February 27th, 2023

Warren Buffett’s Myth of “Free Money” (And how to stop it)

In his annual letter to shareholders this past weekend, Warren Buffett referred to a portion of Berkshire Hathway’s money as “cost free.” He previously has referred to some of Berkshire’s cash as “free money” so this is nothing new.

That “free money” — which I will explain in a moment is not really free, hence the title of this post — is from the insurance businesses that Berkshire owns.

As a brief ‘splainer if you don’t want to Google “Warren Buffett Free Money Insurance:” The insurance biz makes money two ways. The first is by taking your premiums and then years later paying out claims. If the underwriters are doing their jobs well, an insurance business will take in for example, $100 in premiums and pay out $90 in claims and operating costs.

This is a great business, because unlike making widgets where you have to first spend for the raw materials before making and selling the widget, with insurance premiums you actually get the revenue up front and pay later.

Which brings us to the second part of the insurance business, which Buffett calls the “free” part. What happens to those premiums in the interim? Known as the float, that money gets invested. And if you are a conglomerate like Berkshire, you have plenty of businesses to invest in.

So even if an insurer’s underwriters fail at their jobs, and they pay out $105 in costs and claims for each $100 in premiums, they still may have profited with an additional $30 or more in “free” money that was invested in the intervening years.

As Buffett explained in 2019:

If our premiums exceed the total of our expenses and eventual losses, our insurance operation registers an underwriting profit that adds to the investment income the float produces. When such a profit is earned, we enjoy the use of free money – and, better yet, get paid for holding it.

How much they actually make all depends on how long they can invest that float. Delay, delay, delay is, therefore, sometimes in the best interests of the insurance company.

But as I said, the money isn’t free. It has a cost. And that cost is borne by the people that lost their homes to a fire, flood or hurricane (BH owns property insurers), or were injured in car collisions (BH owns Geico), or injured due to medical malpractice (BH owns MLMIC) .

If a claim is delayed because of bad faith on the part of the insurer, the claimant effectively becomes the banker for Berkshire Hathaway. Buffett gets to keep using money to which the claimants are entitled. For free.

A brief example from one of my own cases so you can see it in practice, but any personal injury attorney can relate similar ones:

Simple car collision. Easy liability. Significant injuries. The injured can’t work. The insurance coverage is only $100K. Geico offers $4K eight months after the collision. Hey, maybe the injured is desperate and Geico won’t need to even pay the claim? Five months later they are big sports and increase the offer to $5K. Eighteen months after initial offer they are $12.5K.

Without dragging the whole story out, it takes Geico almost 3 ½ years from its first offer to tender its $100K policy (and over four years from date of collision). Free money? For Berkshire, yes. They were able to invest the money the whole time. But that is money that should have been in the hands of the injured claimant.

Given that Berkshire as a whole has had average annual returns of 20% since 1965, it’s easy to see how the use of that money can pile up — for Berkshire. But not for the injured person that has to lean on friends and relatives to get by.

The problem, here in New York, is that we don’t have a statute that explicitly deals with bad faith insurance tactics. Other states do. Just not New York.

To pursue a bad faith claim in an auto case for example, one must first take a verdict in excess of the insurance policy (years after the injury has taken place) and then the insured person against whom that excess verdict was taken (previously known as the defendant) can sue their own insurance carrier.

But the people who were actually injured can’t do it. They have to hope that the insured will get on board with this. And if the insured is judgment-proof, they may just walk away and say tough noogies.

New York, it should be clear, needs bad faith legislation to prevent this abuse — which will stop insurance companies from using bad faith tactics to stall the payment of claims.

The pandemic has made things worse, with extensive backlogs in the courthouse. As I noted in 2021, a year into the pandemic, if we had a decent bad faith statute many of these delays would vanish.

Even Alabama handles bath faith claims better than us.

Warren Buffett’s Geico, you will not be surprised to learn, wants immunity from bad faith claims. They want the “free money” to continue.

July 14th, 2021

What is a Signature? (Does your unsigned email count?)

We lawyers love, love, love our formality, oft times filling pages with pretentious legalese. I’m sure that wax seals and red ribbons were invented by lawyers, to make doubly, triply sure that everything was authentic. And redundant.

