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.

It’s the kind of story that makes Europeans look at the American health care system and shake their heads.

The Los Angeles Times reports that one of California’s largest health insurers set goals and paid bonuses based in part on how many individual policy holders were dropped and how much money was saved.

Times reporter Lisa Girion writes that Health Net Inc. avoided paying $35 million in medical expenses by rescinding about 1,600 policies between 2000 and 2006. During that period, it paid the senior analyst in charge of cancellations more than $20,000 in bonuses based in part on her meeting or exceeding annual targets for revoking policies.

The Times had to get its lawyers involved to pry the documents backing up these claims out of Health Net’s clutches, even though the company had to produce them for a law suit brought by one of those dumped policy holders.

Health Net tried to keep them secret, arguing that they would embarrass the company. (Perhaps they should have thought of that before complimenting their analyst for her “banner year” in 2003 when she exceeded her performance goal and helped the company avoid “$6 million in unnecessary health care expenses.”) But in the end, the newspaper won, and so was able to show, for the first time, how an insurer linked cancellations to employee performance goals and to its bottom line.

The suit was brought by Pasty Bates, a 51-year-old hairdresser whose coverage was rescinded by Health Net in the middle of chemotherapy treatments for breast cancer, leaving her with $200,000 in medical bills.

Three years later, she still has a catheter embedded in her chest where the chemo was pumped in and is unable to afford tests to determine whether the cancer is gone.

Health Net contended that Bates failed to disclose heart problems and shaved 35 pounds off her weight on her application.

Bates’ lawyer, William Shernoff, claims that the analyst’s performance goals show that Health Net was bent on finding any excuse to cancel the coverage of people like Bates to save money.

“I haven’t seen this kind of thing for years,” Shernoff said. “It doesn’t get much worse.”

Kasparian v. Avalonbay Communities, No. B196272

In a slip-and-fall suit brought by an 80-year-old woman against her landlord, summary judgment for defendant-landlord is reversed as the trial court erred in finding, as a matter of law, the recessed drain was both an open and obvious condition and a trivial defect

Kasparian v. Avalonbay Communities (2007) , Cal.App.4th

[No. B196272. Second Dist., Div. Seven. Oct. 15, 2007.]

CHRISTINE KASPARIAN, Plaintiff and Appellant, v. AVALONBAY COMMUNITIES, Defendant and Respondent.

(Superior Court of Los Angeles County, No. EC 041672, Charles W. Stoll, Judge.)

(Opinion by Johnson, Acting P. J., with Woods, J., and Zelon, J., concurring.)

COUNSEL

Doumanian & Associates and Nancy P. Doumanian for Plaintiff and Appellant.

De Simone & Huxster and Gerry De Simone for Defendant and Respondent. {Slip Opn. Page 2}

OPINION

JOHNSON, ACTING P. J.-

Plaintiff Christine Kasparian appeals from the summary judgment entered in favor of defendant Avalonbay Communities, Inc. (Landlord) on the ground the recessed drain, as a matter of law, was both an open and obvious condition and a trivial defect which negated any duty of care on the part of Landlord to the 80-year-old Kasparian who sustained severe injuries from a fall after she tripped. fn. 1 We reverse the judgment.

Kasparian contends summary judgment was improper, because competing expert declarations were in direct conflict on certain material factual issues. She assigns the following as unresolved material issues of fact: (1) whether the drain design and configuration met industry standards and building code requirements; (2) whether its size and dimensions in view of the surrounding circumstances rendered the recessed drain hazardous; and (3) whether Landlord breached its duty of safety in managing and maintaining the apartment complex common area by failing to comply with its own inspection protocol. She also contends summary judgment was improper, because Landlord’s statement of undisputed facts failed to address each of the two causes of action in the complaint.

Based on our review of the record and applicable law, we conclude Landlord was not entitled to summary judgment. The trial court erred in finding, as a matter of law, the recessed drain was both an open and obvious condition and a trivial defect. Whether the recessed drain grate constituted a hazardous condition presents a material issue for the trier of fact to determine. fn. 2 {Slip Opn. Page 3}

We conclude where the trial court grants summary judgment on the ground, as a matter of law, the alleged defect was open and obvious based on its personal inspection of photographs, the reviewing court is not bound by the trial court’s determinations. Rather, the reviewing court takes a fresh look at the photographs relied upon by the trial court and examines the photographs de novo. Summary judgment cannot be based on photographs where the reviewing court concludes either reasonable minds might differ regarding whether the photographs correctly depict the alleged defect and the surrounding environs or whether the photographs conclusively establish the defect was open and obvious. We find the photographs before the trial court in this case are not conclusive on this issue and thus triable issues remain, requiring a reversal of the summary judgment.

FACTS AND PROCEEDING BELOW

Undisputed Relevant Facts

On October 24, 2004, 80-year-old Kasparian resided in No. 324, a ground floor apartment at the Avalonbay Apartments. About 1:30 p.m., Kasparian fell to the ground as she walked along the brick paver walkway from her apartment en route to a trash receptacle. She sustained a cervical fracture and broken teeth. When she fell, Kasparian was carrying a trash bag and a purse in her left hand and using her cane, which was in her right hand. fn. 3 Kasparian always followed the same path from her apartment to reach the trash receptacle next to the elevator. As a cautious person, Kasparian looked where she was walking. Prior to the date of her fall, she had noticed the drains in the walkway and specifically the drain in question. She did not recall ever having a problem with that particular drain. {Slip Opn. Page 4}

Pertinent Procedural Matters and Proceedings

On October 6, 2005, Kasparian filed a complaint against Landlord pleading two causes of action, respectively, negligence and premises liability, based on the same factual allegations, namely, 80-year-old Kasparian was walking in the common walkway of the apartment complex where she resided when she sustained continuing, severe injuries after suddenly tripping and falling due to “the uneven nature of the bricks used to cover said walkway in a negligent fashion,” which was a dangerous condition created by Landlord. Landlord filed an answer generally denying the allegations and asserting 11 affirmative defenses.

Landlord moved for summary judgment on the grounds the recessed drain was not an actionable defect, because: (1) “[t]he drain was installed 1/4 inch below the pavement in compliance with industry standards;” (2) “[t]he deviation of 1/4 inch on the pedestrian walkway constituted a trivial defect;” and (3) “[t]he contrast between the drain and the adjacent pavers and [Kasparian]’s admitted awareness of the drain make[] the condition open and obvious.” fn. 4

In her opposition, Kasparian disputed the “trivial defect” defense was applicable, because the subject condition involved the design and placement of a recessed drain, not one involving “wear and tear over time.” She argued triable issues of material fact existed regarding the size and dimensions of the recessed drain; whether its placement and installation were within industry standards; whether the recessed drain constituted a dangerous condition of property in view of the totality of the circumstances; and whether such condition was “open and obvious.” Kasparian further argued even if this condition were “open and obvious,” Landlord was under a duty to maintain the premises in a safe {Slip Opn. Page 5} condition. She argued summary judgment also was improper, because Landlord’s separate statement did not address each of the two causes of action.

Landlord filed a reply attacking as nonsensical Kasparian’s claim the “trivial defect” defense did not apply. Landlord argued Kasparian raised facts and issues irrelevant to whether summary judgment should be granted. It argued summary judgment was not foreclosed by the omission of its settled statement to address both causes of action separately and offered to file an amended settled statement. Landlord further argued its description of the drain grate and Kasparian’s were not substantially different and invited the trial court to view the photographs submitted by both “to make its own determination whether the drain . . . , within its surroundings, is a trivial defect, or a dangerous condition.”

On November 17, 2006, following a hearing, the trial court granted Landlord’s motion for summary judgment. The court made these findings: (1) “The drain was an open and obvious condition that [Kasparian] had seen before;” and (2) “The drain was a trivial defect because its depth was less than half an inch and the circumstances show that [Kasparian] tripped on the drain at approximately one-thirty p.m. on a sunny day with no rain[;] the area [was] well-lit[;] nothing obstructed plaintiff’s view[;] and no debris or foreign material [was] on the ground.”

During the hearing, the trial court concluded Landlord owed no duty to Kasparian, because the evidence showed the drain was an open and obvious condition, rather than a hidden danger. In this regard, the court noted Kasparian admitted in her deposition she had noticed this particular drain when traveling from her apartment to the trash receptacle before the date of her fall, and the court found “[a] useful visual of the drain is provided by [Landlord]’s expert, Carl Sheriff, who includes photographs of the drain in exhibit 2 to his declaration.”

The trial court further concluded Landlord also did not owe Kasparian a duty, because the evidence demonstrated the drain was “a trivial defect.” According to the declaration of Landlord’s expert, the drain was imbedded in the walkway in the manner required by industry guidelines and the drain was imbedded one-eighth to one-fourth of {Slip Opn. Page 6} an inch below the walkway. The court noted this depth was less than the three-quarter inch depth of the sidewalk crack found to be trivial in Ursino v. Big Boy Restaurants (1987) 192 Cal.App.3d 394 (Ursino). As for the surrounding circumstances, the court noted Kasparian “admitted in her deposition that she fell at about one-thirty p.m., on a sunny day with no rain, that the area was well lit, that nothing obstructed her view of the drain, and that there was no debris or other foreign material on the ground.”

Although noting the declaration of Kasparian’s expert set forth a different drain depth, the trial court found such differing measurements did not create a factual issue as to the existence of a trivial defect. The court explained “[t]he greatest depth measured by [Kasparian]’s expert is five-sixteenths of an inch, which is only one-sixteenth of an inch more than the one-quarter of a[n] inch measured by [Landlord]’s expert.”

