AMICUS PROJECT UPDATE

The purpose of UP's Amicus Project is to provide judges with a balanced perspective when they review cases involving insurance questions. Judicial decisions define insurance consumers' rights and insurance companies' obligations, so they are critically important and have long lasting impact.

The following are some of the recent amicus activities of UP’s Amicus Project:

California

Tran v. Farmers Group, Inc., et al.
Case No. A093437
Ngoc Tran, a Vietnamese immigrant, bought Farmers’ promises to fully insure her Oakland grocery store. When an arson fire destroyed her store and her dreams, Farmers delayed payment and then offered her only a fraction of what she believed she was owed. Tran’s case against Farmers Group, Inc. was thrown out on summary judgment.

If you buy a policy from Farmers, you may think you’re insured by the company whose name appears on the face of that policy…. "The Farmers Group of Companies." Many insureds learn the hard way that Farmers has created a complex corporate structure to minimize its liability for claims handling. It uses this complex structure to mislead courts and policyholders on who does what and who is ultimately responsible for claims decisions. Farmers routinely asserts that the Group, Inc. has no role in adjusting claims and no contract with insureds; yet UP has documents clearly contradicting that assertion.

Henkel v. Lloyds of London
Case No. S0982427
UP sought to convince the California Supreme Court in this case to reverse an appellate court ruling that deprives commercial insureds of insurance protection for liabilities incurred by their corporate predecessors. Jordan Stanzler of the San Francisco and Los Angeles firm of Stanzler, Funderburk & Castellon LLP prepared and submitted UP’s brief pro bono (www.sfcfirm.com). The Supreme Court denied UP’s petition to file the brief.

Florida

Allstate Indemnity Company et al v. Joaquin and Paulina Ruiz
Case No. SC-01-893
This case involves the issue of whether policyholders can obtain copies of insurers’ claims files in litigation. A lower court properly ruled that they can, and Allstate has appealed to Florida’s highest court. UP’s pro-policyholder amicus brief was drafted pro bono by William Merlin, Jr. and Mary Kestenbaum of the Tampa law firm of Gunn Merlin P.A. (www.gunnmerlin.com). The Florida Supreme Court has not yet ruled on UP’s petition.

Arizona

George Norman v. State Farm Mutual Auto Ins. Co.
Case No. CV-01-0454-PR
This is a classic case where a UP amicus brief was needed to prevent a case involving bad facts from establishing bad law. In such cases, UP steps in to try and prevent the larger community of policyholders from suffering from a mistake made by an individual policyholder. This case involves an auto claim that was denied by State Farm on the grounds that the policy had been cancelled. The denial was upheld, despite the fact that State Farm clearly failed to satisfy the requirements of Arizona’s auto insurance cancellation notice statute.

UP argued in its amicus brief: "Apparently swayed by [the policyholder’s] lackadaisical effort to pay his insurance premiums on time, followed by his lack of responsibility in paying with a check that bounced…the Court of Appeals upheld State Farm’s cancellation of auto coverage despite [its] clear failure to satisfy the requirements of Arizona’s auto insurance cancellation provision…In this process, the Court of Appeals has seriously undermined not only the language of the statute but the protection to insureds it was intended to provide."

Cal Thur and Roger O’Sullivan drafted and submitted UP’s brief pro bono in this case which is pending before the Arizona Supreme Court.

McKendry v. General American Life Ins. Co. et al
Case No. 96-CV-0754-PHX-PGR
UP and two other consumer groups sought to intervene in this case to unseal exhibits from a case involving the bad faith denial of a disability claim. We won the battle but lost the war. The sealed exhibits included a claims management agreement whereby defendant Paul Revere’s fee for administering General American Life, ("GAL") claims was tied to the amount of the latter’s reserves.

The exhibits showed that when GAL’s reserves decreased, Paul Revere’s fees increased, thus Revere had a direct incentive to deny claims and lower GAL’s reserves. The U.S. District Court in Arizona allowed UP et al to intervene, but denied our petition to unseal the exhibits. The Court held that a lower court had good cause to issue the protective order sealing the exhibits because they arguably contained proprietary information that Paul Revere’s competitors could use to "lure" GAL away from Paul Revere.

Rebecca Epstein of the Washington D.C. and Oakland CA-based Trial Lawyers for Public Justice represented UP pro bono in this case (www.tlpj.org).

