ThePopTort

The Right Way/Wrong Way on Caps

Three times in the last 35 years, the insurance industry has created liability insurance “crises” for doctors (and other businesses and professions).  Each time this has happened, the insurance industry has tried to cover up its own mismanaged underwriting by blaming the legal system for its sudden, astronomical premium increases.  Like clockwork, following these rate hikes have been frenetic calls for legislative limits on victims’ rights to sue, with state lawmakers viewing the “crisis” as an isolated problem rather than indicative of a broader national problem caused by the cyclical nature of the insurance business.

The first time this happened was the mid-1970s.  On June 9, 1975, Newsweek ran a cover story, "Malpractice - Doctors in Revolt.”  The "revolt" was against sudden malpractice premium hikes.  Sound familiar?  Insurers quickly blamed what they believed was occurring in the country – a “litigation explosion.”  They demanded huge rate hikes from state regulators and convinced lawmakers that the only way to bring rates under control was to limit the legal rights of injured victims , i.e., insurer payouts.  In fact, insurers learned during this period that state regulators would give away the store in rate increases.  They also learned that they could easily take political advantage of the situation by asking state lawmakers to limit victims’ rights.  And it was during this period California enacted the Medical Injury Compensation Reform Act, or MICRA, which placed a $250,000 cap on non-economic damages for malpractice victims.

Yet it turns out that there never was a “litigation explosion.”  After insurers abandoned the medical and product manufacturer lines, the federal government decided to review the situation and not simply accept the insurer’s assertions that litigation was “exploding.”  An inter agency working group was formed under then Federal Insurance Administrator J. Robert Hunter, to look into the crisis and to report back specifically as to whether a claimed “explosion” of medical malpractice claims was causing the huge and sudden jump in premiums that doctors were experiencing.

Hunter’s research immediately found that data was not available to answer this question.  Insurers did not have such data.  Therefore, working with the National Association of Insurance Commissioners (NAIC), they undertook a closed-claim study.  The closed claim study revealed that there was no “explosion” of claims and that there was no justification for the insurer actions.  (See more here.)

But it was too late for California. Incredibly, MICRA has remained on the books for 38 years.  MICRA's $250,000 cap is worth about $65,000 today.  This cap has never once been adjusted for inflation.  Because medical malpractice cases are so expensive to bring and the cap is so low, it’s often impossible for an injured patient to even bring a case in California.  It’s been a bonanza for the insurance industry.  In fact, California’s medical malpractice insurance industry has become so bloated due to this cap, that “as little as 2 or 3 percent of premiums are used to pay claims” and “the state’s biggest medical malpractice insurer, Napa-based The Doctors Company, spent only 10 percent of the $179 million collected in premiums on claims in 2009.”

However, the political lessons learned by the insurance industry were clear: by blaming lawyers and litigation for a crisis that the industry itself had manufactured, the industry could obtain major changes in tort laws – basically, gravy to their bottom line.  Their clients – businesses and doctors – were more than happy to go along.  It is a political strategy that worked in the 1970s, and carried them through the next three decades.

To wit, in 1986, in the midst of this nation’s second liability insurance crisis, Missouri lawmakers were told by insurers the same thing - that the only way to reduce skyrocketing insurance rates was to enact a similar cap on non-economic damages.  And they proceeded to enact a $350,000 cap.  But when the third insurance crisis hit in the early 2000’s, guess what happened?  Claims were down in Missouri, alright.  “New medical malpractice claims dropped 14 percent in 2003 to what the [Missouri Department of Insurance] said was a record low, and total payouts to medical malpractice plaintiffs fell to $93.5 million in 2003, a drop of about 21 percent from the previous year.”   And “[t]he National Practitioner Data Bank, a federally mandated database of malpractice claims against physicians, found that the number of paid claims in Missouri fell by about 30 percent since 1991.  The insurance department’s database found that paid claims against physicians fell 42.3 percent during the same time period.” 

But doctors’ malpractice insurance premiums rose 121 percent! 

Fast forward to 2013. 

Today, Missouri’s cap is no longer on the books because the Missouri Supreme Court struck down the law as unconstitutional 26 years after it passed. Over the weekend, the St. Louis Post-Dispatch wrote a blistering editorial, strongly opposing the effort by some Missouri lawmakers to reinstate the unconstitutional cap, and referencing the recent case of Regina Turner, whose neurosurgeon operated on the wrong side of her brain leaving her severely disabled.  

And just last week, a major new effort got underway in California to, if not repeal MICRA, at least properly adjust the 38-year-old $250,000 cap for inflation. Here’s some of what the campaign “38 Is Too Late” folks say: 

MICRA has a disproportionate impact on people who have little or no income, including children, the elderly, stay-at-home parents and working class Californians.

• Victims of medical negligence can collect the estimated cost of actual economic damages, such as loss of income resulting from their injuries. On the surface, that may seem fair. But the law has a disproportionate impact on people who have little or no income, including children, the elderly, stay-at-home parents and working class Californians. The reason is that these citizens have little or no economic losses resulting from lost income.
• Despite having no impact on health care or insurance costs, non-economic damages caps have a tremendously negative impact on the permanently injured, especially, for example children who may live for 70 years with brain damage or other catastrophically debilitating injuries. California’s 1975 cap on non-economic damages is worth $61,525 in 2009 dollars. A patient would need to recover $1,018,201 in 2009 for the equivalent medical purchasing power of $250,000 in 1975.

