USAA is sued again over using a “cost containment program” to improperly lower medical claims payments to policyholders injured in car crashes.

The latest claims against the San Antonio financial and insurance company were made in a federal lawsuit filed this week in Oregon.

The lawsuit, which seeks national class-action certification, charges that USAA uses an outside auditor to assess claims and to “uniformly conclude that medical treatment was not needed.”

USAA denies the allegations.

USAA previously settled two class-action lawsuits that accused it of using flawed data to arbitrarily deny a portion of the medical benefits for injured customers who have personal-injury protection (PIP) or other medical-payments coverage on their USAA auto-insurance policies.

One of those cases, filed in Arizona, was settled last summer. Claims are still being processed, so the amount to be paid out under the settlement hasn’t been determined.

The other case, filed in Illinois was settled in 2005. Lawyers for the plaintiffs valued the settlement on their website at $35 million, a figure USAA spokesman Paul Berry called “probably wildly” inflated.

USAA settled the two cases because it was the “right thing to do for our membership,” Berry said. He noted both courts endorsed USAA’s bill-review practices.

“We pay all reasonable, necessary and accident-related bills,” Berry said. “That doesn’t mean we pay all bills. If you had injuries or you received some treatment that had nothing to do with (an auto) accident, we’re not going to pay those bills.”

USAA relies on Alabama-based Auto Injury Solutions to help review medical bills to determine whether they are reasonable and necessary and to weed out duplicative and fraudulent claims. Bills deemed suspicious are reviewed by a doctor or other health-care professional, Berry said. Even when one of its doctors concludes the medical care wasn’t necessary, the bill still goes through several other reviews, he said.

USAA also can choose to override any instance where a bill is rejected, Berry said.

In the latest Oregon lawsuit, four unrelated USAA customers in separate accidents allege the medical reviews were a “sham.”

New Jersey Manufacturers Group was the largest insurer in the state to receive zero valid complaints, according to a report by the state’s insurance department.

NJM is the third largest insurer in the state with 13 percent of the market. GEICO has close to 15 percent of the market, while Allstate comes in with slightly more than 14 percent.

The 2010 Auto Insurance Consumer Information Report ranks companies from worst to best in terms of valid complaint ratio. That ratio is the number of valid complaints to 1,000 insured autos. A valid complaint is defined as when “[t]he insurer’s action violated state insurance rules or laws or the issue in controversy should have been resolved by the insurer without department intervention.”

NJM had zero valid complaints and was joined by eight other companies on the list. The company was the largest insurer in the group to meet such a distinction. Palisades Group was the second largest insurer in this group.

In terms of direct written premium, Palisades Group is ranked fourth behind NJM with 10.5 percent of the market.

Allstate was ranked sixth on the complaint list with 44 valid complaints. In 2009, the company was ranked 14 and in 2008 it was ranked 13.

GEICO was ranked 15 with 19 valid complaints. In 2009 it achieved the same ranking of 15, and in 2008 it was 20.

However, the ranking in one sense can be deceptive. The worst-ranked insurer on the list was Personal Service Insurance Co. However, the company had only three valid complaints out of 13,627 vehicles it insured, but its valid complaint ratio was highest at 0.2202. It is ranked 24 in terms of direct premium written with less than 1 percent of the market.

NJM, in comparison, has 804,801 vehicles insured.

“In a competitive market, shoppers should use consumer studies like this to help evaluate an insurance company,” says NJM President and CEO Bernard Flynn in a statement. “The department’s findings show that NJM has excelled in fulfilling our obligations to policyholders, and we’re very pleased by the results.”

North Carolina’s auto insurance system penalizes the state’s best drivers and guarantees profits for private insurance companies. It hurts women and older drivers, and hampers innovation. Those are key findings in a new John Locke Foundation Policy Report.

“North Carolina’s messy, complex system for providing automobile insurance places many of the state’s best and safest drivers at a disadvantage in the insurance market,” said report author Eli Lehrer, vice president of Washington, D.C., operations for the Heartland Institute. “The system is fundamentally unfair and needs to change quickly.”

Lehrer recommends five changes that would lead to better outcomes for most Tar Heel drivers. He’s releasing his recommendations as the state Senate Insurance Committee prepares to consider bills targeting auto insurance reform.

