Richard A. Harpootlian, Esquire
Many people know former Richland County Senator Richard A. Harpootlian as a fearless criminal defense lawyer but he is also a fearless fighter for the rights of all South Carolinians. My law partner, David T. Pearlman, got me involved in many important legal battles over our fifty years practicing together. I used to joke, David sticking his head in my office door to tell me about some injustice “we” needed to do something about, often meant a decade or more of tilting at legal windmills for me but the cases he got me involved in were some of the most rewarding of my career.
One of those cases he got me involved in was a workers’ compensation insurance rate case. As part of workers’ compensation insurance companies’ never-ending fight to gut the rights of South Carolina’s working men and woman, their rate making body, NCCI, proposed a 34% workers’ compensation rate increase to cause panic among South Carolina’s business community and drum up support for “reform.” David talked William Smith, Esquire, and me into contesting the rate increase on behalf of the South Carolina Small Business Chamber of Commerce. Neither Bill nor I knew the first thing about insurance rate making law, but we were quick learners.
One of the things we learned about was the “loss cost modifier” used when calculating how much an employer has to pay for workers’ comp insurance. First, you start with a straightforward rating for the risk of injury in the employer’s trade. Naturally, roofers have a higher rating than office workers because their risk of injury is higher. That rating is applied to the employer’s gross payroll but then you have to multiply that amount by a “loss cost modifier” supposedly based on a particular employers claim experience. Then a fixed percentage of that amount is added to support various funds such as the uninsured employer’s fund. The whole process is clear as mud only understood by geeks holding in specialized acctuarial accounting degrees. The South Carolina Department of insurance is charged with regulating the rate making process to make sure it’s fair for South Carolina consumers.
One very big insurance company, AIG, found a way to game the system. Beginning in the early 1980s, AIG routinely failed to report $300 to $400 million dollars in annual workers’ compensation policies to NCCI resulting in an estimated $60 million to $80 million dollars in unlawful profits yearly. And did anyone with AIG go to jail for such massive theft? Of course not, AIG entered into a whopping $343.5 million multistate settlement. The states, including South Carolina, gobbled up the settlement but what about the employers who’d been scammed and paid higher premiums? They got a big fat nothing and you might ask how could this possibly be? We certainly did.
Well, insurance companies are protected from being sued by what’s called the “filed rate doctrine,” which simply stated means you can’t sue an insurance company over a rate that been approved by the insurance department, even if that rate was based on fraudulent information provided to the department by the insurance company. A rule of law so entrenched no lawyer would agree to take on the enormous time and expense to sue AIG to recover excess premiums paid by South Carolina employers, except that is for Dick Harpootlian.
One thing Bill Smith and I learned during our foray into the field of insurance rate making law was that our ever-vigilant South Carolina Department of Insurance rolled right over for the insurance industry and stopped regulating loss cost modifiers from 2000 through 2007. Opps, we thought, if loss cost modifiers weren’t regulated, AIG wasn’t protected by the filed rate doctrine.
Bill Smith’s law firm represented Temporary Services, Inc., and my firm, the Steinberg Law Firm, represented Charleston Steel & Metal Company. Dick Harpootlian’s firm agreed to represent them for refunds in a Federal Court class action suit on behalf of all AIG insured South Carolina employers. The Federal Court punted and referred what are called certified questions to the South Carolina Supreme Court to determine whether the filed rate doctrine applied but, pending that decision, AIG agreed to mediate the case in New York City. We all packed our bags and flew to the Big Apple with Dick Harptoolian leading our delegation of what I’m sure AIG’s lawyers thought were a bunch of rubes. Boy were they in for a surprise.
I swear, AIG must have had 40 lawyers on their side of the biggest conference table I’ve ever seen at mediation in some New York skycrapper. A stern looking retired Federal Court Judge sat at the head of the table next to Dick. Both sides made brief opening statements, Dick Harpootlian reviewing the massive fraud AIG had committed and our argument why the fixed rate doctrine didn’t apply and AIG arguing, even if the fixed rate doctrine didn’t apply, there was no way we could prove how much, if any, South Carolina’s employers’ workers’ comp insurance premiums had been inflated. As is customary, after opening statements, the mediator broke us into two groups. We were left in the conference room while AIG’s army of lawyers left to confer among themselves. After about an hour, the Judge stuck his head back in the conference room to advise us he was still waiting to hear from AIG’s lawyers. Dick, being a Southern gentleman, invited the Judge to join us to keep from getting bored and promised not to discuss the case in the other side’s absence. And we didn’t.
It took Dick no time at all to ferret out the Judge’s Irish ancestry and the history of the many fascinating cases he’d handled. Dick had obviously studied up on the judge was and familiar with many of his cases. After about another hour of buttering up the judge, AIG sent a representative in to inform him they still weren’t prepared to make an offer which visibly upset the judge who wasn’t used to being kept waiting. We shared an ordered in lunch with the judge during which the judge and Dick developed a genuine friendship trading courtroom and political war stories. Sometime shortly after lunch, AIG’s legion of lawyers filed back into the conference room to deliver their piddling opening offer Dick rejected in about thirty seconds. Their offer visibly pissed the judge off and this time, when he broke the parties up, he accompanied the other side to their separate conference room. I don’t know what the judge did or said to AIG but it wasn’t long before they all returned with a reasonable offer that Dick expertly negotiated up to an acceptable $4 Million dollars and the case was settled.
I’ll just say we Southern lawyers had known all along proving damages for our clients was a virtual impossibility and celebrated our victory long and hard that night laughing how Dick Harpootlian had played them like a fiddle and beat them at their own game. Four million dollars may not sound a lot but, even after our fees and costs, South Carolina AIG employers received a good chunk of change and became the only employers anywhere in these United States to receive a single red cent from AIG.
