to get enough time with an attorney. Some say they were given unrealistic assessments about their cases.

Lawyers formerly employed by the firm have alleged in lawsuits and in sworn statements that Pacific Law Center uses unethical practices, such as allowing unlicensed clerks to sign up clients and give out legal advice. Two attorneys sued, claiming that they were fired after objecting to that.

Lawsuits filed by former Pacific Law Center attorneys depict a business where lawyers have caseloads so large that it is difficult for them to provide the kind of representation the firm advertises. Instead, they say, the emphasis is on settling cases as quickly as possible.

The Better Business Bureau, a business ethics and consumer protection agency, downgraded its rating of the firm from satisfactory to neutral after fielding 38 complaints over the past three years.

A judge ruled in June that the firm appeared to be “gouging” local taxpayers by seeking public funds to hire experts in two cases for which the firm already had collected thousands of dollars in fees from the clients.

Advertisement Senior attorneys for the firm defend their practices and reject the various allegations. They insist that their caseloads are manageable and that they have time and resources to give clients personalized attention.
Robert Arentz, the managing partner, said that clerks act as fact gatherers and that no final agreement is ever signed without a lawyer first being brought in to talk to the clients. Arentz said all clients are told that the people they first speak to are not lawyers.

“We have a lot of attorneys and a lot of clients,” Arentz said. “It’s easy to find individuals who have individual complaints about their individual situation.

“Overall, the majority of our clients are extremely happy with their representation.”

Arentz spoke from the Phoenix office of the law firm Phillips & Associates, which is affiliated with Pacific Law Center, where he often works.

Jeffrey Phillips, an attorney with the Phoenix firm that bears his name, is listed on the articles of incorporation for Pacific Law Center filed with the California secretary of state. Phillips is not licensed to practice law in California.

Arizona state bar records show that Phillips was censured in September 2002 and placed on two years’ probation because he “failed to adequately supervise subordinate attorneys and non-lawyer specialists.”

The records say non-lawyers who first met with prospective clients failed to say they were not lawyers and did not adequately describe the firm’s “little or no money down” payment plan.

Phillips completed his probation in January 2005. Complaints of aggressive intake clerks and hard-sell tactics are now being made against Pacific Law Center.

Phillips said potential clients are told repeatedly that the intake clerks are not lawyers, but assistants.

“We don’t believe there is any way any of our people are doing anything wrong here,” Phillips said during a recent interview.

Assistants faulted
Court documents, as well as interviews with nearly a dozen lawyers who left the firm but did not sue, describe tactics by “legal assistants” who are not lawyers, who raise clients’ expectations about what can be accomplished to get them to hire the firm.
“There were a significant number of clients who didn’t get what they thought they bought,” said Charles Luckman, who worked as a criminal defense lawyer there from March 2004 to August 2006. “The best analogy I can give you is it was a law firm run like a used-car dealership.”

Often, according to court records and interviews with former lawyers with the firm, clients became angry when told that their cases were likely to turn out differently than what they were told when they signed up.

“I had to spend my first conversation with clients backpedaling like crazy from what the intake clerks said,” recalled one lawyer who wanted to remain anonymous because he feared retaliation from the firm.

Arentz declined to comment on the lawsuits or the specific allegations in them.

Luckman was one of three lawyers who sued after being fired last year. He reached a quick settlement with the firm, as did the other two lawyers.

He spoke to The San Diego Union-Tribune after the suit was filed but before the settlement, which contained a confidentiality clause, was reached.

In December 2005, Luckman wrote a memo to his superiors that the intake clerks were giving out “unlicensed, unqualified and erroneous legal advice” to clients, according to his lawsuit.

One client was told by a clerk that Luckman was a former judge, which was not true. Luckman said he handled 50 to 80 cases at a time, representing all the firm’s East County clients.

In August 2006, after raising more complaints about the firm’s practices, Luckman was fired.

Attorney Colin Cossio filed suit in September 2006, alleging he was fired after making numerous complaints about the business practices of the firm and saying he would complain to the State Bar of California.

