Ronald Diamond and Kathryn Diamond v. General American Life Insurance Company
Published: Mar. 20, 1999 | Result Date: Nov. 13, 1998 | Filing Date: Jan. 1, 1900 |Case number: CV9602277 Verdict – $58,968,300
Judge
Court
Maricopa Superior
Attorneys
Plaintiff
Defendant
Experts
Plaintiff
John J. O'Connell
(technical)
Mark R. Reiser
(technical)
Stephen D. Prater
(technical)
Facts
The plaintiff, Ronald Diamond, a 50-year-old dentist, was practicing in Phoenix. In 1981, he purchased a disability income policy from General American Life Insurance Company. The policy provided total and residual disability benefits. By was of a five-year Own Occupation Rider, benefits for total disability were also extended to cover disability from his own occupation. The Own Occupation Rider was limited by its terms to 60 months of total disability benefits. In 1985, the plaintiff encountered a problem with his hands which was ultimately diagnosed as carpal tunnel syndrome. The disorder prevented his practice of denstistry until about April of 1986. He applied to General American and was paid total disability benefits under his Own Occupation Rider for two months. He attempted to resume his practice of dentistry, seeing patients and working, however, his practice could not be sustained at the level it had been before his original diability. His work efficiency and income dropped significantly until about April of 1988, when he again experienced severe difficulty with his hands. At that time, the diagnosis was recurring symptoms of carpal tunnel syndrome. As a result, he was again declared totally disabled form his own occupation and applied for policy benefits. General American began paying the plaintiff total disabilty benefits effective July 1988. Under his five-year Own Occupation Rider, total disabiltiy benefits should have been paid up until July 1993. However, sometime in late 1988, General American paid the plaintiff benefits for residual disability during the two-year period he worked as a dentist (April 1986 through April 1988). Residual disability benefits are provided under the base policy and also in the rider. The plaintiff would have qualified because his income was less than 80 percent of what it had been prior to his disability in 1985. Nevertheless, General American ultimately ceased paying the plaintiff benefits in February 1991, claiming that his benefits were exhausted under his five-year Own Occupation Rider. General American was apparently applying the two years of residual benefits it had paid to reach the 60 month limit. General American agents told the plaintiff that by virtue of General American's payments to him, he was entiled to no further benefits. General American took the position that the plaintiff's benefits expired under the terms of the rider in February 1991. It previously denied benefits to him in November, 1990. At that time General American took the position that the plaintiff's symptoms were "subjective" and not "objective" and, therefore, no further benefits were owed or payable to him under the policy. However, the policy definition does not include reference to either objective and subjective symptomology. At about the time the November denial letter was sent to the plaintiff on the basis of lack of objective symptomology, a file entry was made in his claim file that the company would "wait to see what happens by the end of December." The plaintiff and his agents complained and General American reinstated the benefits it had withheld by way of the November termination and, then, noticed for an own occupation independent medical examination with a neurologist. The indenpendent medical examination was, in the opinion of the primary file handler at the time, "through" and supported the plaintiff's disability from his own occupation. The plaintiff was never advised by Genral American of the results of the independent medical examination. He was sent his final termination letter on Feb. 6, 1991, with what was termed his "final payment" under his Own Occupation Rider. The plaintiff discovered that his name was among 57 others on a list prepared by General American in 1990, identifying polilcy holders such as the plaintiff who had reserves of $100,000 or more. *****
Settlement Discussions
The plaintiff made a C.C.P. º998 settlement demand for $______. The defendant made a C.C.P. offer of compromise for $ ______.
Result
*****CONTINUATION OF FACTS AND CONTENTIONS: These individuals were targeted on the basis of their reserve amounts after General American discovered severe financial losses, previously undisclosed, on its disability income lines of business. This included an under reserving problem on that line of approximately $40 to $60 million. Subsequent to the discovery of these financial problems on its disability lines, General American conducted a number of meetings regarding ways to identify and remedy the problem. These meeting were attended by high-ranking General American officials including on certain occasions, the Director of the Claims Department. One document referenced the need to keep everything at an "informal" level (i.e., "nothing in writing or in a memo" in the event that litigation should ever develop). It went on to suggest that memos such as it should be destroyed. The plaintiff offered evidence suggesting that General American altered its claims handling in response to this financial crisis on its disability lines. This included having the Director of Claims personally review the files of the 58 claimants who had reserves of $100,000 or more when the plaintiff claimed that the objective was to eliminate claims such as the plaintiff's because of the liability represented by them to the company. The plaintiffs' insurance practicces expert, Stephen Prater, testified that the actions taken by General American can consistent with such a plan and that the termination of benefits to the plaintiff was unreasonable. Other evidence suggested the existence of a systematic plan to reduce the number of pending claims on the alleged "hit list." The evidence included: sending policy holders to multiple independent medical examinations; increasing paperwork requirements; offering buyouts that amounted to a fraction of the policy value; withholding policy benefits while negotiating buyouts; coupling buyout offers with independent medical examinations and increased surveillance; sending investigators to perform in-depth surveillance and to evaluate the financial vulnerabillity of policy holders for purposes of sizing them up for a buyout; withholding or stopping payment of benefits and making threats or berating policy holders. The actions launched against the 58 policy holders demonstrated relatively propmt success in that nearly one-half were eliminated within approximately 1+ years. Further testimony suggested that, if successful, the scheme would be applied to other policy holders. The success of the plan apparently saved General American millions of dollars. The Director of Claims, William Kasalko, was lauded in his annual reviews for "aggressive claims handling" and for "his actions [which have] saved literally millions of dollars." He was also commended on his success in representing General American in various litigation matters. The plaintiffs brought this action against the defendant based on breach of contract and bad faith.
Other Information
The plaintiffs counsel suggested no specific sums for compensatory damages for bad faith. Likewise, no specific amount was demanded for punitive damages. In November 1992, before the matter went to verdict, the Court decided by way of summary judgment that General American breached the contract when it stopped paying the plaintiff his total disability benefits in February, 1991. However, the Court ordered counsel not to refer to the Court's finding of breach at the beginning of the case and reserved comment on it until the close of all evidence. After close of the evidence, the jury returned an award of addtional compensatory damages for the action in the amount of $768,291.60. At the close of trial on November 12, 1998, the Court then granted the plaintiffs a directed verdict on the amount of past-due total disability benefits in excess of $200,000.
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