The trial court found irrelevant Kasparian’s argument Landlord owed her a duty to inspect for dangerous conditions and maintain inspection records, because “the evidence shows . . . [Landlord] had no duty to discover, repair, or warn [her] about the drain [for the reason] it was open and obvious and trivial[.]”

The court rejected as unpersuasive Kasparian’s arguments about the impropriety of Landlord’s separate statement and the inapplicability of the “trivial defect” defense.

On December 21, 2006, the trial court entered an order granting Landlord’s summary judgment motion. The order contained these recitals: (1) “The reportedly dangerous condition . . . was both open and obvious and constituted a trivial defect. [Landlord] breached no duty to [Kasparian]. This determination is based upon the papers submitted by both parties in connection with the motion [and] upon the holding in Ursino. . . .”; (2) Landlord’s “inspection practices were irrelevant because there was no duty to warn as there was no defective condition; [Kasparian]’s purported distinction that this case does not involve a ‘crack’ is not supported by any citation to law”; and (3) “The condition at issue, as a matter of law and fact did not constitute a dangerous condition and the purported difference in measurements as asserted by the experts who presented declarations did not create or illustrate a ‘defect’ beyond a trivial defect.” {Slip Opn. Page 7}

DISCUSSION

I. STANDARD OF REVIEW

A “motion for summary judgment shall be granted if all the papers submitted show that there is no triable issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law.” fn. 5 The trial court’s grant of summary judgment is subject to de novo review. We independently determine whether the parties have met their respective burdens and whether no triable issue of material fact exists and the moving party is entitled to judgment as a matter of law. fn. 6

A moving defendant may prevail by presenting evidence conclusively negating an element of the plaintiff’s cause of action or, alternatively, the defendant may present evidence to “show[ ] one or more elements of the cause of action . . . cannot be established” by the plaintiff. fn. 7

In order to meet the initial burden, “the defendant must present evidence that would preclude a reasonable trier of fact from finding . . . it was more likely than not . . . the material fact was true [citation], or the defendant must establish . . . an element of the claim cannot be established, by presenting evidence . . . the plaintiff ‘does not possess and cannot reasonably obtain, needed evidence.’ [Citation.]” fn. 8 Once this burden has been met, the burden shifts to the plaintiff to demonstrate through specific facts, not simply allegations in the pleadings, the existence of a triable material factual issue as to the cause of action. fn. 9 {Slip Opn. Page 8}

As a reviewing court, we consider the evidence presented in the light most favorable to the opposing party, liberally construing the opposing party’s evidence and strictly scrutinizing the moving party’s. fn. 10 We are not bound by the trial court’s stated reasons or rationales. (Citation.)” fn. 11 “Summary judgment is a drastic remedy to be used sparingly, and any doubts about the propriety of summary judgment must be resolved in favor of the opposing party. (Citations.)” fn. 12

II. COMPETING AND CONFLICTING EXPERT DECLARATIONS

A. Supporting and Opposing Expert Declarations

In his supporting declaration, Carl Sheriff, Landlord’s “reconstruction and safety expert/consultant,” fn. 13 opined “the subject paver-drain configuration does not pose an unreasonable risk of harm to someone exercising due care in traversing the subject walkway. It is further my professional opinion that the imbedding of the drain in the subject concrete paver walkway is not a defect at all, but rather, is the preferred and proper method of installing a walkway drain.”

Based on his personal inspection of the subject site, Sheriff concluded the drain in question was “of metal composition, flat on its upper surface, and 5 inches in diameter.” The drain was “imbedded in an interlocking concrete brick/paver (’brick pavers’) walkway at a depth of no more than 1/4.” He opined “the imbedding of the subject drain {Slip Opn. Page 9} in the concrete paver walkway at no more than a 1/4″ depth fully complies with all industry guidelines, and meets all industry standards for installation and safety.” He stated “[t]he American Society for Testing & Materials (ASTM), as well as industry standards and product manufacturer(s) installation instructions specify . . . drains placed in concrete brick paver walkways, the exact type of walkway that is at issue in this case, are to be installed 1/8″ to 1/4″ below the surface of the surrounding concrete brick pavers.”

Attached as Exhibit 2 to his declaration were copies of photographs he had taken of the drain, including his measurement of the depression caused by the drain, and of the surrounding area.

Sheriff further stated he had “reviewed the inspection records of the Glendale Department of Building and Safety . . . And determined . . . the entire Avalon Glendale apartment complex was approved by GDBS for code compliance and safety prior to its opening for business.”

Kasparian relied on declarations from two other experts to counter Sheriff’s declaration. Kasparian’s “floor safety expert and consultant,” Kenneth D. Newsome disagreed with Sheriff’s opinion and conclusion “‘the subject paver-drain configuration does not pose an unreasonable risk of harm’. . . .” fn. 14 Rather, it was Newsome’s “professional opinion . . . the subject recessed drain, taken with the surrounding factors, presents a hazardous condition for someone who is used to being in a walkway where all of the other drain grates are flush to the surrounding surface of the pavers.” fn. 15 {Slip Opn. Page 10}

Newsome stated “[t]he slope to the drain in the walk path is dramatically more severe than that found in customary drains. Moreover, there are no warnings or color distinctions to warn pedestrians of the fact that the drain is recessed. Ms. Kasparian would have a reasonable expectation of safety when walking through this area and the management should [have] recognized this hazardous anomaly.”

Based on his personal inspection of the site, Newsome concluded “[t]he subject drain is of metal composition, flat on its upper surface, and measuring 5 inches in diameter” and the “drain cover is imbedded in an interlocking concrete brick/paver walkway. The hole created for the drain grate is uneven, with heights ranging from 1/32 inch to 5/16 inch. [He] used the Profile Imager to depict the condition. The size and profile of the depression created for the grate varies from one end to the other which poses a safety hazard to pedestrians who do not have any expectation . . . any drain is not flush with the surrounding brick pavers.”

Newsome opined “[t]he existing profile would allow a foot to come to an abrupt stop against a vertical surface that exceeds the standard of care abrupt level change.” He explained “[t]he abrupt change in level here amounts to a hazard per[sic] the California Uniform Building Code and the American with Disabilities Act in that it exceeds 1/4 inch. He stated “ASTEM F 1637, The Americans with Disabilities Act (4.5), and the California Uniform Building Code (1133B.2.4.1) identify any abrupt change in level that exceeds 1/4 inch [as] a hazard. This provision of the Building and Safety Code applies to the location of [Kasparian]’s accident as an apartment building is considered a public building and is covered by occupancy ‘B’ of the . . . Code.”

He opined “[t]he surrounding circumstances of the location of the accident make the area very hazardous given that the drains from a distance appear similar in color to the bricks/pavers; the drains are not distinguishable by color and texture [from] the surrounding pavers; the drains in the area are not all flush with the adjacent brick pavers {Slip Opn. Page 11} which surround the drains; fn. 16 and in the totality of the circumstances cannot be easily detected even in daylight.” He explained “[t]he survey of the other drains immediately near unit 301, on both sides of the drain in question, confirms . . . those drain covers are flush with the brick/paver surface, and the slope to the drain is nearly level unlike the drain in question.” fn. 17

In his opposing declaration, Peter Panossian, a licensed general contractor who had constructed “various apartment complexes and condominium multi-family projects both in and outside of the City of Glendale[,]” stated he was “familiar with the construction industry standards as well as the City of Glendale’s Municipal Code requirements for construction and design of residential dwellings and walkways within such premises.” fn. 18 Panossian opined “the location where Ms. Kasparian fell was not in compliance with the [Glendale] City’s Building Code or standard construction practices in that the drain was not flush with the surrounding brick pavers.”

Panossian explained the code provisions “in effect at the time of [the] accident. . . . applicable to the residential apartment complex where [the] accident occurred . . . , as well as construction industry standards, require . . . any brick pavers installed on a walkway must be flush with any drains placed within the brick pavers.” He {Slip Opn. Page 12} opined “[t]he slightest change in elevation will cause tripping and slipping hazards to users of such premises.”

He stated “all other drains in the immediate vicinity of the drain involved in Ms. Kasparian’s accident are flush with the ground [unlike the drain on which her foot became caught]” and opined this fact “creates a hazard for users of the walkway who have an expectation that all the drains in the walkways will be flush with the surrounding brick pavers.”

Panossian further opined “the location where Ms. Kasparian fell was not in compliance with the City’s Building Code or standard construction practices in that changes in elevation between the drain and the brick pavers should have been made beneath the brick pavers and not between the pavers and the drains.” He explained the code and “construction industry standards . . . require . . . in the event the area around a drain is to be sloped for drainage purposes, the grading must occur beneath the surface of the brick pavers and not between the brick pavers and the surface drains. It is [his] understanding that while the area beneath the brick pavers in question was compacted sand, the grading which occurred was to the surface area as opposed to the subterranean portion which is required by the Building Code.” fn. 19

B. Waiver if No Ruling on Evidentiary Objections

Objections were filed to certain evidence relied on by Kasparian in opposition to its summary judgment motion. Landlord objected to the entirety of Panossian’s declaration “on the grounds it lacks foundation; it is hearsay, it deals with an improper subject of expert opinion; and it is speculative, specifically in reference to the purported applicability of the Glendale Municipal code (none of whose provisions are cited).” As {Slip Opn. Page 13} authority, Landlord cited Caloroso v. Hathaway (2004) 122 Cal.App.4th 922 (Caloroso) and Ursino, supra, 192 Cal.App.3d 394.