And when seals and ribbons went by the wayside, wet ink signatures became the standard-bearer of authenticity.

Last week the Appellate Division (First Department) confronted the formality of signatures regarding a settlement. The court sought to answer a question: If lawyers agree to a settlement via our now ubiquitous email, but use a standard signature block instead of retyping their names, is a settlement valid?

In other words, what kind of seals and red ribbons do we now need?

While at first blush this looks like a small esoteric question of law regarding the informality of email and the courts’ respect for stipulations, it has the potential to carry over to a thousand different aspects of law as now practiced.

The fact pattern of The Matter of Philidelphia Insurance v. Kendall is not too complicated (if you practice personal injury law here in New York), but for the others a short background: The liability insurance you buy for your car is not for your injuries, but for the injuries of others in a collision. Thus, if the other person has only a $25,000 policy, you might be shit out of luck — a technical legal term — if you lost your leg. That’s why you buy Supplementary Uninsured/Underinsured Motorist (SUM) insurance. That part is for you. If the other driver has only $25K in insurance, and you have $1M, you can turn to your own insurer for the $975K difference.

And that’s what happened here. Kendall was clobbered in a collision. The motorcycle that hit her had only the 25K minimum but she had $1M in SUM. She collected the $25K from the other driver and proceeded to arbitration against her own insurer.

According to the decision, this funky fact-pattern popped up regarding the arbitrator’s decision and settlement with the arbitrator awarding the maximum 975K. But Kendall’s lawyer settled for only 400K because he hadn’t see the decision yet:

The arbitrator rendered her decision on September 16, 2019, awarding Kendall $975,000. The same day, the decision was emailed to Kendall’s counsel and faxed to Philadelphia’s counsel. However, neither counsel received the decision and they continued to negotiate. On September 19, 2019, the parties reached an agreement to settle the dispute for $400,000.

How did they shake hands on this deal? Via email:

On that day [Kendall’s] counsel emailed [Philadelphia’s] counsel: “Confirmed -we are settled for 400K.” Below this appeared “Sincerely,” followed by counsel’s name and contact information. Shortly thereafter, [Philadelphia’s] counsel emailed in reply, attaching a general release, styled a “Release and Trust Agreement,” and saying, “Get it signed quickly before any decision comes in, wouldn’t want your client reneging.” [Kendall’s] counsel answered, “Thank you. Will try to get her in asap.” This email concluded with the same valediction, name, and contact information as had [Kendall’s] counsel’s earlier email.

The lawyer for the injured Kendall then learned of the $975K decision and wanted to go back on the $400K agreement, arguing that it was’t “subscribed” as per CPLR 2104 by retyping his name in the email in addition to his prepopulated contact information block.

So, is the email agreement “in writing” as required by statute? If it sounds like a boring one-off kinda issue, you are not thinking of all those emails you send on a daily basis and how those might be viewed by a court.

Now previously, our Court of Appeals had held that a preprogrammed name on a fax transmission did not fulfill the subscription requirement. So email should be the same, right? (Parma Tile Mosaic & Marble Co. v Estate of Short)

The times, they are a changin’. A mid-level appeals court has now held that the old fax decision from New York’s top court is not controlling as the practice of law has changed:

The Parma court wrote in a different era, when paper records were still an important modality, maybe the most important modality, of recording information in law and business. Since that time, the electronic storage of records has become the norm, email has become ubiquitous, and statutes allowing for electronic signatures have become widespread. For these reasons, and those that follow, we find that Parma is not controlling.

While this very same court held in 2013 that “an email in which a party’s or its attorney’s name is prepopulated in the email is not sufficiently subscribed for purposes of CPLR 2104” it has now reversed itself and said “wet ink” signatures are not needed, nor is any retyped signature:

We now hold that this distinction between prepopulated and retyped signatures in emails reflects a needless formality that does not reflect how law is commonly practiced today. It is not the signoff that indicates whether the parties intended to reach a settlement via email, but rather the fact that the email was sent.

