X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Katherine Merritt was an 18-year-old college student in 1996 when an automobile crossed the centerline of a Cobb County, Ga., road and collided with her vehicle head-on, severely injuring her. The young woman agreed to settle with the driver’s insurance company, State Farm Mutual Automobile Insurance Company and State Farm Fire & Casualty Company, for $250,000, after the company told her that was the limit of the driver’s coverage. Later, she says she learned that the driver was insured up to $1.25 million. State Farm said it failed to disclose the additional coverage due to an “oversight.” Merritt’s lawyers allege that State Farm fraudulently withheld the information. Now the Georgia Court of Appeals has ruled that a jury can hear Merritt’s suit, in which she alleges fraud and Racketeering Influenced Corrupt Organizations (RICO) Act violations by the insurance company. A Cobb County Superior Court had granted summary judgment to State Farm last year. An appellate panel, led by Judge Anne E. Barnes, now says there is enough evidence in the record to convince jurors that the company failed to exercise good faith by not disclosing the existence of a $1 million “umbrella” policy. Umbrella policies cover damages that exceed the limits of a standard policy. The punitive damages case could result in a multimillion-dollar lesson, say Merritt’s lawyers, Kathie G. McClure and Robert Altman. They contest State Farm’s assertion that it overlooked the additional coverage. “We don’t believe this is an isolated incident and we’re encouraged the court ruled as it did,” says McClure of Atlanta’s McClure & McClure. “We suspect this has been an ongoing practice for many, many years.” Merritt’s lawyers say they’ll conduct a nationwide investigation into how State Farm records its umbrella policies. It’s a system they say is fundamentally flawed, based on computer record-keeping that is designed to prevent claims adjusters from being able to determine whether extra coverage exists. Keeping adjusters ignorant is not new to State Farm, says McClure, who says courts in other states have described similar schemes. It’s a system of “plausible denial,” she says, by which adjusters can deny that they knew additional coverage existed. Altman, an Atlanta sole practitioner, explains that the agent who sells the policy knows what coverage exists, but when that agent reports a claim to the company, he doesn’t divulge the existence of an umbrella. An accident report is then created that doesn’t note the extra coverage. Altman says that report is “locked in time” and can’t be amended to show the coverage. “If you pulled up this crash today, it still wouldn’t tell you about the umbrella policy,” he says. McClure says that State Farm has the same computer system for handling claims in all 50 states. A major part of the case will be how many claimants, nationwide, have been given misinformation, she says. Altman says it’s State Farm’s policy to advise those whom it insures not to reveal coverages. The lawyers handling the case for State Farm, E. A. Simpson Jr., of Powell, Goldstein, Frazer & Murphy, and Y. Kevin Williams, of Downey & Cleveland in Marietta, Ga., did not return calls by press time. A spokeswoman at State Farm headquarters says the company’s computer systems are not designed to hide any type of coverage and that the lawyers handling the case are still reviewing the decision. Following the accident, Merritt, who has undergone several facial reconstructive surgeries and who claims that her cognitive functions are still impaired, asked State Farm for a statement revealing all polices that might cover her injuries. Georgia’s O.C.G.A. Section 33-3-28 requires insurance companies to make such a disclosure, under oath, when asked to do so. State Farm responded with a certificate that showed that one automobile liability policy existed that provided a maximum of $250,000 per claim. Based on that information, Merritt negotiated a settlement with State Farm. But after Merritt signed the insurance company’s release, her lawyer learned that an additional $1 million umbrella policy existed. According to the Court of Appeals decision, State Farm then told Merritt she could keep the $250,000 as partial payment on her claim, while continuing to negotiate for more money. Merritt asked for the entire amount on both policies — a total of $1.25 million. In exchange, she would release her claims against the driver, Richard J. Morris of Marietta, and State Farm for what she termed “deliberate concealment” of the umbrella policy. State Farm countered with a $400,000 offer and Merritt refused. She then brought a two-pronged suit, against Morris for damages resulting from the crash and against State Farm for fraud, misrepresentation, false swearing and violations of the RICO Act. After preliminary discovery, Cobb County Superior Court Judge George H. Kreeger granted summary judgment to State Farm. The $250,000 settlement agreement was contingent on State Farm disclosure of all applicable policies. Kreeger reasoned that since all policies hadn’t been disclosed, no contract existed between Merritt and State Farm, so Merritt could not have been damaged. But the Court of Appeals reversed Kreeger’s judgment of dismissal, explaining the contingency provision was in the contract for Merritt’s benefit — not State Farm’s. As such, Merritt could have waived the provision if she wanted to and its existence doesn’t bar her suit, the panel explained. Furthermore, the record contains sufficient evidence for a jury to find that State Farm acted wrongfully, the panel concluded. Merritt v. State Farm Mutual, No. A00A2079 Ct. App.Ga. (Dec’d Dec. 28, 2000). The panel pointed out several instances where deposition testimony by State Farm representatives conflicted. They also noted that Morris testified that when he spoke to his insurance agent about the crash, the agent “jokingly said, don’t tell anybody about the umbrella policy.” Altman says the court’s ruling has meaning far beyond his client’s case. “It’s most important because it puts teeth into the statute that requires insurance companies to disclose how much insurance there is,” he says. “If they had not reversed the trial court in this case, there would have been a clear message that there is no penalty for lying under the [disclosure] statute.” While the ruling “didn’t send the wrong message,” Altman says that whether lawyers can rely on an insurance company’s statements is still an open question. When you’re dealing with an umbrella policy, you’re talking about the biggest and most serious cases, he says. If the company hides five policies a year in this state, that’s $5 million, he says. If they do it in 50 states, that’s $250 million, he says. “The risk of lying may be worth it — particularly to the adjuster,” he says.

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.