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.