Recent verdicts from across the nation in disability, life and health insurance policy cases must be alarming for big corporate insurance companies. The trend is for jurors to award individual plaintiffs astronomical punitive damage verdicts, showing their general disdain for insurance companies and tendency to empathize with policyholders, particularly where a person’s health is at issue.
That trend in juror attitudes is supported by jury consultant research. For example, Mark S. Sobus, Ph.D., J.D. of EDGE Litigation Consulting, LLC, found insurers are at a great disadvantage when trying to persuade jurors to side with them because jurors tend to have a negative attitude toward insurance companies. Dr. Sobus in his research asked jurors, “In a dispute between a policyholder and his/her insurance company, are you someone who without knowing any facts would automatically side with the policyholder or the insurance company?” Dr. Sobus found no one ever said they would side with the insurance company, but around thirty percent of jurors admitted that they would automatically side with the policyholder. That thirty percent of jurors can almost never be persuaded to change their minds.
Dr. Sobus also found:
- While most jurors believe policyholders make fraudulent claims to insurance companies and that such conduct is wrong, this rarely leads to jurors adopting such a position when they decide a case, even where the insurer presents strong evidence the policyholder made misrepresentations to the insurer.
- Jurors hold insurance companies to an incredibly high standard of constructive knowledge. Jurors very often forgive misconduct by the insured when they conclude (as they most often do) that the insurance company could have and should have independently learned about “missing” information left out by the insured on his application for insurance.
- An example of this happened in a life insurance dispute in which the insured was murdered. The murder happened during the policy’s two-year contestability period, which allowed the insurance company to rescind the $5 million policy if it found material misrepresentations in the application. The insured omitted that he was bankrupt on his application. He misrepresented his assets. And he failed to disclose he had been turned down by other insurance companies. In this case and similar cases, according to Dr. Sobus, jurors consistently found in favor of the beneficiary. The jurors concluded that the company did not adequately investigate the insured prior to issuing the policy. The common refrain from jurors was the company wanted the premiums and didn’t care about the insured’s material financial history until he died and the insurance company’s assets were on the line. Only then did the company properly investigate the underwriting risk, when it should have done so before it sold the policy.
Jury consultant conclusions that jurors are predisposed to side with individual insureds over their insurance companies are borne out by recent jury verdicts against insurance companies. In Latham v. Time Ins. Co., No. 2006-cv-1040 (Boulder Colo. Dist. Ct. Jan. 2010), after just six hours of deliberating, a jury awarded a thirty-nine year old teacher and her two children almost $50 million in damages, mostly punitive damages. Her health insurer, the defendant, had rescinded her insurance policy after she submitted a claim for $185,000 in medical bills for the broken bones, internal injuries and brain damage she and her children suffered in an automobile accident caused by a drug dealer fleeing from police. The insurer decided not to pay the claim and rescind the policy because it discovered the insured had failed to disclose certain medical information on her application for the insurance.
The insured’s omission did not matter to the jury, which emphasized the lack of humanity and concern by the insurance company for the insured mother of two. Indeed, the insured admitted she failed to disclose the medical information on her insurance application. But, according to the local news report, jurors contacted after the verdict stated that the defendant insurance company failed to show that plaintiff deliberately misrepresented her health on her application for insurance or that the company had conducted a reasonable investigation before revoking her coverage. Another juror stated:
Most of [the insurance company’s] witnesses seemed dishonest, defensive and just showed a basic lack of humanity. It was kind of frightening. I was blown away by just how much they acted like robots.
The jury foreman even stated that he had been in favor of awarding as much as $150 million to the insured, “as a way of punishing the company and sending it a message.”
The message of this case to insurance companies is obvious. Do not discount the role emotions play on jurors involving a dispute between an insurance company and individual insured over her medical condition. Jurors will tend to side with the insured based purely on their emotions. Jurors will give the insured considerable grace and big damage awards whenever the evidence will remotely allow it.
Another example is Hull v. Ability Ins. Co., No. 1:10-cv-116 (D. Mont. April 6, 2012). In that case, an insurance company stopped paying an elderly woman’s benefits, after two years of paying them, under her long-term care insurance policy. The company claimed her dementia did not qualify her for the benefits under the policy’s terms. The insured presented evidence the insurer had not obtained information from her treating physician and had not obtained her medical records before denying her claim. She also presented evidence that the insurer’s claims manual recommended claims representatives avoid relying on information from the insured’s treating physicians. The jury awarded the elderly woman $250,000 in benefits for the insurance company breaching its insurance contract and $32 million in punitive damages (later reduced on appeal to $10 million).
