Snake Killer

Kim Zilisch lost her fianc and normal use of her left eye in a car accident 10 years ago. She is still waiting for State Farm, her own insurance company, to pay her what she's owed.

It was a long week for Kim Zilisch. The Motorola accountant had spent three grueling days taking tests at the Phoenix Civic Plaza for her CPA license. On Friday night, she finally got to relax. Her fiancé, Jeff Rosinski, picked her up downtown and drove her to the inaugural concert at Blockbuster Desert Sky Pavilion.

Zilisch, 23, was excited. Tall, lanky Rosinski, 27, was so sweet: He had surprised her with tickets to the Billy Joel show. She loved the "Piano Man" and looked forward to a night out with her fiancé after the grind of her exams.

Following a memorable, unseasonably warm evening under the stars, Rosinski and Zilisch headed back to Mesa. Content and exhausted, Zilisch dozed off while Rosinski drove.

It was a merciful slumber.

When she awoke two days later in a hospital bed, her body ached. One of her fingers wouldn't move. She couldn't open her left eye. When she asked about Rosinski, a hospital staffer told her he was dead.

After exiting at the Price Road off ramp from the Superstition Freeway, Rosinski's car had been demolished by a teenage drag-racer who had sped through two red lights before T-boning the driver's side of the Pontiac Grand Am. The violent crash peeled off the roof of Rosinski's car like a lid on a can of tuna. The dashboard disintegrated, the console rammed into Zilisch's left leg and the right side of her head was slammed against the passenger window.

Rosinski was killed instantly. Zilisch, unconscious, had to be cut out of the car.

A decade after the accident, most of Zilisch's wounds have healed. She has regained the use of her finger. Indentations on her left thigh are concealed by her clothing. Her eye, which remained shut for nearly a year, is open. But the lid droops slightly and the pupil is permanently dilated and fixed. When Zilisch looks straight ahead, she can see fine (and she looks okay to an observer), but if she tries to glance in any direction, that left eye doesn't move and she sees double images.

Zilisch has rebuilt her life. She left Motorola because Rosinski had worked there, too; it was too painful to stay. She went to graduate school for an advanced degree and is now in a new job.

Resuming her social life was more difficult. Her eye injury made her feel ugly, she says. And because her double vision -- and memories of Rosinski -- kept her from participating in what used to be their favorite sports, she gained weight. That just added to her low self-esteem, she says.

She was "a downer" to be around, depressed and prone to crying. Pretty soon friends stopped including her in their social events.

Going to school again introduced her to new people, but she felt guilty dating other men. Zilisch says it was four years after the accident before she was again able to enter into a relationship.

Today, she is seriously involved with a new man.

Recounting the horrific events of November 9, 1990, Zilisch maintains her composure. It was, she notes, a long time ago.

Only once do her eyes well up. The tears come not when she tells about the loss of her fiancé or the brutality of the accident. No, her voice only catches when she recounts what happened afterward, when she had to fight her own insurance company -- State Farm Mutual Automobile Insurance Co. -- to give her the underinsured motorist coverage she had purchased.

She tells of being subjected to interview after interview as new claims investigators were assigned to her case and having to visit five doctors for examinations of her eye. State Farm refused to accept the fact that her disfiguring eye injury was indeed permanent. She says the physician State Farm sent her to yanked her face from side to side to gauge the lack of movement in her rigid orb. Recounting this episode, Zilisch almost cries. Then she regains her composure.

"I just wanted the money, the coverage, that I had paid for," she says. "There's nothing wrong with that."

What was wrong, according to a Maricopa County Superior Court jury that eventually awarded her $1 million, was how State Farm treated Zilisch. The Arizona Court of Appeals as well as the state Supreme Court agreed.

The state's highest court noted in its March ruling that there was evidence that State Farm had purposely dragged out Zilisch's case, ignored repeated opinions that her injury was permanent, and acted according to its "deliberate practice of underpaying claims nationwide."

A six-month New Times examination of Arizona cases involving State Farm, as well as an Internet-assisted search of court records of similar cases in other states, supports the conclusion that the treatment Kim Zilisch received from her own insurance company was no accident. In numerous courtrooms around the country and in state investigations, a pattern has emerged showing that State Farm -- the industry giant that insures one in every five vehicles on the road and one in four homes -- employs company policies aimed specifically at screwing its own policyholders for the sake of higher profits.  

Among the business practices uncovered:

The company routinely tried to "lowball" its own policyholders who filed claims with them -- particularly those who were most vulnerable -- by offering them settlement amounts less than what the claims were actually worth.

For decades State Farm rewarded agents who were successful at this, even sponsoring contests to see who could most effectively chisel claims filed by the company's own clients.

While it is impossible to tell how many claimants simply accept a payment that is less than they are entitled to, those who dare to challenge State Farm find their cases intentionally dragged out in an effort to wear them down.

And anyone brave enough to stand up to the company in court faces a brawny legal department notorious for its oppressive tactics.

State Farm has denied any wrongdoing in Zilisch's case, says it always pays what is owed on claims and, despite internal documents to the contrary, denies ever rewarding its employees for arbitrarily cutting claim payments.

"We wouldn't be where we are today," says company spokesperson Ana Compain-Romero, "if we had shoddy business practices."

Zilisch would beg to disagree. And after proving that State Farm had mistreated her in court, Zilisch learned what other "successful" litigants across the country have found: that a jury verdict against State Farm is a hollow victory, only setting the stage for lengthy appeals.

Furthermore, a large punitive-damage judgment -- intended to punish the company in hopes of deterring such future conduct -- doesn't necessarily make any difference to State Farm.

Perhaps the most remarkable finding of the New Times probe is that a review of court testimony and judicial rulings in several cases suggests that State Farm is such an industry giant that it is, for all practical purposes, beyond the reach of judge and jury.

Plaintiffs' lawyers routinely argue for punitive damages as a way to "send a message" to defendants that certain types of behavior simply are not acceptable. But in State Farm cases, multimillion-dollar sums jurors think will lead to reforms are meaningless to a firm that has 67 million policies in effect and tens of billions of dollars in reserve.

A State Farm administrator testified in Zilisch's case that he would not bother to notify his supervisors of damages under $100 million, an almost unheard-of figure in punitive judgments.

