Last May, when I was privileged to speak to this group within a month of becoming a plaintiff’s lawyer, I said that when I was a defence counsel I thought the portrayal of the insurance company by John Grisham, in the Rainmaker, was exaggerated. I also said that after a month at the plaintiffs’ bar, I was starting to realize that it was more realistic than I had imagined. Now, after seven months of practice I do not think Mr. Grisham went far enough.

We need look no further than our television sets to learn of their tactics. Last July, MSNBC ran a program about State Farm (my paper has a reference to enable you to download the complete transcript). The program examined State Farm’s use of a company called CMR (Comprehensive Medical Review). Essentially, in first party claims, for medical expenses and rehabilitation, etc., State Farm would request CMR to do a “paper review”, allegedly by an appropriate medical specialist on their staff. In researching the program, MSNBC interviewed a man named Newton, who disclosed that he, a journalism graduate, along with a paralegal, a former teacher, and a nurse, actually wrote the medical reports off a computer program, using stock paragraphs.

The reports were then reviewed by the doctor in question to whom it was allegedly open to make alterations or corrections. Another source told MSNBC that the doctors barely read the reports before signing them and that typically, each doctor would review and sign 30 to 50 reports an hour.

Some doctors did do a diligent review and made changes. However, CMR President, Bill Marvin, admitted that he would then make alterations after the doctor’s review, but claimed he would run them by the physician in question. This, of course, was denied by at least one of the doctors who agreed to be interviewed. CMR, for example, did not want the doctors to use the word “pain”, so would change it to “discomfort”.

Jim Mathis, a former Claim Superintendent at State Farm, described this as a “company-wide program”. Indeed, a page in State Farm’s Claim Manual stated that if the adjusters wanted to deny a claim, they should hire one of their “paper review companies who will support your position”.

Indeed, if you are asking yourself, just what do these shenanigans in the United States have to do with us in Canada, keep in mind that the CMR office, of which Mr. Newton the journalist graduate spoke, was located in Vancouver.
Let me assure you, State Farm was a client of mine for 33 years and I can tell you that all policy decision, manuals, etc., are company-wide, emanating from the head office in Bloomington. If I ever doubted that fact, those thoughts were dispelled in my first month of practice as a plaintiff’s lawyer. I received two letters from the legal staff at Bloomington, advising me that, “It was their position that because I had an intimate knowledge of their claims handling procedures, I would therefore be in conflict should I or any member of my firm take any lawsuits against State Farm.”

As I told a bad faith seminar last month, as a lawyer I knew nothing about what my clients were doing, partly because I was primarily involved in tort. I have learned far more about State Farm’s and other insurers’ tactics in the last seven months than I ever knew before. The MSNBC program was a complete revelation, as were things discussed at our seminar in September, particularly in a speech given by the current head of ATLA’s Bad Faith Section.

Speaking of the Bad Faith Section, I was rather surprised to learn that only 100 of OTLA’s membership belong. In my humble opinion, any of us who fail to attend these seminars, or take advantage of the available information (including ATLA’s $100.00 for 23 banker’s boxes of documents on State Farm bad faith cases), are doing themselves and their clients a disservice. I doubt that any of you will disagree that almost every accident benefits claim we handle these days presents a clear potential for bad faith.

Returning for a moment to another recent expose on television, although this is old news, two weeks ago ABC’s Prime Time did a program on the “Good Hands People” (not to be confused with the “Good Neighbours”), discussing Allstate’s company-wide attempt through adjuster contact with the claimant, to discourage the use of a lawyer on the basis that they will receive less money and it will take a lot longer.

As was noted in the program, Allstate’s own 1995 training manual says that people with lawyers do not settle for less, but rather two to three times as much. The company is currently under investigation in nine states for engaging in the unauthorized and negligent practice of law.

