Misstate the law? Sec. 542.003 The Heart of it In Texas

I don’t know  …. what’s the penalty for that one?

Does it count when it is misstated by the attorney?

Sec. 542.003. UNFAIR CLAIM SETTLEMENT PRACTICES PROHIBITED.  (a) An insurer engaging in business in this state may not engage in an unfair claim settlement practice.

(b)  Any of the following acts by an insurer constitutes unfair claim settlement practices:

(1)  knowingly misrepresenting to a claimant pertinent facts or policy provisions relating to coverage at issue;

(2)  failing to acknowledge with reasonable promptness pertinent communications relating to a claim arising under the insurer’s policy;

(3)  failing to adopt and implement reasonable standards for the prompt investigation of claims arising under the insurer’s policies;

(4)  not attempting in good faith to effect a prompt, fair, and equitable settlement of a claim submitted in which liability has become reasonably clear;

(5)  compelling a policyholder to institute a suit to recover an amount due under a policy by offering substantially less than the amount ultimately recovered in a suit brought by the policyholder;

(6)  failing to maintain the information required by Section 542.005;  or

(7)  committing another act the commissioner determines by rule constitutes an unfair claim settlement practice.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1, 2005.

Hmmmmmmmmmmmmmmm.

……………………………………………….

Been googling lately?

Capriccio

Have you found the ballet blog yet …. how many hours could you waste on that one?  And what’s there about YOU?

Start googling!!!!!!!!!!!!!!!!!!!!!!!!!

Or, hey, why not start restructuring so people get paid a salary and actually do their job?  instead of jerking innocent people around and riding them for your bonuses?

So, what’s your bonus this year?  Illegitimus non carborundum est.

Attention Travelers: Hows that RSS Working for you?

Hang up calls?  Really.  More fun than doing your job?  Don’t call me again.  That’s harrassment. 

Agents and Bonuses — Conflict and Travelers Involved

 

For me the question becomes that if you accept the premise that La Bayadere was an opium dream do you costume differently AND is a 21st century opium dream fundamentally different from an 18th century opium dream?

INTERVIEW-Insurers’ payments to brokers a ‘conflict’

By Ed Leefeldt

11 June 2007

Reuters News

NEW YORK, June 11 (Reuters) – U.S. insurers who pay brokers to send them business – and brokers who take the money – still have a “potential conflict of interest,” regardless of whether the sums are disclosed, New York state’s top insurance regulator said on Monday.

New York Insurance Commissioner Eric Dinallo said in an interview that recent efforts by some insurers to disclose how much they paid brokers made the payments more obvious, but “may still create an incentive for steering.”

Insurance brokers are supposed to help business clients obtain the best insurance at the lowest price. For years insurance companies paid “contingent commissions” to brokers who steered business their way.

Former New York State Attorney General Eliot Spitzer — now the state’s Governor — forced the three largest insurance brokers to stop taking contingent commissions and many big insurers from offering them.

But this year property insurers Chubb Corp. and Travelers Companies Inc. introduced “supplemental commissions,” which reward brokers for the volume of business they bring.

The commissions would be based on past rather than current performance. Insurers say this is legal because the business client is now aware of the payments.

But Dinallo, who worked as a prosecutor under Spitzer, said, “This solves the problem of transparency, but not the other core problem, which is the conflict of interest. There is still a potentially strong incentive to steer business to insurers who pay commissions.”

To date, Willis Group Limited , the third-largest broker, is the only major broker that has said it will not take the money. Marsh & McLennan Cos. and Aon Corp. , the world’s biggest brokers, said they are considering new plans.

Dinallo said his department is still studying the issue. Since New York state serves as headquarters for many of the world’s largest insurers and brokers, including American International Group Inc. , any regulation by his department would have national implications.

Spitzer named Dinallo to head a panel of prominent financial and insurance industry figures in May that will overhaul the state’s financial regulations by June 30, 2008.

Contingent commissions were one reason the three brokers settled Spitzer’s charges in 2005, each paying a hefty fine.

Marsh paid $850 million to settle with Spitzer, who said employees of the largest broker by market capitalization had conspired with insurers to rig bids to make sure certain insurers won big contracts.

Dinallo is not alone in questioning the supplemental commissions.

“We think this new model is the same as the previous model,” said Terry Fleming, representing the 10,000 members of the Risk And Insurance Management Society, who place insurance for most of the Fortune 500 companies.

“We are disappointed to learn that some brokers are apparently reconsidering their pledge to refuse to accept these fees.”

Follow the Money/Bonus

 

President gets a bonus, executives get a bonus, supervisor gets a bonus, claims adjuster gets a bonus, the agent gets a bonus – all incentives to exploit the vicitim.  And they did.

Reps. John D. Dingell (D-MI), Chairman of the Committee, and Bart Stupak (D-MI), Chairman of the Oversight and Investigations Subcommittee, wrote letters to two of the top long-term care insurance carriers, Conseco, Inc. and Penn Treaty American Corp., to request documents relating to their claims handling policies and practices.

NY Times Article that Precipitated Congressional Investigation

National Desk; SECTA

Aged, Frail and Denied Care by Their Insurers

By CHARLES DUHIGG

26 March 2007 The New York Times

CONRAD, Mont. — Mary Rose Derks was a 65-year-old widow in 1990, when she began preparing for the day she could no longer care for herself. Every month, out of her grocery fund, she scrimped together about $100 for an insurance policy that promised to pay eventually for a room in an assisted living home.

On a May afternoon in 2002, after bouts of hypertension and diabetes had hospitalized her dozens of times, Mrs. Derks reluctantly agreed that it was time. She shed a few tears, watched her family pack her favorite blankets and rode to Beehive Homes, five blocks from her daughter’s farm equipment dealership.

At least, Mrs. Derks said at the time, she would not be a financial burden on her family.

But when she filed a claim with her insurer, Conseco, it said she had waited too long. Then it said Beehive Homes was not an approved facility, despite its state license. Eventually, Conseco argued that Mrs. Derks was not sufficiently infirm, despite her early-stage dementia and the 37 pills she takes each day.

After more than four years, Mrs. Derks, now 81, has yet to receive a penny from Conseco, while her family has paid about $70,000. Her daughter has sent Conseco dozens of bulky envelopes and spent hours on the phone. Each time the answer is the same: Denied.

Tens of thousands of elderly Americans have received life-prolonging care as a result of their long-term-care policies. With more than eight million customers, such insurance is one of the many products that companies are pitching to older Americans reaching retirement.

Yet thousands of policyholders say they have received only excuses about why insurers will not pay. Interviews by The New York Times and confidential depositions indicate that some long-term-care insurers have developed procedures that make it difficult — if not impossible — for policyholders to get paid. A review of more than 400 of the thousands of grievances and lawsuits filed in recent years shows elderly policyholders confronting unnecessary delays and overwhelming bureaucracies. In California alone, nearly one in every four long-term-care claims was denied in 2005, according to the state.

”The bottom line is that insurance companies make money when they don’t pay claims,” said Mary Beth Senkewicz, who resigned last year as a senior executive at the National Association of Insurance Commissioners. ”They’ll do anything to avoid paying, because if they wait long enough, they know the policyholders will die.”

In 2003, a subsidiary of Conseco, Bankers Life and Casualty, sent an 85-year-old woman suffering from dementia the wrong form to fill out, according to a lawsuit, then denied her claim because of improper paperwork. Last year, according to another pending suit, the insurer Penn Treaty American decided that a 92-year-old man had so improved that he should leave his nursing home despite his forgetfulness, anxiety and doctor’s orders to seek continued care. Another suit contended that a company owned by the John Hancock Insurance Company had tried to rescind the coverage of a 72-year-old man when he was diagnosed with Alzheimer’s disease four years after buying the policy.

In court filings, all three companies said the denials had been proper. They declined further comment on the cases, though Bankers Life and John Hancock eventually settled for unspecified amounts.

In general, insurers say criticisms of claims-handling are unfair because most policyholders are paid promptly and some denials are necessary to root out fraud.

In a statement, Conseco said the company ”is committed to the highest standards for ethics, fairness and accountability, and strives to pay all claims in accordance with policy contracts.” Penn Treaty said in a statement, ”We strive to treat all policyholders fairly, and to deliver the best, most efficient evaluation of their claim as possible.”

