As much as we are advised to be optimistic, we cannot live in a bubble, believing that bad things will not happen. Fire, accidents, illnesses, and death are a part of life, and we have to reduce the financial burdens accompanying such events through insurance.
As early as 3000 years ago, people discovered that they could pool their risk of loss; hence, insurance was born. Unfortunately, not everything ends up as we hope for when dealing with insurance companies. Legal battles have been fought, and among the biggest insurance lawsuits in U.S. history, here are ten.
10. $65 Million – Major Banks, Charles Edwards, et. al. v. New York Life Insurance Co.
Major Banks and Charles Edwards filed a lawsuit in January 1996 against New York Life Insurance Company and two of its agents.
The plaintiffs sought damages for all the residents in Louisiana who had bought universal or whole life policies from the insurance company between January 1, 1984, and December 31, 1994. The class action was on behalf of the policyholders who felt they had been misled into buying vanishing premium policies.
Policyholders enticed by vanishing premiums
The lure of purchasing the vanishing premium policies was that the policyholders would pay premiums only for a certain number of years.
After that, the premiums would be covered by the dividends the insurance policy earned so policyholders would not have to write checks.
However, this was only practical on paper because, in real life, policy expenses increased while interest rates fell resulting in the dividends earned being too low to cover the premiums.
Vanishing premiums turn into a big rip-off
At the time the vanishing premium policy was booming, insurance companies were competing stiffly, so New York Life Insurance had its agents aggressively market the product.
When interest rates fell, insurance companies did not want to reduce their dividend scales as they hoped the rates would increase. Policyholders thought their premiums had been paid up, only to realize they owed the companies loads of money. The scandal was regarded as one of the biggest rip-offs in America.
9. $200 Million – Sandy Eskew v. Sierra Health and Life
Bill Eskew, Sandy’s late husband, was diagnosed with lung cancer and his oncologist at MD Anderson Cancer Center Houston recommended a radiation therapy called proton beam therapy (PBT).
Bill had an insurance policy with Sierra Health and Life (SHL) but unknown to him, the insurance company had a hidden medical policy.
The policy was illegally used to state that any claim for PBT for lung cancer or any other type of cancer would be automatically denied due to lack of medical necessity. Therefore, SHL denied Bill’s pre-authorization request forcing him to seek an alternative called Intensity-Modulated Radiation Therapy (IMRT).
Approved alternative therapy causes death
SHL approved IMRT but it caused Bill so much distress. For over the next year, Bill could barely eat as food got stuck in his throat. Without proper nutrition, Bill became a shell of his former self and after so much suffering, he died in March 2017.
Sandy filed the bad faith insurance lawsuit and her lawyers discovered that SHL had denied Bill’s claim without considering its duty of good faith since they knew that the insured would suffer and die.
The jury found in favor of the plaintiff and awarded her $40 million in compensation and $160 million in punitive damages.
8. $268 Million – United States of America v. Jacques Roy, et. al.
Roy got his medical license and operated in Quebec from 1981 to 1995. The conniving doctor decided the U.S. was a greener pasture, so he moved to the Dallas area and founded Medistat Group Associates.
The establishment was a group of healthcare providers who offered patients home visits and home health certifications. The business was booming, and according to CBC News, Medistat certified at least 11,000 patients for home healthcare between January 2006 and November 2011.
Roy mints millions of dollars through insurance fraud
Consequently, Roy billed Medicare and Medicaid for unnecessary services and the doctor minted millions while creating a cottage industry.
Since the home healthcare services were unnecessary, Roy was accused of insurance fraud by billing Medicare over $350 million and Medicaid over $24 billion.
It was predicted that the doctor would be imprisoned for 100 years if convicted; instead, he got a 35-year sentence and was ordered to pay $268 million in restitution.
The sad thing is that his lawyer defended Roy saying that the doctor was being noble, treating poor patients that needed medical assistance.
7. $400 Million – Clutch City Sports & Entertainment, L.P. v. Affiliated FM Ins. Co.
According to CNBC, Houston Rockets became the first national basketball association team to file a lawsuit against its insurers for losses suffered due to COVID-19. The business-interruption insurance policy allegedly covered the losses incurred due to the pandemic; thus, the team sought $400 million in its insurance lawsuit.
No more covers for viruses
The team’s owner had paid over $700,000 in annual premiums in a policy worth $400 million. However, insurance executives were emphatic that they were not covering such claims. Insurance companies stopped covering viruses since the Zika outbreak during the 2016 Olympic Games.
6. $450 Million – United States of America v. Sholam Weiss, et al.
For a judge to sentence someone to 845 years in prison, you can only wonder what the crime was. Well, the judge who handed Weiss the 845-year sentence said the man was not fit to be in society and had to be removed permanently.
His crime was money laundering, fraud, and racketeering that led to the collapse of the National Heritage Life Insurance Company after Weiss and other defendants stole $450 million. On his part, Weiss had siphoned $125 million.
Weiss becomes a most-wanted fugitive
As the jury deliberated his sentence, Weiss disappeared, becoming one of the most wanted fugitives in 2000. He fled with about $25 million of the money he had stolen and the F.B.I. believed he could make a good life as a fugitive.
He traveled all over Europe, settling in Austria where he was captured using a false identity, Charles Dick. Weiss had always tried to maintain a pristine image though it was later discovered he had been indicted for mail fraud in 1994.
