Abell's Kentucky Law Blog

How Long Is Too Long? Settling Injury Claims With Insurance Companies and the Kentucky Unfair Claims Settlement Practices Act

Is three years too long to settle in injury claim for policy limits of $50,000? The Sixth Circuit recently ruled in Phelps v. State Farm, No 10 – 6085 (May 25, 2012), that a three-year delay in settling an injury claim along with other factors raised a fact issue regarding whether State Farm had acted in bad faith and in violation of the Kentucky Unfair Claim Settlement Practices Act in settling the claim.

 The timeline in the case is as follows:

•  July 18, 2003 – claimant Cynthia Phelps is injured in an auto accident
• October 2003 – Phelps undergoes spinal surgery as a result of the injuries sustained in the auto accident
  
  
• October 2, 2003 – the claims file is reassigned by State Farm to a second adjuster; Phelps sends State Farm paid medical records authorization form and it begins collecting her medical records
  
  
•  February 11, 2004 - After months of minimal activity on the file, State Farm notes for the first time that Phelps had a prior back injury in 1999. State Farm decides to gather additional evidence regarding Phelps' 1999 back injury, although it says nothing to her about it
  
  
• April 2, 2004 – Phelps's lawyer, Thomas Carroll, sends State Farm a settlement package documenting her surgery as well as related medical and wage loss costs totaling $22,620.22. Phelps does not make a specific settlement demand, but says she wants to settle and requests information about State Farm's policy limits
  
  
• July 2004 – State Farm substitutes yet another adjuster to handle Phelps's claim
  
  
• September 14, 2004 – State Farm for the first time requests information from Phelps's lawyer about her 1999 back injury
  
  
• October 24, 2004, by the state State Farm and received the relevant medical records to Phelps's 1999 injury. Although State Farm would later claim that it was still missing some pertinent information, it, nonetheless, completed a claim evaluation, the low end being $24,620 and the high-end, $49,620
  
  
• October 28, 2004 – State Farm makes a settlement offer of $25,000, approximately $2300 more than Phelps is documented medical and wage losses as of April 2004
  
  
• March 29, 2005 – Phelps rejects State Farm's $25,000 offer and demands $150,000. State Farm still had not by this date disclose any information about its policy limits
  
  
• May 2005 – Phelps files suit
  
  
• October 25, 2005 – Phelps provides to State Farm would later claims to be new information regarding her medical records and wage loss
  
  
• November 3, 2005 – State Farm again changes the claims adjuster on Phelps's claim
  
  
• March 22, 2006 – Phelps' deposition is taken; "State Farm's attorney determined that Phelps was a credible witness and recommended that State Farm increase if settlement offer."
  
  
• April 11, 2006 – Phelps for the first time demands the policy limits of $50,000
  
  
• April 12, 2006 – State Farm counters with an offer of $40,000
  
  
• April 13, 2006 – State Farm finally offers the policy limits, $50,000, and Phelps settles her injury suit against the other driver.

 

Phelps' injury claim appears very routine.  The negligence of the other driver was not disputed by State Farm, so its liability for Phelps' injury was clear. She obviously suffered significant injuries as she documented over $22,000 of losses based just on medical bills and lost wages within nine months of the auto accident.  The significance that the Sixth Circuit attributed to this timeline will be examined in a further post.

 Robert L. Abell
www.RobertAbellLaw.com 

 

 

American Association for Justice Reports On Insurance Companies' "Tricks of the Trade"

The American Association for Justice (AAJ) has continued its examination of the insurance industry.  In July, AAJ released a report The Ten Worst Insurance Companies in America: How They Raise Premiums, Deny Claims, and Refuse Insurance to Those Who Need It Most.  Now, AAJ reports on the insurance industry's stonewalling, subterfuge and other unethical and bad faith practices: Tricks of the Trade: How Insurance Companies Deny, Delay, Confuse and Refuse. 

The favorite tricks include the following: denying claims, delaying until death, confusing consumers, discriminating by credit score, abandoning the sick and cancelling for a call.

Robert L. Abell
www.RobertAbellLaw.com

Delays Caused By Insurance Companies Harm Patients, Doctors Report

Doctors responding to a survey investigation conducted by the Toledo Blade reported that 14% of their patients had suffered "serious harm or injury" because of delays in care caused by their patients' insurance companies, see "Not What the Doctor Ordered: Delays, Denials Thwart Patients Hoping for Help."  920 doctors, including members of both the American and Ohio Medical Association, responded to the survey.  Nearly all -- 99% -- reported that insurance companies had interfered with their clinical decisions regarding treatment of their patients. 