State Farm, however, has made it to the big time. The United States Senate Commerce Committee will be conducting an investigation chaired by Senator John McCain. I think we can safely assume that a man, who the North Vietnamese could not force through torture, to give anything more than his name, rank or serial number, will not fall prey to the insurance lobby.

What then are we to gather from the insurance industry’s agenda over the last five years, to reduce defence costs and abandon any notion of a quality defence?

The simple truth is, that this began about ten years ago, when most of my insurer clients made a concerted effort to remove the direction of the lawsuits from counsel, and return control to the adjuster. There has been an enormous turn over in adjusters over the last decade. Few of them have any experience with tort, and fewer still with our Court system. When therefore discussing what could happen in a Courtroom with these people, they are, for the most part, rather ignorant.

It is therefore no accident that they are choosing the cheapest and the least experienced lawyers available because the insurer is directing the lawsuit and, in my experience, paying little attention to the advice of counsel. The adjuster, in turn, is exposed to well-worn propaganda that virtually every claimant is a fraud or, at best, an exaggerator. The adjuster never sees the plaintiff as a person any earlier than mediation, so that the quality of the plaintiff as a witness is rarely factored in to the setting of reserves.

Almost five years ago, I addressed a large group of insurers on their tendency to file a Jury Notice in every case. They seemed somewhat shocked when I said just because a lawyer was excellent at conducting a non-jury trial competently, it meant little, if anything, regarding their ability in a jury trial. Obviously, it follows therefore that somebody without experience is going to have great difficulty handling a jury case.

As well, in the Greater Toronto Area, following a published study in the Toronto Star pointing out the enormous shift in the ethnic population of the GTA from predominately “WASP”, up to 20 years ago, to now being predominated by Chinese, Portuguese, Italian, etc., we decided to interview a number of Professors at U of T involved with studies regarding these ethnic groups to determine the background of these new Canadians. I will not go through the complete results, but amongst the Chinese, for example, we learned that any of them that were immigrants could have come from any of four different areas, all of which treated the civil law, if it even existed, in a very different fashion. Some had no exposure to the concept of fault and believed compensation should be paid regardless. (Obviously, we want them on our juries.) Others came from areas where corruption was rampant and, therefore, the view they would bring to a Courtroom was totally unpredictable.

In short, whereas 20 years ago I felt comfortable in dealing with a typical Toronto jury knowing their background and tendencies, as I told the insurers, they would be very sorry were they to continue filing Jury Notices by knee-jerk reaction.

Think about it! Is there something wrong with this picture? As far as I can see, insurers are still almost always filing Jury Notices, yet at the same time hiring the cheapest and least experienced counsel they can find.

Sometimes anecdotes can be very revealing. A senior member of one of this city’s leading defence firms told me last month that neither he, nor any of his partners, had been given a file to handle for at least a year, or more. Indeed, this particular lawyer told me that files would come in from the insurer, but would be directed to junior staff, and recently, an $8,000,000.00 (true value) case had come in, albeit with a difficult liability situation for the plaintiff, and the insurer directed it to a third year lawyer. Obviously, given that the insurer intended to call all the shots, they saw no need to go to the “expense” of a more experienced counsel.

Clearly, the industry is taking a calculated risk. It is strictly a profit driven policy…. , they know that this will occasionally lead to a disaster, or a judgment in excess of limits, but have calculated that the use of their bargain basement approach, and the consequent savings in legal fees and other expenses will more than make up for those losses. I suppose they believe that when an offer is made within limits, thereby exposing them to a potential bad faith claim, they can deal with it at the time.

They may, however, be wrong. If it is true, and I believe it is, that most of the developments in our jurisdiction in Canada, in the area of bad faith, mirrors the case law which has developed in the United States, it is of more than passing interest to review the decision in Continental Insurance v. Bayless et al, a 1980 Alaska decision, cited at footnote number 5, in my paper.