But policyholders have lodged thousands of complaints against the major long-term-care insurers. A disproportionate number have focused on Conseco, its affiliate, Bankers Life, and Penn Treaty. In 2005, Conseco received more than one complaint regarding long-term-care insurance for every 383 such policyholders, according to data from the insurance commissioners’ association. Penn Treaty received one complaint for every 1,207 long-term-care policyholders. (The complaints touch on a variety of topics, including claims handling, price increases and advertising methods.)

By comparison, Genworth Financial, the largest long-term-care insurer, received only one complaint for every 12,434 policies.

Conseco is among the nation’s largest insurers, collecting premiums worth more than $4.2 billion in 2006, of which long-term-care policies contributed 21 percent. Penn Treaty focuses primarily on long-term-care products and collected premiums of about $320 million in 2004, the last year the company filed an audited annual report.

In depositions and interviews, current and former employees at Conseco, Bankers Life and Penn Treaty described business practices that denied or delayed policyholders’ claims for seemingly trivial reasons. Employees said they had been prohibited from making phone calls to policyholders and that claims had been abandoned without informing policyholders. Such tactics, advocates for the elderly say, are becoming common throughout the industry.

”These companies have essentially turned their bureaucracies into profit centers,” said Glenn R. Kantor, a California lawyer who has represented policyholders.

Yet these concerns have been ignored by state regulators, advocates say, and have gone unnoticed by federal lawmakers who recently passed incentives intended to promote purchases of long-term-care policies, in the hopes of forestalling a Medicare funding crisis.

Conseco and Bankers Life ”made it so hard to make a claim that people either died or gave up,” said Betty J. Hobel, a former Bankers Life agent in Cedar Rapids, Iowa.

”When someone is 70 or 80 years old,” she said, ”how many times are they going to try before they just give up?”

A Race to Sell Policies

When Mrs. Derks bought her long-term-care policy from a door-to-door salesman in 1990, she was unaware that she represented the insurance industry’s newest gold mine.

Her husband had died eight years earlier of a stroke, leaving her to run a barley farm in northern Montana, where she lived with her three children and her aging mother. As she watched her own parent decline, Mrs. Derks became preoccupied with sparing her children the expense of her final years.

”She was terrified that she would bankrupt us or get sent to a public nursing home,” said Ken E. Wheeler, her son-in-law.

At the time, long-term-care policies, which can cover the costs of assisted-living facilities, nursing homes and at-home care, were becoming one of the insurance industry’s fastest-growing products. Companies like Conseco, Bankers Life and Penn Treaty were aggressively signing up clients who were not in the best health at rates far below their competitors’ in order to win more business, former agents said. From 1991 to 1999, long-term-care sales helped drive total revenue gains of roughly 500 percent each at Penn Treaty and Conseco, including its affiliate Bankers Life.

Cracks in the business, however, soon started to appear. Insurance executives began warning they had underestimated how long policyholders would live after entering nursing homes. The costs of treating Alzheimer’s, Parkinson’s and diabetes ballooned.

As insurers began realizing their miscalculations, they persuaded insurance commissioners in California, Pennsylvania, Florida and other states to approve price increases of as much as 40 percent a year.

By 2002, Conseco’s long-term-care payouts exceeded revenue. Those and other disappointing results prompted the company to file for bankruptcy, from which it emerged 10 months later.

That same year, Mrs. Derks entered Beehive Homes, a cheery, 12-bed center one block from the Prairie View elementary school. In the previous four years, she had been hospitalized more than two dozen times. She had once lain unconscious in her living room for a day and a half. Her physician ordered her into an assisted-living center.

Initially, Conseco told Mrs. Derks’s daughter, Jackie Wheeler, that her claim would go through smoothly, Mrs. Wheeler said. The family began paying Beehive Homes’s $1,900 monthly fee.

But three months after submitting her claim, Mrs. Derks received a letter from Conseco saying she had waited too long, and her earliest costs would not be reimbursed. Two months later, she received another letter denying her entire claim because she had not submitted proof of illness.

Yet a copy of Mrs. Derks’s policy, sent to the Wheelers by Conseco in 2004 and reviewed by The Times, mentions no requirement for proof of illness. The policy requires only that the confinement be ordered by a physician, and it allows for a notice of claim to be sent ”as soon as reasonably possible.”

Mrs. Derks’s daughter called Conseco and explained that her mother could not recall the date or people’s names and had started multiple fires by forgetting to turn off the stove. She sent letters stating that her mother needed assistance to dress, eat, go to the bathroom and inject insulin.

”This is medically necessary!!!” reads a form signed by Mrs. Derks’s physician in 2004. ”This has been filled out three times! This person needs assistance!”

Seven months later, Conseco sent another letter, this time denying Mrs. Derks’s claim because her policy ”requires a staffed registered nurse 24 hours per day.” Her policy does not mention such a requirement.

Conseco also sent letters denying Mrs. Derks’s claim because her policy had an ”assisted living facility rider,” and because Mrs. Derks ”does not have an assisted living facility rider.” In all, the family received more than a dozen letters from the company. Many contradict one another, and frequently cite requirements that are nowhere mentioned in Mrs. Derks’s policy.

”There was always a new step in the runaround,” Mrs. Wheeler said. ”It felt like everything was designed to make me just go away.”

Over two years, Mrs. Wheeler estimated, she called the company about 100 times. Twice a month, she sent envelopes stuffed with medical records. Some afternoons, she spent hours making calls. After one conversation, Mrs. Wheeler slammed down the phone and started to cry. Then she drove to Beehive Homes, where her mother was surrounded by faded photos of her childhood and boxes of adult diapers.

”I wouldn’t tell her about the problems we were having with Conseco, because I knew it would cause her so much worry,” Mrs. Wheeler said.

Eventually, the Wheelers sold part of their John Deere dealership to raise money to pay for her mother’s care. In October 2006, they sued.

Conseco, asked by a reporter about the company’s handling of the Derks claim, declined to answer, citing the pending litigation. In court documents, the company denied Mrs. Derks’s allegations without specifying why her claim was denied.

”We did everything they asked,” Mrs. Wheeler said. ”And this company just treats us like dirt.”

Tales of Bureaucracy

Inside the large Conseco headquarters in Carmel, Ind., scores of employees receive the flood of documents and calls that arrive each day. At times, according to depositions and interviews, that deluge became so overwhelming that documents were lost, calls went unreturned and mistakes occurred.

Some employees describe vast mailrooms where documents appear and disappear. One call-center representative said he was afforded an average of only four minutes to handle each policyholder’s call, no matter how complicated the questions. Employees said they were instructed not to say when the company was behind in processing paperwork, even when the backlog extended to 45 days. Workers were prohibited from contacting each other by phone, although such calls might have quickly resolved obstacles, according to depositions.

Conseco, asked in detail about the company’s policies, declined to respond.

Bureaucratic obstacles were pervasive, according to interviews with 10 former Conseco employees and depositions of more than a dozen others. Robert W. Ragle, a former Bankers Life branch manager, once contacted the claims department on behalf of a client, and ”they just laughed us off the phone,” he said. ”Their mentality is to keep every dollar they can.” Mr. Ragle was dismissed by Bankers Life in 2002. He sued for wrongful termination and settled out of court.

In lawsuits, complaints and interviews, policyholders contend that Conseco, Bankers Life or Penn Treaty denied claims because policyholders failed to submit unimportant paperwork; because daily nursing notes did not detail minute procedures; because policyholders filled out the wrong forms after receiving them from the insurance companies; and because facilities were deemed inappropriate even though they were licensed by state regulators.

In depositions conducted on behalf of angry policyholders, Conseco employees described bureaucratic obstacles that prevented payment of claims. Those depositions were sealed in settlement agreements but were obtained by The Times.

In a 2006 deposition, a Bankers Life and Conseco claims adjuster, Teresa Carbonel, testified that she denied claims because of missing records but was prohibited from calling nursing homes or physicians to request the documents. She also testified that when a claim was denied, she was forbidden to phone a policyholder, but instead used a time-consuming mailing system.

Ms. Carbonel’s testimony, recorded during lawsuit on behalf of a 94-year-old policyholder, Rhodes K. Scherer, also disclosed that if policyholders did not mail requested documents within 21 days, Conseco might abandon their claim, sometimes without informing them.

In the case of Mr. Scherer, who was institutionalized after a bathroom fall, it was difficult to obtain a response, Ms. Carbonel said, because the company’s requests were mailed to his home address, rather than the nursing center where the company had been notified that he had moved. Ms. Carbonel, who is no longer with the company, did not return calls. Conseco declined to comment on her testimony.

