By Anne C. Vitale

Five former State Farm insurance agents who claimed that they were terminated after publicly speaking out about the company's management practices have won $20 million in their Jackson County breach of contract and tortious interference with business relations case against State Farm. The verdict is reported to be the county's second-largest this year.

"These were independent contractor agents with an average tenure of 24 years who each ran very successful agencies," said Norman E. Siegel of Kansas City, who represented the plaintiffs with his partner, George A. Hanson. "The agents spoke out after a series of verdicts and settlements against State Farm that called into question State Farm management's treatment of policyholders."

State Farm argued that there was no need for the agents to go public with their criticisms, and that they could terminate the agents at-will. But the agents maintained that they were compelled to go public to counter the company's "spin" on the multi-million dollar lawsuits.

Although his small Kansas City firm was taking on the nation's largest insurance company, Siegel said he did not feel like the underdog because "technology has substantially leveled the playing field."

John Wiscaver, a spokesperson for State Farm, said the company "appreciates the jury's efforts, but is disappointed by their decision." He said State Farm "believes our actions were appropriate and does not believe the verdict was supported by the evidence presented at trial."

Regarding the possibility of an appeal, Wiscaver said, "We are continuing to evaluate the verdict and explore our options."

Agents speak out

Joseph Kelly of Joplin, Mo., opened a State Farm insurance agency in 1957 and ran the agency successfully for 42 years. Tana Glockner of California, Md., Clifford Lykke of Houston, Texas, Michael Morgan of Centerville, Ohio, and Lee Saghirian of Odenton, Md., also operated successful State Farm agencies in their respective cities. Collectively, they had over 115 years of service with State Farm.

Like all other State Farm agents, the five plaintiffs worked as independent contractors running their own businesses. According to their agent agreements with State Farm, a "paramount" duty for each agent is to "protect policyholder interests," Siegel said.

In the mid and late1990s, he said State Farm got hit with a series of substantial verdicts and settlements "that revealed improper claims handling, fraudulent use of medical utilization reviews, specification of non-OEM (original equipment manufacturer) replacement auto parts, and other practices considered harmful to policyholders." For instance, in October 1999, an Illinois class action over State Farm's use of non-OEM parts resulted in a $1.2 billion verdict against the company, which remains on appeal.

Just weeks after that verdict, Siegel said the plaintiffs decided to speak out publicly about the company's management practices. On Oct. 29, 1999, Morgan and Glockner participated in a press conference in Washington, D.C., during which a group of agents and policyholders pressed State Farm management for an internal investigation of its practices.

That same day, he said the group sent a letter to Sen. John McCain, then-Chairman of the Senate Commerce Committee. The letter also called for an investigation of State Farm's management practices and was signed by about 40 State Farm agents, including all the plaintiffs except Kelly — who was out of town at the time.

A few days after the press conference, the Chairman and CEO of State Farm, Ed Rust Jr., provided a response by video conference and the Internet to the 16,000-plus State Farm agents nationwide, Siegel said. During this response, he said Rust alluded to the plaintiffs as "turkeys," stating that there would be "plenty to go around this Thanksgiving."

A few weeks later, the group of agents sent another letter to all 50 insurance commissioners — one in each state — with the same request for an investigation of State Farm's corporate treatment of policyholders, Siegel said. This time, all five plaintiffs signed the letter.

The following month, in January 2000, State Farm terminated each of the plaintiffs' contracts. The plaintiffs responded by filing a breach of contract and tortious interference with business relations suit against the company in 2002.

At least one other agent from the original group that signed the letters was also terminated, Siegel said. He noted that the agent, who is located in Washington state, has also retained counsel and filed suit.

Corporate 'spin'

"Because State Farm is a mutual benefit company owned by the policyholders, the agents believed they were obligated by their contracts to speak out on the policyholders' behalf," Siegel said the plaintiffs maintained at trial. He explained that the agents called the press conference to bring their concerns to the attention of State Farm management.

In response, Siegel said that a major theme in State Farm's defense was that there was no need for the agents to go public — that this was a matter that should have been addressed internally.

To counter State Farm's defense, Siegel said he argued that what the company said publicly was always laced with corporate "spin," and that the company asked its agents to "spin" the outcome of the adverse verdicts and settlements to its policyholders. He emphasized to the jury that there was a great disparity in what the agents were hearing in the media and reading in newspapers and what State Farm was saying.

