CORPORATE CRIME REPORTER
Bill Shernoff – King of Insurance Bad Faith Law
26 Corporate Crime Reporter 7, February 13, 2012
Let’s say you live in California.
And you have health insurance.
And you get sick.
And the doctor says you need a major operation.
And the insurance company says – in bad faith – too bad, we’re not paying.
Who do you call?
William Shernoff.
He’s the king of insurance bad faith law.
He’s written a number of books on the subject, including:
How to Make Insurance Companies Pay Your Claims . . . . And What To Do If They Don't.
Payment Refused, and
Fight Back and Win – How To Make Your HMO Pay Up.
Shernoff is fighting back against the insurance industry’s campaign to limit punitive damages in insurance bad faith cases.
He’s just published an article titled Punitive Damages’ Impact on Institutional Bad Faith.
“We’re doing the job of the regulators,” Shernoff told Corporate Crime Reporter in an interview last week. “We’re trying to enforce the law through the private sector.”
“Most insurance companies are more afraid of a jury than they are of a regulator,” he says.
“It doesn’t have to be that way,” he says. “But right now, some of these politicians want Corporate America to just run over the consumer like a Mack truck. Punitive damages are going to be one of the only effective means of curbing bad faith practices.”
“It would be nice if the regulators – the various insurance departments and other regulators – would enforce unfair claims practices,” Shernoff says. “But unfortunately, they don’t very often.”
Why not?
“Maybe they are understaffed,” he says. “Or they don’t feel they have the resources. In some cases, the regulators are fairly cozy with the insurance industry. There is very little enforcement action for bad insurance claims practices. It may differ from state to state. Our present insurance commissioner is a pro consumer commissioner. And he’s been fairly active. But prior ones have not been. And state by state, it’s spotty. It’s very spotty enforcement.”
Since 1973, when he secured his first multi-million insurance bad faith jury verdict, every few years, Shernoff hits one in the tens of millions of dollars.
He’s had a couple of cases that almost hit $100 million.
Are these cases having a deterrent impact on the insurance industry?
“The whole purpose of punitive damages is to have a deterrent effect,” he says. “It’s hard to quantify how effective it has been as a deterrent. But as a general principle, you can say that most insurance companies try their best to steer away from any bad practices that are going to wind up with punitive damages.”
“Usually, a punitive damage award gets a lot of press. And when a company gets bad press, they lose sales. They are pretty sensitive to operating so as to avoid the wrath of a jury in a punitives case.”
Shernoff is pushing back against the insurance industry’s campaign to limit punitive damages to a ten to one ratio of actual damages.
“When you have institutional bad faith conduct – especially if the actual damages are rather small – the ratio should be a lot larger than ten to one,” Shernoff says.
“If you have $10,000 in actual damages, but you show that the practice in question not only affected your client, but affected thousands of other people and they have made millions of dollars of illegal profits, a punitive award of $100,000 is going to do nothing. It’s going to tell them to keep on doing it.”
“There is no deterrence there.”
Shernoff is currently handling a case – Nickerson v. Stonebridge Life Insurance – that will challenge the ten to one ratio limit on punitive damages.
“There was a $19 million punitive award,” Shernoff said. “The actual damages were $35,000. The court, in the new trial order, said – ten to one won’t work here. It won’t deter anything. It will probably encourage the company to engage in the same wrongful practice.”
“But the trial judge felt that her hands were tied and reduced it to a ten to one ratio. And that is now up on appeal.”
“We are hoping that case will establish that institutional bad faith breaks the ten to one ratio.”
Shernoff places his faith in the jury system.
“If you are going to have less regulation by government, the regulation may have to go through the jury,” Shernoff said. “Nobody can lobby a jury. Even conservatives feel that trial by jury should be protected. It is a way to level the playing field and stop unfair competition. Corporations that engage in good behavior don’t like competitors who cut corners. You would think that companies doing business honestly would welcome punitive damages against a company caught cheating.”
[For the complete transcript of the Interview with William Shernoff, see 26 Corporate Crime Reporter 7(12), February 13, 2012, print edition only.]
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