No doubt, as these and other cases illustrate, there is a trend developing among jurors to punish recalcitrant insurers with large punitive damage awards, particularly in cases involving an individual insured’s claim for disability, life or health benefits. The lesson to “big business” insurance companies is unmistakable, don’t discount the human element juries use to decide cases. That element puts corporate insurance companies at a distinct disadvantage from day one of a jury trial involving an individual and his or her health problems.
Echague v. Met Life: Equitable Surcharge is an Available Remedy Against Unresponsive Plan Administrators Under ERISAJune 26, 2014 Robert McKennon
The Employee Retirement Income Security Act of 1974 (“ERISA”) seeks to protect participants in employer-sponsored plans, but lack of adequate communication and transparency is an often an unfortunate byproduct of the insurance industry. The California district court shed light on this issue in Echague v. Metro. Life Ins. Co., 2014 U.S. Dist. LEXIS 68642 (N.D. Cal. May 19, 2014) by holding an insurer breaches its fiduciary duty when providing insufficient responses and the insured may be entitled to equitable surcharge. Echague is highly beneficial to insureds and beneficiaries, as it warns plan fiduciaries (such as insurers and plan administrators/employers) to think twice before ignoring requests for information, giving incorrect information, or neglecting to provide updates regarding the policies they administer, as their inactions or providing of incorrect information about the plan may open them up to equitable remedies such as equitable surcharge which would allow plan participants to recover the full value of the plan benefits in dispute.
The McKennon Law Group PC periodically publishes articles on its California Insurance Litigation Blog that deal with frequently asked questions in the insurance bad faith, life insurance, long term disability insurance, annuities, accidental death insurance and ERISA areas of the law. This article in that series focuses on appealing a denial of your long term disability insurance claim for long term disability insurance benefits under ERISA.
The short answer is “Absolutely.”
Insurance Commissioner Dave Jones last week announced that Governor Jerry Brown has signed AB 1747, authored by Assembly Member Mike Feuer (D-Los Angeles). The bill was strongly supported by Commissioner Jones and the California Department of Insurance and provides important consumer safeguards for life insurance policyholders. AB 1747, which will be effective January 1, 2013, adds new Sections 10113.71 and 10113.72 to the Insurance Code and will apply to every individual and group life insurance policy issued or delivered in California after January 1, 2013.
AB 1747 will require that every life insurance policy issued or delivered in this state contain a provision for a grace period of not less than 60 days from the premium due date and that the policy remains in force during the 60-day grace period. The law will also require an insurer to give the applicant for an individual life insurance policy the right to designate at least one person, in addition to the applicant, to receive notice of lapse or termination of a policy for nonpayment of premium. The law will require an insurer to provide each applicant with a form, as specified, to make the designation and to notify the policy owner annually of the right to change the designation. The law will also prohibit a notice of pending lapse and termination from being effective unless mailed by the insurer to the named policy owner, a named designee for an individual life insurance policy, and a known assignee or other person having an interest in the individual life insurance policy at least 30 days prior to the effective date of termination if termination is for nonpayment of premium.
MetLife Pays $40 Million To Settle Allegations That It Failed To Properly Identify And Pay Life Insurance BeneficiariesMay 17, 2012 Robert McKennon
The California Department of Insurance, along with five other state insurance departments, reached a settlement with Metropolitan Life Insurance Company, Inc. (“MetLife”) over allegations that the company failed to properly utilize the Social Security Administration’s Death Master File database to identify deceased life insurance policyholders and pay their beneficiaries. In addition to promising to enact business reforms to ensure that it promptly pays life insurance benefits to the proper beneficiaries, MetLife will pay $40 million to the state insurance departments.
McKennon Law Group Founding Partner Robert McKennon Featured in January 2012 Issue of Forbes MagazineFebruary 09, 2012 Robert McKennon
Los Angeles – Noted Southern California insurance and business litigator Robert J. McKennon was featured in the “Southern California Legal Profiles” section of the January 2012 issue of Forbes Magazine in an article highlighting his experience as a top Southern California insurance and business litigation attorney.
