The Progress of this case will be followed from a
CASE DIARY
in chronological order with links to appropriate documents.
Links to other sites covering other cases have not necessarily
been set forth, explicitly, as supporting public documentation
before the court. Eg., Campbell has, Robinson has not.
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NORTH CAROLINA
BRYSON CITY DIVISION
____________________________________________
|
WILLIAM C. HAMMEL, |
ALAN J. BELLAMENTE, |
et al., | MEMORANDUM ON
| THE RACKETEERING NATURE
Plaintiffs | OF THE MISCONDUCT OF
| STATE FARM MUTUAL
vs. | AUTOMOBILE INSURANCE
| COMPANY
STATE FARM MUTUAL AUTOMOBILE |
INSURANCE CO., | No. 2:99:CV-44-T
STATE FARM INDEMNITY COMPANY, |
et al. |
|
Defendants |
___________________________________________|
SHORT CAPTION: HAMMEL v STATE FARM
MEMORANDUM ON THE RACKETEERING NATURE OF THE MISCONDUCT OF
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY
In Campbell v. State Farm Mutual Automobile Insurance Co.,
No. 890905231, slip op. at 53 (Third Judicial Dist., Salt Lake
City, Utah, Aug. 3, 1998), a third party action on grounds of
Bad Faith, the Court found ample evidence for State Farm's
misconduct. (See the decision attached as Exhibit 1)
Plaintiffs quote extensively from the Court's opinion, written
by The Honorable William B. Bohling, since it supports
Plaintiffs' allegations of extensive and wide ranging patterns
of racketeering involving multiple schemes of fraud, extortion
robbery committed through various media including wire and
mail, and clear conspiracy to commit these offenses; and that
these offenses extend from the claim-handling process into
the very litigation process itself, not only systematically
devastating the very policyholders to whom it has a fiduciary
duty, but also using, abusing and burdening the Courts with its
intolerable racketeering schemes.
The very same unlawful tactics and schemes upon which Plaintiffs
complain in their amended complaint are asserted in the Court's
opinion as being of a general nature regarding State Farms's
"business practices"; they fulfill the criteria for a pattern
of racketeering activities as defined in 18 USC 1961(1).
Plaintiffs remark that though this be a "mere" bad faith action,
it is one of the most egregious examples of such an allegation,
and one, such an extraordinary amount of evidence and testimony
has been brought to bear on the defendant State Farm Mutual
Automobile Insurance Co. (SFM), that it is likely that Plaintiffs
contemplated the legal theory of Federal RICO from the outset,
but were intimidated by the as yet nonexistent decision of the
US Supreme Court on Humana v. Forsyth.
In the Court's opinion Id., at paragraph 29
The Nature of State Farm's Misconduct
[Id. paragraph 29]
"The second Crookston factor, which mirrors the BMW v. Gore
'reprehensibility' factor, likewise strongly supports the
punitive damages awarded by the jury. Whether a defendant's
misconduct is of a reprehensible nature is '[p]erhaps the
most important indicium of the reasonableness of a punitive
damages award.' Gore, 116s. ct. at 1599. The U. S. Supreme
Court has singled out for special condemnation schemes of
'trickery and deceit,' especially when they target people
who are 'financially vulnerable' and involve 'repeated
misconduct.' Id. Further, the Court has identified as
particularly reprehensible a defendant's use of 'deliberate
false statements, acts of affirmative misconduct, or
concealment of evidence of improper motive.' Id. at 1601."
[Id. paragraph 31]
"i) State Farm's policy of using its auto insurance claim-
handling process as a profit center by offering its claims
adjusters undisclosed incentives to wrongfully deny benefits
owed consumers.
The records contains a large body of evidence, in the form of
State Farm's own internal corporate documents, the testimony of
its current and former employees, and credible expert testimony,
that over a period of approximately two decades, State Farm has
pursued an official policy of using it auto insurance claim-
handling process as a profit center, by systematically providing
its claim adjusters with unlawful incentives to wrongfully deny
benefits owed consumers."
