Interview with an Insurance Advocate

J. D. Howard knows about insurance. He spent 40 years in the insurance claims field and knows just about every trick in the book - by insurance companies.

Since 1965, he worked as an adjustor and insurance advocate in and around Phoenix and retired in 1994, but not for long. "I was sick and tired of watching Oprah, then one of my sons showed me the power of the Internet," he says. "I turned off Oprah and have been online ever since."

Howard is Executive director and founder of [I-Can], the Insurance Consumer Advocate Network. "It dawned on me that folks everywhere can be helped," he says. "I used to train adjustors for insurance companies and now I train consumers who in turn educate adjustors."

Following is some expert advice from J.D. Howard:

What can the consumer do if wronged by an insurance company?
The first thing to understand is that an insurance policy is a contract containing terms and conditions and rights and obligations of both parties. One of the obligations not specified in the policy, and one that courts throughout the country have universally held, is that the insurance company has to put the financial interest of the policy holder ahead of the insurance company's interests.

Where does bad faith exist?
If the insurance company puts its interests ahead, this is a breach of contract. If it puts financial interests ahead of the policy holder as a usual and customary practice, i.e. on more than one occasion and to more than one person, that constitutes bad faith.

In a breach of contract, the policy holder can pursue monies for breach of contract, actual damages and compensatory damages. If we are talking about a bad faith scenario, then the wronged party is entitled to the above plus punitive damages, which is a jet-plane ride into seven-figure amounts. If the court determines that the insurance company intended wrongful conduct, it will be punished. Punitive damages are intended to discourage this kind of future misconduct.

How often are punitive damages awarded?
It isn't uncommon for bad faith to be adjudicated in favor of the plaintiff and punitive damages to be awarded. For example, State Farm Insurance Company was sued for bad faith in one of their regions and punitive damages were awarded for $50 million. And State Farm's home office does not require immediate notification of any punitive damage award unless it exceeds $100 million.

Hill vs State Farm was certified as a class action September, 2002. It was alleged that State Farm violated state reporting laws and violated rights of their policy holders by putting premium refunds due to the policy holders into offshore bank accounts to the tune of $35-50 Billion!

State Farm got caught and did not deny they were withholding the refunds. Rather, they euphemistically referred to the monies as policy holders' security accounts, and said they were holding them in trust.

Interestingly enough, the money was used to buy some banks that were consolidated into State Farm banks. Stockholders were members of State Farm and policy holders were encouraged to borrow money from these banks. The bottom line: policy holders were borrowing their own money and paying interest for the privilege of borrowing their own money.

How can these insurance companies get away with it?
They stay in business because they can.

There is a bad faith judgment entered against some insurance company in the US once every workday. The insurance industry has been abusing customers as a matter of practice for the 40 years that I have been in business. But consumers are becoming more aware of their recourse situation because of the insurance industry's desire to restrict tort recovery. Insurance companies want tort reform. They complain that so much money has to be paid out to lawyers for some excuse: "Just because we forgot to give notice on something," they might say.

Is the relationship with Insured (the policy holder) and Insurer changing?
I believe consumers are reading about these law suits against insurance companies, and about how the insurance companies are trying to cut lawyers out of the picture. Therefore, the consumer must think the companies are doing something wrong.

Consumers are becoming savvier about insurance-related topics now, especially with more websites such as ours.

How does your website help the consumer?
The whole point of our website is to teach consumers what questions to ask their insurance companies, what answers they have a right to expect and where to turn in their local area if they don't get the right answers.

We encourage you to go online to our website or a department of insurance in your state. These departments keep records of complaint ratios and rate comparisons from one company to another. You can see which companies are providing competitive rates and then look at the survey of consumer complaints. If you find a company that has reasonable rates and rare complaints, this is a good one to consider. But you have to do your homework.

Buying Auto Insurance

Read the fine print - this is crucial
Ask questions. Does the insurance company have the right to mandate imitation or after-market parts in the repair of the insured vehicle? This could have significant repercussions. Assume you have a 2004 Lexus with a lot of damage and it is still under warranty; maybe you need a hood and bumper replaced. All the parts are available from the original equipment manufacturer (OEM ). Unfortunately there are organizations that specialize in, and distribute parts to, everywhere in the US. The parts are usually made in Taiwan - imitations, knock-offs. Lots of insurance companies have written into their policies that they have the right to use OEM or after-market parts as the company may deem appropriate.

Now here is the double whammy:

Say the after-market replaced hood doesn't fit and flies up when you drive down the highway. Too bad, and the insurance company won't get you a new one. But if your car is under warranty and you have had replacement parts other than OEM, you are compromising the factory warranty. If you have an overheated engine that was towed back to the dealer and it isn't the original radiator, you pay for the engine.

Always ask whether or not your insurance company has the right to use after-market parts.

If your car is repaired with factory parts, it is automatically depreciated 20 percent. But with after market parts, a $20,000 car would only be worth $13,000.

When the insurance company writes an estimate for repairs, the standard procedure is to "low-ball." It benefits for two reasons: a certain percentage of vehicle owners won't get their car repaired and instead will settle for about 60 cents on the dollar. Maybe the claimant will take the money and buy a plasma TV instead.

If the vehicle is taken to a legitimate body shop, the insurance company will have to pay more. But the initial estimate is invariably low. It is common for significant damage to be incurred but hidden from view by molded covers, etc. The insurance company can write a low-ball estimate for repair - such as minor scratches - while the frame may be bent out of shape.

Insurance companies are inclined to equate severity of physical injury with vehicle damage. In other words, if the vehicle has minimal damage, the injury must be minor. The idea behind this theory is to discourage the claimant from "milking" an injury claim. The insurance company will try to bring into question the injured party's honesty.

If you are in an accident and have an insurance claim, encourage your attorney to have the vehicle inspected by an outside party and do not accept the initial insurance company's appraisal.

Quite often an independent damage appraisal will come back ten-fold with damages. You must up the ante - come back with photos and estimates. It may not be $400 damages as the insurance company stated. It may be more like $4,000.

Combine some or all of the above and that could explain how insurance companies stashed $50 billion in the Cayman Islands.