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The State Farm Epilogue: Where does State Farm go from here?

The crisis of legal/medical PIP fraud and how insurers like State Farm are feeding and growing the complicated problem

State Farm not a good neighbor

State Farm week continues on the Michigan Auto Law blog. On Monday and Tuesday, I wrote about State Farm’s “mad dog” business practices and the enormous profits it has made by doing so – and the concurrent spike in consumer complaints against it.

Yesterday I wrote about the case that focused the national spotlight on State Farm – Campbell v. State Farm, and specifically the skewering that the insurer received when its business practices were exposed by, it should be noted, a very conservative and Republican Utah Supreme Court.

Where does State Farm go from here?

Back in June, I wrote a blog  about how the insurance companies helped to create the PIP fraud problem in Michigan.

It was a wonderful example of the law of unintended consequences.  Unethical lawyers started engaging in PIP fraud to keep their law practices afloat. Some have even built very large operations based upon turning to PIP to make the majority of their money, once third-party (pain and suffering) lawsuits were largely taken away from them by the draconian Kreiner v. Fischer decision.

I’ve also written that this problem of increasing PIP fraud is closely connected to solicitation of automobile accident victims by groups such as lawyers, medical providers, and others who buy the police reports online and then send letters, telephone, and in some cases, even knock on doors.  I’ve called for an end to attorney solicitation and to a 90-day waiting period, which hasn’t made me a lot of friends among the increasing number of personal injury law firms that engage in this practice.

Let’s be clear – an increasing number of attorneys engage in solicitation of auto accident victims, because it is profitable. Otherwise, they wouldn’t be doing it. And today we wouldn’t have a number of out-of-state law firms and medical groups entering Michigan and markets like Detroit with new commercials, if they weren’t also attempting to take a piece of what they see as the lucrative No Fault money they can make here.

The real problem is that State Farm and other insurance companies, aided by a partisan Michigan Supreme Court in Kreiner, created a new and incredibly profitable way for the most unethical law firms to make huge amounts of money. They took something that was very hard for these lawyers before (making money on $20,000 policy limit third-party pain and suffering cases), and made it a far easier for those lawyers by creating a new industry of taking attorney fees of one-third to 50% on medical bills.

The same lawyers are now creating money making machines through attorney solicitation and collaboration with certain medical providers.  And every single case is a gold mine. These lawyers don’t even care about the third-party tort case. The real money is taking attorney fees on medical provider bills in volume. Without worrying about a third-party case and a threshold, every single case is a huge money maker. That’s what happens when these lawyers are making all of their money by taking attorney fees on provider bills with the doctors, physical therapy clinics and chiropractors they’re working with.

This in turn has created these new PIP mill law firms, which could never have happened without downloading police reports, and which has led to the bombardment of phone calls, letters and door knocking to car accident victims.

It’s caused the increase that everyone, including State Farm, has  seen in first-party No Fault claims on smaller injury cases in cities like Detroit.  In turn, this has cost State Farm and other auto insurance companies in Michigan so much more money than third-party injury claims ever did before Kreiner v. Fischer.

I do want to emphasize that there are only about a dozen personal injury law firms today that are sending attorney solicitation letters out. And of these firms, an even smaller number have used this to create PIP mills. Most personal injury lawyers in Michigan are not doing this.

But State Farm knows exactly who is doing this.  I’m friendly with a number of State Farm attorneys, and everyone knows who these law firms are.  State Farm has supposedly created units and is investigating these law firms. But I’ve been hearing about this for the past five years, and so far nothing has happened except the problem worsening.

Everyone knows who these law firms are that are committing insurance fraud and who are working with a network of medical providers and chiropractors to engage in insurance fraud.

And State Farm, we know exactly which law firms are doing this, don’t we?

State Farm still doesn’t see the big picture.

While I’ve spoken out against the problem of attorney solicitation and PIP fraud, I’ve also spoken out against Gov. Snyder’s efforts to “reform” the auto No Fault law.

It makes no sense to devastate the future of those who depend upon No Fault and need it the most. But it also makes no sense to increase the costs to taxpayers by giving insurance companies like State Farm a giant boondoggle, and transferring the costs of lifetime medical care for the most catastrophically injured auto accident victims to the taxpayers, which is exactly what “No Fault reform” will do.  And with a governor who has a business background, none of this makes any sense without a very close accounting of just how much money insurance companies like State Farm are making in this state first before we change the laws.

But this is where State Farm is making a mistake.  It should be focusing on the three or four law firms in Michigan today who are committing PIP fraud on a large scale by taking attorney fees on medical provider bills in volume, since this creates the perverse incentive on the part of the lawyers to engage in unethical attorney solicitation and send these medical providers new clients in volume.

It certainly has to be costing the insurance companies a fortune on these smaller PIP claims.  Yet so far, State Farm has ignored the small handful of auto lawyers who are perpetuating this PIP fraud in volume. Instead, they are focusing on medical benefits caps for the most severely injured.  To me, that makes no sense.

State Farm has targeted a handful of doctors they don’t like, but for the wrong reasons.  There is speculation among many doctors and lawyers today that State Farm and other insurers like Allstate are suing these doctors are doing so to try to drive these doctors out of business and intimidate other doctors in the same field of speciality.  I’ve written before that this targeting  is an insidious attempt to wipe out all of the private practice doctors who treat, for example, closed head injury cases and by doing so it could save the insurers millions.

Again, I think State Farm has it backwards. State Farm should not be speciously targeting private practice brain injury medical providers. It should be using its Chicago fraud units to target and attempt to stop the personal injury lawyers and law firms that are abusing PIP, and the medical providers they’re conspiring with. But instead, State Farm is settling cases with them in volume, and making the problem even worse.  For whatever reason, this has yet to happen, and despite years of rumors, the problem of legal/medical PIP fraud continues to grow.

I’ve previously predicted that if (or perhaps more likely when) our current Michigan Supreme Court does get around to reversing McCormick v Carrier, and replaces it with a more draconian and harsher injury threshold law, the problem of medical insurance fraud and PIP fraud will skyrocket in this state. State Farm has to see this too.

But so far, the giant insurer has ignored the problem that it helped to create and that it continues to feed. And then it creates new policies like the new 90-day suspension of payment of claims (if this turns out to be true), and wonders why the costs for first-party claims are going up for them.

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Blog Author Steven M. Gursten
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