His community believed he was hardworking and generous, seeing that he donated to religious organizations and even helped to build a school.
5. Undisclosed Amount – Metallica v. Lloyd’s of London
The COVID-19 pandemic wreaked havoc in the entire world. For the famous rock band Metallica, it brought with it countless losses. They had planned a six-date show in South America long before the pandemic struck and it was scheduled for April 2020.
Unfortunately, they had to postpone due to the lockdown, and the members could not believe the financial loss they had to suffer. Metallic decided to sue its insurer, Lloyd’s of London, to be compensated for the financial damage though it planned to reschedule and slotted the show for December 2020.
There was no sign of the pandemic relenting so the members postponed the show to 2021.
Metallica did not read the fine print
However, the insurer said the band’s insurance policy had a disease exclusion. Allegedly, Metallica had purchased a standard cancelation, abandonment, and non-appearance policy.
The members failed to read the communicable disease exclusion that denied any coverage obligation. Considering that renowned musicians rake in hundreds of million from ticket sales in a single show,
Metallica must have been seeking a significant amount in compensation.
4. $3.3 Billion – In Re: Purdue Pharma LP, U.S. Bankruptcy Court, Southern District of New York
The Sackler family, who founded Purdue Pharma, allegedly built their fortune by selling OxyContin, a highly addictive painkiller, through the pharmaceutical company.
According to a lawsuit filed by the Massachusetts attorney general, Purdue Pharma paid the family at least $4 billion between 2008 and 2016. Purdue had pleaded guilty to a felony and agreed to stop misrepresenting OxyContin but the Sackler family decided to milk it for all it was worth.
Too many insurance lawsuits result in bankruptcy filing
Mass litigation followed and Purdue filed for bankruptcy in September 2019. In January 2021, the pharmaceutical company sued its insurers, saying that it was entitled to insurance coverage for opioid-related claims.
However, the insurers moved to stay, claiming the contracts had arbitration clauses. Purdue alleged that the insurance policies provided at least $3.3 billion in coverage but the timing and insurance payout allocation to the opioid claimants would depend on the insurance dispute outcome.
However, the bankruptcy judge ruled that the insurance coverage was not as crucial as the proposed reorganization.
3. $4.55 Billion – World Trade Center Properties LLC et. al. v. United Airlines Inc et al. and World Trade Center Properties LLC et. al. v. American Airlines Inc et. al.
Following the 9/11 attacks, developer Larry A. Silverstein sought compensation for the destroyed World Trade Center in which he had heavily invested. Silverstein filed the insurance lawsuit in 2004 but according to New York Times, the amount he was seeking had remained undisclosed.
In 2007, the developer won $4.55 billion in insurance claims – $2 billion from some insurers and the remaining $2.55 from other insurers. Still, Silverstein was dissatisfied with the payout deemed the largest insurance settlement ever undertaken by the industry.
Silverstein sues for more money
He still returned to court seeking $12.3 billion from the airport security and airlines. The developer claimed the airlines and airport security companies were negligent since they failed to prevent the terrorists from boarding and hijacking the planes that eventually bombed the building.
He became the largest claimant in the lawsuit consolidated with other similar cases families of victims of the attack and property owners had filed. However, a federal judge rejected Silverstein’s bid.
2. $109 Billion – Re: Lehman Brothers Holdings, Inc, U.S. Bankruptcy Court, Southern District of New York
In 2008, the United States of America experienced a financial crisis following the housing bubble. Lehman Brothers Holdings, Inc. was the fourth largest investment bank in the country, with over $600 billion in assets.
The bank acquired mortgage lenders that specialized in subprime loans. It invested heavily in mortgage-backed securities, but the market conditions were unfavorable as the housing bubble had already begun taking its toll on businesses.
The largest bankruptcy filing in U.S. history
The bank began making losses amounting to billions of dollars. Eventually, it filed for bankruptcy in September 2008 with at least $600 billion in liabilities, making it the largest bankruptcy filing in U.S. history.
Of course, creditors had to be paid the outstanding amounts, and several motions were filed against the investment bank. In 2016, it was announced that the team handling the payouts would pay $2.8 billion to creditors; it was the 10th distribution seven and a half years later after the bank’s collapse.
By then the total insurance payout was at least $109.9 billion.
1. $246 Billion – The People v. Big Tobacco
Mike Moore was Mississippi’s Attorney General when he decided to take on the biggest tobacco companies. In 1987, Moore made history by becoming the youngest Attorney General Mississippi had had in over 75 years.
He was hungry to make a change in the state and spent the next seven years visiting schools to address students on the consequences of drug use.
A lawyer friend of his, Mike Lewis, knew of Moore’s ambition so he talked to the Attorney General. Lewis convinced Moore to sue the tobacco companies to reimburse the Medicaid costs needed to treat poor patients who were succumbing to smoking-related illnesses.
Moore makes a name for himself
Moore seized the opportunity and asked his old friend from law school, Richard Scruggs, to join him in the David vs. Goliath battle.
The Attorney General filed the insurance lawsuit against 13 tobacco companies on May 23, 1994, and convinced other states to bring on a class action against Big Tobacco.
Moore and his friends fought hard for the people of Mississippi. Eventually, the companies agreed to settle with the 50 states that partook in the class action being awarded $246 billion.
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