Liability roundup is a post from Overlawyered - Chronicling the high cost of our legal system

September 22 roundup is a post from Overlawyered - Chronicling the high cost of our legal system

The magazine also has a short interview with Andrew Frey, the Mayer Brown litigator who has argued several Supreme Court punitive damages cases.

Inside Counsel magazine on punitive damages is a post from Overlawyered - Chronicling the high cost of our legal system

You’ll be happy to hear that the Johnsons didn’t try to blame the beer company or the auto manufacturer, and simply sued Davis. Davis’s insurer, Allstate, contacted the Johnsons’ attorney, David Sexton, in April, and asked for access to the Johnsons’ medical record. Sexton responded by demanding the policy limits. Allstate requested the medical records three more times, and finally got the records on December 20. (A Dan Margolies Kansas City Star article (via Childs) incorrectly says Allstate did not respond, but the court’s opinion says otherwise.) Allstate immediately agreed to pay the settlement limits, but now Sexton refused, saying his April offer had expired, and he now wanted $3 million from Allstate. We’ll let the Missouri Court of Appeals explain what happened next:

The Johnsons’ suit against Davis did not go to trial. Instead, on November 29, 2004, the Johnsons and Davis entered into an agreement that they titled, “Assignment and Settlement Agreement Pursuant to Mo. Rev. Stat. Section 537.065 (1986).” In the agreement, Davis admitted that he negligently had allowed his vehicle to cross the highway center line and to collide with the Johnsons’ car head on, that his blood alcohol content was .203 percent, and that his conduct of driving while intoxicated showed complete indifference to, or conscious disregard for, the safety of others. Davis consented to judgment for the Johnsons for $2.5 million in actual damages, $1.5 million in punitive damages, and more than $1 million in prejudgment interest, plus costs. In return for the Johnsons’ covenant not to execute the judgment against him, Davis assigned to the Johnsons 90 percent of his bad faith refusal to settle claim against Allstate.

Davis and the Johnsons then sued Allstate; a jury was not allowed to hear about the settlement agreement, just that Davis was liable for $5 million. A Jackson County, Missouri, jury awarded $5.8 million in compensatory damages, and $10.5 million in punitive damages, thus rewarding Sexton’s sandbagging of the insurance company. On Tuesday, the Missouri Court of Appeals affirmed. If the Supreme Court of Missouri also signs off, drunk-driver Davis will be a millionaire. Just another case of trial lawyers putting profits ahead of people–and ordinary Missouri citizens will be paying a lot more for insurance when the drunk driving of an insured holding a $50,000 policy can make the insurer liable for $16 million. (Johnson v. Allstate Insurance Co., No. WD68189, Mo. App. Jul. 29, 2008).

For a Utah example of profiting through bad driving, see June 19, 2007.

Johnson v. Allstate Insurance Co.: drunk driving for profit is a post from Overlawyered - Chronicling the high cost of our legal system

Judge Bluth claims she is just following New York precedent. In A.M. Medical Services v. Nationwide Mutual Insurance Co., 12 Misc.3d 143 (2006), the passenger and driver “admitted under oath that they faked the accident and withdrew their claims with prejudice.” but summary judgment was still not granted against the
medical provider who maintained its suit. (Daniel Wise, “N.Y. Judge: Summary Judgment Barred in Fake Auto Accident Case”, NYLJ/law.com, Jun. 6).

New York court: proof of insurance fraud doesn’t entitle insurance companies to summary judgment is a post from Overlawyered - Chronicling the high cost of our legal system

Ted Fields was injured in an auto accident with Jimmy Woodley; Woodley’s insurer went bankrupt, so Fields, on January 30, 1997, asked Allstate to pay $25,000 in medical bills and lost wages. Allstate sent Fields forms to fill out, and he did so three weeks later; when Allstate didn’t pay instantaneously, he sued them in March 1997 for bad faith. Fields turned the discovery process into a far-reaching investigation of all of Allstate’s claim procedures; the judge refused to constrain irrelevant deposition questioning, at which point in 1999 Allstate offered Fields the full amount of his $50,000 policy limit rather than waste hundreds of thousands in trial. Fields refused; his attorneys filed several separate motions of default rather than litigate the underlying issues after the trial court denied a summary judgment motion. An appellate court found that Allstate was entitled to summary judgment because of the lack of any evidence of bad-faith in responding to Fields’s claims; the Indiana Supreme Court overturned that ruling on a procedural technicality that the appeal was premature.

