Wednesday, July 25, 2007

Somewhat Legal Post

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.

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.

I realize the connection between class action suits and Consumer Fraud Act private causes of action needs a tad more explaining, so I've put a full-blown legal post up today.

This same article is on Professor Nicholas Johnson's blog, From DC 2 Iowa, quoted in support of a universal health care system, given that insurance lobbyists have kept out this cause of action.

While, on the one hand, I'm not opposed to a practical system of universal health, I'd do it for other reasons. To me, the method of suing insurance companies in Iowa is not particularly flawed. For the most part, I think the verdicts are fair and the cause of action sufficient, pretty much because Iowa jurors usually have enough common sense to tell a real claim from an overinflated one, and fraud from normal claims practices, and to ding whichever party brought the unsupported cause.

No, my bigger issue is the premiums. With the reserves requirements on the companies (how much they have to keep in savings/investments to cover the chances of a catastrophe), and the differential in pricing between what medical facilities charge medicare (very cheap) vs. insurance (as much as they can) vs. private individuals (even more than insurance companies), and the legal cost in defending lawsuits when they are frivolous, premiums are astronomical. It is impossible for anyone below a middle class bracket to afford insurance unless they get it through work, and nearly impossible even for those solidly in the middle class. The system is clearly broken and needs to be fixed.

I mean, let's face it - we're going to have to do something. Have you checked out what you'd pay for COBRA or your own insurance these days? For me, it would be higher than my share of rent. When your "just in case" policy is actually higher than your housing costs, there's something seriously wrong. Which is why, for the moment, you can rank me in the category of the uninsured. It's precisely for that reason that health care has become inextricably tied to employment benefits - employers with large groups of employees are the only people with enough bargaining power to actually cut the rates down to where it becomes a vaguely reasonable monthly payment.

I'm not expert enough on economics to know if universal health care is the most effective solution. From what I can tell, it works fine in some countries that have economies geared toward the trade-off of high taxes and large government benefits. I'm not sure if it would work as well here, since most of the rest of our economy seems geared toward privatization and keeping taxes low. But I think it's one option that should be seriously discussed.

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