Cossio said his caseload was enormous.

“When you have 800 files, how can you give each client the attention they deserve?” Cossio said in an interview before he settled his case.

His lawsuit said that non-lawyers routinely dispensed legal advice at the firm, in violation of bar rules and state law.

The complaints detailed by Cossio and Luckman were strongly rebutted by lawyers who now work at the firm. Ten lawyers sent unsolicited e-mails to the Union-Tribune, all saying that their caseloads were not overwhelming and that they had the resources and time to represent their clients well.

Michael Stuart, a lawyer handling criminal cases in El Cajon, said he had 55 active cases and that was manageable. Stuart wrote that he was “proud to be part of an organization that prides itself on ensuring the constitutional rights of its clients through excellent legal representation.”

Most of the letters lauded Alan Spears, named the head of the firm’s criminal division in 2007. Spears’ name has been in the news lately because he is the lawyer for Seth Craven, one of five men charged with murder in the death of a La Jolla surfer in the “Bird Rock Bandits” case.

Spears, who joined the firm this year, defended his lawyers.

“Do I think I have experienced and aggressive lawyers who vigorously defend people?” Spears said. “If that is the question, the answer is an unequivocal yes.”

In a later e-mail he said it was “absurd” to say his lawyers are overworked.

Judge criticizes lawyers
How the firm bills for services is another area of contention.
Superior Court Judge Jeffrey Fraser criticized the center in June for seeking public funds for indigent defendants in two cases in which the clients already had paid the firm for representation.

In one case, the defendant had paid the firm $12,000 of a $35,590 bill for a sex crimes case in which he pleaded guilty relatively quickly.

In another case, the firm charged $25,590 to represent a man who, after pleading guilty, changed his mind and wanted to withdraw his plea. The man had paid $19,500 of the $25,590 bill in advance.

In both cases, the firm wanted to hire psychological experts to examine their clients – and asked that they be paid from taxpayer funds administered by the court.

Fraser reasoned that some of the retainer fee could be used to pay the experts and rejected the request. It’s important that “the public treasury is protected from greedy attorneys,” he wrote.

It is not only former lawyers and a judge with complaints against the firm.

The San Diego Better Business Bureau gives the firm a neutral rating, rather than the more common “satisfactory” or “unsatisfactory” rating. The reason: the large number of complaints consumers have lodged with the BBB.

Most of those complaints concern “service issues,” defined as delays in providing services, inferior quality of service, or not providing a promised service.

“We saw a pattern that causes concern,” said BBB President and CEO Sheryl Bilbrey. “They weren’t bad enough to lose membership, but they are not good enough to get a satisfactory rating.”

Several former clients of the firm contacted for this story were bitter about their experiences.

One of those complaining to the Better Business Bureau was Genevieve Ruggles, 71, of Rancho Bernardo, who paid the firm $11,330 to represent her adult son in a drunken-driving case in Ventura County. When her son rejected Pacific Law Center’s representation, it took Ruggles nearly six months to get her money refunded. She said that at her first visit to the firm to discuss the case she was immediately pressured to sign up.

Another former client paid the firm $5,500 to represent her on a drunken-driving charge. She said she and her husband spoke to “an aggressive kind of sales guy” when they went to the firm’s La Jolla office, who told her the charges easily could be reduced. She said the representative later warned her she could spend 10 days in jail.

Neither turned out to be correct.

The woman, who wanted to remain anonymous because she did not want her arrest widely known in the industry she works in, eventually fired Pacific Law Center and settled the case with a new lawyer.

“They just really pressured us,” she said of the firm’s sales tactics.

Arentz and Phillips both said they have worked with the Better Business Bureau and the clients to resolve the complaints. Moreover, Arentz said in a statement, considering the 10,000 clients the firm has represented since opening, the number of complaints to the BBB represents one out of every few hundred clients.

