Allstate Found Liable for Scientology-style litigation

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Monday October 15, 10:17 pm Eastern Time

Arizona Jury Finds Allstate Liable for Abuse of Process

David Hechler (The National Law Journal) --

In an apparently precedent-setting case that left both sides simultaneously claiming victory and contemplating appeals, an Arizona jury found that Allstate Insurance Co. had abused the legal process over its handling of a minor-injury insurance claim.

The case appeared to be the first time that abuse of process has been successfully used as a cause of action against Allstate in Arizona, and the plaintiff's lawyer believes it was the first of its kind against any insurance company nationwide. Experts on insurance law and torts were divided over whether the tort was appropriate for this claim, but all five experts interviewed agreed that the result established a precedent that could prove significant, especially if it is upheld on appeal. Crackel v. Allstate Insurance Co., No. C-329946.

The plaintiff's lawyer, Calvin Thur of Scottsdale, Ariz.'s Thur & O'Sullivan, asserted that the case will help plaintiffs fight back against Allstate's "scorched earth" litigation tactics defending claims of minor injury in automobile accidents. Thur, who has made a career of suing insurance companies for bad-faith handling of these cases, already has two more abuse-of-process cases lined up and has been contacted by lawyers in Arizona and elsewhere, he said.

"This is a major victory for Allstate," countered Floyd Bienstock, the company's lead defense lawyer and a partner in the Phoenix office of Washington, D.C.'s Steptoe & Johnson.

His opponents asked the Tucson jury to compensate the plaintiffs for the emotional distress caused by Allstate's hardball tactics by returning a verdict of $500,000. They also asked them to send a message to the company and the insurance industry by adding a multimillion-dollar punitive damages award.

In this context, Bienstock said, a 6-2 verdict of $15,000 in compensatories and a unanimous decision to award nothing at all in punitives constituted a victory.

The jury deliberated for only 10 minutes before deciding not to award punitives, he said.

THE BACKGROUND

In November 1995, motorist Harvey Hamilton rear-ended a car in which Erika Crackel and a friend were riding. Crackel and her friend, who was six months pregnant, were taken to an emergency room, where they were treated for minor complaints and released, Thur said. Their ER charges totaled $1,700. When Allstate refused to offer any payment, the women filed suit, he said.

After they sued, Allstate filed an offer to confess judgment for $101 for both plaintiffs. Under Arizona law, Thur explained, this meant that if the plaintiffs didn't achieve a better result at trial, they would be forced to pay double the company's taxable costs and its expert witness fees.

"In our opinion," Thur said, "this was to intimidate and coerce them." Allstate typically offers "lowball" settlements when claimants in these cases are represented by lawyers, Thur said, pointing to instructions in the company's program manual. Plaintiffs' lawyers are rarely interested in pursuing such cases, he said, because the amount at stake is so small and Allstate has a reputation for litigating aggressively, even if its costs exceed the alleged damages.

The nation's second-largest property and casualty insurer, Allstate has been widely criticized for these tactics. Last year, Virginia state insurance examiners concluded that Allstate had violated its statutory duty to make fair settlements of small claims when claimants had been represented by lawyers.

Allstate denied the allegation but agreed to pay the state $20,000 rather than face disciplinary proceedings. It also agreed to stop its disparate treatment of minor-injury claimants represented by lawyers. The company has also been singled out for criticism by the plaintiffs' bar, which has held continuing legal education seminars targeting Allstate.

Bienstock said Allstate's program arose from studies that showed insurance claims are often inflated. These claims cost companies millions of dollars a year, which is passed on to policyholders in rate increases. Christine Sullivan, assistant vice president in Allstate's claim department, added, "We firmly believe our claim processing is fair and sound. Allstate's goal is to pay every claim as quickly and fairly as possible."

In the Crackel case, in October 1997, an arbitrator awarded the plaintiffs $5,700. Allstate appealed. Acrimony arose around settlement attempts. The presiding judge issued a default judgment and sanctioned Allstate, writing, "Defendants made clear that it was their intent to derail the Court's directive to appear and participate in good faith negotiations and settlement nearly immediately after the Judge's order calling for such conference."

The plaintiffs later agreed to settle the case for the arbitration award and were paid shortly thereafter. Four months later, however, they hired Thur to sue Allstate and Blaine Gaub, the in-house Allstate lawyer who had represented its policyholder.

The same jury that found for the plaintiffs against Allstate also found for Gaub, 8-0, and that is one reason Bienstock said Allstate has a strong case on appeal. Because the jury exonerated Gaub, the only person who could have abused the process, the jury should have exonerated his employer, Allstate, Bienstock said. On Thursday, he filed a motion to set aside the verdict on this ground.

Jonathan Van Patten, a professor at the University of South Dakota School of Law, said it sounded like a strong argument. Van Patten, who has written on this subject, said the Crackel case sounded less like abuse of process, which he defined as using the court system for collateral gain, than malicious defense, a tort recognized in two states that involves using the process to wear down opponents, he said.

Roger Henderson, who teaches law at the University of Arizona, said the Arizona Supreme Court's rulings on bad-faith cases suggested that Allstate's lawyers may have an uphill battle if they decide to appeal. Thur hopes they do -- "because I'd like to have it in the record books where other attorneys can review it and see that there's a remedy available."

Meanwhile, Thur, who acknowledged that he lost money on the case, was considering an appeal himself. He said he was disappointed with the verdicts "dollar-wise" and also with pretrial rulings that handcuffed his case.

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