The master of this zone is State Farm. The MC is company spokesperson Phil Supple. Supple is a nice guy, or he certainly seemed that way during our 45-minute conversation. But he has a tough job. Just before we talked in late October, the Utah Supreme Court had done the legal equivalent of a body slam. According to the four judges who ruled for the majority, State Farm had "repeatedly and deliberately deceived and cheated its customers. Agents changed the contents of files, lied to customers, and committed other dishonest and fraudulent acts in order to meet financial goals."
12 million claims, a few mistakes
"You have to put it in perspective," he said. "We're doing 12 million claims a year. Yes, from time to time we'll have a miscue. We'll make bad decisions. But overall, our customer satisfaction has been pretty damn good."
A miscue? That's the equivalent of calling Hurricane Andrew a rain shower.
State Farm's legal and financial blunders defied logic. A case that should have ended 20 years ago at a cost to State Farm of $50,000 is ongoing and will likely cost the company $146 million. A miscue? That description belongs in the Spin Hall of Fame.
The timeline for this case began the Friday night of Memorial Day weekend in 1981. Going north on a two-lane highway in northeast Utah in his 1977 Ford LTD was Curtis Campbell, 63. Traveling south was Todd Ospital, 19, in a friend's 1979 Mercury Bobcat. Campbell tried to pass a line of vans, thereby forcing Ospital onto the shoulder. The Bobcat spun out of control, crossed the centerline and slammed into one of the vans. Ospital died at the scene. The driver of the van, Robert Slusher, 26, was injured seriously. Campbell walked away without a scratch.
Paul Belnap, a lawyer who joined State Farm's legal team much later, calls the case "complicated." More spin designed to make you feel that you don't know, or can't understand, the salient points.
In fact, the case is as simple as a third-grade reader. Campbell was clearly at fault. A jury determined as much in 1983 and awarded Slusher $200,000 for his injuries and the Ospital's $53,957 for the wrongful death of their son. The trial judge not only agreed with the jury's findings, but stated that the damages should have been higher.
State Farm won't settle
Campbell had a $50,000 liability policy with State Farm. Before the trial, the Ospitals and Slusher were willing to split that and walk away--a bargain considering that Campbell's actions had produced one dead body and another one that was permanently disabled. It was time for State Farm to pay up.
But no, State Farm rolled the dice in court. When Campbell got hit with damages many times his policy limits, State Farm left him blowing in the wind. It said it would pay $50,000 and no more. (Editor's note - When liability is reasonably clear before trial and an insurer has the opportunity to settle within the limits of its policy and fails to do so, it is said to "open up the policy limits," meaning that it can now be liable for the entire judgment against its insured under insurance bad faith law in most states.)
Campbell had very limited financial assets. No way could he make up the difference without putting himself and his wife on the street. I wonder what sort of customer satisfaction rating State Farm got from him.
Belnap counters that State Farm did, after all, pay the judgements with interest and costs, some $300,000 in all. We're back into the All Spin Zone.
There are two details that seem to have escaped Belnap's memory. State Farm paid nothing until 1989--eight years after the accident--when the Utah Supreme Court upheld the jury's findings. More important, State Farm did not commit to paying anything above $50,000 until 1986, and then only in a feeble attempt to head off the bad faith lawsuit that was brewing.
Bad faith suit commenced
To keep the Ospitals and Slusher from collecting on the judgements, Campbell agreed to sue State Farm for bad faith and divide the proceeds. (The initial arrangement was for the Ospitals and Slusher to get 45 percent each and Campbell 10 percent. That was subsequently changed to an equal split among the three parties.) State Farm got the bad faith case dismissed, but it was reinstated on appeal. The delay proved costly. The appeal put off the trial long enough for Campbell's lawyers to collect a bundle of evidence pointing to State Farm's affinity for placing profits above obligations to its policyholders.
The most prominent example of this came from Bill Brown, the claims superintendent responsible for the Campbell case in the early years. One of his goals, as recorded on a company document, was to hold the average loss for bodily injury claims to under $5,250. Bob Noxon, a step below Brown in the chain of command, had a similar goal. Small wonder they both wanted Campbell in court. A $50,000 payout would have stretched a $5,250 average beyond retractable limits.
"We acknowledge that there are some aspects of the case that the jury evidently thought we could have handled better," Supple said, offering up the understatement of not only this millennium, but the last one as well. "But the broad allegations, the ones that painted us as an institutional wrongdoer, that we went out of our way to take advantage of our customers, was completely erroneous when this began and it certainly doesn't apply today."
Jury awards $147.6 million
Well, not quite. A jury in 1995 determined that State Farm had acted in bad faith. Another jury in 1996, after a mere three hours of deliberations following a month-long trial, determined that Campbell and his wife were entitled to damages and hit up State Farm for $2.6 million in compensatory damages and $145 million in punitive damages. The size of the awards, far higher than what Campbell's attorneys had mentioned in court, leaves little doubt. The jury members were convinced that State Farm was, in fact, an institutional wrongdoer. Though the trial judge lowered the total to $26 million, he labeled State Farm's behavior as "greedy, callous, clandestine, fraudulent and dishonest."
State Farm looked for redemption from the Utah Supreme Court, only to endure adjectives nearly as biting. What's more, the Utah Supreme Court reinstated nearly all of the damages ($146 million) the jury had imposed. Such action is not unprecedented, but certainly unusual. The Court sent State Farm an unequivocal message. It was time to shut down the All Spin Zone.
But no. "We recognize that the jury said the case was not handled properly," says Belnap. "What happened with Campbell wouldn't happen today. That's very significant. What happened then would not happen today."
Maybe. In the early 1990's, State Farm did away with performance goals tied to payouts on claims. In 1996, State Farm began issuing "excess assurance letters," which tell policyholders that if they go to court and lose, State Farm will pay the damages even if they are more than policy limits. The company's motives and timing, however, are suspect. Did State Farm suddenly develop an altruistic streak, or did it move to counteract the lawsuits prompted by the public release of embarrassing internal documents?
Campbells deserve nothing
Let me add a little spin of my own. The Campbells deserve nothing. Curtis Campbell indirectly killed one young man and seriously injured another. If he and his wife suffered some emotional distress following the verdict in 1981... well, that's justice.
The Ospitals and Slusher deserve compensation certainly, but millions of dollars worth? On the other hand, State Farm will pay out less than it should. I read through the court testimony of the 1996 trial, all 31 days of it. State Farm practices were exposed as naked as a sunbather on a French beach. The real injustice from this case is that some of the $146 million in damages won't go to policyholders abused far more than the Campbells.
I wonder if State Farm is a different company today than it was in the early 1980s. The underlying problem was its arrogance - an unwavering belief that it would always prevail. Who could take on State Farm, the largest insurer of automobiles in the United States, and expect to win? Who could outlast its billions of dollars? The Campbell case has dragged on in one form or another for more than 20 years. In jury verdicts and appeals, State Farm is 1-6. In the most recent loss, the Utah Supreme Court called State Farm, in essence, a shyster in a corporate suit.
And yet, State Farm refuses to fold its hand. Supple says the company is reviewing its options, from appealing to the U.S. Supreme Court to petitioning the Utah Supreme Court. Only in passing did he mention the possibility of settling and paying what it owes.
The arrogance prevails.
Editor's Note: Mr. Slear's opinions are his own. State Farm does not own the patent on acting in bad faith toward its insureds. In ten years of covering civil trials for a legal newsletter, I came across hundreds of cases with other insurance companies that demonstrated arrogance and deliberately fraudulent claims practices that were at least equal to if not worse than what Mr. Slear describes above. It continues today. - Richard Neubauer, Editor