RiskProf

A Little Friday Levity

Not to be confused with the new little Leverty.  Riskprof’s Ty Leverty had a little boy earlier this spring.  I won’t disclose his name out of respect to his privacy, but it is a real strong Irish name.  I am particularly fond of Finbarr as a name, but my wife (who was probably thinking of the then wee one’s future) repulsed with significant gusto my attempts to name any of my little sigmas Finbarr.  Just so you know -- I did stop moping about this years ago.

Here is the real Friday levity.  Evidently, someone sued Pepsi (the owners of Cap’n Crunch) for false advertising for $5 billion because there were no crunchberries in the cereal.  I realize $5 billion is much anymore, but I think the fact that the word “crunchberry” is not in a real dictionary or even MS Word’s might have been a clue.

boingboing has a short story, but the comments are hilarious.. some of my favorites so far..

• #7. I heard that Crunch [had] to stop using his formal title when it was exposed that he never actually served in the military.
• #3. What!? Next thing you'll be telling me is that Froot Loops aren't made from real fruit, and that there's no nuts in Grape Nuts!
• #37. Don't be silly. Froot Loops are made from froot.
• #9. I love that she's suing on behalf of, not just herself, but the "other people" who have been similarly misled. […]Don't kid yourself, lady, you are an island in this belief system.
• #33 Follow up suit: Lucky Charms are not "magically delicious." They are merely "delicious."
• #48. So... that bowl I just had of Rice Chex didn't really have any Czecks (sic) in it, right?

It's a Hot Kitchen Moment

We need a word for when a public figure complains about something clearly non-libelous which is said in a blog. 

David Rosmiller has recently taken the the Mississippi AG's office to task for some of its decisions regarding its lawsuit against State Farm and its dealings with people related to civil suits against the company. The director of the insurance fraud unit (Ms. Courtney Schloemer) doesn't like the criticism of her and went out of her way to complain to the press.

"Maybe Mr. Rossmiller considers me collateral damage, but I have three investigators working with me who participated in the State Farm investigation and they deserve better than this. If you want to go after the people who put their names on the ballot or make millions of dollars every year, then have at it, but I would appreciate it if you would at least try to get our side of the story before you drag ordinary people through the mud."

Mr. Rossmiller responds in the link above (and by the way, never mentions any of her staff as he didn't know she had any), but it is apparent that Ms. Schloemer doesn't like the attention. So she probably needs to avoid those warm kitchens.

I am lawsuit abuse

"When I heard $67 million, I said to myself, 'Nonsense'... How could he claim this much over a pair of pants?"

From www.iamlawsuitabuse.org quoting the Chungs on their recent unpleasantness.

Also a short video from fellow GSU Professor Olga Jarrett on the influence of the nanny state and fear of lawsuits on play grounds and school play.

via Overlawyered.com .

Change a Few Words ....

If one changes a few words from this Houston Chronicle piece, one sees almost the same charges Scruggs made against State Farm:  Lowballing claims and producing fake documents in support of the claims.

Scruggs created a legal team called the Scruggs Katrina Group to represent policyholders who sued their insurers after the hurricane.

In January, Scruggs' legal team reached a mass settlement of suits with State Farm Insurance Cos. that involved more than $26 million in lawyers' fees.

The lawsuit accuses Scruggs of trying to "freeze out" lawyers from the Jackson law firm, including senior partner John G. Jones, and pay it a "ridiculously low figure" for its "substantial" work.

After the suit was filed, Balducci is accused of having several meetings and conversations with Lackey in which Balducci agreed to pay the judge for ruling in favor of Scruggs in the case, according to the indictment.

Scruggs allegedly tried to cover up the scheme by falsely creating documents that showed he hired Balducci to work on an unrelated case, when he was actually reimbursing him for the cash bribes, the indictment said.

See also David Rosmiller's excellent posts on the matter.  Start with this one and just scroll down.