Connecticut

Security Ins. Co. of Hartford v. Lumberman’s Mut. Cas. Co.
Case No. AC21960
In this case, UP is asking the Connecticut Court of Appeal to reject a trial court’s decision approving a "pro-rate" allocation scheme that leaves policyholders partially "bare" and is inconsistent with policyholders’ reasonable expectations, as well as representations insurers have made to courts throughout the United States. UP argues that the higher court should instead enforce insurers’ promise to pay "all sums" which a policyholder becomes liable to pay. C. William Tanzi and Eugene Anderson of the national law firm Anderson, Kill & Olick P.C. drafted and submitted UP’s amicus brief pro bono.

The Amicus Project Benefits Everyone

Insurers and their trade associations routinely deluge courts with briefs arguing their views. In the majority of cases, judges get no briefs at all that advance the perspective of insureds/insurance consumers. Predictably, the results often favor the insurance industry. UP is striving to change this imbalance through our Amicus Project.

We are increasingly serving as the voice for policyholders in cases all over the country where the rights of insureds are at stake. Unlike insurance companies, however, we do not have unlimited resources to pay attorneys to submit our amicus briefs. We need your help. UP's Amicus Project is growing because of the generosity of a very small number of attorneys who are providing legal services free of charge. We need to expand our base of pro bono counsel, and secure donations to cover our expenses. All policyholders and their advocates benefit from this Project. All policyholders and their advocates should support this Project.

Your Eyes and Ears Can Help

Help us identify cases where amicus support is needed. If you know of a case on appeal involving important insurance principles where policyholder amicus support is needed, contact UP online at info@unitedpolicyholders.org, or call Amy Bach at (415) 381-7627.

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INSURERS PANIC OVER MOLD EXPOSURE

Mold damage claims have become more frequent in recent years due to an increase in public awareness and scientific knowledge of the health hazards of mold, and an increase in the incidence of mold growth due to shoddy construction techniques. Mold remediation/clean-up technology has become more sophisticated and expensive. Not surprisingly, insurers are panicking. Exhibiting a herd mentality that typifies the industry, insurers are over-reacting and moving quickly to re-write their policies and avoid paying mold-related claims. See article on State Farm’s decision to stop selling new homeowners policies in California.

Insurers top four excuses for denying mold claims are:

• No direct physical loss
• No covered event
• Policy exclusion for mold
• Policy exclusion for pollution

(Source: Mealey’s National Mold Litigation Conference 2001, "Are Mold Claims Covered Under a Homeowner’s Policy?" by Everett Lee Herndon, Jr.)

UP proposes a five-prong solution that is outlined below. We are working to educate policyholders and lawmakers throughout the United States on why mold clean up should be continue to be covered under standard homeowners and commercial property insurance policies.

UP Publishes Mold Tip Sheet

UP has published a new tip sheet on mold claims and posted it on our website: www.unitedpolicyholders.org. The tip sheet was prepared by Eric Schindler of the Laguna Beach law firm of Schindler Harris, eric@artoflaw.com.Editing assistance was provided by Stanley Parrish of the Sacramento law firm of Sheppard & Haven, www.shepard-haven.com.

UP Supports a Legislative Solution

UP recently testified before the California Senate Insurance Committee in support of S.B. 1763, a pro-policyholder mold damage bill authored by Senator Deborah Ortiz, (D-Sacto). http://democrats.sen.ca.gov/senator/ortiz. Sacramento-based policyholder advocate Stan Parrish represented United Policyholders at the Committee hearing.

S.B. 1763 requires insurers to keep selling policies that cover mold damage resulting from a covered peril, such as storm damage, but allows insurers to exclude mold that results from general wear and tear, age, etc. Historically, that is how most policies read. Recently, however, insurers have begun re-writing their policies to exclude all mold damage, regardless of cause.

UP Proposes a Sensible, Market-Based Solution

UP has written to Insurance Commissioner Harry Low to urge him not to allow insurers to sell policies in California that exclude all coverage for mold clean up regardless of the source. UP’s proposed solution has five prongs:

• Enact S.B. 1763 to maintain a private market for limited mold coverage
• Insurers should calculate their exposure to the costs of mold damage by relying on facts and research, not hearsay and anecdotal evidence.
• When they’re calculating this exposure, insurers should segregate the costs of cleaning up mold damage that results from covered perils from mold damage that does not.
• Insurers must properly underwrite coverage for ensuing mold damage and charge a fair premium for the coverage.
• Let the forces of competition keep mold coverage available through the marketplace. Don’t create yet another quasi-government insurer.

