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Steve Collegeman was riding a bicycle near his home in Jupiter, Fla., in February 1999 when a German shorthaired pointer owned by William Sinclair sprang out and chased him. In his rush to get away, the self-employed photographer crashed into a mailbox post, flipped off his bike and landed on his head and back. As a result of the accident, Collegeman, then 55, suffered collapsed discs in his neck and lower back, leaving him partially disabled and in chronic pain. He subsequently needed spinal surgery and had to spend four months in a full-body brace. He couldn’t work for seven months. In January of last year, after enough time had passed to assess Collegeman’s injuries — but before any surgery — his attorney, Todd Stewart, asked Allstate Insurance Co., Sinclair’s homeowner’s insurance carrier, for $38,000 to cover Collegeman’s past and future medical treatment, lost wages and pain and suffering. Allstate, based in Northbrook, Ill., offered $6,500. “Mr. Collegeman appears to have suffered multiple but primarily superficial abrasions,” wrote staff claim analyst Christopher Pilato. Stewart, a Jupiter solo practitioner, says that with such extensive injuries, a jury might award his client more than $400,000 if he went to trial on a negligence lawsuit against Sinclair. Since Sinclair’s homeowner’s policy limit is only $100,000, the dog owner would be on the hook for $300,000 or more, which could be difficult to collect. At that point, Collegeman could sue Allstate for bad faith. The theory would be that Allstate left Sinclair exposed for a large judgment in excess of the policy limit — when it could have protected him by settling the case within the policy limit. Allstate declined to comment for this article. Both plaintiffs’ and defense lawyers say this case represents an increasingly common legal scenario in Florida and around the country — though they disagree on who’s to blame for the situation. Plaintiffs’ lawyers say auto, property and casualty, life and other types of insurers are systematically offering lowball settlement offers and dragging out the claims process, figuring that they’ll come out ahead on overall claims costs even if they lose an occasional judgment. In response, plaintiffs’ lawyers, after filing and winning tort lawsuits against policyholders, increasingly are following up by filing what are known as third-party bad-faith lawsuits against the policyholders’ insurance carriers. While policyholders themselves can file bad-faith actions against their insurers for leaving them exposed to excess judgments, third-party injury victims also have the right to sue the insurer. Such third-party claims have been allowed under Florida case law since at least 1938. To bring these suits, plaintiffs’ lawyers typically obtain an assignment from the policyholder for the third party to sue the insurance company on the policyholder’s behalf, which makes these actions easier for juries to understand. Bad-faith plaintiffs can win attorney fees in such cases, which is a powerful incentive for attorneys to take them on — though there is talk of possible insurance industry-backed legislation to clamp down on awarding of attorney fees. And when a jury finds that an insurer’s act of bad faith grows out of its general business practices, the carrier can face punitive damages. Punitives are the “real teeth” behind bad-faith actions, says Miami plaintiffs’ lawyer Brenton N. Ver Ploeg. Lawyers on both sides say the stakes in such cases are getting higher, and the tactics meaner. “These insurance companies are basically at war with their own insureds,” says Diego Asencio, a North Palm Beach, Fla., solo practitioner who focuses on representing plaintiffs in bad faith suits against insurers. But insurance defense lawyers counter that greedy plaintiffs’ attorneys often are concocting allegations of bad faith out of thin air. They say the plaintiffs’ bar has developed increasingly sophisticated tactics for setting up insurers for bad faith claims where no such misconduct occurred. Bad-faith claims clearly have jury appeal. In May 2001, Frank Winkles, a partner in the Swope Law Group in Tampa, Fla., won a $36.7 million punitive damages jury verdict for his client, a Tampa eye surgeon, against Paul Revere Life Insurance Co. in U.S. District Court in Tampa. In that first-party case, the surgeon, who had been diagnosed with Parkinson’s disease, alleged that Revere refused to pay on a disability policy. Paul Revere, a Worcester, Mass.-based subsidiary of UnamProvident Corp., settled the case in March for an undisclosed amount. The mother of all bad-faith awards comes out of Utah. In October, the Utah Supreme Court reinstated a $145 million punitive damage award against Bloomington, Ill.