Spotlight: Discovery reveals insurer's practice of fighting legitimate claims

Law Reporter, Sep 2002 by Scarlett, Thomas

Jackson v. State Farm Mut. Auto. Ins. Co., W Va., Brooke County Cir. Ct., No. CAN 98-C-76, June 6,2002.

David Jackson, a 21-year-old college student, was driving on a two-lane road when he saw a person walking along the side. After checking his rear view mirror to make sure there was no car directly behind him, he slowed his vehicle so he could offer the person a ride. His car was rammed from behind by a vehicle driven by Terri Smoot, which drove Jackson's car off the road and into a cornfield. The person who was walking by the road was an eyewitness to the collision.

Jackson suffered closed and open head trauma, a sprained neck, and back pain. He developed temporomandibular joint (TMJ) syndrome, which required surgery and therapy. His medical expenses came to about $10,000 at the time of the trial. His car was totaled. He did not incur lost income.

An investigation of the incident by police found that Smoot had failed to maintain control of her car. This finding was based on her admission that she had been looking at her dashboard instead of the road just before the collision, plus the eyewitness's corroboration of events.

Jackson, who did not have insurance, sought to obtain compensation without the assistance of an attorney. He filed a claim with State Farm, Smoot's insurer. The company denied the claim, stating that Jackson had come to a complete stop on a public road and was therefore 100 percent liable for the crash.

Jackson then retained ATLA members Frank Cuomo and Jason Cuomo of Wellsburg, West Virginia, who filed suit against State Farm and Smoot. The suit alleged that the insurer had acted in bad faith by denying the claim without checking the police report, sending accident reconstruction experts or other investigators to the scene, or interviewing the eyewitness.

By not taking these steps, plaintiff charged, State Farm had violated West Virginia's Unfair Claims Settlement Practices Act, W. Va. Code Sec. 33-11-4(9), which requires insurers to try to settle claims in cases where the insured's hiability is reasonably clear.

"Once it was clear that [Smoot] was more than 50 percent responsible, State Farm was obligated to try to settle," Jason Cuomo said. "We were confident we had evidence to show that [she] was well above that threshold."

The judge divided the case into two phases. In the first trial, the investigating police officer testified that Smoot had had at least 300 feet of visibility before colliding with Jackson, which should have given her plenty of time to react to Jackson's slower speed. A jury found that Smoot was 90 percent responsible for the collision and awarded plaintiff $73,000 in damages.

In the second, or "bad faith" portion of the case, plaintiffs counsel obtained a memo from a State Farm section manager admitting that Smoot was as much as 60 percent at fault and recommending that the company settle the suit. The insurer did not make a settlement offer until nearly two years after the memo was written, and plaintiff rejected that offer as inadequate to cover his basic expenses from the crash.

Counsel also learned that State Farm showed managers a training video, "Buried Alive," which urged them to destroy documents that could be used against the insurer in litigation. In addition, the company gave a "Top Dog Award" to employees who disposed of claims quickly. Plaintiff contended this gave employees an incentive to cut short their investigations, and observed that the adjuster who handled this case was promoted shortly after the claim was denied.

Plaintiff's counsel also obtained a letter written by a State Farm attorney stating that Smoot could have seen the top of Jackson's car well before impact. While State Farm initially hid behind the attorney-client privilege, plaintiff was able to pierce this veil because, during discovery depositions, defendant's adjusters had cited some of its attorneys' advice as the bases for its actions.

Perhaps most damagingly for defendant, counsel discovered that a State Farm vice president had written an article in Obiter Dictum, an in-house company magazine, urging employees to fight all claims and "send a message" to claimants. "[W]hen the plaintiffs' bar knows State Farm will fight these claims, they will go after other carriers who do not," the author wrote. The article specifically tells adjusters to be skeptical of TMJ claims. "This was almost an admission that the company would not comply with the law," Jason Cuomo said later.

The court found as a matter of law that defendant had violated the West Virginia statute by failing to conduct a reasonable investigation of Jackson's claims. Plaintiffs insurance expert, Roger Diaz of Clarksburg, West Virginia, testified that State Farm violated multiple provisions of the Unfair Claims Settlement Practices Act during the handling of Jackson's claims, as well as during the handling of other claims in West Virginia. The jury specifically found that State Farm did violate the statute with such frequency as to constitute a "general business practice."