Marsha Hall, a former client who lives in Imperial County, did not complain to the BBB but sued the firm in July, claiming malpractice, fraud and false advertising. The lawsuit contends that the firm botched her case by missing the deadline to file a claim against Pioneer Memorial Hospital in El Centro – a necessary and routine step when suing a public agency.

Instead of admitting the error, the suit said, lawyers persuaded Hall to drop the case after referring her to experts who said she had no chance of winning.

Hall said two members of Pacific Law Center, Michael Clarke and John Schill, told her that her case had no merit – but did not tell her the firm failed to file a government claim on time.

John Schill was identified as the executive director of the firm on the BBB Web site file in May, but he no longer is listed there. He is licensed to practice law in Arizona, but not California.

Clarke has a discipline record from the State Bar of Arizona. He was suspended for six months in 2002 for misusing client funds. He was reinstated in September 2002.

Hall’s malpractice lawsuit alleges that it was illegal to allow Schill to work on Hall’s case in any way, because he is not a member of the State Bar of California. The suit also contends that Clarke’s wife was one of the experts who told Hall the case had no merit.

The firm has denied Hall’s allegations and insists it does quality work for clients.

“We have dozens of excellent lawyers, and we are proud of achieving client satisfaction and good results,” Arentz said in a statement.

——————————————————————————–
Greg Moran: (619) 542-4586; greg.moran@uniontrib.com

Wal-Mart Paid Bills
For Mrs. Shank, Then
Sued for Money Back
By VANESSA FUHRMANS
November 20, 2007; Page A1

JACKSON, Mo. — A collision with a semi-trailer truck seven years ago left 52-year-old Deborah Shank permanently brain-damaged and in a wheelchair. Her husband, Jim, and three sons found a small source of solace: a $700,000 accident settlement from the trucking company involved. After legal fees and other expenses, the remaining $417,000 was put in a special trust. It was to be used for Mrs. Shank’s care.

Instead, all of it is now slated to go to Mrs. Shank’s former employer, Wal-Mart Stores Inc.

Vanessa Fuhrmans, the family
Above, Deborah and Jim Shank. Right, a photo of the family before the accident.
Two years ago, the retail giant’s health plan sued the Shanks for the $470,000 it had spent on her medical care. A federal judge ruled last year in Wal-Mart’s favor, backed by an appeals-court decision in August. Now, her family has to rely on Medicaid and Mrs. Shank’s social-security payments to keep up her round-the-clock care.

“I don’t understand why they need to do this,” says Mr. Shank on a recent visit to the nursing home, between shifts as a maintenance worker and running a tanning salon. “This girl needs the money more than they do.” Mrs. Shank, who needs help with eating and other basic tasks, spends more time alone since Mr. Shank had to let her private caregiver go. At some point, he says, she may have to be moved from a private to a semi-private room in the nursing home where she lives.

The reason is a clause in Wal-Mart’s health plan that Mrs. Shank didn’t notice when she started stocking shelves at a nearby store eight years ago. Like most company health plans, Wal-Mart’s reserves the right to recoup the medical expenses it paid for someone’s treatment if the person also collects damages in an injury suit.

Until recently, many employers didn’t vigilantly enforce the provision, and some states and federal courts didn’t think the claim held water. But as the cost of covering workers continues to escalate, employers and health plans are getting more aggressive about going after the money. A Supreme Court ruling last year also has given them a clearer legal map to suing employees and winning.

In insurance circles, the recovery practice is called “subrogation.” Employers and insurers say it’s necessary to ensure that medical expenses aren’t paid twice. By recovering those costs from someone who’s been compensated elsewhere, they argue, they’re saving money for everyone on the plan.

Sharon Weber, a spokeswoman for Wal-Mart, declined to discuss the details of the Shanks’ case, but said the company was obliged to act in the interest of the health benefits of its employees as a whole. “While the case involves a tragic situation, our responsibility is to follow the provisions of the [company health] plan which governs the health benefits of our associates,” she said.

