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What Are Punitive Damages?

26 May

I’m originally from Michigan and I have family there. I was researching Michigan insurance law, and discovered that in Michigan, the award of punitive damages to policyholders who have been treated badly by insurance companies is not common – in fact, Michigan courts discourage it.

The Definition of Punitive Damages

The word “punitive” means “intended as punishment.” Punitive damages are the monies that a court (or jury) awards to a plaintiff (the person who brought the lawsuit) when the court wants to send a message to the defendant that they need to stop their bad behavior. When you hear reports of large court awards, such as in the tens of millions of dollars, that is probably due to the punitive damages.

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Punishment comes in many forms. Here, some old school pain and humiliation. (Credit Wikipedia)

There is a lot of controversy about punitive damages, because when the court punishes a large corporation by imposing a large money judgment, that money goes to the plaintiff for that one case. People don’t know how they feel about  “punishment money” meant to deter future bad behavior being awarded to that one person who filed a lawsuit. There are arguments that this motivates plaintiffs to be greedy and file unsubstantiated or frivolous lawsuits. For more on this debate, see the famous McDonald’s hot coffee case.

Punitives Aren’t Perfect But Right Now, They’re All We’ve Got

You are probably already aware that the current American civil justice system is VERY expensive. If you are injured by a corporation and are looking to be compensated for your injury, the odds are severely stacked against you right from the beginning. Corporations have all the resources they need at their disposal to make sure you give up and just go away. They will offer you a ridiculously small amount of settlement money (or nothing) and force you to either give up or find a lawyer willing to take on your case for an amount you can afford.

This significant power imbalance is supposed to be kept in check by the laws of the United States – a combination of American civil court decisions and the laws written by legislatures. Do you feel like the laws of the U.S. are prioritizing your rights? Do you feel like you are treated with equal respect as the wishes of a large corporate entity? In the current United States climate, the answer is a resounding NO, and unfortunately our citizens have just “gotten used to it.” But it doesn’t need to be that way.

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You vs. Giant Corporation – P.S. That army is also on their side – that’s their legal department (photo credit Wikipedia, “David and Goliath”)

The Creation of Punitive Damages – Why?

Punitive damages were created by the American courts in an attempt to equal that “playing field” between you and a giant, all-powerful corporation. This is done in two ways:

  1. The monetary reward of punitive damages creates motivation for your attorney (called a plaintiff’s or Consumer’s attorney) to take on an incredible, crazy amount of financial risk.
  2. The corporation who acted badly will think twice about their bad actions if they are facing a punishment of tens of millions of dollars.

1)  The Insane Risk of the Plaintiff’s Attorney

In the current climate, if you want to be fully compensated for an injury caused by a corporation, you have to locate a lawyer who is willing to take on your case and then file a lawsuit. This is problematic because the American legal system is incredibly time-consuming and very, very expensive. Why? Mostly because 1) our American courts are severely underfunded and overburdened (and therefore VERY slow – the full lifecycle of a court case from filing to end of appeals, is 7-10 years) and 2) when you are suing a large corporation, it is common strategy for them to drag the process out as long as possible with the hope that it becomes too expensive and burdensome for you, and you will be forced to either give up or settle for pennies on the dollar. Also, if you don’t have a stellar lawyer in your corner, the very clever corporate lawyers will crush you. Feeling intimidated yet?

As a result, unless you are independently wealthy and can pay the hourly rate of a lawyer for years of work (amounting to hundreds of thousands of dollars), you need to find a contingency lawyer who is willing to take your case on and only be paid if they win. There are not that many contingency lawyers with those kind of resources and that level of confidence. They need to be very careful to select only the cases they really believe they can win, and those cases must be worth enough for them to gamble away 7-10 years of their lives. Choose the wrong case and you’ll be bankrupt.

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The Madhouse – Is your plaintiff’s lawyer one step from being admitted? (Credit Wikipedia)

Punitive damages equal the playing field by creating an incentive for you and your lawyer to commit to the case for the long haul – even knowing that the odds are significantly stacked against you. If one thing goes wrong, the entire value of the case can be lost in an instant. And those clever corporate lawyers spend all the time and resources available to find that one thing.

2)  Punishing the Greedy Corporation So They Won’t Do it Again

The other reasoning behind punitive damages – and the primary reason cited by courts, is to punish the bad corporate actor so they are deterred from doing it again. This is why punitive damages can be so large. The Supreme Court allows punitives to be about 10 times the award granted to compensate you for what the bad action actually cost you over the years. So for example, if the bad action cost you $1million in losses over the years, a court can award an additional $10million in punitive damages.

