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When litigation attrition and bad faith become common words in an industry it’s time for positive changes. With powerful lobbying groups in play I hate to ask but...how bad does it have to get for change to happen? 

“There are risks and costs to a program of action. But they are far less than the long-range risks and costs of comfortable inaction.” John Fitzgerald Kennedy 

The insurance industry is built on risk. Ever since Benjamin Franklin set up the first company it’s basic premise has been the same: to help people when in need. However, since Benny’s time the industry has ballooned into one that’s intertwined in nearly all aspects of our life, personal and professional. Multi-billion dollar companies, from the biggest ones like Berkshire Hathaway and MetLife, to Liberty and Markel, there are almost 6000 insurance companies across the U.S.  Car, health, real estate, business and so on, the industry had just under $3 trillion in direct premiums written in 2021 according to the U.S. Department of Treasury. That power has reach. In recent years, the nation and world’s largest business organization - the U.S. Chamber of Commerce - has been lead by an insurance CEO.  As the insurance industry is one of the top five in lobbying its reach is wide and pervasive. The issue is clear: for as long as it’s embedded in our lives we need it to run well.  Businesses and industries have been built around insurance so in order for life to hum along, in times of need insurance payments running efficiently is key.  However, with a steady increase in lawsuits in recent years, timely and sufficient claim payments have become an issue even as premiums rise.  The delays cause a domino of problems and an industry built on the premise of helping is in some cases the problem.  People need help.

The nature of business to want to turn a bigger, profit along with humanity’s unfortunate habit of greed – we’ll get to some scams below - has insurance becoming increasingly problematic. That’s something no one wants as it something we can’t afford.  Yet, nationwide changes to enforce honor and agreements are slow to come (lobbying at work?) Obviously the industry should not pay false claims, but that’s not what we are talking about. The issue is it not following through on the agreements and causing people harm - all to boost the bottom line.

What can be done about litigation attrition and bad faith in this industry that has a grip on our lives and our lawmakers? Let’s take a look at some issues that need airing out. Like Supreme Court Justice Louis Brandeis wrote, sunlight is the best disinfectant. 

“Ron Porter, a legal data expert in product liability at Lex Machina, said in a recent interview that...Overall, insurance litigation is up 47% from 2017 to 2021, which is a substantial increase,” Porter said.” - PropertyCasualty360

Litigation attrition, as we are discussing here, is when cases go on and on with the goal to tire out the other side by running out so much time and/or money the other side caves. It’s abusive and can be an issue when big companies are involved. How does it happen? Many say it’s lawyers; they should know better and use ethical guidance along with the law to inform their work. Just because you can - file a suit or make an argument - doesn’t mean you should, and all that. Some say judges should do more to stop this practice, keeping cases from continuing when it’s a clear waste of time or money grab or attempt to intimidate the other side - with less means Others say it’s the companies fault, in this case large insurance ones. Some say they have money to pay for lawyers to stall and continue baseless counterclaims and run people into financial  ruin to stop cases via litigation. Hence litigation attrition. This is where litigation becomes abuse, and a system ideally to help settle claims effectively becomes another uneven battlefield.

Cardozo Law Review looked at the issue of litigation abuse, considering the legal “conundrum” in a thoughtful piece.

“At the heart of the problem is the strange disconnect between the way most judges and many lawyers say that litigation should be conducted and what actually occurs in the world of big case litigation, where abusive, wasteful, dilatory, and unnecessary stratagems are said to be extremely common, if not actually the norm.”

Litigation is going to happen as people are going to have disagreements, but the abusive ways billion dollar companies can deal with regular people and small businesses through our courts is an issue on the rise. Otherwise what kind of justice system do we have?

