Fury Bailey - Personal Injury - Wrongful Death Attorneys

MAHLER v. STATE FARM - ADVENTURES IN WINDMILL TILTING THAT RESULTED IN A GREAT VICTORY FOR CONSUMERS, CHANGING THE BUSINESS OF AUTO INSURANCE FOREVER

By William S. Bailey

Contrary to the apparent public opinion of trial lawyers, there is a strong component of windmill tilting, a willingness to fight for principle to protect others with no realistic expectation of compensation. That deep seated passion for justice is alive and well in our profession, an important ingredient in who we are. So is the willingness to help one another serve our clients. I have not encountered another profession where members help each other as consistently as within the plaintiff trial bar. Over the years, I have been the beneficiary of hundreds of hours of good advice from other trial lawyers and hope that I have reciprocated when others have sought me out. Both of these qualities, the pursuit of justice and the desire to help one another, are defining characteristics of the Mahler litigation.

In some sense, the genesis for the Mahler case was at least in part from a Tom Chambers WSTLA Roundtable presentation in the Smith Tower over five years ago. The subject was handling soft tissue auto cases and Tom's underlying philosophical theme was, "Don't just go through the motions of processing claims and turning files. View each obstruction of fairness by an insurance company as an opportunity to do the right thing and protect your client." What struck me more than anything else was the
conviction behind Tom's words. It was obvious that he really practiced what he preached.

As a 1960's political activist in college with a strong distrust of large institutions, Tom Chambers' pep talk found a receptive audience in me. I filed away this experience, possessed with a greater awareness than I had before going to the roundtable that day. But in that my practice does not emphasize soft tissue auto injury cases, an opportunity to take up the matter of principle for the good of the order in this setting did not come for several years.

When Elaine Mahler and her husband, Jack, came in to see me in the middle of February, 1994, I would not have predicted that this case would ultimately end up in the Washington State Supreme Court with law reform implications. On January 4, 1993, Elaine Mahler was driving her 1989 Honda Accord in Bellevue , Washington . Dr. George Szucs pulled out of the University Bookstore Parking Garage and struck Elaine's car without warning. She was thrown forward, striking her right forehead on the rear-view mirror, her chest on the steering wheel and her right knee on the dashboard. She suffered neck, low back and hip pain, as well as persistent headaches.

Elaine and Jack Mahler had been insured with State Farm for years and had never been in any accidents or made any claims. They continued to send in their premiums to State Farm year after year with the expectation that if either of them were ever hurt, their company could be counted on to be a "good neighbor" and protect them. Elaine and Jack Mahler were totally unprepared for the aggressive, hostile way in which their own insurance company came after them following this accident. As Ms. Mahler commented repeatedly throughout the case, "I can't believe my own
company is doing this to me. You expected from the other guy's insurance company, but not from your own. You expect that they are going to help you when you've been hurt."

Elaine Mahler suffered soft tissue injuries and received both chiropractic care and physical therapy. Despite the relief that this provided to Elaine, State Farm sought early on to cutoff all medical benefits under the PIP coverage. Five months post-accident, State Farm sent Elaine to a medical examination with an orthopedist regularly retained by the company for this purpose. While this physician was in his early 40's, he had not actively practiced for several years, living exclusively off insurance exams. Not surprisingly, he described plaintiff's treatment as "in excess" and concluded that "further passive treatments are not indicated." Plaintiff was promptly cutoff from further care and all appeals to resume medical treatment under PIP coverage were refused. Plaintiff then was required to advance the costs of her care out of her own pocket, which she did.

When it appeared that the adjuster for the defendant driver's insurance company, American States, was not going to treat the Mahler case with appropriate seriousness, a lawsuit was started in the King County Superior Court. After 14 months of discovery and motions, a mediation was set at W.A.M.S. Defendant American States made extensive use of State Farm's "benefit cutoff exam" from the PIP claim. In fact, American States did not have to hire a doctor of its own, State Farm's was more than adequate for their purposes. In his mediation memorandum, counsel for the defendant driver summarized his position in contesting liability:

Liability is an open question. Dr. Szucs was cautiously emerging from a parking garage. His view of Ms. Mahler was obscured by a van emerging to his left . . . It seems likely that a jury will find that both parties are partially responsible for this accident.

The case settled on a contested liability basis for $24,500.

