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.”

From American Constitution Society Blog:

June 8, 2007 11:00 AM Posted By News Questions & comments 19
Leading Conservative Activist Seeks Punitive Damages
Judge Robert Bork, one of the fathers of the modern judicial conservative movement whose nomination to the Supreme Court was rejected by the Senate, is seeking $1,000,000 in compensatory damages, plus punitive damages, after he slipped and fell at the Yale Club of New York City. Judge Bork was scheduled to give a speech at the club, but he fell when mounting the dais, and injured his head and left leg. He alleges that the Yale Club is liable for the $1m plus punitive damages because they “wantonly, willfully, and recklessly” failed to provide staging which he could climb safely.

Judge Bork has been a leading advocate of restricting plaintiffs’ ability to recover through tort law. In a 2002 article published in the Harvard Journal of Law & Public Policy–the official journal of the Federalist Society–Bork argued that frivolous claims and excessive punitive damage awards have caused the Constitution to evolve into a document which would allow Congress to enact tort reforms that would have been unconstitutional at the framing:

State tort law today is different in kind from the state tort law known to the generation of the Framers. The present tort system poses dangers to interstate commerce not unlike those faced under the Articles of Confederation. Even if Congress would not, in 1789, have had the power to displace state tort law, the nature of the problem has changed so dramatically as to bring the problem within the scope of the power granted to Congress. Accordingly, proposals, such as placing limits or caps on punitive damages, or eliminating joint or strict liability, which may once have been clearly understood as beyond Congress’s power, may now be constitutionally appropriate.
Ted Frank, another leading proponent of tort reform, questions the merits of Judge Bork’s claims:

I sympathize with Judge Bork’s serious injuries, but it’s beyond me what his lawyers are thinking in asking for punitive damages. And if any danger is open and obvious such that there is an assumption of the risk, surely the absence of stairs to reach a lectern on a dais is—especially if the dais is of the “unreasonable” height that the complaint alleges it to be.
ACSBlog wishes Judge Bork a swift recovery from his injuries.

By Penni Crabtree
UNION-TRIBUNE STAFF WRITER

May 20, 2007

The advertising for Progressive Insurance Co.’s Concierge program makes the prospect of a fender bender seem almost like a vacation.
A man lies back in a hammock, arms folded behind his neck, eyes closed, with a broad smile. “Announcing the only claims service that lets you relax while the insurance company does all the work,” Progressive’s brochure proclaims.

Earnie Grafton / U-T
Maria Vasquez Lopez says her car still had problems, such as a faulty back hatch, after she had it repaired through the Concierge program.
Yet some consumer advocates and auto repair industry trade groups find little to be relaxed about in the Ohio-based insurer’s collision repair service.

They maintain that the program – in which Progressive examines a customer’s damaged vehicle, writes the initial repair estimate and picks an auto repair shop out of the company’s small network of contract shops – undermines the state’s anti-steering laws.

In California, where more than 2 million repair jobs are done annually, it is illegal for an insurer to direct or recommend that a vehicle be repaired at a particular shop unless a customer requests a referral.

Auto repairs in the state amount to about $4 billion to $5 billion a year, according to the California Autobody Association.

Critics of Progressive’s Concierge program also say its focus on controlling costs can lead to cut corners.

AT ISSUE: AUTO REPAIRS
Progressive Insurance, California’s eighth-largest auto insurer, has begun offering a one-stop auto repair program for clients involved in a collision. Under the program, dubbed Concierge, Progressive examines a customer’s damaged vehicle, writes the initial repair estimate and picks an auto repair shop to do the work.

Proponents: The program provides a fast and convenient auto repair service for Progressive’s clients. They can opt to use the Concierge service, or they can make their own repair arrangements.

Opponents: The program undermines state anti-steering laws related to insurance companies and auto repair shops. It could serve to control the insurer’s claim costs at the expense of consumers and auto repair shops.

Rosemary Shahan, president of the Sacramento-based Consumers for Auto Reliability and Safety, a nonprofit consumer advocacy group, said the Concierge program is “fraught with peril” because Progressive has undue control over the auto repair process.