In one case, an Idaho judge who found State Farm's treatment of its insured "outrageous, intentional, harmful and an extreme deviation from reasonable conduct" countered the company's protests about a $9.5 million punitive-damage award by noting that it amounted to less than two days' profit.

The judge said the award "could be recovered by lunchtime on the second day."

While some of State Farm's most questionable practices have been in place for decades, court records show it is only recently that judges, juries and regulatory authorities have begun to call the firm on its methods. A Fortune 500 company also named one of the most admired in the industry, State Farm is appealing two record-setting punitive-damage verdicts while its business practices are being investigated by insurance commissioners across the nation. Arizona's regulators are taking an active role in the probe.

Zilisch had no inkling of State Farm's business practices when she was involved in the accident 10 years ago. But what she learned at her trial, she says, "made your jaw drop."

Zilisch's case added insult to injury, literally. She had lost her fiancé and the use of one eye. She had every reason to expect that State Farm -- a company she had always trusted since her early days growing up 30 miles from company headquarters in Bloomington, Illinois -- would pay the benefits she deserved. With a $100,000 underinsured motorist policy in addition to traditional coverage, Zilisch had purchased far more than the legally required auto insurance. She did that just to be safe and she always paid her premiums on time.

In the beginning, as the months dragged on after the accident while State Farm investigated her claim, Zilisch thought the delays were merely because hers was an extra-complicated case. She didn't really have a lot of time to spend analyzing the situation. Between repeated medical examinations of her eye, physical therapy for other injuries, counseling for her emotional trauma and trying -- sometimes unsuccessfully -- to hold herself together at work, the young woman had no stamina for an audit of her insurance company. Besides, Zilisch had a lawyer watching out for her.  

A Tempe police officer recommended to her parents just after the accident that she hire an attorney. Zilisch asked around at her church and found Gene Gulinson, who helped her secure a $145,000 settlement from the drag-racers' insurance companies. But State Farm balked at paying her own $100,000 policy limits, instead offering her various amounts ranging from nothing to $55,000. (An arbitration panel later valued her claim at nearly $400,000 to compensate Zilisch for her injuries, medical bills, loss of earning capacity and the very real diminishment of her life's potential because of her crippled eye and the death of her fiancé.)

State Farm sent her to what appeared to be a never-ending parade of "new" claims investigators while she continued to see doctors. The fifth physician she visited, a specialist in San Francisco, had examined Zilisch and concluded that, yes, the injury was permanent and that no surgery would help it. But while that doctor had talked with State Farm claims investigators on the telephone, he didn't prepare a full written report on the examination. The Arizona Supreme Court later chastised State Farm for delaying the evaluation and settlement of the claim for 10 months while it insisted on seeing that doctor's written report. The court noted that it had written reports from four other doctors agreeing on the permanency of the injury as well as the verbal agreement from the California doctor.

"State Farm's insistence on seeing a non-existent report was a pretext to drag out the claims process," justices wrote.

During the lengthy negotiations with State Farm, Zilisch says her attorney began to mutter things like "this is typical."

Gulinson says he believed Zilisch's case clearly should have been settled early on for the policy limits. "They were attempting to find excuses not to pay for it," he says.

Zilisch finally realized that there was nothing unusual or complex about her case. She simply was being jacked around so State Farm could save money -- in fact, an insignificant amount for the behemoth company.

"I felt betrayed," she says. "My insurance company is supposed to be there for me. What happens to those 'good neighbors' when you have a fire or you've been in an accident? They beat you up. You feel like you're a victim of your own insurance company."

More than two years after the accident, faced with Zilisch's unrelenting resolve, State Farm finally wrote a check for $100,000. But a higher court later ruled that payment didn't excuse the company's behavior.

Hoping to make State Farm accountable for putting Zilisch through the wringer, Gulinson referred her to Cal Thur, a Scottsdale attorney who has spent much of his career fighting insurance companies. He specializes in "bad faith" cases, litigation which seeks to prove companies have intentionally treated policyholders unfairly, breaching their contractual promise to look after clients.

It was Thur who in 1981 tried the first successful bad-faith case in Arizona in which an insurance company was found to have purposely mistreated its own policyholder. (Before that, Arizona courts didn't recognize that such a thing could occur -- that an insurance company could intentionally abuse its own client.) In nearly 20 years of specializing in nothing but bad-faith insurance cases, Thur has taken 30 cases to trial. Six were against State Farm, more than any other single insurance company. He won five of those.

Thur, who worked for two years as a claims adjuster for Fireman's Fund after moving to Arizona in 1959, has earned a reputation as the go-to guy when other attorneys believe they have taken an insurance dispute as far as they can. And many people -- both consumers and attorneys -- call his office and ask for help with complaints against insurance companies.

"We can't handle all the calls we get," he says.

Taking a bad-faith case to trial involves an incredible amount of preparation. And, Thur says, an attorney can only handle one or two State Farm bad-faith cases at a time because the company's lawyers deliberately tie you up with so much legal paperwork, you can't do much else.

A State Farm lawyer once described this as a "mad dog defense" during a "Trial Preparation Seminar" held at a divisional claims superintendents' conference at the home office. In the 1986 training video, Guy Kornblum, described as the company's "top guy," advised going on the offensive right after being sued.

"And we keep plaintiffs tied up in law and motions for months," he said. "Now it's the old mad dog defense tactic, but it works."  

Today, State Farm denies employing such tactics, but says the company does vigorously defend cases when it feels it must to prevent frivolous lawsuits.

Zilisch's lawsuit was filed on April 7, 1993. Her case went to trial three years later.

In court, Zilisch listened to former and current State Farm employees describe how the company bullied the "weakest of the herd," inviting disgruntled elderly or female clients to challenge them in court because State Farm assumed it could overpower them. She heard testimony that showed the company had a policy of stringing policyholders along, offering them settlements lower than what they deserved, and rewarding employees who could pay out the lowest claims by finagling auto repair estimates.

Then, testimony showed, if those policyholders dared to challenge State Farm, they faced the "mad dog" defense, intended to wear them down with legal wranglings.

