February 11, 2010 05:36 PM UTC

SB10-076 Insurance Bonuses to Deny Claims

•  
• by: morgancarroll

( – promoted by Colorado Pols)

Last year I carried SB 09-103 which prohibited bonuses or financial incentives by insurance companies to adjusters to deny claims. It passed the Senate but was killed by the insurance industry in the house. I am continuing this fight for consumers this year in SB 10-076.

Q: What is the problem?
A: When someone buys insurance they should get what they pay for and no one should receive a financial incentive to act directly against the interests and rights of the insured. This is a very serious conflict of interest and an act of insurance bad faith.

THE BILL: It is an unfair claim practice (bad faith) to be:

” (XVIII) PROVIDING COMPENSATION IN ANY FORM TO INDUCE OR ENCOURAGE THE DECISION TO DENY, OR DELAY THE RESOLUTION OF, A CLAIM OR TO CANCEL OR RESCIND AN INSURANCE POLICY.”

You might be wondering who could actually oppose this. The insurance industry response ranged from honest surprise that some would actually do this and acknowledging that it should be against the law right now to suggesting this is a widespread practice and they fear the legislation because this is integrated into many insurance business models.

Q: Are there examples of this practice?
A: Yes, but the full scope is unknown because carriers are not generally forthcoming about these programs that they know are illegal.

Better insurance companies would know to stay far away from this practice and certainly wouldn’t discuss it publicly. That said, Farmers sent their employees down to the capitol to lobby against the bill and included in their “fact sheet” that there are no examples of this happening. Extra credit for Chutspah considering.

• Farmers whistleblower Insurance Claims Supervisor Robert
  Dietz came out acknowledging
  software designed to deny 20%+ of claims and payment of bonuses to deny claims.
  In a memorandum dated September 17, 2001, Farmers Insurance explained that
  “employees whose locations achieve their Quest for Gold goals, will receive
  1.25% of their eligible salaries ($100,000 maximum).”
• UNUM exposed in 1996 for over
  $18 million paid in bonuses to deny long term disability and other claims.
• American Family exposed in claims culture to play
  games, laugh and tell jokes with denials with their now famous flying pig
  signifying we’ll pay claims when pigs fly.
• There is currently litigation across the United States against Farmers,
  State Farm, and Allstate over these types
  of programs. Policyholders have
  sued both Farmers and State Farm claiming that these programs are and
  were designed to force insurance adjusters to deny or delay claims. In return
  for denial or delaying of claims, the insurance adjusters received bonuses.
• CIGNA bonuses to rescind policies of sick people. Such
  a cancellation
  led to the high profile death of a teenage girl who lost the opportunity for
  the liver transplant she needed to save her life.
• BLUE CROSS was admonished
  in federal Congressional hearings by Republicans and Democrats for rewarding
  employees who dropped coverage for policyholders when they became sick.
  The panel found Blue Cross cancelled coverage of more than 20,000 avoiding
  more than $300 million in medical claims over 5 years.
• TIME INSURANCE / ASSURANT HEALTH recently had a verdict
  in Boulder County for dropping
  a woman’s health insurance coverage after she was in an automobile accident.
• PINNACOL ASSURANCE, (Colorado’s quasi-governmental workers
  comp carrier of last resort, operated by CEO Ken Ross with a full corporate
  insurance culture) provides
  bonuses and financial incentives that reward the delay or denial of claims
  and medical care for injured workers in at least 4 ways, according to
  documents made public in this summer’s interim committee on Pinnacol Assurance.

This is an illegal bad faith practice in virtually every state in common law, and 16 other states clearly codify the prohibition against this practice and virtually any court familiar with the common law on bad faith would have to conclude it is an obvious bad faith conflict of interest.

However, Colorado has not codified the prohibition of this practice in statute and SB 10-076 seeks to remedy that. To find out which insurance lobbyists have worked defeat this year and last year’s common sense reforms, go to:

http://www.sos.state.co.us/pubs/lobby/lobby_home.htm

In fairness there are good carriers who would not engage in this practice who have not and do not oppose codifying this bad faith practice.