It’s been over three decades since California went down a very cruel road.  It's time to do something.  Go here to help.

Terrors’ Incidental Insurance Victims

Mass casualties aren’t just for wars anymore.  Let’s put aside “terrorism” for the moment.  Think about the carnage over the last week due to corporate negligence and recklessness.  There was yesterday’s horrific building collapse in Bangladesh, killing hundreds and injuring thousands of workers making cheap goods for Wal-Mart, while likely being paid about $37 a month. Earlier today, there were explosions on two fuel barges in Mobile, AL, leaving three people severely burned.  This follows last week's horrific fertilizer plant explosion in Texas, which “killed at least 14 people, injured 200 and damaged dozens of buildings.”  (See more updates here.)

Back to terrorism.  Looks like corporate profiteering may play a role here too, at least as victims try to recover. The Wall Street Journal reports today that if the Boston Marathon bombings are officially declared acts of terrorism, the insurance industry would not liable for many business claims and in any event, the industry's liability is capped. They made sure of that 11 years ago.  Specifically,

Companies could lose insurance payouts for property, lost income and other damage if the bombings are officially declared an act of terrorism by key U.S. officials, under an 11-year-old law that hasn't yet been tested, according to industry executives and lawyers, as well as city and business leaders in Boston.

The reason: After the Sept. 11, 2001, terrorist attacks, policies sold to business customers typically haven't covered losses stemming from "terrorism" unless the customer pays extra for the coverage. … If there is no terror finding, damages would be covered in general under regular property-and-casualty policies, said Robert Hart wig, president of the trade group Insurance Information Institute.

Large numbers of businesses in the area around the Boston bombings are believed to lack added terrorism protection, though figures aren't yet available, city and state officials said Wednesday. Nationally, about 60% of businesses pay extra for terrorism coverage, with a higher percentage in New York and some other big cities such as Boston, according to industry estimates. But many small businesses forgo high-price terrorism coverage, and Boston's Copley Square is filled with small bars, restaurants and shops.

Rattlesnake Bar & Grill on Boylston Street, which was closed for part of last week, doesn't have terror coverage. Co-owner John Gardner estimates lost business in the tens of thousands of dollars and holds out hope his insurer will cover some losses. He called the possibility that a terror declaration could keep him from getting compensated "the frustration of dealing with insurance companies."

The article makes reference to a law enacted in 2002 after insurance exes marched into the White House demanding the federal treasury provide a “multi-billion-dollar insurance ‘backstop,’ essentially capping the liability of the property/casualty insurance industry, an industry worth hundreds of billions of dollars, in the event of future terrorist attacks.”  This was something the heavily-capitalized property-casualty insurance industry did not need.  But no one ever said the insurance industry was shy about threatening to pull the rug out from under the U.S. economy to get what it wants, creating an atmosphere of “crisis” to promote its legislative agenda while at the same time escaping any meaningful public scrutiny or regulatory control.

Sorry about that, Boston.  (For more, see this study from the Center for Justice & Democracy, "Shakedown: How The Insurance Industry Exploits A Nation In Times Of Crisis." )

Caught in the Insurance Industry Shuffle

The insurance industry spends about $6 billion a year trying – largely unsuccessfully - to get drivers to switch their car insurance policies. (This is a $160 billion market and the big carriers control half of it.) Never-ending expensive TV commercials - that’s what most people know about insurance companies – until, of course, their lives have been wrecked by something they thought was covered by policies, for which they’ve been paying for years. Let’s take a look at a few recent episodes. 

Homeowners.  Homeowners whose lives were shattered by Superstorm Sandy are still engaged in perpetual battles with insurers to get their flood insurance claims properly paid.  The situation is no better for homeowners claiming under their non-flood policies, with insurers putting homeowners’ money into escrow accounts and then micromanaging repairs. Writes one policyholder, “No matter insurance company has documentation already and has approved repairs. No matter repairs have been made and homeowner just wants reimbursement.… TD Bank has this policy. So does Wells Fargo. Problem is you don't know this until u go to deposit insurance check.”

Business interruption insurance.  All kinds of businesses where shut down after Superstorm Sandy, but insurers aren’t paying the claims, saying buildings were closed due to flooding (so not covered by their policies). But others say that’s ridiculous.

“It was not water related," says Andrea Katz, interim development director at [radio station] WBAI. “It was a restricted building that we were not allowed entry to and therefore could not do business as usual.”…

“It seems like they have lawyers that write these things out, and everything’s so opaque that they can just find a way to get out of it,” says Norman James, co-owner of Space Salon.…

The New York State Department of Financial services is now investigating these and other business claims from Hurricane Sandy.

Meanwhile, many businesses are seeking legal counsel, getting ready for a fair fight.

Fire insurance. 