One thing that I thought of, and it is echoed in David's piece, is what about the real contract disputes.  I know the III claims that 99.99% of the claims have been settled.  However, there were many claims and some non-trivial number of them must have legitimate disputes between the insurer and the homeowner.  Does the misbehavior (this alleged bribe and the real possibility of a contempt of court citation) of the most aggressive Katrina plaintiffs lawyer poison the jury pool against claimants?  The trial bar's (oops ... the justice bar's) self-administered black eyes may be a bar to justice.

               

Sound Familiar?

A guy walks into a Casino and pays the nickel slots.  On the slot machine there is a disclaimer that says the maximum payout for the machine is $2,500.

The guy drops a nickel, pulls than handle and wins a $1.6 million payout.

The Casino operator claims a mechanical fault and points to the disclaimer.  The guy, now known as plaintiff, is suing for his "lost" payout.

Personally, I think he should be paid because the casino industry had unconscionably high profits last year.

via Casinowire

graphic from Hotel Interactive.com

The Language of the Law (Plaintiff's version))

I haven't read the briefs, but this AP report states that the Tuepkers are asserting in their appeal brief of their slab case that State Farm's contract language was "craftily ambiguous" and is "woven so as to not give away their true intent."  I love this.

Our fellow insurance blogger David Rosmmiller is also quoted in the ultimate paragraph saying the writing is on the wall.  I, however, am still glad that State Farm sends me my contract on paper.  I know I may have the option of obtaining it electronically, but I didn't know I could get it on the wall too!  David's real point is that we are now seeing a number of cases interpreting the contract as non-ambiguous.

By now everyone except Adam Scales, David Rossmiller and myself is likely tired of the ambiguity debate, but it has had real effects.  I heard from numerous sources that gulf coast redevelopment is stagnant.  People have money to rebuild, but they have difficulties in obtaining insurance and so there is little rebuilding.  The reason insurers won't provide is because of uncertainty about future liabilities.  If one can't write a certain contract, one won't write many contracts.  Hopefully, some of the certainty will be resolved.

Katrina Claims 2 Years Later

After Katrina the state of Louisiana increased the time to file a legal challenge to a claim from one year to two.  The argument being that there were delays and people, arguably,  weren’t ready to settle after just one year.  I don’t have a problem with that as many states have two year statutes of limitation for many types of litigation.  A group called Katrina Justice is suing the state to get the limitation extended once again.

According to Rebecca Mowbray at the NO Times Picayune (reg. req),

A New Orleans nonprofit group has filed lawsuits urging Gov. Kathleen Blanco and Insurance Commissioner Jim Donelon to extend the deadline for resolving hurricane insurance claims beyond Aug. 29.

Katrina Justice filed the suits last week in Baton Rouge and New Orleans because it says that with the recovery going slowly, contractors in short supply and many people still waiting on Road Home money, most homeowners are not far enough along in rebuilding to know if their insurance checks were adequate.
(emphasis mine).

This type of thinking is a big problem for the insurance industry in the short-run.  Insurance payments are almost never adequate.  Can money ever properly replace a dead loved-one or a lost family home full of fond memories?  No.  The question is whether the claim is paid properly according to the contract.

By now, just short of the two year anniversary, one should know if one has a true legal dispute over a claim.  If one doesn’t, it is easy to sue to preserve rights. 

In the long-run, this type of thinking is a big problem for consumers of insurance.  If insurers are supposed to pay “adequate compensation” in addition to their contractual obligations, then they will just mosey on down the road.  (How’s that for a technical insurance term?)

A Little Research Report on Tort Reform

One of the major themes of the tort anti-reform movement has been the assertion  insurance premiums have not fallen after tort reform.  Ty and I are doing some research on this (which we will post after it is finished).  However, one of the things I was reading was the paper put out by the Center for Justice & Democracy entitled Premium Deceits.  In it, they count the number of major tort reforms in a state and then they look at whether the change in premiums over the period 1985-1998 is related to the number of major reforms.  They find that price changes over the period are not related to the number of reforms.  The report then makes the claim, that tort reform is deceptive and that it will not have an effect on lowering premiums.

