AWARD SLASHED IN MOLD CASE
The Third Court of Appeals in Austin found that Farmers Insurance Group had both acted in bad faith and violated the state's deceptive trade practices law in a landmark case that originally saddled the company with a $32 million judgment. The appeals court, however, determined that Farmers had not acted knowingly or fraudulently, and threw out the punitive and mental anguish elements of the original award—originally made in May 2001 to Melinda Ballard against Farmers—and cut it to approximately $4 million. The appeals court also ordered the lower court to reconsider and recalculate the nearly $9 million in attorneys' fees that were originally awarded. Policyholders of America (POA), a group spearheaded by Ballard, said the ruling of the three member panel—made up of Chief Justice Aboussie, Justices Patterson and Puryear—excused the company's bad faith violations and gave the insurance industry a free pass to commit bad faith and not be penalized. According to the Alliance of American Insurers, however, the court's decision may bring some sanity to the feeding frenzy among plaintiff attorneys, many of whom have founded entire practices on mold-related claims. Joe Woods, assistant vice president of the Alliance's Southwest Region, said the "Ballard case is more about bad faith than mold," adding that the original award was so inflated it triggered a mold hysteria in both Texas and the nation. Kirk Hansen, Alliance director of claims, noted that "With the elimination of the punitive and mental anguish damages, enterprising plaintiffs attorneys will discover that mold isn't as golden as they once thought."
INSURERS ASKED TO JUSTIFY RATES
The Texas Department of Insurance (TDI) sent letters in December to the top 10 companies writing homeowners insurance in Texas asking them to voluntarily file their rates by January 2, 2003. TDI also requested that the companies include supporting information to justify their current rates or any planned rate changes. The information gathered will be in addition to information already obtained in ongoing market conduct examinations. "We are asking insurance companies to voluntary provide their rating information so that TDI can give the legislature a clear, up-to-date picture of the current Texas homeowners market," said Commissioner Jose Montemayor. "In addition to the rate filing, we are also asking the companies to provide supporting documentation to justify their current rates and any planned future rate changes." At the request of Governor Perry, TDI began market conduct examinations in February into the homeowners insurance pricing practices of Farmers, State Farm and Allstate. The information requested will be in addition to information already received and will include any changes since early 2002.
PELLETS, NOT CRASH=KNEE PAIN
An investigation by Texas Mutual Insurance Co. revealed a man employed to pick up roadside trash has trouble with his knee because of the shotgun pellets embedded in it, not because of an accident in which a woman's car rear-ended a trash trailer on the side of the road in Houston. After the crash, Ronald J. Dawson, who had been employed with On Our Own Services Inc. to pick up roadside trash bags, claimed that the trailer had knocked him some 20 feet away when it was rear-ended. He filed for workers' compensation benefits for an alleged injured knee, and Texas Mutual began paying on the claim. Eight months later, On Our Own Services owner Shawn Quigley complained to Texas Mutual that Dawson was trying to "drag out the claim" to get more money from a pending third-party lawsuit. Eileen Cook, a Texas Mutual fraud investigator, found that photos taken at the scene of the accident showed that the car pushed the trailer straight into the back of the van that was towing it, not to the side. Therefore, the trailer could not have struck Dawson as he had claimed. Cook continued her investigation and obtained a statement from Dawson's co-worker, the driver of the van, claiming that the trailer did not touch Dawson. According to the co-worker, Dawson walked to a grassy area, smoked a cigarette, and laid down to wait for the ambulance. When the ambulance arrived, Dawson told the co-worker that the next time they met, he would be driving a Cadillac. Dawson later sued the woman for the alleged injury to his knee. Cook discovered that Dawson's knee injury was inconsistent with damage resulting from a collision. In fact, the medical x-rays showed Dawson's knee to be full of shotgun pellets. Further investigation revealed that Dawson, a two-time convicted felon, had received regular treatment for the shotgun pellets in his knee during his first prison sentence.
OKLAHOMA AGENT FINED $20K
According to Oklahoma Insurance Commissioner Carroll Fisher, a Ponca City agent has agreed to pay a $20,000 fine, forfeit his license and pay claims from customers who thought they had insurance but did not. The agent, Mark Alan Jordan, is alleged to have misappropriated funds that his clients thought were being used to pay insurance premiums on their behalf. Under the agreement, Jordan also will repay his clients whose money he misappropriated. In addition, the Oklahoma Insurance Department will have control over his agency's records in order to continue its investigation. Jordan's license was suspended Dec. 20, 2002. The department had taken earlier action against Jordan after similar allegations were made. The investigation continues as several people have contacted the department to say they had been victimized by Jordan's practices. Fisher said access to Jordan's business records will help the department determine how many people he victimized. "Unfortunately," Fisher added, "from the number of calls we've been getting, it looks like it will be quite a few." The $20,000 fine is the largest ever handed to an agent, although some insurance companies paid higher fines. Kay County residents whose insurance premiums may have been misappropriated are urged to contact Leslie Landwert at the Oklahoma Insurance Department., toll free at (800) 522-0071.
AWARD SET AGAINST EX-EMPLOYEES
Millennium Insurance Agency Inc., headquartered in Houston, won a $10.7 million judgment against three former employees who had allegedly conspired to, among other things, convert and misappropriate confidential information from the company. According to Millennium, the 127th District Court in Houston found that in addition to conspiring to convert and misappropriate confidential information, the three former employees—Samuel T. Houston, Rebecca R. Johnson and Steve E. Burdette—conspired to breach their fiduciary duty to Millennium and interfere with existing and prospective contracts. Millennium alleges that the three former employees removed files from the company's office early on Aug. 28, 2002. It was later learned that the three were forming a new insurance agency, Sam Houston and Associates LLC. Michael Stroman, president of Millennium, said that although there is a cap on exemplary damages in Texas, the cap did not apply because a jury found that Houston, Johnson and Burdette had committed theft of property in excess of $20,000. Millennium was awarded a total of $9.5 million of exemplary damages from the trio.
INSURER IN RECEIVERSHIP
Oklahoma Insurance Commissioner Carroll Fisher obtained a temporary court order placing Fairway Employment Services into receivership. According to the insurance department Fairway, along with a number of affiliated companies, had been acting as an unlicensed insurance company. In October, Fisher ordered Fairway to stop doing business as an insurer. Since then, Fisher's agency has learned the company has an estimated $500,000 in outstanding claims with limited resources to pay. In addition, at least one former client sued to have Fairway placed into receivership, creating what Fisher termed a "run on the courthouse" in which several creditors may seek the company's assets. Fisher said Fairway's assets should be distributed among all creditors based on statutes governing insurance company insolvencies, which give priority to policyholders with unpaid claims. "The Fairway situation clearly demonstrates why state and federal laws have been established governing the business of insurance," Fisher said. "Unlicensed insurers have been cropping up across the nation offering cheap insurance. Licensed insurance companies are regulated so that such receiverships are rare, and if they do become insolvent, their overdue claims are paid by each state's guaranty fund." Under an order approved by Oklahoma County District Court Judge Carolyn Ricks, a hearing on a permanent receivership was set for Jan. 6. In addition to Fairway Employment Services, the order names Fairway Human Resources Management Inc., Fairway Health Plan, Fairway Claims Administration and Central Management Inc.