In March, the Arizona Supreme Court found in Zilisch's case there was evidence that "State Farm engaged in a deliberate practice of underpaying claims nationwide," that the company set arbitrary claim payment goals for its personnel and rewarded them for reaching those goals so it could have "the most profitable claims service in the industry." The court noted evidence that the company subjected Zilisch to unreasonable delays, made her an "outrageous" settlement offer of $55,000 and treated her in a way "consistent with the way it did business across the country."

The justices said the fact that State Farm ultimately paid Zilisch her $100,000 policy limits is not an absolute defense to the bad-faith claim:

"The carrier has an obligation to immediately conduct an adequate investigation, act reasonably in evaluating the claim, and act promptly in paying a legitimate claim. . . . It 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."

Despite the Supreme Court decision, the case was not resolved. As Zilisch learned at her trial, the company has an arrogant attitude toward such rulings. Verdicts that jurors might deem big enough to issue a wake-up call to State Farm don't even register on the corporate giant's radar screen, evidence showed.

Manuel Mendoza, who was claims counsel for the company's 11-state region that includes Arizona, testified at Zilisch's trial that he wouldn't bother to tell superiors about a jury verdict in a bad-faith case or punitive-damages assessment unless it reached a threshold of $100 million. A lesser judgment did not merit notice.

Mendoza also said State Farm did not change its claims-handling practices as a result of punitive-damage verdicts. Other employees testified that they were not informed of decisions in bad-faith cases, although juries that assess punitive damages are led to believe they are sending a message to State Farm that the company should change its unfair practices.

Cal Thur says because regulation of insurance companies has been "wholly inadequate," the legal system is the best hope for industry reforms. He says juries assessing punitive damages against insurance companies with bad claims practices can help change those practices -- except when the company is State Farm.

"They are so large, nothing has stopped them yet," he says.

Compain-Romero of State Farm says State Farm reevaluates its practices as a result of policyholders' concerns in ongoing efforts to provide the best customer service, with or without jury verdicts. "It doesn't take punitive damages to get our attention," she says.

Jurors in Zilisch's case believed Mendoza. They told attorneys they wanted to give her $100 million so that State Farm would hear about their verdict. But the group feared Zilisch would likely have to wait through years of appeals to see any of that. Jurors agreed on the $1 million amount ($460,000 in compensatory and $540,000 in punitive damages) -- a token amount for the huge company -- hoping the insurer would simply write her a check.

The jurors' hopes were misplaced.

The teenager who crippled Kim Zilisch and killed her fiancé was out of prison and starting a new life after six months.

But 10 years after the crash, after arbitration in her favor, the jury trial in which she prevailed, after the Arizona Court of Appeals and the state Supreme Court rendered decisions on her side, Zilisch still is waiting for State Farm, her own insurance company, to settle up with her.

Attorney Cal Thur confirms a report that some lawyers have a nasty nickname for State Farm: They call it "Snake Farm."

Company officials have steadfastly denied any wrongdoing over the years, claiming the firm's primary goal is to treat its policyholders fairly and pay what is owed. But those who have tangled with the company disagree. The "good neighbor" can be downright vicious, they believe.  

Thur claims State Farm's practices are "among the most egregious in the industry." And he says State Farm's behavior has a trickle-down effect. Because it is the biggest by far, other insurance companies tend to mimic its practices to remain competitive, he says.

Ina De Long, a California insurance consultant who worked for State Farm for nearly 25 years before quitting in protest of what she considered deceitful policies, believes her former employer is, indeed, the greatest offender in the business.

"State Farm is the very, very best at being bad," she says. For the last 10 years, in addition to working on consumer education and insurance reform, De Long has traveled the country testifying as a witness against insurance companies. "About 80 percent of the trials are against State Farm," she says. "In most of the litigation, the really despicable stuff out there is done by State Farm."

The attorneys who take on State Farm are a special breed. They readily admit that their numbers are few because it just takes too much time and money to fight State Farm. And because the company has a reputation -- documented in court records -- for destroying evidence and asking that cases be sealed, those attorneys and others dedicated to insurance reform have little in the way of public record to document patterns of abuse.

But a review by New Times of numerous cases across the country found a litany of common allegations against State Farm lodged by its own policyholders. The company is routinely accused of making low settlement offers or dragging out cases just to wear down its own clients. Critics decry State Farm's practice of incorporating generic or used parts in auto repair estimates to drive down the costs of claims. And questions have begun to surface over the company's use of what those in the industry call a "paper review" process in which an outside firm is asked to examine medical documents to make sure a person's injury is really related to an accident. Skeptics believe -- and one judge has found -- that State Farm employs that process as a method to routinely cut or refuse payment of medical bills.

There is a universal theme to such cases: State Farm uses various techniques to drive down the amount of claims the company pays out to its own policyholders.

Last year, a record jury verdict resulted in a $1.2 billion judgment against State Farm in an Illinois class-action lawsuit after the jury found the company was defrauding its clients by utilizing generic parts -- made by someone other than the original auto manufacturer --in its repairs. Plaintiffs had alleged, and a judge found, that the cheaper, generic parts are substandard and not as safe as original parts.

The jury and judge ruled the parts -- which are sometimes used without the car owners' knowledge -- are not of "like kind and quality" to restore a damaged vehicle to its "pre-loss condition" -- promises made in State Farm's policies.

An earlier Consumer Reports investigation had found that generic parts are inferior to name-brand parts in both fit and protection. Researchers tested fenders and bumpers in their study, but noted one instance in which one car's hood suddenly flew off while its driver was passing another vehicle. The hood was an example of "offshore tin" -- a repair shop nickname for inferior foreign-made parts, the magazine noted.

The company has appealed the verdict (which includes $730 million in punitive damages), and stands by its use of generic -- sometimes called "after market" -- parts.

Company spokesperson Ana Compain-Romero says the ruling was "a major setback for State Farm policyholders and all consumers" that will serve to drive up rates if left to stand. The company has quit using generic parts pending the appeal, but says it remains "confident of the quality of these parts." And it says it will fix or replace for free any parts that are causing any problems.