In another deposition, Conseco’s then-senior manager for long-term- care claims, Jose S. Torres, testified that Conseco would sometimes withhold payments until it received documents not required by customers’ policies. In Mr. Scherer’s case, Mr. Torres said, the company refused to pay his nursing home costs unless he sent copies of the home’s license, payment invoices and medical records, even though those documents had no bearing on approving his claim.

Mr. Scherer’s claim ”was handled not in the best way, but it was handled according to the processes and procedures placed at the time,” Mr. Torres testified. ”Mistakes are going to be made, you know.”

Other executives testified that when Conseco appeared to have lost important documents in Mr. Scherer’s claim, no investigation was initiated. Shawn Michael Schechter, a Conseco claims supervisor who left the company in 2005 on positive terms, according to the deposition, testified that the handling of Mr. Scherer’s claim violated the principle of good faith, which requires insurance companies to treat customers fairly.

”The claim adjuster could have made that very easy and not have put the burden back onto the policyholder,” he testified.

Mr. Torres did not return calls. Mr. Schechter declined to answer questions.

Mr. Scherer died in 2004 without receiving benefits from Conseco. His estate settled with the company in February for an undisclosed amount, according to a lawyer representing the estate.

Conseco declined to discuss its complaint history or individual cases, citing confidentiality agreements. In its statement, the company said that in 2006, Conseco paid nearly $2.3 billion on 9.8 million claims in all types of insurance sold by the company.

The company added: ”Conseco, through training, education and process improvements in all of its insurance companies, is continuously focused on enhancing service and resolving any problems expeditiously. The Conseco Insurance Group’s overall insurance department complaints decreased 20 percent from 2005 to 2006.”

Depositions of executives at Penn Treaty also point to questionable practices. In a 2005 lawsuit, a Penn Treaty senior vice president, Stephen Robert LaPierre, testified that the company rejected one claim without informing the policyholder why, asked for information that was not required to process a claim, gave incomplete information about a claim’s status and said the company was delaying payment because of an investigation while failing to take steps that might have resolved the inquiry.

Mr. LaPierre declined to discuss his testimony. Penn Treaty settled the lawsuit by paying the policyholder an unspecified amount, the policyholder’s lawyer said.

Penn Treaty said in a statement that evaluating a company by measuring its complaints was flawed, and that since 2003, the company has denied an average of less than 1.7 percent of the up to 8,000 claims it received every year because of reasons related to policyholder eligibility. ”From time to time, Penn Treaty is compelled to investigate fraud or questionable billing activities,” the company added.

To answer the previous question my position is yes, the reality of the menace in the 21st century is enhanced.  The romanticism remains the same.   Compare Nijinsky’s prowess with someone like Faroukh Rusimatov and the answer become unequivocably, yes.

Few Regulatory Inquiries

Few of the cases or complaints filed against Conseco, Bankers Life, Penn Treaty or other insurers have received much attention, in part because many lawsuits filed against long-term-care insurers have been settled with the requirement that depositions, documents and settlement terms be kept confidential. Frequently, say policyholders’ lawyers, the companies have been willing to pay millions of dollars in exchange for confidentiality.

Furthermore, despite the complaints against long-term-care insurers, few states have conducted meaningful investigations.

Ron Gallagher, a deputy commissioner with the Pennsylvania Insurance Department, said, ”I don’t know that we have a real problem with improper claim denials.”

Yet data from the National Association of Insurance Commissioners show that from 2003 to 2005, Pennsylvania received more complaints regarding Conseco, Bankers Life and Penn Treaty than any other state. Mr. Gallagher said he might begin a new review of those companies.

Other states with large numbers of long-term-care complaints, including California, Missouri, Maryland, Indiana and Washington have not begun investigations, or have reviewed only small numbers of policies.

As a result, other seniors may end up like Mrs. Derks.

While she was waiting for her lawsuit to proceed, Medicaid began contributing to Ms. Derks’s care. Taxpayers now pay Beehive Homes about $32 daily for her care.

”Long-term-care insurance is supposed to result in less pressure on Medicaid, not more,” said Ms. Senkewicz, the former executive at the insurance commissioners’ association.

For Mrs. Derks’s family, things have already broken down.

”How many other people are out there who don’t have a family to fight for them and have just given up?” asked Jackie Wheeler. ”This company should be ashamed.”

Golden Opportunities

Articles in this series are examining how businesses and investors seek to profit from the soaring number of older Americans, in ways helpful and harmful.

Photos: Conseco denied long-term-care payments for Mary Derks, who has early-stage dementia, hypertension and diabetes. She bought the policy to avoid burdening her family, but it sold part of its farm-equipment dealership to pay for her care. (Photo by Anne Sherwood for The New York Times)(pg. A16); Jackie Wheeler with her mother, Mary Derks, who bought a long-term-care policy from Conseco, which denied coverage. (Photo by Anne Sherwood for The New York Times)(pg. A1)

Chart: ”One Woman’s Experience”

Mary Rose Derks has paid premiums on a long-term-care policy for 17 years but has yet to receive reimbursement for any care at her assisted living home.

Mrs. Derks paid Conseco over 12 years, expecting the insurer to reimburse the cost of her care when the time came.

After moving into assisted living, Conseco denied her claims; others have paid for her care.

Mrs. Derks’s annual care has been paid for by:

Chart shows who Mrs. Derks’s annual care has been paid for by:

Mrs. Derks and her family

Insurance Payments To Conseco

Assisted Living At Beehive Homes

Medicaid

Assisted Living At Beehive Homes

Mrs. Derks’s claims .

NOV. 2003 — Mrs. Derks’s daughter submits a claim to Conseco on behalf of her mother. She continues to do so about twice monthly.

MAY 2004 — Mrs. Derks’s daughter submits a claim with a doctor’s note saying, ”This has been filled out three times! This person needs assistance!”

OCT. 2006 — Mrs. Derks sues Conseco. The case is still pending.

. . . and Conseco’s denials

FEB. 2004 — Conseco denies the claims, saying the Derks did not submit ”proof of loss” in time. This requirement is not mandated by the policy.

APRIL, AUG. AND NOV. 2004 — Conseco denies the claims saying Beehive Homes does not meet certain requirements in the policy. These requirements are not in the policy.

DEC. 2004 AND JUNE 2005 — Conseco denies the claims, contradicting a previous denial.

(Sources by court filings; Jackie Wheeler, daughter of Mrs. Derks)

Chart: ”Industry Snapshot”

Of the largest long-term care insurers, Conseco Senior Health, Bankers Life and Casualty, and Penn Treaty American have the highest rate of complaints.

Long-term care insurers: Genworth Life Insurance

Cumulative premiums received (in billions, through 2005): $10.3

Complaints filed as a share of policies* (2005): 0.01%

Long-term care insurers: John Hancock Life Insurance

Cumulative premiums received (in billions, through 2005): 6.8

Complaints filed as a share of policies* (2005): 0.01

Long-term care insurers: Conseco Senior Health+

Cumulative premiums received (in billions, through 2005): 6.6

Complaints filed as a share of policies* (2005): 0.29

Long-term care insurers: Continental Casualty

Cumulative premiums received (in billions, through 2005): 6.5

Complaints filed as a share of policies* (2005): 0.02

Long-term care insurers: Bankers Life and Casualty+

Cumulative premiums received (in billions, through 2005): 6.2

Complaints filed as a share of policies* (2005): 0.05

Long-term care insurers: Metropolitan Life Insurance

Cumulative premiums received (in billions, through 2005): 4.2

Complaints filed as a share of policies* (2005): 0.01

Long-term care insurers: Penn Treaty American

Cumulative premiums received (in billions, through 2005): 3.6

Complaints filed as a share of policies* (2005): 0.09

Long-term care insurers: Unum Life Insurance

Cumulative premiums received (in billions, through 2005): 3.2

Complaints filed as a share of policies* (2005): 0.00

Long-term care insurers: MetLife Insurance

Cumulative premiums received (in billions, through 2005): 3.2

Complaints filed as a share of policies* (2005): 0.01

Long-term care insurers: Life Investors Insurance

Cumulative premiums received (in billions, through 2005): 2.3

Complaints filed as a share of policies* 2005: 0.03

*Experts estimate that most insurance consumers never file formal complaints. Not all complaints regard claims handling.

+Bankers Life and Casualty is owned by Conseco.

(Source by National Association of Insurance Commissioners)(pg. A16)

GOLDEN OPPORTUNITIES: Long-Term Trouble

Congressional Committee Requests: the job performance evaluation and bonus criteria for claims processors and customer service representatives.

