11 February 2010

Assurant Health Has A Policy Of Cheating Insureds

Assurant Health, a.k.a. Time Insurance, is one of the leading providers of health insurance to people who don't receive health insurance through their employers. It has been rebuked by the President, Congress and courts for the way it conducts business.

In Congressional testimony, its CEO told Representatives that its application forms "are written in simple, easy-to-understand, straight forward language," then admitted that he didn't know what many of the terms on his company's own forms meant. He also told Congress that he would not commit to rescinding people's policy's only in cases of "intentional fraud."

Latham v. Time Insurance

Alan Prendergast nailed the fact that make it clear that Assurant Health has earned its bad reputation in a story in this week's Westword. The story discussed a $37 million judgment entered against the company in a bad faith case by a Boulder jury. In the case, Assaurant Health refused to pay her bills and retroactively rescinded the five months old health insurance policy of a woman badly injured in a car accident.

The investigation Assurant Health did wasn't begun until the accident claims started to arrive. Assurant Health didn't follow its own rules or Colorado insurance division rules in the process it used. The insurance company made the decision in about 68 seconds. The insurance agent who sold the policy pretty clearly lied about the process by which the insurance application with pre-existing condition data was gathered in open court. Testimony of the top manager at Assurant Health in charge of the decision makes clear that Assurant Health also lied to the woman injured about what it was doing to handle her case in its written communications with her.

The companies lawyers, led by Robert Walker and Walter Wilson, from a law firm based in the state of Mississippi, where reprimanded by federal judge Richard Matsch was abuses in the litigation.

Of the three items allegedly misrepresented by the woman injured on her insurance application, one involved an alleged pre-existing condition that wasn't covered anyway. Another involved an incorrect interpretation of a medical record that was alleged to say that a particular drug was used and that the woman was diagnosed with a particular problem, when in fact the medical record said that the drug in question was not used and that the woman was told that she didn't have the problem she had feared that she might have. None of the alleged misrepresentations had anything to do with the accident claims that Assurant Health was asked to pay.

The case is in the post-trial review phase now and I assure you that every actively litigated $37 million plus trial court loss is appealed. It is a good example of one of important unwritten rules of trial practice. A clear wrong is punished much more seriously than ambiguous but economicaly more serious wrongs. Clarity and doubt drive damages, even though theoretically, they shouldn't.

I would be surprised if the verdict was reduced on appeal, but would be surprised if some aspect of the damages award (which went well beyond what the attorney for the woman injured asked for in the case) were not adjusted in post-trial motions or on appeal. The lawyer asked for $2 million in economic damages and $5 million in punitive damages. The jury awarded $183,551 for medical expenses incurred an not paid (even though an automobile insurer for the party at fault ultimately did pay those), $2,000,000 in economic damages on the theory that the woman and her children might never be able to get health insurance again because of Assurant Health's wrongly determination that the woman lied on her health insurance application, $7.3 million for emotional distress, and the balance, about $27.8 million, in punitive damages.

Juries can award whatever they want in damages, but Colorado has a dollar cap on damages for emotional distress. In practice, in a case like this one, the cap on non-economic damages is about $2.8 million at most ($936,030 each for mother and each of the two children with a judicial finding of justification with clear and convincing evidence) and there is some argument for limiting non-economic damages in the case to a lower amount. Thus, non-economic damages are likely to be reduced by at least $4.5 million.

Thus, total non-punitive damages in the case are likely to be reduced to about $5 million.

Colorado has limited punitive damages to the total amount of non-punitive damages awarded, unless there a judge finds that the conduct is ongoing (a plausible possibility in this case) in which case punitive damages up to three times the economic damage award (i.e. $15 million) could be imposed.

Normally, interest at 8% per year from the time of the wrongful act on the non-punitive part of the award (probably close to 50% which is about $2.5 million by the time that post-trial motions are over and the judgment is finalized), and out of pocket costs incurred in connection with the lawsuit other than attorneys' fees (almost certainly no more than a few hundred thousand dollars). There are also frequently attorneys' fees awards in bad faith cases, usually based upon a hypothetical hourly rate and the number of hours worked. My guess is that an award for attorneys' fees would probably be less than $700,000 in a case like this one.

Thus, the $37.3 million verdict is likely to be reduced to $23.5 million or less depending upon the legal decisions made by the judge. This is still substantial, of course, and if the insurance company wants to appeal it will have to post a bond in that amount (more or less) which will make collecting the judgment easy (collecting from insurance companies is never very hard because they are required to maintain cash reserves under insurance regulations so they always have cash on hand to pay).

The case could also hurt Assurant Health in other cases by binding it to factual findings made in this case in other similar cases brought against it, and through the evidence of general applicability that the trial transcript could make available in other cases, making copycat bad faith cases cheaper to litigate.

If there is an appeal and a bond is posted, neither the woman nor her lawyer will see any of that money until the appeal is finally resolved, although interest will continue to accrue.

The lawyer will get a significant contingency fee (a third is the rule of thumb but there is considerable variation in actual agreements based upon whethere cases go to trial or appeal and sometimes with tiers with different percentages based upon the amount of the recovery). And, some portion of the damages may go to taxes (the tax implications of an award like this one for both the plaintiff and the defendant would take a post all its own).