An emerging area of concern focuses upon State Farm's review of medical documents. The insurance industry giant has drawn attention to its practice of turning medical paperwork over to an outside company for fraud review. Critics charge the process is a sham, and, in a recent ruling, an Idaho judge labeled one such subcontractor "bogus," which, in turn, sparked the Arizona Department of Insurance to begin an investigation into State Farm this past spring. Although there were no similar complaints about State Farm in Arizona this year, the state agency said the findings in the Idaho case were serious enough to warrant a local probe.  

State Farm says it contracts with outside companies in a small percentage of cases in which the claim and medical bills seems disproportionate to the injury received. It says the second layer of scrutiny -- just a review of documents by a physician -- is useful in helping to detect insurance fraud.

But after Dateline NBC reported this summer that two medical consulting companies were used by State Farm only to cut -- not truly evaluate -- medical claims, a national investigation into the company's medical document review practice began. Arizona became one of 11 states lending an investigator to that ongoing probe.

Other recent cases have yielded jury verdicts and court rulings ripping State Farm for its treatment of some of its own policyholders.

In Campbell v. State Farm, an elderly Utah man was led to believe by the company that he would prevail in the civil trial stemming from a 1981 fatal car accident. Records show State Farm refused to settle the case for Campbell's $50,000 policy limits, destroyed evidence that would show Campbell's real liability and told Campbell to "put a 'for sale' sign on your place" when a jury returned with a $254,000 verdict against him.

A subsequent bad-faith trial in 1996 resulted in a $145 million punitive and $2.6 million compensatory damages verdict against State Farm in the Campbell case. In a ruling two years later, the judge said he would cut the punitive damages to $25 million. He also found evidence that not only had State Farm hurt Campbell, now aged 82, but that nationally, "a considerable percentage of policyholders are victimized by a wrongful denial of benefits, oftentimes when these policyholders are the most vulnerable." The judge said there was "ample evidence" that the company made a "deliberate and wrongful effort to enhance corporate profits" at the expense of policyholders and that for the past 20 years, State Farm had "resorted to a variety of wrongful means to attempt to evade detection of, and liability for, its unlawful profit scheme."

That case is still on appeal, underscoring what former State Farm employee Ina De Long contends is the company's purposeful practice of dragging cases out rather than pay what it owes. "Mr. Campbell is very old, very sick and he's spent the last 20 years of his life fighting State Farm," she says.

In Castillo v. State Farm, a 1991 appellate court case from California, a jury ordered the company to pay $250,000 in compensatory and $6 million in punitive damages for making consistently low offers to a California policyholder who requested her $15,000 policy limits for injuries in a rear-end car accident. There was evidence Castillo was targeted because she was a minority and that State Farm had asked a doctor to change his report because it supported Castillo's claims of permanent injuries.

In another California case, Gourley v. State Farm, an appellate court found in 1990 the company intentionally made "grossly insufficient" settlement offers, and cited "substantial evidence" that State Farm used a "stonewall" or "see you in court" attitude. Gourley won a bad-faith judgment of nearly $16,000 in compensatory and $1.5 million in punitive damages.

In Holmgren v. State Farm, the Ninth U.S. Circuit Court of Appeals in 1992 discussed State Farm's practice of settling claims for far below their value as "a game of the strong against the weak" and talked about how the company "squeezed out" its policyholder, rendering her nearly homeless and destitute. State Farm had paid only $45,000 on a $95,000 claim.

While building his own cases against State Farm over the last two decades, Scottsdale attorney Thur monitored other litigation. He came to believe that State Farm kept damning information out of its files, refused to give incriminating evidence to plaintiffs' attorneys and asked judges to seal from public view records in cases it settles. (In one case, which was eventually opened, even the case number was removed from the courthouse docket.)

Thur's diligence was rewarded seven years ago.

He was in Southern California testifying in a bad-faith lawsuit against State Farm. The case involved the company's refusal to pay one of its policyholders $30,000 in uninsured motorist coverage. As the case unfolded, Thur says, the judge began to suspect that the insurance company hadn't turned over all the documents the plaintiff had requested before trial.

When the judge ordered the company to come clean, State Farm produced only some of its material. Defying the court, State Farm continued to keep other papers locked, oddly enough, in a car, behavior that prompted the judge to cite the company for contempt, Thur says.

During the trial, Thur wore a path to a downstairs copy machine reproducing documents as they became available. He loaded his pickup truck with hundreds of thousands of pages of internal State Farm records.  

Fearing that the case would settle and State Farm would ask that all the documents be sealed, he made hurried trips back and forth across the desert that summer, delivering the goods back to his Scottsdale office as they became available.

The case did settle -- for $30 million. And while State Farm asked that all its corporate paperwork be returned, the judge refused that request.

Back home, Thur went through the files. He found ammunition in State Farm's internal documents revealing that the company used a program called Performance Planning and Review (PP&R) to base employees' salaries and promotions on a formula meant to cut the amount paid out, including the amount paid out to its own policyholders.

Thur also found a training manual in which the company's head of claims said State Farm's goal was to have the most profitable claims center in the industry.

State Farm maintains that statement is taken out of context, that the point was everyone needed to handle claims efficiently and effectively.

Thur and consumer watchdog Ina De Long argue that the claims department should not be a profit center. Insurance companies' profit should come from underwriting -- actually selling policies to folks -- not from trying to limit how much the company pays out to its own clients. Those amounts, whether they stem from a car accident or a fire or an earthquake, are entirely dependent on how much damage was done and how much is needed to compensate for the loss. While State Farm needs to protect itself against fraud from spurious demands for payouts, Thur maintains that the drive to turn the claims department into a profit center exposes State Farm's policyholders to brutal business practices.

According to State Farm's own documents, claims agents were instructed to meet certain formulas when they wrote damage estimates -- formulas that specified how much of a car repair estimate should be attributable to prior damage, for example, and what percentage of the job should require generic or used parts. And, the documents showed, agents would be rewarded or promoted for meeting those goals and reducing the amounts they paid out.

State Farm says it no longer uses the PP&Rs. The judge in Utah, however, found two years ago that the company merely replaced that manual with verbal policies that essentially do the same thing. Despite what is clearly shown in several of State Farm's own documents, public information officer Compain-Romero says employees were never rewarded or promoted for reducing claims. And she says the company never required set percentages on certain types of repairs, but only suggested those numbers as guidelines. "We've never had a policy to settle claims for anything less than what is owed," Compain-Romero says.