Victims who lost everything in [Colorado’s] Waldo Canyon fire last summer asked lawmakers at the Capitol on Tuesday to go even further in their reform of the insurance industry that they say left them in the lurch. …

It took Steve Price, who lost his roughly 5,000-square-foot home … two months to get a certified copy of his insurance policy after the fire. It took another two months to get copies of underwriting documents. “It’s a pattern among our insurance companies to delay, deny and ignore,” Price told a Senate committee considering House Bill 1225. “These contracts are unfair to begin with.”

The bill would require insurance companies doing business in Colorado to comply with a number of new mandates, including that a copy of a policy be provided within three days of the homeowner’s request. Policies would also have to be written on a 10th grade reading level and written notifications of changes in policy would be required. Price said he was very well prepared for a disaster, with photos documenting his home’s current state and contents, and he still was still about $10,000 underinsured.…

Ideally, he said Colorado should become one of 19 states that require insurance companies to pay out the maximum value of a policy in the event of a total loss — known as valued policy laws.

Incredible that this should even be an issue.

Health Insurance.  Health insurers are “letting millions of Americans renew their current coverage for another year — and thereby avoid changes under the federal healthcare law” and “critics say this maneuver could undermine government efforts to remake the insurance market next year and keep premiums affordable overall.…”

“Insurers are onto this, and the big question is how many will try to game the system,” said Timothy Stoltzfus Jost, a law professor and health policy expert at Washington and Lee University.

Some of the nation's biggest health insurers are looking to take advantage of this delay, and Arkansas officials are encouraging companies to do this by resetting customers' renewal dates for the end of December. There's also concern that some insurers and agents could rush to sell more individual policies before year-end so they could be extended in 2014.

Some policy experts are expressing concern about this practice for fear that insurers will focus on renewing younger and healthier policyholders and hold them out of the broader insurance pool next year. Their absence could leave a sicker and older population in new government insurance exchanges, driving up medical costs and premiums there.

Meanwhile, California’ awesome insurance commissioner, Dave Jones, seems to be the only commissioner in the country actually looking out for policyholders by consulting with a respected consumer organization, Consumer Watchdog, on how to protect small businesses from unneeded rate hikes. The group already has a spectacular record of saving California policyholders billions of dollars. The industry is complaining about this. They seem to prefer that the commissioner consult only with insurance industry-connected actuaries (like every other commissioner does), ensuring that price-gouging of California’s businesses remain uninterrupted.

Reports the LA Times,

In its first report Tuesday, the Santa Monica group accused Anthem of padding its profits and overcharging small-business customers by about $17 million. … Jones criticized Anthem Blue Cross for raising rates on about 7,000 small businesses as much as 23% and said the company rejected his request for lower rates. Anthem said its average rate increase of nearly 11% for these 45,000 employees and their dependents was necessary to cover rising medical costs.

Jamie Court, president of Consumer Watchdog, said the group's proven track record in challenging insurance company practices made it an ideal choice for the state. Consumer Watchdog says it has saved Californians $2.3 billion since 2003 by successfully disputing rate hikes for property and casualty insurance under Proposition 103, the 1988 ballot measure the group championed.

"We are the foremost expert on health insurance rates," Court said. "This grant allows us to pull back the curtain and show how the wizards at Anthem and other companies are manipulating Oz. We want to prove that rates are too high."

Insurance-industry commissioners. Meanwhile, former and hoping-to-be-reappointed Texas insurance commissioner, Eleanor Kitzman, is decidedly not on the side of policyholders. She’s hoping to win reappointment from Governor Rick Perry, but not if consumer advocates have anything to do with it.

One of the loudest critics, Alex Winslow of the consumer advocacy group Texas Watch, said that home insurance rates had “skyrocketed” during Kitzman’s term and that she had rolled back rules created to inform doctors and patients about high out-of-network expenses before those charges were incurred. Winslow can and does go on about what he sees as her shortcomings, but the important thing is that few in the Capitol or the insurance industry — which was initially full of praise for her — are leaping to her defense.

And a final observation: If only policyholders could demand that their billions in premium dollars pay for legitimate claims instead of TV commercials. 

Lance’s Lawsuits

In her always hilarious New York Times column, the brilliant Gail Collins wrote yesterday: 

"But we still need to wring a useful lesson out of all this [i.e., the Lance Armstrong confession]. Let’s consider the U.S. Postal Service Pro Cycling Team. Between 1996 and 2004, our American mail system invested an estimated $40 million in this venture, in return for which Armstrong and his teammates rode around with the Postal Service insignia on their shirts.

This would be the same Postal Service that lost $16 billion last year, and I believe I speak for every stamp-buyer in the nation when I say: What?"

I sure hope the post office gets its money back, if only to stop its most recent junk mail fundraising scheme.  Everybody else is sure gonna try.  And indeed, the U.S. Justice Department has already been negotiating with Armstrong over a federal whistleblower lawsuit brought by Armstrong’s former teammate Floyd Landis, alleging “that Armstrong and team managers defrauded the U.S. government when they accepted money from the U.S. Postal Service.” (See more details here.)  

