State Farm Customers in Neb. Ask Supreme Court to Reinstate Lawsuit

A group of State Farm policyholders want the Nebraska Supreme Court to reinstate their lawsuit against the company, because they say State Farm failed to deliver the medical coverage it promised in its automobile policies.

The state’s high court will hear arguments this week about whether a Douglas County judge’s decision in State Farm’s favor before a trial should be upheld.

The lawyers for the policyholders will also argue that the case should be treated as a class-action lawsuit for as many as 2,000 people who had claims denied improperly since 1990.

“The documents show State Farm was obsessed with trying to obtain cost savings in its medical payments program,” said Christopher Jerram, who represents the insurance customers.

The lawsuit alleges that State Farm charged people for traditional indemnity medical coverage on their policies, meaning they could go to the doctor or hospital of their choice when seeking care after an injury and have their medical bills paid by State Farm.

The lawsuit alleges State Farm provided “managed care” instead and denied all or part of claims that were submitted. And the lawsuit accuses the company of using a biased, unauthorized review process to arbitrarily deny some medical claims.

The policyholders accuse State Farm Mutual Automobile Insurance Co. of violating Nebraska’s Consumer Protection Act and the Deceptive Trade Practices Act.

State Farm denies the allegations, and the Douglas County judge granted a summary judgment favoring the company in June 2006.

This week’s hearing marks the second time the state Supreme Court has dealt with the case. In 2004, the court limited the case’s potential plaintiffs to State Farm policyholders who had filed claims.

State Farm’s lawyers argue that the automobile policies the company sells aren’t meant to cover all medical expenses; the policies cover only fair and reasonable bills that were caused by a car accident.

State Farm points out that the lead plaintiffs in the case, Mary and Thomas Lynch, paid only $9.60 for medical coverage as part of their premium for six months of car insurance.

“Given this small premium, it is not surprising that the policy does not provide the broad coverage afforded by certain health care policies,” wrote the company’s lawyers at the Omaha firm of Fraser Stryker.

And State Farm points out that in the Lynches’ case, the family was able to collect more money from the other driver’s insurance company than State Farm would have paid, and Mary Lynch’s health insurance plan covered some of the bills. The Lynches received $6,837 from AAA, which represented the other driver. Mary Lynch submitted $1,906 in medical bills to State Farm, which covered $1,436.

“Mary Lynch is not entitled to recover any money from State Farm because such recovery would result in ‘double recovery,”‘ the company’s lawyers wrote.

The Lynches were not left with any unpaid medical bills, but they say State Farm should have paid $470 in claims it denied in addition to the $1,436 it did pay.

Jerram argues that the company should deliver what the policies promised, and State Farm owes policyholders the difference between what it paid under its managed-care system and what it should have paid under an indemnity policy.

If the lawsuit is reinstated and destined for a trial, State Farm argues that it should not be a class action. The company says the individual circumstances of each accident would have to be evaluated to determine whether denying medical claims was proper.

Jerram argues that grouping all the claims together in a class action makes sense because all the roughly 2,000 plaintiffs had medical claims denied the biased reviews State Farm used.