De Long, who testified in Kim Zilisch's case, said after decades in the underwriting, claims and disaster department of State Farm Fire and Casualty Co., she was familiar with the motive of the company to make money in the claims departments. She said adjusters were given monthly updates as to the average claims paid and were encouraged to cut those.

De Long told jurors "claims profit" was the amount reached by subtracting the amount paid out on a claim from the amount the claim was really worth. She said she was uncomfortable even using the two words together.

"That's totally inappropriate," she told jurors in Zilisch's trial. "An insurance company should have underwriting profit, not claims profit. That's like 'honest crook.'"

Included in the documents turned over in the 1993 case were stacks of PP&R assessments for individual employees, revealing that they were rewarded -- and even encouraged to participate in contests -- for meeting those arbitrary goals when they evaluated claims.

Thur says the papers obtained in 1993 not only provided the smoking gun for something attorneys had heard about for years, but also specifically helped prove bad faith in the next two State Farm cases he took to trial. One was Kim Zilisch's case. The other involved a claim by a Scottsdale woman named Betty Olson.

An industry claims expert says those two trials were only the fourth and fifth time jurors anywhere in America have been able to hear of State Farm's practice of performance-based compensation for agents.

In four of those cases, jurors found that State Farm had acted in bad faith and assessed millions of dollars in punitive damages. In addition to the Zilisch case, which resulted in a $1 million verdict, and the Olson case, which yielded a $6 million verdict, State Farm was hit with a $1.2 million punitive-damages verdict in Weiford v. State Farm (later overturned in 1992), a case involving an Alaska motorist, as well as the $145 million verdict in Campbell v. State Farm, the Utah case that is on appeal.  

In the fifth case -- Singh v. State Farm in Los Angeles, which led to the incriminating documents being released -- the company paid a $30 million settlement.

When Kim Zilisch embarked on her decadelong dispute with State Farm, she had youth on her side. Betty Olson did not.

In the Maricopa County Superior Court trial that resulted from Olson's dispute with State Farm, former State Farm employee Ina De Long revealed that the insurance company banks on the fact that older folks won't have the resources, the strength or, frankly, the years to invest in a protracted fight against State Farm.

De Long was asked what claims adjusters were told to tell unhappy clients who threatened to get a lawyer.

"What I was trained was to tell them to go ahead and get one, we had more money than they did," she said, later explaining: "We knew that the chances were really, really great that we would win, because we had a good idea of which people to push into litigation . . . the weakest of the herd."

De Long said several types of people fit this description, including senior citizens, women (who might be unfamiliar with auto or home repair standards) or anyone who might not make a favorable impression in front of a jury.

If, in fact, State Farm believed Olson was one of those weaklings, it was wrong. On paper, she would appear to fit into the herd. When her newly leased 1993 Cadillac was severely smashed in a Phoenix accident, Olson was 68 years old and caring for a handicapped husband and a disabled grown daughter. Her real estate business had provided minimal income to her in the two years since relocating to Arizona because of her caretaker duties. She had no experience in litigation or insurance claims.

But Olson was anything but a little old lady too inexperienced, poor or busy to question the way State Farm handled her claim. Even today, a few weeks shy of her 75th birthday, she looks many years younger. And she still displays the passion that helped her win a $6.7 million payoff from State Farm.

Instead of being worn down as her dispute with State Farm dragged on for years, she says, "I kept getting angrier about it."

She was determined to teach State Farm a lesson.

"I could have lost everything," she says. "But I wasn't afraid of that. I was more concerned about people being treated right."

Jurors in her 1998 bad-faith trial in Maricopa County Superior Court determined that Olson hadn't been treated right at all. They awarded her $1 million from State Farm in compensatory damages and $5 million in punitive damages (although a judge later cut the $1 million award in half).

This summer, she received a $6.7 million check (which included interest and attorneys' fees awarded) just months after an Arizona Court of Appeals decision affirmed the jury's award.

In March, the court wrote that the substantial evidence of State Farm's questionable claims practices was enough to lead a jury to decide they were the product of an "evil mind" (one of the tests of conduct warranting punitive damages). In addition, the appellate panel said evidence of State Farm's conduct in other states was rightly admitted into evidence because it demonstrated "State Farm's improper motive of indiscriminately manipulating claims to increase profits."

The verdict, and the ultimate payout, was a stunning Arizona victory against State Farm, particularly because it involved only damaged property, not loss of life or serious injury, for which damages are generally higher.

Indeed, Olson was not even in her car in the early morning hours of September 26, 1993, when a drunken driver ran a red light and slammed into the Cadillac at 32nd Street and McDowell Road. Her 33-year-old son, Michael, was driving.

But the Cadillac, a $42,000 vehicle Olson had leased to drive around her real estate clients, was in bad shape. At her trial, one expert testified that the car "clearly looked like it was in a train wreck." He noted that the front end and pieces of the engine "had actually been sheared off." Olson testified that when she saw the Cadillac, it was "unrecognizable."

Although Olson herself was not injured in the wreck, the way she was treated by her own insurance company was a nightmare all its own.

According to trial testimony, a tow-truck driver, of all people, determined the morning of the wreck that the car was repairable, rather than a total loss. He took it to one of State Farm's preferred repair facilities, one which Olson's attorneys argued had a standard agreement to keep the insured out of the loop when it came to deciding on repairs.  

Olson said she began to get suspicious about two months after the wreck. No one had contacted her about the vehicle or her coverage. She or her husband always had to initiate contact. And then what she got was the runaround. Estimates for repair and the time needed to fix the car kept changing. She was told the car would take six to eight weeks, then seven months, to fix. She was told a critical, expensive part would take six months to obtain, then just a matter of weeks. Court records show the repair job ended up taking seven months and costing $31,000.

Meanwhile, evidence showed, she and her husband were practically begging State Farm to total the car. This would have paid them $45,000, enough to reimburse the leasing company for the car while leaving enough to apply toward a new vehicle. It also would have triggered something called gap insurance, which would have limited her exposure to the General Motors Acceptance Corporation, the agency that financed her lease, to just her $500 policy deductible. Instead, GMAC repossessed the car, sold it at auction and charged her for the difference between its original value and its auction price, plus interest and attorneys' fees, an amount totaling about $20,000.