Proposed changes in Lehrer’s report involve fundamental restructuring of a complicated system that’s unique among the 50 states, he said.

“Five parties play a major role in North Carolina’s cumbersome, labyrinthine auto insurance rate-making process,” Lehrer explained. “As a Rate Bureau, elected insurance commissioner, Reinsurance Facility, court system, and private insurers all influence rates, the final product seems to produce a better deal for insurance companies than for drivers.”

The Reinsurance Facility is a government-mandated, tax-subsidized pool, Lehrer explained. Private insurers can dump any risky driver into the pool at any time.

“In fact, almost a quarter of N.C. policyholders are in the pool, compared to less than 1 percent nationally,” Lehrer said. “Some private insurers like the system because it guarantees them a profit.”

A tax dubbed the “clean risk surcharge” allows this system to continue, Lehrer said. “That surcharge averages about 6 percent a year on every auto insurance policy in the state,” he said. “In other words, the safest drivers are paying more so that private insurers can shed policies that might carry higher risks.”

Michigan’s auto insurance rates might be the highest in the nation, with a typical driver paying more than $2,500 a year for coverage. In Detroit, where unaffordable insurance rates have forced tens of thousands to drive uninsured, many motorists pay double that or more.

Without question, the rising cost of Michigan’s unique mandate for unlimited coverage for injuries is one reason insurance rates are out of control. The costs of treating the state’s worst accident injuries rose again late last month, when the Michigan Catastrophic Claims Association announced that drivers will pay a record $145 per vehicle, effective July 1, to treat accident injuries that exceed $500,000 in medical care. Overall, the average paid claim for personal injury protection for 2010 rose to $36,245, nearly three times higher than in 2000.

Legislators cannot continue to shrug their shoulders and do nothing. Statewide, 17% of drivers are on the road without insurance, up from 11% in 1989. In urban areas like Detroit, up to half of the drivers are uninsured.

A package of bills introduced two weeks ago in the state Senate by Democrat Virgil Smith of Detroit and Republican Joe Hune of Hamburg Township should provide the starting point for overdue change.

The most controversial measure would modify Michigan’s unlimited no-fault system by setting a minimum for personal injury coverage of $50,000. So-called PIP choice would still put Michigan above the minimums of all other states, except New York, which also has a $50,000 minimum. It would save policyholders 10% to 30% while covering almost 95% of claims, according to the Insurance Institute of Michigan.

To be sure, given the high cost of medical care, the $50,000 minimum is far too low, but even a minimum of $250,000 would save policyholders plenty while offering some extra injury protection for those few drivers who needed it.

Legislators should at least approve a uniform fee schedule for medical treatments and services, similar to workers compensation, as called for by SB294. It’s reasonable to ask medical providers to accept the same payments for the same services in auto-related injuries as they do for injuries incurred on the job.

Other less controversial, but worthy, proposals include strengthening efforts to fight insurance fraud and requiring medical care providers to bill insurers within 90 days of treatment. That would enable insurers to properly review claims and pay them in a timely manner.

Unfortunately, the reform package does not include a pilot program to provide affordable insurance to low-income drivers, as other states such as New Jersey and California have created. It should. Such a program would allow people now driving uninsured to at least buy basic coverage. The insurance industry supports the idea, said Lori Conarton of the Insurance Institute of Michigan. It ought to persuade legislators to include such a plan in the package currently before the Legislature.

These proposals are not perfect, but they beat the ongoing stalemate. Eliminating territorial ratings, which punish drivers in Detroit and other urban ZIP codes, is a good idea but politically unattainable. For now, legislators should focus on reforms that would ease the problem of affordability and have a prayer of reaching the governor’s desk.

A.M. Best Co. has downgraded the financial strength rating to C++ (Marginal) from B- (Fair) and issuer credit rating to “b” from “bb-” of Interstate Auto Insurance Company, Inc.(Interstate Auto)(Baltimore, MD). The outlook for both ratings is negative.