A Policy And Practice That Is A Menance To Consumers

It was clear from the case that this was not simply a mistake. It was a direct consequence of a policy and practice of the firm. It rescinds about one in two hundred insurance policies. This may not sound like many, but an insurance company can only rescind a policy in the first year or two it is in force (the time period varies from state to state), and Assurant Health has a policy of investigating the accuracy of insurance applications only after big claims are submitted. Big claims in the first year or two of a policy are made by only a small percentage of an insurance company's outstanding insureds.

An analysis done here calculates that the percentage of insureds with big claims whose policies are rescinded by Assurant Health is on the order of 10%-50%, probably around one in six, with rescission becoming increasingly likely as the amount claimed rises.

You buy health insurance for just these kind of catastrophes and Assurant Health makes it its policy to lie and cheat in an effort to take advantage of you, at a time when you have suffered a very severe health problem, in these cases.

Companies like Assurant Health deserve to be wiped out by big jury awards and no consumer interested in having the promises in their insurance contract honored should consider doing business with them.

Is It Racketeering? Should It Be?

The only hard question, in my mind, is whether the company and a good share of its senior executives should be prosecuted for racketeering. It wouldn't take much beyond the Westword story and the transcript of the trial it discusses to show probable cause to bring criminal charges against the company and its executives. The U.S. Supreme Court permitted civil RICO class action lawsuits against health insurance companies alleging mail and wire fraud as a predicate act in a unanimous 1999 decion, so presumably a pattern and practice of mail and wire fraud could also be a basis for a criminal RICO prosecution.

Assurant Health is a good example of a case where there is considerable evidence of a business organization carrying out intentional fraud towards vulnerable people in a collective and coordinated manner, and also a good example of a case where bad acts are systemically underpunished which suggests that harsh punishments in selective cases that are tried would not be unjustified. This company is the health insurance equivalent of the pervasive but small time economic crimes like loan sharking and con schemes that made the mob profitable and inspired Congress to adopt RICO in 1970. Indeed, a RICO case based on its practices would be well within the heartland of the white collar cases most commonly prosecuted both civilly and criminally, under the statute today.

This said, I have no great love of the RICO statute. Like most laws with harsh penalties, its heaviest use has come from the most marginal of the kinds of cases it covers, cases that miss a critical element of that drove its harsh penalties.

What makes the mob the mob? It isn't just that the mob and drug gangs and other criminal enterprises engaged in a pattern of organized, profitable criminal activity, although all of that is part of what makes the mob the mob. But, what distinguishes the organized crime that we are really afraid of, and the organized crime that is usually prosecuted in civil and criminal RICO cases is violence and the threat of violence as a component of the criminal enteprise's activity.

I am a believer in private civil remedies against individuals enterprises that engage in organized non-violent economic crime. I am a believer in aggressive enforcement of criminal laws against individuals and entities that engage in organized non-violent economic crime. The problem is not that the conduct at the fringe of the kind of activity that spawned RICO should not be subject to serious civil and criminal sanctions.

The problem is that these fringe cases involve conduct that doesn't justify sanctions that were calculated to cover violent organized crime, not merely organized economic crime.

Under RICO, a person who is a member of an enterprise that has committed any two of 35 crimes—27 federal crimes and 8 state crimes—within a 10-year period can be charged with racketeering. Those found guilty of racketeering can be fined up to $250,000 and/or sentenced to 20 years in prison per racketeering count. In addition, the racketeer must forfeit all ill-gotten gains and interest in any business gained through a pattern of "racketeering activity." RICO also permits a private individual harmed by the actions of such an enterprise to file a civil suit; if successful, the individual can collect treble damages.

Still, it is less disproportionate than many other criminal statutes and certainly isn't at the top of my list of criminal sentencing regimes that need to be reformed. The United States Sentencing guidelines and jury discretion in civil case also mitigate some of the excesses that might otherwise be possible in these cases.

Full disclosure: I do no business with Assurant Health personally, and never have (although I once priced but did not buy a policy from them) and have no financial interest whatsoever in any person with a business or insurance relationship with them. I have never represented anyone in a dispute with Assurant Health. I know none of the parties or lawyers involved in the Westword story. I have no ax to grind them them personally, either directly or indirectly. I have litigated cases both as an insurance defense lawyer and a plaintiff's personal injury lawyer, and I am not currently either an insurance defense lawyer, or a personal injury lawyer. I have represented parties in bad faith cases not involving health insurance, and I have provide legal advice to insurance companies concerning bad faith issues that do not involve health insurance. Assurant Health owes me nothing and I am not asking anything of them, and I owe nothing to Assurant Health. I have no influence other than this blog (if any) with either state or federal prosecutors.


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Pat in Texas said...

I have also been cheated by Assurant Insurance. Thank God, I haven't had to file a doctor or hospital claim with them yet. I am having an impossible time trying to get proper prescription coverage. They refuse to pay on three different medicines, that I take on a dailey basis, and all three on their lists. Because of their incompetence, I have had to pay several hundred dollars out of my pocket just to get my medicine. The pharmacy, the doctor's office and agent have spoken to them several times regarding the matter, with no luck. They don't even get a consistant answer. It's ridiculous what we have to go through.

Anonymous said...

USAA, a military insurance company for home, auto and health, uses this company. shame on USAA.

Peter Klika said...

Assurant is the largest force- placed insurance provider in the US and kick backs millions in inflated premiums to large banks like Capital One in a fraudulent scheme to pick the pocket of the average American homeowner.