Less than a week later, I wrote to State Farm, asking that they give their insured's a credit for attorney's fees paid when figuring out repayment of the PIP subrogation lien. State Farm's policy with the Mahlers gave every indication that it would pay its fair share of the lien in the usual case:

If the insured recovers from the party at fault and we share in the recovery, we will pay our share of the legal expenses . . .

What was hidden in a subsequent clause in this same section was obscure language which undercut any chance that State Farm would ever pay its fair share to the Mahlers:

This does not apply to any amounts recovered or recoverable by us from any other insurer under any interinsurer arbitration agreement.

State Farm wasted no time in sending me back a form letter essentially telling me to "get lost" as far as any credit to my clients on its PIP lien. The letter was full of the usual language that they did not in any way consent to my representation of their interest. What infuriated me about this arrangement is that State Farm had hidden in the weeds and let me do all the work over the past 2 1/2 years, waiting for the opportune moment to jump out of the bushes with their hand out for full compensation. When I got the letter from State Farm on May 12, 1995 , refusing to pay anything, something snapped inside me, akin to when Popeye The Sailor Man says, "This is all I can stand, 'cause I can't stand no more." The Tom Chambers WSTLA Roundtable speech several years prior sprang up in my mind and I found myself putting on battle armor for a subrogation lien credit in the amount of $1,500 (one-third of the $4,500 PIP lien).

I went to see what case law existed in the area of a plaintiff's right to reimbursement for legal expenses on a PIP lien. I was not terribly encouraged by what I found, an unbroken chain of bad outcomes. The
leading case at the time was Pena v. Thorington , 23 Wn. App. 277 (1979), which raised the question, "Did State Far m b enefit from representation by plaintiff's counsel?" Though the case established that a plaintiff had the right to argue for partial reimbursement of their legal costs and expenses by the insurance company, the plaintiff was unsuccessful in proving entitlement. There was no reported Washington case. While I was somewhat discouraged from my review of the reported cases, this only increased my resolve not to end up in the same circumstance. There had to be a way to force State Farm to make good on its illusory promise to give my clients a credit for their legal expenses.

I called in my clients and explained that we had a choice here, to do the expedient thing and let State Farm get away with essentially what was a sca m b ecause "It just wasn't worth it," or to take a stand and fight this on a basis of principle. I found in the Mahlers a very unselfish desire to do the right thing here, particularly after being treated so shabbily by State Farm during Elaine Mahler's post-accident treatment.

People who know me may find this difficult to believe, but I was raised in a proper Republican household where waste was abhorrent. So the first thing I did in Mahler was to conserve resources and recycle the cause number of the lawsuit that had just been settled against the defendant driver. No sense in filing a new lawsuit against State Farm if I didn't have to. I called up the lawyer for the defendant driver, Jerry Thonn, and asked him if he would mind if I amended the complaint to add State Farm as a party defendant. Mr. Thonn did not care, as long as this did not impede his clients dismissal from the lawsuit. I assured him it would not. I sent him a stipulation to amend the complaint, which he signed and State Farm was suddenly a defendant.

My next move was to begin an aggressive campaign of guerrilla warfare against State Farm, before they figured out what I was up to. First I moved for summary judgment on the issue of whether State Far m b enefited from my representation of their insureds. At this point, State Farm was still rather flat-footed, the sleeping beast still not fully roused to anger. It promptly assigned the case to one of its regular insurance defense counsel, who would be replaced fairly quickly. Two months into the case, we were on the summary judgment c ale ndar before Judge Nancy Ann Holman of the King County Superior Court. After a mean spirited argument from State Farm's counsel that basically demeaned the work that I had done in the case and sanctimoniously stated that my services were being "forced" on State Farm against its will, violating the "constitutional" right to freedom of choice of counsel, Judge Holman held that there was a genuine issue of material fact whether or not State Far m b enefited from my services. Clearly State Farm's counsel was not pleased by this turn of events and filibustered vociferously for the judge to change her mind. She did not. This case was there for the long run following Judge Holman's ruling.

