From Jim Mooney's Insurance Crime Outline

From Thu Oct 12 23:43:27 2000
Date: Wed, 11 Oct 2000 13:30:06 -0400
From: The Insurer Crime Outline 
Subject: The Insurer Crime Outline

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"Defiance to Tyrants is Obedience to God."


                    [From James Mathis]


To whom it may concern:

That I am a former employee of State Farm Insurance, having been 
an employee from January 1987 through November 30, 1994.  During 
the course of my tenure with State Farm Insurance I rose through 
the ranks from my initial position as Claims Representative, to eventually 
management positions including Superintendent of Claims having responsibility 
for claims supervisors, representatives, estimators, expeditors and 
support staff who handled all the claims for specific geographic 
areas, including but not limited to the States of Washington, Idaho, 
Montana, Oregon, California and Alaska.  In my position as Claims 
Superintendent, I had responsibility to interview new employee candidates, 
hire and train new candidates as well as employees already working 
for State Farm and supervise their workload throughout the workday.

As a Claims Superintendent, I was also responsible for making decisions 
on coverage, liability, value, procedures and processes.  I was also 
responsible for supervision of the defense of lawsuits against the 
company involving bad faith in the handling of claims. UIM is an 
acronym for uninsured and underinsured coverage, PIP is the acronym 
for personal injury protection and MPC is the acronym for medical 
pay coverage.  All involve first party benefits owed to the insured 
for injuries under the State Farm Policies.

As a Claims Superintendent, I had responsibility for the training 
of State Farm personnel in the handling of UIM claims.  This training 
followed the specific format as outlined in the "Education and Training 
Guideline" provided by State Farm Corporate.  I adhered to the practices 
and processes for handling all claims as found in the "General Claims 
Memo" manual, "Superintendent's Manual" and "Claims Procedural Guide". 
 Each of these manuals were provided to me from State Farm Corporate. 
 I was trained in the use and application of "PP&R" as a means of 
evaluation of performance for State Farm Personnel.  I am familiar 
with the use of "Quarterly Reports" as a substitute for "PP&R"s where 
State Farm Management are concerned.

Throughout the course of my tenure with State Farm, I had the opportunity 
to travel to different states and review claim operations in those 
states. Ultimately, I was asked to create and head up a centralized 
unit for the PIP and MPC claims in the State of Washington consolidating 
all the PIP and MPC claims handled throughout the State of Washington 
into one area.  This included the out of state policies being serviced 
in Washington.  As part of my duties I also had occasion to research 
how State Farm conducted claims handling procedures and practices 
uniformly all across the country.

I received considerable training during my tenure at State Farm. 
 When I first started as a Claims Representative I went to several 
workshops before I had the opportunity to go back to a formalized 
claims school at the State Farm home office in Bloomington, Illinois. 
 I attended a three-week claims school at the home office.  I continually 
participated in other training workshops and seminars through the 
formal training program outlined in the State Farm education and 
training manuals.  I later attended State Farm Claims Management 
school, also at the home office in Bloomington, Illinois, where I 
was taught the State Farm philosophy and State Farm management tools. 
After attending the home office management school, I then went through 
a regional office management program for State Farm.  Throughout 
my tenure, I also participated in workshops and seminars to supplement 
my training. I was also responsible for training other employees 
through similar workshops and seminars.  I am aware that State Farm's 
policies and procedures for adjustment and handling of claims are 
implemented on a national, regional and local level.  All policies 
and procedures originate from the State Farm home office.  During 
the course of my tenure with State Farm, especially as a Superintendent, 
I would receive through general claims memoranda, supervisor's manual, 
claims procedures guide, and through other publications such as "Obiter 
Dictum", information concerning the procedures and practices for 
the handling of claims from the corporate home office.

At the regional level, different workshops and programs would be 
conducted for State Farm Management.  There were managers' workshops 
and managers' meetings we would attend regularly.  There were formalized 
programs and newly hired employee orientation required through regional 
office.  Local claims offices were not permitted to adopt policies 
or procedures for the handling of claims that were contrary to national 
or regional policies.  There was a precise program for training that 
was disseminated from State Farm Corporate Headquarters to local 
management which we were strictly required to follow.