In fact, even the signature block doesn’t appear to be needed — it must only be sent from the lawyer’s account, forming a rebuttable presumption that the lawyer sent it:

We find that if an attorney hits “send” with the intent of relaying a settlement offer or acceptance, and their email account is identified in some way as their own, then it is unnecessary for them to type their own signature.

But wait, there’s more: It has been customary over the years for defendants and insurance companies to create ever more complex general releases and settlement agreements. Back in the day, the simple Blumberg form was the gold standard, until those that bill by the hour figured out there may be a bit more gold to be mined by creating ever more complex forms.

The First Department, however, found that the simple email was binding when the sole issue was the amount of the settlement. The digital handshake was good enough, and the formal release wasn’t particularly relevant as it is merely a ministerial condition:

The Release and Trust Agreement was to be further documentation of the binding agreement constituted by the parties’ counsel’s emails agreeing to settle respondent’s claim for $400,000, rather than something on which that binding agreement was contingent. The material term of the parties’ agreement to settle respondent’s claim being the sum of money that petitioner would pay respondent, respondent’s execution of a general release was essentially a ministerial condition precedent to payment (see CPLR 5003-a[a].

So, your emailed agreements will be held up the same as if they had a fancy wax seal and a red ribbon. And probably so too with any other assertion that you make. And those complex general releases that defendants like to waste time with may well be meaningless to a court.

Don’t think twice before hitting send. Think it though three times. Because “send” is your signature.

June 3rd, 2020

Why Can’t New York Be Like Alabama?

If only New York was like Alabama. I can almost see your jaw drop and eyes pop.

But New York has a problem and Alabama has a solution. And we should be all over it.

The problem is bad faith by insurance companies, refusing to settle matters because no one holds their feet to the fire to act in good faith. And that causes a backlog in the courthouse. Under normal circumstances.

Those normal circumstances mean, for example, that if a driver has a $100K policy, and there are $400K in damages, the insurance carrier may simply string the case along.

Why not? What’s their downside? The plaintiff, after all, may be desperate and the longer the desperation goes on the better for the insurance company.

And second, if the carriers figure it will cost the plaintiff $20K to try the case, they see little reason to pony up a $100K policy. If a plaintiff fails to take $80K, for example, and spends $20K trying the case, they could “win” with a jury verdict but be worse off than the lower settlement. So they demand a gift.

And if you take a verdict in excess of the policy limit, you’re generally stuck with the policy plus a judgment to collect the rest. But that judgement is against someone that likely can’t pay (which is why they had a small policy to start with).

Last year I laid out the cockamamie way that New York handles bad faith. Briefly, you have to first spend all the money, then take an excess verdict and then get that person you just sued — who owes your client the balance of the funds — to hire you to sue his own carrier for bad faith. Maybe they will, maybe they won’t, maybe they vanish. And the second lawsuit will tack on a few more years.

Now add in the COVID-19 pandemic. Trials have stopped for months on end (and maybe longer). And a trial is the only way to pressure an insurance company. There is now a shit ton of financially strapped, unemployed people, and no pressure at all on the insurance companies to dispose of cases since no juries are being selected any time soon. The problem of an already-overloaded judicial system is now exacerbated.

Just the other day I wrote how a judge had to order virtual depositions go forward due to intransigence by the defense. The defendants tried to use the pandemic as a tactic to stall, stall, stall the case until a vaccine is available or the pandemic has otherwise abated. Delaying justice and thereby denying it.

Now we turn to Alabama. Like many states, Alabama has an actual bad faith statute. And judges are not amused when carriers play games. Because judges don’t want to see their dockets clogged with cases that can be resolved.

Enter, stage deep south, Circuit Judge Karen Hall of Madison County. I know nothing at all about Judge Hall or her politics, age, race, religion, favorite ball team or anything else. What I do know is that she was not amused at Allstate for playing games in her courtroom. And I know this because she gave an award of bad faith damages well in excess of what the plaintiff actually asked for. (Thank you Kevin Grennan for forwarding me this decision.)

Allstate, you may not be surprised to learn given its presence here in this post, did what The Good Hands People apparently likes to do — stall and make the plaintiff spend money because how dare they bring a lawsuit against it.

