$ 37 Million Bad Faith Verdict – Post-Claim Underwriting by a Health Insurer

So, after I finished up my first post this morning, Mike sent around this link to a blog post about a new $ 37 million bad faith verdict against an insurer that uses ”post-claim underwriting” as one of its business methods.  Plaintiff’s counsel suggested $ 7 million in damages  – the jury awarded $ 37 million.

Is this a reasonable verdict ?  The more I see, the more I have to say: yes, it is a reasonable and logical verdict very precisely intended to deter bad corporate behavior. I say that after spending 25 years as a commerical litigator who has seen plenty of corporate behavior, most of it quite good and well intended, but sometimes there are in fact good faith misunderstandings and disputes. But, as to insurers, I keep seeing simply inexcusable behavior from some of them. For example, one corporate client has been battling insurers for 27 years (really !) to obtain coverage for asbestos claims that plainly are covered. In other situations, insurers appoint defense counsel who may be fabulous trial lawyers but cannot effectively represent my clients because they labor under conflicts of interest created by too many clients, with some of the clients having conflicting defense strategies. For example, most asbestos products contain white (chrysotile) asbestos fibers. Some experts say pure chrysotile cannot cause cancer because it breaks down quickly in the lungs. Whether or not one accept that defense completely, any decent defense lawyer for a seller of a chrysotile produce always looks for and wants to blame a particular plaintiff’s disease on inhalation of  amphibole asbestos  fibers, which include but are not limited to the blue (crocidolite) and brown (amosite) asbestos fibers, not to mention tremolite and other asbestoform minerals and man made substances. Why blame the amphiboles ? Because amphibole fibers are FAR, FAR  more toxic than are chrystotile fibers. Numerically, that means perhaps a  500 – 1  potency ratio when comparing crocidolite to chrysotile. Indeed, even hard core plaintiff’s expert Dr. Richard Lemen acknowledges that amphibole fibers are incredibly potent; he simply will not exonerate chrsyotile fibers, especially when they include tremolite or other amphibole contamints (go here to see an article on this topic by Dr. Lemen and others). 

To return to the point that started this post, some insurers should indeed see a message in the $37 million verdict.  Here are some key excerpts from the article:

“Longmont teacher Jennifer Latham and her husband Frank both suffered broken bones, internal injuries and brain injuries from the crash. But Time Insurance, also known as Fortis and Assurant Health, rescinded a health insurance policy Jennifer had recently taken out, claiming that she’d failed to disclose a complete and accurate health history on its application form–leaving her with more than $180,000 in medical bills.

Time is notorious in the health insurance industry for its “post-claim underwriting”–going back to the application after a claim is made to determine if misrepresentations were made that would warrant revoking the policy, even if the medical conditions involved have nothing to do with the claim. A similar case in South Carolina, in which the company rejected coverage for a teenager who discovered through a blood donation that he had AIDS, resulted in a $10 million punitive judgment. That verdict was upheld last fall by the state’s supreme court. In closing arguments of the two-week Boulder trial, Latham attorney Marc Levy asked for $2 million in economic damages and roughly $5 million in punitive damages. “You are the final stop,” he told the Boulder County jury of four women and two men. “You are the conscience of the community. Is this the way we want health insurance companies to act?”

Time attorney Walter Wilson maintained that Latham had failed to disclose certain medical information on the application, including one trip to an emergency room for “shortness of breath” that Latham maintains was a panic attack. He argued that evidence of her “alleged emotional distress” from cancellation of her health insurance “is scant at best and nonexistent in reality.” *** Testimony from Time officials indicated that the company only rescinds half of one percent of its policies–but that resulted in more than 8000 rescissions over a five-year period, saving the company $150 million in unpaid claims. The Latham case and the practice of rescission in the health insurance industry is the subject of an upcoming Westword feature. Stay tuned.”

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About Kirk

Since becoming a lawyer in 1983, Kirk’s over 30 years of practice have focused on advising a wide range of corporations, associations, and individuals (as both plaintiffs and defendants) on both tort and commercial law issues centered around “mass torts.”

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