The whole point of insurance is you never want to have to use it. Whether it’s a natural disaster, health crisis or an industry disruption when it’s needed en masse or as a one-off claim, the industry needs to make its payments in a timely manner.  Bad faith is unfortunately a common term in lawsuits around this issue. With behemoth insurance companies having deep pockets to handle these suits, including some delaying the legal process, it’s clear this industry needs regulation and oversight - for the sake both of the insured and the companies.  Current business models and goals will not hold. Considering it sacrifices peoples health and livelihoods maybe that’s not such a bad thing. 

J.P. Gonzalez-Sirgo is a Florida lawyer who has represented the "Davids against Goliath" insurance companies for over 25 years. 

 “It's a David v. Goliath scenario.  In this story, the insurance company is always Goliath.  When there is litigation, the insurance industry's resources surpass those of almost any insured.  Unless you have laws that make it unprofitable for insurance companies to delay, lowball, and deny claims they will continue to do so. Without these laws Goliath can simply outspend and out litigate and out wait and exhaust their opposition.” 

Many point to the need for better laws to protect people from insurance companies tactics, but there are powerful lobbying efforts nationwide. In Florida where Gonzalez-Sirgo works, he notes a trend.

“Recently, laws were passed that weaken insurance bad faith laws and take away consumer rights to recover attorney's fees against insurance companies when forced to sue them.”  

 “Florida Property Lawsuits Total 76% of Insurer Litigation in U.S. in 2021.” - Insurance Journal  

Regarding the above statistic, clearly there was a pandemic that affected every area including business interruption, however not paying people due to a large number of claims is a business issue - and one that’s known. Cases were 370% higher than its previous high in 2014. Previous problem years in the industry are when disasters hit, like September 11th or the 2007/2008 economic collapse. But whether it’s a hurricane or not, this key industry cannot fall apart when it’s needed most by people. Changes are needed. And yet here we are, not just with many people suffering as they need their claims paid, but with insurance companies taking payments and using that money to hire attorneys in costly court cases that drain those peoples bank accounts and valuable time - the very things people in need don’t have. It’s another way our world is Kafkaesque.

It’s also giving shady car salesman vibes.

There are many cases of people signing up for insurance only to be told later their policy is not what they were told. A peculiar facet of our government and states laws mean that insurance is now mostly regulated by states. While this seems like another thing to add to the long list of items that America needs to change right quick, it means the issues faced by consumers - while similar across the country - lack cohesive support and enforcement in all states. (Separate but equal? Come on.)

A quick history moment in insurance:

"With the rapid growth of insurance companies and insurance products in the late 19th century, the young industry was soon beset by fraud and dubious practices. Scandals ranged from companies that sold policies without having the capital to pay their claims (operating instead like Ponzi schemes) to insurers that ruthlessly forced out competitors in an attempt to create a monopoly. Many states passed laws to address the problems, but in the early 1900s, abuses remained rampant." - Investopedia

Many would say the abuses are still rampant.

Here are just some recent catastrophic events, instances of how insurance did not help matters:  

-Health Net rewarded employees who rescinded sick policyholders, paying bonuses to employees who met cancellation goals. In 2007 Anthem Red Cross was fined after being found to routinely cancel health policies of pregnant women and chronically ill patients. California investigated and did a random selection of 90 instances when the policy was dropped by the insurer and in every single case they were found to have violated state law. 

-Farmers insurance ran an employee incentive program offering incentives like $25 gift certificates and pizza parties to adjusters who met low payment goals.  

-After the 1994 Northridge earthquake Allstate insurance was found don’t have company officials for signatures on waivers of earthquake coverage to avoid paying claims. 

-“Hurricane Katrina highlighted the insurance industry’s use of opaque language to avoid paying claims. At issue were so called “anti-concurrent clauses.” The clauses dictate that not only is damage from a flood, earthquake or other event not covered, but that such damage eliminates coverage for damage that is covered in the policy.”

“[I]nsurers generally are attempting to convince the customer when selling the policy that everything is covered and convince the court when a claim is made that nothing is covered.” — South Carolina Supreme Court 

As Reuters reported, bad faith lawsuits against insurance companies are on the rise. Profits are also taking hits. Reform would also help companies manage challenging times.