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Probably slightly more effective than a slap on the wrist (Credit Wikipedia)

The problem with these punishment awards is that modern American corporations are so large and profitable that a $10million punishment is easily absorbed into their multi-billion dollar budget. For example, in the famous McDonald’s coffee case, even if the $2.7million in punitive damages had actually been upheld (it wasn’t), this was only meant to represent two days of coffee sales. Why would McDonalds be concerned about a mere two days of coffee sales, considering that coffee is only one item on their extensive menus and there are 365 days in a year? That “punishment” was a very tiny slap on the wrist, and definitely not enough to stop them from doing whatever they please – including hurting more and more people just to make extra profit.

So, Do Punitive Damages Work?

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This judge looks willing to punish evil doers, am I right? (Credit Wikipedia)

While punitive damages are a great idea thought up by clever judges, they are not having the effects they are meant to have. American consumers do not have an equal playing field against giant corporations – not even remotely close. Court created remedies like punitive damages are only helpful after the damage is done. To really help the consumer, American lawmakers need to write stronger laws, and those laws need to be enforced. Right now, there are not enough protective laws, and those that do exist are not being enforced by government agencies. The task of enforcement falls to the occasional brave plaintiff who files a claim and does not give up, and his crazy, risk-taking lawyer who cares enough about justice that they will face bankruptcy and ruin. The result? Consumers continue to be mistreated on a daily basis, and there is almost nothing they can do about it.

As you can see from the picture painted above, while punitive damages create incentive for consumers who have been hurt to find a lawyer able to stand up to giant, wealthy corporations (and creates incentive for that lawyer to do so), the consumer is still statistically bound to fail somewhere along the course of the claim, long before punitive damages can ever be awarded.

The noble creation of punitive damages cannot fully compensate for the lack of strong laws written by our elected senators and representatives, and then the actual enforcement of those laws.

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The Seal of the State of Michigan

The Michigan Idiosyncrasy

Back to Michigan – What prompted this blog post was my discovery that the State of Michigan has a very confusing policy on punitive damages. While technically the Michigan courts will allow punitive damages to be granted, they clarified only “as compensation to the plaintiff, (but) not as punishment of the defendant.” Someone needs to tell Michigan that the very definition of “punitive” is “for punishment.”

See Peisner v. Detroit Free Press Inc., 104 Mich.App. 59, 304 N.W. 2d 814.

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For the punitive damages rules in your state, see “Limits on Punitive Damages” – they provide a table listing every state.

My Insurer Did Not Pay and I Want to Sue Them – How Much Time do I Have?

5 Jan
Time is Ticking! (source Wikipedia)

Time is Ticking! (source Wikipedia)

The answer to this question depends on 1) Which laws are applicable to your policy, 2) Where you are, and 3) What your policy says.

1) Which Laws Apply?

First, you need to know if your policy is subject to state laws or federal laws. Many policies are subject to ERISA – a federal law that trumps all state laws. To get a good idea of whether or not your policy is subject to ERISA, ask three basic questions, in this order: (a) Did I buy my policy from my employer? (or your employer paid for it) If yes, it is probably subject to ERISA, (b) Is my employer a government agency or government contractor? If yes, you may fall under an ERISA exception and not be subject to ERISA, (c) Is my employer a religious institution? If yes, you fall under an ERISA exception and are not subject to ERISA. Please note that these questions only provide a basic guide, but there are many exceptions and you should consult an attorney who specializes in insurance law and/or ERISA to fully explore if your policy is subject to the federal law ERISA. If you suspect that ERISA applies, you need to contact an attorney right away. The statute of limitations varies depending on which type of claim you would like to bring, and in some cases, once your claim has been denied (the first denial, even before you file an appeal) you have very little time.

If ERISA does not apply, proceed to question number 2.

2) Where Are You?

If your claim is not subject to ERISA, it will be subject to your state’s laws. Each and every state has different statutes of limitation, meaning the amount of time you have to file a lawsuit will vary depending on which state you reside in. For example, in California, you should file your claim within two years after the date your claim was denied. If you file within two years, you can seek redress for “bad faith” and receive damages for emotional distress and possibly a punitive award (the court “punishes” your insurer for acting in bad faith). If you miss the two year deadline, you can still sue for breach of contract, which has a statute of limitations of four years. If you live in New York, you have six years in which to file your suit, for either breach of contract or bad faith. However, be careful, because your answer to question number three can change these state-provided statutes.

3) What Does Your Policy Say?

