TEXARKANA, Ark. (Legal Newsline) - Rather than battle it out in a rural Arkansas court, most insurance companies targeted in a 2005 class action lawsuit forked over millions to settle conspiracy and fraud allegations involving the claims adjusting software Colossus.
More than 500 insurance companies were named in the suit filed by 15 plaintiffs over the use of Colossus, which the plaintiffs describe as a cost containment tool used to enhance profits at the expense of the insured.
Initially, insurance companies attempted to have the case tried in federal court, but because the case was filed prior to the Class Action Fairness Act, they were unsuccessful and the case remained with Circuit Court Judge Kirk Johnson in Miller County, Ark.
The case lingered in Miller County for years, costing the insurance companies millions in defense costs.
The companies attempted to obtain rulings and hearing on various motions, but rulings were delayed, often to the insurance companies' detriment. Defendants believed the force of judicial economy prevented Judge Johnson from making a ruling, which was justified under an Arkansas law that states, "The Court may not inquire into the merits at the certification stage."
Judge Johnson's delayed rulings on motions and on class certification prevented the insurance companies from appealing the case to higher courts - either the Arkansas Court of Appeals or Arkansas Supreme Court.
Many of the companies' pending motions argued that they were not proper parties to the Arkansas lawsuit, as they did not conduct business in Arkansas or because there was not a single plaintiff with allegations against their particular company.
Some companies complained that the Miller County Circuit Court was an inconvenient location, lacked resources and that a nationwide class action was congesting its docket.
While rulings were delayed, discovery was not. Plaintiffs bombarded insurance companies with numerous requests for production of documents and other requests. They asked the companies to produce all bodily injury claim files beginning in 1996. With hundreds of defendants and thousands of bodily-injury claim files, the production request had the potential to result in hundreds of thousands of files at a cost of millions.
While insurance companies tried to protect their clients' personal information by denying the plaintiffs' requests or by redacting private information, their resistance was met with harsh consequences. One group of insurance companies, Foremost Insurance, was sanctioned by Judge Johnson for not complying with the plaintiffs' discovery requests.
The insurance companies argued that the discovery requests were unrealistic and were strictly an effort to force settlement.
With Judge Johnson's lack of rulings on motions and allowing excessive discovery, the insurance companies began to settle as the costs of producing documents exceeded the cost of exiting the case.
All of the companies settled except for a group of insurance companies referred to as the ANPAC group, which was severed into separate litigation with plaintiff James Earl Basham on June 11, 2008.
Once severed into a separate case, ANPAC (again) requested hearings and rulings on numerous motions.
"The motions were never ruled upon, resulting in a denial of the ANPAC Defendants' due process rights, as justice delayed is justice denied," ANPAC stated.
Plaintiff Basham died on Jan. 31, 2010, but the insurance companies did not discover the death until more than four months later.
One of the deceased's attorneys stated that the death was not disclosed for "strategic reasons."
The attorneys went to probate court and had the eldest son appointed administrator of the Basham's estate. With court proceedings still continuing in the case, ANPAC extended a settlement offer to Bashman's attorney in November 2011.
The settlement offer would have provided the estate with $20,000 under several conditions, including approval by the probate court, the posting of an appropriate bond, and the proper notification and paying of all creditors. ANPAC stated that the settlement offer was an effort to end years of litigation and prevent years more, and that it was also in the best interest of the Basham family.
The settlement offer was considered reasonable by the insurers, given the original damage award at issue. According to court documents, James Basham was involved in a car accident in 1997 and aggravated a pre-existing injury to his back. In October 1997, the Colossus software recommended a settlement range of $6,809 to $7,969. Basham settled his claim for $7,168.37 and did not attempt to negotiate the insurance award.
During questioning on the issue, Basham was asked what amount would have been a fair payment for the 1997 accident and he stated that if he had been paid $5,000, that would have been fair.
ANPAC states there was no response to the settlement offer.
Approximately one month after the settlement offer was made in December 2011, the plaintiff's attorneys non-suited the case. The case was refiled in the rural Arkansas Court with an additional plaintiff.
The ANPAC group maintains it will continue to fight the complaint.