Nevada insurers dealt blow

An independent insurers' association says a Nevada Supreme Court ruling will hurt the industry's ability to combat insurance fraud and result in higher premiums for customers.

The state's high court last month upheld an $8 million award to Las Vegan William Powers, whose 42-foot yacht sank in 1987 off the Gulf of Mexico.

The insurance company, USAA Casualty Insurance Co., and the National Association of Independent Insurers is asking the court to reconsider its ruling.

When Powers filed a claim on the vessel, USAA denied it, saying it believed the boat was sunk intentionally and that Powers had made false statements regarding the incident.

"We think it's an unwise decision that really hurts insurance companies' efforts to fight fraud," said Sam Sorich, assistant vice president of the National Association of Independent Insurers.

USAA contended the policy was void because of misrepresentations by Powers when filing the claim. Powers told his insurance company an eroded exhaust hose caused a leak into the boats' hull.

Powers' lawyer, William Brenske, said the ruling will neither raise premiums nor hinder fraud investigations.

"This (the ruling) should not effect premiums paid by an insured and should not effect the way in which an insurance company investigates its insured," Brenske said. "It will hopefully prevent insurance companies from perpetrating the kind of oppressiveness and maliciousness toward its insured that was perpetrated by USAA on Col. Powers."

After an investigation, Powers said clamps holding the hose were loose, according to court documents. Powers, an Air Force veteran who served in Vietnam, also told investigators he cut part of the pipe in an effort to save his vessel.

"A person has the responsibility to tell the truth about his or her claim," Sorich said. "When he or she lies about important facts, an insurance company has the right and obligation to deny the claim."

Powers sued the insurance company, alleging breach of contract when it denied his claim.

Court documents detail how he tried to save the boat from sinking and was ordered out of the vessel by the Coast Guard. Trial evidence showed problems leading to the sinking were not intentional. Powers was awarded a $5 million judgment following a more than four-week jury trial in 1994 -- that amount will be about $8 million with interest following the Supreme Court's ruling.

Along the way, Powers was tried and acquitted in federal court on criminal fraud charges instigated by the insurance company.

The state Supreme Court affirmed the jury's decision in the civil case last month. It also found that USAA had a duty to disclose to Powers photographs and other information that were part of the company's fraud investigation.

"We think this information should be protected when there is suspicion of fraud," Sorich said. "This decision will make it difficult for insurers to review suspicious claims. Many illegitimate claims will probably have to be paid, resulting in higher insurance premiums for everyone."

However, Brenske noted two juries had sided with Powers. He said USAA withheld favorable evidence and in some cases manufactured evidence. He added that other insurance companies signing on to a friend of the court brief asking for reconsideration of the ruling are not familiar with the facts of the case.

"The information alleged in the motion is the kind of scare tactic often used to avoid responsibility for oppressive and malicious conduct," Brenske said.

Powers was traveling alone in his 42-foot yacht from Galveston, Texas, to Norfolk, Va., when his boat sank in 300-foot water in the Gulf of Mexico.

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