[Id. paragraph 34]
"The record contains extensive evidence that for approximately
two decades, State Farm has disregarded well-accepted industry
rules by turning its claims-adjusting process into a profit center,
to the point of giving its adjusters specific numerical targets
with regard to average payouts per claim. Meeting these targets
leads to better pay and promotional prospects; missing them leads
to criticism, retarded prospects at the company and, ultimately
a threat to one's continued employment. "
[Id. paragraph 47]
"State Farm's use of unlawful and unethical means to conceal its
profit scheme and evade punishment for it.
"The record also contains ample evidence, that throughout at
least the past two decades, State Farm has resorted to a variety
of wrongful means to attempt to evade detection of and liability
for, its unlawful profit scheme. Using these tactics State Farm
has managed to construct a nearly impenetrable wall of defense
against punishment for its wrongdoing, so effective that it is
able to pressure its adjusters to deny consumers insurance
benefits with impunity, knowing:
1) that few of its victims will even realize they have
been wronged.
2) that fewer still will be able to sue
3) that only a small fraction of those who do sue will
be able to weather the years of litigation needed to
reach trial
4) that any victims who actually reach trial will have
great difficulty establishing the basis for punitive
damages when met with claims that only an 'honest
mistake' was made, supported by a body of evidence
that has been systematically sanitized, padded,
purged, concealed, destroyed or rehearsed."
i) State Farm's official policy of giving its adjusters
undisclosed incentives to deny customers benefits owed them,
in order to enhance corporate profits by wrongfully turning
its claim-handling process into a profit center:
[Id. paragraph 47]
"ii) State Farm's use of various wrongful means to conceal this
profit scheme and evade punishment for it:"
[Id. paragraph 48]
"The record indicates that these evasion tactics are so
successful that State Farm trains its employees to ignore the threat
of punitive damages in making their claim-handling decisions. State
Farm has relied on five principal evasion tactics, each of which is
reprehensible."
[Id. paragraph 49]
a) Systematic targeting of vulnerable and defenseless
consumers.
[Id. paragraph 50]
b) Systematic destruction of documents, requested in
litigation, that reveal the profit scheme.
[Id. paragraph 58]
c) Systematic manipulation of individual claim files
to conceal claim mishandling
[Id. paragraph 60]
d) Systematic manipulation of testimony by employees
[Id. paragraph 61]
e) Systematic efforts to intimidate opposing claimants,
witnesses and attorneys.
More specifically at the above cited paragraphs:
[Id. paragraph 49]
"a) Systematic Targeting of vulnerable and defenseless consumers"
"The record clearly supports the conclusion that State Farm's
undisclosed policy of using its claims handling process as a profit
center to systematically deny benefits owed to consumers is
deliberately crafted to prey on "the weakest of the herd" -- the
elderly, the poor, and other consumers who are least knowledgeable
about their rights and thus most vulnerable to trickery or deceit,
or who have little money and hence have no real alternative but to
accept an inadequate offer to settle a claim at much less than fair
value. The testimony from Ray Summers, Bruce Davis and Ina DeLong
on how they were trained to target such consumers, and the expert
testimony from Gary Fye, covering the various tactics predicated
in this philosophy and the internal company documents demonstrating
this philosophy in action, was especially significant."
[Id. paragraph 50]
"b) Systematic destruction of documents, requested in
litigation, that reveal the profit scheme.
"The record contains consierable evidence concerning State
Farm's aggressive efforts to 'manage' documents that might
damage it in gad-faith litigation, including evidence of
extensive efforts to erase large portions of the corporate
memory. [...] the evidence of State Farm's systematic and
long-running efforts to destroy internal company documents
revealing its profit scheme supports an inference that State
Farm was seeking to minimize the possibility that it would be
punished for its underlying misconduct."
[Id. paragraph 58]
"c) Systematic manipulation of individual claim files
to conceal claim mishandling
"The record also contains ample evidence that State Farm
has long directed its claim adjusters to systematically
'sanitize' or otherwise manipulate individual claim files
to provide a false, innocent picture of how the claim was
handled, in an effort to minimize exposure to later law
suits alleging bad-faith claim handling."
