The Fine Print: How Big Companies Use Plain English to Rob You Blind

by David Cay Johnston

  In theory, each employer buys insurance, either in the marketplace or from a state agency. The benefits are modest, but that is because they are supposed to be awarded without the need for litigation, in which lawyers who win claims rake in a large share of the money. In a no-fault workers’ compensation system it should not matter if the injury was the result of employer misconduct, bad luck or even a mistake by the worker. As Bob Manning learned, though, the reality can be quite different.

  When I met Manning he was sixty years old, living in Sacramento, California, in a ranch-style home with extra wide doors for his wheelchair. An aging van, modified to lift his wheelchair inside, sat in the driveway. His sons were grown, one of them an airline pilot entrusted with more than a hundred lives every day he worked. When some relatives died, leaving three children orphaned, the Mannings took them in and raised them as their own. The Manning home was as neat and clean as it was happy, filled with well-mannered grandchildren, cousins and kids from the neighborhood.

  Manning was remarkably cheerful. But he also told me several times that he believed his old employer, the Niagara Mohawk electric utility, and its insurance carrier, Utilities Mutual, wanted him to die so they could escape the cost of keeping him alive. He recited details of what he felt was deliberate medical mistreatment and denial of care vital to keeping him alive, such as the insurer refusing to supply enough sterile catheters to help him urinate without getting an infection. “I understand what’s going on,” he said. “The company knows that if I don’t get the medical care I need I will die sooner. That is their strategy. They want me to die.”

  At the time we spoke, I regarded those as the angry words of a man imprisoned in a body over which he had almost no control. But as I would learn a few days later, and again years later, Manning wasn’t imagining things.

  Back in New York, I spoke with two lawyers who were trying to help him, Samuel Spalter and James D. Harmon. Both said Manning was spot on in his assessment that Niagara Mohawk and Utilities Mutual wanted Manning to die as soon as possible to cut their costs. The lawyers also pointed out that they had won several dozen administrative and judicial orders that Manning be paid and yet they could not collect. But let’s turn the clock back and revisit the beginning of the story.

  Niagara Mohawk and nearly three dozen other corporate-owned utilities had formed their own insurance company to pay workers’ compensation claims. This nonprofit insurer was called Utilities Mutual.

  In 1962, soon after Manning fell, Utilities Mutual started paying him a weekly benefit. There was no provision for automatic cost-of-living adjustments, though, so Manning knew that in the years to come his benefits would lose value. On the advice of a lawyer, he sued the old New York Telephone Company, then part of AT&T, which had half ownership of the pole from which he fell. In 1968 a jury awarded him $750,000, out of which his lawyers took a big chunk.

  The award also meant that, under New York State law, Utilities Mutual was permitted to stop payments and to force Manning to reimburse the insurer the $129,000 it had spent over the years on him for financial support and medical care. Utilities Mutual took the position that it would not have to pay any more until the award from the telephone company had been exhausted, even though it did not help Manning win his case against the phone company.

  By 1975, the money from the New York Telephone award was gone. Most of it had been placed with a neighbor, a stockbroker who traded the nest egg into the ground. Manning then sought a resumption of payments from Utilities Mutual. The company refused. Its lawyer was Philip J. Rooney, who argued an unusual theory about why Utilities Mutual should not have to pay for anything except some minor items. Rooney said Helen Manning was required to care for her husband without being paid.

  Rooney explained that, in his judgment, it was the law that a spouse is not entitled to payment for services provided to her husband in the course of her household duties. “If I, as a mechanic, for instance, fix my wife’s car, she is not obligated to pay me for doing so if I do it around the house.” He insisted this was not his idea, but the policy of both companies.

  Rooney also told me he was “deeply hurt” by the idea that he or his clients would want Manning’s life to be shortened. “Nothing could be further from the truth. I personally have deep sympathy for Mr. Manning, but I sincerely believe that there is a legitimate legal issue here and until it has been decided by the highest court in New York, the [insurance] carrier really is not obligated to make any payments at all.”

  Subsequently, I met again with Spalter, who had become the lead lawyer for Manning. He called the theory on wifely duties “outrageous and contrary to the law.” So did other lawyers I consulted.

  Helen Manning had her own take. She was a registered nurse. She said that if she had worked outside the home, Utilities Mutual, under its own theory, would have had to pay nurses to care for her husband because she—her husband’s caregiver—was away. Rooney told me he was not so sure about that.

  Even when Manning needed outside nurses because Helen Manning could not give him care, Utilities Mutual refused to pay. Spalter once asked that nurses be hired for two months to care for Manning and the state Workers’ Compensation Board ordered Niagara Mohawk and Utilities Mutual to pay. The companies refused on the grounds that the New York Telephone award had not been exhausted. Spalter complained, but the Workers’ Compensation Board said, in effect, that it had no power to enforce its own order.

  The Mannings struggled until 1988 when, after a bit of saber rattling by one hearing officer got Rooney’s attention, Utilities Mutual began voluntarily paying $350 a week. The rates were roughly those settled on in the first award back in 1962, even though inflation had reduced the value of a 1962 dollar to less than a quarter in 1988. Manning kept pressing; Rooney pressed right back.

