Stella Liebeck was the winner in the infamous McDonald’s coffee case. She was awarded $2.86 million for serous burns and vaginal surgery she endured due to spilling 180-degree coffee in her lap. Coffee at that temperature can generate third-degree burns in two to seven seconds. (She only asked McDonald’s to pay the hospital bill, but they refused, ergo, the lawsuit.)
Few people understand why such an incident, even where there is negligence, should generate such a large award. The amount approximated the amount of money McDonald’s had made selling too-hot coffee over a two-day period. They wanted to punish the company, and so awarded “punitive” damages. It may be true that Liebeck did not endure damages anywhere near that amount- perhaps a civil penalty is a better route in these affairs. Nonetheless, the impulse is a good one – companies should not profit from antisocial behavior.
Jennifer Latham of LaFayette, Colorado, took out an individual health insurance policy from Assurant Health, also known as Time Insurance Company. Latham and her husband (uninsured) were subsequently seriously injured in an auto accident, not their fault, and she incurred $185,000 in medical bills. Saying that Latham had committed insurance fraud by not reporting an emergency room visit for shortness of breath and treatment for uterine prolapse on her insurance application, the company rescinded her policy and refused to pay the bills.
The jury awarded Latham $37 million in punitive damages. This is a crystal-clear case of insurance fraud by an insurer – the omissions on the application were clearly unrelated to the incident for which coverage was denied. But most rescission cases are a little bit grayer than this – people do commit insurance fraud, not that I much care. We don’t need health insurance companies, after all.
But the jury could have been a little more thorough – they could have estimated how much money Assurant has made from policy rescission over the last, say, 20 years, and awarded her that amount, which would have run into the hundreds of millions. After all, the company has employees who do nothing but rescission. Punishment in that amount would be appropriate, and might perhaps discourage Assurant from further antisocial behavior. As it is, they are chastened, but will likely carry on as before. Investors demand no less. Rescission is profitable.
Beyond that, they might have invoked the corporate death sentence. Since corporations are legal persons, they should do as all of us must do some day … die.
Latham and her four children are currently living on Social Security, and Assurant will appeal the decision. It will be years before they cut a check.
Footnote: Tort “reform”, or limiting of such damage awards, would further encourage the Assurants of this world to abuse the Lathmans of this world. Such an award, in a tort-reformed system, would not be allowed.
Piece of Mindful 
I suspect that the same anxiously adversarial lawyering that cooked up the $2.+ million hot coffee award helped cook up the to-the-wall rescissions.
We have state insurance commissions that should be stopping egregious rescissions, but advocates tell us “they’re too weak, we need a federal umbrella” and off we go adding more layers of dubious efficaciousness.
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So where are you at? Does it regulate itself? Does it need a regulator?
Or, does it even need exist? Tell me what function private health insurance serves that justifies giving it 20-30% of our health care dollars.
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Insurance needs to be regulated. We need to strengthen the state regulation. Fix what we have.
We should separate “insurance” from “funding health care”. For those with no insurance and no funds, we need to define a basic level of publicly funded care for the various chronic conditions that present. I was interested in Tennessee’s program along these lines. What torpedoed it was activists who went to court and added more and more care to the basic package until they were back to the current program of giving four liver transplants to illegal aliens and costs ballooned to the usual level.
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