Most states also allow the court to look to your insurance policy to see if there is another limitation on when you can file suit. For example, if your policy has a clause that requires you to file suit within two years, the court has the discretion to apply the clause instead of your state’s statute of limitations. Whether or not a court follows this practice depends on (a) if the court thinks the clause is reasonable and not a hindrance to justice and (b) whether or not the courts in your state have a history of applying these clauses. Again, you need to contact an insurance attorney to be certain.

The moral of the story is this:  Contact an attorney as soon as you realize you have a claim against your insurer, and ask about the statute of limitations. You do not want to lose your right to file suit!

Disability Insurance – How to Choose an Attorney

30 Dec
Balanza de la Justicia

Scales of Justice (Photo credit: Wikipedia)

I have spent many years helping disability claimants receive their benefits. When an insured suffering with a physical or mental disability is denied his or her insurance coverage claim, they begin the confusing and uncertain process of looking for a capable, trustworthy attorney to help them obtain their money.

As an attorney who is familiar with the industry, I have always empathized with claimants who call and are really suffering – under emotional duress, experiencing physical pain and limitations, worried about their significant loss of income, unsure whether they will ever work in their field again… The last thing they need is the extra stress of researching and sifting through the available attorneys. Information about attorneys is not disseminated in an efficient manner, and the internet can only tell you so much. Here are some tips:

1. Choose an attorney who is a specialist in insurance claims.

For the most part, attorneys specializing in insurance claims are experts at what they do, and will ultimately recover the client’s benefits (if the claim is valid, of course). The best place to find their dedicated specialty is on their website. If the website doesn’t clarify the types of clients they have experience representing, call and ask. Insurance litigation is a very complex specialty, and disability insurance is a unique sub-speciality of insurance. You should select an attorney who has already handled disability claims successfully, if possible.

2. Don’t choose someone simply because they are nearby.

You are not limited to selecting an attorney located in your home state. Often the best attorneys are located in large metropolitan areas, or in the most favorable venue state. That does not mean they are less able to help you. In fact, it is much better to get an excellent attorney located in another state than hire one nearby who has no experience battling with large insurers.

3. Choose an attorney you can trust.

Follow your gut feeling. If you are seeking an attorney who will speak to you on the telephone directly, and answer your questions to your satisfaction, you can find one. Clients have often contacted me because they did not feel comfortable with the treatment they received when they contacted other firms – something just didn’t feel right. For example,  I once had a caller tell me, “I already contacted XYZ Law Firm, and they told me my claim is incredibly unique and they had never heard of such bad behavior from an insurer. I don’t know why, but I just didn’t believe them. So I decided to call other firms.” The caller was absolutely correct. His claim was not that unique. The large firm was using a sales technique to “sign him up”. Ultimately, he signed with us instead.

4. Ask who will be handling your case.

At some firms, highly skilled paralegals and legal assistants perform the majority of the work on your case. You may manage to get an attorney on the telephone once during the entire representation. At other firms, the attorneys take a more active role, and will even hand out their personal cell phone numbers. Choose the situation you are comfortable with. When you are thinking about signing with a firm, ask them who your main contact will be, and what that person’s role is within the firm. Ask to speak with that person, so you know what to expect. You are the client. You can insist upon having direct contact with an attorney, if you so desire.

5einstein2. Don’t be fooled by fancy legal terminology.

While you certainly want to hire an attorney who is familiar with the laws applicable to your claim, don’t hire one because you were dazzled by their ability to recite legal terms. If an attorney is rattling off legal terms that you have never heard, stop him/her and ask what it means! See if their explanation makes sense to you. Because as Albert Einstein once said, “If you can’t explain it simply, you don’t understand it well enough!”

6. If you call a firm and they indicate they are unable to represent you, ask why. Then, ask them if they can recommend someone better-suited to help you.

Often, merely posing the question “Why won’t you represent me?” will reveal a great deal about your claim, and help you find a firm that is a better fit. It also does not hurt to ask if they know of a firm that handles your type of claim. Usually a firm has a short list of pre-screened firms it is willing to work with, so if you like a particular firm, you will probably like the attorneys they routinely work with.

7. Check for a disciplinary record.

Last but not least, go to the state bar website of the attorney you have selected and run a search for disciplinary records. You will also find information about which law school the attorney attended, etc. It may be wise to avoid attorneys who attended law schools that are not accredited by the American Bar Association (a quick Google search will provide this info), although I say that with some reservation, because I have noticed that fantastic attorneys graduate from all levels of law schools. In general, law school is extremely rigorous. Ever see the movie “The Paper Chase?”.

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