 

Jay Fishman, the chief executive of Travelers, which is one of the biggest commercial insurers in the United States, got a $6.5 million bonus last year. In 2005, he got $3.75 million from an executive bonus pool that would have been smaller if the board’s compensation committee had counted “certain 2005 natural disasters,” according to its proxy. Hurricanes Katrina, Rita and Wilma contributed to $2.19 billion in catastrophe claims that year.

Travelers insurance Chairman and Chief Executive Jay S. Fishman received total compensation valued at $15.7 million last year, a period when calm weather fueled big profits for one of the nation’s largest commercial insurers, the company said in an Securties and Exchange Commission filing Friday.

Fishman’s pay included a $1 million base salary and $6.5 million in non-equity incentive plan compensation. The Travelers Cos. Inc. also granted him restricted shares and options with an estimated value of $7.7 million, according to the company’s proxy filed on Friday.

In awarding executive bonuses, the Travelers compensation committee decided that he and other executives had “substantial success” in meeting the company’s goals for the year.

The Associated Press calculates total compensation including salary, bonus, incentives, perks, and the estimated value of stock options and awards granted during the year. It also includes above-market returns on deferred compensation, although Travelers said Fishman received no such compensation.

Fishman’s pay included $267,639 for personal use of the company plane, which Travelers said it requires for security reasons. The company said that beginning this year Fishman, at his request, has begun reimbursing the company for personal travel on the company plane.

St. Paul-based Travelers also paid $164,055 for use of a company car and driver for Fishman.

The proxy also disclosed that Fishman owns or has the right to buy about 3 million shares of the company’s stock. Those would be worth $155.9 million based on Friday’s closing price of $51.68.

Link Here Committee Letter - Succinct Discovery Requests Here

UPDATE 2-US panel probes Conseco, Penn long-term care policies

24 May 2007 Reuters News

WASHINGTON (Reuters) – A congressional committee Thursday launched an investigation into allegations of deceptive business practices by Conseco Inc. and Penn Treaty American Corp., two major providers of long-term care insurance.

The U.S. House of Representatives Energy and Commerce Committee said data from state insurance regulators indicate an “unusually high” number of policyholders have complained of improper denials of valid claims.

The panel asked both companies to turn over documents about state administrative proceedings and court lawsuits about denial of claims for payment for long-term care services.

The committee also asked Conseco and Penn Treaty to submit the job performance evaluation and bonus criteria for claims processors and customer service representatives. All information is due in three weeks.

Penn Treaty said it would cooperate with the inquiry, and noted that it approved more than 95 percent of new claims submissions during the past three years. “The company has built its reputation as an industry leader with policyholders and agents due to its strong record of approving and paying claims expediently and fairly,” it said in a statement.

Conseco said it would respond promptly to the committee’s request. “We agree that every long-term care policyholder deserves assurance that their claim will be handled timely and in accordance with the terms of their contract,” a Conseco spokesman said.

“People who invest in long-term care policies and pay their premiums faithfully should be able to rely on those policies when the need arises,” Rep. John Dingell, a Michigan Democrat who heads the panel, said in a statement.

“As Congress considers ways to preserve the solvency of the Medicare Trust Fund and the long-term viability of the Medicaid program, we must ensure that people get what they pay for when they purchase long-term care coverage and are not forced to use publicly-financed programs,” he added.

Elderly Americans whose claims for long-term care are denied by their insurance carriers must exhaust their assets to pay for nursing home care until they are eligible for the U.S. government’s Medicaid coverage.

Conseco collected more than $4.2 billion in 2006 premiums and about one-fourth of that was for long-term care policies, the committee said. Penn Treaty collected more than $300 million in annual long-term care insurance premium revenues, it said.

INSURANCE-CONGRESS/ (UPDATE 2)|LANGEN|RNA|FUN

Document LBA0000020070524e35o001r6

Travelers Triples Profits

Property and casualty companies, a group that includes State Farm, Chubb, and Travelers, tripled their profits to $65 billion in the past six years. The comeback started after 2001, when claims for asbestos and medical malpractice rocked the big players, and 9/11 raised fears of more terrorist attacks. The insurers responded by raising their rates even as claims began to drop, thanks to tort reform in a number of states. So the insurers prospered despite the damage wrought by Katrina and other hurricanes in 2005 In 2006 the skies turned clear: The insurers boosted their rates as much as 100% for catastrophe insurance on the coasts yet experienced few damaging storms.

C-L-A-S-S A-C-T-I-O-N from a class act

she is tired of being jerked around.

five-thirty means five thirty.

she’s had it.

if we could have had a car for five days;

if a call could have settled this;

if this could have been handled in a week like it should have been;

if it was not because of some end of the year bonus;

if she went through all she went through so someone could get a bonus instead of being paid a decent salary;

then class action is the right thing to do.

it’s her call now.

Beware of the fury of a patient man.  – John Dryden

Metropolitan Corporate Counsel
July 2007
Northeast Edition
Using Insurer “Bad Faith” In Multi-State Coverage Litigation

BYLINE: John AgarRobertson, Freilich, Bruno & Cohen LLC.

John Agar is Of Counsel with the Newark, New Jersey law firm of Robertson, Freilich, Bruno & Cohen LLC. He routinely represents policyholders in complex insurance coverage disputes.

SECTION: Pg. 28 Vol. 15 No. 7

LENGTH: 1875 words

HIGHLIGHT: Please email the author at jagar@rfbclaw.com with questions about this article.

In a typical multi-state coverage action, a conflicts analysis based on states’ particular interests in having their laws apply to a claim often yields acceptable results for issues that can be discretely divided by location. The analysis may yield less desirable results, however, or, even become so balky as to defy use, for issues like bad faith claims handling. Two types of problems can arise. A court may face difficult conceptual problems if it attempts to apply different state laws to a pattern of insurer conduct that relates to claims in many states. Alternatively, the court may apply a single state’s law, e.g., the law of the place of contracting. This law, which will apply to conduct in many states, may provide limited remedies for bad faith, and fewer usable precedents.

One strategy for developing a multi-state bad faith claim is the use of reference to standards of conduct embodied in certain laws which, in fact, are relatively uniform across the country, specifically, the Unfair Claims Settlement Practices Acts in the various states. As discussed below, use of these laws seldom results in an award of punitive damages; indeed, they generally do not provide a private right of action for the policyholder. Nonetheless, they can be used to help establish a standard of conduct for common law bad faith claims that may support coverage claims where, as is frequently the case, an insurer has attempted to “mend the hold.”

The “mend the hold” doctrine has been described as a “corollary of the duty of good faith” that the law imposes on the parties to a contract.1 As Judge Posner describes the doctrine in the Seventh Circuit’s Harbor Insurance Company case:

A party who hokes up a phony defense in the performance of his contractual duties and then when that defense fails (at some expense to the other party) tries another defense for size can properly be said to be acting in bad faith.2

Policyholders must frequently address the fact that the insurer has “mended the hold,” or engaged in analogous types of conduct: e.g., issuance of a “permanent” reservation of rights that is never followed by a claim determination, or denial of a claim based on non-existent or merely perfunctory claim investigation. Reference to standards embodied in unfair claims handling practices acts can help a policyholder identify the insurer’s wrongful conduct at the outset of the litigation and develop allegations relating to that conduct into an element of the claim, if not necessarily as a claim for extra-contractual damages. It can help the policyholder develop strategies for discovery, and to articulate its attack on claim denials based on inadequate investigation, and on defenses based on theories that have been rejected under the relevant law.