“California outlawed steering, but this is like steering on steroids,” said Shahan. “It’s ‘Welcome to my parlor, said the spider to the fly.’ The consumer is taken out of the repair-process loop, and that opens them to some real problems, including cut-rate repairs.”

One auto repair trade group, the Collision Repair Association of California, has filed a court action that challenges the legal status of the Concierge service center in San Diego, the only site in California where the program is currently offered.

Progressive officials counter that their program, which is intended to be rolled out statewide, is legal and consumer-friendly. Progressive, the nation’s third-largest auto insurer, operates 55 Concierge centers in 25 states.

Stann Rose, state claims manager for Progressive, said the program’s focus is to retain customer loyalty by providing insured clients with a fast and convenient service. Progressive is the eighth-largest auto insurer in California.

Under the California program, a Progressive client involved in a collision, or a car owner whose vehicle is hit by a Progressive client, can choose to drop off the damaged car at Progressive’s Concierge facility on Ruffin Road in Kearny Mesa and leave the repair process to the insurance company.

The Concierge facility performs the initial inspection, writes an estimate and farms the work out to a contracted repair shop in its network. The repair shop picks up the car at the Progressive facility, and has an opportunity to go over the estimate and argue for repair changes and additions.

During a three-way telephone call among the insurer, the repair shop and the car owner, the repair shop’s representative goes over the estimate with the owner and gets approval for the repairs.

After the repairs are completed, the repair shop delivers the car to Progressive, where the insurer conducts an inspection before contacting the customer to pick up the vehicle.

Rose said the Concierge process is “transparent” and that there is no pressure on customers to use it. About 15 percent of Progressive customers in San Diego who had damage to their vehicles chose to use the Concierge service in the past year.

“If the customer tells us they have a shop of their own, we don’t offer them any other choice – they’ve made their decision,” said Rose. “In areas served by our service centers, we let them know they qualify for our Concierge service. If they say they want to hear more about Concierge, we tell them. If they say they’re not interested in Concierge, we explain their choice of using their own body shop.

“The idea that somehow this thing is designed around how to cheat the consumer is absurd,” Rose said.

Allen Wood, executive director of the Collision Repair Association, said the Concierge program is aimed at reducing Progressive’s claim costs at the expense of auto repair shops and consumers.

The group maintains that the Concierge facility is a de facto auto repair shop operating outside state law. In October, the association filed a legal action against the California Bureau of Automotive Repair, which regulates auto repair shops in the state, alleging the bureau was failing to enforce laws that require such shops to register and comply with licensing and regulatory procedures.

The Collision Repair Association maintains that Progressive does “tear-down” work on damaged vehicles to come up with its repair estimates. Not registering its San Diego facility with the state bureau gives it an unfair business advantage over regulated auto repair shops, Wood said.

Progressive’s Rose said the facility does not do full tear-downs and so should not be governed by bureau regulations. He acknowledged that the facility removes parts, such as bumpers, to determine vehicle damage, but said the work does not qualify as a tear-down.

Wood said Progressive does not want to register with the bureau because it would have to comply with state laws regulating the auto repair industry – including shouldering certain liabilities for shoddy repair work.

“They are trying to pass all the liability onto the repair shops they contract with, but Progressive controls the transaction by controlling the costs of repairs,” Wood said. “There is a facade of helping the consumer, but in fact, it is all about getting the cars fixed as cheap as they can, and in some cases ignoring repairs that need to be done.”

Cease-and-desist order
The insurance industry’s influence in Sacramento is noted by critics who have watched Progressive’s effort to introduce the Concierge program in California.
One veteran insurance lobbyist, Dan Dunmoyer, is now the governor’s deputy chief of staff. Dunmoyer used to represent the Personal Insurance Federation, which represents Progressive, State Farm and other insurers; those companies have donated more than $200,000 to Gov. Arnold Schwarzenegger’s campaign accounts.

In 2005, Progressive and the Personal Insurance Federation backed a failed bill that attempted to remove a provision in California law that prevents insurance companies from acting on behalf of a vehicle owner to arrange for the repair of a car.

The bill, sponsored by then-Assemblyman Ron Calderon, a Democrat from Montebello who now serves in the state Senate, would have allowed a slightly different version of Progressive’s Concierge program in California. Among the differences, consumers would have had no communication with the repair shops used by Progressive.