[Id. paragraph 60]
"d) Systematic manipulation of testimony by employees
"The record contains substantial evidence that State Farm
has long had a corporate policy, in defending against cases
alleging bad-faith claim handling, of aggressively 'coaching'
its employees to ensure that their testimony will be favorable
to the company and that opposing attorneys will be hindered in
their ability to obtain relevant, non-privileged information
from such witnesses. [...] The supervisors were taught that
in Courtrooms, 'truth is illusory' how, through extensive
coaching, a memory can be 'created' for a company witness;
and how, by repeating questions and prepared answers 'numerous
times,' State Farm attorneys and witnesses can work together
to 'totally frustrate' the efforts of opposing attorneys."
[Id. paragraph 61]
"e) Systematic efforts to intimidate opposing claimants,
witnesses and attorneys"
"Finally, the evidence in this case supports the conclusion that
State Farm has a regular practice of working to wear down and outlast
plaintiffs and opposing attorneys in lawsuits seeking to punish it
for bad faith claim handling, by using a variety of tactics to
intimidate claimants, witnesses and attorneys who oppose it.
[Id. paragraph 62]
" [...] Adjuster Ray Summers testified that a common tactic
of State Farm was that of 'unjustly attacking the character,
reputation and credibility of a claimant and making notions
to that effect in the claim file to create prejudice in the
event the claim ever came before a jury.'"
[Id. paragraph 65]
"Finally, with respect to intimidation of attorneys who might
be in a position to bring contingent-fee litigation against
State Farm on behalf of victims who have few resources, the
record reveals that Sate Farm has a practice of resorting to
what one of its consultants (as part of the official training
process) approvingly referred to as 'mad dog defense tactics'.
At a national conference, approximately 200 of State Farm's
divisional claims superintendents were instructed that 'we
keep plaintiffs tied up in law and motion for months. Now
that's the old mad dog defense tactic, but it works.'
17 Tr. 205. Expert witness Steve Praeter testified to State
Farm's methods for exploiting its superior resources to wear
out opposing attorneys with unending, vexatious and expensive
litigation tactics. According to Praeter, State Farm focuses
on making the litigation process as time consuming, expensive
and prolonged as possible by, for example, making meritless
objections; claiming false privileges; and destroying documents
or claiming that they don't exist or would be too expensive
to retrieve. 17 Tr. 163-164, 168-74. [...] Gary Fye also
provided expert testimony on these 'mad dog' litigation
tactics, concluding that State Farms's use of them is
'extremely profitable.' even in light of the cost involved
in an individual case, because of their in terrorem value
across a wide range of cases in intimidating claimants and
attorneys into not filing law suits at all, or settling claims
for small amounts of money rather than endure the financial
drain of litigation in face of such abusive tactics."
[Id. paragraph 80]
"The evidence on the scale of fraud, and the need for devastating
punishment, is far more extensive in this case than in
Crookston. State Farm has sold as its product 'peace of mind.'
using an advertising slogan which promises that consumers can
count on it to act 'like a good neighbor.' But as the trial
proceeded, it became a matter of plain evidence that State
Farm's corporate policies involve betraying the trust that it
invites its policyholders to place in it, the trust it has a
fiduciary duty to uphold. The jury could easily find from the
evidence that State Farm's claim-handling practices are
predicated on exploiting the trust placed in it by its
policyholders, and the Court so finds in making its own analysis
of the proper amount of punitive damages in this case. In
sum, in light all the above considerations and the other points
made by the Campbells in their memoranda and oral argument,
the reprehensibility of State Farm's policies and practices,
both generally and as they were applied to the Campbells,
strongly supports a jury award of massive punitive damages."
The Court thus found ample evidence of systematic fraud,
conspiracy to commit fraud, extortion and conspiracy to
commit extortion, robbery as defined in Hobbs, and conspiracy
to commit robbery, and thus significant and pervasive
patterns of racketeering activities under USC 18 1962(a),
where the enterprise and the person is defined as SFM.
Judge Bohling states further regarding the number of victims
involved, an affect on interstate commerce, multiplicities
of schemes, as well as a threat of continuation into the future.
[Id. paragraph 82]
"It appears to the Court that under State Farm's scheme, a
considerable percentage of policyholders is victimized by a wrongful
denial of benefits, oftentimes when these policyholders are the most
vulnerable. And it certainly appears to the Court that State Farm
pursues an official policy established to encourage such wrongful
denial of benefits where State Farm believes it can successfully be
accomplished."
