Reprinted from the Anchorage Daily News , Friday, March 5, 1999 , Jury punishes State Farm, by Liz Ruskin, Daily News reporter

An Anchorage jury on Thursday awarded $150 million to a former State Farm Insurance agent who said he lost his agency because he insisted on telling his customers the truth about life insurance.

"We're incredibly disappointed with the jury's verdict," said attorney Michael Lessmeier, who represented State Farm Insurance in the case.

Bob Bellott, who operated a State Farm agency in Anchorage for 21 years, claimed the company pushed its agents to sell life insurance and annuities to customers by making them sound like good investments.

"They wanted him to say 'This is a great way to save for retirement, a great way to save for your child's education,' and it's not," said Rick Friedman, Bellott's attorney.

The company trained its agents to sell certain life insurance policies by pointing out that the policyholder's payments create a fund that grows and that the person can borrow against or withdraw from it while they are still alive, Friedman said, even though the rate of return isn't very good compared with stocks, bank certificates of deposit or other investments.

One training script taught agents to sell such insurance to a fictitious 55-year-old widow by getting her to believe it's for her retirement, he said.

To better answer his customers' questions, Friedman said, Bellott got training in financial planning and obtained a securities license in 1995. He sold other investments out of his agency but wasn't violating his contract with State Farm because he wasn't selling other types of insurance, his attorney said. But he told company officials he didn't feel that he could hand out brochures that misled people into thinking life insurance was a great investment option, according to Friedman.

State Farm has about 17,000 independent agents. As part of the agency contract, the company retains the right to control the marketing materials the agents use to sell State Farm policies.

The company terminated his agency agreement in August 1996.

The same Superior Court jury on Wednesday awarded Bellott $2.7 million to compensate him for the loss of his agency, then returned Thursday to decide the punitive damages.

Friedman urged the jury to send a message, not only to State Farm but to the rest of the insurance industry, that such marketing ploys are wrong. They'd have to come up with a big number to get the attention of a company as large as State Farm, he said.

"What does $1 million mean to State Farm when it's growing at the rate of $20 million a day?" he asked in his argument for punitive damages.

It might be impossible to come up with a figure that would actually punish State Farm, "but hopefully, at least you can get the word out," he said.

Lessmeier asked the jury to use discretion. The first verdict, in which the jury said State Farm had wronged Bellott, was enough to get the company's attention, he said.

"I can tell you that your ($2.7 million) verdict has shaken me to the core," the State Farm lawyer told them.

He read from company documents that told agents they should only market life insurance policies to people who have life insurance needs.

Outside the courtroom, Lessmeier said the company had not tried to blur the line between investments and insurance.

"We market our insurance products as insurance products," he said.

The main theme of Bellott's case, that he was fired for telling his customers the truth, emerged late in the case as the trial neared, Lessmeier said. It was not the real issue, he maintained. The problem, he said, was that Bellott was running another investment business out of his agency.

The Bellott case is not the first to raise questions about State Farm's marketing tactics. Last month, State Farm agreed to settle for $238 million a class-action lawsuit brought by policyholders Outside. That case, among other things, accused the company of soliciting sales by referring to life insurances policies as "investments" and "retirement plans." It also said policyholders were duped into switching to policies that lost value.

Thursday's $150 million award was the biggest verdict ever for Friedman, who has won several cases against insurance companies but has yet to collect on any.

In 1996, Friedman won a $16.5 million punitive damages award against Aetna Insurance Co. in a federal trial in Juneau. His client was a state worker who said she lost her home and had to live in her car after she became disabled in an accident and the company refused to pay benefits she was entitled to. The judge, however, reversed the jury's punitive damages award, and the case is still being fought. Last year, another of Friedman's clients won an $8.4 million punitive damages award against Aetna for refusing to pay long-term disability benefits to a state worker disabled by congestive heart disease. That case is on appeal.

Friedman also won a $9.6 million verdict against State Farm in an Idaho case.

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Commentary by Bob Bellott

Hello Jack,

Its true. We went the distance all right. The case ended today at about 4:00 p.m. Alaska Standard Time in State District Court, Anchorage, Alaska. Verdict in favor of Plaintiff (Robert J. Bellott Insurance Agency, Inc.)

Compensatory damages were $2.7 million. With interest and attorney's fees to be awarded, it will total $3.7 million. In addition, punitive damages awarded were $150 million. I know, it sounds incredible. The award will be appealed for certain, but in the meantime, interest of 15.5% annually means the clock is ticking at the rate of $22 million per year. I think we got their attention now. Perhaps all agents on the old contract can sleep a little better.

A cautionary note: Agents should not get cocky or sassy over this victory. Only an extraordinary set of circumstances combined to allow this to happen, not the least of which was my brilliant attorney, Richard Friedman. Hats off to second chair Pete Ehrhardt also.

Thanks again for the good wishes.

Bob Bellott

Robert J. Bellott, MBA, CFP