The suit stems from the Postal Service contract, which “required that the team refrain from using performance-enhancing drugs” and the now undeniable fraud amounts to a violation of the Federal False Claims Act.  This suit could cost Armstrong nearly $100 million, and if he does lose, I sure hope all the money gets earmarked for the U.S. Postal Service.   But unfortunately, Armstrong apparently defrauded many people and companies who also want their cut – like insurance companies - so its unclear what damages might be available for any of these parties.

Writes today’s Dallas Morning News:

Oprah Winfrey interviewed Lance Armstrong under camera lights this week, but Dallas attorney Jeffrey Tillotson is the only person to have interviewed the disgraced cyclist under oath. He could also be the first to sue Armstrong after his confession to Winfrey.

Tillotson said there could be a lawsuit as early as Friday on behalf of his client, Dallas-based SCA Promotions, a sports insurance company. SCA had to pay Armstrong bonuses for three Tour de France victories on behalf of Tailwind Sports, which owned the U.S. Postal Service team for which Armstrong raced. …

Tillotson questioned Armstrong in Austin on Nov. 30, 2005, during a deposition resulting from SCA Promotions’ attempts to keep from paying the cyclist $12 million for winning the Tour de France in 2002, 2003 and 2004. SCA had insured the bonuses on behalf of Tailwind Sports.

Then there is the suit by Britain's Sunday Times, owned by Rupert Murdoch's News Corp, which has already filed legal papers over the $500,000 it paid to Armstrong in 2006 to settle a libel lawsuit “after it reprinted claims from a book in 2004 that he took performance-enhancing drugs.”   It wants its money back, interest and costs –about $1.6 million.

The International Cycling Union is also urging Armstrong to return the $4 million in prize money that he won from the Tour de France.

The South Australian government also wants its money back, which it paid Armstrong to race at the Tour Down Under.

After retiring from professional cycling following his seventh tour win, Armstrong launched his much-publicized racing comeback at the Tour Down Under in 2009 and also competed in the event the following two years.

The SA government has never detailed just how much he was paid for his appearances, which dramatically increased national and international interest in the race.

Mr. Weatherill said the government would continue to keep the figure secret as disclosing the amount would reveal to others just how much the government was prepared to pay in support of major events.

Like, say, the U.S. Post Office?  And here is another idea.  How about ending these government/sports sponsorship deals.  As Gail Collins put it,

There still are sponsorship deals floating all around the federal government. (The Army has one with the National Hot Rod Association.) Nobody seems to keep track of exactly how much they add up to. Maybe this one little area could be a staging ground for bipartisan accord. Republicans and Democrats could join together to ban the use of federal taxpayer dollars for sponsorship of sports events. Then they would be so pleased with their progress that they could move on and pass a genuine budget. The Lance Armstrong debacle would have a point!

Hurricane Homeowners Also Victimized by Ambiguous Insurance Policies

There are some aspects of the insurance industry’s response to Hurricane Sandy that would almost be funny if not so tragic. Take the Traina’s of Staten Island. Their flattened home “was crushed in part by falling trees and its wreckage pushed back from the street by sanitation trucks.”  Despite this, their insurer Allstate is claiming all by $10,000 of damage was caused by flooding, and claim that their homeowner policy’s standard “flood exclusion” shields Allstate from paying any more than $10,000. The Traina’s are desperately trying to get a fair settlement out of this company, which so far refuses.  But here’s the incredible part (since so far, the story is fairly typical.)  Allstate is using the Traina’s flattened home in TV commercials touting its “you’re in good hands” slogan!  Really, have they no shame at all?  (Rhetorical question.)

It’s a undeniable fact that insurance companies are quick to deny responsibility for most of the damage its policyholders suffer from Hurricanes. (See our prior coverage here,) Immediately following Katrina, some tried to argue (although unsuccessfully) that these flood exclusions in homeowners policies should be void because, by their very nature, they are designed to leave people stuck after a hurricane.  You can see the point. This is so confusing for policyholders because flood exclusion clauses are contradicted by other sections of the same insurance contract. 

For example, many policyholders are asked to sign “hurricane endorsements” with clearly labeled “hurricane deductibles" (usually for some percentage of the property value), while at the same time, flood damage connected to hurricanes is purportedly excluded elsewhere in the policy. This misleading language is often compounded by the fact that the flood exclusion is never explained to the policyholder, or that many people are told by their insurance agents that they do not need to purchase federal flood insurance because their homes are not in flood zones. Newsday reports, for example, that “fewer than half of the 95,500 buildings damaged in Nassau and Suffolk counties by superstorm Sandy were covered by flood insurance.”

Ambiguous policy language is supposed to be construed in favor of the policyholder, since it is drafted by the insurer and presented to the consumer on a take-it-or-leave-it basis.  But clearly, more needs to be done to help policyholders BEFORE they sign these contracts.  That’s why we were so glad to see that in New Jersey, a bill has been introduced “that would require home insurers to provide New Jersey policyholders with a one-page summary about what their insurance covers, and what it does not" (although the bill reportedly got a pair of amendments that “made the measure more palatable to the insurance industry,” i.e., they will “prevent the summary from being read or construed as part of one's policy.” Oy.)  But here’s what the bill will do:

The proposed summary would list “notable” events that are covered or excluded from one’s homeowner’s policy. It is intended to dispel some of the confusion that arose after Hurricane Sandy, when many homeowners were surprised to find out their insurance did not cover their homes to the degree they expected. For example, standard homeowner’s policies do not cover flood losses, while separate flood insurance, which is underwritten by the National Flood Insurance Program, is subject to many limitations.