“Employers are trying to make sure these plans run as efficiently as possible,” says Jay Kirschbaum, a senior vice president at global insurance broker Willis Group Holdings. “They also have a fiduciary duty to the plan and the entire group of employees that are covered by it.”

The Recovery Practice

Already, the recovery practice is one of the variables that plaintiffs lawyers are considering as they decide whether it’s in their clients’ interests to participate in the $5 billion offered by Merck & Co. to settle lawsuits over its painkiller Vioxx. Health plans recovered sizable amounts for medical expenses from other big product-liability settlements, such as for the “fen-phen” diet-drug combination and Sulzer Orthopedics’ hip implants. Many insurers and the employer plans they administer are expected to pursue a piece of the Vioxx settlement.

In cases like the Shanks’, where injuries and medical costs are catastrophic, accident victims sometimes can be left with little or none of the money they fought for in court. Health plans are increasingly adopting language such as Wal-Mart’s, which dictates that it is to be paid first out of any settlement, regardless of what remains for the injured person. Moreover, the victim is responsible for all legal costs in pursuing the suit.

“It’s especially in the catastrophic cases that people are almost never fully compensated,” says Roger Baron, a professor of law at the University of South Dakota and a specialist in health-plan law. “And then their health plan, that’s been collecting premiums from them all this time, wants to take it away?”

Tempting Savings

Such recoveries represent a tempting savings for insurers, employers and union-administered plans. The American Benefits Council and America’s Health Insurance Plans, the health-insurer lobby, estimate health plans recoup some $1 billion a year in medical claims from accident settlements and other third parties. A cottage industry of auditing firms, benefit-recovery specialists and subrogation lawyers help them. They estimate that between 1% and 3% of health-care spending is potentially recoverable from such claims.

“In the past, employers used to think of this as an afterthought,” says Tom Lawrence, chief executive of Memphis-based Benefit Recovery Inc., whose clients include Southwest Airlines Co. and hospital chain HCA Inc. HCA says it saw annual savings from recouped claims rise to $1.8 million in 2006 from just under $800,000 in 2000 after hiring the firm.

Benefit Recovery contracts directly with employers. It says it’s able to recover between $12 and $15 per health-plan member a year — up to $1.5 million for a big plan with 100,000 members — by recovering medical expenses from injury-suit settlements.

Until recently, employers and insurers generally didn’t go after small claims. But more-sophisticated claims tracking has made it easier. Recovery companies systematically search claims for certain medical codes — say, a sprained ankle or head trauma — that flag a potential accident. Claims examiners then mail a questionnaire and often follow up with calls. If the injured person confirms it was an accident, the firm tracks whether the patient files an injury suit.

If there is a lawsuit settlement, employers may seek to recoup money they paid for medical expenses. In many cases, it’s relatively cut and dried: Often medical expenses are just a portion of the overall damages award, or the accident victim’s attorney reaches a compromise with the health plan ahead of any settlement.

Some plans are taking a further step, refusing to pay claims in the first place, unless the person filing the claim signs an additional form promising to reimburse the plan from settlement proceeds.

Don Burgett, an engineer on an offshore oil-drilling ship, from Texas, has been waiting for his health plan to pay $89,000 in medical claims since his daughter’s accident two years ago. Magan Burgett, then 18, was thrown from the back of an all-terrain vehicle in October 2005, tearing her liver, breaking her jaw and fracturing her back.

Soon after Magan’s parents submitted the bills for her two-week stay in an intensive-care unit, her father’s health plan — the Maryland-based MEBA Medical and Benefits Plan — mailed him a reimbursement agreement that restated the plan’s rights to a potential settlement.

“To consider claims related to your accident,” it said, Mr. Burgett had to sign it first. When he didn’t, MEBA stopped paying claims after reimbursing several hundred dollars in Magan’s medical expenses.

Neal Korval, MEBA’s outside counsel, says that asking a plan member to sign a reimbursement agreement in such cases is standard procedure and a policy outlined in its health plan rules. It helps prevent accident victims and their attorneys from trying to “freeze out” the plan from a potential settlement, he says, and also reminds or advises the plan member of his or her obligations.

