Denying Claims

You are in your car running an errand for your job, when all of a sudden a pickup truck crosses the centerline from the other direction and smashes into you. The accident is catastrophic. You are seriously injured and left in a coma. When you wake nine days later you have multiple broken bones, collapsed lungs, and are destined to spend the next few agonizing months under constant care.

And then comes the real kick in the teeth. The insurance company denies your claim. They claim the driver who caused the crash acting in a moment of deliberate road rage, and so the accident was not an "accident'. Your hospital bills pile up, you are too injured to go back to work, and your insurance company has deserted you.

For 60-year-old Ethel Adams from Seattle, that nightmare scenario became a horrifying reality in 2004. She had  a $2 million policy with a subsidiary of  insurance giant Farmers, the nation's third largest personal lines insurance group. However, the company denied her claim under the tortured logic that it was never an "accident".

"The insurance companies say they're here to protect people," said a wheelchair-bound Adams during the battle with Farmers," but when you need them most, they do something like this."

Adam's insurance company, Farmers, was in the business of denying claims as a way to boost its bottom line. Farmers even ran an employee incentive program, "Quest for Gold", that offered incentives, including $25 gift certificates and pizza parties, to adjusters who met low payment goals. One Farmers' executive told claims representatives to stop paying claims, saying, "Teach them to say, 'Sorry, no more,' with a toothy grin and mean it."

Farmers was by no means the only insurance company systematically denying claims. Some of the nation's biggest insurance companies -- Allstate, AIG, and State Farm among others -- have earning reputations as aggressive claim fighters in an attempt to boost their bottom lines. Allstate gave employees who denied valid claims rewards such as portable fridges, and used a "boxing gloves" approach to policyholders who refused to accept lowball offers. When AIG units lost money, former CEO Maurice Greenberg would put in place new teams of staff to systematically reject thousands of valid claims. State Farm went so far as to engage in fraud to deny claims. After the 1994 Northridge earthquake in California, which killed 57 people, injured 9,000, and caused an estimated $33.8 billion in damage, company officials forged signatures on waivers of earthquake coverage to avoid paying quake-related claims.

Ethel Adams eventually prevailed after Farmers' denial sparked an outcry and intervention from the state insurance commissioner. However, for many others whose valid claims have been denied there is no such luck.

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