Wednesday, June 18, 2008

Colorado Bill 1407: Law Would Enforce Insurance Company Fairness

Fairness. It’s a simple principle that guides the lives of most Americans. Yet for insurance companies, the principle is often overlooked and brushed aside for one reason: profit. House Bill 1407 is now on Governor Ritter’s desk awaiting his signature to make it the law. The new law would require insurance companies to pay double damages plus attorney fees if they are found to have unreasonably delayed or denied a valid insurance claim. The law is the culmination of years and years of insurance company abuse against its policyholders by unreasonably denying claims or delaying the payment of valid claims.

Colorado needs this law. For too long insurance companies have made large profits on the backs of their policyholders. This law would help policyholders stand up against multi-billion dollar corporations. In 2005, the year of Hurricane Katrina, it was estimated that the insurance industry made over $40 billion dollars in profit and $63 billion in 2006.

Fairness. It’s a simple principle that guides the lives of most Americans. Yet for insurance companies, the principle is often overlooked and brushed aside for one reason: profit. House Bill 1407 is now on Governor Ritter’s desk awaiting his signature to make it the law. The new law would require insurance companies to pay double damages plus attorney fees if they are found to have unreasonably delayed or denied a valid insurance claim. The law is the culmination of years and years of insurance company abuse against its policyholders by unreasonably denying claims or delaying the payment of valid claims.

Colorado needs this law. For too long insurance companies have made large profits on the backs of their policyholders. This law would help policyholders stand up against multi-billion dollar corporations. In 2005, the year of Hurricane Katrina, it was estimated that the insurance industry made over $40 billion dollars in profit and $63 billion in 2006.

It’s hard to imagine a world without insurance. Insurance is a wonderful social tool that allows us to pool our money and transfer the risk of loss from us to the insurance company. At its core, insurance is an agreement (a contract). You agree to pay premiums and the insurance company agrees to pay claims. The insurance company takes your premiums and invests that money, and makes money on those investments.

However, when insurance companies don’t keep their end of the bargain and unreasonably deny or delay claims, they have breached the contract. In every insurance contract, the law presumes that the insurance company will treat the policyholder fairly. In law we call it the “covenant of good faith and fair dealing.” Cases in which insurance companies are sued for their breach of this covenant are also known as “bad faith” cases.

We all pay hard-earned money to insurance companies for the comfort of knowing that if something goes wrong, we have a financial security net that will protect our savings, homes, and prevent us from falling into bankruptcy. If insurance worked properly and insurance companies were guided by fairness and a sense of what is right, it would be a system without lawyers. Unfortunately, insurance companies do not act with a sense of fairness; they are motivated by money and go to great lengths to keep it. Because this is how the insurance companies work, lawyers are the last line of defense for policyholders.

Like most of us who invest in the stock market, insurance companies lose money. This becomes part of the problem. How will the insurance companies make up their losses? One way is to get more policyholders—thus, the incessant television ads and sponsorship of sporting events by insurance companies. The other way for the insurance companies to make money is to pay less money out on valid claims or to delay the claim. The longer the insurance company holds onto money for your claim, the more interest and money it makes. This is where insurance companies have focused their efforts for the last 15-20 years. This scheme is great for insurance companies, and horrible for policyholders who often find that their financial security net is gone when they need it the most.

Claims centers, the place where insurance companies process claims, have been converted into “profit centers.” Claims adjusters do everything they can to offer you as little money as possible to settle a claim—a process widely known as “lowballing.” Practically speaking, insurance companies need to make profits. This article is not intended as some anti-corporation or anti-profit rant. Profits for insurance companies are great. They generate jobs and ensure that there is money to pay claims. My fundamental problem with insurance companies is where and how they are making their billion dollar profits.

Quest for Gold.” “Bring back a Billion.” “Advanced Claims Excellence or the ACE Program.” There is current litigation across the United States against Farmers, State Farm, and Allstate over these types of programs. Policyholders have sued both Farmers and State Farm claiming that these programs are and were designed to force insurance adjusters to deny or delay claims. In return for denial or delaying of claims, the insurance adjusters received bonuses. In a memorandum dated September 17, 2001, Farmers Insurance explained that “employees whose locations achieve their Quest for Gold goals, will receive 1.25% of their eligible salaries ($100,000 maximum).”

Naturally, the insurance companies claim that these programs were not intended to incentivize their claims adjusters to deny or delay payment on valid claims or to reduce the amount of payments made on valid claims. However, in court case after court case, evidence has been presented that shows these programs were specifically designed to delay or deny valid claims. At the center of the controversy is McKinsey & Co., a New York-based consulting firm that has worked for many large insurance companies, including State Farm and Allstate.

Goods Hands or Boxing Gloves? In 1992, Allstate Insurance retained McKinsey. In fact, “McKinsey’s advice helped spark a turnaround in Allstate’s finances. The company’s profits rose 140 percent to $4.99 billion in 2006, up from $2.08 billion in 1996. Allstate lifted its income partly by paying less to its policyholders. Allstate spent 58 percent of its premium income in 2006 for claim payouts and the costs of the process, compared with 79 percent in 1996, according to filings with the U.S. Securities and Exchange Commission.” You might question how an insurance company can make such a dramatic increase in its profits in just four years.

During court proceedings McKinsey was forced to divulge 13,000 documents relating to the “advice” it provided Allstate. McKinsey told Allstate things like “sit and wait” regarding claims. Delaying claims could, and most likely did, discourage policyholders from pursuing their claims. This delay forced many policyholders to just walk away. One less claim to pay means one thing for insurance companies: more profit. Many of my clients come to me because they “don’t want to deal with the insurance company.” While many of them could not put their finger on how they were being taken advantage of, they just knew it was happening.

Allstate was also advised by

Source: northdenvernews.com

For more information about Bad Faith Laws Passing see: Farmers Insurance Bad Faith Law

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