NEW YORK trial lawyers are looking to a case involving a little more than $11,000 in sanctions to give them new leverage in dealing with a hard-nosed insurance giant, Allstate Insurance Co.
But defense counsel in the case, who have filed a notice of appeal, are arguing that the court had no jurisdiction over the defendant’s insurance company.
The sanctions were levied last month by Nassau County Supreme Court Justice F. Dana Winslow against Allstate for its refusal to acquiesce in a compromise on its policyholder’s liability in an auto accident case.
While the money at stake is not particularly significant, an affirmance of Justice Winslow’s opinion would allow courts to punish insurance carriers who judges find intransigent.
It is no surprise to trial lawyers that the novel exercise of the court’s sanctioning power – bypassing the defendant and his lawyers to punish the insurer itself – came in a case where the carrier is Allstate.
Allstate’s litigation and claims practices have become highly controversial among members of the plaintiffs’ bar, who routinely cite the company as the most difficult to file a claim against.
“I was cheered by [Justice Winslow’s decision],” said David Golomb, president of the New York Trial Lawyers Association, “as a sign of yet another judge who has had it up to here with Allstate.
“Allstate has become impossible to deal with,” he said. “They don’t negotiate at all, and they have become singlehandedly responsible for a huge number of cases going to trial.”
But William J. Lewis, of Lewis, Johs, Avallone, Aviles & Kaufman in Melville, which has taken up the appeal for Allstate, said that Justice Winslow’s decisions should be reversed because it could effectively take key factual determinations away from juries.
He pointed out that in the case, Saastomoinen v. Pagano, Nassau County Supreme, 26647/1994, a jury finally made a decision on the policyholder’s liability, deliberating almost three hours.
But Justice Winslow’s decision stated that the defenses to liability were untenable. In his sanctioning decision, the judge blamed Allstate for taking an “obstructionist” position and forcing a trial.
Mr. Lewis, whose firm represented the policyholder at the trial, said liability was not obvious.
“I disagree that liability should have been conceded,” he said. “If Justice Winslow felt that way, why did he charge the jury in our favor?”
Mr. Lewis agreed when asked whether the sanctioning power would increase the court’s – and third-party claimant’s – leverage over defendants and their insurance carriers.
“Of course, that what this is all about,” Mr. Lewis said.
According to Mr. Golomb, however, New York has traditionally been hospitable ground for insurance carriers and not so warm an environment for claimants. Justice Winslow’s action, if affirmed, would level the playing field, especially with regard to Allstate, which has become anathema to trial lawyers, Mr. Golomb said.
“In New York, there is no bad faith [cause of action for denial of coverage] for first-party [policyholders and beneficiaries], and it is severely restricted for third parties” with claims against policyholders, said Evan Schwartz, is the founder of Schwartz Law and from Garden City who has litigated commercial and coverage issues for claimants and insurers.
“There is no legal rein to provide Allstate from doing what it was been doing,” Mr. Schwartz said, explaining that the insurer generally delays serious negotiation until the verge of trial or the early stages of trial.
Computer Rating
Allstate became the bete noir of the plaintiff’s bar when it began to rate the value of cases using a computer program called COLOSSUS. The computer program and Allstate’s claims-handling policy have become the focus of sold-out continuing legal education courses in Connecticut, Washington state and elsewhere. These CLE courses feature such unlawyerly titles as “How to Hammer Allstate.”
COLOSSUS is described as a computer program into which vital statistics, such as age, background and medical history of a claimant, are entered. The program yields a number that is used by the company as a maximum settlement figure.
An Allstate spokesperson did not return calls to comment. Mr. Golomb said that the COLOSSUS-generated figures are “totally unrealistic” and a roadblock to any meaningful negotiation.
The Saastomoinen case did not deal with the company’s position on the value of a claim, but instead on Allstate’s refusal to stipulate to a compromise on liability, in which its insured would bear 90 percent responsibility for a collision caused when he allegedly darted out of a driveway into a highway, striking the plaintiff’s car.
Most of the conflict between trial lawyers and Allstate focuses on the company’s stances in auto cases.
Trial lawyers emphasize that Allstate’s third-party claims handling has swelled the personal injury court calendars in the state.
New York courts “can’t dispose of Allstate cases,” Mr. Golumb said.
“The positions they take are unrealistic and designed only to provoke trials,” he said. “That is their goal.”
Court Congestion
Mr. Schwartz added that Allstate’s market position as one of the largest writers of auto insurance and general liability insurance policies in New York state means that their claims-management policy can have a tremendous effect on the state’s court system.
“It is incredibly burdensome for the courts to keep on their calendars a plethora of cases that should be compromised,” he said. “If Justice Winslow’s decision is affirmed on appeal, it is going to be relied upon” by trial lawyers and judges.
“Judges may take the decision and use it to ensure that, where there is no real defense, [defense] lawyers come into court able to acknowledge that their client is liable,” Evan Schwartz said, adding that “insurance companies will not be able to waste judicial resources and everyone else’s time” in such cases.
But Mr. Lewis said relieving court congestion should be done in a way that does not distort the litigation process.
While Justice Winslow did not explicitly mention congestion as a justification for the sanctioning power, Mr. Lewis said that the issue was probably present in the court’s thinking.
“There are other ways to relieve [docket congestion] that do not take away the right of people to try their cases,” Mr. Lewis said.
In an adversary system, it seems reasonable for either side to insist that a trial be held to determine liability and damages. But according to trial lawyers, the effect of a large auto insurance carrier taking a hard line in routine cases can be to chill the filings of claims in the first place, by making them more trouble than they are worth to trial lawyers and the courts.
“The design here is nationwide,” Mr. Golomb said. “It is not confined to New York. All over the country, the goal of Allstate appears to be to … expose [small cases] to litigation so that small claims will not be filed against Allstate’s insureds.” Like Saastommoinen, where damages were finally figured by the jury at $55,000, and the defendant had coverage of over $1 million, most of the difficulties in settling Allstate cases are in routine cases without high levels of damages.
But what impact these cases lack individually is made up in volume.
“Smaller cases make up well over 90 percent of these types of cases,” Mr. Golomb pointed out. The NYSTLA may consider filing an amicus brief if the sanctions case gets to the Appellate Division, Second Department, or the New York Court of Appeals, but a decision on whether to participate would be premature at this point, Mr. Golomb said.
The first line of defense in an appeal of Justice Winslow’s sanctions was made clear as Mr. Lewis noted that when Justice Winslow slapped Allstate with more than $11,000 in sanctions, the insurance company was not an actual party in the case and had not been hauled into court by the plaintiff or the justice.
“The main issue is whether the court has jurisdiction over Allstate and therefore the power to sanction,” he said. “Technically the insurance carrier is not a party to the litigation.”
Justice Winslow has called Allstate the “real party in interest” in Saastomoinen since it effectively piloted the litigation.
Evan S. Schwartz
Founder of Schwartz, Conroy & Hack
833-824-5350
[email protected]