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PUBLIC ADJUSTERS — THE INSIDE SCOOP

If you have a large property damage claim, you may need professional help to recover your full insurance benefits in a timely manner. Public adjusters can negotiate a claim settlement with your insurer on your behalf. Because they are experienced in dealing with claims and company adjusters, they can be very helpful in maximizing and speeding up your recovery. Public Adjusters get paid a percentage of whatever they recover for you. You can negotiate the percentage, and it generally ranges between 5-12%.

Public Adjuster Bill Hedden of the San Francisco firm, Consolidated Adjusting, has served on UP’s Board of Directors for many years. Executive Director Amy Bach recently spoke with Bill on the basics of hiring a public adjuster:

To review the licensing requirements for Public Adjusters in California, contact the California Dept. of Insurance at 1(800) 927-HELP, or www.insurance.ca.gov. To review requirements outside California contact your state insurance department or visit the NAPIA website at www.napia.com.

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UNUM/PROVIDENT/PAUL REVERE INFO AVAILABLE

Because so many disabled policyholders have contacted UP about UNUM/Provident and Paul Revere’s claims practices, and because those practices are being challenged as unfair by thousands of claimants all over the United States, UP has agreed to serve as a clearinghouse for copies of internal UNUM/Provident/Paul Revere memos and documents and trial testimony from top corporate officials in two recent cases. These items were obtained by the San Francisco law firm of Bourhis & Wolfson in the cases of Hangarter and McGregor.

If you are a policyholder or policyholder advocate and would like to purchase copies of these materials, email Machelle Jaarsma at mpjaarsma@aol.com, or leave a message with UP at (510) 763-9740.

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MAJOR POLICYHOLDER VICTORY AGAINST UNUM/PROVIDENT-
Unfair Business Practice Claim Still Pending

Disabled chiropractor Joan Hangarter won a $7.7 million verdict from a unanimous Federal San Francisco jury against disability insurance giant UNUM/Provident. The jury found the insurer acted in bad faith in cutting off Hangarter's disability benefits and awarded punitive damages against UNUM for forcing her and her two children into bankruptcy and onto welfare. The trial judge is still weighing evidence that UNUM/Provident's actions toward Hangarter are part of an unfair business practice scheme that has affected tens of thousands of other insureds.

The alleged scheme involves the implementation of a management strategy to avoid paying legitimate large dollar disability insurance claims. There are untold numbers of lawsuits against this insurer pending in courts all across the United States involving the same evidence. The outcome of the pending unfair business practice portion of the Hangarter case may affect these lawsuits.

Hangarter is being represented by Ray Bourhis and Alice Wolfson of the San Francisco policyholder law firm of Bourhis & Wolfson.

The matter of United Policyholders, Evans & Ellis et al v. UNUM/Provident has been resolved.

Ray Bourhis is a San Franciso policyholder attorney with a major victory for a disability claimant.

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POLICYHOLDER VICTORY IN COLLAPSE CASE

By Chipman Miles, Esq., Walnut Creek, CA.

A California appellate court found in favor of a policyholder claiming coverage under a "hidden decay" provision for collapse of a movie theater in Stamm Theatres, Inc. v. Hartford Cas. Ins. Co. (2001) 93 Cal.App. 4th 531, 113 CR 2d 300. The theater company sued its insurer after it discovered that its building was in a state of imminent collapse. It claimed that the commercial property insurance policy provision for damage "involving collapse of a building" caused by "hidden decay" covered cracks in the theater's wood roof trusses even though there was no evidence of rot. The evidence showed that the trusses gave way because of deterioration at the cellular level caused by the migration of water molecules in and out of the wood over the years. The trial court granted the insurer's motion for summary adjudication, ruling that "decay" was synonymous with rot or decomposition of organic material.

The court of appeal reversed. The court held that an insurer promising coverage for collapse due to "hidden decay," without any limitation of the scope of that term to organic decay, is liable on all claims for any collapse caused by a concealed process of gradual loss in the strength of building materials, unless other policy terms limit coverage. The court agreed with the insured that "decay" was broadly synonymous with deterioration, connoting a decline in strength or soundness. If an ambiguity arose from the narrower connotation of decay as rot or decomposition, the ambiguity had to be resolved against the insurer who drafted the policy. The court added that the exclusion for "wear and tear" did not limit the collapse coverage.