Although that bill failed, Progressive opened a modified version of its Concierge program in San Diego in April 2006, despite warnings from the Bureau of Automotive Repairs at the time that the insurer would likely have to register the facility as an auto repair shop.

The bureau, then under the leadership of Richard Ross, inspected the facility last May and, in August, issued a cease-and-desist order barring Progressive from operating the facility until it registered. Ross resigned that month to accept a position at the California Gambling Control Commission.

Progressive attorneys and lobbyists disputed the bureau’s findings, and informal meetings were held between the bureau and Progressive representatives.

Meanwhile, in October, the Collision Repair Association filed its legal action to get the bureau to enforce the cease-and-desist order.

The same month, Schwarzenegger announced the appointment of a new bureau chief, Sherry Mehl, a former chief deputy director for the Department of Consumer Affairs. On Dec. 6, the bureau rescinded the cease-and-desist order.

Russ Heimerich, a spokesman for the California Department of Consumer Affairs, which oversees the bureau, said the bureau had presumed tear-down activities were taking place when the cease-and-desist letter was issued. The bureau subsequently determined that tear-downs were not occurring at the facility and rescinded the letter, he said.

Progressive’s Rose said allegations that politics played a part in the bureau’s actions are unfounded.

“It is easy to make accusations, but I don’t think they are fair, and I don’t think they are accurate,” said Rose. “This isn’t some political deal.”

Customer comments
Rose said that 3,500 cars have been serviced through the San Diego Concierge program since it opened last year, and customer surveys indicate a high level of satisfaction with the process.
Angelic Luna of North Park said she appreciated the speedy, no-hassle service she received through the Concierge service when her Progressive-insured car was hit by another vehicle in March.

“They told me about the program and how it works, indicated they’d be able to work within the time range I needed, have a rental vehicle for me, and that it would be a fast in-and-out process,” said Luna, 23, who agreed at Progressive’s request to talk to The San Diego Union-Tribune. “Literally, all I had to do was sign a paper and pick up the rental.”

Luna said the damage estimate on her 1999 Nissan Sentra was $1,700, which included replacement of the driver-side door.

“They kept the original window but replaced everything else,” Luna said. “They actually vacuumed the car, so that was nice as well.”

Advertisement Yet critics say programs like Concierge can create incentives to cut corners. For example, an insurer might stop giving business to contracted repair shops that dispute the initial cost estimate, or that deem extra work necessary after repairs are under way, critics said.
Maria Vasquez Lopez, a San Diego woman who initially had her Chevrolet TrailBlazer repaired through the Concierge program in November, said she believes corners were cut when her vehicle was worked on. She filed a complaint with the Bureau of Auto Repair.

Vasquez, whose vehicle was hit by a driver insured by Progressive, said she agreed to have her car towed from a repair shop that wasn’t part of the Concierge network to a Progressive-affiliated shop after a Progressive claims representative told her the company would guarantee repairs done only within its network.

Rose said Progressive “cannot stand behind work done by shops with which we are unfamiliar.”

When Vasquez and her husband, Ricardo Lopez, went to pick up the repaired car, they immediately noticed several problems, including a back hatch that didn’t close properly.

The couple asked that the repairs be made again and, a few days later, went back for the re-repaired vehicle. But the hatch still didn’t close properly and more problems were identified, including scratches on the window and mismatching paint on the bumper, Vasquez said.

In frustration, Vasquez took the car to an auto body shop that wasn’t affiliated with Progressive and paid for a new inspection. The shop found that some repairs that had been charged weren’t done or were done in a substandard manner, according to Vasquez.

Ultimately, Progressive agreed to pay an additional $9,700 to restore the SUV to its preaccident condition, Vasquez said.

“I remember telling Progressive at the time that I was having to fight for a right that was mine – to have my vehicle fixed,” Vasquez said. “And it was being taken away by them.”

Shawn Fergus, a spokesman for Progressive, said that in Vasquez’s case, “our estimate wasn’t as accurate as it should have been.” Additionally, the shop doing the repairs “didn’t identify the additional damage that should have been discovered once the repair process was under way,” he said.