There was just a $75K underinsured policy in Harbin v. Stewart, so the plaintiff was proceeding against his own insurer for that underinsured coverage that he paid for. Judge Hall ordered them to mediation with all sides to have someone present with full authority to settle. This was, as Judge Hall noted, a “significant damages case” with over $234K in medical bills alone.

The plaintiff traveled to the mediation along with his wife and lawyer ready to talk. The Allstate adjuster decided to stay home. Worse, while defense counsel arrived, he had no authority to settle. He offered nothing. Nada. Bupkus. The judge was not amused at Allstate’s violation of her order.

So they went to trial. Allstate didn’t even contest liability. In other words, The Good Hands People knew they would have to pay something, there were $234K in medical bills after all, and it still offered zip-a-dee-doo-da.

The jury came back with $690K.

Now this is where New York’s legislature should take note, because some problems in Alabama (and elsewhere) are no different than here. Judge Hall noted that the rules were designed for the just, speedy an inexpensive determination of actions. That same theory, though the actual language may differ among states, permeates every courthouse and judicial system. In essence, don’t waste our time, or that of our citizens who must sit jury duty.

After that $690K verdict, plaintiff’s counsel asked for $5K in costs and $52K in legal fees in addition to the $75K policy.

Nope. Not as per Judge Hall. No way. She would not do that.

Two days ago she walloped them, instead, with a $620K sanction. In doing so she noted that Allstate was a repeat offender. And she needed some way to make its conduct stop.

The requested relief, the court wrote, was “inadequate to accomplish the dual purposes of addressing the burden placed on the Plaintiff and addressing the overarching effects of Allstate’s conduct upon the Courts of Alabama, civil litigants, witnesses, and Alabama citizens who must serve on juries every time Allstate behaves in this fashion.”

You can rest assured that Allstate will not try that trick in her courtroom again.

Now it’s New York’s turn. When will our Legislature give us a bad faith law with actual teeth? We are about to see the Mother of All Backlogs in our court due to the virus. It will be exacerbated by insurance company delays. And if/when we get to trial, injured New Yorkers are left looking at carriers offering 50-70 cents on the dollar in some cases, even when the liability is clear.

How will New York deal with the effects of deliberate insurance company delays upon the courts, civil litigants, witnesses, and New York citizens who must serve on juries every time an insurer behaves in this fashion?

Adding insult to injury, New York is likely to see a massive financial strain due to the virus. Albany may well be increasing taxes and decreasing services to balance the budget. There’s little question the justice system will take a further beating on top of what is going on now.

So dear Legislators, please finally pass a bad faith law. With real teeth. Let the judges start enforcing it.

You have the power to make the backlog disappear, stop bad faith and bring long-awaited justice to those that seek it. And help save the State some money in the process.

The case is here: Harbin v. Stewart

June 18th, 2019

Geico Asks for Immunity

New York’s annual legislative session ends Wednesday. And that means, predictably, a mad rush to get legislation enacted without having to wait another year. Or, conversely, a mad rush to stop legislation.

And that’s where we are today, with Geico attempting to halt legislation that would hold it (and other insurance companies) accountable for bad faith in settlement negotiations. Yes, out-of-state-readers, it’s true, New York currently has very limited ways to stop insurance companies from trying to screw you over in your time of distress.

This legislation was first proposed in the wind-swept wake of Hurricane Sandy in 2013, when insurance companies thought it would be a really cool idea to deny coverage for damaged homes. If a policy excluded wind damage, the insurers would claim water was to blame. If it excluded water damage, they would claim wind was to blame.

The denials had a common background – they were dealing with people who had their homes destroyed and were, therefore, in great economic distress. Because everyone needs a roof over their heads. So the denials gave the insurance companies some, let’s call it, leverage.

Delay and delay and force the homeowners to hire lawyers to sue. Then, when the pain is deep enough and the homeowners desperate enough, maybe settle for 50 cents on the dollar. Or 70. But even if the insurers had to cough up 100 cents on the dollar on some claims, so what? That was merely what they had to do anyway. Every cent saved was profit.

And that is part of the base model of the insurance company: Take in as much as you can in premiums and pay out as little as possible and invest the money in the interim.

The legislation that is proposed, that Geico is afraid of, would put a stop to that as well as bad faith tactics in auto policies and elsewhere.

