So on Sunday I'm perusing the Register's headlines and Irun across it's expose of long-term care insurance in Iowa:Marge Bode is an Iowa farm wife who helped raise five children and made sure every one of them got at least one college degree.
She and her late husband bought long-term-care insurance to help pay the bills for nursing-home care in case either of them ever needed it.
Now 89, she has been diagnosed with dementia and narrowing of the arteries that supply blood to the part of the brain that affects her memory. She can't prepare her own food, work a toaster, operate a microwave, towel herself off completely after a shower, do her own laundry or work a remote control.
So she moved to an assisted-living facility in Algona last October.
She occasionally wants to take a long bath in the tub, but that would require extra help from the staff. Each soak in the tub would cost an extra $10.
"She can't afford it," said daughter Jan Christensen.
That's in part because the family was already paying more than $2,300 a month for the assisted-living facility. From October to June, Bode's long-term-care insurer, Conseco Senior Health Insurance Co., repeatedly refused to help pay the bill for Bode's care. The insurance company contended Bode wasn't sufficiently infirm to meet the eligibility terms in her policy. The benefit is only $50 a day, or about $1,500 a month, but it would have helped pay the bills.
It might be considered that Bode's story has a happy ending. Last month, after The Des Moines Register made inquiries with Conseco about Bode's case and the family decided to file a lawsuit, Conseco paid part of the money owed.
After reading this, I glance down to see what grounds they've sued on, as a) I am a lawyer and b) I used to work for an insurance company, before I started doing my own thing, taking court-appointed cases in juvenile court to help out kids in crisis from low-income families. I find the grounds at the bottom of the page:So, just like the letter suggested, the family sought legal counsel. Roxanne Conlin, a Des Moines attorney, took the case.
Conlin filed suit against Conseco in early June, accusing the company of everything from not returning the family's phone calls; to placing family members on hold for so long they finally hung up; to sending form letters instead of answering specific questions; to refusing to send correspondence to family members, even though Bode suffers from dementia.
. . .
Conlin's suit accuses Conseco of bad faith and fraud.
Absolutely correct, I thought to myself, if they've been as horrific as this article makes out they deserve a bad faith judgment. Let me explain: normally insurance law is contract law. You get what the terms of the contract say you get. If a company denies you coverage from a reasonable mistake or a general dispute on some of the facts (like if you claim your rear-ender accident caused you to become pregnant or something off the wall like that) the remedy if the company was wrong is usually limited to performance of the contract, and any reasonable expenses you incur in enforcing it. Also, because the contract is written up by the company and you have no choice but to either accept it as written or go elsewhere, every term in that contract is interpreted in your favor. So if part of a sentence could reasonaly be seen to provide coverage, even if it is a stretch and most people really wouldn't read it that way, the courts will give it to you. Bad faith, however, is a different issue. In those claims, the allegation is that the company knew coverage should have been given but didn't anyway. That means that you can sue for more than just the coverage you were promised, but also punitive damages to punish the company for it's wrongdoing. This generally results in multi-million dollar verdicts - the type of thing to strongly discourage companies for improper behavior. See, for example the State Farm case in which, at the close of the evidence, the jury awarded the Campbells $2.6 million in compensatory damages and $145 million in punitive damages. This for it's outrageous treatment of the Campbells when they had a serious accident with only a $25,000 policy. The United States Supreme Court steppid in on that case and indicated that this award was a bit much, even under the circumstances:An application of the Gore guideposts to the facts of this case, especially in light of the substantial compensatory damages awarded (a portion of which contained a punitive element), likely would justify a punitive damages award at or near the amount of compensatory damages. The punitive award of $145 million, therefore, was neither reasonable nor proportionate to the wrong committed, and it was an irrational and arbitrary deprivation of the property of the defendant. The proper calculation of punitive damages under the principles we have discussed should be resolved, in the first instance, by the Utah courts.So if my memory serves me correctly, the Campbells got $9 million in punitives plus the $2.5 million in compensatory, to come out with $11.5 million. Given the usual fees for plaintiff's attorneys, they'd probably take home a little over half that, and the lawyers would get the rest.
Yes, I know. But it isn't totally unfair - most plaintiff's attorneys on these cases have a contract with their clients in which the clients pay nothing up front, and the attorneys take 1/3 of any settlement, or about 40% if you have to go through trial and a verdict. Advantages to the injured plaintiff are that they don't have to have the money up front to sue (litigation is freaking expensive), and they get a lawyer who has a vested interest in maximizing the money they receive. Advantages to the lawyer are that while you take a risk in trusting that the case will be as good as the client is telling you, and you could get nothing, in the end you will generally get a lot more in fees than if you'd simply been paid hourly. Right now, I'm a little too low on savings to take anything like this on, but I'd love to do some in the future because the payout would be definitely worth it. The only thing you have to watch is that you don't get on a case where someone is trying to make a false claim, or thinks a sprained wrist and no bad faith should be worth billions of dollars. Refer those straight on to someone else, thanks.