“These circumstances led to the incomplete and poor-quality work that was originally done on Ms. Vasquez’s vehicle,” Fergus said. “Based on our customer satisfaction numbers, this is clearly not indicative of the quality of the estimates we write or the work of the shops with which we do business.”

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Penni Crabtree: (619) 293-1237; penni.crabtree@uniontrib.com

Presented by the University of San Diego School of Law and the Public Interest Law Foundation

Friday, April 27, 2007, at 6:00 p.m.
Mr. and Mrs. Douglas F. Manchester Auditorium,
Manchester Executive Conference Center,
University of San Diego

Reception and book signing for Nader’s book, The Seventeen Traditions, immediately following in the lobby of the Manchester Executive Conference Center

The event will also be broadcast live on USD TV on channel 3

About Ralph Nader
Honored by Time magazine as one of the 100 Most Influential Americans of the Twentieth Century, consumer advocate and presidential candidate, Ralph Nader, has devoted his life to giving ordinary people the tools they need to defend themselves against corporate negligence and government indifference. With a tireless, selfless dedication, he continues to expose and remedy the dangers that threaten a free and safe society. In 1965, Nader took on the Goliath of the auto industry with his book, Unsafe at Any Speed, a shocking exposé of the disregard carmakers held for the safety of their customers. The Senate hearing into Nader’s accusations and the life-saving motor vehicle safety laws that resulted, catapulted Nader into the public sphere.

Nader quickly built on the momentum of that success. Working with lawmakers, he was instrumental in creating the Occupational Safety and Health Administration (OSHA), the Environmental Protection Agency (EPA) and the Consumer Product Safety Commission. Laws he helped draft and pass include the Safe Drinking Water Act, the Meat and Poultry Inspection Rules, the Air and Water Pollution Control Laws and the Freedom of Information Act. Working to empower the average American, Nader has formed numerous citizen groups, including the Center for Auto Safety, Public Citizen, the Pension Rights Center, the National Coalition for Universities in the Public Interest and the student Public Interest Research Groups (PIRGs) that operate in more than twenty states.

Nader organized the Green Party’s first presidential campaign in 1996, and then ran for president again in 2000 and 2004. In his latest citizen initiative, he is working with alumni classes, including his own at Princeton University and Harvard Law School, to expand their efforts beyond parties and reunions to community projects that systemically advance social justice. He also lectures on the growing “imperialism” of multinational corporations and of a dangerous convergence of corporate and government power.

RSVP Required
For more information or to RSVP, please call (619) 260-6848 or e-mail usdlawevent@sandiego.edu.

MCLE
The University of San Diego School of Law is a State Bar of California approved MCLE provider and certifies that this activity is approved for one hour of general credit.

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

By Drew Griffin and Kathleen Johnston
CNN

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

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

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

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

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

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

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

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

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

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

Both Roxanne Martinez of Santa Fe, New Mexico, and Ann Taylor of West Lafayette, Indiana, saw the practice firsthand.

Martinez suffered neck and back injuries when she was sideswiped by a driver insured by Allstate.

After three years, the company finally offered her $15,000 — a little more than half of what she needed for lost wages and medical bills.

She went to court, and four years after the accident a jury awarded her $167,000 plus interest.

“It’s kind of hard when you are thinking they are going to leave you broke. … That was very stressful,” she said.

Taylor was not as fortunate when her case went to trial.

The Indiana nurse was rear-ended by a State Farm employee driving a State Farm car. Damage to her car was minimal but she suffered herniated disc and muscle tears.

Taylor racked up medical bills and lost wages amounting to about $15,000. The company offered her $2,000.

“I was just very insulted,” she said.

She sued, but three years later a jury came back with a judgment for her of only $1,500.

The jury didn’t believe she could be hurt in an accident in which the vehicle had barely a dent.

Three jurors told CNN photos of the two cars involved in the accident — enlarged and prominently displayed by the defense — played a huge role in their decision.

And one said they assumed Taylor had already been compensated by the insurance company and was just trying to get more money.

Profitable strategy
The cases, CNN found, illustrate a carefully developed strategy to make the victims look like they are trying to defraud the insurers.

But documents CNN obtained indicate profit, not fraud, is the reason companies decided to play hardball in small accidents.