Right now, in an auto case, if an insurance policy is only the bare minimum $25,000 or maybe $100,000, and the damages are $500,000, the insurance company has a vested interest in offering only a portion of the policy. Sure, it’s possible that someone will spend $20,000 and try the case to verdict. But that often makes little economic sense, and all the lawyers know it. You can win but still lose. So why offer the whole policy even if you would, in good faith, owe it?

The only avenue for relief currently is to take an excess verdict against the insured when the insurance company has elected to put its own interests ahead of those customers, because you can’t sue the insurance company directly.

And then, and only then, if the insured is smacked for a big, fat verdict in excess of the insurance policy, there might be some relief. But that relief only comes if the defendants — who you just sued and perhaps, inflicted a bit of anxiety on — then assign their own rights to sue the insurance company for bad faith back to the people that had sued them. And if those people are gone? Or say “screw you, we don’t feel like helping you as we got nothing to take anyway so it doesn’t matter to us?” Well, sorry Charlie.

The bad faith legislation that is now pending would fix this problem, a problem created by the fact they are currently required to act in good faith but there is only one very poor method of enforcement.

Enter, stage right, Geico to oppose this common-sense legislation. In a mass email yesterday from Rick Hoagland, a Geico senior vice president, to its policy holders, it urges people to call their legislators to stop the legislation and protect the insurance company profits.

OK, maybe Hoagland didn’t word it quite that way. He claimed, instead, that legislation protecting both policy holders and the people they may injure would somehow be bad for them. George Orwell would have been proud.

He writes, instead that:

I am the senior vice president of GEICO, your insurance company in New York, and I am writing to ask for your help. The New York State Senate and Assembly are considering multiple pieces of legislation in the next few days that, should they pass, will likely increase insurance premiums for YOU and all New Yorkers, even if you’ve never had an accident.

He doesn’t say it would increase premiums but rather, he speculates. He provides no empirical data. More importantly, he doesn’t tell his insured that the legislation protects them from the bad faith practices of Geico, the company that they paid money to in order to protect them in the event something goes awry. And it is those bad faith practices that could put their own homes at risk in the event of a verdict in excess of their insurance policies.

And, of course he doesn’t tell his readers that the bills are designed to protect them. No, he claims that they “make it easier for trial lawyers to sue insurance companies.”

Here’s an idea, why not just put us personal injury lawyers out of business by dealing in good faith to begin with? Look, Geico I solved your problem! (You’re welcome. No charge.)

Here’s the Geico pitch, compete with links to the bills, which I urge people to read so the they know they are consumer protection bills. The reason he provided links is because he knew, no doubt, that few people would actually click them or get an explanation as to their true purpose:

Assembly Bill 5629-B and its companion bill, Senate Bill 3634-B, along with Assembly Bill 5623 and its companion bill, Senate Bill 6216 , are going to make it easier for trial lawyers to sue insurance companies and will have negative, long-lasting impacts on New York policyholders and taxpayers. (Simply click on the appropriate bill number to link to the text of the legislation.)

The legislation would allow a direct case against the insurance company for bad faith, so that the victims don’t have to rely upon the people they just sued to tender their rights against the insurers.

Geico, of course, would like to make enforcement of good faith laws difficult, thereby giving it a certain level of immunity. Why not offer 20K on a 25K policy when you know it will cost the injured plaintiff that much just to try the case? There’s almost no downside for them for acting in bad faith.

It’s time New York finally put a stop, once and for all, to the bad faith of insurance companies. The law requires good faith dealing and the Legislature should give consumes the tools to enforce it.

The email is here:

February 13th, 2018

Aetna’s Death Panels?

When I first saw the story, half of me believed it, the other half not. A former medical director at Aetna testified that he didn’t look at patient medical records when deciding whether to (dis)approve medical treatment.

Yeah, I did a double take also. But now there’s an investigation going on.. As CNN reported,

California’s insurance commissioner has launched an investigation into Aetna after learning a former medical director for the insurer admitted under oath he never looked at patients’ records when deciding whether to approve or deny care.