The proposed one-page document would come packaged with a person’s homeowners policy and subsequent renewals, alongside other consumer information about hurricane deductibles and flood insurance.

This won’t solve every problem, clearly.  But one thing at a time, I guess.

Insurers Need the Schumer Treatment

When it comes to New York Sen. Chuck Schumer, there’s one thing about which everyone agrees – he shall not be ignored.  Here’s how his wiki page puts it: 

Schumer's propensity for publicity is the subject of a running joke among many commentators. He has been described as an "incorrigible publicity hound".  Bob Dole once quipped that "the most dangerous place in Washington is between Charles Schumer and a television camera”, while Barack Obama joked that Schumer brought along the press to a banquet as his "loved ones".  Schumer frequently schedules media appearances on Sundays both on legislative and non-legislative matters.…

Last Sunday, the good Senator did indeed hold a Sunday press conference, at which he warned the insurance industry “not to lobby to have Sandy reclassified as a hurricane in order to charge hard-hit homeowners higher deductibles.” (This is an issue on which we briefly touched here. ) So far, Sandy's been labeled a “post- tropical cyclone,” meaning the industry feels like it won’t be able to take advantage of these “hurricane deductibles.” Said Schumer, “Insurance companies shouldn’t try to alter reality to save money on the backs of homeowners."  

Oh, Sen. Schumer, if only you knew the lengths to which these companies intend to do just that. In fact, you'd better step up your game.  Because when it comes to the insurance industry’s response to Hurricane Sandy, you ain’t seen nothin’ yet.  Wait until we get to the inevitable “wind vs. flood” squabble.

Homeowners policies contain provisions that exclude coverage for flood damage and while many Sandy homeowners carried separate flood insurance, which is underwritten by the federal government, probably most did not. Indeed, immediately following Katrina, the insurance industry was quick to deny responsibility for most of the damage its policyholders were suffering, saying it was “flood” damage.  But here’s the problem. There is enormous ambiguity in these policies.  While homeowners are often asked to sign “hurricane endorsements” with clearly labeled “hurricane deductibles,” at the same time, flood damage connected to hurricanes is excluded elsewhere in the policy. 

Hurricane deductibles are usually for some percentage of the property value.  This misleading language is often compounded by the fact that the flood exclusion is either never explained to policyholders, or that  people may have even been told by their insurance agents that they did not need to purchase federal flood insurance because they their homes were not in flood zones.

Normally, policyholders have the initial burden of proving that damage to a property was caused by one of the perils covered in the policy.  The burden then shifts to the insurer to prove that the cause of the damage was excluded under the policy as an affirmative defense.  Reliance on flood damage exclusion clauses should not meet this burden.  Where damage is caused by both a covered peril (wind) and an excluded peril (flood), the question will likely turn to which peril was the “dominant” or “efficient” cause of the damage. The existence of a flood exclusion clause in the insurance contract, which is contradicted by other sections of the same contract, should not release the insurers of liability.  (See more here.)

And here’s another reason why it’s so critical to force the insurance industry to take proper responsibility for this “post-tropical cyclone.”  The entire federal flood insurance program is in big financial trouble.  Writes the New York Times today,

The federal government’s flood insurance program, which fell $18 billion into debt after Hurricane Katrina, is once again at risk of running out of money as the daunting reconstruction from Hurricane Sandy gets under way.

Early estimates suggest that Hurricane Sandy will rank as the nation’s second-worst storm for claims paid out by the National Flood Insurance Program. With 115,000 new claims submitted and thousands more being filed each day, the cost could reach $7 billion at a time when the program is allowed, by law, to add only an additional $3 billion to its onerous debt.

Congress, just this summer, overhauled the flawed program by allowing large increases in premiums paid by vacation home owners and those repeatedly hit by floods. But critics say taxpayer money should not be used to bail it out again — essentially subsidizing the rebuilding of homes in risky areas — without Congress’ mandating even more radical changes.

Here’s another mind-boggling tid bit.  Explains the Times, [t]he program is still a moneymaker for the private insurance industry. Even though these companies bear none of the risk, they take, on average, $1 billion a year of the premiums the government collects, as compensation for help in selling and servicing the policies. Federal auditors argue the payments are excessive.”

Hoping to see Sen. Schumer out there next Sunday on this one!

Don’t Fool with Consumer Watchdog, and Other Election Observations

If you’re one of the 18 to 29-year-olds who made up 19 percent of voters this year (a higher percentage youth vote than in 2008! Yay!), you are mostly likely unfamiliar with an annoying 1970s Chiffon Margarine TV commercial that goes “It’s Not Nice to Fool Mother Nature!”  But whether you’re 18 or 85, that universal “don’t fool with me” sentiment seems to have marked a number of election contests this year, even besides the obvious (i.e., women, gays and pot!) 

