Source: April 1999 edition of The Mirror, A Magazine for Independent Contractor State Farm Agents

By Cookie Bakke, NASFA Executive Editor

While it might be cold in Anchorage, attorney Rick Friedman is feeling warm and fuzzy. So is his client, Bob Bellott, after recently being awarded $2.7 million in actual damages and $150 million in punitive damages in a major victory against State Farm.

Mirror: What was your understanding of Mr. Bellott's situation when he first came to you?

Friedman: I was aware that he was a terminated State Farm agent, but I didn’t know a whole lot else. I knew he’d worked for the company for more than 20 years and a lifetime member of the President’s Club.

Mirror: What was your initial impression of Mr. Bellott and his disagreement with State Farm?

Friedman: He was a good man. It took a while to read through the documents and see what the case was about, but it appeared that he had a good case. It looked to me like State Farm management was upset with him for giving honest advice about insurance products to his policyholders.

Mirror: How long did the trial last?

Friedman: We were in session for almost three weeks.

Mirror: At any time during those three weeks, did you ever think you might not prevail?

Friedman: No. We had a good, strong case, and we felt good all the way through the trial.

Mirror: Who from the State Farm management team showed up?

Friedman: Gary Methner, head of the Northwest Region, showed up for most of the proceedings. Chuck Wright was there for three or four days. Ralph Boldt was one of those who testified for State Farm.

Mirror: Did any of them lie outright on the stand?

Friedman: It’s hard to say. I think it is safer to say that they were taking very inconsistent positions. One day they took the position that insurance should not be sold as an investment; the next day their position was, "Of course we want insurance to be sold as an investment." They really couldn’t keep their stories straight, and I think the jury picked up on that.

Mirror: What specific complaints were filed in this case?

Friedman: Initially, we had a few claims. One was that Mr. Methner had terminated this contract in order to benefit his own son. Frankly, however, as we continued with discovery, it became clear that it hadn’t happened, so we discontinued that line of attack long before the trial got underway. Technically, there were two legal claims left for trial; objective and subjective good faith. State Farm had a bad motive for what they did to Mr. Bellott. They terminated Bellott to prevent him from giving truthful advice to his customers. The other claim was that the manner of termination was objectively unfair and that had to do with basically telling him that they were concerned about one issue when they were actually concerned with other issues. State Farm just didn’t play straight with Bob Bellott.

Mirror: At what point did the "deceptive sales practices" approach come into focus?

Friedman: At the very beginning. It was a strong point. One of the very first letters Bob wrote (in 2/96) essentially said, " We need to be real careful how we’re marketing life insurance and annuities. Sometimes these products are appropriate for people, and sometimes they are not. In the long run, I believe we will be ahead by citing suitable recommendations for policyholders."

Mirror: What was State Farm’s reaction to your approach?

Friedman: State Farm didn’t want that to be an issue in the case. They wanted the case to be about, "Can we terminate an agent when we have an at-will contact." And while an at-will contract is a big hurdle for any plaintiff to overcome, it is obviously not one which is insurmountable.

Mirror: What was State Farm’s primary defense position?

Friedman: Basically, they stated it was an at-will contract, and the agent was selling securities out of his office and giving advice about non-insurance products. They said, in essence, "We have the right to control what goes on in State Farm offices."

Mirror: But isn’t the contract somewhat clear when it states that being a State Farm insurance agent must be the primary occupation?

Friedman: Bob had a 78 contract. His contract said he had to have one licensed sales rep whose full time job was selling insurance. Several clauses in the contract said that State Farm did not want to and would not try to control the way the agency sold insurance.

Mirror: What size agency was involved?

Friedman: Bob’s agency had about $700,000 to $800,000 in commissions each year. He had about seven licensed sales people employed.

Mirror: Were you at all surprised at State Farm’s defense approach?

Friedman: No. Before we took the case, we thought that would be their defense. These are expected legal hurdles, but there are ways around them. No law, in any state, is going to approve of an insurance company insisting that its agents lie to customers.

Mirror: Were you able to mention the $238 million deceptive sales ruling to the jury?

Friedman: We were able to say that the marketing conduct that Bob was complaining about got State Farm hit with a class action suit and resulted in a large award.

Mirror: What was the make-up of the jury and how did you select them?

Friedman: It was a cross section. There was a federal probation officer, a church janitor, a carpenter, a couple of retired military personnel, a legal secretary. One woman on the jury had actually been the victim of a marketing scam a few years ago, and I was surprised that State Farm’s attorneys allowed her to serve. I wanted intelligent people. And we did have smart people sitting on that jury. Most importantly, they really understood what had taken place.

Mirror: What long term effect do you think this case will have on State Farm’s continuation of "terminable-at-will" contract interpretation?

Friedman: None. I just don’t think this is a company that will change. State Farm is growing at a rate of $20 million per day. They will continue to do whatever they want no matter what the court says.

Mirror: They seem to pick their victims carefully. They especially like to pounce upon NASFA members. Might this have future legal ramifications?

Friedman: Each case is different, and that’s what’s hard to communicate. They can do blatantly unfair things, and you still might not have a case. Or, they can do lesser evils, and you may have a strong case. It’s real important that the wronged agent gets to a good lawyer. They need to find a lawyer who recognizes the ingredients and does what it takes to make a case work. With a contract at-will situation, it’s not easy. There are ten ways to lose it for every way to win it.

Mirror: What do you see as the most significant aspect of this case?

Friedman: I could be wrong, but I think this may be the first marketing case to go to jury trial against State Farm. If that is true, it shows how people will react to that marketing conduct when they get a chance to judge it. It should send a message to State Farm.

Mirror: Do you have any additional advice for NASFA members?

Friedman: Yes. If they have a problem with State Farm, the sooner they get a lawyer, the better. They don’t have to tell State Farm that they’re seeing attorneys, but a good lawyer can help construct the position the agent is going to take. Sometimes, by the time an agent comes to see me, he has already destroyed the case without knowing it. He may have taken a position that’s destroyed it; whereas if he’d seen a lawyer earlier, he could have had a great case. The other advice I’d give is when they shop around for lawyers, look for one who specializes in employment law.

Mirror: Were you surprised by the amount of the awards?

Friedman: The actual damage award of $2.7 million was anticipated because that was a fair value for Bob’s agency. The $150 million punitive award, however, was the result of our argument that anything less than $60 million would be insignificant and go unnoticed by State Farm. When the jury came back with the $150 million award, it was on the high end of our expectations, although not totally beyond. Remember, we must be aware of the fact that we have to hold on to this on appeal.

Mirror: Do you expect an appeal?

Friedman: I expect that I will be arguing this case at the Alaska Supreme Court in about two or three years. That’s how long it will take for a final resolution. Their decision will be primarily based upon the briefs; the oral argument only lasts about a half hour.

Mirror: Are your partners happy?

Friedman: Yes, but Bob was the happiest which is as it should be. This represented his entire life. He spent more than 20 years helping State Farm grow, and when they did what they did to him, it really hurt him. I think his whole life was wrapped up in this case.

Mirror: How did he react when the verdict was read?

Friedman: He was both mentally and physically exhausted by the end of trial. And he was very relieved that we had won the case.

Mirror: One final question. What do you think ED Rust, Jr. thinks about this verdict and award?

Friedman: This represents a week’s worth of profit at the most, and I wonder if it makes a bit of difference? I sort of expect that it doesn’t. It was simply a cost-of-doing-business expense. I hate to be a pessimist, but I doubt they’ll change anything in the future.