The rating actions reflect Interstate Auto’s continued negative underwriting performance, which could not be offset by its generally declining investment income. This has led to pre-tax operating losses in four of the last five years, and consequently, has hindered the company’s surplus base. As of year-end 2010, Interstate Auto’s surplus base was at its lowest level in the past 10 years and is just above Maryland’s minimum surplus requirements for companies writing private passenger non-standard auto business.

Weak economic conditions, including high unemployment, also have led to cancellations of coverage, and consequently, a declining trend in Interstate Auto’s premium writings in 2009 and 2010, resulting in high expense ratios and dampening underwriting results. Despite this, the company’s premium and underwriting leverage ratios are still relatively high compared to its peer companies that also write private passenger non-standard auto business. While the company is taking steps such as instituting rate increases to improve profitability in order to restore its surplus base, the current soft underwriting cycle in its line of business represents a challenging operating environment for the insurer.

The negative rating outlook recognizes the possibility of further rating actions being taken should there be continued deterioration in Interstate Auto’s capitalization and underwriting leverage.

At $1,111, Louisiana experienced the highest median rate for auto insurance in the nation.
Perhaps even more shocking was the stark contrast that other Southern states were amongst the cheapest states to buy auto coverage. North Carolina ranked fifth lowest, at $495. Virginia’s rate was seventh lowest, at $521. In 2010, it ranked 13th.

The closest Southern state to Louisiana was Florida, netting a 37th rank, at $750, one worse than last year. Otherwise only the District of Columbia and Maryland came within striking distance of Louisiana, and neither broke the thousand dollar mark.
(InsWeb’s 2011 Car Insurance Rate Report ranks all 50 states and Washington, D.C., based on the median household car insurance rate for a six-month policy. To determine the rates, InsWeb uses a proprietary system that tracks the filed rates of the largest car insurance carriers in each state as well as actual profiles of InsWeb customers.)
When it comes to property insurance, the latest figures also show that Louisiana is also at the top of the list for having the highest premium rates. The average national premium for home insurance is $690.62. The cost for a Louisiana homeowner continued to be the highest in the country at $1392. That is an increase of 0.2% from last year.
Making matters potentially worse, Louisiana will see a 6.5% increase from its property insurer of last resort, Citizens, on July 1, 2011.
Understandably, the South does have a higher rate because of the hurricane threat. The average homeowner premium for southern states is $801.75, which is 16.1 % above the national average. Still, costs in Louisiana are far higher than even our immediate neighbors pay.
According to former Louisiana Insurance Commissioner Jim Brown, that is “no surprise, since Louisiana officials pay scant attention to insurance rates and make little effort to lower them.”
As he explained, “What if you were to consider moving to The Bayou State, but were told there is a mandatory surcharge that applies in no other state, requiring you to pay the sum of $1100 or more, just for the privilege of living there? And every other Louisiana citizen who buys a home and owns a car has to pay the same surcharge. Would you move there?”
“That is exactly what is happening in Louisiana now. The surcharges are from the cost of insurance, and if you live in Louisiana, you now have to pay the highest premium costs in the nation. And not just by a small amount when compared to other states. Louisiana exists in its own world of escalating insurance costs that are completely out of line with the rest of the nation.”
“Reasons for high rates in Louisiana are varied and numerous. At the top of the list is the unfathomable creation of a hybrid state run insurance company called Citizens. It has been called Louisiana’s biggest financial disaster, and reeks with corruption and ineptitude. The financial records are so bad that the state auditor refused to issue an opinion of the company’s financial condition. The cost to the taxpayers has now topped $2 billion.”
As the insurer of last resort, Citizens’ prices also affect the rest of the local insurance market.
David Tidmore, a 45 year veteran of the local insurance market, having also served for 12 years as an underwriter for one of the nation’s largest insurance companies F&D (now the Zurich) and a VP for the world’s largest broker Marsh & McLennan, simply explained, “It is my opinion that the industry is driven by “Greed & Fear”.”
“When times are good,” he continued, “greed prevails, the market softens, which means pricing is much more attractive. When times are bad, many claims, especially earthquakes and hurricanes, the market hardens, and fear prevails. After Katrina, the market hardened like concrete, especially in the personal lines area.”
“Pricing shot up double or more and underwriting became very restrictive, ie. HO carriers, as well as commercial property carriers, refused to provide wind/hail, thus Citizens whose pricing for just these two perils is ‘out of sight’”.
“As we moved away from Katrina, I have noted up until the beginning of this year softening but after the earthquake in Japan, the major reinsurers are tightening up, which within a year will hit the entire market and we will go into the fear mode. Actually, there was a recent article advising that there are as many as 36 earthquakes per year in the northern hemisphere and these continued disasters will bear heavily on the fear attitude.”
As for the reason Louisiana has the highest auto rates in the US, Tidmore outlined, “One of the coverages in an auto policy is comprehensive, which most folks perceive as windshield, but actually the most significant coverage therein is flood. What happened after Katrina, thousands of flood claims where cars were totaled so the fear factor was and evidently continues to be significantly in play.”
Jim Brown, though, looks towards another reason. Pointing at the large number of uninsured motorists tolerated in this state, versus elsewhere, he notes the higher liabilities to local ratepayers.
Since Brown’s term in office, no Insurance Commissioner has put pressure on the legislature–or on local officials–to seize automobiles whose owners have been discovered to be without insurance. Too often, he explained, both state officials and parish law enforcement just turn a proverbial blind eye, and the rest of us pay the price.
As David Tidmore might say, call it the “Greed” of elected Sheriff’s not wanting to upset voters with tow trucks patrolling city streets for uninsured motorists, many of whom–regardless of their underwriting status–still vote.