I thought I'd talk about two things I noticed in the report.  While the report was carefully done in terms of enumerating the states' reforms, it doesn't necessarily make sense just to add the reforms up into an index of tort reform.  For example, one state may have a collateral source rule change and a damage cap enactment.  Another state may have a damage cap enactment and a change in joint and several liability . ... both would count as a '2', but they may or may not have similar impacts.  So, I thought this is a problem and is generally treated in academic papers by using a dummy variable for each significant tort reform.

So what if I disaggregated the Center's tort reform index and made a dummy variable for those states with two tort reforms and those with three tort reforms?  To see the effect of this minor change in defining the index, I estimated two regressions. (If your eyes are glazing over just skip down to the § symbol below.)

I estimated a simple regression (something the Center did not do in the report) of the form:  percentage change in products liability premiums = a + b*Number of Major Tort Reforms Enacted.

I obtained the following results:

*** significant at the 0.001 level.

This is essentially the conclusion that the authors made.  Tort reform was not statistically related to reductions in the change in prices over the period.

However, if I were to break out the number of reforms into two dummy variables (TR2 =1 if state has enacted 2 tort reforms, and 0 otherwise, TR3 =1 if the state has enacted 3 tort reforms and 0 otherwise) I get a slightly different result:

***significant at the 0.001 level and ** significant at the 0.05 level.

§This result suggests the tort reform does have an effect on lowering prices, but the number of reforms that accomplished this goal is 2.  This result refutes the Center's conclusion (at least for products liability) as the coefficient on TR2 is significant at the 0.05 level.  In simple terms, two tort reforms were associated with a 26 percent reduction in the percentage change in product liability premiums over the period in question.

This is still unsatisfactory, though, as one can not really add the state's tort reforms up to get a simple additive index of tort reform.  I don't even believe that two reforms make a difference but three do not.  So as all good academics are wont to claim, more study is needed.

FYI:  The data used are all available in the appendix of the Center for Justice and Democracy's paper which I linked to above.

What If?

… We had a bird flu pandemic?  I was thinking this would be (from a financial standpoint) a life insurance and perhaps health insurance catastrophe as death claims and medical claims would be quite high.  What if your recently sick or deceased loved one didn’t have life insurance or medical insurance?  What other potential payer exists?  Insurers are already worried about workers compensation as being a source of claims.  I am not a workers comp expert, but it would seem to me that one would have to obtain the disease within the scope of one’s employment.   However, it is a work place injury the workers comp plans were designed to protect against? 

Mr. Ulrich [ a modeler at Risk Management Solutions] said in an interview today that with 40 million workers hit by the flu, “some people are going to file claims,” and just as Hurricane Katrina produced an avalanche of litigation, a flu outbreak would likely have the same outcome because “people will look for deep pockets.”
In addition, he said, some occupations, such as teachers and health care workers, may have a case to argue that they should have comp coverage for injuries resulting from workplace exposure. Even if claims are not upheld, it could result in significant legal defense costs for insurers, said Mr. Ulrich.

Wouldn’t it be smart to get a deal on the scope of workers compensation coverage up front where it could be priced and managed rather than on an ex post basis?

via The National Underwriter

Two in One Day

From the Barrister Blog comes the question:  If you make a fraudulent against an insurer, can the insurer deny every part of the claim, even the objectively non-fraudulent parts?  In the case discussed at the Barrister Blog there was some dishonesty about a claim involving an auto accident.  The personal injury damages appeared to be built up, but the actual physical damages to the car were not.

David Rossmiller looks at a recent Katrina case in Louisiana. The plaintiffs dropped their case right before the case went to the jury—expecting, I suppose a resounding “No”. It appears that the plaintiffs had asked for expense reimbursement for renting (which is reasonable), but they actually owned the home that they were “renting”.  It looks like the answer in Louisiana is that if you misrepresent you lose.  In this case there was contractual language that permitted their insurer to pay no part of the claim if there was any fraud, so the plaintiffs looked like they quit while they were ahead.

via David Giacalone.