For instance, Siegel cited a 1996 Utah fraud case against State Farm. He presented excerpts from a scathing opinion from a Utah state appeals court judge ruling that the company should pay $25 million in punitives for the "systematic manipulation of individual claim files to conceal claim mishandling," and stating that "…State Farm's corporate policies involve betraying the trust that it invites policyholders to place in it."

In that case, Siegel said the official response from State Farm was that the jury award "…demonstrates how our legal system is being twisted and abused for personal gain by the plaintiff's legal counsel."

In a 1998 case, Siegel said State Farm was accused of fraudulently selling whole and universal life insurance policies, resulting in a $238 million settlement. In response, he said the company told agents, "Continue to sell life insurance," and "Don't talk to policyholders about the case."

Therefore, based on the inconsistencies in what the plaintiffs understood about these and other cases and what State Farm said about them, Siegel said the plaintiffs believed they had no choice but to go public with their concerns since the company was "in denial."

At trial, Siegel questioned State Farm's Assistant Vice President of Claims, Warren Farrar, about what he would say to agents if asked about the series of verdicts against State Farm. In several instances, he said Farrar testified that he would simply state that the cases are "on appeal."

In further defense of the claims, Siegel said State Farm argued that the plaintiffs were disgruntled agents and that they could terminate the agents' agreements at any time for any reason. Ultimately, he said, the company maintained that the agents' obligations to company management trumped their duty to protect policyholders.

At the conclusion of the three-week trial, the jury deliberated for about five hours before siding with the five plaintiffs. The jury awarded them a total of $6.73 million on their breach of contract claims, $8.73 million on their tortious interference claims, and $11.03 million in punitive damages. Since each plaintiff recovers the greater of the contract claims versus the tort claims, plus punitive damages, the verdict was offset for a net recovery of $19,760,000.

'Simplify'

In reflecting on the trial, Siegel offered a concise practice tip: "Simplify."

"There were about 100 pages of jury instructions that took 90 minutes to read to the jury," he said. "I started closing argument by demystifying the lengthy instructions for each plaintiff so that the jury was at ease in navigating them during deliberations."

After the verdict, he added, "several jurors commented that they appreciated the fact that I 'taught' them the instructions in a way that made the rest of my closing ring with credibility and clarity."

Hanson, Siegel's partner and co-counsel on the case, stressed the importance of "maintaining credibility and managing the jury's expectations of the evidence."

"We had good facts with strong jury appeal," Hanson said. "During jury selection and opening statement, I presented the facts, but resisted the temptation to over-sell the case. I think the jury appreciated that the evidence ultimately presented was consistent with — and sometimes stronger — than I had promised at the beginning of trial."

David v. Goliath

Siegel and Hanson are founding members of Stueve Siegel Hanson Woody LLP in Kansas City. According to Siegel, they started the firm in January 2001 with three lawyers and have grown to 10 in less than five years. Although it is still a small firm, he said the named partners were all partners at big law firms in Kansas City practicing complex litigation — Siegel was a partner at Sonnenschein Nath & Rosenthal, Hanson was a partner at Blackwell Sanders.

Since its inception, Siegel said the firm has specialized in representing small businesses and individuals in complex cases, typically on a contingency basis. The firm has had substantial success over the last several years in the courtroom, he said, with this case marking their third verdict of at least $1 million in the last three years.

With their combined background and experience, coupled with technological resources, Siegel indicated that the firm felt no lack of confidence when taking on the Bloomington, Ill.-based insurance behemoth.

"Our ability to do battle with some of the largest companies — and largest law firms — in America is two-fold," he said. "First, because we all came from these law firms and represented large companies, we are not intimidated by defendants' size and litigation tactics.

"Second, and more importantly, technology has allowed us to handle the largest cases without the army of associates historically required to litigate a big case," he added. "We have spent substantially on resources such as Summation and high-speed scanning systems that allow us to manage cases that involve tens or hundreds of thousands of documents. Resources like Westlaw and hiring top-level associates have ensured that our written product is as good as or better than anything we see from our opponents."

©2005 Lawyers Weekly Inc., All Rights Reserved.