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

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

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

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

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

“The profits are good, and as long as the community, the public allows this to occur, the insurance companies will get richer and people … will not get a fair and reasonable settlement,” Mathis said.

Both Allstate and State Farm declined requests for interviews.

In an e-mail, Allstate wrote it did not believe it would “have any real opportunity of being successful in getting you (CNN) to do a balanced report.”

State Farm wrote: “We take customer service seriously and seek to pay what we owe, promptly, courteously and efficiently, and we handle each claim on its own merits.”

The company also said, “Any attempt to generalize that State Farm adopted consultant recommendations as other insurers is just plain wrong.”

A company spokesman sent an additional e-mail, saying that the company did work with McKinsey to improve claims handling but State Farm stopped using the McKinsey program in 1999.

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

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

The entire 30 minute investigative report on Allstate, State Farm and McKinsey which ran on CNN last Sunday will re-air on Monday February 26 sometime during the 2 hour Anderson Cooper show which starts at 10:00pm Eastern time [8pm Mountain time] pending some breaking news story like Anna Nicole rising from the dead or such.

Adam Cohen: Alabama’s deadly tort reform
By Adam Cohen -
Published 12:00 am PST Thursday, January 18, 2007
BIRMINGHAM, Ala. — Jack Cline is in a hospital here fighting for his life, stricken by leukemia that he says he got from exposure to benzene at his factory job. In most states, he would be able to sue the companies that made the benzene. But Alabama’s all-Republican, wildly pro-business Supreme Court threw out his case.

In a ruling that would have done Kafka proud, the court held that there was never a valid time for Cline to sue. If he had sued when he was exposed to the benzene, it would have been too early.

Alabama law requires people exposed to dangerous chemicals to wait until a “manifest” injury develops. But when his leukemia developed years later, it was too late. Alabama’s statute of limitations requires that suits be brought within two years of exposure.

Cline, who says God has kept him alive so he can challenge the unfairness of Alabama’s law, told his lawyer, Robert Palmer, to keep fighting. Palmer started a statewide petition drive, wrote a flurry of Op-ed pieces and asked the court to reconsider. In an extraordinary move, it reopened the case and heard new arguments last spring.

Big business and its allies are loudly promoting “tort reform” by arguing that America is drowning in frivolous lawsuits. They are winning the public relations battle. Everyone knows the story of the woman who sued McDonald’s because she was burned by hot coffee.

But few people know of the Jack Clines — and there are many of them — who have been denied their day in court.

Corporate America — with its large contributions to political and judicial candidates, and its top-dollar lobbyists — has had remarkable success persuading legislatures and courts to erode the bedrock principle of civil law: When people are injured, they are entitled to sue for damages.

At the top of industry’s list of tactics is immunity — the rather brazen notion that companies should be shielded from lawsuits no matter how negligently or dishonestly they act. Gun makers and dealers, notoriously, persuaded Congress in 2005 to give them immunity when their guns are used to maim and kill.

Industries are also winning immunity at the state level, and attracting far less attention. Pharmaceutical companies pushed through a law in Michigan protecting them when their drugs injure or kill people, as long as the drugs were approved by the Food and Drug Administration. There is no reason FDA approval, a deeply flawed process, should be a shield.

When corporations do end up in court, they have lowered the stakes substantially by undermining punitive damages, which have long been one of the main ways that society deters people from unreasonably putting others at risk. The U.S. Supreme Court struck a major blow against punitive damages a decade ago, ruling that it was unconstitutional for a jury to award $2 million in punitive damages against an auto dealer that knowingly sold a damaged, repainted BMW as new.

Lower federal court judges, many of whom have been screened by the Bush administration for pro-business sympathies, and state court judges, many of whose campaigns were bankrolled by big business, are eagerly joining in. So are state legislatures. Last month Ohio’s Legislature voted to cap punitive damages in many cases against paint companies — which have been accused of selling lead-based paint that causes retardation in children — at a paltry $5,000.