Let’s start with the California’s insurance industry. Don’t mess with the 1988 insurance reform initiative, Proposition 103, and the consumer group behind it, Consumer Watchdog. Billionaire Mercury Insurance Chairman George Joseph just wasted $17 million on his Proposition 33, which would have repealed Prop. 103’s provision preventing insurance companies from charging more to drivers who had a lapse in insurance coverage. This is about what Joseph spent almost exactly two years ago on basically the same ballot measure. Yet despite being outspent by Joseph 70 to 1 (the Consumer Watchdog coalition had only about $275,000), Prop 33 went down!  Next up for Consumer Watchdog: the health insurance industry! 

Speaking of the insurance industry, seems like they’re a little nervous that their influence-peddling in Congress may be in need of some new targets. Reports the National Underwriter’s website,

Rep. Judy Biggert, R-Ill., was defeated for re-election, a victim of redistricting. She headed the Subcommittee on Insurance, Housing and Community Opportunity of the House Financial Services Committee, and was expected to be a big player on insurance issues. She shepherded the [National Flood Insurance Program] bill through its tortuous, five-year path to a long-term extension. The bill was finally enacted in July. It is unclear who will succeed her as chair of the insurance subcommittee. Biggert was also expected to be a key player on regulatory issues as well as in gaining passage of A Terrorism Risk Insurance Act extension.  Joel Wood, senior vice president of congressional affairs of the Council of Insurance Agents and Brokers, called Biggert's defeat, “extremely disappointing to the insurance industry.”

I can see why they’re anxious.  Between escaping payment for climate-related floods and getting bailed out for terrorist attack losses, this industry clearly needs some friends.  

And speaking of elections, here are a few other interesting outcomes:

• The U.S. Chamber of Commerce finally got their wish in West Virginia, ousting consumer-friendly AG Darrell McGraw who had held office for 20 years, “perhaps marking the start of major changes to West Virginia consumer protection litigation… [McGraw] has won the state more than $2 billion in consumer protection lawsuit settlements against pharmaceutical, coal and tobacco companies and unscrupulous lenders, according to his office.”
• They also got supermajorities in states like Indiana, Wyoming and Tennessee (both Houses), North Carolina (one House plus Governor) and won back majorities in states like Wisconsin. (See more here and here.) But the good news is that state houses flipped the other way in Colorado, New York, Maine, Minnesota, and Oregon (where there had been a tie), with apparent supermajorities in California and Illinois!  And that awful New Hampshire Speaker who pushed through that horrendous anti-patient medical malpractice bill (which we covered here) is no longer speaker since the Democrats took over!  Let’s hope a repeal is on the way!

As far as Supreme Court races, here’s some of what we know:

• Three Florida Supreme Court justices retained their seats in retention votes despite organized campaigns by conservative organizations to oust them.
• Iowa retained Justice David Wiggins, the Supreme Court Justice who had ruled on same-sex marriage with a 54% retention rate.  (This is in counter to two years ago when 3 of Wiggins’ colleagues were thrown out by voters.)
• In North Carolina, incumbent Supreme Court Justice Paul Newby won over appellate Judge Sam “Jimmy” Ervin IV thanks to an unprecedented and disturbing amount of outside money from business interests and conservative groups. 
• In Mississippi, attorney Josiah Dennis Coleman won over pro-consumer attorney Richard Phillips due to nasty outside money:  "The out-of-state special interest group Law Enforcement Alliance of America ran advertising in north Mississippi blasting Phillips as a trial lawyer who had filed a lot of lawsuits against business. …Phillips said the Virginia-based LEAA was trying to buy a seat on the court. He said such groups can put out negative ads that distort the truth without disclosing who are the individuals paying for the ads."

It’s not nice to fool Mother Nature, or with the truth.

Will Hurricane Sandy Provoke Price-Gouging by Insurers?

Another year, another East Coast storm with loud warnings from the insurance industry, warning policyholders that huge rate hikes are just around the corner.  Or is it?

You may recall that 14 months ago around the time of Hurricane Irene, the industry starting pushing out to the news media the story that that the industry was in financial trouble and would have to start dramatically raising rates (trying to push the country into a new “hard” insurance market), even though the industry’s actual financial situation failed to support either of these notions.  The “hype” was plainly illustrated by an August 28, 2011, New York Times article entitled, “Irene Adds to a Bad Year for Insurance Industry.”  But lets just say, some of us called them on their bulls#*t, like this study from Americans for Insurance Reform, and critical news articles like this one in the Huffington Post.  . 

So what happened?  Well, the push-back worked and those 100 percent premium spikes never happened despite a concerted effort by some industry leaders (see plenty of examples here).  In fact, some have now completely changed their tune.  Just about a year ago, J. Patrick Gallagher, CEO of insurance broke Arthur J. Gallagher, was pushing for rate hikes and a new “hard market” out of concern “for the industry’s health.” Now, he’s saying this:

“Typically what you would get is a spiked recovery which is very traumatic to our clients. It’s not a good thing for clients at all,” he explained.