Relying on this case authority, Landlord also objected to the entirety of Newsome’s declaration. It objected specifically to paragraphs 9 through 12 of the declaration on the grounds “the declaration lacks foundation[; it] is hearsay[; it] is the improper subject of expert opinion[;] and [it] is speculative, particularly with reference to the Americans with Disability Act, the California Uniform Building Code, ASTMF 1637, and any opinion . . . the drain grate in this case, with surrounding circumstances, constitutes a dangerous condition.”

The trial court never ruled on these objections. Accordingly, whether these objections are meritorious is a matter not before us, and none of the matters objected to by Landlord is excluded. “[W]here counsel fails to obtain rulings on evidentiary objections to opposition evidence in summary judgment proceedings, the objections are waived and are not preserved for appeal. (Citation.)” fn. 20

III. WHETHER RECESSED DRAIN WAS OPEN AND OBVIOUS REMAINS A DISPOSED ISSUE

The record does not support the trial court’s finding the recessed drain condition was, as a matter of law, open and obvious. In making this finding, the trial court relied on copies of photographs taken by Sheriff, Landlord’s expert, and attached as Exhibit 2 to his declaration.

Whether a trial court’s findings based on its inspection of photographs of the alleged defective condition are conclusive has been addressed in several published cases. In Ursino, the plaintiff suffered a fractured hip, among other injuries, when she allegedly tripped over the raised edge of one section of the defendant’s walkway. In conjunction {Slip Opn. Page 14} with a defense summary judgment motion, the parties stipulated to various facts, including “the edge of the cement section in question was raised no higher than three-fourths of an inch” and “the 32 photographs presented to the trial court accurately depicted the sidewalk in question on the day of the accident.” fn. 21 In granting summary judgment, the trial court concluded in view of the stipulated facts, “reasonable minds could not differ as to the triviality of the defect.” fn. 22 The appellate court stated it had “reviewed the pictures of the sidewalk and agree[d] with the trial court that reasonable minds could not differ and that the defect was in fact trivial.” fn. 23

Similarly, in Caloroso, the appellate court affirmed a summary judgment based on its own review of the photographs relied upon by the trial court. In that case, plaintiff Josephine Caloroso allegedly tripped over a crack in the walkway in front of defendant’s home, which walkway allegedly consisted of “individual concrete slabs” that were “cracked, jagged, and depressed[.]” fn. 24 “It was undisputed that the difference in elevation created by the crack in [defendant]’s walkway was less than half an inch at the highest point.[]” fn. 25 The reviewing court concluded: “Here, the trial court did not abuse its discretion in finding that, in this case, no expert was needed to decide whether the size or irregular shape of the crack rendered it dangerous. The photographs of the crack submitted by both sides demonstrate that the crack is minor and any irregularity in shape is minimal.” fn. 26

We also conclude appellate review of the photographs relied upon by the trial court is subject to a de novo standard and therefore hold: Where the trial court grants summary judgment on the ground, as a matter of law, the alleged defect was open and obvious based on its inspection of photographs, the trial court’s determinations are not {Slip Opn. Page 15} binding on the reviewing court. It is incumbent on the reviewing court to examine the photographs for itself and make its own determinations.

We further conclude in examining photographs, the court, whether the trial or reviewing court, should take into account such factors as: (1) the photograph’s subject (i.e., its focal point); (2) the view of the subject (e.g., close-up, distant, isolated, in context); (3) the photograph’s perspective (e.g., eye-level, overhead, ground-level); (4) the use of any plain-view altering devices (e.g., camera color filter, fish-eye lens, computer-manipulation); (5) the characteristics of the photograph (e.g., sharp and clear, blurry, grainy, color or black and white); (6) whether the photograph was taken under identical or substantially similar conditions (e.g., timing, lighting, weather); and (7) any other relevant circumstances (e.g., addition of extrinsic aids, such as a ruler or pointer).

As a reviewing court, we thus are obligated to examine anew the photographs relied upon by the trial court mindful of the above factors and reach our own independent conclusions, which we now do.

The trial court’s finding of the open and obvious recessed nature of the drain is contrary to, and cannot be harmonized with, our examination of the same photographic evidence. Thus, contrary to the appellate court’s review of the photographic evidence the trial courts found conclusive in Ursino and Caloros, fn. 27 our review of the photographs here leads to a contrary result. Based on the photographic evidence before the trial judge in this case, we find reasonable minds could differ as to whether this defect was trivial or open and obvious. Consequently, a triable issue remains and summary judgment cannot be predicated on the photographs on which the trial court relied. {Slip Opn. Page 16}

In his declaration, Sheriff stated he personally took the photographs in Exhibit 2, which depict “the subject drain that [Kasparian] identified in her deposition as being the drain that was the site and cause of her fall; the area immediately surrounding the subject drain;” and “the measurements [he] took of the depression caused by the subject drain.”

Exhibit 2 consists of black and white copies of five photographs. The first appears to be an overview of a walkway or path between two curving, walled, and raised planter areas. No drain in the walkway is visible. The second is a photograph of the round drain in the walkway taken from the perspective of someone a short distance away from the drain. The drain and the surrounding portion of the walkway are in the shadow of what appears to be some sort of dense foliage. The outlines of the drain appear blurred, and no depression or defect can be ascertained. The third photograph was taken at ground level and depicts a ruler stuck vertically into the drain. From this angle and perspective, the viewer is able to observe the drain surface appears recessed in an uneven, jagged manner. The fourth photograph is an overhead shot of the drain as set into the walkway. From this perspective, the drain appears level with the walkway. The fifth photograph is similar to the first in that it depicts an overview of the walkway between two curving, walled, and raised planter areas. The drain also is not visible in this photograph. fn. 28

Additionally, these photographic depictions, especially of the drain, are of poor quality and fail to reveal the recessed nature of the drain, except for the photograph taken at ground level in which a ruler was stuck into the recessed area of the drain. These pictures thus have no evidentiary value on the issue of whether the recessed character of the drain was open and obvious from a pedestrian’s point of view.

Summary judgment cannot be based on photographs where the reviewing court concludes either reasonable minds might differ as to whether the photographs correctly depict the alleged defect and the surrounding circumstances or when the photographs lack {Slip Opn. Page 17} any probative value on the issue of whether the defect was open and obvious. The trial court therefore erred to the extent it granted summary judgment based on its finding the subject photographs revealed, as a matter of law, the recessed nature of the drain was open and obvious.

The trial court also found Kasparian knew of the recessed drain, because her deposition testimony revealed she had seen the drain prior to the date of her fall. The fact Kasparian had observed this particular drain previously is itself of little evidentiary value. Kasparian also testified she did not recall ever having stepped on that drain in the past. Kasparian did not testify she was aware the drain was recessed. The trial court’s reliance on Kasparian’s deposition testimony thus is misplaced and provides no support for its finding, as a matter of law, the recessed nature of the drain was open and obvious.

IV. TRIVIAL DEFECT DOCTRINE DOES NOT WARRANT SUMMARY JUDGMENT

A. Trivial Defect Doctrine

“In summary, persons who maintain walkways, whether public or private, are not required to maintain them in an absolutely perfect condition. The duty of care imposed on a property owner, even one with actual notice, does not require the repair of minor defects.” fn. 29 Although sometimes referred to as the trivial defect defense, the trivial defect doctrine is “”not an affirmative defense but rather an aspect of duty . . . plaintiff must plead and prove.” fn. 30

The trivial defect doctrine originated to shield public entities from liability where conditions on public property create a risk “of such a minor, trivial or insignificant nature in view of the surrounding circumstances . . . no reasonable person would conclude that the condition created a substantial risk of injury when such property or adjacent property {Slip Opn. Page 18} was used with due care in a manner in which it was reasonably foreseeable that it would be used.” fn. 31 This doctrine “permits a court to determine ‘triviality’ as a matter of law rather than always submitting the issue to a jury [and] provides a check valve for the elimination from the court system of unwarranted litigation which attempts to impose upon a property owner what amounts to absolute liability for injury to persons who come upon the property.” fn. 32 The trivial defect doctrine has been expanded to embrace actions against private landowners. fn. 33

B. Trivial Defect Doctrine Factors

“[W]hen a court determines whether a given defect is trivial, as a matter of law, the court should not rely merely upon the size of the depression. While size may be one of the most relevant factors to the decision, it is not always the sole criteria. Instead, the court should determine whether there existed any circumstances surrounding the accident which might have rendered the defect more dangerous than its mere abstract depth would indicate. As such, the court should view the intrinsic nature and quality of the defect to see if, for example, it consists of the mere nonalignment of two horizontal slabs or whether it consists of a jagged and deep hole. The court should also look at other factors such as whether the accident occurred at night in an unlighted area. Furthermore, the court should see if there is any evidence that other persons have been injured on this same defect.” fn. 34

If the “court determines . . . sufficient evidence has been presented so that reasonable minds may differ as to whether the defect is dangerous, the court may not {Slip Opn. Page 19} rule . . . the defect is not dangerous as a matter of law.” fn. 35 Conversely, where “the only evidence available on the issue of dangerousness does not lead to the conclusion . . . reasonable minds may differ, then it is proper for the court to find . . . the defect was trivial as a matter of law.” fn. 36

Moreover, “‘[a]s to what constitutes a dangerous or defective condition no hard and fast rule can be laid down, but each case must depend upon its own facts.’ (Citation.)” fn. 37

C. Trivial Defect Doctrine Does Not Warrant Summary Judgment

The trial court alternatively granted summary judgment in favor of Landlord based on the trivial defect doctrine. This was error. Contrary to the court’s conclusion, material factual issues remain regarding whether the recessed nature of the drain when viewed in the context of the surrounding circumstances gave rise to a hazardous condition.