California Courts Deal Another Blow To Plaintiffs' Efforts To Bring Class Actions Based on Insurer and Agents MisrepresentationsJuly 28, 2011 Robert McKennon
The California Court of Appeals for the Second District has upheld a trial court finding that may effectively limit and discourage attorneys from filing class actions based on misrepresentations in the sale of insurance policies through agents. In Fairbanks et al. v. Farmers New World Life Ins. Co. et al., __ Cal. App. 3d __ (2011), the court of appeal affirmed the trial court’s denial of class certification on the basis that common issues did not prevail, and that the issue was incapable of common proof. The case involved Farmers’ marketing and sale of universal life insurance policies. It was alleged that Farmers created a common marketing strategy with respect to the marketing and sale of such policies, and that Farmers instructed its agents to implement such strategy by using Farmers’ marketing materials in the agents’ sales pitch to prospective customers. After a lengthy discussion of the types of life insurance policies at issue, the appellate court focused on the actual narrow bases on which Plaintiffs sought relief, which was based on a single unified theory relating to fraudulent misrepresentations and concealments made by agents during the marketing of the policies to the individual prospective customers. The court determined that the bases for class certification “were not four separate bases for class relief, but part of one overarching allegedly fraudulent scheme.” The court noted, “Plaintiffs argued that proof of this fraudulent scheme could be established by common, rather than individual, proof, based on a combination of common policy language, common language in annual policyholder statements, and a common marketing scheme.” Plaintiffs sought to certify a class based on very broad conduct involving myriad misrepresentations made in written marketing materials as well as alleged misrepresentations by Farmers’ agents. Farmers argued that plaintiffs’ broad theory could not sustain a certifiable class in that it would require independent proof as to each policyholder. Specifically, it would require proof as to the individual representations made to each policyholder, and the materiality of such representations as to each policyholder.
On April 25, 2011, California Insurance Commissioner Dave Jones and California State Controller John Chiang announced that they are investigating Metropolitan Life Insurance Company (“MetLife”) for a failure to pay out life insurance benefits after learning of an insured’s death. It appears that while MetLife learned of its insured’s deaths through a database prepared by the Social Security Administration called “Death Master,” which lists all Americans who die, MetLife failed to use this information to pay legitimate claims.
As noted in the California Department of Insurance’s Press Release:
The Commissioner and the Controller are responding to preliminary findings from an audit the Controller launched in 2008, indicating that for two decades, MetLife failed to pay life insurance policy benefits to named beneficiaries or the State even after learning that an insured had died. The company has a huge number of so-called Industrial Policies, valued at an estimated $1.2 billion, which were primarily sold in the 1940s and 1950s to working-class people. The payments, which were collected weekly, typically were higher than the final death benefit. The Controller’s unclaimed property audit indicates that MetLife did not take steps to determine whether policy owners of dormant accounts are still alive, and if not, pay the beneficiaries, or the State if they cannot be located.
In addition, the preliminary findings revealed that MetLife may have similarly failed to contact the owners of annuity contracts:
Simultaneously, the preliminary findings show, when MetLife knew that an owner of an annuity contract – which generates income for the policy owner at the time the annuity matures – had died, or the annuity had matured, the company did not contact the policy holder or beneficiary, even though it subscribed to the “Death Master” database. Furthermore, MetLife continued making premium payments from the policy holder’s account until the cash reserves were used up, and then cancelled the contract.
While Monday’s press release was limited to the State’s investigation of MetLife, both the “Commissioner and Controller believe that these practices are not isolated, but are systemic in the insurance industry.”
If you believe you have a life insurance policy or annuity issued by MetLife, or any other insurer, for which you have failed to properly receive life insurance benefits, contact McKennon Law Group PC for a free consultation.
Stranger Originated Life Insurance, also known as a “STOLI,” is a life insurance policy financed or held by a person who has no relationship to the person insured under the policy. In the typical STOLI transaction, an investor encourages an elderly person to purchase a life insurance policy and name the investor, who pays the premiums, as the policy beneficiary. Normally, the elderly insured is also paid a sum of money to entice them to enter into the transaction.
Stranger-Owned Annuities allow investors to purchase an interest in the life of an elderly or terminally ill person, inducing the insured to purchase the policy largely for the benefit of unrelated and sometimes unknown beneficiaries. The NAIC will examine whether greater regulation of the Stranger-Owned Annuity market is warranted and whether consumers are adequately protected.
In recent history, as discussed in the firm’s California Insurance Litigation Blog, the insurance industry has focused on Stranger-Originated Life Insurance Policies and many states, including California, have now regulated them. Numerous states such as California have outlawed them.
Stranger-Owned Annuities are less well known, but equally concerning to the industry. The investors have no insurable interest in the owner of the annuity, and generally purchase the annuity to receive an enhanced death benefit or some other advantage. Other than scattered lawsuits challenging the validity of Stranger-Owned Annuities, the market is largely unregulated. Many states have strict laws regarding insurance interests in life insurance policies, but have little or no regulation regarding annuities.
For a copy of the NAIC’s press release, click here: http://www.naic.org/Releases/2010_docs/stranger_owned_annuities.htm