In 2022, one of the nations biggest insurance companies, which has lots of subsidiaries across the US and world, Markel, had a loss of almost $2 billion.

Steep losses have an affect and their recents changes in several leadership positions recently point to that, CEO, COO, CFO. 

The current business model and profit drive is also not working for those in the industry. It’s not serving anyone well as it is. This is the opposite of: if it’s not broke don’t fix it.

If a company has to deny claims that people are rightfully owed in order to make their business successful, something is broken. With their lobbying powers our laws are not strong enough to enforce fairplay which is really all the insured want.  Gonzalez-Sirgo points out:

“The current state of insurance litigation is skewed in favor of the insurance industry and the trend by legislators seems to be to curtail consumer rights in the name of tort reform.  This should be no surprise in light of the amount of resources that the insurance industry has and the amounts that the industry spends on lobbyists. “ 

“I practice in Florida so I am not familiar with other insurance markets.  Florida is prone to hurricanes.  Hurricane damage is the cause for much of the litigation in FL.  Insurance companies delay, lowball, and deny claims which result in homeowners bringing cases to court.  This is happening right now with victims of Hurricane Ian.  By far and large, the cause of litigation is not greedy trial lawyers or greedy consumers but natural disasters like hurricanes.  This is exactly what the insurance product was invented for.  But because we can't legislate the elimination of hurricanes, our politicians are legislating the elimination of consumer rights.  Of course, premiums do not go down as a result of these tort reform measures but consumers end up with less coverage and less rights.” 

CaseMine looked at a case in 2008 where Markel insurance denied claims that the insured took to court and in 2010 was ruled on. However that wasn’t the end of the case as it then took time to finalize. That’s years of non-payment of claims and valuable time the company held monies the person needed. This is not an uncommon issue.

More recently, in September 2022 a Markel unit Evanston was found to need uphold a policy purchased by a hospital. In short: they needed to defend a hospital in court against a lawsuit.

In all of these instances of denying claims businesses still go on, payments and bills need to be paid. It’s a cycle that needs to be fast and clear, yet with executives, lawmakers and insurance bottom lines not aligned to that end, problems mount.  Lawsuits increase.

Speaking on a panel in 2017, the CEO of Allstate Tom Wilson (and then Chair of the U.S. Chamber of Commerce): 

“There’s no reason corporations have to exist in history,” Wilson said, mentioning that companies derive their right to conduct business from society at large. “To the extent we don’t live up to their expectations,” people can revoke those rights, levy harsher taxes, summon more regulations, or, in a bleaker scenario, change the corporate framework entirely. 

During his session, Wilson cited a 2016 Deloitte study which found that approximately nine-in-10 millennials agreed that “the success of a business should be measured in terms of more than just its financial performance.” He warned, “if we don’t get about it, we risk losing our license.” 

“We need to be a force for good,” Wilson said. - Yahoo 

So then if a leading CEO is discussing this openly at a media business event…..then everybody knows and is just not doing it?! Much like we do with children, if adults running an industry won’t regulate themselves an outside body will have to do it… How do we time out these adults?

There was an interesting poll done by the Insurance Research Council that said, among other things, lawyer ads are why there are more lawsuits - which is an interesting way to say people are realizing they may not be being treated fairly and so are seeking help to rectify this. If there was no issue there would be no lawsuits finding for the people - and yes we are ignoring the always present few bad apples. Our laws are not always fairly applied and politicians are funded by lobbyists. 

There are non-profits to help people learn about their rights and how to deal with issues with their insurance company, like Uphelp.org.  However, the issue remains within a system that needs change, especially as people struggle and need the monies they planned to have in times of need. The insurance industry is pointing towards lawyers as the problem when they aren’t making payments as needed and planning for their rainy days ; this circular issue needs to have a pin put in to stop it.

Will greed and profit chasing continue to win? For the sake of our society functioning and people upholding agreements so that bills can be paid on time, I hope not.