In finding the trivial defect doctrine controlled, the trial court focused solely on the depth of the recession and on Kasparian’s deposition testimony about nothing obstructing her view of the drain; the absence of debris or other foreign material on the ground; and the lighting conditions, namely, she fell on a sunny afternoon in a well-lit area. This focus was too narrow. fn. 38 {Slip Opn. Page 20}

According to Kasparian’s expert Newsome, “[t]he hole created for the drain grate is uneven, with heights ranging from 1/32 inch to 5/16 inch.” fn. 39 He opined “[t]he size and profile of the depression created for the grate varies from one end to the other which poses a safety hazard to pedestrians who do not have any expectation that any drain is not flush with the surrounding brick pavers.”

Newsome stated “[t]he survey of the other drains immediately near unit 301, on both sides of the drain in question, confirms . . . those drain covers are flush with the brick/paver surface, and the slope to the drain is nearly level unlike the drain in question.” He added “[t]he slope to the drain . . . is dramatically more severe than that found in customary drains. Moreover, there are no warnings or color distinctions to warn pedestrians of the fact that the drain is recessed.” He opined “[t]he surrounding circumstances of the location of the accident make the area very hazardous given . . . the drains from a distance appear similar in color to the bricks/pavers”; “the drains are not distinguishable by color and texture [from] the surrounding pavers”; and “in the totality of the circumstances [they] cannot be easily detected even in daylight.”

Similarly, Panossian, Kasparian’s other expert, stated in his declaration “all other drains in the immediate vicinity of the drain involved in Ms. Kasparian’s accident are flush with the ground [unlike the drain on which her foot became caught]” and opined this fact “creates a hazard for users of the walkway who have an expectation . . . all the drains in the walkways will be flush with the surrounding brick pavers.”

The trial court noted Sheriff, Landlord’s expert, opined the drain was embedded in the walkway in the manner required by industry guidelines. Inexplicably, the court failed to take into account the contrary opinions of Newsome and Panossian in their opposing expert declarations. {Slip Opn. Page 21}

Sheriff stated “[t]he American Society for Testing & Materials (ASTM), as well as industry standards and product manufacturer(s) installation instructions specify . . . drains placed in concrete brick paver walkways, the exact type of walkway that is at issue in this case, are to be installed 1/8″ to 1/4″ below the surface of the surrounding concrete brick pavers.”

In stark contrast, Newsome opined “[t]he abrupt change in level here amounts to a hazard per[sic] the California Uniform Building Code and the American with Disabilities Act in that it exceeds 1/4 inch. Panossian opined “the location where Ms. Kasparian fell was not in compliance with the City’s Building Code or standard construction practices in that the drain was not flush with the surrounding brick pavers.” He also opined “the location where [she] fell was not in compliance with the City’s Building Code or standard construction practices in that changes in elevation between the drain and the brick pavers should have been made beneath the brick pavers and not between the pavers and the drains.”

In view of the competing, conflicting evidence presented by these experts, the trial court was foreclosed from relying on the trivial defect doctrine to grant summary judgment in favor of Landlord.

DISPOSITION

The judgment is reversed with directions to vacate the order granting summary judgment and enter a new order denying summary judgment. Kasparian is awarded costs on appeal.

Woods, J., and Zelon, J., concurred.

­FN 1. An appeal lies from the judgment, not from an order granting a summary judgment motion. (Code Civ. Proc., § 437c, subd. (m)(1); Saben, Earlix & Associates v. Fillet (2005) 134 Cal.App.4th 1024, 1030.) The notice of appeal recites Kasparian “appeals from the Judgment . . . entered on December 21, 2006[.]” Although an “Order Granting Motion for Summary Judgment” was filed that date, judgment was not entered until September 18, 2007. We deem the appeal to be from the judgment. (See, e.g., Aguilar v. Universal City Studios, Inc. (1985) 174 Cal.App.3d 384, 387, fn. 1 [appeal from order deemed appeal from subsequent judgment]; Cal. Rules of Court, rule 8.100(a)(2) [notice of appeal, which must be liberally construed, “sufficient if it identifies the particular judgment or order being appealed”].)

­FN 2. This disposition obviates the need to address Kasparian’s remaining claims of error.

­FN 3. Kasparian had been walking with a cane for 20 years but “used it just for more or less distances[,]” such as from her apartment to the garage.

­FN 4. Landlord also moved alternatively for summary adjudication on the first cause of action (negligence); the second cause of action (premises liability); and on certain affirmative defenses, i.e., seventh (dangerous condition open and obvious and known to Kasparian); tenth (condition trivial as a matter of law); and eleventh (Landlord not on notice due to trivial nature of alleged defect and other circumstances ).

­FN 5. Code Civ. Proc., § 437c, subd. (c).

­FN 6. Intel Corp. v. Hamidi (2003) 30 Cal.4th 1342, 1348; Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 334; Galanty v. Paul Revere Life Ins. Co. (2000) 23 Cal.4th 368, 374.

­FN 7. Code Civ. Proc., § 437c, subd. (p)(2); Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 853 (Aguilar).

­FN 8. Kahn v. East Side Union High School Dist. (2003) 31 Cal.4th 990, 1002-1003.

­FN 9. Code Civ. Proc., § 437, subd. (p)(2); Aguilar, supra, 25 Cal.4th at page 849.

­FN 10. O’Riordan v. Federal Kemper Life Assurance Co. (2005) 36 Cal.4th 281, 284.

­FN 11. Mateel Environmental Justice Foundation v. Edmund A. Gray Co. (2003) 115 Cal.App.4th 8, 17.

­FN 12. Mateel Environmental Justice Foundation v. Edmund A. Gray Co., supra, 115 Cal.App.4th at page 17.

­FN 13. Sheriff set forth the particulars concerning his licensure, professional education, and experience as an expert and attached his “Curriculum Vitae” as an exhibit. He also stated he had inspected the site on two occasions and described the evidentiary matters upon which he relied.

­FN 14. Newsome set forth the particulars concerning his licensure, professional education, and experience as an expert and attached his “Curriculum Vitae” as an exhibit. He also stated he had inspected the site on one occasion and described the evidentiary matters upon which he relied.

­FN 15. Newsome also opined “the property owner should have in place a uniform system of inspections of the premises; a uniform system in place for recordation of complaints or defects in a given location on the premises; and a uniform system for preserving inspection records.” He stated “[t]he evidence reviewed in this case confirms [Landlord] did not have a uniform system in place for recordation of complaints or defects observed; nor did [Landlord] have a uniform system in place for preserving inspection records.”

­FN 16. The word “not” appears to be an inadvertent misstatement. Its use conveys exactly the opposite of what was meant. When viewed in context, the statement Newsome clearly intended to make was the drains cannot be easily detected even in daylight, because the drains are all flush (rather than “not all flush”) with the adjacent brick pavers which surround the drains. This conclusion is confirmed by Newsome’s follow-up reference to the drains being flush with the brick/paver surface.

­FN 17. The record does not contain Exhibit “‘B’” to Newsome’s declaration, which was comprised of copies of photographs Newsome had taken of the subject drain, including measurement of the depression caused by the drain, and of the surrounding area “as well as a slope profile as depicted by the Profile Imager.”

­FN 18. Panossian described his licensure, education, and experience in his field. He listed the evidentiary matters he relied upon and specifically stated he was “familiar with the Glendale Municipal Codes which apply to building and construction generally . . . which were in effect at the time of Ms. Kasparian’s accident and which would have been applicable to the residential apartment complex where [her] accident occurred.”

­FN 19. Panossian also opined “[i]t is common for brick pavers to become loose, dislodged or wobbly with the passage of time. An appropriate method of routine and frequent inspections of the pavers is necessary so as to ensure that the pavers do not pose any hazards to pedestrians after they are first installed.”

­FN 20. Madden v. Del Taco, Inc. (2007) 150 Cal.App.4th 294, 301, citing Ann M. v. Pacific Plaza Shopping Center (1993) 6 Cal.4th 666, 670, at footnote 1; cf. Caloroso, supra, 122 Cal.App.4th 922, 926 (lack of foundation, speculation, and improper subjects for expert opinion objections sustained).

­FN 21. Ursino, supra, 192 Cal.App.3d at pages 395-396.

­FN 22. Ursino, supra, 192 Cal.App.3d at page 397.

­FN 23. Ursino, supra, 192 Cal.App.3d at page 397.

­FN 24. Caloroso, supra, 122 Cal.App.4th at page 925.

­FN 25. Caloroso, supra, 122 Cal.App.4th at page 927, footnote omitted.

­FN 26. Caloroso, supra, 122 Cal.App.4th at page 928.

­FN 27. Cf. Caloroso, supra, 122 Cal.App.4th 922, 928 [whether size or irregular shape of crack rendered it dangerous not subject to expert testimony where photographs of crack submitted by both sides demonstrated crack minor and any irregularity in shape minimal]; Ursino, supra, 192 Cal.App.3rd 394, 397 [appellate court “reviewed the pictures of the sidewalk and agree[d] with the trial court . . . reasonable minds could not differ and . . . the defect was in fact trivial”].

­FN 28. We note a small irregular pale splotch on the walkway near the left planter area but are unable to discern its nature, e.g., a defect in the photograph itself or some unknown object.

­FN 29. Ursino, supra, 192 Cal.App.3d at page 398.

­FN 30. Caloroso, supra, 122 Cal.App.4th at page 927.

­FN 31. Gov.Code, § 830.2.

­FN 32. Ursino, supra, 192 Cal.App.3d 394, 399.

­FN 33. See, e.g., Caloroso, supra, 122 Cal.App.4th at page 927; Ursino, supra, 192 Cal.App.3d at page 398.