In September, the U.S. District Court for the Eastern District of Texas sided with the Burgetts, ruling that MEBA’s health plan summary, which it considered the prevailing document, didn’t stipulate such conditions to pay a claim. The Burgetts’ attorney says they secured a $75,000 accident settlement — a net of $50,000 after legal expenses — though that isn’t enough to cover Magan’s medical expenses. Mr. Korval says MEBA has recently reached a settlement with the family over the unpaid medical claims, but declined to disclose terms.

How much power health plans have to enforce subrogation is based on a hodgepodge of federal and state law still being tackled in the courts. A pivotal Supreme Court ruling last year gave health plans a leg up. In that case, a Maryland couple, Joel and Marlene Sereboff, were injured in an accident while returning a rental car to an airport in 2000; they required $75,000 in medical care. The couple later received a settlement of $750,000, from various parties, related to the accident.

Mid Atlantic Medical Services, now owned by UnitedHealth Group Inc., administered the health plan of Mrs. Sereboff’s employer and sued the couple when they refused to pay the company out of their settlement.

Money Set Aside

In a unanimous decision, the court upheld that Mid Atlantic had the right to enforce its claim, in large part because it could point to the settlement money set aside in an easily identifiable fund. The couple had placed the money in a separate account when the issue went to court. The decision has made it easier for plans to go after settlements, legal experts say.

Few such cases have attracted as much attention in legal circles as the Shanks’. Mrs. Shank took a job in 1999 stocking shelves at a Wal-Mart store in Cape Girardieu, Mo. She jumped at the shift from 11 p.m. to 6 a.m. so that she could spend days at home with her three sons, Mr. Shank says. After a probation period, she qualified for benefits under the Wal-Mart health plan in February 2000.

One day about three months later, as she and a girlfriend were touring local yard sales, a semi-trailer truck plowed into the driver’s side of her minivan. Her friend’s injuries were minor, but Mrs. Shank suffered major brain trauma and spent the next several weeks in intensive care. She drifted in and out of a coma, and the hospital, for months.

“One doctor didn’t give her any chance,” says Mr. Shank, a maintenance worker at Southeast Missouri State University. Her medical bills climbed past $460,000. The health plan paid them promptly. “They were terrific in that respect,” he says.

It also sent Mr. Shank several notices that he was to inform Wal-Mart’s health plan before he settled any suit. In 2002, the Shanks did sue and won a settlement from G.E.M. Transportation Inc., owner of the truck. The firm had only $1 million in liability coverage, though. For his own losses, Mr. Shank received $200,000, of which $119,000 remained after legal expenses. He says he spent most of it toward a one-story house fitted with ramps and wider doors, which is more accessible than the family’s previous three-level home.

Mrs. Shank’s own settlement was $700,000. After legal expenses and attorney fees, the remaining $417,477 was placed in a court-created special trust designed specifically for Mrs. Shank’s future care. The Shanks’ lawyer, Maurice Graham, wrote the Wal-Mart health plan informing them. Mrs. Shank had received no funds directly, he said, and therefore had nothing to pay Wal-Mart back.

Nearly three years went by, Mr. Shank says, before they heard again from Wal-Mart. Mrs. Shank struggled a year rotating in and out of the hospital and rehabilitation programs. She could no longer use her right arm or three fingers on her left hand because of neurological damage. She couldn’t feed or dress herself and conversations with her family were limited to all but simple questions. Eventually, her husband moved her to a nursing home for around-the-clock care. Medicare and Medicaid pay for the nursing home. Mr. Shank used some of the trust’s proceeds to continue paying a private aide to care for her there.

‘A Decent Quality of Life’

“We wanted her to have a decent quality of life, and we still had the money,” he says. He hoped he could also use it to pay the roughly $130,000 in bills for Mrs. Shank’s rehabilitation and a return hospital visit after her coverage expired.

