On February 1, 2012, Shernoff Bidart Echeverria Bentley attorneys Howard Shernoff and Samuel Bruchey filed a lawsuit against Progressive Insurance Company on behalf of a group of policyholders whose auto and motorcycle theft claims were wrongfully denied through abusive claims-handling tactics.

The lawsuit alleges that Progressive subjects claimants to a wide variety of unfair and illegal claims handling practices that amount to an invasion of privacy, defamation, bad faith and a violation of unfair business practices laws.

“Instead of processing claims fairly and quickly, Progressive conducts a virtual Inquisition and attacks its claimants’ credibility in order to deny paying the claims,” says Howard Shernoff. “Usually, the company takes advantage of people like non-native English speakers, who do not posses the wherewithal or resources to enforce their rights,” Shernoff adds.

The lawsuit charges that Progressive conspires with an “independent” attorney, who treats claimants with suspicion and scorn, implicates them in fraud, and requires them to turn over private information – W2s, tax returns, pay stubs, bank statements, phone records, rental agreements, divorce papers, business invoices – that has no relevance to their claims.

According to the complaint, claimants who clear the hurdle of procuring and producing the privileged documents then “qualify” for an Examination Under Oath, which further intrudes into claimants’ private lives.

For most claimants, the investigation ends about six months later, with a letter from Progressive that essentially accuses them of having attempted to submit a fraudulent claim.

If you have had a similar experience with Progressive Insurance Company or would like further information about the case, contact us.

The Daily Journal January 23, 2011

William M. Shernoff and Howard S. Shernoff

Since the beginning of American jurisprudence, courts have endorsed the use of punitive damages as a deterrent to egregious misconduct.

For example, back in 1869 in the case of [Goddard v. Grand Trunk Railway] (57 Me. 202), the court traced the genesis of punitive damages back to English law: “The right of the jury to give exemplary damages for injuries wantonly, recklessly, or maliciously inflicted, is as old as the right of trial by jury itself; and is not, as many seem to suppose, an innovation upon the rules of the common law. It was settled in England more than a century ago.”

Recently, owing to the U.S. Supreme Court’s due process analyses, trial and appellate courts have applied a constitutional maximum for punitive damages. Generally, this maximum has been expressed in terms of a ratio of punitive to compensatory damages of 10 to 1. ([Campbell v. State Farm] (2003) 535 U.S. 408.)

But many courts, including the [Campbell] court itself, have alluded to a different ratio analysis where institutional bad faith has been proven and the award of compensatory damages is small. In such cases, a higher ratio may well be required to serve the purpose of deterrence.

The high courts have defined institutional wrongdoing in various ways. It generally involves a corporate defendant that engages in “a wrongful course of conduct” ([Johnson v. Ford] (2005) 35 Cal.4th 1191); “repeated misconduct [which] is more reprehensible than an individual instance of malfeasance” ([BMW v. Gore] (1996) 517 U.S. 559); a “broad fraudulent scheme” or an “unlawful profit scheme” ([Campbell]); “a pattern and practice of fraud, trickery or deceit” ([TXO v. Alliance] (1993) 509 U.S. 443); “the existence and frequency of similar past conduct” ([Pacific Life v. Haslip] (1991) 499 U.S. 1); or “similar wrongful conduct towards others” ([Bullock v. Phillip Morris USA] (2011) 198 Cal.App.4th 543.) Essentially, institutional wrongdoing arises from a “bad corporate culture” as opposed from an isolated incident ([Robie v. McKesson] (2010) 47 Cal.4th 686.)

The distinction between an isolated incident of wrongdoing and institutional bad faith coupled with low compensatory damages is that in the latter case, a ratio of 10 to 1 most likely does not achieve the goal of deterrence.

This may raise the eyebrows of those indoctrinated with the belief that the [Campbell] case erected an unscalable wall of 10 to 1. But actually, [Campbell] did no such thing.

The [Campbell] court reviewed damages arising from misconduct that was not found to be institutional. [Campbell] expressed its 10-to-1 ratio in the context of [dissimilar] conduct. The court stated that “because the Campbells have shown no conduct similar to that which harmed them, the only relevant conduct to the reprehensibility analysis is that of which harmed them.” [Campbell], therefore, does not properly inform the discourse on institutional bad faith.

The cases that do contribute to the institutional wrongdoing discourse include the U.S. Supreme Court’s holding in [TXO v. Alliance], which upheld a punitive-to-compensatory ratio of 560 to 1 and was cited in [Campbell] with approval; the California Supreme Court’s opinion in [Johnson v Ford], which required evidence of the “scale and profitability” of institutional misconduct in order to set a proper punitive award; and the recent [Bullock] decision, which relied on both [TXO] and [Johnson] in upholding a punitive-to-compensatory award of over 10 to 1.