New York’s top court ruled Tuesday that the estate of a man run down by a homicidal driver is entitled to make insurance claims for injuries caused by an accident.

The Court of Appeals said that even though Ronald Popadich pleaded guilty to murder for killing Neil Conrad Spicehandler when he intentionally drove into Manhattan pedestrians in 2002, it was clearly “unexpected and unforeseen” from Spicehandler’s point of view.

State Farm Mutual Automobile Insurance Co. denied liability on the grounds that it wasn’t an accident, initially winning the case in court after Popadich’s conviction in 2005.

In a five-day crime spree, he had also shot two people, killing a neighbor in New Jersey and wounding a cab driver in New York, and running down 24 people at random. Spicehandler, struck on a sidewalk along Seventh Avenue, died of complications from surgery three days later.

The court majority in the 5-2 ruling said that Spicehandler’s estate is entitled to claims under his policy’s three endorsements for uninsured/underinsured motorist, mandatory personal injury protection and death, dismemberment and loss of sight.

“The occurrence, from the insured’s perspective, was certainly unexpected and unforeseen and should be considered an accident subject to coverage,” Chief Judge Jonathan Lippman wrote. “Contrary to State Farm’s argument, we perceive no danger that this result will frustrate efforts to fight fraud in the no-fault insurance system. Significantly, there is no allegation whatsoever of fraud in this case and it is patent that benefits should continue to be denied to those who intentionally cause their own injuries.”

Judges Carmen Beauchamp Ciparick, Victoria Graffeo, Eugene Pigott Jr. and Theodore Jones Jr. agreed.

“This result is also in keeping with a national trend toward allowing innocent insureds to recover uninsured motorist benefits under their own policies when they have been injured through the intentional conduct of another,” Lippman wrote. He cited case law from Iowa, New Jersey and Montana.

The minority said the uninsured motorist coverage should not apply since it was not an accident from the driver’s perspective. A divided midlevel court had reached a similar conclusion that only the other two coverage provisions should apply.

“Popadich could not have obtained indemnification from a liability insurer; and Spicehandler’s estate should not be permitted to recover under the UM endorsement,” Judge Robert Smith wrote. Judge Susan Read agreed.

They noted that limitation on auto liability policies apparently derives from established public policy that insurance may not indemnify someone for intentional wrongdoing, though courts in some jurisdictions have made compulsory exceptions, reasoning that the purpose of liability insurance is to protect victims.

“Whether such an exception is justified, and if so whether it should be created by judges or by legislators, are questions that we should not address until we have a case that presents them,” Smith wrote.

Calls to State Farm and its attorney and to the lawyer for John Robert Langan, Spicehandler’s domestic partner who submitted the claim under an automobile policy he had bought that insured Spicehandler, were not immediately returned Tuesday.