-based State Farm Mutual Automobile Insurance Co. for what the court termed its “egregious and malicious behavior” in handling a 1981 car crash claim. State Farm had refused to settle a claim against its policyholder Curtis Campbell for $50,000, his auto liability policy limit. A Utah jury found Campbell at fault in the accident, which had killed one person and had left another disabled. Campbell was held liable for $130,000 in excess of his policy. The insurer ultimately paid all the damages, but Campbell sued State Farm anyway, alleging a companywide practice of improperly limiting payments. A second jury agreed. Campbell and his wife, Inez, won $2.6 million in compensatory damages, plus $145 million in punitives. Those amounts were reduced on appeal. But the Utah Supreme Court, while leaving compensatory damages reduced to $1 million, reinstated the punitive damages to the full amount. A State Farm spokesman says the insurer won’t comment on the case because at press time it was awaiting word on whether the U.S. Supreme Court decided to hear its appeal. State Farm’s 15-year legal battle in the Campbell case shows the lengths to which the insurance industry will go to avoid paying damages, says Bonny Rafel, a partner at Hack, Piro, O’Day, Merklinger, Wallace & McKenna in Florham Park, N.J., who co-chairs a committee on bad-faith practice for the Association of Trial Lawyers of America. While no statistics are available on the number of bad-faith suits filed in Florida, lawyers in both camps say such suits are on the rise. According to the state Department of Insurance, the number of so-called civil remedies notices of insurer violations nearly doubled between 2000 and 2001, soaring from 5,596 to 10,050. These are documents that lawyers file with the state to indicate that a suit against an insurer is in the offing. In part, the number shot up because of a Florida Supreme Court ruling in 2000 that a statute requiring arbitration of health care provider disputes over personal injury protection auto insurance benefits was unconstitutional. An increase in bad-faith filings arising from PIP cases is likely to follow, says Don Dowdell, the Tallahassee, Fla.-based managing senior attorney for the state insurance department. And many observers think significantly more bad-faith insurance lawsuits of all types are looming in Florida. “There’s definitely an increase,” says Hollywood, Fla., insurance defense lawyer Hinda Klein. The growth of bad-faith lawsuits pressures insurers to make undeservedly large settlements in minor or frivolous cases, says Marty Unger, owner and managing partner of Unger, Acree, Weinstein, Marcus, Merrill, Kast & Metz in Orlando, Fla., who represents major life, health and disability carriers. “It creates a crisis for the whole industry and for the public.” “Because there’s only so much money, [insurers] have to become stingier in paying legitimate claims,” he says. A second result, he contends, is reduced availability of insurance in Florida. But it’s difficult to document how much of a financial hit insurance companies are taking from bad-faith litigation, because many bad-faith claims are resolved through confidential settlements. INSURERS COMPLAIN Insurance defense lawyers say the playing field in Florida is tilted against their clients by a 1995 state supreme court ruling which established too loose a standard for proving bad faith. Many in the insurance industry interpreted the high court’s 1994 ruling Imhof v. Nationwide Mutual Insurance Co. to mean that carriers could deny coverage without risk of bad-faith liability as long as there was a “fairly debatable” basis for doing so. But in a 1995 case called State Farm v. LaForet, the high court explicitly rejected the “fairly debatable” standard and established a “totality of the circumstances” benchmark. Since that ruling, jurors in bad-faith trials are instructed to determine whether, in not settling when it could have, an insurance company acted fairly and honestly toward its policyholder and with due regard for the policyholder’s interests, considering all the circumstances. Unger says that’s an impossible standard for insurance defense lawyers. “A claim of bad faith is whatever a jury thinks is bad faith,” he says. “How do you win that?” But George Vaka, managing partner of Vaka, Larson & Johnson in Tampa, who switched from insurance defense to plaintiffs’ work, says the current standard is a good one. It prevents carriers from dragging out a claim for months, then belatedly raising a specific issue to protect against allegations of bad faith under the “fairly debatable” standard, he argues. Despite the change in the standard of proof, it’s clearly no cakewalk for plaintiffs to win bad-faith judgments. The cost of trying first the tort action against the policyholder and then the bad-faith