But in August 2005, Wal-Mart re-emerged with a lawsuit against the Shanks demanding repayment for $469,216 in medical costs out of their settlement. It charged that the Shanks had violated the terms of the health plan by not reimbursing it. The company also demanded payment of legal fees and interest for the cost of suing the Shanks for the money.

Mr. Graham, the Shanks’ attorney, says he approached Wal-Mart’s attorneys about negotiating a compromise, but was told the health plan wanted to proceed with the lawsuit. “We’re not contending that Wal-Mart isn’t entitled to a payment. We’re saying they’re entitled to one based on equity,” he says. Since Mrs. Shank wasn’t fully compensated for her damages in the first place, he argues, Wal-Mart should also expect only partial reimbursement.

Administrators of employer-financed health plans “have an obligation to participants to be impartial,” the Wal-Mart spokeswoman says. “Virtually all health plans include subrogation provisions as a way to control health plan costs.”

In August last year, U.S. district judge Lewis Blanton sided with Wal-Mart, ruling that when Mrs. Shank signed on to Wal-Mart’s health plan she was obligated to abide by its terms.

The ruling came six days before the Shanks’ 18-year-old son, Jeremy, was killed in September last year in Iraq shortly after he arrived in the U.S. Army’s 25th Infantry Division.

“I wanted to give up at that point, tell Wal-Mart they won,” Mr. Shank says, but his lawyer, Mr. Graham, said he’d continue with appeals.

Mrs. Shank went to Jeremy’s funeral. But because of memory problems due to her injuries, she gets confused about what happened. On a recent morning, she cried several times and asked what had happened to her middle son. Mr. Shank says that he obtained a divorce from Mrs. Shank this year, partly because of advice from a health-care administrator that she might be more eligible for public aid as a single woman. Mrs. Shank, who has been declared incompetent by a court, hasn’t been informed of the divorce by her family.

The Shanks lost an appeal before a three-judge panel in the 8th Circuit Court of Appeals in August and last month were denied a request for a hearing before the entire court. They plan to appeal to the U.S. Supreme Court, though only a small percentage of cases are chosen to be heard.

“Sometimes I want to tell Wal-Mart, ‘Ok, you won on the principle. But just let us keep the money,” Mr. Shank says.

From the Los Angeles Times
CONSUMER CONFIDENTIAL
A claims adjuster with no feelings
David Lazarus
Consumer Confidential

August 22, 2007

If you’ve been banged up in an auto accident, at least you’ll be dealing with someone in the insurance business capable of feeling your pain. Or will you?

Most consumers probably don’t know this, but the dollar value of insurance payouts frequently is determined not by a human being but by a highly sophisticated computer program bearing a name straight out of a sci-fi movie: Colossus.

Little is known about how Colossus works.

But some medical practitioners, attorneys and former insurance industry insiders say the system is designed to allow insurers to lowball claims and limit the amount of money policyholders receive in the event of an accident.

“Colossus is a completely unscientific device that’s geared toward devaluating claims,” said Arthur Croft, director of the Spine Research Institute of San Diego and co-author of a textbook on whiplash injuries.

Sci-fi fans likely will recall a 1970 movie called “Colossus: The Forbin Project,” in which an advanced government computer takes over the world. A remake reportedly is in the works.

The actual Colossus is licensed to insurers by Computer Sciences Corp., an El Segundo-based company that also does extensive work for the federal government, including the super-secret National Security Agency.

CSC says its clients include at least 12 of the top 20 U.S. property and casualty insurers, although it won’t say which ones without their consent. It calls Colossus the general insurance industry’s most widely used claims-evaluation system.

Claims adjusters input data by answering an extensive series of questions posed by Colossus. The system “uses the information supplied by the claims professional to assess the relative severity of the claimant’s injuries,” CSC says.

Jackie VanErp, a CSC spokeswoman, acknowledged that the company has no control over how insurers use Colossus.