Perhaps the most insidious tactic for slamming the courthouse door on injured people is the stealth use of “pre-emption.” When federal and state laws conflict, the federal law pre-empts, or invalidates, the state law. The Bush administration is taking advantage of this principle by issuing weak regulations in a wide range of areas to wipe out stronger state-law protections. When people try to sue, they may find that their legal rights have been swept away. Among the areas the administration has focused on are automobile roof crushes and mattress flammability.

These incursions on the right to sue, taken together, are a serious assault on justice. In the most extreme cases, they may also be unconstitutional. Cline’s lawyer, Palmer, argued that preventing him from ever suing denied him his rights under the Alabama constitution to seek a legal remedy for his injuries.

Palmer was encouraged when the Alabama Supreme Court reopened the case. He also saw it as a good sign when it scheduled oral arguments for a special public session on a law school campus, an indication it considered the case particularly significant. The arguments went well. “Questions asked by several justices indicated they were troubled by the legal Catch-22,” The Birmingham News reported.

The court ruled this month. It affirmed the dismissal of Cline’s case by a 5-4 vote. If Cline wanted to challenge the unfairness of the rules, it said, he would have to take it up with the state Legislature — a body every bit as pro-business as the Alabama Supreme Court.

Palmer intends to take the case to the U.S. Supreme Court. In the meantime, Cline can take some small comfort in the close vote.

Four Alabama justices, at least, would not accept a legal system that told people like him that “no matter when” they “file the action, it is either too soon or too late.”

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Phone: (916) 321-1000

Copyright © The Sacramento Bee

Wednesday, February 07, 2007
Insurance companies fight paying billions in claims
Put yourself in the driver’s seat of this accident. You are heading down the street when a truck comes out of nowhere and slams into the right side of your car. The damage to the vehicle is obvious: dents across the passenger door.

You are hurt too, thought it’s not obvious how much: a slight cut above your eye, an ache in the neck.

Your doctor says your spine was injured, you have soft muscle tears, and the pain in your neck mostly likely is whiplash.

It’s going to need therapy, she says, and some time off work to heal. And in the end it’s going to cost you $15,000 in medical payments and another $10,000 in lost wages, because you took so much time off work.

But when you send the $25,000 bill to the insurance company of the person who hit you, the insurance company says it’s only going to pay you $15,000. You can take it or leave it.

What do you do?

That’s what producer Kathleen Johnston and I have been investigating for the last 18 months — accidents most of us don’t pay attention to, the fender-benders we pass by without even slowing down. In part, we looked at how Allstate handled the claim of one woman, Roxanne Martinez. Her car was hit in Santa Fe, New Mexico. Her medical bills and lost wages added up to $25,000.

Allstate offered $15,000 to settle. Roxanne Martinez didn’t know what to do.

Sure, she could try to find a lawyer. But if you were in her shoes, would you? After all, you are fighting insurance giant Allstate over a $10,000 difference. What attorney is going to take on that case?

Martinez’s case represents what 10 of the top 12 auto insurance companies are doing to save money. And if you are in a minor impact crash and get hurt, former insurance industry insiders say, insurance companies will most likely try doing the same thing to you: delay handling your claim, deny you were hurt and defend their decision in drawn-out court battles. It’s the three Ds: delay, deny and defend.

That, in a nutshell, is the strategy adopted by several major auto insurance companies over the past ten years, a lot of lawyers, former insurance company insiders and others tell CNN.

With nowhere to go, Allstate and others bet you’ll take what they offer and walk away. It’s right in the training manuals we obtained from Allstate: force “smaller walk-away settlements.”

Shannon Kmatz, a former claims adjuster for Allstate, told us she would offer as little as $50 dollars in some cases. Poor people would take it, she said, fearing that if they didn’t, they’d get nothing at all.

Roxanne Martinez didn’t take it. She sued and a jury awarded her $167,000 dollars. But that verdict took three years.

Allstate is betting you won’t wait, you won’t sue and you’ll take what you get and walk-away. And that, say our experts, has been a good bet for Allstate and others. Accident victims have been walking away from billions of dollars that insurers now keep for themselves.

Allstate would not grant an interview or answer our questions. Instead, they sent an e-mail saying they didn’t think CNN would deliver a fair report. I hope you will watch our report tonight and decide for yourself who is being fair.
Posted By Drew Griffin, CNN Correspondent: 3:11 PM ET