That all said, imagine my puzzlement when I read this morning's article in the Register:. . . Robert Zieser found Ray Johnson. Robert's wife, Mary, is in a "memory care" lockdown unit for Alzheimer's, but the couple's long-term-care insurance company won't pay the bills. Robert Zieser has tried everything to get the company to pay. Now Johnson is reviewing the case.
"He clearly thought he had purchased protection. He thought he was getting coverage for this exact situation," Johnson said.
Johnson wouldn't think twice about taking on Zieser's case and others like it if Iowa had what's called a "private right of action."
Iowa doesn't.
It's the only state in the country that doesn't allow individual consumers to hire private attorneys and sue under the Consumer Fraud Act. Iowa's attorney general can sue under the act, but not individual Iowans.
So if Iowans think they have been victimized by unfair or deceptive practices, they have to scrape together the money to hire an attorney. That attorney would have to prove what's called "common-law fraud," a difficult case to prove. Also, under common-law fraud, there is no provision to recoup attorney fees, a step almost all states allow.
"How are you going to pay an attorney?" asked Johnson. Iowa law needs to provide a mechanism so a client's attorney "can recover fees from who caused the client harm."
Um, excuse me???? Mr. Zeizer? How long have you been doing this type of work? If you can't figure out how to get paid, you might want to check with Ms. Conlin, she seems to be doing quite nicely.
Snarkiness aside, what he wants is to be able to do the consumer protection class-action type of suit in these cases. You know, the ones where you get something in the mail and it says (I paraphrase), "There's a settlement with x-and-such company and it has been determined that you are one of the people who have been totally screwed by them. If you sign up now, you will get a coupon for $5 off your next purchase. The total award is $2 million to the named plaintiff, a $600 million fund to give the rest of you schmucks your $5 coupons, and another $200 million to the lawyers in attorney's fees."
Yep, just what we need in Iowa.
You might read that last bit of snarkiness and ask yourself: Well, okay, I know those class actions can suck for the non-named plaintiff, but why not support a private cause of action under the Consumer Fraud Act anyway? I mean, with the reduced standard of proof, it will be a powerful tool for people who are wronged - they can simply add a count onto their petition alleging this as well as common-law fraud and have just that more leverage, right? Why even presume it will lead to class-actions in the first place? So I'll explain:
I don't disagree that defrauded consumers should have every ability to protect their rights. But if you look at the differences between common law fraud actions and the ability for people other than the Attorney General to sue under the Consumer Fraud Act, and you'll see what I'm talking about.
Under Iowa law, the elements of fraud are: (1) representation, (2) falsity, (3) materiality, (4) scienter, (5) intent to deceive, (6) reliance, and (7) resulting injury and damage. First Security Bank and Trust v. King,(Iowa Ct. App. 2007).
So, if you think you’ve been harmed by a company you need to prove each of these things – they made some sort of representation to you, that it was false, that it was material to your purchase/agreement/contract (not lying about whether you look good in that skirt), that they intended to deceive you, you relied on the statement, and you had an injury or damages. One could argue the intent to deceive is a tad tricky to prove, but it’s inferable by the totality of the circumstances surrounding the deception.
By contrast, the Consumer Fraud Act is found under Iowa law in Section 714.16. The most apparently relevant section is a general prohibition against consumer fraud in 2.a.:
The act, use or employment by a person of an unfair practice, deception, fraud, false pretense, false promise, or misrepresentation, or the concealment, suppression, or omission of a material fact with intent that others rely upon the concealment, suppression, or omission, in connection with the lease, sale, or advertisement of any merchandise or the solicitation of contributions for charitable purposes, whether or not a person has in fact been misled, deceived, or damaged, is an unlawful practice.
The necessary elements to prove a violation are, therefore: 1) Misrepresentation, concealment, deception, false promise, etc.; 2) Intent for others to rely; 3) In connection with the sale of merchandise.
Note the differences: First, you don’t have to prove an intent to deceive, just that you knew there was a false representation and that consumers were intended to rely upon it. A bit of semantics, but it is different. However, I don’t think that’s the crux of the argument. Note the one big thing that’s present in a common law fraud action but missing in the Consumer Fraud Act – an injury to an actual customer. Why would lawyers be interested in this? Take this Illinois example from Overlawyered:
The Chicago law firm of Edelman, Combs, Latturner & Goodwin, LLC has some wonderful news for you:What do the lawyers get out of it? To quote the Register article:
We are looking for electronically generated credit / debit card receipts which show either (a) the card expiration date or (b) any digits of the credit/ debit card number other than the last five.
In order to protect consumers against identity theft, an amendment to the Fair Credit Reporting Act with a final effective date of December 4, 2006 requires merchants who accept credit/ debit cards and issue electronic receipts to program their machines to not show either the expiration date or more than the last 5 digits of the credit/ debit card number. The expiration date is important because a thief can use it together with the last four or five digits of the number to reconstruct the entire card number.