[Id. paragraph 83]
"Another effect of State Farm's policies is that it puts auto
insurance companies who play by the rules at a competitive
disadvantage, allowing State Farm to increase its market share
or its profits (whichever it is putting the emphasis on) or a
combination of both, by having an advantage that honest companies
don't have: the shortchanging of policyholders on claim amounts
that should be paid. As the Campbells demonstrated with expert
testimony, this inevitably creates pressure on the honest companies
to resort to the same sort of misconduct in an attempt to stay even
with State Farm, extending the damage to consumers through out the
auto insurance marketplace as a whole."
[Id. paragraph 84]
"e. Probability of Future Recurrence of State Farm's
Misconduct"
"The Court has already found that State Farm has carried out
a persistent scheme of wrongful conduct. It appear to have
been extremely profitable, as the Campbells' experts on the
insurance industry testified, and as various examples of the
scheme in practice strongly support. Further, despite
testimony from State Farm witnesses that the improper payout
goals at the core of the scheme was assertedly 'obsoleted'
in 1992 (and again in 1994), the Campbells presented ample
evidence that this incentive system (including its improper
goals) - the engine that pressures adjusters to wrongfully
deny benefits to consumers on a wide range of claims - remains
in operation today. Only the documentation has changed, for
appearances sake: as the Campbells proved with internal
company documents and through testimony of knowledgeable
witnesses. [T]he scheme is now carried out verbally, to
avoid the creation of documents that might be damaging to
the company in litigation.
[Id. paragraph 98]
"Certainly, the Court does not believe that statutory and
regulatory sanctions that could be brought against State
Farm under Utah law are minimal, nor does the fact that
these sanctions have not to date been pursued by the regulatory
and prosecutorial authorities support the claim that the
remitted amount of punitive damages is excessive. State
Farm places considerable emphasis on the argument that the
analysis should concern not the civil and criminal penalties
that it could be subjected to under existing Utah law,
but instead what penalties are likely as a practical matter,
given past enforcement practices. [...] If anything, the
absence of any such aid from these authorities is a basis
for enlarging the permissible punitive damages because of
the seriousness and difficulty of parties such as the
Campbells and their counsel, unassisted, taking a case of
this nature all the way to trial. It requires the will of
David against a Goliath, or of a Rocky Balboa against an
Apollo Creed, to stay the course and bring litigation such
as this to the point where it rests today."
THEREFORE, the Campbell Court has found that State Farm,
has been engaged, for over twenty years, in a systematic
defrauding of its policy holders, and in doing so it has
thus systematically committed the predicate acts of RICO.
In sequence of occurrence:
1) CONSPIRACY TO COMMIT FRAUD: by conspiring of many
within the company to agree to sell insurance
policies, knowing very well that the policies were
not going to be honored,
2) FRAUD: by selling insurance policies, knowing very
well that the policies were not going to be honored,
when policyholders relied upon them to their
detriment.
3) CONSPIRACY TO COMMIT ROBBERY: by conspiring of many
within the company to deny meritorious claims.
4) ROBBERY: by denying a policyholder's benefits that
should rightfully be theirs, without their consent.
5) CONSPIRACY TO COMMIT ROBBERY: by conspiring of many
within the company to send claimants with personal
injuries to physicians known to return reports in an
allegedly IME, falsely supporting the scheme of
fraudulent denials of benefits.
6) CONSPIRACY TO CONSPIRE TO COMMIT FRAUD, ROBBERY
AND EXTORTION: by conspiring of many within the company
enlist the aid of physicians in perpetrating the schemes
fraud, robbery and extortion by sending claimants with
personal injuries to these very physicians.
7) FRAUD: by purporting to a claimant that the IME is what
it's name is: the predicate upon which the policy
holder relies to his detriment, comitted through mail
and wire.
8) EXTORTION: by sending the "IME request letter", that
usually threatens that benefits may be terminated for
noncompliance.
9) EXTORTION: by consistent continuation of the scheme
in which 1-8 above are embedded so that the claimant is
forced into litigation, thereby keeping for themselves
interest, income and use of money that rightfully
belongs to the claimant.
