State Farm tries to silent whistleblower.

What does an insurance company do when a former employee exposes internal company policies used to deny coverage? In the case of State Farm, it places an immediate gag order on the whistleblower (see Abstract to Declaration of Amy Girod Zuniga, at http://www.callaw.com), and, according to State Farm attorney Julie Roback, quickly removes all allegedly defamatory documents from the courthouse to prevent public access (see Solomon Moore, State Farm accused of forgery to avoid claims lawsuit, L.A. Times, June 4, 1997, at B1).

As a result of written declarations by Amy Zuniga, after she left her position at State Farm Insurance Co. as a litigation unit handler, Judge Charles McCoy Jr., of Los Angeles County Superior Court, reversed an earlier summary judgment ruling he had granted to the insurer in a case brought by attorney Steven "Bernie" Bernheim against the insurer in 1995 for denying earthquake coverage. (Paul Elias, Plaintiffs' bar abuzz over State Farm case, The Recorder, Apr. 24, 1997, available at http://www.callaw.com.)

With another action pending against State Farm for failure to provide or adequately insure, brought by Roderick and Krista Taylor, the company immediately brought a SLAPP (Strategic Lawsuit Against Public Participation) suit against Zuniga. In June, however, the Los Angeles Superior Court granted Zuniga's motion to strike State Farm's SLAPP suit (State Farm v. Zuniga, No. BC158561 (Cal., L.A. County Super. Ct. filed June 5, 1997).)

Although the Taylor trial court held that Zuniga's declarations should be made public, the court agreed, based on attorney-client privilege, to temporarily seal the declarations during State Farm's appeal. The Second District Court of Appeals ruled that Zuniga's declarations can be made public because substantial evidence supported a finding of a prima facie case establishing the crime/fraud exception to the attorney-client privilege. (State Farm v. Superior Court (Taylor), No. B106120 (Cal. Ct. App. filed Apr. 22, 1997).) On July 9, the California Supreme Court denied State Farm's petition for review. (State Farm v. Superior Court (Taylor), petition den., No. 5061841 (Cal. filed July 9, 1997).) Zuniga's declarations are now open to the public.

State Farm's actions could well have been in anticipation of suits brought by 165 homeowners against the insurer alleging failure to provide earthquake coverage in violation of their policy. (Allegro v. State Farm, No. BC126014 (Cal., L.A. County Super. Ct. filed Apr. 17, 1995).)

Zuniga says that her supervisors at State Farm told her "to lie, destroy documents, and manufacture evidence" so the company could win summary judgment in the class action suit Bernheim was handling. She also says State Farm failed to warn California policyholders who did not have earthquake coverage, as was required by state law. Instead, she claims, State Farm agents signed their names to earthquake waiver coverage.

Zuniga further alleges that her supervisor repeatedly advised her and other employees to refer to the signing of policy-holders' names as "unauthorized signatures," never as forgeries. John Bishop, a senior executive, also ordered employees not to admit that these "unauthorized signatures" occur unless they were ordered by the court to do so.

Zuniga's declaration alleges additional internal acts by State Farm, including hiding and altering documents for discovery. The declaration also alleges the insurer implemented a "minor impact"/"low damager" policy forcing smaller claims to be fully litigated and resulting in the policy-holder absorbing the loss rather than collecting policy benefits.

Visit the Internet at http://www.callaw.com or contact ATLA at [phone], ext. 351, for copies of Zuniga's testimony.