Representative Landmark Cases for William Shernoff

Collecting Life Insurance Benefits for Heirs of Holocaust Victims: Stern v. Generali

SEVERAL YEARS AGO it was discovered that many Holocaust victims who died in concentration camps had life insurance that was never paid to their heirs. In one of the first cases of this kind, attorney William Shernoff brought an insurance bad faith lawsuit on behalf of Adolf Stern, son of a Holocaust victim and himself a Holocaust survivor, against Generali, an Italian insurance company. Prior to the lawsuit, Shernoff was instrumental in the passage of a California statute allowing such suits to be brought under California law until the year 2010. After hearing arguments on whether California has jurisdiction over the giant Italian insurance company, a Los Angeles Superior Court judge ruled that the Stern case could proceed under California law. It was the first ruling of its kind in the United States. Once the case was set for trial, Generali’s executives flew to California to negotiate a confidential settlement for Adolf Stern and the other Stern heirs. Shortly thereafter, Shernoff settled five additional Holocaust-era life insurance cases on behalf of other Holocaust survivors and their families. The unprecedented success of these cases helped lead to a $5 billion settlement reached in 2002 compensating Holocaust victims for unpaid insurance benefits and slave labor. Our law firm was among the counsel involved in this monumental and historic settlement.

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California’s Unfair Business Practices Law Is Applied to the Insurance Industry: Earthquake Claimants v. Homeowners Carrier (Allegro)

THE LAW FIRM of Shernoff Bidart Echeverria set legal precedent on behalf of victims of the 1994 Northridge earthquake when it was established for the first time that California’s Unfair Business Practices Act can be applied to the insurance industry. At issue was the insurance company’s failure to notify policyholders of a reduction in coverage it implemented in 1985. Prior to that year, policyholders paid a premium for earthquake coverage in the form of a policy rider. But in 1985 the company began offering earthquake coverage through a separate policy – without the knowledge or approval of its policyholders. Attorneys Michael Bidart and William Shernoff recognized that this behavior constituted not only multiple breaches of good faith but also a violation of California’s Unfair Business Practices Act. They wanted to hold the insurer accountable for its unfair business practices. The Superior Court handed down a decision, subsequently upheld by the California Appellate Court, proclaiming that California’s unfair business practices law indeed could be applied to insurance companies. The ruling brought the insurance company in this case to the bargaining table. Bidart was able to gain for all claimants of the lawsuit full restitution for damages they incurred from the Northridge earthquake. The settlement, which was confidential, was nonetheless reported by the Los Angeles Times as reaching approximately $100 million.

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Setting the Precedent for Years to Come: Egan v. Mutual of Omaha

RULING ON A LAWSUIT brought by Southern California attorney William Shernoff on behalf of a disabled roofer, the California Supreme Court in 1979 handed down a landmark decision that set the legal precedent enabling policyholders to sue their insurance companies for acting in “bad faith.” Egan was the first Supreme Court decision to hold an insurance company guilty of bad faith for failing to investigate a policyholder’s claim adequately. The case opened a vital door for consumers, making it easier for them to bring their insurance companies to court. It enabled consumers to obtain favorable verdicts not just for their claims but for damages suffered because of mental distress and for punitive damages. During the trial that led to the ruling, Shernoff Bidart Echeverria LLP founding partner, William Shernoff, proved to the satisfaction of the jury that the defendant, Mutual of Omaha, committed bad faith by reclassifying 55-year old Irish immigrant Michael Egan’s injury (he had fallen from a ladder) as a sickness rather than an accident. It used this reclassification as a pretext to deny Mr. Egan’s benefits under his disability insurance policy. The jury awarded Mr. Egan $45,600 in disability benefits and $78,000 for emotional distress. It went on to assess a $5.1 million punitive damages award against the insurance company, which constituted a record-setting judgment at the time. The legal precedent created by Shernoff in Egan lives on as the foundation for all insurance bad faith actions today.

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Representing An Entire Country: American Samoa Government v. Affiliated FM Insurance

IN 1991 AMERICAN SAMOA, a United States territory, purchased from Affiliated FM Insurance a $45-million “all risk” insurance policy that specifically covered hurricanes. One month later, the tiny islands of American Samoa were decimated by Hurricane Val. After being hammered for four days with 150-mph winds and 50-foot waves, the islands were left with broken water mains, no telephone or electrical service and nearly $50 million in damages, including destroyed schools, courthouses and government buildings. Affiliated decided to pay only for $6.1 million of the damages, determining that this was the amount of damages caused by wind, with the rest caused by “wind-driven water.” Upon further investigation, attorney William Shernoff and his team discovered that the insurance company indeed had modified American Samoa’s insurance policy to exclude damages caused by “wind-driven water” – even though the policy still covered hurricanes. At trial, Shernoff showed that although Affiliated’s policy modification contained the phrase “understood and agreed,” American Samoa in fact had not agreed to it, as they were not even informed of the change in coverage until four days after Hurricane Val. And Shernoff had little difficulty showing the jury the absurdity of Affiliated’s claim that Hurricane Val was not a hurricane at all but rather “wind-driven water” and therefore not covered under the policy. The case Shernoff brought was so strong that the jury awarded the American Samoa Government the balance (less the deductible) of their coverage, $28.9 million, and then doubled that amount to $57.8 million in punitive damages. The $86.7 million judgment was the largest insurance bad faith verdict in the state of California in 1995. Following an additional appeal and settlements, American Samoa collected a total of $118 million.