As a Claims Superintendent, I had responsibility for the training 
of State Farm personnel in the handling of UIM claims.  This training 
followed the specific format as outlined in the "Education and Training 
Guide" provided by State Farm Corporate.  I adhered to the practices 
and processes for handling all claims as found in the "General Claims 
Memo" manual, "Superintendent 's Manual" and "Claims Procedural Guide". 
 Each of these were provided to me from State Farm Corporate.  I 
am aware there was a 13-week pre-claims school program as well as 
a 13-week post-claims school program.  Adjusters were required to 
complete of these programs and obtain verification of completion 
from the immediate superintendent, divisional superintendent and 
the divisional manager.  New employees were required to complete 
the Basic Claims Course.  I was also requested to provide and train 
all employees in Washington in the State Farm Corporate Program, 
"Negotiation Skills for the Claims Professional".  This was a formatted 
course in the instruction of negotiating claims for first and third 
parties.  It emphasized the philosophy of negotiating from a position 
of strength.  It utilized the fact that, as claims people we hold 
the power in our ability to write the check.  This is even more evident 
in the handling of UIM claims.  The philosophy was premised on the 
understanding that insureds naturally have a reluctance to engage 
as an adversary with their own insurance company.  The implication 
that the more paid on this particular claim results in the higher 
the cost of insurance for all policyholders is more significant in 
UIM claims. Insureds have a natural trust in their own insurance 
company to deal with them with the highest good faith actions.

State Farm adjusters and management personnel regularly rely on and 
refer to the claims manuals provided by home office.  There were 
also additional training tools available at Home Office and listed 
in the "Claims Video Library".  I am aware that a "Claims Supervision 
Manual" was used for instruction and reference of all employees. 
 These materials would refer to the handling of claims, coverages 
(including UIM), liability and injuries. The manuals were not unique 
to either Washington or the Northwest Region, but to my knowledge 
were used throughout the nation.  Other publications such as "Obiter 
Dictum" and "MediClaims" were also suggested reading for all employees 
involved in the handling of automobile accidents, injuries, treatment, 
treatment modalities, reviewing processes, and anything that had 
to do with injury claims.  Independent Medical Examinations and Paper 
Reviews were two additional tools expressly encouraged to be used 
in order to reduce the average paid amount of first and third party 

I was trained in the use and application of "PP&R" as a means of 
evaluation of performance for State Farm Personnel.  I am familiar 
with the use of "Quarterly Reports" as a substitute for "PP&R"s where 
State Farm Management are concerned.  During the course of my tenure 
at State Farm, I was aware that job performance and promotional opportunities 
would be evaluated in part based upon statistical performances produced 
both in average paid claims as well as the average percentage of 
claims pending.  Such evaluations would also encompass adherence 
to the philosophies of State Farm.  Management was given specific 
goals and objectives in the form of quarterly reports which would 
include these average claim values and pendings.  In my experience 
with State Farm, regular circulars and reports were put out by each 
region, including each unit's performance on claims in the different 
coverages in terms of both average paid and average pendings.  These 
reports were used as a motivational tool to encourage the use of 
tools such as IME's and paper reviews for medical claims both first 
and third party.

I became intimately involved with cost containment measures implemented 
by State Farm during my tenure with the company.  I am aware there 
are numerous manuals, guidelines and memoranda that were regularly 
disseminated among State Farm claims centers uniformly throughout 
the nation.  I am aware of the existence of specific manuals concerning 
the settlement of liability and underinsured/uninsured claims and 
training programs that include slides and videotape presentations.

I am familiar with State Farm's procedures and practices in determining 
its goals in each of the coverages provided within the State Farm 
policy including UIM.  These goals were determined by State Farm 
Corporate with the recommendations from each of the Regional Vice 
Presidents.  The goals were then conveyed to the Claims Managers, 
Division Managers and Claims Superintendents through the use of "Quarterly 
Reports".  Ultimately, each claims handler was held accountable to 
these goals.  Goals were established for an entire year.  At the 
end of each quarter, each superintendent would report the actual 
statistical performances in relation to these goals. Naturally, the 
expectation was to meet or exceed the goal in each category. In my 
experience with State Farm, these goals were always below the actual 
results for the previous year.  I am familiar with goals being established 
for UIM average severity and UIM average pendings.  The actual results 
for each State Farm unit, section, region and state would be published 
and distributed on a monthly basis to all State Farm Management. 
 It is through this process, State Farm establishes the environment 
to aggressively reduce each claim so as to be recognized by a superior 
for merit increases and/or promotion.  It is a driving force within 
each State Farm employee to reduce their respective average paid 
claims and average pending percentages.