The National Association of Insurance Commissioners (“NAIC”) has drafted a model Unfair Claims Settlement Practices Act3 that, in one form or another, has been adopted in at least 45 states.4 The model Act identifies fourteen claims settlement “practices” which are violations under the model Act when committed “with such frequency to indicate a general business practice.”5 As NAIC noted in the “Legislative History” of the Act, “In the past it has been difficult for regulators and insurers to solve problems because there were no ground rules.”6

The part of the Act that has been most often adopted into state law is a list of claims handling practices, many of which are all too familiar to policyholders in large coverage actions. These practices include:

“Failing to adopt and implement reasonable standards for the prompt investigation and settlement of claims arising under its policies”;

“Refusing to pay claims without conducting a reasonable investigation”; and

“Failing to affirm or deny coverage of claims within a reasonable time after having completed [the] investigation related to such claim or claims.”7

Pursuant to the Act, NAIC also adopted a more specific “Unfair Property/Casualty Settlement Practices Model Regulation.”8 The model Regulation or related regulations have been adopted in about half the states.9 While many of its provisions relate specifically to first-party property claims, Section 4 of the model Regulation, relating to “File and Record Documentation,” includes a number of requirements especially relevant to the concerns of policyholders seeking coverage for third-party claims, who often find that discovery provides them with fragmented, disorganized claim files:

“Detailed documentation shall be contained in each claim file in order to permit reconstruction of the insurer’s activities relative to each claim”;

“Each relevant document within the claim file shall be noted as to date received, date processed or date mailed”;

“For those insurers that do not maintain hard copy files, claim files must be accessible from Cathode Ray Tube (CRT) or micrographs and be capable of duplication.”10

Significantly, the model Regulation defines “documentation” as including, but not limited to, not only pertinent communications, but also “notes” and “work papers.”11

Taken together, the model Act and model Regulation establish reasonable ground rules for the procedural side of the insurer’s claims handling activities. They also provide persuasive standards for evaluating those activities in coverage litigation.

Attention to claims handling procedure from the very start of coverage litigation can have significant benefits for the policyholder. It can enable the policyholder to focus its discovery, dispositive motions and in limine motions on clearly identifiable conduct, rather than on grand issues relating to the insurer’s ultimate intent, and whether it has acted as a responsible corporate citizen. Especially where the policyholder claims that the insurer has wrongfully refused to provide a defense, this focus is likely to put the insurer in the awkward position of having to explain, for example: how it initially evaluated the claim (or why it failed to do so); what information it believed would help resolve the claim (and why its claims handlers are never able to identify that information); and what type of cumulative information was developed as the file was passed through the inevitable succession of claims handlers. If no information was accumulated, and no one developed any “institutional memory” of the claim, then claims handling activities effectively did not exist.

As suggested above, a focus on the insurer’s claims handling proficiency may also help the policyholder limit the insurer’s ability to “mend the hold,” by forcing the insurer to stand by the determinations of its claims handlers. In essence, the model Act and Regulation require the insurer to develop and provide evidence of proficiency in handling claims and reaching claim determinations. An insurer that fails to handle claims in a competent manner should be precluded from using the court and/or their coverage counsel as de facto claims handlers.

The most significant limitations in the Act and the model Regulation are that they were not intended to provide a private cause of action, and obviously cannot result in an award of punitive damages.12 Although a few state laws do provide a statutory right of action for bad faith claims handling, the general standards under the model Act and Regulations were intended to function as a regulatory scheme to be enforced by state insurance commissioners.13 Consequently, in coverage litigation, insurers are likely to be successful in resisting discovery relating to their general business practices. Even where a private right of action exists, the costs and difficulties of discovery, and of proving a general pattern of violative behavior, may present practically insuperable barriers to obtaining a bad faith determination.

Another significant limitation in the usefulness of the model Act and Regulation for policyholders is the fact that relatively few states have adopted the provision of the Act that provides that a single flagrant violation of the Act constitutes a violation.14

Notwithstanding these limitations, reference to the model Act and Regulation in the context of a common law claim of bad faith can be the Archimedes lever that helps move large coverage litigations onto the playing field where the insurer’s failure to satisfy its duty of good faith and fair dealing with its policyholder can be addressed as an integral part of the claim.15

Significantly, this duty is implicit in every contract, including every insurance contract.16 As the Restatement (Second) of Contracts explains, good faith in the performance of a contract “emphasizes faithfulness to an agreed common purpose and consistency with the justified expectations of the other party.”17 As policyholders know, bad faith has many manifestations, including “evasion of the spirit of the bargain, lack of diligence and slacking off, [and] willful rendering of imperfect performance.”18 Too often, however, it has been difficult for policyholders in large coverage actions to make a clear issue of bad faith that merely permeates the insurer’s claims handling but has not been investigated by the relevant agency. Use of the Model Act and Regulation from the start of litigation can allow the policyholder to develop a record of the insurer’s misconduct and make visible to the court insurer behavior that might otherwise go unremarked and unnoticed.

Footnotes

1 Harbor Ins. Co. v. Continental Bank Corp., 922 F.2d 357, 373 (7th Cir. 1990).

2 Id.

3 Unfair Claims Settlement Practices Act (“Model Act”), in NAIC Model Insurance Laws, Regulations and Guidelines, 900-1 to 900-10 (2005).

4 Id. at 900-5 to 900-8 (list of states adopting the Act or related legislation or regulations).

5 Id. at 900-3, Model Act, 3.B. Under Section 3.A., commission of even a single act can be a violation if the act is “committed flagrantly and in conscious disregard of this Act.” However, the vast majority of states that have adopted the Model Act have not included this provision. See Steven Plitt and Christie L. Kriegsfeld, The Punitive Damages Lottery Chase is Over: Is there a Regulatory Alternative to the Tort of Common Law Bad Faith and Does it Provide an Alternative Deterrent, 37 Ariz. St. L. J. 1221, 1249 (Winter 2005).

6 Id., Legislative History.

7 Model Act, at 900-2, sections 4C, 4F and 4G.

8 Unfair Property/Casualty Claims Settlement Practices Model Regulation (“Model Regulation”), in NAIC Model Insurance Laws, Regulations and Guidelines, 902-1 to 902-18 (January 1997).

9 Id. at 902-11 to 902-14.

10 Id. at 902-2, Model Regulation, sections 4.B, 4.C and 4.D.

11 Id., section 3.E.

12 Model Act, at 900-9 (Legislative History); Model Regulation, at 902-15 (Legislative History).

13 See, e.g., Taylor v. Standard Ins. Co., 28 F. Supp. 2d 588, 590 (D. Haw. 1997).

14 See, e.g., Lees v. Middlesex Ins. Co., 229 Conn. 842, 849, 643 A.2d 1282, 1285 (1994).

15 See, e.g., Miglicio v. HCM Claim Management Corp., 288 N.J. Super. 331, 672 A.2d 266 (Law Div., Atlantic Co. 1995).

16 E.g., Germania Ins. Co. of N.Y. v. Rudwig, 80 Ky. 223, 232 (Ky. App. 1882).

17 Restatement of the Law (2d) of Contracts (1981), 205.

18 Id., comment d.

Copyright (c) 2001 by the Florida Bar
The Florida Bar Journal
November, 2001
75 Fla. Bar J. 44
FEATURE: THE PRICE OF PEACE OF MIND: RECOVERY OF MENTAL DISTRESS DAMAGES IN BAD FAITH CLAIMS IN FLORIDA

by Jeffrey M. Liggio and P. Scott Russell IV

Jeffrey M. Liggio was admitted to The Florida Bar in 1982 and graduated from the University of Miami in 1982 with a J.D, cum laude. He is a Florida board certified civil trial lawyer and is a nationally certified civil trial advocate. Mr. Liggio is a partner in Liggio, Benrubi and Williams with his practice being devoted almost exclusively to the representation of plaintiffs in insurance claims, bad faith, and a variety of personal injury and wrongful death claims. P. Scott Russell IV has practiced as a civil trial and appellate attorney in Jacksonville since 1988. Before cofounding Dunlap & Russell, P.A., in 1995, Mr. Russell was a shareholder in Gentry and Phillips, P.A. His practice has been devoted almost exclusively to the representation of plaintiffs in personal injury and wrongful death cases arising from traffic accidents, medical negligence, and product defects, as well as associated bad faith claims.