At page 293 of the judgment, the Court said:

It (the insurer) has more than a duty of care of an ordinary man unskilled in litigation; it must exercise more than mere good faith. It is a professional, which advertises by all media of mass communication its skill in the investigation, settlement and litigation of liability cases. It asks the individual who is an amateur in these matters but who would be deeply concerned over a case in which he is personally interested, to substitute its skill for his, its judgment for his judgment, and its conduct for his own acts. It then becomes chargeable with a greater duty – even as the brain surgeon must exercise greater knowledge, judgment and skill in a brain operation than would a general practitioner of medicine. It is not an extraordinary degree of care, but the care that is required under these particular circumstances. It must use skill diligently and adequately to investigate a case, it must use skill in negotiation, it must select skilled trial counsel – not the lowest priced member of the bar – and that individual so selected by it may find the insurer by derelictions.

The Court went on to say that negligence, or incompetence, was not a condition precedent to expanding the insurer’s limits. Simple errors would do so, and we all know errors generally arise from inexperience.

Therefore, the insurers may get caught with their pants down, if our Courts see the light and follow this decision. It will not require an offer within limits to enable us to take an assignment from the defendant and pursue their insurer for the excess.

Indeed, two of the largest insurers, CGU and Halifax, and perhaps others by now, limit their counsel to between 8 to 10 billable hours, per day, at trial. I have certainly wondered whether this would also constitute the type of misconduct dealt with in Continental and Bayless and thereby, expand the limits.

In accident benefits cases we are often caught between a rock and a hard place. We know the insurer has acted in bad faith, but at some point before trial, they made an offer, which your client wishes to take to get some closure to his claim. Again, the insurer is doing the same thing, treating this as a cost of doing business. They certainly know that ultimately they will be hit with punitive damages occasionally. On the other hand, by taking the attitude of “deny, deny, deny” (John Grisham) on balance they are undoubtedly coming out further ahead from a financial perspective.

Accordingly, we are rather forced, it would appear, to accept our client’s instructions and accept the Offer to Settle which obviously will not include punitive damages. I certainly have been guilty of doing the same thing, even settling at trial for the amount offered, without insisting on punitives.
To demonstrate the arrogance of some insurers today, let me digress to a case in my office. Following an arbitration, an award was made for a $250,000.00 special award, including interest. The insurer appealed. In their appeal documents they argued that this was both unconstitutional, and institutionally biased against insurers. In their written argument, the insurer’s in-house counsel reasoned that special awards should be eliminated entirely or it will simply lead to higher premiums. In short, they have no reluctance in suggesting it would be reasonable to pass along the cost of their shameless conduct to the very people they are abusing, the public.

We are planning to point out to the arbitrator, on appeal, that this particular insurer has the three highest special awards ever given, and we are, in turn, requesting the arbitrator (should we succeed in upholding the award which I believe we will), to refer the matter to the Superintendent of Insurance under Sections 438 to 441 of the Insurance Act. Part 23, is entitled “Unfair and Deceptive Acts and Practices in the Business of Insurance”.

Amongst other things in Section 438, Subsection (I) states that unfair or deceptive acts and practices includes, “Any conduct resulting in unreasonable delay or resistance to the fair adjustment and settlement of claims.” Sections 440 and 441, authorize the Superintendent of Insurance to investigate and hold a hearing. The Superintendent in turn may order anything from revocation of the licence, to an Order to cease activity, or perform any changes in the conduct of their business that the Superintendent may order.

While I believe this to be a very good tactic to use in our appeal, I have my doubts we will succeed in that regard because we are only dealing with one case. On the other hand, it started me wondering whether we, as an organization, should consider targeting some of the biggest offenders, and letting them know we are doing so with a view to collecting enough cases of misconduct from our own practices, properly document them, and “presenting” our findings to the Superintendent (or the appropriate government Minister) with a view to seeking a hearing under Section 438.

Nobody knows whether we will succeed and that includes the insurers most importantly. I cannot help but wonder whether letting a company know that they are being monitored, would in and of itself cause them to become better corporate citizens.