Claims Software Cited in Bad Faith Suit

Ms. Martin's attorney, Mike Nelson of Seattle-based Nelson Tyler Langer said the complaint against Farmers Insurance Company of Washington, a subsidiary of Los Angeles, Calif.-based Farmers Insurance Group, alleges the insurer used COLOSSUS to deny Ms. Martin's underinsured motorist claim.

"This is a case of first impression," and no other court has considered the issue of whether a settlement offer, totally based on a claims estimation software calculation, can amount to bad faith, Mr. Nelson said.

Ms. Martin's vehicle was rear-ended by a driver carrying only $100,000 in automobile liability limits. The at-fault driver's insurer settled by paying the policy limit.

Ms. Martin then tried to collect additional damages from the underinsured motorists coverage in her Farmers policy. Her lawsuit alleges that Farmers, in bad faith and based on its total reliance on COLOSSUS, refused to pay any damages over and above what she had already collected from the driver's insurance company.

Three years later, an arbitrator ruled that Ms. Martin's total damages from her injuries was $377,000, including pain and suffering, depression and diminished ability to interact with her husband and children. After the arbitration, Farmers tendered its $100,000 policy limit under the underinsured motorists coverage.

In her lawsuit, Ms. Martin alleges that Farmers is liable for additional damages in excess of policy limits due to its bad faith, breach of contract and violation of consumer protection laws, Mr. Nelson noted.

"To Farmers, COLOSSUS is God," said Mr. Nelson, quoting what he said he had been told by a former Farmers claims supervisor. "The purpose of COLOSSUS is to calculate a plaintiff's pain and suffering. But how can a computer do that?" Mr. Nelson asked rhetorically.

"The whole concept of using a computer to evaluate personal injury is flawed," Mr. Nelson continued. "A computer can't replace human judgment. How can it put a price on a wife's relationship with her husband and children?"

"Insurance companies use COLOSSUS as a way to force lower payments and settlements," Mr. Nelson said.

Farmers Insurance Group did not return a telephone call seeking comments on the case.

El Segundo, Calif.-based Computer Sciences Corporation, which licenses the COLOSSUS software, is not a party to the lawsuit.

John Tyler, a director in CSC's financial services group, describes COLOSSUS as "a tool to assist adjusters in evaluating claims and making fair recommendations." Mr. Tyler noted that COLOSSUS considers medical records, treatments and complications related to the injury, and includes a component on the impact of the injury on the injured party's lifestyle.

"COLOSSUS doesn't ask everything that's needed to adjust the entire claim," Mr. Tyler said. "In fact, COLOSSUS only evaluates general damages, not specific damages, and does not consider certain other extraneous factors. These additional components must be taken into account by the adjuster outside of COLOSSUS to fairly adjudicate the claim."