About a month later, State Farm's attorney gave me a call and suggested that I talk to his adjuster to see whether the matter could be compromised. He acknowledged that the bill he was sending to State Farm for his services to date was "much more than the amount in dispute." I called the State Farm adjuster at his suggestion and was not overwhelmed by the attitude I encountered. After asking him whether there was any possibility resolving this on a non-litigated basis, he responded:

You want us to capitulate now? Forget it! I've had my deposition taken many times on these cases and our position is always the same: we don't share the PIP recovery with the plaintiff's attorney.

My opponent mentioned to me a few days later that there was more than one way to skin a cat. State Farm was going to try to pull the rug out from underneath me by going into intercompany arbitration against the defendant driver's company, American States. Taking that as a head's up, I brought another motion before Judge Nancy Ann Holman, in that she already had jurisdiction over the matter from the prior summary judgment hearing. I asked that she enjoin State Farm from proceeding against American States in intercompany arbitration until the matter was resolved in the King County Superior Court. After hearing howls of protest from State Farm's attorney that "we always decide these things in intercompany arbitration, this is highly irregular to have this before the superior court," she agreed to enjoin intercompany arbitration until the superior court action was resolved.

Secure in the notion that I had at least preserved the status quo, I then noted the deposition of the State Farm subrogation specialist on this case, Darrell Baskins on September 19, 1995. This was an ugly experience. State Farm's counsel engaged in lengthy speaking objections, constantly coaching the witness on what to say:

Q. So do you understand . . . that American States was raising unrelated pre-existing conditions as a defense to the damages in this case?

A. . . .

Q. Objection: at what point in time? Now? You're pre-supposing -- its foundation. He hadn't seen that. He wasn't a participant in the mediation.

A. I didn't attend the mediation, so I don't know.

After admonishing State Farm's counsel a number of times to conform his conduct to CR 30(h)(2-6), I adjourned the deposition and stated that I
was going to bring a motion for sanctions. In a somewhat comical fin ale to the deposition, State Farm's counsel continued to talk on the record after I left the room. Finally the court reporter said, "I'm sorry, the deposition is over, I'm not reporting it any longer." State Farm's counsel protested saying, "But he can't do that, I'm not done yet."

Plaintiffs moved to have the presiding judge of the King County Superior Court order that the subrogation issue against State Far m b e transferred to the Arbitration Department of the King County Superior Court. This was accomplished. Plaintiffs then moved in October, 1995 to have sanctions brought against State Farm's lawyer under CR 30(h) for his conduct at the September 19, 1995 deposition. This matter was heard by Judge Jim Bates who said, "These questions are always difficult, but I will not avoid making a decision just because it's a hard call. I find that State Farm's lawyer did obstruct the deposition and I award sanctions in the amount of $1,500."

State Farm then decided to change lawyers and brought a more aggressive, "in your face" attorney on board. The new plan was fairly transparent at the beginning, to make me the issue to demonize me. State Farm sounded this theme with the new attorney and would continue to use it throughout the Supreme Court argument, "Bailey is nothing but a greedy lawyer." Even though I stood to gain nothing by bringing this action, in that I was charging my client no additional fee for giving them a credit on the subrogation lien, State Farm apparently believed that the "greedy lawyer" argument would work regardless. State Far m b rought a motion to have me disqualified from the case on conflict of interest grounds. This was denied. State Farm then upped the ante and took my deposition, continuing the personal attack.

During this process, I thought of a remark made by a retired State Farm adjuster to me in the course of another case:

State Farm is a multi-billion dollar corporation. If you show up on their radar screen and prove to be an irritation, they will arrange to have you taken out and squashed like a bug.

I had graduated fro m b eing invisible to now a bug that they were intent on squishing. I suppose in some sense I was flattered that they were certainly spending a great deal of money to attack me in a case that only had $1,500 at stake.

In September, my partner Steve Fury had come up with a very clever strategic maneuver that was of invaluable assistance in the mandatory arbitration. I came into his office one night, already smarting from the rising level of personal attacks against me by State Farm. I expressed the difficulty I was having in tooting my own horn in this case, as the pre-condition for proving benefit to State Farm. Being raised in a proper midwestern middle class home, you weren't ever supposed to brag about anything. Yet, I was going to have to do some bragging about the work I'd done in the underlying case if I expected the arbitrator to find that I had conferred some benefit on State Farm.

Steve Fury said to me, "Well, do what we do in any other subject where we need to convince the trier of fact about something. Hire an expert!" The light bulb started to go on and I asked, "What kind of expert do you have in mind?" "Well, this is right in our own backyard, other trial lawyers of course. I think you should hire Tom Chambers, Bob Dawson and Hal Hodgins."

