ACE TPA Unit Must Pay $4.7 Million Award

A jury in Napa, Calif. has awarded Marin School Insurance Authority $4.66 million stemming from a lawsuit against third party claims administrator, ESIS, Inc., a unit of ACE USA, for sloppy claims handling.

The Feb. 20 verdict in California Superior Court came in an action that alleged breach of contract, negligence and promissory estoppel.

Marin Schools Insurance Authority consists of 21 agencies in Marin County, Calif.--including 18 school districts, one community college, one county office of education, and one pupil transportation agency.

Philadelphia-based ESIS, based in Philadelphia, was sold by CIGNA to ACE in 2000.

According to the Marin School Insurance Authority's law firm--Thelen Reid Brown Raysman & Steiner LLP--ESIS had served for decades as the workers' compensation claims administrator for the Marin risk pool's comp claims.

According to the firm, an independent audit commissioned by the school districts in 2004 found that Marin's claims, handled out of ESIS' Fremont, Calif., claims office, were not properly administered.

Some of the mishandling was said to include failing to give timely notification of when claims could pierce the self-insurance retention level, thereby triggering excess liability coverage; failing to properly investigate new claims; and failing to object to unreasonable and excessive medical treatments.

"The Fremont, Calif., claims office of ESIS was in serious disarray," said Daniel Sovocool, with the Thelen law firm, who represented the school districts. "ESIS actually rehired a former corporate officer, presumably to have him fix things, but he ultimately testified against ESIS at trial."

After an almost five-week trial, the jury took less than a half day of deliberation to return unanimous verdicts on the breach of contract and promissory estoppel causes of action. They ruled 11-1 in the plaintiff's favor on the negligence cause of action, according to the Thelen firm.

"This victory is especially rewarding considering how uncommon it is for public risk pools to sue their claims administrators," Mr. Sovocool said. "With the complexity of this type of case, it can take considerable resolve to hold claims administrators accountable for poor claims practices."

Mr. Sovocool made a prediction that more scrutiny will now be given to third-party claim administrators, and said he believes this case could propel similar suits around the country.

One other named defendant, the Schools Excess Liability Fund, was dismissed late in the trial.

Asked about the casem a spokesperson for Ace said by e-mail, "We do not comment on any matters in litigation, according to company policy."

This article updated 3:29 p.m. EST