Insurance Claims Increasingly Fought in Court

Chris Hampton’s career as a tractor-trailer driver ended suddenly in November 2010 when he was diagnosed with diabetes. But more bad news came his way when his insurance carrier denied his claim for long-term disability.

In 2012, Hampton sued Reliance Standard Life Insurance Co. of Philadelphia for breach of contract. His case highlights what is becoming a growing trend of people or companies being forced to take their insurance carriers to court after their claims are denied.

“I actually think [my insurance carrier] thought I was going to give up, like I’m just not going to pursue it,” Hampton, 42, of Stuttgart told Arkansas Business last week. “I was like, ‘I can’t drive anymore.’”

U.S. District Court records show that in the Arkansas federal courts in 2011 there were 93 lawsuits related to insurance claims. In 2012, the number rose to 99. And through Oct. 31, 77 lawsuits involving insurance claims have been filed.

Some of those cases, however, include insurance companies suing their policyholders first to receive an order from a judge that says they don’t have to provide coverage.

But most of the cases involve a policyholder suing the carrier.

In July, Hampton won his case in U.S. District Court in Pine Bluff against Reliance for breach of contract and received a judgment of $56,700. But in August, Reliance announced it was appealing the case to the 8th U.S. Circuit Court of Appeals.

Attorney Brandon Cate of Springdale, who is representing Reliance, declined to comment because the case is on appeal.

The Blame Game

The insurance industry blames the rise of lawsuits on plaintiff’s attorneys who think insurance companies are easy targets because of their assets, “deep pockets,” in other words.

The plaintiff’s attorneys, though, put the blame on the insurance companies. Plaintiff’s attorneys said the companies do everything they can to delay and deny their policyholders’ claims.

“It’s as tough an environment as I’ve seen in almost 30 years of practice,” said Whitney Buchanan, an attorney who handles insurance and injury claims for plaintiffs in New Mexico. “You really have to fight these guys tooth and nail if you want to get paid fairly.”

Supporters of the insurance industry disagree.

“There is always an unscrupulous element of the plaintiff’s bar that is willing to exploit well-intentioned laws to take advantage of them, and to essentially extort money from what they feel are deep-pocket companies who can afford to pay it,” said Darren McKinney, a spokesman for the American Tort Reform Association, whose members include insurance carriers.

Among the recent lawsuits filed in federal court in Arkansas is one by Lyon College of Batesville, which sued its insurance carrier, Lexington Insurance Co. of Boston, for refusing to pay claims in connection with a 2010 fire that caused $9.3 million in damage. Lexington paid $5.7 million but refused to pay the rest of the amount of Lyon’s alleged damage. In court filings, Lexington said it fulfilled its obligations under the policy. The case is pending.

In addition, Lion Oil Co. of Brentwood, Tenn., sued several of its insurance carriers, including National Union Fire Insurance Co. of Pittsburgh and Great Lakes Reinsurance UK PLC, for denying coverage following an oil pipeline rupture near Torbert, La., in April 2012 that resulted in more than $80 million in damages at its oil refinery in El Dorado, Lion said in the lawsuit.

Lion Oil said in its filing that its policy covered the damage. The insurance companies asked that the case be dismissed because they had already filed a federal lawsuit in Tennessee. In the Tennessee case, which was filed in September, the insurance companies wanted a ruling that Lion Oil’s polices don’t provide coverage for the alleged damages it suffered. Both cases are pending.

Deciding to Fight

Even for insurance companies, fighting lawsuits can be costly. Citizens Property Insurance Corp. of Tallahassee, Fla., released a report last month that said it spent $109.7 million on attorney’s fees to defend itself in lawsuits between Jan. 1, 2012 and Aug. 31, 2013.

“Nobody likes to pay attorney’s fees,” said Michael Peltier, a Citizens spokesman.

However, Peltier said, the fees were less than 2 percent of the premium the company collected annually from its approximately 1.2 million policyholders. It received $2.8 billion in earned premium in 2012 and $2.7 billion through Aug. 31.

He said the company decides on a case-by-case basis which claims to pay fast and which ones will be disputed.

“Our overall goal is we want to pay the justifiable claims as quickly as possible,” Peltier said. “But also [we want to] make sure that we’re paying what we owe, but we’re not paying more than that.”

He also said that a vigorous trial bar existed in Florida, “as there are in other states.”

McKinney, of the American Tort Reform Association, said in some cases the insurance company has to defend itself in a lawsuit. If an insurance company keeps settling claims brought by attorneys, the lawyers will keep coming, he said.

“Once you’ve done that four, five, six times, you’ve established a pattern; you’ve essentially stuck a sign on your back that says, ‘Sue Me,’” McKinney said. “Once you’ve established yourself as an easy mark, you shouldn’t be surprised to know that these claims will become more frequent.”

He said that even if fighting the case in court might cost the company more than settling, the fight might be worth it to the insurance company not to pay claims it thinks has no merit.

“The notion is we’ll send a signal to future grifters that we’re not an easy mark,” McKinney said. “And if you want to take us to court, you better have a righteous claim.”

‘The Delay Game’

Plaintiff’s attorneys told Arkansas Business that they have to drag insurance companies to court because they are slow to settle a case.

“The delay game is part of all of this,” said Bill Horton, an attorney in Rogers who handles personal injury cases.

He said insurance companies will draw the case out, hoping that the policyholder will settle the case for a lower amount than it’s worth.

In the truck driver’s case, Hampton said he received his last check for short-term disability in February 2011. The U.S. Department of Transportation forbids diabetics from driving commercial motor vehicles, so Hampton asked for long-term disability, which would provide coverage for two years.

Hampton said his insurance carrier, Reliance, kept asking him for information about his claim; he provided it, Hampton said. But two to three months later, Reliance would ask for more documents.

“I kept doing everything they were asking,” he said.

In July 2011, his claim was denied. “I was like there was no way, because I had read the policy,” he said.

The policy said that if a person couldn’t perform the duties of the occupation, that meant he was fully disabled, Hampton said.

Reliance officials “were trying to tell me, ‘No, that’s not it,’” he said.

He said that while the case was making its way through the courts he had to take a job as a grocery store bagger.

Some attorneys said they have seen insurance companies use the delay strategy. “There are a lot of financial reasons that an insurance company can choose to gamble” and delay or deny a claim, said one of Hampton’s attorneys, Neil Chamberlin of Little Rock.

He said that in disability cases, insurance companies don’t have to pay the attorney’s fees for any work done until a lawsuit is filed.

Nathan Chaney, an attorney in Arkadelphia, agreed that the insurance companies have little financial incentive to pay a claim early. He said if a plaintiff is successful on a breach of contract claim, the most a judge can award the plaintiff is the price of the policy plus a 12 percent penalty and attorney’s fees.

So an insurance company would be facing only a judgment of possibly about $150,000 for a $100,000 policy, said Chaney, who wrote, “A survey of Bad Faith Insurance Tort Cases in Arkansas” for the Arkansas Law Review in 2011.

And if an insurance company can drag out the litigation for three to five years or longer, “it’s a no-brainer,” Chaney said. “A 12 percent penalty isn’t enough to deter you from taking the case to court. … So [for] the breach of contract action, the insurance company doesn’t have much of an incentive to come off their delay, deny, defend strategy.”

Hampton said that he’s not surprised that Reliance appealed the ruling. The interest rate on Hampton’s judgment is just 0.11 percent a year.

“I know they had to spend more money now fighting against [paying the claim] than they would have if they just paid me,” Hampton said. “To me, that’s crazy.”