While her car was still in the shop, Olson was expected to continue to pay her insurance premiums and lease payments on a car she hadn't seen for months. She was continuing to care for her disabled family members. She used a rental car provided by the at-fault driver's insurance company for six months, then was without a vehicle for another six months.

Unable to work as a real estate agent, she and her husband were living largely on social security checks.

In 1996, Olson was referred to Cal Thur.

At trial two years later, after Olson rejected a $10,000 settlement offer requiring her to give up her bad-faith allegations, Thur and his co-counsel were able to prove that what happened to Olson was not an aberration. Jurors were shown a video in which a State Farm auto claims attorney recounted a story of one policyholder's car being in a body shop for five years. And they heard a State Farm official testify that five years was not an unreasonable length of time for a car to be in the shop. He also said the length of time needed to repair a car was not a factor to be used in determining whether to total it.

The jury heard about State Farm's goal of increasing claims profit. It learned about the practice of promoting claims handlers who could cut their average paid claims or who could meet set percentages of things like after-market parts, which Olson's attorneys pointedly refer to as "salvage" or "junkyard" parts. It heard that factoring those cheaper parts into an estimate would drive a repair bill down, so that State Farm could avoid the cost of totaling a vehicle.

At trial, and during subsequent appeals and cross appeals, State Farm argued it had treated Olson fairly. It discounted as unrelated or unreliable reports of the company intentionally mistreating its clients. It said the car was repairable.

Through it all, Olson persevered.

She says when she heard from the witness stand that State Farm would willingly litigate against its own policyholders if the company thought the clients were the "weakest of the herd," "I was just floored. . . . I thought, 'Well somebody should stand up and be counted.'"

Even when faced with tangible evidence that the company has employed practices that are unfair to its own customers, State Farm representatives deny any wrongdoing. During trials, the insurance company's witnesses seem baffled by State Farm directives they claim never to have seen. While they verify that, sure, those appear to be official documents dictating a certain practice -- say, requiring a percentage of each claim to be composed of salvage -- they testify they've never seen anything like that particular policy manual, document or memo.

Some of these denials border on the ridiculous.

Jim Adcock, a State Farm supervisor, repeatedly refused to call a contest a contest when questioned in the Olson trial. He was shown documents referring to a competition in Arizona among estimators to see who could include the most salvage parts on their estimates.

"Well, there was an awareness campaign . . ." he said.

"It was a competition, wasn't it?" Adcock was asked.  

"Well, some may characterize it as a competition. It was actually an awareness campaign," he replied.

Later, Adcock was confronted with a document with his name on it that read "Good luck on the contest and keep up the great work!" Another document congratulated an estimator that won the "contest," noting he "finished with a whopping 33.1 percent" of used parts. Still, Adcock says he didn't know that there was a contest and denied it was national in scope. "It was an awareness campaign."

In another deposition given in a California case, a State Farm claims specialist gave new meaning to the word "evasive."

During tedious questioning recounted in an appellate court ruling, Toni Hotzel didn't recognize her own signature on two State Farm documents or her voice in a two-party telephone conversation in which she identified herself at the outside of the phone call.

She wouldn't say the signature was hers.

"I write my name a lot of different ways," argued Hotzel.

Asked to identify the cursive name above the typed words "Toni Hotzel," she answered, "I'm not sure." Pressed to try to read it, she said, "Hmmm, I don't know. Could be many things." Later, she claimed the last word could be "hotel," as in "Toni Hotel."

After listening to the tape, she gave vague answers to a series of questions, then said she couldn't say if it was her voice. "I don't know how I sound to other people. I don't know."

Plaintiffs attorneys who have sued State Farm claim this is no accident. In various trials, including the Olson trial and the Campbell case in Utah, several witnesses -- usually former State Farm employees -- have revealed orders to destroy evidence, withhold paperwork requested in litigation, alter claim files or forge documents to suit State Farm's purposes and be as evasive as possible when called to testify.

One former claims specialist, Amy Zuniga, testified in a California case that she was instructed "not to provide certain relevant information at my depositions" and was coached "on how to give up as little information as possible" while under oath. Samantha Bird, another past State Farm employee, provided evidence at the Campbell and Olson trials about the firm's orders in 1990 to destroy all memos, manuals and documents that "could be asked for in bad-faith suits." Another State Farm 1995 memo asked all its outside attorneys to destroy or return any potentially damaging documents.

Other former employees have testified about their practice of rewriting entries in claims files and taking out documents that wouldn't help State Farm's case. De Long told the Olson jury she had done all this, but soon learned to build a file with this goal in mind: "You would only put in the right comments and the right documents and the right self-serving memos to start with."

The judge who upheld the Campbell verdict, William Bohling, called these practices the final step of State Farm's fraudulent scheme. He noted that few victims will even realize they've been wronged, that fewer still will sue, a small fraction of those will be able to "weather the years of litigation needed to reach trial." Those who do, Bohling says, will have a tough time arguing against the "honest mistake" defense, in light of State Farm's "body of evidence that has been systematically sanitized, padded, purged, concealed, destroyed or rehearsed."

State Farm denies it asked anyone to destroy records; in fact, it says it has a formal records retention policy to make sure case files are complete.

Cal Thur and others would be hard-pressed to build their cases without the documents they've been able to flush out and the former employees who have stepped forward to expose policies they say they couldn't support.

During trial, State Farm usually tries to undermine the credibility or relevance of these witnesses.

At the front of this pack of former employees is De Long, who Thur calls "a true hero."

De Long, 57, quit State Farm in August 1990, saying she couldn't stay and participate in the unethical things she was being asked to do as disaster supervisor after the Loma Prieta earthquake. She says the company's practice of underpaying claims after the Bay Area earthquake in 1989 took on a dangerous meaning.

"It isn't about dollars anymore, it's about sliding off a hill. I mean, we left people in unsafe homes," she says.

