$90M Adjuster OT Verdict Rocks Insurers
Last week's $90 million judgment against Farmers Insurance Exchange for failing to pay overtime to adjusters in California will be followed by legal action against other insurers in other states, the plaintiffs' attorney warned.
"Some will be facing lawsuits; others have changed their policies," said Steven Zieff of Rudy, Exelrod & Zieff, the San Francisco-based law firm that brought the successful class action against Farmers on behalf of 2,402 adjusters. Insurer representatives said Allstate and State Farm are already targets of such suits.
Joyce Kraeger, staff attorney for the Alliance of American Insurers in Downers Grove, Ill., said the key ruling that led to the California verdict "could certainly have impact outside the state."
Farmers said it plans to appeal the decision by a jury in Oaklands Alameda County Superior Court. The only question before the jury was the amount owed to workers. The issue of whether Farmers was responsible for overtime was decided last year with a ruling that claims adjusters were not exempt administrators, and under state law were entitled to overtime pay.
Farmers appealed that decision to the California Supreme Court, which ruled in the adjusters favor last month and refused to hear the case. Under the law, employees who are exempt from overtime must spend most of their time on responsibilities that are managerial, intellectual or creative and duties requiring independent judgment and discretion.
Mr. Zieff, who noted that about 20 percent of the plaintiffs still work for Farmers, said he would seek to have the court immediately compel Farmers to begin paying overtime to adjusters. He said a survey showed that typical adjusters worked 50 hours a week and earned $30,000 a year.
The verdict award applies to compensation claims from October 1993 to June 26, 2001, when the latest trial started. Interest and attorneys fees could boost the award above $100 million.
Kirk Hansen, director of claims for the Alliance of American Insurers, said the decision has a "negative implication for the entire American economy." He said that in addition to another case of this kind against Allstate, "there are similar lawsuits pending in other industriesThe entire wage structure here is being called into question. It could spread chaos and turmoil across the board."
Ms. Kraeger of the Alliance said the umbrella law for overtime pay is the Federal Fair Labor Standards Act, and that each state has its own version of the federal law. A ruling in "a state as large and influential as California," she said, could provide meaningful case law precedent that other states will look at.
The Farmers employees involved in the case process auto and homeowners claims. The company said such field claims adjusters "have historically been treated as exempt employees throughout the country. The verdict in this case has the effect of setting California adjusters apart from their peers in other states."
Farmers said the benefits for adjusters being classified as exempt include independence, treatment as professionals, and an ability to set their own hours. A non-exempt classification will mean having to keep time cards, working a 9 a.m. to 5 p.m. schedule, accounting for all hours worked to a supervisor and being treated as an hourly worker rather than a professional, the company said.
Insurers say that if a California decision on overtime pay stands, adjusters might have to start punching a time clock, account for all hours worked to a supervisor, and be treated as an hourly worker rather than a professional.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, July 20, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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