­FN 34. Fielder v. City of Glendale (1977) 71 Cal.App.3d 719, 734 (Fielder); accord, Caloroso, supra, 122 Cal.App.4th at page 927; Dolquist v. City of Bellflower (1987) 196 Cal.App.3d 261, 267 (Dolquist); Ursino, supra, 192 Cal.App.3d at page 397.

­FN 35. Fielder, supra, 71 Cal.App.3d at page 734.

­FN 36. Fielder, supra, 71 Cal.App.3d at page 734.

­FN 37. Dolquist, supra, 196 Cal.App.3d 261, 268, quoting Fackrell v. City of San Diego (1945) 26 Cal.2d 196, 206.

­FN 38. In Dolquist, supra, 196 Cal.App.3d 261, this court found unpersuasive the “argument that since the protrusion of the rebar (steel reinforcement) that caused appellant’s fall was a quarter of an inch above the concrete surface, it only constituted a ‘trivial defect’.” (Id. at 268.) We explained “application of a strict tape measure approach to determine whether a defect is trivial as a matter of law, disregards the fact that other factors and circumstances involved in a particular case could very well result in an entirely different conclusion from one arrived at by simply measuring the size of a defect.” (Ibid.) We also noted the occurrence of the accident “in broad daylight” is not material where “there is a conflict as to whether appellant saw the rod as she crossed over the abutment . . . or whether if she did see it, it looked flush to her[.]” (Id. at 269.)

­FN 39. See Caloroso, supra, 122 Cal.App.4th at page 927 [”Apart from the size of the defect, the court should consider whether the walkway had any . . . jagged edges.”].)

Home Insurers’ Secret Tactics Cheat Fire Victims, Hike Profits

By David Dietz and Darrell Preston

Aug. 3 (Bloomberg) — Julie Tunnell remembers standing in her debris-strewn driveway when the tall man in blue jeans approached. Her northern San Diego tudor-style home had been incinerated a week earlier in the largest wildfire in California history. The blaze in October and November 2003 swept across an area 19 times the size of Manhattan, destroying 2,232 homes and killing 15 people.

Now came another blow. A representative of State Farm Mutual Automobile Insurance Co., the largest home insurer in the U.S., came to the charred remnants of Tunnell’s home to tell her the company would pay just $220,000 of the estimated $306,000 cost of rebuilding the house.

“It was devastating; I stood there and cried,” says Tunnell, 42, who teaches accounting at San Diego City College. “I felt absolutely abandoned.”

Tunnell joined thousands of people in the U.S. who already knew a secret about the insurance industry: When there’s a disaster, the companies homeowners count on to protect them from financial ruin routinely pay less than what policies promise.

Insurers often pay 30-60 percent of the cost of rebuilding a damaged home — even when carriers assure homeowners they’re fully covered, thousands of complaints with state insurance departments and civil court cases show.

Paying out less to victims of catastrophes has helped produce record profits. In the past 12 years, insurance company net income has soared — even in the wake of Hurricane Katrina, the worst natural disaster in U.S. history.

Highest-Ever Profits

Property-casualty insurers, which cover damage to homes and cars, reported their highest-ever profit of $73 billion last year, up 49 percent from $49 billion in 2005, according to Highline Data LLC, a Cambridge, Massachusetts-based firm that compiles insurance industry data.

The 60 million U.S. homeowners who pay more than $50 billion a year in insurance premiums are often disappointed when they discover insurers won’t pay the full cost of rebuilding their damaged or destroyed homes.

Property insurers systematically deny and reduce their policyholders’ claims, according to court records in California, Florida, Illinois, Mississippi, New Hampshire and Tennessee.

The insurance companies routinely refuse to pay market prices for homes and replacement contents, they use computer programs to cut payouts, they change policy coverage with no clear explanation, they ignore or alter engineering reports, and they sometimes ask their adjusters to lie to customers, court records and interviews with former employees and state regulators show.

`It’s Despicable’

As Mississippi Republican U.S. Senator Trent Lott and thousands of other homeowners have found, insurers make low offers — or refuse to pay at all — and then dare people to fight back.

“It’s despicable not to make good-faith offers to everybody,” says Robert Hunter, who was Texas insurance commissioner from 1993 to 1995 and is now insurance director at the Washington-based Consumer Federation of America.

“Money managers have taken over this whole industry,” Hunter says. “Their eyes are not on people who are hurt but on the bottom line for the next quarter.”

The industry’s drive for profit has overwhelmed its obligation to policyholders, says California Lieutenant Governor John Garamendi, a Democrat. As California’s insurance commissioner from 2002 to 2006, Garamendi imposed $18.4 million in fines against carriers for mistreating customers.

“There’s a fundamental economic conflict between the customer and the company,” he says. “That is, the company doesn’t want to pay. The first commandment of insurance is, `Thou shalt pay as little and as late as possible.”’

Allstate Hires Consultant

Although the tension between insurers and their customers has long existed, it was in the 1990s that the industry began systematically looking for ways to increase profits by streamlining claims handling.

Hurricane Hugo was a major catalyst. The 1989 storm, which battered North and South Carolina, left the industry reeling from $4.2 billion in claims.

In September 1992, Allstate Corp., the second-largest U.S. home insurer, sought advice on improved efficiency from McKinsey & Co., a New York-based consulting firm that has advised many of the world’s biggest corporations, according to records in at least six civil court cases.

State Farm, based in Bloomington, Illinois, and Los Angeles-based Farmers Group Inc., the third-largest home insurer in the U.S., also hired McKinsey as a consultant, court records show.

`Boxing Gloves’

McKinsey produced about 13,000 pages of documents, including PowerPoint slides, in the 1990s, for Northbrook, Illinois-based Allstate. The consulting firm developed methods for the company to become more profitable by paying out less in claims, according to videotaped evidence presented in Fayette Circuit Court in Lexington, Kentucky, in a civil case involving a 1997 car accident.

One slide McKinsey prepared for Allstate was entitled “Good Hands or Boxing Gloves,” the tape of the Kentucky court hearing shows. For 57 years, Allstate has advertised its employees as the “Good Hands People,” telling customers they will be well cared for in times of need.

The McKinsey slides had a new twist on that slogan.

When a policyholder files a claim, first make a low offer, McKinsey advised Allstate. If a client accepts the low amount, Allstate should treat the person with good hands, McKinsey said. If the customer protests or hires a lawyer, Allstate should fight back.

“If you don’t take the pittance they offer, they’re going to put on the boxing gloves and they’re going to batter injured victims,” plaintiffs attorney J. Dale Golden told Judge Thomas Clark at the May 12, 2005, hearing in which the lawyer introduced the McKinsey slides.

The Alligator

One McKinsey slide displayed at the Kentucky hearing featured an alligator with the caption “Sit and Wait.” The slide says Allstate can discourage claimants by delaying settlements and stalling court proceedings.

By postponing payments, insurance companies can hold money longer and make more on their investments — and often wear down clients to the point of dropping a challenge. “An alligator sits and waits,” Golden told the judge, as they looked at the slide describing a reptile.

McKinsey’s advice helped spark a turnaround in Allstate’s finances. The company’s profit rose 140 percent to $4.99 billion in 2006, up from $2.08 billion in 1996. Allstate lifted its income partly by paying less to its policyholders.

`Stars in Alignment’

Allstate spent 58 percent of its premium income in 2006 for claim payouts and the costs of the process compared with 79 percent in 1996, according to filings with the U.S. Securities and Exchange Commission.

The payout expense, called a loss ratio, changes each year based on events such as natural disasters; overall, it’s been decreasing since Allstate hired McKinsey.

Investors have noticed. Allstate’s stock price jumped fourfold to $60.95 on July 11 from its closing price on June 3, 1993, the day of its initial public offering. During the same period, the Standard & Poor’s 500 Index rose threefold.

State Farm’s profits have doubled since 1996 to $4.8 billion in 2006. Because State Farm is a mutual company, meaning it’s owned by its policyholders, it doesn’t have shares that trade publicly.

“This is about as good a stretch as I’ve seen,” says Michael Chren, who manages $1.5 billion at Allegiant Asset Management Co. in Palm Beach Gardens, Florida, and has followed the property-casualty industry for 20 years.

The industry’s performance during the past five years has been superb, even with payouts for Katrina, he says. “All the stars have been in alignment,” he says. “There has been decent pricing of products and an extremely attractive and very low loss ratio.”

`More Audacious’

Reducing payouts is just one way the industry has improved profits.

Carriers have also raised premiums and withdrawn from storm-plagued areas such as the Gulf Coast of the U.S. and parts of Long Island, New York — to lower costs and increase income, says Amy Bach, executive director of United Policyholders, a San Francisco-based group that advises consumers on insurance claims.

“What this says is that the industry has been raking in spectacular profits while they’re getting more and more audacious in their tactics,” she says.

Allstate spokesman Michael Siemienas says the company won’t comment on what role McKinsey played in lowering the insurer’s loss ratio and boosting its profits. Allstate did change the way it handles homeowners’ insurance claims, he says.

`Absolutely Sound’

“In the early 1990s, Allstate redesigned its claims practices to more efficiently and effectively handle claims and better serve our customers,” he says.

“Allstate’s goal remains the same: to investigate, evaluate and promptly resolve each claim based on its merits,” Siemienas says. “Allstate believes its claim processes support this goal and are absolutely sound.”

McKinsey doesn’t discuss any of its work for clients, spokesman Mark Garrett says.

Jerry Choate, Allstate’s chief executive officer from 1995 to 1998, said at a news conference in New York in 1997 that the company’s new claims-handling process had reduced payments and increased profit, according to a report in a March 1997 edition of National Underwriter magazine.