Once a distressed building reaches a point of imminent collapse, the insured now has a more clearly defined right to recover under Section D (Additional Coverage for Collapse) of the typical property insurance policy. If the insured qualifies for this additional coverage, none of the standard exclusions will apply. Policyholders should always consider whether their damaged property qualifies for collapse coverage, as well as conventional "all risk" coverage. ?

Chipman Miles is a Walnut Creek attorney who specializes in representing policyholders in property insurance coverage disputes.

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What Kind, and How Much Life Insurance Do You Need?

By Larry Ginsburg CFP and UP Board member

Many consumers wonder whether or not they need life insurance, and, if they do need insurance, how much and what type to buy? While this decision can sometimes be very complex, we thought it might be helpful to give you a basic primer to assess your own insurance needs.

Who Needs Life Insurance?

If someone in your family would suffer a financial loss as a result of your death, it may be appropriate for you to have life insurance. If you are working and earning income, and you died, would your spouse, partner or children have sufficient resources to maintain their lifestyle? Would you want them to be able to do so for the rest of their lives without your spouse or partner continuing or returning to work? Would you want sufficient funds available to pay for the costs of educating your children? How about funds to pay off the mortgage? If so, then purchasing life insurance might be a wise decision. If you felt that your could almost immediately return to work, after your death, and earn enough money to maintain your family’s lifestyle, then life insurance may not be needed. If you furnish care for a parent, relative, or child, or someone with special needs, life insurance can give you peace of mind, knowing that financial resources will be available to continue this care should you die.

Those who have unique assets, such as a business or farm, or other assets that they would not want sold at their death, may also need life insurance to make certain that there will be sufficient liquid resources available to settle their estate. The recent estate tax law change may result in a reduced need for life insurance to pay estate taxes through 2009. In the year 2010, there may be a need for life insurance to pay capital gains taxes due to the potential loss of step up in basis. The sunset provisions of the current law cause the old rules and estate taxes (those in place before the June, 2001) to come back in force in 2011. So, we expect that owning insurance for estate tax purposes or capital gains taxes will continue to be an important consideration. If you have a large estate, the new law is complex enough that you should meet with your planner as soon as possible to review how you are affected.

How Much Insurance Do You Need?

The easiest way to determine the amount of life insurance you need is to calculate the monthly or annual expenditures that would have to be replaced were you to die. Assuming an 8% return on a pool of capital that would be paid in death benefit is one way to determine the amount of insurance needed. If you wished to replace $50,000 in annual income, we would need to purchase approximately $625,000 in death benefit if we assume that we would be able to earn 8% annually on the death benefit proceeds when received.

Another way to calculate the need for insurance is to look at the average after-tax monthly expenditures. If a family is spending $3000 a month on an after-tax basis, then dividing the $36,000 annual expenditures by 6% (the after-tax amount we would expect to receive on an investment portfolio positioned for some long term growth) would let us arrive at a figure of $600,000 needed for insurance.

In most families with young children, both parents need to be insured. Even in a family where one spouse does not work, the duties the homemaker furnishes to the family would have to be provided by others. You need to recognize your needs and values before calculating the amount of insurance that you need. Values differ from person to person or family to family. People have told me: "I don’t want my wife to have an economic incentive to live more comfortably after I’m gone." Others have said, "I want to make sure that if something happens to me, my spouse never has to worry about working again for the rest of his or her life." What is important is that you determine what the needs are for your family and take the necessary action to meet them.

What Type of Insurance Should You Buy?

The two main different types of insurance are "Permanent" and "Term." Permanent Insurance is just what it implies, in that you tend to pay premiums sufficient to keep the insurance in force through the rest of your life. Permanent Insurance usually has some form of a savings or investment component, where in the early years you may pay a little extra money that would be invested so that in later years you do not have to experience a rise in your premiums. Permanent Insurance is excellent for people who can afford this coverage. Permanent Insurance may be acquired so that the investment portion can be allocated between different sub-accounts that may own stocks or bonds, and this type of insurance is usually referred to as "variable" life insurance. What is "variable" is the amount of return on the portion of the money paid in premiums that is invested in these sub accounts.

"Term" Insurance offers coverage for a specific period of time. Term Insurance can be purchased through the remainder of one’s life (usually to age 95), with the premium rising each year, as every year you do get one year closer to your expected mortality. This type of insurance is called "annual renewable term". Term insurance can also be purchased where the premium does not change for a specified period of time, such as 5, 10, 15, 20, 25, or 30 years. This type of insurance is called "Level Premium Term." At the end of the rate guarantee period in level premium term policies, the cost of insurance rises significantly. Term policyholders can then generally qualify for a lower rate than the guaranteed policy rates after the initial guarantee if their health allows them to do so.