TEXT:
 [*44]  The purpose of this article is to explain why the Third District’s decision in Otero v. The Midland Life Insurance Company, 753 So. 2d 579 (Fla. 3dDCA 2000), should be reversed to permit the recovery of mental distress damages in bad faith claims against life insurers. This article is intended to acquaint the reader with the well-established body of law across the nation which recognizes that the essence of insurance is peace of mind, and which generally supports the recoverability of emotional distress damages in bad faith claims. Finally, the article will explain why the evidentiary predicate for such recovery imposed in Time Insurance Co., Inc. v. Burger, 712 So. 2d 389 (Fla. 1998), should be receded from. In Time, the Florida Supreme Court confirmed that mental distress damages were recoverable in a first party bad faith claim, and also established a three-pronged evidentiary predicate for recovery of such damages in bad faith claims against health insurers. In Otero, the Third District Court of Appeal interpreted Time to apply to claims against health insurers only, and ruled that a claimant in a bad faith action against a life insurer was not entitled to recover for mental distress.After Midland Life Insurance Company denied the Oteros life insurance because of their national origin, in violation of both F.S. § 626.9541(1)(x) and a bulletin issued by the Florida Insurance Commissioner, Mr. and Mrs. Otero became virtually uninsurable due to health problems. Trial of their bad faith claim resulted in an award of the full benefit value of the two wrongfully denied life insurance policies to the Oteros, and an additional $ 400,000 to each of the Oteros for mental distress arising from the insurer’s willful, wanton, and malicious or reckless refusal to insure. The trial judge vacated the Oteros’ award of mental anguish damages because it was not supported by medical testimony, as required by Time. On appeal, the Third District held that Time was limited in its application to bad faith claims against health insurers, precluding recovery of mental distress damages in this claim against a life insurer. The Oteros’ appeal of that decision is currently pending in the Florida Supreme Court.The plain language of § 624.155(7) establishes the recoverability of all reasonably foreseeable damages which result from a bad faith violation. Life insurance has a unique emotional purpose, inseparable from its indemnity function: to provide the insured with peace of mind, knowing that his or her survivors will be protected from financial duress in the event of death. Emotional distress is undeniably a “reasonably foreseeable result” of the sort of violation of § 624.155 which was established in Otero. The Florida Supreme Court’s ruling in Time that emotional distress damages are recoverable in a first party bad faith action is in accord with the weight of national authority on this issue. There is no basis in the legislative history, the language of the bad faith statute, or the Time opinion itself which would confine its holding that emotional distress damages are recoverable in first party bad faith claims to cases involving health insurers alone.
 
Legislative History Supports Recovery of Extracontractual DamagesThe relevant legislative history was recounted by the Florida Supreme Court in Time. For more than half a  [*46]  century, Florida courts have imposed a duty upon insurers to act in good faith when defending their own insureds against third-party claims; they have authorized actions by both insureds and judgment creditors of insureds against insurers who have dealt in bad faith with their insured; and the measure of damages has always been the “excess judgment” obtained against the insured, notwithstanding that such a judgment was in excess of the insurer’s contractual policy limits. See, e.g., Auto Mut. Indem. Co. v. Shaw, 134 Fla. 815, 184 So. 852 (1938); Thompson v. Commercial Union Ins. Co. of New York, 250 So. 2d 259 (Fla. 1971); Boston Old Colony Ins. Co. v. Gutierrez, 386 So. 2d 783 (Fla. 1980). However, with respect to first party claims, Florida courts had historically declined to impose a duty of good faith upon the insurer; the insureds were limited to actions for breach of contract; and the measure of damages was therefore limited to breach of contract damages, costs, and, where statutorily authorized, attorneys’ fees. See, e.g., Life Inv. Ins. Co. of America v. Johnson, 422 So. 2d 32 (Fla. 4th DCA 1982); Hobbley v. Sears, Roebuck & Co., 450 So. 2d 332 (Fla. 1st DCA 1984); and Baxter v. Royal Indem. Co., 285 So. 2d 652 (Fla. 1st DCA 1973), cert. disch., 317 So. 2d 725 (Fla. 1975).In 1982, the legislature corrected this anomalous situation by enacting F.S. § 624.155 and requiring insurers to act in good faith at all times when dealing with their insureds, whether defending them against claims by third parties or dealing with them directly on first party claims. The timing and stated legislative intent of § 624.155 establish that the legislature was providing for recovery of extracontractual damages as a sanction for abuses by insurance companies which were threatening the welfare of Florida insureds.
 
Section 624.155 requires insurers to deal in good faith to settle claims. Current case law requires this standard in liability claims, but not in uninsured motorist coverage; the sanction is that a company is subject to a judgment in excess of policy limits. This section would apply to all insurance policies. n1n1 Staff Report, 1982 Insurance Codes Sunset Revision (HB4S; as amended HB10G) (June 3, 1982).Consequently, the approach taken by the bill is to provide a civil remedy, which may be pursued by any policyholder damaged by the actions of an insurance company that violate the Insurance Code. An insured who successfully sues an insurance company under this provision can recover the amount of damages suffered, together with court costs and attorneys’ fees. n2n2 Bill Analysis, House Committee on Insurance, Bill No. HB607 (Jan. 22, 1982, app. A, p. 14).Before the institution of bad faith liability, insurers “had nothing to lose, and everything to gain, by refusing payment of even meritorious claims.” Aetna Life Ins. Co. v. Lavoie, 470 So. 2d 1060, 1079 (Ala. 1984) (Torbert, C.J., dissenting), vacated on other grounds, 475 U.S. 813 (1986). Imposition of bad faith liability changed the measure of damages recoverable in an action by an insured against his insurer and altered the insurer’s economic incentives. “The function of the bad faith claim is to provide the insured with an extracontractual remedy.” Hollar v. International Bankers Ins. Co., 572 So. 2d 937, 939 (Fla. 3d DCA 1990).Pursuant to § 624.155(1)(a)1, consumers were empowered to bring civil actions for damages resulting from unfair methods of competition and unfair or deceptive acts or practices of insurers. In 1990, the Florida Legislature amended § 624.155 to add the following pertinent subsection:
 
(7) The civil remedy specified in this section does not preempt any other remedy or cause of action provided for pursuant to any other statute or pursuant to the common law of this state. Any person may obtain a judgment under either the common law remedy of bad faith or this statutory remedy, but shall not be entitled to a judgment under both remedies. This section shall not be construed to create a common law cause of action. The damages recoverable pursuant to this section shall include those damages which are a reasonably foreseeable result of a specified violation of this section by the insurer and may include an award or judgment in an amount that exceeds the policy limits. n3n3 FLA. STAT. § 624.155 (Supp. 1990) (emphasis added).The Florida Supreme Court addressed the question of the appropriate measure of damages in a first party action for bad faith failure to settle an uninsured motorist’s insurance claim in McLeod v. Continental Insurance Co., 591 So. 2d 621 (Fla. 1992).
 
We hold that the damages recoverable in a first-party suit under section 624.155, Florida Statutes (1989), are those amounts which are the natural, proximate, probable, or direct consequence of the insurer’s bad faith actions, and we reject the contention that first-party bad faith damages should be fixed at the amount of the excess judgment. The insurer in a first-party bad faith action is subject to a judgment in excess of policy limits if the actual damages resulting from the insurer’s bad faith are found to exceed the policy limits. Such damages may include, but are not limited to, interest, court costs, and reasonable  [*47]  attorney’s fees incurred by the plaintiffs. The attorney’s fees recoverable shall also include any fees incurred in the original underlying action as a result of the insurer’s bad faith actions. n4n4 McLeod, 591 So. 2d at 626 (footnotes omitted) (emphasis supplied).As part of the analysis which led the McLeod court to define first-party bad faith damages to include “those amounts which are the natural, proximate, probable, or direct consequence of the insurer’s bad faith actions,” the court cited Fisher v. City of Miami, 172 So. 2d 455, 457 (Fla. 1965), for the proposition that “the primary basis for an award of damages is compensation [and] the objective is to make the injured party whole.” McLeod, 591 So. 2d at 624-26. Subsequent to McLeod, the legislature enacted § 627.727(10), authorizing the recovery of the “excess judgment” in first party bad faith actions against uninsured motorist insurance carriers, and confirmed the original legislative intent that the bad faith statute was to provide for the recovery of extracontractual damages. Of course, legislative intent is the overriding precept of statutory construction, the “polestar” by which the court must be guided. Carawan v. State, 515 So. 2d 161, 167 (Fla. 1987).The Florida Supreme Court’s subsequent decision in Time Ins. Co., Inc. v. Burger, 712 So. 2d 389 (Fla. 1998), established the recoverability of mental distress damages in a first party bad faith claim against a health insurer:
 
The fact that the legislature has specifically authorized first parties to recover damages in bad faith actions suggests that it may have contemplated more than the recovery of the same damages already available in a breach of contract action. In view of the possibility that an unjustified refusal to pay an insured’s medical or hospital bills could result in the inability to obtain health care, we hold that § 644.155(1)(b)(1) authorizes the recovery of damages for emotional distress in a first-party bad faith claim against a health insurance company. n5n5 Time, 712 So. 2d at 392.
 Insurance Contracts Unique; Provide Peace of Mind It has long been held in Florida that a bad faith claim is an action ex contractu. Government Employees Insurance Company v. Grounds, 332 So. 2d 13 (Fla. 1976); Nationwide Mutual Casualty Insurance v. McNulty, 229 So. 2d 585 (Fla. 1969); and North American Van Lines, Inc. v. Lexington Insurance Company, 678 So. 2d 1325 (Fla. 4th DCA 1996). Indeed, in a basic breach of contract action, a determination of what damages reasonably flowed from the breach requires an analysis of what was in the contemplation of the parties at the time the contract was entered into. In Life Investors Insurance Company of America v. Johnson, 422 So. 2d 32, 33 (Fla. 4th DCA 1982), Judge Downey stated:
 