It is my experience that the expectation of State Farm Corporate 
was to attempt to pay as little as possible in the settlement of 
all UIM claims. Their motto "We pay every dollar we owe, but not 
one penny more" is typical of the underlying attitude throughout 
State Farm personnel.  It was significant to realize a moderate savings 
on each claim settled.  State Farm is the largest personal lines 
auto insurer in the world.  A savings of one or two thousand dollars 
on each UIM claim settled would realize a national yearly profit 
in the billions.  I am familiar with State Farm's philosophy, that 
the occasional incidental loss it experiences by an adverse judgment 
against it does not outweigh the economic benefits of continuing 
with its philosophy and claims handling policies in the same fashion 
across the country.  Until such time that a judgment matches or exceeds 
the continuing annual benefits of this practice, State Farm will 
not change.

It should be a "given" that the victims of accidents need the benefit 
of their insurance more than at any other time.  Another "given" 
is the insured victims are emotionally and financially vulnerable. 
 It is hard to imagine more economically abusive conduct than a corporation 
using programs to seek to exploit the claim transaction and to delay 
or attempt to intimidate by refusing to honor in good faith the contract 
with their insureds so as to enrich the insurer.  State Farm's incentive 
schemes, PP&R and Quarterly Reports, for claim handlers and management, 
do exactly that.

I have attached my resume as foundation for the above statement.



James Mathis

Second Letter From James

Here is an interesting issue State Farm would not like the public 
to be aware of.

Have you been getting all the information when presenting a third 
party claim or a UIM/UM claim to State Farm? Do you honestly think 
so? I am aware of the policy of State Farm directing it's representatives, 
management and defense counsels to not divulge any information which 
is not specifically requested in interrogatories.  Therefore, there 
were those instances in my experience where the umbrella policy existed 
but was not divulged.  This occurred most often when it had been 
determined by State Farm the claim was within the limits of the underlying 
liability coverage or UIM/UM coverage.

I was just contacted by Mrs. B.  She is a State Farm insured and 
presently has a claim in suit.  She has brought the suit against 
the Allstate liable party as well as the driver of her State Farm 
car.  Both parties are contributory to the negligence of the accident. 
 The driver of the car she was in was her husband.  They carry auto 
liability coverage with State Farm as well as an umbrella policy. 
 Mrs. B states her damages exceed five million.  The Allstate car 
was being driven by someone other than the owner. Both the owner 
of the car and the driver have separate Allstate policies. Their 
combined limits according to Mrs. Bernakow are $350,000.00.  State 
Farm had two IME's performed on Mrs. B while handling her PIP claim. 
 Both confirmed the accident had caused fibromyalgia to Mrs. B.  
She is a corporate lawyer and has been unable to work since the accident 
date in 1994. Since, State Farm's own IME's confirmed the accident 
related fibromyalgia, they would be aware her claim would exceed 
the limits of the underlying carrier. They have yet to inform her 
of the umbrella policy and it's availability to her for any claim 
exceeding her husband's limits of coverage under the liability portion 
of their State Farm policy.  They have failed to inform her of ability 
to access her UIM coverage if the claim exceeds the Allstate' s policies. 
 They have failed to protect her husband from an excess judgement 
which she may have should the lawsuit continue to judgement and exceed 
the limits of the two Allstate policies as well as her husband's 
liability policy.  They have failed to inform her since she had two 
cars insured with State Farm at the time of the accident, both with 
UIM/UM coverage on them, that in fact she may be able to stack or 
float the policies should the claim exceed the Allstate policies 
and her husband's State Farm Policy.

Mrs. B was unaware of these issues until she called me on Monday 
of last week.  I walked her through the different policies she had, 
Allstate had and her husband had at the time of the accident.  I 
also suggested she send a certified letter to State Farm requesting 
they divulge all policies and coverages, all declaration pages (including 
Homeowners) and also demand the limits of her UIM/UM and accessible 
umbrella policy immediately.

