The good hands people need a lesson in ethics

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http://www.insure.com/pro/pc/statefarmsuit601.cfm

Former State Farm attorneys sue over unethical practices in Utah

By n McKenna

insure.com

In the wake of State Farm Mutual Automobile Insurance Cos.' largest

policyholder dividend ever, two former employees are suing the insurance

giant alleging that those gains may have come at the cost of their ethics.

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State Farm forced the two lawyers to " report to, receive directions from,

and be subject to the claims personnel regarding the legal handling of

cases. "

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K. Spratley and Brett G. Pearce, both former in-house attorneys for

State Farm in Salt Lake City, who were often called upon by the insurer to

represent its policyholders in court for car accident cases, allege that

they were forced to commit " unlawful and unethical activities " by State

Farm, including requiring the two to stay silent about the rights of the

policyholders who could have demanded settlement of lawsuits.

According to the suit, filed in Utah's 3rd District Court in Salt Lake City,

State Farm forced the two lawyers to " take legal and factual positions which

were not in the best interest of the insureds, " but instead that were in the

best interests of State Farm, despite the lawyers' legal and ethical duties

to do the opposite.

The insurer allegedly attempted to subordinate the legal practices of

Spratley and Pearce to the authority of the claims department when the two

lawyers were defending State Farm policyholders. They allege that the claims

department controlled or attempted to control how they evaluated their cases

and ordered them to bring cases to trial instead of settling within the

limits of the policy - a practice that exposed policyholders to judgments

above the limits of their policies - in an effort to win smaller decisions.

When Spratley and Pearce protested, it allegedly brought about a rash of

retaliatory acts at work, including derogatory and demeaning comments from

members of the State Farm claims department, a demotion for Spratley, and

reduced salaries and bonuses that ultimately forced the two out of the

company.

The two former State Farm lawyers also allege that:

The claims department controlled or heavily influenced their budget and

salaries.

They were forced to " report to, receive directions from, and be subject to

the claims personnel regarding the legal handling of cases. "

The claims department used them to violate other laws, rules, and

regulations.

They were wrongfully fired by the insurer.

They were forced to hide facts from their clients and the courts.

State Farm acted " with reckless indifference to the truth . . . and for the

purpose of corporate and personal economic gain. "

" State Farm always looks out for the best interests of our policyholders, "

says , a spokesperson for the insurer. " It's part of our mission

statement. We don't feel that these allegations have any basis. "

According to L. Rich Humpherys, the lawyer for the two former State Farm

employees, this case bears a distinct resemblance to a case currently under

appeal by State Farm before the Utah Supreme Court.

In the earlier case, vs. State Farm Mutual Auto. Ins. Co., the

insurer was ordered to pay one of its customers $145 million for the same

kinds of actions that Spratley and Pearce allege they were forced to

commit - misleading claimants about benefits and exposing policyholders to

unnecessary trials that put them in danger of personal liability above their

policy limits.

Last updated June 27, 2001