Minor Workers' Comp Denial Leads to Huge Bad Faith Verdict
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By: Natalie White
Three insurance companies were ordered to pay a former nursing home cook more than $12 million in a bad-faith suit for denying her $8,000 workers' compensation claim for carpal tunnel syndrome.
After a four-day trial last month, a federal jury in Rapid City, S.D., awarded Alice Torres $60,000 in compensatory damages and a remarkable $12 million in punitive damages.
"What's amazing about this case is it really is not extraordinary at all,' said the plaintiff's attorney, Michael Abourezk. "This isn't one of those dream cases that comes to you. It's really a garden variety case of bad faith that happens all the time, and as lawyers we don't understand the importance of them.
"Bad faith isn't [usually] about insurance adjusters doing extraordinarily outrageous mean things," continued Abourezk, who represented Torres along with Glen Johnson. "It's really about the day in and day out chiseling down of a few dollars. The money is low enough in each case that no one goes after the company - but really these practices make them giant pickpockets."
That theme clearly struck a chord with the jury, given the size of the punitive award.
Torres claimed the three companies - Travelers Insurance Co., Insurance Co. of the State of Pennsylvania and Constitution State Services - denied her claims in a quest to meet internal incentive programs designed to reduce claims payments. Then, for nearly two years, the companies insisted such a program didn't exist, Abourezk said.
In addition to the bad-faith claim, Torres sued for barratry (frivolous defense by attorneys), abuse of process, and interference with business and contract relations.
An attorney and a public relations spokeswoman for the insurance companies both declined to comment on the case.
Workers' Comp Denied
Alice Torres, now 57, had been working at Meadowbrook Manor nursing home in Rapid City for three years in 1998 when she began having trouble with numbness and tingling in her arms.
As time wore on, the condition worsened. In 1999, she started to pick up a large pot of soup, which weighs about 50 pounds, using the two side handles. She experienced pain in her wrists and dropped the pot. It was after this incident that doctors diagnosed her with carpal tunnel syndrome.
She tried for several months to avoid surgery but the condition worsened and doctors told her surgery would be her best option.
Following the surgery, she had to take time off from work and eventually put in a worker's compensation claim for $8,000 to cover medical bills and time lost at work.
But the insurance companies denied her claim, saying there wasn't enough information, despite the fact that all her medical records were provided, including a letter from her doctor saying it was her work that created the situation. Before the case was finished, adjusters from all three defendants - all of whom worked for the nursing home's parent company, Beverly Enterprises - were involved in denying her claim. (Beverly Enterprises was also named as a defendant but reached an out-of-court-settlement weeks before the trial began.)
Fighting For Benefits
Torres went to several lawyers who agreed she had been wronged and wrote letters on her behalf, but it was difficult to find anyone who wanted to become involved in a labor-intensive face-off with the insurance companies for such small damages. To make matters worse, Torres couldn't afford to pay up-front legal costs, Abourezk said.
However, a friend of a friend introduced her to James Leach of Rapid City who handled her workers' compensation claim and won.
"He wrote letters and filed petitions and took her claim all the way to a full-blown hearing," said Abourezk.
At the workers' compensation hearing, Abourezk said it became clear to Leach (who was later a witness for Torres in the bad-faith claim trial) that the insurance company had no good reason to deny her claims.
The companies said her stories were inconsistent about when the injuries began. But Abourezk said the attacks on her credibility were nonsense and they offered no medical evidence to dispute any of her claims.
"She was a model employee, she had received great evaluations. She was the kind of person who would stay overnight if there was going to be a snowstorm because people might not be able to get in the next day," Abourezk said.
The insurers said that her injury might have been caused by a lawn mower accident but her doctor testified that the two injuries had nothing to do with the other.
"Her doctor said it was definitely work-related and they had no doctor saying otherwise," Abourezk said.
Pursuing Bad Faith
Leach decided to make a motion for the defendants to pay his attorney's fees because he believed their defense was frivolous. While interviewing people for this motion and reviewing documents, he became further outraged to find that the insurance documents included statements from Torres showing she was consistent - rather than inconsistent - with her story.
"They offered [Leach] $10,000 to go away. He came to me and we decided filing a federal suit would be better," Abourezk said.
During a tortuous discovery process, Abourezk and Johnson asked for information regarding any incentive programs for insurance adjusters. The defendants balked at the requests and several times denied any such programs. But Abourezk strongly suspected the programs existed since they are prevalent in the industry.
"I've seen this pattern in other cases where normally good people behave this way and it's usually because of some sort of incentive program, it's due to the fact that someone is getting paid off behind the scenes to deny these claims," said Abourezk. "The adjuster is supposed to be a fair and impartial judge."
Eventually they found two references in personnel files to an incentive program. For months, the companies continued to deny they existed, but eventually turned over documents describing the program.
Abourezk argued at trial that the program set up a conflict of interest for claims adjusters, who are supposed to be motivated by fairness to claimants, not controlling costs for insurance companies.
"An insurance adjuster is supposed to be like a judge, fair and impartial. But these programs bribe the claims adjusters with incentives tied directly to their performance in paying claims," he said.
At trial, the defendants argued that the programs were designed to benefit customers, not cheat them.
"Their defense was that it didn't mean what they said it meant; that there are a lot of things that go into claims reduction; that they were trying to encourage better medical care, such as providing nursing care, that would get people better faster and reduce claims," said Abourezk. "But that defense just didn't fly. The jury saw through it and their efforts to conceal it."
Assuming this was a mistake to begin with and they didn't just set out to cheat her from the beginning, they had at least eight opportunities to correct the mistake and they just didn't do it," said Abourezk.
Abourezk believes the jury was outraged by the companies' campaign to keep the incentive program from coming to the surface.
"It took us almost two years to get," he said. "That was the most difficult part of the case. We asked for the incentive programs and they said they didn't have any. We asked for the personnel files; they delayed and stalled, there were motions to compel, hearings, more proceedings. For the most part, there's really no downside for [stalling]. They were sanctioned, but that was so minimal. So what if they pay someone's attorney's fees for six months?"
Finally, the diligence paid off for the plaintiff. They found a note tucked in a personnel file congratulating an adjuster for winning a cash bonus in the Claims Professional Incentive Program.
"We went to the judge with the letter and they came back saying they couldn't identify the program," Abourezk said.
But when the plaintiff's team found another reference to the same program the judge ordered the defendants' attorneys to go back and look again.
"Several months later a 150-page document pops up on the Claims Professional Incentive Program," said Abourezk.
The program, he said, provided for cash bonuses - in some cases 100 percent of the adjuster's base pay - for reducing claims payments.
Abourezk did not ask the jury to award a specific amount.
"Instead I discussed how the insurance companies did not see anything wrong with what they were doing - how they needed to punish this to tell them that it's more profitable for them to follow the rules than to break them," he said.
The legal battle is likely to continue. Federal judges must review jury verdicts with punitive damages, at which point the amount could be adjusted. Even if the full amount is upheld, Torres will share a substantial portion with her lawyers. Attorneys' fees in the case equal 45 percent of the award.
Plaintiff's Attorneys: Michael Abourezk of the Abourezk Law Firm in Rapid City, S.D.; and Glen Johnson of Johnson Eiesland Law Firm in Rapid City, S.D.
Defense Attorney: Patricia Meyers of Costello, Porter, Hill, Heisterkamp, Bushnell & Carpenter in Rapid City, S.D.
The Case: Alice Torres v. Travelers Insurance Co.; U.S. District Court for the District of South Dakota; Judge Karen E. Schreier.
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