…“Now, I am not saying we are going to have a classic hard market. As I said, a classic hard market is the spiked recovery. You can go back to 1975, it spiked. You can look at 1984-85, it spiked. In 2000-2001, it spiked. And when that happens, it disrupts clients considerably,” Gallagher said.…

The current environment is better for clients, Gallagher assessed. “If you think about the fact that we’ve cut rates since 2003, that’s eight, nine years of rate cuts. Rates are back essentially to where they were in 1999. This is a better environment for clients than to let the balance sheets get to the point where they need a spiked recovery.”

It’s also certainly better for the carriers, he said. “I think they know that. And it’s literally a great environment for brokers. I would much rather have this environment, although everyone says ‘Oh, the hard market is so great.’ The fact is it completely disrupts our clients. They last for 24-to-36 months max. And everybody at the end of a hard market is angry with their broker and their carriers.”

Duh. By the way, this is more evidence that insurance industry insiders all admit to the existence of this self-made cycle even though they often publicly deny the cycle’s existence while their lobbyists try to take advantage of skyrocketing rates to push for so-called “tort reform.” But back to Hurricane Sandy and today’s insurance market.  Here are some of the good fortunes from which the industry has been benefiting so far this year:

• Insurance rates which, while not “spiking,” have been drifting up. (See, e.g., here, here.)

• Losses so far this year have been small.  The first half of this year "saw a drop in catastrophic losses, which totaled $13.8 billion, compared to $24.4 billion during the same period a year ago, according to the Insurance Information Institute."  Robert Hartwig, president of the Insurance Information Institute, says,“Catastrophe losses are down 40-50 percent through the third quarter [compared to last year] …Even with losses from Sandy, 2012 catastrophe losses will still be well below 2011.” (emphasis added.)  More from Reuters: "[I] 2012, most insurers' disaster losses are down substantially, leaving them with more capacity to absorb the billions of dollars in costs some expect from Hurricane Sandy."

•  Surplus and profits are through the roof. In Repeat Offenders, AIR noted that coming into 2011, “surplus - the extra cushion insurers hold in addition to the amount they have set aside to pay estimated future claims - rose by a factor of almost 40!” and was $580 billion in 2010 - an all-time safe financial position, far safer than required, and one might even say that today, the industry is overcapitalized. … Given these circumstances, the creation of a hard market [i.e. rate spikes] now would be purely for the purpose of price-gouging buyers.”  Sure enough, despite all its “record-breaking loses” in 2011, the industry “hit[] a record $565 billion [surplus] as of first quarter 2011 and falling off only slightly during 2011.” Not only that, in the first half of 2012, “The industry’s overall net income after taxes skyrocketed during this period to $16.4 billion, compared to $4.8 billion a year prior." 

• In industry will avoid paying a large chunk of Sandy’s losses.  As is true in all weather events, homeowners policies cover only wind and rain, not flooding.  So, as Reuters points out, “the brunt of the storm's financial impact may end up falling on the National Flood Insurance Program, which is responsible for almost all flood coverage in the country.” But not only that, many homeowners policies today’s have Hurricane deductibles.  Writes the National Underwriter website, PropertyCasualty360.com:

Interestingly, unlike Irene, it appears insurers will be able to enact hurricane deductibles since Sandy will make landfall as a hurricane. Irene was downgraded to a tropical storm just before it made landfall a year ago and officials in some states ordered insurers to waive the deductibles, which are typically 2 percent of a home’s insured value but can vary from state to state, or contract to contract, says Hartwig.

This could act to keep insured losses down somewhat, since hurricane deductibles are higher than flat-rate deductibles. For instance, a home with a value of $200,000 may have a flat deductible of $1,000, but a 2 percent hurricane deductible is $4,000.

Unlike the rest of us, the insurance industry has nothing to worry about.  Stay safe, everyone.

For the Sick and Injured, 9/11 Plus 11 and Counting

Show of hands –who here said a silent “Huh? to themselves when Jeb Bush, paying tribute to his brother W during the GOP convention, uttered the following: “he kept us safe.”  Wow.  Now, with even more evidence surfacing that the CIA had repeatedly warned W that al Qaeda was about to attack (see Kurt Eichenwald’s op ed in the New York Times today) what do you do with a statement like that?

One thing you may not want to do is come anywhere near the expanding number of angry 9/11 victims, whose latent diseases are multiplying daily.  Thirty days from tomorrow, a new rule will go into effect that adds 50 cancers “to the list of sicknesses covered by a $4.3 billion fund set up to treat and compensate people exposed to the dust, smoke and fumes of the collapsing World Trade Center.”

That seems like great news, but as the Huffington Post reports today:

It’s been 11 years since terrorists destroyed the World Trade Center towers, and more than a year-and-a-half since President Barack Obama signed into law a bill meant to compensate responders and survivors sickened from exposure to the hazardous debris and toxins of Ground Zero.

But they're going to have to wait a while longer -- perhaps more than a year -- before most of them start to see any of the money authorized in the James Zadroga 9/11 Health and Compensation Act.

“It's going to be a process, and I think it's going to take a year or two until that process really gets moving," said Sheila Birnbaum, the special master of the $2.775 billion 9/11 Victims Compensation Fund. "People have to get medical records, they have to do all kinds of things, and they're going to have to get certified that they meet the criteria.”