The basic rule governing the recovery of damages for breach of contract is set forth in the oft cited English case of Hadley v. Baxendale, 9 Exch. 341, 156 Eng. Rep. 145 (1854), which holds that the appropriate damages are those that arise naturally from the breach, or those that were in the contemplation of the parties at the time the contract was made. Application of that rule to commercial contracts, such as disability insurance policies, generally results in a limitation of damages to the pecuniary loss resulting from the breach. MacDonald v. Penn Mutual Life Insurance Company, 276 So. 2d 232 (Fla. 2d DCA 1973). However, Kewin v. Massachusetts Mutual Life Insurance Company, 409 Mich. 401, 295 N.W. 2d 50 (1980) noted an exception to this rule in the case of commercial contracts concerned not simply with trade in commerce, but with life and death and matters of mental concern and solicitude. The Michigan court found, as have others, that the nature and object of the agreement may justify the allowance of other types of damages such as mental pain and anguish. Contracts § 1076 and 1 Restatement of Contracts § 341 also recognize this exception. n6n6 Johnson, 422 So. 2d at 33. See also TDS Incorporated v. Shelby Mutual Insurance Company, 760 F.2d 1520, 1531-1532 (11th Cir. 1985); and The Natural Kitchen, Inc. v. American Transworld Corporation, 449 So. 2d 855, 859 (Fla. 2d D.C.A. 1984).Since bad faith involves more than a mere breach of contract, but also involves conduct by an insurer in violation of the Insurance Code, any analysis of the damages that should reasonably flow as a result of any act of bad faith conduct should also begin with a consideration of what the insurers sell to consumers, how the insurers sell their products, and why consumers buy the particular insurance product involved.It is beyond dispute that insurance is a unique product and courts around the country have recognized  [*48]  this fact. As the Supreme Court of Oklahoma wrote in McCorkle v. Great Atlantic Insurance Company, 637 P.2d 583, 588 (Ok. 1981):
 
We believe that the purchaser of insurance does not contract to obtain a commercial advantage but to protect himself/herself against the risks of accidental losses and the mental stress which could result from such losses. Therefore, we think one of the primary reasons a consumer purchases any type of insurance (and the insurance industry knows this) is the peace of mind and security that it provides in the event of loss. n7n7 McCorkle, 637 P.2d at 588.In Agricultural Insurance Company v. The Superior Court of Los Angeles County, 70 Cal. App. 4th 385, 397 (Cal. App. 2d Dist. 1999), the appellate court discussed a ruling by the California Supreme Court in Foley v. Interactive Data Corporation, 47 Cal. 3d 654, 765 P.2d 373 (Cal. 1988), saying:
 
An insured seeks peace of mind and economic protection against calamity, the insurer provides that protection for a fee. Although the insured depends upon the insurer for protection, the insurer does not depend on the insured in the same manner. Insurers occupy the” “status as purveyor of a vital service labeled quasi-public in nature.” (Id. at pp. 684-685). Thus an insurer’s obligations can include a duty to place the interests of the insured on at least an equal footing with its own interests, because the “obligations of good faith and fair dealing encompass qualities of decency and humanity” similar to the responsibilities of a fiduciary. (Id. at p. 685.) Insurance contracts are usually adhesive in nature, since their terms are generally contained in form language dictated by the insurer. Critically, breach of an insurance contract places an insured in a type of dilemma not experienced by an insurance company if an insured should breach a term of the policy. (Ibid.) “The insured cannot turn to the marketplace to find another insurance company willing to pay for the loss already occurred.” (Id. at p. 692.) An insurer’s breach can therefore frustrate the core purpose of insurance (protecting the insured from calamity) and leave the insured exposed to a disaster it is paid to avoid. The insurance company, by contrast, faces no comparable dilemma.The Supreme Court of Washington, sitting en banc in Coventry Associates v. American States Insurance Company, 961 P.2d 933, 939 (Wash. 1998), reached the same conclusion:
 
As the Arizona Supreme Court noted in Rawlings v. Apodaca, 151 Ariz. 149, 726 P.2d 565 (1986), the insurance industry itself lends credence to the fact the insureds seek more than a bare promise to pay certain claims. Advertising programs portraying customers as being “in good hands” or dealing with a “good neighbor” emphasize a special type of relationship between the insured and the insurer–one in which trust, confidence and peace of mind have some part.The same observation was made in Andrew Jackson Life Insurance Company v. Williams, 566 So. 2d 1172, 1175 (Miss. 1990), in which the Supreme Court of Mississippi quoted Justice Lint of the Oregon Supreme Court in Farris v. United States Fidelity and Guaranty Company, 284 Or. 453, 479 n.4, 587 P.2d 1015, 1028 n.4 (1978), stating:
 
That insurers sell their product as being not only an agreement to indemnify  [*49]  the insured for certain kinds of loss but also to relieve the purchaser from anxiety concerning all aspects of claims is readily apparent in our society. One cannot watch televised entertainment for very long without being exposed to commercials for the sale of insurance which, for example, indicate that the purchaser will be in “good hands,” that he will have the assistance of a troop of mounted cavalry, that he [will have] “a piece of the rock,” or that “like a good neighbor” the insurer will be there. As such advertisements reflect, the relationship between insurer and insured does not merely concern indemnity for monetary loss [risk aversion] . . . It is common knowledge that . . . insurance is obtained to promote peace of mind.
 
Extensive Authority Supports RecoveryAcross the nation, courts have observed the mental and emotional features of certain insurance products, and the great majority of the states also permit plaintiffs in bad faith cases to recover damages for emotional distress. n8 In Employees Benefit Association v. Grissett, 732 So. 2d 968, 985 (Ala. 1998), the Alabama Supreme Court wrote:
 
Certainly an insurance contract is not an ordinary commercial contract for profit in which mental distress damages are unforeseeable. The insured does not bargain for a profit; instead he bargains for compensation in time of catastrophe and for peace of mind. In this sense, an insurance contract is more akin to contracts of carriers and innkeepers, for which consequential damages have long been recognized due to the personal nature of the service. A particularly likely risk of breaching an insurance contract is resulting impoverishment or bankruptcy. Coupled with the fact that such breaches almost always coincide with emotional vulnerability (death, health problems, or destruction of a business or home), a very strong case can be made for awarding consequential damages for financial loss and even for emotional disturbance. See Restatement (Second) of Contracts, § 353, comment a (1982). Insurers, in effect, sell freedom from care and worry, and should be held to foresee the consequential damages flowing from their breach.n8 See S. ASHLEY, BAD FAITH ACTIONS: LIABILITY AND DAMAGES § 8.04.Otero involved life insurance, which provides a unique type of security, under which the obligation to pay benefits does not become executory until after the death of the policyholder. The actual value of the life insurance contract during the life of its owner consists in the owner’s peace of mind and security from anxiety which would accompany fear that one’s beneficiaries would be placed in financial duress by one’s untimely death. The Florida Supreme Court has acknowledged this function in a case involving pension benefits.
 
The desire for security in the event of disability or during the declining years of life is of paramount concern to every conscientious breadwinner. The security he seeks is not only for himself, but for those who may be dependent upon him when he is no longer able to engage in active work and in the event of his death. n9n9 City of Jacksonville Beach v. State, 151 So. 2d 430, 432 (Fla. 1963).Only by observing the unique societal function of insurance contracts and distinguishing between insurance contracts and commercial contracts can the courts protect consumers from bad faith by holding insurers liable for all the foreseeable consequences of their wrongful conduct. As early as 1921, Dean Roscoe Pound wrote:
 
We have taken the law of insurance practically out of the category of contract, and we have established that the duties of the public service companies are not contractual, as the 19th century sought to make them, but are instead relational; they do not flow from the agreements which the public servant may make as he chooses, they flow from the calling in which he has engaged and his consequent relation to the public. n10n10 Comment, Extra Contractual Insurance Damages: Pennsylvania Insured Demands a Piece of the Rock, 85 DICK. L. REV. 321, 322 (1981), quoting DEAN POUND, THE SPIRIT OF THE COMMON LAW 29 (1921).The record in Otero establishes that Midland marketed itself and its life insurance as providing security, protection, and peace of mind. Given the unique nature of life insurance and the language of § 624.155 providing for the recovery of all “damages which are a reasonably foreseeable result” of the violation, we believe Time should be applied to permit recovery of emotional distress damages in Otero. The wrongfully denied life insurance applicant can be made whole only through the award of damages for any emotional distress which was the reasonably foreseeable, natural, proximate, probable, and direct consequence of an insurer’s bad faith refusal to issue a life insurance policy.
 