Thus, all the elements of RICO are clear in the Campbell
Court's findings, including an affect on interstate commerce,
a large nexus of predicate acts, a continuity which is still
open, similar tactics, methods and victims, a large number of
victims as well as a threat of continuation and a large potential
number of victims. There is an overall purpose of unjust profit
and enrichment, and indeed a large nexus of multiple schemes
in addition.
Again, in Robinson v. State Farm Mut. Auto. Ins. Co.;
No. CV-OC-9498099-D (4th jud. dist. ct. Ada County Idaho),
a more recent case, the national scheme has been revealed
once more In his memorandum decision of August 6, 1998,
District Judge D. Duff McKee, found that the State Farm claims
representative in that case had treated the first party claim
for medical payments benefits as an "adverse claim" rather
than a first party claim and that the utilization review was
"a completely bogus operation," that prepared "cookie cutter"
reports of stock phrases, assembled on a computer, supporting
the denial of claims by insurance companies." (Op. pp. 3-5)
The Court went on to find:
"The inferences from the evidence were inescapable
that the claims examiner in this case did not use
the paper review process and referral to the captive
physician with any intent of obtaining an independent,
objective review of the Plaintiff's medical
circumstance. Rather, he did so with the expectation
that the reports issued would support his denial of
the claim. The evidence was further clear that the
procedures which enabled the claims examiner to utilize
these slanted and biased reviews and examinations were
set up by State Farm management, included in the
training given to the claims examiner, and encouraged
by management as cost cutting devices."
"Competent evidence was offered that State Farm
management was aware of the tainted reports being
generated by the paper review organizations and use of
captive physicians for independent medical examinations,
but was deliberately indifferent to the deficiencies
because the reports were leading to reduced claim
expenses. The evidence was sufficient to support the
conclusion that the decision to delay and stall the
medical claims of Robinson was not based on a fair
debate. The only debate that existed was the debate
engineered by the claims examiner, predicated on his
unfounded intuition and supported only by the phony
reports from the paper review organization and the
scripted advice of the captive doctor. The insurance
company cannot create a dispute against the claim out
of thin air, and then claim that it is entitled to
debate the dispute it created as a defense to its
delay in evaluating and paying the amounts justly due."
"The proof indicated that the phony processes and
improper claims handling procedures by the lying
adjuster in this case permeated from the local office
to regional management, and that the procedures enabling
the use of paper review companies with the expectation
of false and misleading reports permeated to the very
top level of State Farm at the national level."
(Op. pp. 6-7).
The Court went on to find, specifically, that culpability
went from the individual claims representative to the highest
levels of management:
"I find that evidence was clear and overwhelming that
State Farm, beginning with its claims adjuster and
running up through its management, participated in the
egregious process of manufacturing factitious reports
and obtaining biased opinions under the guise of
obtaining independent and objective medical reviews.
State Farm knew these evaluation processes were tainted
and not objective. The only conclusion to be drawn from
this was that State Farm intended by these processes to
reduce the amount of money it would have to pay on
legitimate claims submitted by its insured."
(Op. p. 16).
In the more recent case of Avery v. State Farm Mutual
Automobile Insurance Company,(Circuit Court, 1st Judicial
Circuit, Williamson County, Illinois (Case No. 97-L-114),
involving State Farm's use of after-market parts in the
repair of vehicles, the Illinois trial court stated, after
an independent consideration of the evidence:
"The Court finds that State Farm, in light of its
knowledge of the inferiority of the non-OEM
'crash parts', misrepresented, concealed, suppressed,
or omitted material facts concerning the non-OEM
'crash parts' with the intent that its policyholders
rely upon these deceptions..." (See, copy of Judge
John Speroni's Judgment, attached as Exhibit 2, as well
as verbatim transcripts of evidence presented in that
as Exhibits 3-9)
The trial court went on to find that punitive damages were
appropriate and awarded $600,000,000.00 in punitive damages
against State Farm.
In addition to these predicate acts of RICO, there is systematic
Breach of Contract as well as Breach of Fiduciary Duty, as well,
of course, Bad Faith in State Farm's wholesale abuse of its policy
holders, and those third parties to whom it owes still a fidiciary
duty.
