Keeping Insurance Companies Honest

Introduction

Insurance, when done properly, serves an important social function: risks are spread among the many, and each individual is protected from risks that he or she otherwise could not personally afford. But insurance, when done improperly, can needlessly expose a policyholder to the very risks of liability that insurance should protect against. An insurance company puts its customer at risk when it:

• Misrepresents facts when handling claims
• Doesn’t act promptly and fairly on communications related to the claim
• Doesn’t perform reasonable investigations
• Doesn’t promptly and equitably settle claims
• Puts the company’s interest over that of the policyholder’s
• Exposes its policyholders to unnecessary financial harm or emotional distress

In addition, any lawyers the insurance company hires to defend you must represent your best interests, not the insurance company’s.

One Policyholder’s Experience: Insurance Company “Bad Faith”

Cornel, a southern Oregon resident, was a GEICO policyholder whose “bad faith” claim exposed insurance company’s improper claims practices. The company’s lawyers even went so far as to suggest that Cornel and his wife file for bankruptcy to protect the insurance company!

Cornel accidentally hit a motorcyclist in southern Oregon. The biker ended up with over $68,000 in medical bills, lost income, and serious, permanent injuries. Cornel had a $100,000 auto insurance policy, so the motorcyclist offered to settle for the $100,000.

The insurance company refused to pay the injured motorcyclist the $100,000, even though it recognized from the start that Cornel was fully at fault and that the motorcyclist’s losses greatly exceeded that amount.

Motorcyclist Was Forced to Sue Cornel

The motorcyclist’s attorney made multiple offers to Cornel’s insurance company to settle for the $100,000 policy limit.  The insurance company  and its lawyers rejected all of these settlement opportunities without even telling Cornel about them. The injured motorcyclist was left with only one choice: to sue Cornel for his losses.

As a result of the trial, the motorcyclist won a $330,000 judgment, leaving Cornel personally on the hook for the remaining $230,000 balance due, plus interest. The motorcyclist was positioned to go after Cornel’s personal assets including his wages, bank account, and real property. Cornel had been looking forward to retirement; now, thanks to his insurer’s mishandling of his case, he faced financial ruin.

The insurance company’s lawyers encouraged Cornel to take bankruptcy, an action that he philosophically opposed and which would have damaged his credit for years to come. However, the insurance company’s lawyers knew if he filed for bankruptcy, the insurance company would be fully protected. In the end, Cornel stuck to his beliefs and refused to file for bankruptcy.

Trial Against Insurer’s Bad Faith

When it looked as if all hope was lost, Cornel was referred to The Corson & Johnson Law Firm. When an insurance company unreasonably rejects opportunities to settle a policyholder’s case within the policy limits resulting in a judgment in excess of the policy limits, the policyholder has the right to bring a claim against the insurance company. That’s because the purpose of insurance is frustrated when an insurance company does that; instead of protecting the policyholder, the insurer exposes them to harm.

There were tens of thousands of pages of materials to review in the litigation. The documents in Cornel’s case against the insurer filled up a large bookcase at our law office. The insurance company fought all of the way, forcing Cornel to go through a second trial. The trial of Cornel’s case took eight courtroom days with a good number of witnesses and voluminous evidentiary materials offered by both sides.

When the jury heard the full facts over two weeks in the courtroom, it hit the insurance company with a $17.5 million verdict, mostly for punitive damages. In this kind of a case, punitive damages are to deter insurers from similar misconduct in the future.

Under current federal law, trial courts are not allowed to fully punish corporations that intentionally or recklessly cause this kind of harm, and the punitive damages were reduced to $2,679,443. The original verdict would have been enough to catch the attention of the insurance company’s  management; instead, the reduced amount became more of a slap on the wrist to a $22 billion corporation.

Even so, with help from an Oregon jury, we showed that insurance companies are not exempt from their responsibility to provide the services that policyholders pay for, and must treat their policyholders fairly.

Timeline

2007 AUG | Cornel is in an accident with a motorcyclist, who sustains serious injuries. Cornel’s insurance policy states that the insurer “…promises to pay damages…to defend any suit against policyholder….”

2007 SEP | Insurer initially set to pay policy limit of $100,000, but delays payment.

2008 MAY | Insurer internal notes document that the motorcyclist’s losses exceed the $100,000 policy limit. Cornel will be 100% liable for any amount over $100,000.

2009 JAN | Motorcyclist’s attorney offers to settle for $100,000. Cornel not informed of the offer, as required.

2009 AUG | Two years after the accident,  insurer again rejects motorcyclist attorney’s offer to settle for the policy limits, again without advising Cornel. Motorcyclist attorney files suit for $575,000.

2010 OCT | Insurer internally recognizes that Cornel could sue them for bad faith. They begin to prepare for this possibility.

2011 SEP | Trial ends with jury verdict of $329,820 against Cornel.

2011 OCT | Insurer lawyers suggest Cornel file for bankruptcy and refer him to a bankruptcy attorney. If Cornel takes bankruptcy, insurer  would be off the hook. Cornel later refuses.

2012 APR | Involuntary bankruptcy threatened.

2012 MAY | Cornel is referred to The Corson & Johnson Law Firm, who later files a lawsuit on Cornel’s behalf based on his insurer’s negligent handling of the claim against him.

2015 JUN | A Multnomah County jury agrees with Cornel and assesses a $17.5 million punitive damages verdict against the insurance company, one of the biggest in recent state history.

2015 DEC | In post-verdict motions, the trial court judge reduces the punitive damages to $2,679,443.80. What would have been a wake up call to the insurance company’s management became a modest slap on the wrist.

Holding Insurance Companies Accountable

The trial and the jury’s verdict received media attention.  Cornel’s insurance company took immediate notice of the need to have its practices line up with its legal obligations.  A large number of attorneys and consumers also took notice, based on the number of contacts we have received about this case since the trial concluded.

Representing an individual against his or her own insurance company can be both satisfying and extremely challenging work. As Cornel’s story above suggests, there are many important facts that must be discovered, organized, and effectively presented in order for the jury to understand what happened, and to understand that what happened was wrong. These cases are more complex and demanding than many other cases, and are more vigorously defended. But if we want insurance to work for the average person, these cases are necessary and important to keep insurance companies honest.