Rigid Evidentiary PredicateThe Florida Supreme Court has acknowledged its duty to reconsider prior holdings to make sure our law keeps pace with changes in our society, United States of America v. Dempsey, 635 So. 2d 961, 964-65 (Fla. 1994), and to revisit rules of law which were found, on reconsideration, to be at variance with modern  [*50]  day needs and concepts of justice and fair dealing. See, e.g., Champion v. Gray, 478 So. 2d 17, 20 (Fla. 1985), in which the “impact” rule was modified, and Zell v. Meeks, 665 So. 2d 1048, 1054 (Fla. 1995), in which the court further receded from the “modified impact” rule set forth in Champion:
 
While fraud and the difficulty in evaluating psychic claims may continue to trouble the court system, an arbitrary cutoff for negligent infliction of emotional distress claims would have no remedial purpose except to reduce the number of claims. In fact, establishing an arbitrary cutoff for claims would contravene general public policy by denying persons with meritorious claims access to the courts.The very same principles which underpinned the Dempsey, Champion, and Zell decisions call for the Supreme Court to revisit its holding in Time and recede from the strict evidentiary standard imposed in that case.The three-pronged evidentiary predicate for the recovery of emotional distress damages in a health insurance bad faith claim established in Time is:
 
(1) That the bad-faith conduct resulted in the insured’s failure to receive necessary or timely health care;
(2) That, based upon a reasonable probability, this failure caused or aggravated the insured’s medical or psychiatric condition; and
(3) That the insured suffered mental distress related to the condition or the aggravation of the condition. n11n11 Time, 712 So. 2d at 393.The authors suggest that the Florida Supreme Court’s imposition of such rigid evidentiary restrictions in health insurance claims was not well founded, and should be receded from. Such standards arbitrarily restrict who can recover such damages. The standards do not recognize the wide variety of circumstances where the conduct of the health insurer is truly illegal and egregious. For one example, if an insured is forced to deplete his or her savings, borrow money from family and friends, or borrow from retirement funds to prevent any delay or denial of important medical care, doesn’t that insured still suffer mental and emotional distress by virtue of placing his or her, and potentially the insured’s family’s, well-being at risk? Also, the standard established by the Supreme Court in Time may force the insured to seek care from a mental health professional which otherwise would not be required. Finally, proof of the “aggravation” of an insured’s medical or psychiatric condition would in many cases be elusive. It is certainly common knowledge that it is vital that any patient battling a severe illness must understand the condition and commit to the treatment plan. Having to fight the insurer at the same time can detract from the medical battle, but raising one’s perception of this process to an evidentiary standard is another thing altogether.Damages for emotional distress or mental anguish are recoverable in cases involving a wide variety of intentional torts including defamation, malicious prosecution, false imprisonment, invasion of privacy, tortious interference with contract, and tortious interference with prospective business relations. No arbitrary evidentiary predicates have been imposed in these cases and the impact rule is not applicable in these cases, as it should be inapplicable to bad faith cases.The authors propose the majority’s concern in Time was well answered by Justice Anstead in his dissent at p. 393, when he said: “It appears that the majority has given the health insurance consumer a favorable interpretation of the first party bad faith statute with one hand, but has rendered that interpretation substantially meaningless with the other.”The court’s concern in Time that health insurers should not feel constrained by potential bad faith exposure in their right and duty to other policy holders to contest illegitimate claims loses its force when the specific basis of the bad faith claim is considered. Insurers whose denial of a claim or application for insurance was ultimately determined to have been in good faith would be protected from any associated exposure for emotional distress, and insureds or putative insureds who sustained foreseeable emotional distress damages associated with denials of claims or applications which were ultimately determined to have been in bad faith would be compensated. No insurer would be punished for contesting an illegitimate claim, and no policyholder or putative policyholder would arbitrarily be denied recovery where a legitimate claim was improperly denied. See concurrence and dissent of Anstead, J., 712 So. 2d at 394.By engrafting a rigid evidentiary standard requiring expert testimony by a health care provider to support recovery of mental anguish damages, it is respectfully submitted that the Time court departed from the legislative intent set forth in the statute as well as precedent which specifically limited use of expert testimony in establishing mental anguish damages. As the North Dakota Supreme Court said in Ingalls v. Paul Revere, 561 N.W.2d 273, 282-83 (N.D. 1997):
 
An insurer’s bad faith breach of its duties to an insured is likely to cause mental anguish: it is inconceivable that a layman, unaccustomed to the courtroom, fearful of the entire judicial process, who is also subjected to financial pressures from a refusal of the insurer to discharge its commitments, will not be subjected to stress, the precise effects of which are difficult to measure in exact terms but, which, nevertheless are present. John Alan Appleman and Jean Appleman, Insurance Law and Practice § 8878.55 p. 442 (rev. vol. 1981). Thus, in a case of this kind, damages for mental anguish may be “general damages”–damages for a harm so frequently resulting from the tort that is the basis of the action that the existence of the damages is normally to be anticipated and hence need not be alleged in order to be proved. Marilyn Minzer et al., Damages in Tort Actions § 1.01[3] (1996) (quoting Restatement (Second of Torts § 904, through miscites as § 940). As the Minzer text also explains at § 3.01[3][b], a claim for mental anguish is a classic example of a noneconomic, intangible loss.Traditionally, the jury had wide discretion in evaluating and awarding these damages . . . . The only standard for evaluation of mental anguish damages “is the amount a reasonable person would estimate to be fair compensation.” The determination of damages for pain, discomfort, and mental anguish largely is dependent upon the jury’s common knowledge, good sense, and practical judgment and mainly rests within its  [*51]  sound discretion.Prior to Time, the Florida Supreme Court had never required expert testimony as a predicate for recovery of mental pain and suffering. Where damages for emotional distress are recoverable, the amount of the award “is left to the discretion of the jury unless it is clearly arbitrary or so great as to be shocking to the judicial conscience or unless it indicates the jury was influenced by prejudice or passion.” Albritton v. Gandy, 531 So. 2d 381, 388 (Fla. 1st DCA 1988). As further observed by Justice Anstead in Time: “To the contrary, this Court in Angrand v. Key, 657 So. 2d 1146 (Fla. 1995), specifically limited the use of expert testimony in establishing damages for mental anguish.” 712 So. 2d at 394.Justice Anstead went on to cite from another Supreme Court opinion:
 
Jurors know the nature of pain, embarrassment and inconvenience, and they also know the nature of money. Their problem of equating the two to afford reasonable and just compensation calls for a high order of human judgment, and the law has provided no better yardstick for their guidance than their enlightened conscience. Their problem is not one of mathematical calculation but involves an exercise of their sound judgment of what is fair and right. n12n12 Time, 712 So. 2d 394 n.2, quoting Braddock v. Seaboard Coast Line Railroad Co., 80 So. 2d 662, 668 (Fla. 1955).There is simply no basis in the bad faith statute itself, in the legislative history, or in Florida law for this court to impose a requirement for expert testimony as the predicate for an award of emotional distress damages when an insurer is found to have acted in bad faith in denying an aspiring insured the peace of mind and protection associated with insurance.
 
ConclusionThe authors hope the Supreme Court will reaffirm the recoverability of mental anguish damages in bad faith cases, without an arbitrary distinction between health and life insurance settings, since peace of mind is a fundamental aspect of virtually all types of insurance protection. Consistent with Judge Anstead’s well-reasoned opinion in Time, we hope the court will recede from that aspect of Time which requires expert testimony as a predicate, instead permitting juries to rely on lay testimony, their own sound judgment and their common experience in determining the recoverability of such damages under a given set of facts.

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For related research and practice materials, see the following legal topics:
Insurance LawBad Faith & Extracontractual LiabilityRemediesActual & Consequential DamagesInsurance LawBad Faith & Extracontractual LiabilityRemediesEmotional Distress DamagesTortsDamagesCompensatory DamagesPain & SufferingEmotional & Mental DistressEvidence

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Is Providing a Signficant Bonus to Claims Agent Incentivizing Institutional Bad Faith?