  Then in 1995, Manning finally won a $1.2 million award to cover the care his wife had provided at roughly $42,000 annually. The problem was that he could not get a check out of Utilities Mutual. By the time I got involved in 1997 more than thirty orders to pay had been issued, but not enforced.

  Niagara Mohawk positioned itself as the good guy. A spokesman said the company had voluntarily provided lifetime medical care for Manning’s wife and children and had even given the family a color television. Niagara Mohawk insisted that it had absolutely no role or responsibility in the case because the workers’ compensation claim was in the hands of the Utilities Mutual insurance company. There was a small problem with that argument. Utilities Mutual was created by three dozen corporate-owned electric utilities, including Niagara Mohawk. For many years during Manning’s fight its president was William J. Donlon, who some of the time had doubled as chairman and chief executive of Niagara Mohawk. Plus, Utilities Mutual earned phenomenal profits, regularly paying its member utilities huge dividends. So ability to pay was never an issue, just willingness to comply with the law.

  At last, one Niagara Mohawk spokesperson had the integrity to acknowledge what the case was really about—the cost of keeping Manning alive. “No one expected him to live this long,” the executive told me.

  FRONT-PAGE NEWS

  I wrote a story about Manning that ran on the front page of the New York Times. I got a call within hours from then-governor George Pataki, who said the case was a disgrace. The state attorney general and other officials weighed in, too. But Rooney was unmoved.

  When I told him that Pataki was clearly angry and had assured me that he would see to it that Manning got paid, Rooney was nonchalant. “He’s just a politician, not a court.” And then Rooney said that, even though an appeals court had issued an order barring any further appeals to delay payment, his reading of the court decision suggested grounds for many new appeals.

  Fortunately, executives at Niagara Mohawk recognized the damage an angry governor or a nosy attorney general could cause a utility, even when those officials were well-known friends of business. Utilities Mutual soon assigned a new lawyer, who read over the unbroken string of decision
s ordering payment. He told Manning’s counsel Spalter that the company would pay. A fight that had gone on for thirty-five years was over. Within ten days of the Times article, the Mannings had a check that, before legal fees and costs were taken out, came to nearly $2 million.

  But the foolishness still wasn’t over—for Manning or for you. Utilities Mutual continued its tactic of not paying Manning’s medical bills. That meant that each time Manning needed to go to Sutter Hospital in Sacramento, the admission staff would perform what is known as a “wallet biopsy.” They would learn that Manning had insurance from Utilities Mutual, and get the insurance company approval to admit Manning. When the bills came due, however, Utilities Mutual would refuse to pay.

  You might think that this would prompt more litigation. But at Sutter and every other hospital I have spoken with about such circumstances, the standard practice with totally disabled people is to submit the bill refused by workers’ comp insurers to Medicare, which pays without question. One hospital administrator was perplexed when I asked about pressing the insurer for payment. “Why would we get into a fight with the workers’ comp carrier when Medicare will pay?” the administrator asked.

  The better question is, Why doesn’t Medicare go after the workers’ compensation insurer? Manning for years got on the telephone to Medicare officials, members of Congress, medical economists and anyone else he could get to listen to ask why Utilities Mutual and other insurers were allowed to get away with shifting their costs onto Medicare. “It’s stealing,” Manning said.

  Finally he got a lawyer to bring a lawsuit. It was not easy. For starters, the federal government had to grant permission to sue, which it was reluctant to do. Then a federal appeals court restricted the lawsuit so that only a small fraction of the bills Utilities Mutual shoved off onto taxpayers was recovered. This is typical of what happens in a system with not nearly enough judges to hear all the cases on their docket, a way that the push for smaller government creates not just injustice, but helps rich companies like Niagara Mohawk and Utilities Mutual shove their costs onto unknowing taxpayers.

  Niagara Mohawk announced in 2000 that it was selling itself for $3 billion to a British company, National Grid. Soon after, Utilities Mutual was sold to Cologne Re, a reinsurance company. And right about then, a nurse started ingratiating herself into Manning’s care at Sutter Hospital.

  Bob Manning told me that he instinctively did not trust this nurse. His doctor, Stanley Chew, also found the nurse’s interest odd. “She introduced herself as a home care specialist contracted by the workers’ comp insurance company, which was Cologne, to monitor his care,” Dr. Chew said. “At first she made a few simple suggestions regarding his seat cushion. In retrospect those comments were made to gain our trust in her. I also recall our meeting in my office in which she was extremely probing about Bob’s prognosis, wanting to know just how long he was expected to live.” The questions, Dr. Chew said, were entirely out of line—especially for an agent of a company with a financial interest in Manning’s dying as soon as possible.

  Cologne Re is a Warren Buffett company. By buying Manning’s workers’ compensation claim, and all the other obligations of Utilities Mutual, Cologne Re was making a bet. If Manning and others like him died soon, the deal was more likely to prove profitable. But the longer Manning lived, the smaller the profit. If Manning and others like him lived long enough, the result would be a loss for Buffett’s Berkshire Hathaway holding company.