suit against the insurer dissuades many injury victims and their lawyers from going this route. That leaves policyholders and injury victims, particularly those with small or midsize claims, at the mercy of the carriers, says ATLA’s Bonny Rafel. Stacey Robinson’s case shows how prolonged and expensive these legal battles can be. In August 1994, Robinson, then a 28-year-old paralegal and mother of three, was rear-ended by a drunken driver at a railroad crossing in Delray Beach, Fla.; her car was pushed into a passing train, and she suffered serious back and knee injuries and permanent ringing in one ear, says Diego Asencio, her lawyer. The drunken driver, Sidney Zuckerman, didn’t have insurance, so Robinson sought $35,000 from her own insurer, Nationwide Mutual Fire Insurance Co., under her uninsured motorist coverage. It had a policy limit of $100,000. In Asencio’s view, Nationwide made a lowball settlement offer, starting at $5,000, then dragged out the dispute for years. Nationwide contended that Robinson did not suffer permanent injuries and did not face substantial medical expenses or significant lost income, he says. Robinson sued Nationwide and Zuckerman in Palm Beach Circuit Court in 1997. She alleged negligence by Zuckerman and breach of contract by Nationwide. Last year, a jury awarded Robinson and her husband, Robert, $244,000 in compensatory damages, $91,000 in past medical damages, $105,000 in future medical expenses and $250,000 from Zuckerman in punitive damages. In February of this year, the Robinsons were awarded attorney fees and costs of about $440,000. Nationwide is appealing the verdict to the 4th District Court of Appeal in West Palm Beach. Under its policy, though, Nationwide is liable only for the uninsured motorist limit of $100,000. So even if the Robinsons prevail on the appeal, they would have to file another suit, against Nationwide for bad faith, to collect the amount in excess of their policy limit. Nationwide’s attorney, Hinda Klein, says her client expects to win on appeal and shield the insurer from having to pay attorney fees and punitive damages; Nationwide is not contesting paying the $100,000 policy limit. “Some of these attorneys get so zealous in going after these insurance companies that they end up killing the golden goose,” Klein warns. “The backlash is going to be tightening the laws on bad faith.” But plaintiffs’ attorneys and their expert witnesses say bad faith is standard practice for some insurers. They back this up by citing the insurers’ internal written policies and software programs, which they say are designed to minimize payouts, force plaintiffs to trial and financially reward their claims adjusters and defense attorneys for minimizing settlement payouts. Gary Fye, a Reno, Nev.-based insurance claim practices analyst and frequent expert witness for plaintiffs, says insurers often say they made an “honest mistake” when their settlement offer turns out to be too low. But “on close analysis, you see that these honest mistakes all favor the house,” says Fye, who previously worked for major insurers like Aetna. In recent testimony in Leland Taylor v. Allstate Insurance Co., a bad-faith lawsuit in U.S. District Court in Florence, S.C., Fye cited an Allstate internal policy document which, he said, laid out the carrier’s claims strategy, including its goal of reducing payouts on smaller and mid-sized claims. Fye called the strategy “an engine for bad-faith allegations.” In that same lawsuit, another plaintiff’s expert, who formerly served as Alaska’s director of insurance, quoted from Allstate guidelines for handling meetings with claimants represented by lawyers. The guidelines instructed claims adjusters that the company wanted to force claimants and attorneys “to think about the obstacles they must overcome to recover a significant settlement or the benefits of a smaller ‘walkaway’ settlement,” said Paul Roller, a California-based consultant who serves as an adviser to the Florida attorney general’s office on insurance matters. This aggressive approach, implemented in 1995, has reduced Allstate’s claims costs and boosted the insurer’s bottom line, Roller said. In 1992, the company paid out 87.2 cents in claims for every premium dollar it collected. But by 1998, the company had reduced its claim payments to 54.3 cents per premium dollar, he said, citing public financial filings by Allstate. Florida plaintiffs’ lawyers say they clearly see the carriers’ change in approach when they file claims. Insurers are much more prone than they were in the past to force plaintiffs to trial when they refuse to accept the carrier’s settlement offer, Vaka says. Soft-tissue injuries, which are often difficult for plaintiff lawyers to prove to juries, have been particularly targeted by insurers for lowball