In [Bullock], Justice H. Walter Croskey addressed the issue of the size of the compensatory award, realizing that it must play a part in the overall analysis if punitive damages are to serve their primary purpose of deterrence. The reason is simple but often overlooked. If only small compensatory damages are awarded to the plaintiff, but the defendant’s conduct is institutional and therefore highly reprehensible, a mere 10-to-1 ratio neither punishes nor deters and thereby fails to serve the interests of justice.

In a recent insurance bad faith case in Los Angeles County Superior Court, the court awarded the plaintiff $31,500 in insurance policy benefits and $35,000 in emotional distress damages – and then assessed the defendant $19 million in punitive damages. The punitive award redressed the defendant’s institutional misconduct, which the jury found consisted of the defendant’s widespread use of a deceptive insurance policy and its adoption of bad-faith claims handling practices.

In ruling on a motion for new trial, the court affirmed that the evidence supported the verdict and that the punitive award was not the result of passion or prejudice. The court emphasized repeatedly that a mere 10-to-1 ration would “nullify” the purpose of the law, and warned: “Instead of deterring future similar conduct, punitive damages may become a cost of doing business and encourage a business model that flouts California insurance law and regulations.” The ruling continued: “Punitive damage law is turned on its head when punitive damages become simply a cost of doing business, not an incentive to do better. Insurance companies that comply with California insurance law and regulations are placed at a competitive disadvantage and penalized when other insurance companies profit by ignoring the law.” The court concluded that it may be unlikely that a punitive damage award reduced 10-to-1 will deter the defendant from engaging in similar tortious conduct in the future.

In a demonstration of the unsettled state of the law applicable to institutional bad faith, especially in the presence of low compensatory damages, the court capped 22-pages of support of the verdict with a final sentence that reduced the punitive award based on a 10-to-1 ratio because “notwithstanding the court’s concerns,” it felt “constrained” to do so. Several months later, Justice Croskey seemed to feel no such constraint and approved a ratio of over 10-to-1 in [Bullock]. The case is on appeal with many observers predicting an ultimate high court review that could clarify the law in this area.

Any court reviewing punitive-damages ratios in the context of institutional bad faith may well consider not only the historical purpose of punitive damages but also their underlying public policy – especially as concerns insurance, which affects virtually everybody and entails what the courts have long called a “special relationship” in which the insurer owes a “quasi fiduciary” duty to its insureds. In this situation, the analysis of a constitutional maximum could be different than when dealing with an isolated incident.

In the aftermath of an era of corporate excess from Enron Corp. to the American International Group Inc., and with calls for even less government regulation of the private sector, the deterrent function of punitive damages on institutional wrongdoing rises to ever-increasing importance in safeguarding an honest marketplace free of unfair competition.

Shernoff Bidart Echeverria attorneys are actively litigating cases against the health insurance companies Mid-West National Life Insurance Company of Tennessee and MEGA Life and Health Insurance Company.

The cases involve allegations of fraudulent misrepresentation by the insurers and their agents about coverage offered in policies sold by the companies. They also involve allegations that Mid-West and MEGA routinely rely on ambiguous policy language to improperly limit or deny coverage for medical treatment.

The two insurers, and their parent company, HealthMarkets, Inc., have been sued hundreds of times and assessed millions of dollars in regulatory fines for these and other business practices. In fact, the policies sold by these companies are commonly referred to as “junk insurance.”

Our attorneys routinely recover unpaid policy benefits, and much more. In one recent case, we recovered more than five times the policy benefits.

If you have had medical claims denied by either Mid-West Life Insurance Company of Tennessee or MEGA Life and Health Insurance Company, contact us.

The Consumer Attorneys of the Inland Empire, the local chapter of the Consumer Attorneys of California held its annual holiday party at the home of trial attorney Ricardo Echeverria (SBE).

The fun filled event, complete with the Holiday Sounds of “Basque meets Country” featuring Mike Bidart (SBE) on the accordion and Bill Shapiro (William D. Shapiro) on the guitar, was enjoyed by dozens of Inland Empire consumer attorneys, judges, and family in attendance.

Gregory L. Bentley, SBE Partner and 2010 & 2011 President of the Consumer Attorneys of the Inland Empire, introduced CAOC president-elect Brian Kabateck, who spoke about the organization’s mission and recent highlights.

Other sponsors included IVAMS, and Loius Masry of Millennium Settlements.

The Consumer Attorneys of California is an organization of more than 3,000 attorneys who represent plaintiffs/consumers who seek responsibility from wrongdoers.

CAOC members take cases they view as worthy, investing their own resources in developing and taking such cases to court. In each case, the person the CAOC member represents faces an opponent with far more power and access to resources: polluters, governments, insurance companies, automobile manufacturers, and banks.

The next major event for the CAOIE, the Palm Springs Seminar, is scheduled for April 27-28, 2012.

Shernoff Bidart Echeverria, LLP Partner Gregory L. Bentley was elected to the Executive Board of the Consumer Attorneys of California, serving as the Board’s Parliamentarian. As a staunch advocate for consumers, Mr. Bentley’s role on the Executive Committee will allow him to continue to champion the cause of consumers across the State. Read the rest of this entry »