But it’s actually far worse than that. Because, it seems that the medical director wasn’t going rogue because he was lazy and out playing golf. No. He was actually following Aetna policy by rubber-stamping the recommendations of nurses:

The California probe centers on a deposition by Dr. Jay Ken Iinuma, who served as medical director for Aetna for Southern California from March 2012 to February 2015…During the deposition, the doctor said he was following Aetna’s training, in which nurses reviewed records and made recommendations to him.

The deposition came up as part of a breach of contract lawsuit for denying medical treatment under a healthcare policy:

The deposition by Aetna’s former medical director came as part of a lawsuit filed against Aetna by a college student who suffers from a rare immune disorder. The case is expected to go to trial later this week in California Superior Court.

Gillen Washington, 23, is suing Aetna for breach of contract and bad faith, saying he was denied coverage for an infusion of intravenous immunoglobulin (IVIG) when he was 19. His suit alleges Aetna’s “reckless withholding of benefits almost killed him.”

The treatment was expensive, costing some $20,000 per infusion. And it was covered by Washington’s prior insurer. Aetna is trying to claim that the denial was the young man’s failure to get a blood test. His own doctor, however, said it was medically necessary.

But this was the kicker to his personal story — the medical director who denied the treatment hadn’t actually read the records, had no idea how to treat the disease or what to do:

During his videotaped deposition in October 2016, Iinuma — who signed the pre-authorization denial — said he never read Washington’s medical records and knew next to nothing about his disorder.

Questioned about Washington’s condition, Iinuma said he wasn’t sure what the drug of choice would be for people who suffer from his condition.

Iinuma further says he’s not sure what the symptoms are for the disorder or what might happen if treatment is suddenly stopped for a patient.

Well, so much for the doctor’s oath to “Do no harm.”

To my eyes, this looks like Aetna engaging in a staggering case of insurance fraud, not simply for denying Washington treatment by having a no-nothing doctor doing the denying, but rather, because this was the way Aetna trained him to engage in denials. This was policy.

And if it’s policy, there are many people involved in the conspiracy.

Some years ago, regular readers might remember, there was a lot of hollering and screaming about “death panels” when Obamacare was being debated, in the event government got further involved in health care. That is to say, that treatment would be denied because it was cheaper to let the patients die. That was the political line.

Well, guess what? It looks like we’ve arrived, but it isn’t because of the government trying to save a few bucks. Having insurance panels deny benefits, for the sake of profit, is better?

And you know why Aetna is doing it? Because it’s a publicly traded company that has, at its core, a fundamental duty to maximize profits for shareholders. That’s what publicly traded companies do.

Given that Aetna has 23 million customers nationwide, this scandal is likely to be massive in its repercussions as most surely some have died as a result denials of care — denials that took place without a doctor’s review of the records. And we go here beyond mere negligence, but to a corporate policy of recklessness with people’s lives.

Perhaps this should not really come as a surprise, however, as I see the same thing happen elsewhere in the insurance industry. It is routine in New York, for example, for victims of car collisions to get cut off from no-fault healthcare benefits based on quickie medical exams that last only a few minutes. And doctors doing “independent” reviews for insurance companies in personal injury cases likewise do these quickie exams to deprive those injured from negligence from recoveries, which was the subject of a multi-part series I did in 2013.

All of this is tied together with a common theme of doctors who went to medical school to care for others now doing the bidding of insurance companies. Because the insurance companies ask for it, living, breathing humans are losing healthcare benefits and rights while doctors allow themselves to be used as cover as they prostitute their services. But prostitute may be the wrong word, as prostitutes don’t act in ways that may hurt or kill their clients as a matter of policy.

Whenever a scandal pops up, the big question is always the same: Who makes the profit? In this case, it is clearly Aetna shareholders. And the doctors who’ve sold their licenses to Aetna in exchange for nice, tasteful, fees.
————

Elsewhere:

An Aetna “Fake Accounts” Level Scandal? Medical Director Admits He Never Reviewed Medical Records Before Denying Care (Smith @ Naked Capitalism):

Even though it is tempting to jump to worst-case conclusions, we’ve seen too often in corporate scandals that that is precisely how things pan out. As famed short seller David Einhorn says, “No matter how bad you think it is, it’s worse.”