It is a violation to show either the expiration date or more than the last 5 digits of the card number. (We have seen some receipts where 4 or 5 other digits are shown, and that is a violation.) It is not necessary that any identity theft have actually occurred. Damages for a willful violation are $100 to $1,000 per receipt. The class representative may be able to obtain some additional compensation.
We have a number of pending cases alleging this violation and are interested in other merchants who are violating the law.
So if Iowans think they have been victimized by unfair or deceptive practices, they have to scrape together the money to hire an attorney. That attorney would have to prove what's called "common-law fraud," a difficult case to prove. Also, under common-law fraud, there is no provision to recoup attorney fees, a step almost all states allow.In other words, the attorneys can keep an eye out for potential violations of the law, troll for "clients" - it's immaterial whether or not you've been actually harmed by the violation - and then bring a big-*ss class action suit, the kind where the consumers each get a buck or two and the lawyers make millions. Think I'm exaggerating? Try this one, also from Overlawyered:
If you see Birmingham, Alabama lawyer Darrell L. Cartwright walking down the street, you might want to see if you can find some spare change in your pockets to give to him. He obviously must be hard up for money, because how else to explain the lawsuit he filed a couple of weeks ago?
On Monday, May 21, 2007, XM Satellite Radio suffered a satellite problem that caused partial or total service outages for parts of two days, lasting about 24 hours total. By late Tuesday, the problem was resolved, and XM announced that it would offer a two-day credit, worth about 87¢ -- yes, 87¢ -- to any customer who requested it. Problem solved. Everything right with the world, no?
No. You've forgotten about poor Mr. Cartwright. On Wednesday, May 23 -- the day after XM promised a refund to all its customers -- Mr. Cartwright found two neighbors of his who had subscribed to XM radio, slapped their names on a lawsuit, called it a class action suit, and demanded damages sustained by all its customers, in an unspecified amount of at least $5 million. (Via the Consumerist, which helpfully posted a copy of the complaint, which from the looks of things, took about 7 1/2 minutes of time to draft, typos and all: PDF.)
Now, you may wonder what benefit consumers get from this litigation, but to be fair, the lawsuit also demanded that the court issue an injunction to prohibit XM from suffering from technical problems in the future.
Or this one:
We mentioned the lawsuit over the absence of Nutrasweet in fountain versions of Diet Coke in 2004. In a typical "harm-less" class action, plaintiff Carol Oshana did not see any advertising for Nutrasweet in Diet Coke, knew that fountain Diet Coke tasted different than bottled Diet Coke, and continued to buy fountain Diet Coke after she learned it had saccharin, but demanded to be the representative of a class of all Diet Coke purchasers in Illinois on a "consumer fraud" claim. Via Howard Bashman, the Seventh Circuit affirmed federal jurisdiction and the district court's refusal to certify a class. Oshana did get a $650 nuisance settlement, which would buy 1000 liters of Diet Coke at my local grocer.
Spotting a trend here? Finally, to revisit my point on bad faith, consumers of long-term care insurance, like the Bode family, who have been wrongfully denied benefits have a powerful tool to work to collect not only their damages incurred as a result of that wrongful denial, but also to collect punitive damages - of which the attorneys get a 33 - 44% cut in exchange for taking the case for no fees up front. The elements of a first-party bad faith claim are reviewed in Walter v. Grinnell Mutual, (Iowa Ct. App. 2007):
[T]he elements to establish bad faith: (1) the insurer “had no reasonable basis for denying the plaintiff’s claim or for refusing to consent to settlement, and (2) the defendant knew or had reason to know that its denial or refusal was without reasonable basis.” The first element is objective; the second is subjective.
To recap, what bothers me about the Register article is that it implies that consumers who are wrongfully denied benefits by insurance companies must at present scrape together the money to hire a lawyer, and will have a difficult time finding one to represent them (according to Johnson) because it's so tough to prove fraud without the private right to sue under the Consumer Fraud Act. He'd love to take on these cases . . . but he just can't afford them. We should demand the right to sue, dammit! It's all for the public good, right? Besides, every other state allows this kind of suit. Iowans should demand their rights. Yep. Unless you know what he's actually talking about, it sounds very, very good. It's only when you dig a bit deeper that you figure out what's really going on. Consumers would gain a bit of an edge - the difference between proving an intent to deceive vs. proving a deception with the intent that you relied upon it. Lawyers, on the other hand, would gain a huge cash cow. Seems fair.
(Side note: I'll probably be excoriated by my fellow members of the bar for this one, which is one of the reasons I keep the blog anonymous!)
UPDATE
I've received a few emails from a member of the Bode family regarding their case, including a copy of the petition. I won't share it without permission, but I do want to reiterate that I feel for their situation and that I think their case is in good hands. Any hesitations I have about Mr. Johnson's piggy-backing his plea for a lawyer cash cow onto the back of this issue do NOT reflect on the Bode's case.
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