Term Insurance is an excellent alternative for those people with less disposable income, who need to get the lowest possible cost of insurance in place for the immediate future. Permanent life insurance is generally obtained through a "universal" life insurance or a "variable universal" life insurance policy, where the premiums may be changed, or varied. This type of insurance policy is usually appropriate for those with greater disposable income. Permanent insurance policies also offer a tax advantage in that the tax deferred accumulation of the investment dollars can be received later as tax-free income in retirement should they be needed.

Can Your Insurance Policy Be Changed?

Not everyone knows that once an insurance contract (policy) has been issued, that the insurance company is then unable to change it in any way more restrictive to the policyholder. After you have applied for a life insurance policy, the underwriting (evaluation of your then current health status) is completed, and the company approves and issues you a life insurance policy, you have choices. You have a limited time to accept coverage by paying the premium due as long as your health status has not changed from the date of application. If you continue to pay premiums as scheduled in the policy, the right to keep the coverage in force is totally yours. Should your health status later deteriorate, the company cannot retroactively change your policy.

What Should You Do?

What is important is that you look seriously at what would happen in your family if you or your spouse were to die, or you were both to die together in an accident. What monies would need to be available? What would you want to happen if you could then make that choice? Those who are retired and have accumulated sizeable investment portfolios may find that they no longer have need for the type of life insurance they have owned for many years. Others may find that maintaining such insurance is a very wise decision. Those of you that are younger need to make certain that the protection your family will need is put in place. Once you have given some thought to these issues, it may be helpful to review your concerns with an insurance professional who should be willing to give you proposals that would include the cost of the anticipated coverage you will want to obtain. Please be sure to note that the cost of insurance is lower for those who are in excellent health as compared to those who are in poor health. Smokers can expect to pay substantially more for life insurance than the cost for non-smokers. Those who expect that their health may deteriorate in the future would be better served by making sure they have insurance in place now that they can maintain through the rest of their lives.

Larry Ginsburg, has been a member of the UP Board of Directors for many years. Larry is a Certified Financial Planner; his office is in the Montclair Village business district in Oakland, CA where he helps shape and secure the financial future for his clients through financial planning and investment management process. Larry is also Chairman of The Financial Planning Association (FPA) of the East Bay, and Chairman of the FPA Northern California Presidents’ Council. He can be reached at (510) 339-3933, or by email at: lpginsburg@aol.com.

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STATE FARM’S HISSY FIT

UP was not surprised to hear State Farm's recent announcement that it will no longer sell new homeowners policies in California, in part due to an increase in toxic mold claims. UP predicted this move when we informed the California State Senate in April, 2002 that insurers will create a market disturbance to frighten public policy makers away from banning the sale of property policies that exclude all coverage for mold damage, regardless of source. See related Mold Update article. It is our sincere hope that State Farm's move will benefit consumers by creating more competition. State Farm currently controls the largest share of the homeowners insurance market in California. We also hope public policy makers will see through State Farm's ploy.

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PIC GRANT FROM CAOC

The Public Interest Committee of the Consumer Attorneys of California has again awarded a grant of $5,000 to support UP's work. CAOC is a critically important voice for consumers in the California legislature. They are taking a lead role in promoting S.B.1763, (Ortiz), which mandates insurance coverage for mold clean-up, and S.B.11, (Escutia), which bans secret litigation settlements. For more information on these bills, go to www.sen.ca.gov. For more information on CAOC, go to www.caoc.org

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SUPPORT TEAM GEARING UP

One of UP's goals for 2002 is to re-energize the project for which we are best known and loved. Under the leadership of Board member Bill Heddon and Oakland firestorm survivor, Betty Ann Bruno, with the support of UP staffer Shirley Roberson, a committee is now planning for more effective response to future disasters. "UP has a gap to fill, and is about the only organization that can fill it," says the indomitable Betty Ann. "Materials are good - and we need them - but personal contact is better. We should have three to four volunteers ready to travel wherever needed and remain there for 2-3 days." UP’s immediate need is to identify volunteers, prepare packets of material to send to disaster sites, and hire a part time coordinator for this effort. We are seeking funding from a foundation to support this important work. If you are interested in volunteering, please contact UP by email at info@unitedpolicyholders.org or by leaving a message at (510) 763-9740.

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