Then in the litigation process itself through which fiduciary duty
is still owed, State Farm, again, systematically continues to
breach that duty, engages in regular abuses of discovery,
through its captive and suborned attoneys and in so doing also
denies its claimants due process, and also in so doing, harms all
citizens of U. S., all States and their economies in which it is
permitted to do business, The U. S. Federal government, the
U. S. as a whole, and burdens and abuses the Courts of The
United States, at all levels with its intransigent patterns
of racketeering activities.
Other cases that amplify and reinforce the picture of State
Farm Mutual Automobile Company presented here are:
Middler v. State Farm, Superior Ct. Calif. County of
Los Angelos, NW Dist. No. LC021140
State Farm Fire & Cas. Co. v. Suprior Court (Taylor),
No. B106120 (Cal. Ct. App. Apr. 22, 1997)
Betty Olson v. State Farm Mut. Auto. Ins. Co.;
No. CIV 96-06105 (Ariz. Sup. Ct.)
Respectfully Submitted:
William C. Hammel Alan J. Bellamente
A-11 Moose Branch Road, A-11 Moose Branch Road,
Sweetwater Apartments 1A, Sweetwater Apartments 8A,
Robbinsville, NC 28771 Robbinsville, NC 28771
(828) 479-1547 (828) 479-1547
/S/ /S/
------------------------------- ------------------------------
William C. Hammel Alan J. Bellamente
DATE: February 4, 2000 DATE: February 4, 2000
_______________________________________________________________
MEMORANDUM ON THE RACKETEERING NATURE OF STATE FARM
AUTOMOBILE INSURANCE COMPANY
EXHIBIT LIST
1. Campbell v. State Farm Mutual Automobile Insurance Co.,
No. 890905231, slip op. at 53 (Third Judicial Dist., Salt Lake
City, Utah, Aug. 3, 1998). Opinion of the Honorable
William B. Bohling.
[Available in PDF format at www.altmanonline.com]
2. Avery v. State Farm Mutual Automobile Insurance Company,
(Circuit Court, 1st Judicial Circuit, Williamson County,
Illinois (Case No. 97-L-114). Opinion of the Honorable
John Speroni on counts II and III, verbatim copy.
State Farm auto-parts trial documents
The following memos are verbatim copies of State Farm's internal
documents that were entered as evidence in the auto-parts class
action lawsuit in Marion, Ill. On Oct. 4, a jury found State
Farm guilty of breaching its contract with its policyholders and
awarded $456 million to the plaintiffs. On Oct. 8, Judge John
Speroni ordered State Farm to pay an additional $730 million in
damages.
3. Memo from State Farm assistant vice president of auto
property claims Bill Hardt, stating that aftermarket parts
aren't the same as OEM parts.
4. Internal State Farm memo from Samantha Bird to other State Farm
employees instructing them to "dump" their old documents.
5. Memo from State Farm reinspection superintendent, Westlake
regional office, Stephen Booth, regarding the substandard
quality of aftermarket parts.
6. Letter from State Farm claims vice president G. Robert Mecherle
to Pier Talenti of the Detroit Testing Laboratory, a reviewer
of aftermarket parts quality. Mecherle mentions that several
plants are producing substandard aftermarket parts.
7. Rough draft of a memo from Ben Parr, State Farm's former senior
automobile industry liaison, to Jack Gillis, an executive at
the Certified Automotive Parts Association, regarding the
substandard quality of the manufacture of aftermarket parts.
8. Part two of a rough draft of a memo from Ben Parr, State Farm's
former senior automobile industry liaison, to Jack Gillis,
an executive at the Certified Automotive Parts Association,
regarding the substandard quality of the manufacture of
aftermarket parts.
9. Personal notes from Certified Automotive Parts Association
executive director Jack Gillis from his trip to Taiwan. Gillis
notes that an OE factory makes CAPA parts look bad.
10. The three Declarations of Amy Girod Zuniga.
(As verbatim transcripts)
11. State Farm Agents who Care, as presented on their
Internet web pages (www.statefarmagentswhocare.com).
_______________________________________________________________
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Created: February 4, 2000
Last Updated: August 23, 2000