Top Insurance Stories in 2007 in Midwest

December 31, 2007

From storms that flooded the Midwest destroying homes and business in the summer to a court ruling that could have a significantly negative impact on the medical malpractice insurance market in the state of Illinois, 2007 was a year to remember. What follows is Insurance Journal’s top picks of stories for 2007.

No. 1
Ill. Supreme Court Rules Med Mal Caps Unconstitutional

In 2007 the Illinois Supreme Court ruled that a 2005 law specified a $500,000 cap on non-economic damages, such as pain and suffering, and that victims can receive in malpractice cases against doctors, and a $1 million cap in awards against hospitals was now unconstitutional. Doctors and insurer trade associations as well Illinois Medical Society cried “foul” and these groups will likely challenged the ruling.

Howard Peters of the Illinois Hospital Association said that new law had sparked an end to the drove of doctors leaving the state, and it became easier to recruit new doctors fresh out of medical school. Proponents say that state data show 5,000 more doctors are licensed in Illinois now than two years ago, three new insurance companies are providing coverage for doctors and 10 existing insurers have dropped their rates by 5 percent to more than 30 percent.
Malpractice lawsuits also are down dramatically over the last two years, according to a survey of Illinois’ largest counties by Chicago trial lawyer firm Clifford Law Offices.

More than 2,000 lawsuits were filed in 19 Illinois counties in 2003. That number dropped to 1,640 in 2005 and to 1,341 in 2006. This year, through September, just 882 cases had been filed in those counties.

Those results leave some advocates exasperated about the ruling. The ruling late Fall ruling by Cook County Judge Diane Joan Larsen wasn’t a surprise. Similar caps have been tossed out twice before by the Illinois Supreme Court, and cap opponents promised to challenge this law as soon as it passed.

The state Supreme Court eventually will weigh in on the most recent law, which could take several months to more than a year, but cap advocates hope for a better outcome because these caps are structured differently.

This time they apply only to malpractice cases; when they were thrown out in 1997, they also applied to broader personal injury cases.

What happens next is clouded in uncertainty. Health care providers hope doctors and insurers don’t panic before the Supreme Court weighs in. Certainly this ruling is one of most important in 2007.

No. 2
Ice, Snow Storms in Midwest Ground Airliners, Blamed for 6 Deaths

One of the worst ice and snow storms hit the Midwest in early Dec., 2007. The storm slickened roads and sidewalks, grounded hundreds of flights, and cut power to tens of thousands Sunday in a swath from the Southern Plains to the Great Lakes The storm continued its path to the east coast and turned into a noreaster.

More than 1 million customers lost power in Missouri, Oklahoma, Illinois and Kansas, utilities reported.
Some communities in Missouri reported ice as thick as three-quarters of an inch, the National Weather Service said.

According to the Associated Press new accounts, states of emergency were declared in Illiois and Missouri. Gov. Matt Blunt declared a state of emergency and activated the National Guard.
Chicago’s O’Hare International Airport, one of the nation’s busiest, canceled more than 400 flights. The airports in Kansas City, Mo., and St. Louis also canceled several flights. .

No. 3
Court’s Ruling: Insurer Pays Mich. City $14 Million +

One of the largest settlements in 2007 occurred when the United States District Court Judge Nancy G. Edmunds of the Eastern District of Michigan ordered United National Insurance Co. to pay the city of Sterling Heights, Mich. $14,640,632.90 plus taxable costs as damages for United National’s breach of its insurance policy with the city.

When combined with the $18.75 million settlements with two of the
city’s other insurance companies, Sterling Heights will ultimately recover well over $33 million from its insurers for its losses, according to a release by Anderson, Kill &Olick, LLCC, attorney’s for the city of Sterling Heights, Mich.
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The insurance dispute arose when the city’s insurance companies denied claims for the defense and indemnification of a series of lawsuits brought against the Sterling Heights by Hillside Productions, Inc., the owners/operators of the Freedom Hill Amphitheatre located in Sterling Heights. Hillside’s claims, which included allegations of
defamation and civil rights violations, were ultimately resolved by a $31 million settlement in March 2004. With the judgment in the city’s favor, the city will have recovered almost all of the $31 million settlement, the vast majority of the legal costs of defending against the Hillside lawsuits, interest, and damages that arose as a consequence of the insurance company’s breach. United National is expected to appeal the Court’s judgment.