The trial court ruled that Allstate was not allowed to present evidence that it was not liable for actual or punitive damages or that it acted “with anything other than dishonest purpose, moral obliquity, furtive design, and/or ill will.” A jury, hearing this one-sided sham of a trial, awarded $20 million in damages, though one would hope the Court of Appeals, hearing a timely appeal, makes the same decision it made before. Press coverage fails to mention that Allstate wasn’t allowed to defend itself at trial; the plaintiff told the jury that the dispute caused high blood pressure, heart problems, and a stroke, though then the question becomes why he isn’t suing his attorney.

Today, the Court of Appeals of Indiana reversed.

Update: Fields v. Allstate is a post from Overlawyered - Chronicling the high cost of our legal system

In 1981, Curtis Campbell (Campbell) was driving with his wife, Inez Preece Campbell, in Cache County, Utah. He decided to pass six vans traveling ahead of them on a two-lane highway. Todd Ospital was driving a small car approaching from the opposite direction. To avoid a head-on collision with Campbell, who by then was driving on the wrong side of the highway and toward oncoming traffic, Ospital swerved onto the shoulder, lost control of his automobile, and collided with a vehicle driven by Robert G. Slusher. Ospital was killed, and Slusher was rendered permanently disabled. The Campbells escaped unscathed.

Guess quickly: which plaintiff in the resulting twenty years of litigation won the biggest jury verdict?

How many of you say Ospital?

How many of you say Slusher?

You’re both wrong. The plaintiff with the biggest jury verdict was Curtis Campbell, whom a jury awarded an incredible $147.6 million.

You see, when Slusher and Ospital sued Campbell, they offered to settle for Campbell’s $50,000 policy limit. Campbell, however, maintained that the accident was not his fault: he completed his pass without hitting any vehicles, Ospital was driving 80 mph when he lost control of the car, and Campbell said that he had already completed his pass when Ospital lost control; one witness even said it was another vehicle attempting to pass the caravan that caused Ospital’s accident, and another witness said that Slusher had told him in the hospital that it was not Campbell’s fault. So Campbell’s insurer, State Farm, decided to litigate the case. Meanwhile Slusher, who had also sued Ospital, settled with Ospital for $65,000 on the condition that Ospital change his theory of liability and solely blame Campbell for the accident. And Campbell lost: a jury held him 100% responsible, with a verdict of $185 thousand. State Farm at first refused to pay this amount, but eventually agreed to do so; Slusher and Ospital never executed on the judgment, so Campbell’s personal assets suffered no consequence.

Instead, the two settled with Campbell: no money changed hands, but they instead agreed that Campbell would give them a piece of (and control of) a lawsuit against State Farm for “bad faith”. Campbell and his wife, represented by attorneys picked by Ospital and Slusher, sued. The trial was absent of any objective evidence of emotional or mental distress, but a jury still awarded $2.6 million in “compensatory” damages; in the punitive damages proceeding, every alleged bad act State Farm had ever done in any line of insurance or treatment of its employees was put into evidence (including practices explicitly authorized or required by state regulation, such as the use of non-original-equipment manufacturer parts or claiming comparative negligence in litigation, and practices that are completely innocuous, such as using a computer program to find the best prices for auto parts in Colorado), and a jury issued $145 million in punitives. The trial judge reduced damages to $1 million compensatory, and $25 million punitive—still a windfall—but the Utah appellate courts reinstated the $145 million punitive damages award, along with almost a million dollars in other fees and awards.

State Farm v. Campbell went on to the United States Supreme Court, which held that the 145:1 punitive damages and the punishment of legal out-of-state conduct violated the Constitution. It remanded the case for further consideration, and the Utah Supreme Court (98 P.3d 409 (Utah 2004)) reduced the punitives to a 9:1 ratio of $9 million; further appeals were rejected.

State Farm is a mutual insurance company; it is owned by its policyholders, who get rebates when State Farm has a profit. So Campbell, Ospital, Slusher, and their attorneys split $11 million; and honest State Farm policyholders are a little bit poorer; Curtis Campbell, who suffered no economic damages, had no evidence of noneconomic damages, and was found by a jury to be responsible for the death of Ospital, took home hundreds of thousands of dollars. And reform opponents have the chutzpah to say that State Farm v. Campbell is a case where plaintiffs were treated unfairly, when in fact it is an example of a gigantic shakedown of an innocent defendant being turned into a merely very large shakedown with an unjust windfall.

Flashback: the tort system in action in the case of Curtis Campbell is a post from Overlawyered - Chronicling the high cost of our legal system

The trial court ruled that Allstate was not allowed to present evidence that it was not liable for actual or punitive damages or that it acted “with anything other than dishonest purpose, moral obliquity, furtive design, and/or ill will.” A jury, hearing this one-sided sham of a trial, awarded $20 million in damages, though one would hope the Court of Appeals, hearing a timely appeal, makes the same decision it made before. Press coverage fails to mention that Allstate wasn’t allowed to defend itself at trial; the plaintiff told the jury that the dispute caused high blood pressure, heart problems, and a stroke, though then the question becomes why he isn’t suing his attorney. (Ken Kosky, “Valpo man wins $20 million verdict v. Allstate”, Northwest Indiana Times, Oct. 6).