Sitting in her mobile home in Santa Rosa, California, De Long, a mother and grandmother who has been honored by the California Legislature and a consumers attorney group for her work, doesn't look like a rebel. And the videotape she begins playing doesn't seem like anything incendiary.  

A training film she made to try to help adjusters adequately assess the damage caused by the earthquake that struck during the 1989 World Series, it's an amateur effort. She is behind the camera, asking questions into the microphone while she walks around, following a contractor who explores damaged homes, pointing out cracks in the walls, problems with the soil underneath the houses, and illustrates ways to see if a foundation had been dangerously shaken.

De Long says she bought the camcorder and made the video to try to help a bevy of inexperienced claims representatives learn how to assess damage. In addition, she purchased levels, flashlights and a soils probe to assist them -- replacing the marbles that were sometimes rolled on a floor to see if it was slanted. In some cases, pool tables were leveled or cracks merely caulked when, in fact, the homes were off their foundations, she says.

Her superiors confiscated the video and the tools and chastised her for her efforts.

De Long had secretly made a copy of the video before turning over the original to them. Then, she quit, refusing to be a part of a company she believed put profit ahead of its duty to keep customers safe and treat them fairly.

Before she left, she made copies of documents backing up her allegations that claimants had been shortchanged, evidence that surfaced in subsequent media reports. They showed that policyholders who trusted their "good neighbor" to adequately reimburse them for earthquake damage received an average of $8,480 per claim. Those whose cases were evaluated by outside experts were paid an average of $20,000.

De Long testified in the Olson trial that State Farm was able to save $175 million by underevaluating those claims.

While the effort is piecemeal, State Farm is also being scrutinized outside of courtrooms.

A number of state attorneys general, insurance departments and a coalition of agents as well as some congressional leaders are questioning many of the company's practices. Among the developments:

€ Two weeks ago, the Texas attorney general, in a dispute over claims practices, extracted $3.1 million from State Farm, which will be distributed to 30,000 auto insurance policyholders. Officials claimed the company engaged in auto accident claims practices that increased costs to consumers and made policyholders responsible for them.

€ Former State Farm agents have alleged that the company engages in de facto "redlining," which involves not writing policies in areas with high crime or large minority populations. (State Farm rejects this allegation and says it actually encourages business in urban areas underserved by other insurance companies.)

€ State Farm was accused of defrauding policyholders after the 1994 Northridge, California, earthquake. Insurance department investigators recently found that State Farm underpaid customers, providing them inadequate estimates and low settlement offers. And a recent state audit of the former California insurance commissioner Charles Quackenbush reports that State Farm, and other companies, escaped huge fines for underpaying its earthquake claims by donating much smaller sums to a fund set up by the commissioner to further his political career. Quackenbush resigned this summer

€ In Washington, D.C., a few congressional leaders, including Arizona Senator John McCain and Louisiana Representative Billy Tauzin, have called for an investigation into State Farm's medical paperwork review practices. Tauzin, who chairs the House subcommittee on consumer protection, wanted to hold hearings on the issue, but got sidetracked by the Firestone tire controversy. Ken Johnson, spokesman for the lawmaker, says Tauzin is gathering information about the allegations and plans investigational hearings next year.

"The fact that non-medical personnel are reviewing medical decisions has certainly raised some eyebrows on Capitol Hill," Johnson says. He adds that while states do have the power to regulate the insurance industry, "There are a few things we could do," declining to tip off State Farm by explaining what those things are.

€ The National Association of Insurance Commissioners (NAIC) is coordinating a countrywide study of State Farm's medical documents review policies.

Investigators want to see whether there is evidence that the company has used outside review companies not to prevent fraud, as officials maintain, but to shortchange policyholders. The investigation -- like the calls for a Congressional inquiry -- was spurred after the Dateline NBC report this summer.

The television show, and subsequent reports, revealed the outside firms employed by State Farm used college students and others with no medical training who looked at the claims files, then routinely concluded that the injuries were not related to the car accident under review. In some cases, unlicensed physicians signed off on those reports. In others, actual doctors said their reports had been altered after they had signed them, in ways that would minimize the injuries and support a lower claims payout.  

When the program aired, Arizona insurance regulators were already looking into State Farm following the ruling in an Idaho case in which a jury awarded $9.5 million in punitive damages to a woman who claimed State Farm used the paper review process to prevent her from collecting $25,000 in medical coverage.

In that case, Cindy Robinson alleged State Farm delayed her case three years -- and used an outside review firm -- to keep from paying for back surgery she says was necessitated by her car accident. State Farm paid $1,600 worth of pre-surgical bills but balked at covering the cost of the operation.

A judge in that case said the company used by State Farm to bolster its claim that the surgery wasn't necessary was "completely bogus." He said the system used "cookie cutter" reports generated on a computer without any examination of medical records by doctors. The judge said the scheme, which resulted in deliberately false and misleading reports, "permeated to the very top levels of State Farm at the national level."

While the NAIC investigation into State Farm's medical document review is the most comprehensive of the national probes into the company, Thur is not optimistic about the outcome.

The insurance industry was able to effectively deregulate the business in the 1940s, points out Thur, by getting legislation passed that removes any real federal jurisdiction over insurance companies. State regulations and legislative efforts have been "wholly inadequate," he says, leaving consumers "pretty much to themselves in taking on their insurance company."

Oversight is, practically speaking, a local matter.

Arizona Department of Insurance deputy chief Sara Begley and spokesperson Don Harris said investigators here were prompted by the allegations in the Idaho case to look into the company's handling of medical documents.

State Farm, however, has a good record with regulators here in Arizona. A listing of complaints per policy provided by the Department of Insurance shows State Farm's auto insurance division receiving only 102 complaints out of 531,563 policies in 1999. (Its closest competitor, Farmers Insurance Co. of Arizona, had a nearly identical complaint ratio.) Officials say the department does check up on every complaint.

But Cal Thur says those investigations are almost meaningless, usually involving nothing more than sending a form letter to State Farm. When the insurance company writes back justifying its behavior, that ends the discussion, he says. If a complainant still is unhappy, the department tells them to seek legal advice.

Betty Olson says she did contact the Department of Insurance, which gave her valuable advice that led her to consult a lawyer.