There is often no real remedy or relief for a patient or a patient's family that is killed or seriously injured because their insurance company would not pay for the treatment and care their doctor directed.  That is because most people's medical insurance comes through their job and therefore is covered by a federal law known as ERISA (stands for Employee Retirement Income Security Act).  When an insurance company denies medical treatment in this type situation, the only remedy that the insured patient (or the insured patient's family) can recover is the cost of the treatment.  And that will occur only if the insurance company's decision is deemed "arbitrary and capricious."  If the patient dies as a result of the insurance company's arbitrary and capricious denial of the treatment, there are no damages recovered by the family, no lost income or anything but the cost of the denied treatment.  ERISA is protection for outrageous insurance company practices.

Robert L. Abell
www.RobertAbellLaw.com

State Farm To Pay $74 Million More To Settle Katrina Claims

State Farm Insurance Company has agreed to pay an additional $74 million to settle a lawsuit regarding its handling of Hurricane Katrina claims in Mississippi, Mississippi Attorney General Jim Hood announced Wednesday reports the Jackson Clarion-Ledger.  In addition, State Farm has agreed to notify some 150 claimants that their claims may be re-evaluated. 

Robert L. Abell
www.RobertAbellLaw.com

Disability Insurers Investigated by Senate

Disability insurers are being investigated by a Senate committee regarding their possible responsibility in causing a backlog of pending claims before the Social Security Administration, the New York Times reports ("Senate Asks 9 Insurers To Furnish Information").  Unum, Cigna, MetLife, Aetna, Hartford Life, Lincoln, Prudential, Standard and Reliance Standard have received letters for a Senate committee regarding their practices of compelling their insureds to apply for Social Security disability benefits. 

Most disability insurance policies allow the insurance company to reduce their payments to the claimant if they begin receiving Social Security disability benefits.  Therefore, many policies require the insured to apply for the Social Security benefits.  However, most disability insurance policies pay benefits for a period of 24 years if the claimant cannot perform their last job; this is often known as "own occupation" coverage.  Social Security disability eligibility requires the claimant be disabled from performing any job, not just their last job.  The backlog of pending Social Security claims has stretched to over a year, a delay that Senator Charles Grassley labeled "abominable."

Robert L. Abell
www.RobertAbellLaw.com

Worst Insurance Companies: The Top Ten

The worst insurance companies in the United States were identified by the American Association for Justice (AAJ) following a comprehensive review and analysis of thousands of court documents, SEC and FBI records, state insurance department investigations and complaints, new accounts from across the country, and the testimony and depositions of former insurance agents and adjusters.  The AAJ's report The Ten Worst Insurance Companies in America; How They Raise Premiums, Deny Claims, and Refuse Insurance to Those Who Need It Most found that one company stood out above all the others and thus became the titleholder of the worst insurance company in America: Allstate.  The rest of the top 10 were as follows: Unum, AIG, State Farm, Conseco, WellPoint, Farmers, UnitedHealth, Torchmark and Liberty Mutual. 

AAJ's report includes some eye-popping statistics regarding the enormous profits reaped by the insurance industry and the huge reductions in claims payments:

• over $1 trillion in premiums is collected annually by the U.S. insurance industry
• the some $3.8 trillion in assets held by the U.S. insurance agency exceed the GDPs of all countries but the United States and Japan
• the property/casualty insurance industry has averaged annual profits of $30 billion the last 10 years
• the life and health insurance agency has also averaged annual profits of $30 billion over the last decade
• Allstate reduced the percentage of its claims payments from 79% of premium income to 58% from 1996 to 2006
• Allstate dropped its payout percentage on auto claims from 63% to 47% of premium income in the same period

There is a lot of money in collecing premiums and not paying claims.

Robert L. Abell
www.RobertAbellLaw.com

Disability Insurers Causing Overload of Social Security

    A growing backlog of pending claims for disability benefits from Social Security indicates that the Social Security system is being swamped through the actions of insurance companies compelling their insureds to file benefit claims with Social Security.  Most disability insurance policies have a provision that requires the insured to apply for disability benefits from Social Security and then allows, if that claim is approved, the insurance company to reduce the payment it makes to the insured.  Oftentimes, disability insurers refer their insureds to a law firm or company to help them with their claim to Social Security. 

    Approximately 2.5 million people apply annually for disability benefits from Social Security.  A recent study found that 18 percent of these applicants acknowledged being unqualified, because the standard to receive Social Security disability benefits requires that a person be unable to work in any job because of a total and permanent disability.  Typically, disability insurance policies pay benefits when a person is disabled from performing their last job, not any job.  Some insurance companies have stopped paying benefits where there insured has refused to file a claim with Social Security.  An interesting study of this practice and a pending lawsuit was reported as the lead story in the New York Times on April 2, "Insurers Faulted As Overloading Social Security." 

Robert L. Abell
www.RobertAbellLaw.com