Insurers can’t make significantly more money just from cutting sales costs, he told reporters. “The leverage is really on the claims side,” Choate said. “If you don’t win there, I don’t care what you do on the front end. You’re not going to win.”

The more cash insurers can keep from premiums, the more they can invest. This pool of assets — most of which the companies invest in government and corporate bonds — is known as float.

`Better Than Free’

“Simply put, float is money we hold that is not ours but which we get to invest,” billionaire Warren Buffett, CEO of Berkshire Hathaway Inc., wrote in his annual letter to shareholders this year. “When an insurer earns an underwriting profit, float is better than free,” he wrote in 2006.

Omaha, Nebraska-based Berkshire Hathaway generated 51 percent of its $11 billion profit in 2006 from insurance.

Claims payouts for the entire property-casualty industry have decreased in the past decade. In 2006, carriers paid out 55 percent of the $435.8 billion in premiums collected, according to the Insurance Information Institute, a trade group in New York.

That compares with a 64 percent payout ratio on $267.6 billion in premium revenue in 1996. As companies pay less to policyholders, their investment gains are growing, according to the trade group and research firm A.M. Best Co. in Oldwick, New Jersey.

`Purpose Evaporating’

The industry has increased profits by an annual average of 46 percent since 1994, Institute data show. In 2006, carriers invested $1.2 trillion and recorded a net gain of $52.3 billion, up from $713.5 billion invested for a gain of $39.1 billion in 1994.

Insurance companies are no longer following their mandate to take care of policyholders’ money and then pay it out when needed, says Douglas Heller, executive director of the nonprofit Foundation for Taxpayer and Consumer Rights in Santa Monica, California.

“The whole purpose of insurance is evaporating before our eyes as we continue to send checks to the companies,” Heller says. “Insurers are looking to shed their purpose as a risk bearer and become financial institutions.”

That kind of criticism is unwarranted, says Robert Hartwig, chief economist at the Insurance Information Institute. He says about 1 percent of policyholders contest what they’re offered.

`Justifiably Proud’

“The insurance industry can be justifiably proud of its performance,” Hartwig says. “It’s in the insurance industry’s best interests to settle claims as fairly and as rapidly as possible.”

Companies have sharpened the use of technology in the past 20 years to help tighten claims payouts.

Insurers following McKinsey’s advice on claims processing have adopted computer programs with names such as Colossus and Xactimate.

Colossus, made by El Segundo, California-based Computer Sciences Corp., calculates the cost of treating people injured in auto accidents, including the degree of pain and suffering they’ll endure and any permanent impairment they may have, according to Computer Sciences’ Web site.

Xactimate, made by Xactware Solutions Inc. of Orem, Utah, is a program that estimates the cost of rebuilding a home.

`Designed to Underpay’

Insurers sometimes manipulate these programs to pay out as little as possible, lawsuits have asserted. “Programs like Colossus are designed to systematically underpay policyholders without adequately examining the validity of each individual claim,” former Texas insurance commissioner Hunter told the U.S. Senate Committee on Commerce, Science and Transportation on April 11.

He also criticized Xactimate. “If you don’t accept their offer, which is a low ball, you end up in court,” Hunter said. “And that was the recommendation of McKinsey.”

Computer Sciences and Xactware declined to comment.

Farmers Group, a subsidiary of Zurich Financial Services AG, agreed in 2005 to stop using Colossus to evaluate claims filed by policyholders who have accidents with uninsured or underinsured drivers.

The move was part of a $40 million settlement in a class- action lawsuit in Pottawatomie County District Court in Oklahoma in which the plaintiffs claimed the company had repeatedly and wrongly failed to pay enough for crash injuries.

`A Toothy Grin’

An internal e-mail introduced in the Farmers lawsuit shows the company had pressured its adjusters, whom it calls claims representatives, or CRs, to pay out smaller amounts — and rewarded them when they did.

“As you know, we have been creeping up in settlements,” David Harding, a Farmers claims manager, wrote in an e-mail to employees on Nov. 20, 2001. “Our CRs must resist the temptation of paying more just to move this type file. Teach them to say, `Sorry, no more,’ with a toothy grin and mean it.”

Harding praised a worker for making low settlements. “It can be done as Darren consistently does,” he wrote. “If he keeps this up during 2002, we will pay him accordingly.”

Farmers said in court papers that it didn’t seek to pay less than customers were due. “The e-mail speaks for itself,” Farmers wrote. “Plaintiff’s characterization of it is denied.”

`More Efficient’

Edward Rust Jr., CEO of State Farm, testified in a 2006 civil case that his company revamped its claims handling through a project called ACE, or Advanced Claims Excellence. McKinsey suggested the use of ACE, according to evidence presented in the district court of Grady County, Oklahoma.

“Technology has allowed us to really streamline our claim organization to be more efficient and responsive,” Rust testified. He said the company wanted to cut expenses for claims.

In the Oklahoma case, Bridget and Donald Watkins, whose Grady County house was destroyed during a tornado in 1999, accused State Farm of misrepresenting the damage from the storm and won a $12.9 million judgment in May 2006. Watkins and State Farm agreed to an undisclosed settlement after the judgment.

Hunter, who also headed the federal flood insurance program under Presidents Gerald Ford and Jimmy Carter, told Congress that Allstate, with McKinsey’s guidance, gave the name Claim Core Process Redesign to its strategy to change payout practices.

As pervasive as computers have become in insurance, the key actor in settling claims is still the adjuster, the person who talks to policyholders and decides how much they should be paid.

`Told To Lie’

Allstate has asked adjusters to deceive customers, says Jo Ann Katzman, who worked as a claims adjuster for Allstate in 2002 and 2003. She says managers regularly came to her office in Farmington Hills, Michigan, to give pep talks on keeping claim payments down.

They awarded prizes such as portable refrigerators to adjusters who tried to deny claims by blaming fires on arson without justification, she says. “We were told to lie by our supervisors,” says Katzman, 49, who quit by taking a company buyout in 2003. “It’s tough to look at people and know you’re lying.”

Katzman says an adjuster at Allstate, on orders from a supervisor, told an 89-year-old Detroit fire victim that Allstate wouldn’t replace cabinets in her home even though the insurance policy said they were covered.

In another case, Katzman says Allstate wouldn’t replace a fire-damaged refrigerator — an appliance she says was covered. Katzman now runs Accurate Estimating Services, an independent adjusting company in Bloomfield Hills, Michigan.

Allstate’s Siemienas declined to comment on Katzman’s statements.

Punitive Damages

Insurers sometimes order employees to offer replacement cost settlements that have no connection to actual prices of home contents, according to testimony in a civil trial.

A jury in November 2005 awarded Larry Stone and Linda Della Pelle $5.2 million in punitive damages and $616,000 to construct a new house after finding that Fidelity National Insurance Co. of Jacksonville, Florida, had underpaid the couple by $183,000 when it offered them $433,000 to rebuild their two-story Claremont, California, residence.

During the trial in Los Angeles Superior Court, Ricardo Echeverria, the couple’s attorney, questioned Kenneth Drake, president of Canyon Country, California-based RJG Construction Inc., who had been hired by Fidelity’s lawyers to evaluate damage estimates.

`Do You Think That’s Fair?’

“Are you telling us that sometimes, because the insurance carriers dictate what amounts they are willing to allow for unit costs, estimators then have to comply with that?” asked Echeverria, according to the court transcript.

“That’s absolutely true,” Drake said.

“Do you think that’s fair?” Echeverria asked.

“Fair or not, it’s the name of our business,” Drake said.

Drake declined to comment on his testimony. Fidelity is appealing the award.

A New Hampshire case involving a home destroyed in a fire exposed another insurance company tactic: changing a policy retroactively.

In April 2003, the Rockingham county attorney in Kingston, New Hampshire, found that a unit of Hartford Financial Services Group Inc. had deleted the replacement cost portion of the homeowner’s policy of Terry Bennett after his five-bedroom house burned to the ground in 1993.

`Wrong End’

Bennett, a physician, sued Twin City Fire Insurance Co., claiming his home and its contents — including antiques and fine art — were worth $20 million, not the $1.7 million the insurer paid him. After an 11-year battle, he settled with Hartford in 2004 for an undisclosed amount.

“Fighting an insurance company is like staring down the wrong end of a cannon,” Bennett says.

An unprecedented number of people stared down that cannon after Hurricane Katrina. The August 2005 storm killed more than 1,600 people in Louisiana and Mississippi, left 500,000 people homeless and cost insurers $41.1 billion.

More than 1,000 homeowners sued their insurers in the wake of the storm — the largest-ever number of insurance lawsuits stemming from a U.S. natural disaster.

For insurers, the multibillion-dollar question regarding Katrina was how much of the destruction was caused by wind and how much by water. Property insurance policies don’t cover damage caused by flooding; homeowners have to purchase separate insurance administered by the U.S. government.

Altering Reports

The wind/water issue has spurred allegations that insurers manipulated the findings of adjusters and engineers.

Ken Overstreet, an engineer based in Diamondhead, Mississippi, who examined destroyed Gulf Coast residences, says someone altered his findings on the cause of the damage to at least four homes.

“We were working for insurance companies, and they wanted certain results,” says Overstreet, who has been a licensed civil engineer since 1981. “They wanted to get a desired outcome, and that’s what they did.”

Overstreet, who was working for Houston-based Rimkus Consulting Group Inc., prepared a report on the Gulfport, Mississippi, home of Hubert and Joyce Smith for Meritplan Insurance Co. The engineer found that both wind and water had damaged the house.

