State Farm Sued for Bad Faith Processing of “Debatable” Claim

Author Subject: State Farm Sued for Bad Faith Processing of “Debatable” Claim
Del Posted At 16:38:27 03/22/2000
State Farm Sued for Bad Faith Processing of “Debatable” Claim

Where State Farm repeatedly refused to pay the policy limit on an insured’s claim, and an arbitrator later awarded her almost four times that amount, she can sue for bad faith - even though the claim was “fairly debatable,” says the Arizona Supreme Court in reversing the Court of Appeals.

The insured filed a claim after she suffered a permanent eye injury in a car accident. State Farm took 10 months to process her claim and then offered only about half the policy limit. Following the arbitrator̓s award, she sued for bad faith, and a jury awarded her $1 million in damages.

State Farm appealed, arguing that it didn’t act in bad faith because the amount of the claim was “fairly debatable.”

But the court said, “[W]hile fair debatability is a necessary condition to avoid a claim of bad faith, it is not always a sufficient condition. The appropriate inquiry is whether there is sufficient evidence from which reasonable jurors could conclude that...the insurer acted unreasonably and...knew...that its conduct was unreasonable...[The insurer] should not force an insured to go through needless adversarial hoops to achieve its rights under the policy. It cannot lowball claims or delay claims hoping that the insured will settle for less.”

Here, “[t]here was sufficient evidence...from which a jury could find that State Farm acted unreasonably and knew it. There was evidence that State Farm set arbitrary goals for the reduction of claims paid. The salaries and bonuses paid to claims representatives were influenced by how much [they] paid out on claims...Reasonable jurors could also find that State Farm took an unreasonable length of time to evaluate [the insured̓s] claim.”

Arizona Supreme Court. Zilisch v. State Farm Mutual Automobile insurance Co., No. CV-98-0535-PR. March 3,2000.
Del Re: State Farm sued for what is common practice. (Currently 0 replies)
Posted At 17:21:51 03/22/2000

Although the above involves an auto accident it has set legal precedent which could apply to workers' comp claims, in Arizona for now, and possibly nationwide at some point. This will be especially true if "exclusive remedy" is declared unconstitutional.

Anyone who has been moderately to severely injured at work knows about the "starve-out tactics" of insurance companies.

Another less known fact is that claims adjusters are commonly compensated (salary & bonuses)in accordance to how "little" they pay out on injury claims.

When looking at the statistics below, keep in mind that Oregon employment has risen while ACCEPTED "disabling" claims are substanially down (about 25%). Not all claims are disabling.

Oregon OSHA performed fewer inspections in 1998 than they did in 1986 which begs this question; "how can we be safer at our jobs?" Also, Oregon imposed the lowest average penalties in all 50 states per serious citation for "conditions creating a substantial probability of death or serious physical harm to workers." The penalty averaged $287 in 1997.

Year Employment Disabling Claims
1990 1,258,600 35,857
1991 1,258,600 31,479
1992 1,280,500 30,786
1993 1,317,100 30,741
1994 1,378,800 31,530
1995 1,431,800 30,564
1996 1,487,300 28,389
1997 1,547,800 27,922
1998 1,583,900 27,049

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