The compensation fund was supposed to start work in July of 2011, and many believed that money would start to flow a year later. It hasn't, and although there are explanations for why, people whose lives were shattered by the terrorists' attacks of Sept. 11, 2001, are starting to get frustrated.

“These people need the money. I talk to a lot of them, they're all struggling along and they're not getting anything,” said Joe Zadroga, the father of the late police officer after whom the Zadroga Act is named.

“These people are really down,” Zadroga added. “I just get upset about it because we fought so hard to get that bill passed, and now they're dragging their feet on it.”

“We still haven't gotten 10 cents,” said TJ Gilmartin, a construction worker from Brooklyn who rushed to Ground Zero with a truck after the attacks, and has seen his ability to work deteriorate, along with the health of his lungs.

And while they wait, the 9/11 casualty count grows.  As ABC News reports,

“They’re only about ten years too late,” said Jeffrey Stroehlein, who retired from the New York Fire Department in May 2011, two months after he was diagnosed with a type of brain cancer that affects the central nervous system. “I’m watching people die of these diseases, these ailments, as they go on and play ping pong,” he said of government officials arguing over whether cancer should be included in Zadroga Act coverage.

Meanwhile, Larry Silverstein, leaseholder of the World Trade Center property, is still pursing his tort case against United Airlines, American Airlines, Boeing, the Massachusetts Port Authority, and security companies for property losses due to security breaches, which allowed the hijackers to board the planes.  Writes Reuters, “[t]wo recent rulings by a federal judge in New York denying the airlines’ bid to dismiss the lawsuit over a narrow insurance dispute have opened the door to the entire case ending up in the hands of a jury.” 

Silverstein is seeking $8.4 billion in damages for loss of property and lost business, even though U.S. District Judge Alvin Hellerstein has limited the amount to the $2.8 billion Silverstein paid for the leases. The lawsuit is among the last pieces of litigation resulting from the attacks of September 11, 2001, which killed more than 3,000 people in New York, the Pentagon outside Washington, and Pennsylvania.

The aviation defendants’ liability insurance is estimated at more than $10 billion, according to court documents. Among dozens of insurers of American Airlines are Associated Aviation Underwriters Inc and Avion Assurance Limited insurance groups. United Airlines has U.S. Aircraft Insurance Group and British Aviation Insurance Group among its insurers.…

Financial services firm Cantor Fitzgerald is also suing American Airlines over lost business and the destruction of its offices in the World Trade Center. The firm said in a court filing last March it was seeking between $464 million and $488.8 million in property damages. American Airlines Flight 11 struck the north tower, killing 658 Cantor employees. United Airlines Flight 175 crashed into the south tower.

And if you need some reminder of what W was doing when those two planes hit Cantor, here a little refresher:

Insurance Delays and Incongruous Courts

Let’s tackle the good news first.

Today, the U.S. Supreme Court refused to hear an appeal from Louisiana Citizens Property Insurance Corporation.  This appeal followed a Louisiana Supreme Court decision upholding a local court decision ordering Citizens to pay $105 million in penalities to thousands of policyholders it harmed after Hurricane Katrina.  Citizens had been set-up in 2003 as a state-sponsored “insurer of last resort” to provide homeowners insurance to those who could not find coverage in the private market. You will no doubt recall that following the 2005 storm, many individuals were left destitute, without food, water or a roof over their heads.  As this report showed, Citizens policyholders had a particularly horrendous time – probably the worst of anyone - trying to file claims or get them paid.  And that’s saying something.  Citizens has the money, but says it’s gong to continue to try to fight this in federal court. 

Now, unfortunately, the bad news. On Friday, the Texas Supreme Court issued a shocking 5-4 decision, which completely eradicates the rights of injured workers to sue workers’ compensation insurance carriers that act in bad faith, suddenly overturning decades-long Texas law.  Writes the Austin American-Statesman:

The 5-4 decision favored Texas Mutual Insurance Co. of Austin, the state's largest workers' compensation insurance carrier. The case was one in which Texas Mutual had initially denied an injured worker's claim, saying he was hurt playing softball and not at work, before the company eventually settled the case.

The worker, Timothy Ruttiger of Galveston, later sued the insurance company, claiming the delay in getting his benefits damaged his credit, worsened his hernias and caused mental anguish, pain and suffering.

A Houston jury awarded Ruttiger $173,500, plus attorney fees, but last summer the Texas Supreme Court ruled that Ruttiger take nothing under the insurance code and deceptive trade practices law. But the higher court sent back the bad-faith claim for reconsideration by a Houston appellate court.

Before the appellate court acted, the Supreme Court granted a request for a rehearing.

On Friday, the decision eliminated the bad-faith provision that had been law for 23 years. …

Alex Winslow with the Texas Watch Foundation's Court Watch project said that the decision is another example of the Supreme Court's conservative activism.

“Five robed justices have gone out of their way to second-guess the clear and decades-long intent of the Legislature,” he said in a news release.

Read more from Texas Watch here.  And then go read this book.