No. 4

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

In late 2007 a group of State Farm policyholders asked 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 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 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 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.

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.
Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

No. 5
Officials in Midwest States Seek Federal Aid after Floods, Storms

In early late summer of 2007 flash floods plagued states in the Midwest with high winds, tornadoes and heavy rain in late August. Some state officials are seeking federal aid to help homeowners and businesses get back on their feet.

President Bush declared two northwest Ohio counties major disaster areas, making more federal assistance available to residents and business owners in communities inundated by powerful storms and record flooding. Hardin and Seneca counties join Allen, Crawford, Hancock, Putnam, Richland and Wyandot counties, which were declared disaster areas Aug. 27, the Federal Emergency Management Agency said in a statement.
In North Dakota, data collected from residents in tornado-ravaged Northwood, showed about $3.5 million in uninsured losses, Gov. John Hoeven’s office says.

President Bush has designated Northwood as a disaster area in the wake of the Aug. 26 tornado, which killed one man and injured 18 other people. The twister destroyed, damaged or affected all but 29 of Northwood’s residences, according to the Red Cross. The designation enables state and local governments in the area to recover some of the costs of emergency aid and help rebuilding efforts.

No. 6
Minn. Groups Sue AIG for $100 Million Fraud, RICO Violations

Another shocking turn of events in 2007 was when the Minnesota Workers’ Compensation Reinsurance Association (WCRA) and the Minnesota Workers’ Compensation Insurers Association (MWCIA) filed suit in mid-July against American International Group Inc. (AIG) to recover more than $100 million in damages for fraudulent actions and violations of the Federal Racketeer Influenced and Corrupt Organizations Act (RICO).

The WCRA is a nonprofit association created by the Minnesota Legislature in 1979 to supply reinsurance to all insurers and self-insurers in Minnesota. This reinsurance is used to pay catastrophic workers’ compensation claims to injured Minnesota workers. MWCIA is nonprofit corporation authorized under Minnesota law to collect workers’ compensation insurance information from all insurers in Minnesota and to supply ratemaking information to WCRA, state regulators and insurers.

In the complaint filed in United States District Court for the District of Minnesota, WCRA and MWCIA allege that AIG underreported its workers’ compensation premiums to MWCIA and WCRA for the last 22 years in order to avoid paying reinsurance premiums to WCRA and assessments to MWCIA that were computed based upon AIG’s reported premiums. The WCRA is seeking to recover underpaid reinsurance premiums from 1985 to present, plus the investment income the WCRA would have earned on those premiums. MWCIA is seeking to recover underpaid assessments due from AIG for this same period.

A copy of the WCRA/MWCIA complaint against AIG is available by contacting Cathy Kennedy at cathy@cathrynkennedy.com or 1-612-309-3951.

No. 7

Minnesota Bridge Collapse Spurs Closer Look at Safety of Structures

The collapse of a major bridge on Aug. 1st on Interstate 35W in Minnesota has spured a second look at bridges and allowed one environmental group to create a Web site to help consumers check the safety of bridges in the state.

Data on 313 Minnesota bridges can be found online thanks to The Minnesota Center for Environmental Advocacy. The group organized the data and listed structural ratings for bridges on interstate highways, U.S. highways and state truck highways in Minnesota. Internet users can access the data thrugh the groups’s Web site and then look at a map to see whether a bridge is listed as deficient. They can refer to a bridge’s ID number to learn about its year of construction , average daily traffic, most recent inspection date and strutural status.

Eight people were killed when the Minnesota bridge collapsed. The impact of this disaster has sparked debate and interest in bridge safety and inspections in many other states all with the hope of avoiding the same type of tragedy.