“The winds out of the east would have racked the entire structure to the west and simply lifted the footings up,” he wrote.

Rejected

Meritplan declined to pay anything to the Smiths, telling them that all of the damage was caused by water. The company sent the Smiths what it said was Overstreet’s engineering report.

“Due to the extent of the structural damage to the residence, the storm surge accounted for the damage,” the report they got said.

The Smiths called Overstreet and asked him to look at what Meritplan had sent them. Overstreet says he looked at both reports side by side and then told the couple that someone had changed his conclusion after his inspection.

“If they defrauded me, how many more did they defraud?” asks Hubert Smith, 88, a retired chiropractor. “There’s a lot of crap going on.”

Six lawsuits against Rimkus allege the company altered engineering reports. “Those allegations are absolutely false,” says Arch Currid, a Rimkus spokesman. “There’s no fact to those claims. We’re going to vigorously defend ourselves in court, and we’re confident we will prevail.”

Lawsuit Settled

Ed Essa, a spokesman for Calabasas, California-based Countrywide Financial Corp., the parent of Meritplan, says the company confidentially settled a lawsuit with the Smiths in March.

Another engineer involved in Katrina, Bob Kochan, CEO of Forensic Analysis & Engineering Corp., says State Farm asked him to redo his reports because the insurer disagreed with the engineers’ conclusions. Kochan sent an Oct. 17, 2005, e-mail to his staff saying State Farm executive Alexis “Lecky” King asked for the changes.

“Lecky told me that she is experiencing this same concern with other engineering companies,” Kochan wrote. “In her words, `They are all too emotionally involved and working too hard to find justifications to call it wind damage.”’

Kochan says he complied so State Farm didn’t cut its contract with his company. “They didn’t like our conclusions,” he says. “We agreed to re-evaluate each of our assignments.”

`Serious Concern’

Randy Down, an engineer at Raleigh, North Carolina-based Forensic, wrote this Oct. 18, 2005, e-mail response to Kochan: “I have a serious concern about the ethics of this whole matter. I really question the ethics of someone who wants to fire us simply because our conclusions don’t match theirs.”

The e-mails were made public in a civil case against State Farm in Jackson, Mississippi.

State Farm spokesman Phil Supple says Kochan’s e-mail comments are out of context. He says sometimes information in engineering reports doesn’t support the conclusions.

One State Farm policyholder in Mississippi was Senator Lott, who lost his home in Katrina. He sued State Farm for fraud in U.S. District Court in Jackson, after the insurer ruled that his home had been damaged by water and refused to pay him anything.

“It’s long overdue for this industry to be held accountable” Lott, 65, says. Lott and State Farm agreed to a confidential settlement in April.

Trent Lott’s Bill

Lott has introduced legislation to have insurers regulated by the federal government. That would supplant a patchwork system of regulation by states. Insurance has no body analogous to the SEC, which can refer cases to the Justice Department for criminal prosecution.

That doesn’t happen with insurers. The most that state insurance departments typically do is impose civil fines when companies mistreat customers. Such sanctions are weak and infrequent, says Hunter, the former Texas insurance commissioner.

Before Katrina, no state or federal prosecutor had ever investigated a nationally known property-casualty company for criminal mistreatment of policyholders. Mississippi Attorney General Jim Hood says a federal grand jury is probing insurance company claims handling after the hurricane.

There was no criminal investigation after State Farm offered just 15 percent of replacement costs to Michele and Tim Ray, whose house was wrecked by a tornado in April 2006. A contractor estimated the cost to rebuild the Hendersonville, Tennessee, home at $254,000.

Living Amid Ruins

State Farm made three inspections of the property, Ray says, and sent the Rays a check for $36,000, which the couple returned. A year after the twister, the couple remained in the damaged home, with their tattered roof covered by tarpaulins.

In April, after Bloomberg News submitted questions to State Farm about the Ray case, the company inspected the house again. This time, it gave the Rays $302,000.

“We decided to call it a total loss and agreed to pay the policy limits after deciding the damage was caused by the storm,” State Farm spokesman Shawn Johnson says.

State Farm won’t discuss what role McKinsey played in helping the insurer shape its approach toward customers. Similarly, no official at any insurer that hired McKinsey is willing to talk about the consulting firm.

`Doing What is Right’

Privately held McKinsey, which has 14,000 employees in 40 countries, has worked for many of the largest companies in the world, according to its Web site. “We take pride in doing what is right rather than what is right for the profitability of our firm,” Managing Director Ian Davis says in a quote posted on the site.

McKinsey pioneered the overhaul of the property-casualty industry at Allstate. The company hired McKinsey in 1992 after the insurer was spun off from what’s now Sears Holdings Corp. of Hoffman Estates, Illinois, says David Berardinelli, a Santa Fe, New Mexico, lawyer who won access to view the McKinsey documents for a limited time during a lawsuit involving an auto accident.

McKinsey advised the insurer to pay claims quickly at low amounts while delaying payments for as long as possible for those who wanted large settlements, Berardinelli says. “They’re capitalizing on the vulnerability of people” he says.

Berardinelli says McKinsey suggested that Allstate hold so- called town hall meetings with claims adjusters to urge them to pay less to customers.

Shannon Kmatz, a former Allstate claims adjuster, says she attended some of those sessions. She says managers told employees to keep claim payouts as low as possible.

Looking at Stock Price

“The leaders of those town hall meetings were always concerned that we were doing our part to help the stock price by keeping claims down,” says Kmatz, 34, who worked for Allstate for three years in New Mexico in the late 1990s and is now a police officer. “It was obvious from the get-go that all they were concerned about was the bottom line.”

Just once, at the May 2005 hearing in Lexington, Kentucky, the PowerPoint slides McKinsey prepared for Allstate were made public. William Hager and his wife, Geneva, who suffered neck and back injuries after the family’s car was rear-ended in a 1997 accident in Lexington, sued the insurer, claiming the company failed to cover her medical expenses.

The case is scheduled to go to trial in October.

One McKinsey slide prepared for Allstate was called “Zero- Sum Economic Game,” a videotape of the court hearing shows. The slide explains that there are winners and losers, and the insurance company can win by paying out small amounts.

`Finite Pool of Money’

“There is a finite pool of money,” Golden, the plaintiffs attorney, told the judge at the hearing. “Either it goes to the injured victim or it goes to Allstate’s pocket as surplus.”

Allstate’s attorney at the hearing, Mindy Barfield of Lexington, didn’t say anything about the McKinsey slides. She didn’t return phone calls seeking her comments.

Former federal flood insurance commissioner Hunter says the McKinsey approach exploits policyholders.

“McKinsey presented it as a zero-sum game in which the winners would be Allstate and the losers would be the claimants,” Hunter says. “I don’t think a claims system should be viewed in that light. It’s against any principles on how you should settle insurance claims. They should be settled on their merits.”

Allstate convinced the judge to seal the McKinsey slides before and after the Lexington hearing. The insurer has resisted attempts to make the consulting firm’s work public in courts across the U.S., arguing it contains trade secrets.

In 2004, the company was sanctioned by the Bartholomew Circuit Court in Indiana and fined $10,000 for refusing to turn over the records to attorney Richard Enyon, representing an auto accident victim. Allstate held on to the documents and appealed the punishment. The 7th Circuit Court of Appeals upheld the sanction.

`Go To Court’

Allstate then appealed to the Indiana Supreme Court, which hasn’t yet made a decision.

Lawsuits in California, Florida and Texas have asserted that McKinsey’s work for Allstate helped the insurer cheat claimants. Records show that through the company’s Claim Core Process Redesign project, Allstate encouraged policyholders to accept small settlements on the spot.

The redesign also became a blueprint for fighting more claims in court as Allstate increased its legal staff, according to a 1997 company newsletter obtained by David Poore, a Petaluma, California, attorney who has represented homeowners in lawsuits against carriers.

“The bottom line is that Allstate is trying more cases than ever before,” the newsletter said. “If the offer is not accepted, Allstate will go to court, if necessary, to prove the evaluation process is sound.”

San Diego Fire

McKinsey-style tactics have spread to insurers large and small, as homeowners discovered after three wildfires ravaged Southern California in 2003, including the one that hit northern San Diego.

While Katrina struck thousands of low-income families in New Orleans, the San Diego fire affected mostly affluent homeowners, who fared no better with their insurance companies.

The fire obliterated large sections of Scripps Ranch, a community of 30,000 that sits atop a sagebrush and eucalyptus mesa, where homes can cost more than $1 million.

After flames swept through the area on winds of up to 50 miles per hour, residents say they expected their insurance companies to live up to coverage promises and pay the full cost to rebuild.

The Southern California fires led to 676 formal complaints to the state saying insurers offered payouts that fell far short of actual costs and delayed on paying claims.

No Inkling

One of the Scripps Ranch houses that went up in flames, a four-bedroom, gray-stucco home on a sloping cul-de-sac, belonged to J.P. Lapeyre, a division director at JDS Uniphase Corp., a Milpitas, California, maker of telecommunications equipment.

Lapeyre, 41, who is married and has two children, says he had no inkling as he viewed the remains of his house that his insurance would leave him $280,000 short of what he would need to rebuild.

Representatives of Pacific Specialty Insurance Co. of Menlo Park, California, told him the most the firm would pay out was $168,075, not even half of the estimated reconstruction cost of $448,000.

The Pacific Specialty representative told Lapeyre in November 2003 that the insurer would pay $75 a square foot (0.09 square meter) to rebuild his 2,241-square-foot house. “What frustration,” Lapeyre says. “I had to try to prove to them that it would cost $200 a square foot.”