I immediately realized the value of this idea and had talked to all three attorneys 24 hours later. I explained to Tom Chambers that in some very real sense, all of this was his doing anyway. He chuckled and responded, "Of course I'll help. Welcome to the small group of windmill tilters." State
Farm's lawyer then went after each one of these individuals in depositions that lasted several hours. A number of similar points were mentioned by each:

1. State Farm was not entitled to subrogation lien here because they were undeserving in equity. State Farm made Elaine Mahler's claim against the defendant driver more difficult to pursue because of State Farm's hiring of medical experts to cut plaintiff off PIP.

2. Intercompany arbitration is only a rubber stamp, not a genuine contested hearing.

3. Even if State Farm had pursued the claim in intercompany arbitration, there were still risks of findings of comparative negligence against plaintiff.

4. State Far m b enefited from the representation of plaintiffs' counsel.

The mandatory arbitration hearing itself was assigned to David Karlen of the Oles Morrison firm. My initial inclination was to strike Karlen as someone that would be overly defense -minded and sympathetic to State Farm. However, I had a friend who was a former member of the Oles Morrison firm and I called him for political intelligence. He responded, "Oh no, you want to keep Dave Karlen. He's very intelligent and has been involved in insurance subrogation disputes from a plaintiff's perspective in construction cases." State Farm's counsel assumed that Karlen would be sympathetic to its position so when I did not strike Karlen, he became our arbitrator. This was a key factor, in that Karlen's intelligence and experience were invaluable in sorting out the genuine issues in the case.

The arbitration itself was an all day headbanger. The defendants brought in a full complement of experts including retired defense lawyer, Roy Moceri, who was asked, "Did William Bailey do anything in this case to
benefit State Farm?" Moceri glared at me coolly and said emphatically, "Absolutely nothing!"

Karlen ultimately concluded that the intercompany arbitration in this case was nothing but a rubber stamp. He awarded the Mahlers $1,500 as a credit against the PIP subrogation lien.

In truth, I hoped that State Farm would go away after this. Its lawyer was non-committal, stating that all options were "under consideration." I felt that I had proved my point and frankly, I was getting a bit tired of being savaged by State Farm. It also did dawn on me that all the time spent at this point was wildly disproportionate to the amount at stake. However, I was determined to stay the course no matter what.

When State Farm filed a de novo appeal, I knew that it was time for me to look to the bullpen for replacement counsel. Not only was I beyond my expertise in the finer points of insurance law, but it was clear that the personal attacks were not going to go away and that my clients would be better served if I was a witness on their behalf in the ensuing litigation. This whole situation had grown far beyond my initial conception, which had a large visceral component of "This ain't fair and I'm not gonna take it."

One of the positive aspects of the Mahler litigation was how a number of lawyers worked together well. When I decided it was time to get out as the attorney and become a witness, I called two lawyers that I greatly respect in the area of insurance law, Pat LePley and Dick Kilpatrick. They took over where I left off and presented a compelling summary judgment case before Judge Richard Eadie in the King County Superior Court. After Judge Eadie's ruling in plaintiffs' favor, the consensus among Pat LePley, Dick Kilpatrick and myself was that we get appellate court based Charlie Wiggins involved in the case to maximize our chances of success. Charlie's track record
challenging appellate cases is well-known to all. I called Charlie as the point man, ready to beg if need be. This was not necessary, as he graciously agreed to take over.

I had put the Mahler case pretty much out of my mind until the call came that the opinion was out. On one level, it was somewhat incredible to me how what had started out as a very simple thing had ultimately grown to such system wide proportions.

As I look back on this whole experience, what sticks out in my mind is all the cooperation, advice and support I got from other members of our profession. For example, even though Tom Chambers was his usual overcommitted, he made the time to go over the extensive materials in this case and serve as an expert witness. So did Bob Dawson and Hal Hodgins. The other thing I am proud of is that the system works, that windmill tilting can ultimately make a difference in the lives of the average citizen in American society. The cynic in my says that State Farm and the big insurance companies will find some way to get around this decision through changes in their business practices. But for now, I am proud to have been a "fly on the elephant," who didn't get "squashed like a bug on the ground."

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