The umbrella policy for State Farm is handled by the Fire Company 
and is governed by the Operational Guide rather than the Claim Procedural 
Guide. The policy is not indicated as coverage available on the ACR 
when the claim is opened.  Therefore, the auto handler for the claim 
is unaware of it's existence until he or she requests the information.

State Farm specifically designed the program for their ACR or ECF 
to function in this manner so that the umbrella policy information 
would be readily available to the handling any claim.  State Farm 
in it's guidelines for discovery in the handling of a suit, cautions 
that only the specific information requested should be delivered 
to the plaintiff.  The interrogatories should be carefully read so 
as to exclude the divulgence of information beyond the scope of the 
request.  For example, if a declaration page is requested for the 
auto coverages available for a particular loss is requested, it would 
be reasonable to not divulge the existence of the umbrella policy 
or it's declaration page.  In this manner, the additional coverage 
is kept from the plaintiff and thereby controlling the claim. It 
will of course be available should the award or judgement exceed 
the underlying coverage.

State Farm's umbrella policy is unique in that in can be accessed 
by the UIM or UM coverage if the insured is aware he/she may purchase 
the amendment allowing this benefit.  The cost is minimal compared 
to the benefit it extends to the insured.  Agents for State Farm 
are not encouraged to sell this amendment.  Claims handlers rarely 
are aware of the amendment. Even most management are ignorant to 
it's existence.  The significance of this additional coverage is 
material when a UIM or UM claim would exceed the limits available 
to the insured.  Also, the umbrella policy does cover some of the 
claims which would have been declined under the UIM and UM language.

An example where the umbrella coverage might be more significant 
is when a fatality occurs.  Especially, if this is a UIM or UM claim. 
 The language of the State Farm policy states the coverage will apply 
to damages a person may legally collect as a result of an uninsured 
or underinsured accident. Once a representative of an estate is designated, 
that person may legally collect the coverage available under UIM 
or UM coverage of his/her own policy. Should that person have the 
amendment allowing the umbrella policy to be accessed by the underlying 
UIM or UM coverage in the auto policy, they would have both limits 
available to satisfy the claim.  Of course, each state has different 
wrongful death statutes and what may be considered for damages. But, 
in the event the damages would exceed the UIM or UM limits, this 
additional coverage would be available.  This very issue was determined 
by claim committee in 1990 by State Farm General Claims in their 
decision. I am personally aware of this as I did the claim committee 
for that claim.

A note of interest is that most states have different statutes for 
UIM or UM claims.  In Washington for example, the statute is six 
years after the date of declination.  If State Farm did not advise 
the insured of the applicable coverage, such as an available umbrella 
policy which could be accessed for a UIM or UM claim, then the insured 
would not have presented a claim under that coverage.  Therefore, 
the claim would never have been declined.  So, in Washington, the 
claim would still not have run it's statute of limitations. State 
Farm discussed this very issue in the decision to pay the claim of 
the representative of the estate in the suit brought against them 
which resulted in the aforementioned claim committee. In that lawsuit 
the representative of the estate was the nephew of a man not insured 
with State Farm who was killed in an uninsured auto accident.  The 
uncle was not a resident relative either. However, the State Farm 
insured had UIM and UM coverage available on his own State Farm policy.

As a final point, consider would an agent of State Farm have a fiduciary 
responsibility to inform an insurer interested in acquiring an umbrella 
policy to protect their assets that this option exists.  It would 
be reasonable to assume it would be where by statute it is required 
to offer identical coverage under UIM/UM as an insured purchases 
under their liability coverage.  Where that particular statute doesn't 
exist, there would still be the fiduciary responsibility of the agent 
to offer adequate coverage which would be obviously sought by an 
insured had the insured been made aware of it.  Therefore, it is 
my opinion every insured who possesses or has possessed an umbrella 
policy and was not afforded the opportunity to access it when either 
a UIM/UM claim of such magnitude so as to exceed their underlying 
limits, would have a claim with the agent's E&O carrier.

I hope this information is useful to those who have had a claim or 
will have a claim of this type.


James Mathis 


"There is no Justice but that we make it so."

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Cyber Vigilante Incorporated  
 4495-304 Roosevelt Blvd PMB # 204
 Jacksonville, FL 32210

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Created: October 12, 2000
Last Updated: October 12, 2000