  Soon the nurse said she wanted to inspect the Manning home, which workers’ compensation laws allow. The Mannings thought her approach was anything but that of a caregiver because when she visited, her primary interest seemed to be in questioning why Manning would want to go on living. When she got to Manning’s bedroom, her purpose became clear.

  “Why don’t you have a DNR order on the wall?” she asked. A do-not-resuscitate order is an instruction people who know they are dying may give to indicate that no resuscitative care should be provided. But Bob Manning had no interest in dying; after almost forty years of living with almost complete paralysis, he was a remarkably vital man.

  As Dr. Chew noted when he told me about this incident, end-of-life decisions are a fit subject for a physician to discuss with a patient. But this nurse was not a caregiver; she was an agent of a company that would lose money if Manning went on living and would profit from his death.

  “She was asking me to die,” Manning told me.

  Dr. Chew agreed: “She wanted Bob to have a DNR order and was quite insistent.”

  The nurse turned out to be an employee of a medical advice company called Concentra. When I asked Tom Fogarty, the doctor who is a cofounder of Concentra about this, he did something unusual. Unlike the top executives who will not come to the phone or who speak only through written statements, Fogarty set out to find out what happened. When he got back to me he was guarded about what he shared, but he made it clear he was aghast that any medical professional representing a financial interest in someone’s life would even inquire about a DNR order. He also volunteered that after a brief spell, his company had gotten out of the line of business that the nurse had been part of. How much better American business would be if we had more chief executives who dealt forthrightly with issues instead of hiding behind publicists and lawyers, not to mention squads of burly security guards.

  Now, to be clear, I do not think for a moment that Warren Buffett knew that the nurse working for his Cologne Re insurance company was going to ask Bob Manning, in effect, to die the next time he had a medical emergency. But that does not mean Buffett is free of responsibility for what happened. Buffett often says that his style is to let his managers run their shops, as long as they make their numbers, meaning their expected level of profit. His management style is widely praised in news reports and in profiles of the “Oracle of Omaha.” By giving managers the freedom to run their business units as they see fit, Buffett takes on a duty to demand the highest ethical standards. That would not, in my opinion, include gouging customers on coal shipping rates as his BNSF railroad does. Nor would an ethical chief executive allow anyone in his employ ever to suggest that anyone should die to bolster a company’s profits. But that is what happens under the Buffett style, in which by his own account he focuses on whether managers, some of whom resort to immoral conduct to give their billionaire boss what he demands, “make their numbers.”

  The reality is that what Manning had been saying all along, even before we met in 1997, was true. The insurance company wanted him to die. They had made it difficult for him to get care, they had for years refused to replace the crane Helen used to hoist him out of bed after the gears were stripped, they made it hard for him to get supplies to avoid infections. And finally a nurse hired by a Warren Buffett company came right out and asked him, in effect, why he was not going to die the next time he had a medical emergency.

  Bob Manning lived until 2009. To this day, his family says they are still owed money to which he was entitled. They are owed more than that.

  17…

  Your 201(k) Plan

  Workers tend not to use them to full advantage, and employers don’t always follow best practices in designing them.

  —CFO Magazine

  17. Jim Mehling’s career was humming. As president of Monitor Capital Advisors, his team was minting money for its owner, the immensely successful insurer New York Life. In effect, Mehling was an internal financial adviser for New York Life, the largest life insurance company in America owned by its customers and known therefore as a mutual insurance company.

  One March day in 1997 Mehling’s boss gave him a glowing review, a raise and a $147,000 bonus. Six days later Mehling was fired.

  To anyone who has a 401(k) to save money for their old age, the story of Jim Mehling and New York Life matters because it opens a small window on some of the many subtle ways your retirement funds get nicked with dubious fees.

  Mehling’s offense was refusing to look the other way when he found out t
hat New York Life gouged the 401(k) and pension plans of its own workers. He told his bosses the gouging had to stop. In a lawsuit filed three months later, Mehling and lawyer Eli Gottesdiener sought the return of special bonuses paid to the executives and the return of hundreds of millions of dollars in profit that New York Life made by charging the pension plans as much as twenty-five times the market rate for investment management services.

  New York Life offered up a revealing public defense to Mehling’s accusations. Executive Vice President George J. Trapp invited me to the company headquarters, an ornate forty-story temple of wealth that occupies an entire block on Park Avenue in Manhattan. Should its size, location and polished marble interior fail to make the point, atop the 1926 skyscraper rests a golden crown, a gilded melding of church spire and Egyptian pyramid.

  Trapp and Stephen M. Saxon, a pension lawyer, insisted that all fees New York Life charged to its own retirement plans were within the law. Trapp added that Mehling was fired for good reasons that had nothing to do with the accusations that New York Life charged too much for services to its own retirement plans. The five plans had $4.1 billion of assets at the time.

  Even if excess fees had been charged, Trapp and Saxon said, they could not imagine a cause of action against the company or its executives. They noted the solid returns and that the company’s defined-benefit pension plans had $2.7 billion, including a surplus of $900 million, a robust 50 percent more than the $1.8 billion in benefits owed to New York Life employees and agents at the time.