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Former State Farm attorneys sue over unethical practices in Utah

In the wake of State Farm Mutual Automobile Insurance Cos.' largest policyholder dividend ever, two former employees are suing the insurance giant alleging that those gains may have come at the cost of their ethics.

State Farm forced the two lawyers to "report to, receive directions from, and be subject to the claims personnel regarding thr legal handling of cases."

Richard K. Spratley and Brett G. Pearce, both former in-house attorneys for State Farm in Salt Lake City, who were often called upon by the insurer to represent its policyholders in court for car accident cases, allege that they were forced to commit "unlawful and unethical activities" by State Farm, including requiring the two to stay silent about the rights of the policyholders who could have demanded settlement of lawsuits.

According to the suit, filed in Utah's 3rd District Court in Salt Lake City, State Farm forced the two lawyers to "take legal and factual positions which were not in the best interest of the insureds," but instead that were in the best interests of State Farm, despite the lawyers' legal and ethical duties to do the opposite.

The insurer allegedly attempted to subordinate the legal practices of Spratley and Pearce to the authority of the claims department when the two lawyers were defending State Farm policyholders. They allege that the claims department controlled or attempted to control how they evaluated their cases and ordered them to bring cases to trial instead of settling within the limits of the policy — a practice that exposed policyholders to judgments above the limits of their policies — in an effort to win smaller decisions.

When Spratley and Pearce protested, it allegedly brought about a rash of retaliatory acts at work, including derogatory and demeaning comments from members of the State Farm claims department, a demotion for Spratley, and reduced salaries and bonuses that ultimately forced the two out of the company.

The two former State Farm lawyers also allege that:

  • The claims department controlled or heavily influenced their budget and salaries.
  • They were forced to "report to, receive directions from, and be subject to the claims personnel regarding the legal handling of cases."
  • The claims department used them to violate other laws, rules, and regulations.
  • They were wrongfully fired by the insurer.
  • They were forced to hide facts from their clients and the courts.
  • State Farm acted "with reckless indifference to the truth . . . and for the purpose of corporate and personal economic gain."

"State Farm always looks out for the best interests of our policyholders," says Maria Taylor, a spokesperson for the insurer. "It's part of our mission statement. We don't feel that these allegations have any basis."

According to L. Rich Humpherys, the lawyer for the two former State Farm employees, this case bears a distinct resemblance to a case currently under appeal by State Farm before the Utah Supreme Court.

In the earlier case, Campbell vs. State Farm Mutual Auto. Ins. Co., the insurer was ordered to pay one of its customers $145 million for the same kinds of actions that Spratley and Pearce allege they were forced to commit — misleading claimants about benefits and exposing policyholders to unnecessary trials that put them in danger of personal liability above their policy limits.

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