In Kim Zilisch's case, Thur says, he decided lodging a complaint with the state insurance department would be "a waste of time."

Thur says part of the reason is economic. While Arizona's Department of Insurance does help protect consumers by keeping tabs on financially insecure insurance companies, it doesn't have the money or manpower to really investigate a company as big as State Farm, Thur says.

A recent national study by the Consumer Foundation of America shows Arizona has woefully inadequate resources to regulate insurance companies. In 1998, the most recent year studied, Arizona had the lowest per capita insurance department budget of any state except Indiana. The study showed Arizona spends $1.03 per resident regulating insurance companies, almost a fourth of the amount spent by California and less than half of what is spent in Texas. And the study gave Arizona an "F" grade in the category of what percentage of an insurance department's revenue is actually spent on regulation.

When the NAIC decided to get involved in the paper review probe of State Farm and coordinate some parallel state investigations, Arizona's Department of Insurance contributed a full-time investigator to the effort, something only 10 other states have done.

Maryellen Waggoner of the Colorado Department of Insurance, a spokesperson for the national probe, says investigators hope to complete a physical review of claims files at State Farm's headquarters in Illinois by the end of the year. After that, she says, investigators will go into the company's regional offices to take a closer look at the company's files.

State Farm's Ana Compain-Romero says the company welcomes the probe and is cooperating fully. She says the Dateline NBC report gave a false impression of the way State Farm handles claims, and she believes the NAIC investigation will show that.

"We're convinced they'll see we've been doing things right and we're handling claims fairly," she says.

Compain-Romero says State Farm has completed its own probe of its medical review companies, reaccrediting its vendors and mailing out checks to hundreds of policyholders it believes were affected by questionable practices of five companies.  

Waggoner says it is conceivable the investigation could expand into other areas of alleged wrongdoing, depending on what turns up.

But if the company is found to be in violation of consumer fraud laws or state regulations, it will face no coordinated national punishment. Only states have authority to discipline insurance companies. And in Arizona, that translates into fines of up to a maximum of $60,000 for breaking the law, barely a brush on the wrist for a company that brought in more than $41 billion in sales last year.

If serious wrongdoing is suspected, the state Attorney General's Office could be called in to take further criminal or civil action.

But in the past, the state has taken little action against State Farm. Requests of the state Department of Insurance and the Attorney General's Office for any instances of official action against the company yielded only two cases:

In 1983, the Attorney General's Office sued State Farm after a "market conduct examination" --a routine review of the company -- showed it had underpaid motorists' claims. The firm promised to end the practice in a consent order, which includes no mention of penalties.

Insurance officials oversaw another review of State Farm from 1989 to 1994. That probe uncovered the company's failure to pay one person $5,000 in medical coverage and showed it continued to employ the same practices that were the subject of the 1983 judgment. This study found State Farm shortchanged 106 policyholders the cost of taxes and fees when it reimbursed them for their totaled vehicles. And the punishment for a company that says it isn't fazed by judgments under $100 million: a requirement that it pay $12,000 to cover those costs, plus interest, and a civil penalty of $8,900.

Thur says such actions are negligible to the company. And he says such market studies are too superficial to really turn up anything substantial, given State Farm's reputation for sanitizing claims files.

Every once in a while, Kim Zilisch will catch one of those warm, fuzzy TV commercials about insurance representatives getting right to a disaster scene and doling out checks. She doesn't change the channel. She takes it all in.

Zilisch is moving forward. An auburn-haired sports enthusiast, she has had to abandon some of her favorite pastimes, like mountain-biking and softball, because seeing double doesn't permit her to participate. But she has trained herself to be able to play volleyball by learning to recognize which of the two balls she sees coming at her is the real one.

She was heartened by the two decisions this year --from the Arizona Court of Appeals and the state Supreme Court -- supporting her case against State Farm.

She was heartened, but she has yet to see her money.

Despite the judgments in her favor, Zilisch's case is still unresolved.

"I can wait," says Zilisch, now 33. "I've waited 10 years, I can wait longer."

Others who have been fighting State Farm for years are just as determined to keep up their efforts.

Ina De Long says that after a decade of fighting and traveling around the country, she's getting tired. But she's not ready to give up, even though her crusade is more difficult these days.

In May, she was in an auto accident. Her motor home -- which she used to travel around the country -- was run off the highway near Barstow, California, by a semi-truck. She suffers from chronic pain and must use a cane to walk. So far, De Long says, State Farm has been good about paying her medical bills satisfactorily. But her motor home has yet to be repaired.

Weary of the battles to reform State Farm through industry legislation or courtroom rulings, she nonetheless remains optimistic. She welcomes the national investigation by NAIC into State Farm's paper review practices and other individual state investigations but says they are too narrow in focus -- each addressing only one part of the company's behavior.

Still, De Long hopes such probes will lead to a more general investigation into what she believes is a widespread pattern of hurting consumers for the sake of profit, whether it's in earthquake coverage, auto repair or medical claims.

"Every time somebody comes out doing an investigation, I always have high hopes that this is the one," De Long says. "One of these days, I might have to say, 'It's just not going to happen.' But I'm not willing to admit that just yet."

Nor is the local snake killer. Cal Thur is pleased with this year's rulings in the Zilisch and Olson cases. He doubts that any meaningful reforms will come out of the NAIC investigation or congressional promises to investigate State Farm's medical documents review practices.  

A spokesman for California's Foundation for Taxpayer and Consumer Rights, which calls itself the leading insurance watchdog group in the country, agrees. Doug Heller says he doesn't expect much to come from the NAIC investigation, calling it a toothless group that is proposing less, rather than more, regulation of the industry.

Thur believes the legal system might eventually have an impact on State Farm. He hopes the Zilisch and Olson cases help in future litigation and lead to State Farm reforming its business practices. Someday, he says, a judge might see fit to sanction State Farm with a sum large enough to make a difference.

He's not holding his breath.

Sitting in the conference room of his law office, facing a framed copy of a newspaper editorial cartoon skewering State Farm for using generic parts in auto repairs, Thur notes that he will turn 69 early next year.

Ever the capable attorney, he anticipates the next logical question. It remains unspoken, but he answers it anyway: "I do not plan to retire."

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