“The actual use of it is determined by the clients, the insurers,” she said. “We don’t believe that insurers are using it to lowball consumers. But we don’t know.”

Attorneys and former insurance industry workers say Colossus is often modified by individual companies to produce results more to their liking. They also say that insurers routinely use the lower end of the system’s recommended settlement range as the final figure.

“Colossus exists for one purpose and one purpose only — to minimize the amount of money you get,” said R. Rex Parris, a personal-injury lawyer in Lancaster.

Dani Bednar worked as a claims adjuster at Allstate Insurance’s Palmdale office from 1990 to 1998. She said Colossus was introduced to her office in the mid-1990s and that Allstate “fine tuned” the program after it was installed by CSC.

“Colossus streamlines the process,” Bednar said. “But it doesn’t take into account the human factors. A lot of the time, the settlements it gave people were lower than what I would have given.”

She said she and other claims adjusters in her office were specifically instructed by Allstate not to inform customers that settlement decisions were being made by a machine.

Bednar also said that her performance evaluations by managers were based in part on how closely payouts she handled matched Colossus’ recommendations.

“My job was making Allstate’s bottom line better, not putting money in people’s pockets,” she said. “So that’s what I did.”

Bednar now works for a wind-power energy company in Mojave.

Rich Halberg, director of corporate relations for Allstate, denied that Colossus was used to reduce the amount of money paid to accident victims. He called the system “one tool of many in a comprehensive evaluation process.”

“Our goal is to handle each and every claim in a fair and timely manner, and to pay the appropriate amount,” Halberg said.

A confidential manual Colossus prepared for Allstate claims adjusters in 1995 — a copy of which has made its way into my hands — specifies that “there are many factors that Colossus cannot consider” and that “the Colossus results are to be considered a recommendation only and not an absolute.”

But the manual also indicates that the adjuster is following Colossus’ lead in handling a claim, not the other way around.

“Colossus has a very sophisticated knowledge base and could, in the most extreme hypothetical case, ask you over 700 questions before coming to a conclusion about an appropriate sum for general damages,” it says.

“Colossus has been programmed to simulate the thought processes involved in assessing general damages for accident victims,” the manual says, adding that even if an adjuster can’t answer a particular question, “the system is capable of arriving at a conclusion for you.”

It says Colossus measures all injuries relative to what it considers to be the most catastrophic thing that could happen to anyone — ending up as a quadriplegic on life support.

“In Colossus’ view, this is the worst injury that can be suffered,” the manual says, adding that this is also “the injury that has historically attracted the highest awards for general damages.”

Gail Hillebrand, a staff attorney at Consumers Union, said there may be nothing inherently unethical about Colossus — it all depends on how the system is used by insurers.

But she said consumers have a right to know that a machine, which has no concept of human pain and suffering, is making decisions that place a value on people’s lives.

“It should not only be disclosed to consumers but at the very least there should be regulatory oversight,” Hillebrand said.

Jennifer Kerns, a spokeswoman for state Insurance Commissioner Steve Poizner, said current regulations “provide extensive rules governing how an insurer determines the appropriate value” of accident-related claims.

“If an insurer uses a computer program which doesn’t satisfy our regulations, whether it’s Colossus or any other program, they are already in violation of the law, and if we become aware of it we will take action against the insurer that is in violation,” Kerns said.

CSC’s VanErp said much of the criticism of Colossus comes from personal-injury lawyers and their paid experts.

“Plaintiffs attorneys are personally incented to seek excessive, inequitable claim awards for their particular clients, and thus do not share the public’s interest in obtaining consistent settlements for all claimants,” she said.

The Colossus user manual from Allstate acknowledges that man and machine may face challenges in learning to coexist.

“Initially, you will experience some difficulties consulting Colossus, mainly in capturing and entering the data it requires,” it says. “But with usage you will come to respect and have confidence in the integrity and complexity of Colossus.”

In the movie version, Colossus puts it like this: “In time, you will come to regard me not only with respect and awe, but with love.”