Debate has begun in Maryland as lawmakers discuss a bill that would bar car insurance companies from engaging in a controversial rating practice: using an applicant’s credit history to help determine the price of coverage. Although Maryland auto insurers are already restricted in their use of credit information, the bill would prohibit its use in the rating process altogether.

In some states, consumers can request a re-rating and receive a discount if their credit improves; in others, they can request that their insurer inform them how much of their premium is attributable to their credit. Regulations for each state can usually be found on the state insurance department’s website.

In Maryland, credit can have such a large effect on prices that scores can actually provide or restrict some drivers’ access to low cost auto insurance. According to the fiscal and policy note attached to the Maryland bill, “An insurer that rates a new policy based on the credit history of the applicant may, if actuarially justified, provide a discount of up to 40 percent or impose a surcharge of up to 40 percent.”

Supporters of credit scoring point out that many studies have verified the potency of credit history in predicting claims trends and that this helps insurers more accurately price policies. Opponents often recognize this but note that charging higher rates for the economically troubled can only hurt their situation.

According to the Insurance Information Institute, bills were introduced to limit insurers’ use of credit-based scores in 27 states last year.

The top issue for consumers contacting the Office of Consumer Affairs and its agencies in 2010 was auto insurance-related questions and complaints. Over 7,000 people contacted the Office and the Division of Insurance with questions about denial of claims, adjusters, and claim delays.

Over 6,000 people called the Office of Consumer Affairs and Division of Insurance about health insurance issues, the second-highest number of 2010. Coordination of benefits and COBRA issues were the two most predominant reasons for complaints in the area of health insurance.

Linda Finnegan, who spoke at today’s press conference, had trouble getting her claim paid after she took the trash out one morning and found her car stolen. Finnegan enlisted the help of the Division of Insurance, which intervened and helped Finnegan receive $5,800 from her insurer.

The Massachusetts Attorney General’s Office also assists consumers who are having problems with insurance companies. Last year the Attorney General’s Office received over 5,400 calls from consumers relating to insurance, with auto insurance calls topping the list. In 2010, the Attorney General’s Office recovered over $33 million for auto insurance policyholders.

“In these tough economic times, with consumers watching their budgets more than ever, there is no shortage of unscrupulous people looking to take advantage of others,” said Attorney General Martha Coakley. “A consumer must always do their homework, shop around, make sure that they are dealing with a reputable entity, and consider all of the terms before entering into any contract.”

A Daphne man who was badly injured in a traffic accident in Washington County more than two years ago has won a $5 million civil verdict.

A Washington County jury earlier this month awarded the damages after trial that pitted Frank Shepard Jr. against the insurance company of his employer, Shred-It.

Shepard argued that Auto-Owners Insurance should cover his medical costs, mental anguish, and pain and suffering.

“He can use this money to get his life back together,” plaintiff’s lawyer Mike Windom said last week. “If anybody ever deserved it, it was this kid.”

Because Shepard, 28, reached a settlement with the estate of the other driver, the maximum amount of that driver’s insurance — $2.25 million — will be deducted from the verdict. Thus, Auto-Owners Insurance would be responsible for paying him $2.75 million.

Ed Bowron, a lawyer for Auto-Owners Insurance, said that it would seek to reduce the damage award.

The wreck occurred Dec. 3, 2008, near Fruitdale as Shepard was driving on U.S. 45 on his way to Waynesboro, Miss., to meet a Shred-It customer.

A Cadillac driven by Beverly King Johnson appeared from behind a hill, in the wrong lane, and collided head-on with Shepard’s truck. Johnson was fatally injured.

No one contested Johnson’s fault, Windom said. Instead, the issue was how much compensation that Shepard deserved.

Windom said the crash broke his client’s leg in two places, fractured his foot, shattered his jaw and broke or damaged 24 of his 28 teeth. The impact was so powerful, Windom said, that some of Shepard’s teeth went through his jaw and into his neck.

The lawyer said Shepard has made good progress but has a long recovery ahead of him. He already has had three surgeries on his jaw and will need multiple dental procedures.

“It’s two years later, and he’s still having surgeries,” Windom said.