That figure came separately from two builders, Norton Construction and TLC Contractors, both of San Diego.

Lapeyre’s Suit

In February 2005, Lapeyre filed suit in San Diego County Superior Court against his insurer and the independent broker who sold him the policy, alleging negligence, breach of contract and fraud for leading him to believe that he was properly covered.

After a fight of 19 months, Lapeyre dropped the suit when Pacific Specialty told a mediator assigned to the case it wouldn’t raise its offer, he says. “We decided it was time to get on with our lives and move forward,” says Lapeyre, who borrowed money to build a new house.

Karen and Bill Reimus, both lawyers, fought their carrier, Liberty Mutual Insurance Co., when it told them it wouldn’t pay the couple enough to rebuild their burned Scripps Ranch house.

Karen, 40, says an agent for Boston-based Liberty Mutual assured her and her husband when they bought their house four months before the 2003 fire that their insurance would replace the home if it were destroyed.

`A Low Ball’

In a December 2003 letter, two months after the fire, Liberty Mutual offered to pay $40,000 less than the limit of the couple’s policy, Karen says. In early 2004, San Diego-based Gafcon Construction Consultants determined the cost to rebuild was well above the limits of the couple’s policy.

The Reimuses began a phone and letter campaign to convince the company its offer was too low, Karen says. “It has now been almost seven months since the loss and we are still not agreed as to the numbers,” Karen wrote in a May 13, 2004, letter to Liberty Mutual.

Two weeks later, Liberty Mutual agreed to raise the couple’s limits by $100,000, Karen says. “This is clear evidence that the original estimate was a low ball,” she says.

Liberty Mutual spokesman Glenn Greenberg says the company won’t discuss the case because its dealings with policyholders are private.

“The system is set up to take advantage of people when they’re at their weakest,” Karen says. “We went to one of the most-expensive companies in the country because we wanted to be ready for a rainy day. We asked for coverage that would replace the house. We thought replacement meant replacement.”

Allstate Suit

Scripps Ranch couple Leslie Mukau and Robin Seaberg sued Allstate for alleged fraud and negligence for failing to pay the $900,000 that contractors estimate it would cost to replace their two-story home.

Allstate offered the Seabergs $311,000, according to the 2004 San Diego County Superior Court suit. Allstate says in court papers the couple hasn’t shown the company was negligent and asked for dismissal of the suit, which is pending.

The California Department of Insurance examined the practices of Allied Property & Casualty Insurance Co., AMCO Insurance Co. and Allstate in connection with the California fires.

It fined Allied and AMCO, both based in Des Moines, Iowa, a total of $20,000 for misleading nine policyholders into believing they were insured for full value. The regulators cited Allstate for six rule violations, including that it ignored complaints that it underinsured homeowners.

Fines `Too Small’

The state didn’t fine Allstate, which told the department it had done nothing wrong.

“Fines by state regulatory agencies have been far too small and infrequent to deter unfair business practices,” United Policyholders’ Bach says. “It’s clear that cheating by insurers is a big, profitable business and regulators can’t muster the will or political strength to stop them.”

Most homeowners take what insurers offer because they don’t realize they’re being deceived or conclude that fighting is too costly and difficult, Bach says.

“Virtually everyone who settles for what the insurer offers is taking less than they’re owed,” she says.

Homeowners across the U.S. have found themselves in the same situation. Kevin Hazlett, a lawyer, sued Farmers Group after an April 2006 tornado struck his home in O’Fallon, Illinois.

`Thin Air’

Farmers had offered to pay him $470,000 to rebuild the house. Royal Construction Inc., based in Collinsville, Illinois, estimated the cost at $1.1 million. Hazlett, 52, accepted a settlement for an undisclosed amount.

Hazlett says Illinois Farmers, a subsidiary of Farmers, used the Xactimate software program to first determine what it would pay out. “They’re just pulling numbers out of thin air,” he says. “There’s no rhyme or reason.” Farmers spokesman Jerry Davies didn’t respond to requests for an interview.

Bo Chessor, owner of Royal Construction, says he sees insurers refusing to pay coverage limits all the time. “Most people just roll over and take it because they don’t have the money to fight it,” Chessor says. “What the insurance companies are doing is purely robbery.”

It may be robbery, but it’s rarely a crime. State insurance departments don’t prosecute insurance companies, and the federal government has no oversight. The insurance industry wants to keep it that way.

Insurance Lobbying

To make their voice heard on federal regulation and other government decisions, insurers spent $98 million on lobbying in Washington in 2006, according to PoliticalMoneyLine, a unit of Congressional Quarterly. That’s the second-largest amount spent on lobbying by any group, behind $114.4 million by pharmaceutical companies.

Property-casualty companies do want something from the government: bailouts. Insurers beseech states and the federal government to foot more of the bill for rebuilding private homes after natural disasters.

Florida has a catastrophe fund that insures some homes to reduce payouts by carriers. The fund paid out about $8.45 billion for storm damage in 2004 and 2005, according to its annual report. The federal flood insurance program covers $800 billion of property nationally, which helped the industry increase profits by 25 percent in 2005, the year of Katrina.

Disaster Just the Beginning

Homeowners whose properties have been destroyed by catastrophes contend with low payouts, higher premiums, software programs that underestimate rebuilding costs and sudden changes in policy values — all of which have been calculated methods for insurers to increase profits.

Tunnell, the San Diego accounting teacher whose home burned to the ground, says she thought State Farm had adequately insured her family when they bought their three-bedroom house in 1992. She says the policy, destroyed in the fire, provided for “full replacement coverage.”

It guaranteed to rebuild the house, no matter the cost, she says. The company offered to pay $220,000 — which was $86,000 less than a $306,000 figure her family got from State Farm’s own estimator, Hersum Construction Inc. of San Diego, for rebuilding the 1,700-square-foot house.

State Farm spokesman Supple says the company sent letters in 1997 to the Tunnells and other policyholders saying that it would no longer offer full replacement coverage. “Policyholders, by regulatory order, were sent prominent notices of the coverage change at that time,” he says.

`This is Unthinkable’

Tunnell says she doesn’t recall being notified. She says her family debated hiring a lawyer and suing, and eventually decided the battle would be too stressful. The Tunnells took the $220,000 and borrowed money to build a new house.

“Why is this happening to people over and over again?” Tunnell asks. “State Farm keeps underinsuring people, and they get away with it. This is unthinkable.”

As long as insurers make the rules and control the game, Tunnell and homeowners across the U.S. won’t know whether their homes are fully insured, no matter what their policies say.

To contact the reporters on this story: David Dietz in San Francisco at ddietz1@bloomberg.net ; Darrell Preston in Dallas at dpreston@bloomberg.net .

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.”

Racketeering Alleged in Katrina Suit
By MICHAEL KUNZELMAN Associated Press Writer

NEW ORLEANS — State Farm Fire & Casualty Co. engaged in a “pattern of
racketeering” by manipulating engineering reports on Hurricane Katrina
damage so the company could deny policyholder claims, lawyers for a
group of Mississippi homeowners allege in a lawsuit filed Wednesday.

The federal suit against State Farm represents a new legal strategy for
attorney Richard “Dickie” Scruggs, who has played a prominent role in
challenging the insurance industry for its handling of Katrina claims.

Hundreds of homeowners in Mississippi and Louisiana have sued their
insurers for denying their claims after the Aug. 29, 2005, storm. The
suits typically accuse insurers of bad faith and breach of contract for
refusing to pay for damage from Katrina’s storm surge.

Wednesday’s lawsuit on behalf of Mississippi Gulf Coast homeowners is
the first in which Scruggs and his legal team accused an insurer of
violating the civil Racketeer Influenced Corrupt Organization Act,
commonly known as RICO.

Scruggs, who helped negotiate a multibillion dollar settlement with
tobacco companies in the mid-1990s, said he had filed similar civil
RICO suits against tobacco companies. They are tougher cases to build,
but can carry stiffer penalties, he added.

“The facts call out for this kind of remedy,” he said. “It puts their
license to do business at risk if they lose (the case), for one thing.”

Phil Supple, a spokesman for the Bloomington, Ill.-based State Farm,
said the lawsuit is nothing more than Scruggs’ “PR machine working
overtime.”

“This is a regurgitation of everything he has said for two years,”
Supple said. “We couldn’t find anything new here.”

Scruggs’ 103-page lawsuit claims State Farm engaged in racketeering by
procuring “scientifically dishonest” inspection reports and conducting
“sham re-inspections” of homes so that damage could be falsely
attributed to Katrina’s flood water.

State Farm and other insurers say their homeowner policies cover damage
from wind but not rising water, including storm surge.

The RICO Act is typically associated with criminal prosecutions of
organized crime figures. Randy Maniloff, a Philadelphia-based attorney
who has closely followed the wave of litigation spawned by Katrina,
said the civil RICO Act is rarely invoked in lawsuits over insurance
coverage.

“Nothing surprises me at this point,” Maniloff said of the frequent
legal twists in post-Katrina insurance cases. “Every day is something
new.”

Also named as defendants in Scruggs’ suit are Forensic Analysis &
Engineering Corp. of Raleigh, N.C., and E.A. Renfroe Co. Inc. of
Hoover, Ala. Forensic’s engineers inspected homes for State Farm, while
Renfroe helped the company adjust claims.

Scruggs accuses State Farm of pressuring its engineers to alter reports
on storm-damaged homes so that water, not wind, could be blamed for
damage.

Scruggs filed the lawsuit a day after State Farm asked a federal judge
to disqualify the Scruggs Katrina Group from representing a Biloxi
couple who sued the company for denying their claim.

———————————————————————-

Brought to you by the HoustonChronicle.com