settlement offers, he says. SETTING UP INSURERS But insurance defense attorneys blame the proliferation of bad-faith lawsuits on greedy and increasingly creative plaintiffs’ attorneys. Plaintiffs’ lawyers have figured out effective ways to set carriers up for bad-faith claims, says John Weihmuller, a partner at Butler Burnette Pappas in Tampa who represents insurers. Before suing, he says, plaintiffs’ lawyers often set impossible demands for insurance companies to deliver multiple documents within seven to 30 days of notification. If everything is not delivered within that time frame, plaintiffs allege that bad faith has occurred. “They’re asking for things not because there’s truly a desire to gather that information, but because they’re trying to set up the company for a bad-faith claim,” Weihmuller says. This approach often succeeds in pressuring insurers to settle cases that in the past they might have more thoroughly investigated and challenged, Weihmuller says. Todd Stewart acknowledges that some plaintiffs’ lawyers hold back information from carriers to try to create a stronger potential bad-faith claim. But he says he strives to avoid giving insurers any excuse to claim they were set up. In the Collegeman case, for instance, Stewart says he promptly disclosed to Allstate that his client had a pre-existing back condition. “I give the insurance company every possible opportunity to do the right thing,” he says. “They call that setting them up, and we call it giving them enough rope to hang themselves.” Rutledge R. Liles, managing partner of Liles, Gavin, Costantino & Murphy in Jacksonville, Fla., and a former Florida Bar president, agrees. “The insurance companies set themselves up” for bad-faith suits, says Liles, who has testified on both the plaintiffs’ and defense sides in bad-faith lawsuits. “The [plaintiffs'] lawyer just has to sit by and let it happen.” Given the growth in bad-faith litigation, some law firms are building their practices around it. A few years ago there were four or five law firms in Florida that concentrated on bad-faith cases, but that number has doubled, and a growing number of general practice plaintiffs’ firms have hired lawyers to focus on bad faith, says Dale Swope, whose firm has been handling these cases for years. Both the plaintiffs’ and defense camps have engaged in an informational arms race. They are sharing documents across the country and holding invitation-only seminars to discuss bad-faith strategies. Fye says insurers even are electronically sharing data on claims by individual policyholders to help defend against claims brought by those individuals. “A person’s claim history becomes his rap sheet,” Fye says. Stewart, who says he’s handled dozens of insurance claims cases that have evolved into bad-faith lawsuits, says he receives calls several times a week from other plaintiffs’ lawyers to consult on bad-faith cases. The land mines for inexperienced lawyers are many, he cautions. For example, for injury victims to bring third-party bad-faith lawsuits against insurers, they may enlist the cooperation of the policyholders whose insurers left them exposed to excess damages by refusing to settle. To win that cooperation, the plaintiff generally has to release the policyholder from liability and get the policyholder to assign the benefits of the lawsuit to the plaintiff. But plaintiffs’ lawyers must be careful not to release the policyholder before he or she assigns the rights to the plaintiff — even as little as an hour before — or the cause of action could be wiped out, Stewart explains. ENDURANCE Stewart is trying to settle Steve Collegeman’s claim without filing a negligence lawsuit, let alone a bad-faith action. He knows that injury victims often are too physically stressed to endure a long bad-faith legal battle, and they need insurance money quickly to deal with medical bills and loss of income. Collegeman is undergoing rehabilitation and is back at work. In March, two years after his bicycle accident and one year after Allstate offered $6,500, the carrier changed its tune and offered the full $100,000 limit of the homeowner’s insurance policy. Once his legal costs are paid, that would leave Collegeman with $70,000, which wouldn’t fully cover his lost pay and medical expenses. “[Allstate] is trying to do what it should have done a year ago, which is to protect its insured,” Stewart says. “Now it’s up to my client whether to let [Allstate] off the hook for the bad faith.” Even though Allstate’s recent settlement offer won’t cover his damages, Collegeman worries about the gamble of litigation, which could drag on for years and leave him with nothing. “I don’t know what to do,” he says. Larry Keller and Steve Ellman contributed to this article.

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