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The Quake that Shook Allstate: Sherman v. Allstate

AT 4:30 AM On January 17, 1994, a 6.7-magnitude earthquake rocked Southern California, collapsing buildings, severing freeway interchanges and rupturing gas lines. Fifty-seven people died, more than 9,000 were injured and more than 20,000 were displaced from their homes. The earthquake, named for its epicenter in the town of Northridge, proved to be the costliest in US history, causing estimated losses of $20 billion. Many of those who suffered losses turned to the law firm of Shernoff Bidart Echeverria LLP when their claims were not handled fairly. Shernoff Bidart Echeverria filed a class-action lawsuit against Allstate Insurance Company alleging that the company was involved in a widespread scheme, in which adjusters had altered engineering reports and construction estimates, to minimize claimants’ damages. The case settled upon an agreement by Allstate to provide an independent re-evaluation of engineering reports and construction estimates and to notify an additional 12,000 policyholders of their potential claims. In the end, Allstate re-evaluated the claims of over 2,300 policyholders and made fair and total payment to them. In the case, lead counsel William Shernoff and Michael Bidart were able to effect a monumental settlement that also served as a warning to the entire insurance industry about the perils of mistreating policyholders in their time of need.

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From a $48 Claim to a $4 Million Dollar Verdict: Norman v. Colonial Penn

When attorney William Shernoff joined a senior citizen named Elmer Norman in a $48 battle against the Colonial Penn Franklin Insurance Company, he never dreamed that the case would become one of the greatest David-and-Goliath legal scenarios in the field of bad faith law. Elmer Norman owned health insurance with Colonial Penn because the company sold its policies through AARP, an organization that Elmer, like most retired Americans, trusted implicitly. But when Elmer submitted a $48 claim to cover a hearing test and prescription medicine, Colonial Penn denied the claim. During a routine pre-trial deposition, Elmer mentioned something about a policy switch. Shernoff smelled a rat, and the scope of the small case suddenly ballooned. A look at Colonial Penn’s internal documents revealed that the company indeed switched policies on all its AARP customers, intending to reduce its loss ratios by 40 percent and save $4 million in annual payouts. An interoffice memo even outlined ways to make the new policy “appear similar to the current plan.” Shernoff investigated and discovered to his dismay that the “improvements” included added coverage for pregnancy and injuries related to war. Coverage that these retired Americans actually could use, such as for pre-existing conditions, was limited. The overall value of the policy was substantially reduced. At trial, Shernoff exposed Colonial Penn’s deceptive, self-serving scheme to the jury, which needed little time to find the company guilty of fraud. They proceeded to award Elmer Norman $70,000 in compensatory damages and $4.5 million in punitive damages. Perhaps more than any other bad faith incident, the Norman case demonstrated that our system of justice allows anyone – no matter how old or infirm – to make a difference.

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Persistence Wins Out over HMO

A MARRIED COUPLE had twin boys who were born with a rare heart and lung ailment that caused dangerous health complications while the boys slept. The twins required constant overnight monitoring at home by machines and a nurse. The cost of this at-home care, nearly $150,000 a year, was covered by insurance ever since the boys’ illness was diagnosed when they were six weeks old. When the twins were seven, their father’s employer switched medical plans. The new insurer, an HMO, determined that the at-home care was no longer medically necessary, and payment for the overnight care stopped. Attorney William Shernoff filed a lawsuit against the HMO as well as against the company that reviewed medical claims for the HMO. Shernoff discovered that the doctors retained by the HMO were unqualified to review a case as complicated as this one. None of them had expertise with pediatric heart and lung disease. One of the doctors was a 73-year-old internist who had never even practiced pediatric medicine. Shernoff furthermore discovered that the review company’s contract with the HMO contained a “savings clause” that created a financial incentive for doctors to deny treatment. Meanwhile, the twins’ mother wrote to local politicians and newspapers and also appeared on national talk shows to tell her story of how the insurer had disregarded the recommendations of her sons’ personal doctor, a pediatric pulmonologist who had cared for them since birth. Shernoff’s experience with confronting HMOs and the twins’ mother’s aggressive and indefatigable media campaign resulted in the company’s settling the case out of court. The insurer agreed not only to resume paying for the twins’ nursing care but also to pay more than $1 million in emotional distress damages.