Mold Grows on House of Farmers

On June 30 Isabelle Arnold, the former national mold claims manager for Farmers Insurance, filed suit in a Los Angeles district court against her former employer, alleging she had been wrongfully terminated after making a concerted effort to change the way Farmers handled mold claims -- changes that at least one former Farmers adjuster alleges actually worsened Farmers' moldy woes.

Arnold claims that after being tapped by a Farmers veep for the mold-manager job in late 2001, she agreed to take the job if she could have the freedom to change company practices that were "wrong." Arnold alleges Farmers had routinely paid claims in both California and Texas that weren't even covered by Farmers' policies, because of "home office fear" that the company would face more lawsuits like that of Melinda Ballard, which resulted in a $32 million jury award (later slashed by the 3rd Court of Appeals). "[Farmers'] claims staff had been paying mold [claims] outside of coverage without adequate investigation," Arnold's suit alleges. According to her pleadings, Farmers' vice-president for property claims, Jim Daues, told Arnold she would have the freedom and resources needed to make changes.

Arnold says she reminded Daues that her husband, Bob Tant, is a manager for Wardlaw Claims Service, a Waco-based company Farmers has used for 30 years to contract for claim adjusters, and Daues said the connection wouldn't be a problem.

Arnold alleges the company resisted her reforms -- especially in Texas -- and that the company knowingly and consistently violated the Texas Unfair Claims Settlement Practices Act by failing to adjust each mold claim on its own merits, choosing instead to pay a flat-rate settlement on every claim -- a practice she says was known as "Pay and Pray." She says she told supervisors she was worried that the practice would backfire and eventually result in more, and perhaps more serious, lawsuits. "[Arnold] pointed out that the disparate treatment could result in a class action suit, not by the policyholders with mold claims," her petition reads, "but [by] the policyholder[s] with other types of claims who were not being given the same favorable treatment." Moreover, Arnold alleges that the uninvestigated yet paid mold claims resulted in premium increases for all of Farmers' Texas policyholders.

Arnold was ultimately able to implement her proposed changes, contracting for more independent adjusters and examiners -- through both Wardlaw and Florida-based Continental Staffing -- to aid Farmers' few and overburdened in-house adjusters. In a process she says was approved by Daues, the examiners would act as "gatekeepers," reviewing the work of the adjusters before turning cases over to Farmers' claims staff with coverage and settlement authority.

But in early 2002, according to Arnold's petition, an anonymous e-mail was apparently received by her superiors, accusing her of assigning claims to Wardlaw employees exclusively, "to the detriment of Farmers' in-house employees and Texas consumers." Arnold says the e-mail was false but led to an internal audit and to her termination earlier this year.

The allegation against Arnold made its way into a complaint filed with the California attorney general on April 2 by Thomas Pfohl, a former Farmers adjuster. In a letter to the AG, Pfohl charged that "many claims are routinely denied without proper investigation or documentation." At the same time, Pfohl alleged that Arnold instituted the new claims-adjusting procedures in an effort to lengthen the investigation process and line her own pockets by hiring Wardlaw adjusters. "Since Wardlaw's fees for this service are based upon the size and number of claims, by way of the time involved to handle these claims," Pfohl wrote, "it doesn't take a genius to figure out that the more claims there are, the more money there is for ... Ms. Arnold ... via her husband [and Wardlaw manager], Bob Tant." In short, Pfohl alleges that Arnold's new procedures led to protracted investigations, which turned simple water-damage claims into toxic-mold claims. "Once the mold problems are resolved, proceeds for [Arnold and Tant] will obviously diminish," Pfohl wrote. "Why would they want that to happen?"

Arnold's attorneys did not return phone calls requesting comment.