Jackpot justice: $20M for $25,000 insurance claim is a post from Overlawyered - Chronicling the high cost of our legal system

Bloggers Grace and Wallace point us to the tale of the infamous (and now suspended) attorney Rex DeGeorge, which has important lessons how the plaintiffs’ bar has made insurance more expensive for all of us: because insurers who suspect fraud risk substantial liability for “bad faith” denial of coverage (e.g., May 5, where an insurer who merely investigated an $8,000 chiropractor’s bill was hit with a $150,000 judgment), insurance scamsters can manipulate the system by threatening a suit. For an individual case, simply defending the non-payment may be more expensive than making the payment; even on a systematic basis, the risk of losing a case and facing punitive damages can put insurers in a bind. This is lengthy, but worth it.

In 1970, DeGeorge received $43,000 from Hartford Insurance when he told them that his 43-foot yacht had been stolen by Peruvian coffee merchants. He used the proceeds to buy a 57-foot racer. Lloyd’s of London paid him $194,000 when he told them in 1976 that it had sunk. In 1983, yet another yacht “exploded”; though DeGeorge claimed it was because of “hit men”, he didn’t report it to the police, but to his insurance company. When Fireman’s Fund refused to pay, DeGeorge threatened suit, and they coughed up $250,000. Similar suits resulted in a $700,000 settlement from Home Insurance and more from Transamerica Insurance from a claim that four dozen paintings had been burglarized from his home; a $550,000 settlement from Monarch Insurance for a disability claim; and a threat of a suit brought a settlement from American Express for two separate claims of lost suitcases on trips abroad. All in all, DeGeorge had received over $2 million from insurance companies from various claims, including 29 separate claims of disability.

Cigna, however, was willing to fight when DeGeorge claimed that a 76-foot yacht had been seized by pirates off the Italian coast who had sawed large holes in the hull. The Italian Coast Guard was skeptical because DeGeorge and his two companions hadn’t bothered to use the yacht’s functional radio to summon help. DeGeorge had purchased the yacht for $1.9 million, but resold it to a corporation he was the sole shareholder of for $3.6 million, and that company asked for that amount from Cigna, who, under California law, had only 30 days to respond or risk punitive damages in a “bad faith” lawsuit.

Cigna sued to get out of paying the claim, and DeGeorge countersued. The litigation ended up costing Cigna nearly $3 million in attorneys’ fees, which explains why so many other insurance companies simply settled. Cigna won the case, and even got an order requiring DeGeorge to pay its attorneys’ fees.

DeGeorge, however, shifted his assets overseas and declared bankruptcy. The sham of the bankruptcy was shown when DeGeorge was indicted; he withdrew the petition so that he wouldn’t have to rely upon a court-appointed lawyer and instead could use Mark Geragos (Feb. 18; Dec. 16) to defend him in the criminal case. DeGeorge’s luck really ran out: the jury didn’t believe Geragos’s closing argument that a Russian submariner acting in league with drug smugglers was the one who sank the yacht, and DeGeorge was convicted of fraud, conspiracy, and perjury in 2002. He just lost the appeal of that conviction, though the case was remanded for minor sentencing adjustments. But DeGeorge continues to sue insurance companies; after the conviction, as we mentioned Feb. 17, 2003, a civil jury awarded him $391,000 (plus $4700/month) in a suit against Equitable Life Assurance over a supposed “brain condition”, despite testimony that DeGeorge rehearsed and researched his symptoms, and even though DeGeorge was forced to appear in court in chains and shackles with armed guards.

(Davan Maharaj, “Recurring Tales of Sunken Yachts and Pirates”, Latitude 38, May 2002; “Lawyer?s Conviction in Plot to Scuttle Yacht Upheld”, Metropolitan News-Enterprise, Aug. 31; William P. Barrett, “Why Insurance Rates Are High”, Forbes, Sep. 15, 2003; Insurancefraud.org on DeGeorge; C.D. Cal. USAO press release, Mar. 4, 2002; United States v. DeGeorge opinion; “Rex DeGeorge”, California Bar Journal, May 4, 2002; Cigna v. Polaris Pictures Corp. opinion).

Bad lawyer files: Fourth yacht’s the charm is a post from Overlawyered - Chronicling the high cost of our legal system