Postal Insurance a Bad Deal for Consumers
Content
THERE IS NO MERCY RULE IN THE SPORT OF POSTAL INSURANCE Position Paper presented by Shelley Dreifuss, Director, Office of the Consumer Advocate, Postal Rate Commission at Inaugural Lunch hosted by U.S. Consumer Postal Council July 17, 2003 Since the last rate case, the Office of the Consumer Advocate (OCA) has been focusing considerable attention on the issue of postal insurance. Much of what we have learned is forming a disturbing picture. Of the $130 million in insurance revenues reported by the Postal Service last year, only $20.6 million of indemnity was paid to claimants – an unconscionable 16 % of revenues. Most of the monies collected for insurance fees were used to pay for window service and insurance-related carrier delivery activities; but with a perverse twist -- a portion of the revenues collected were used to pay the salaries of the Postal Service claims personnel who nonchalantly deny the requests for indemnity. A review of the ratio of indemnity reimbursement to revenues for postal insurance shows that, in the last three years, there has been a steep decline in the monies paid to claimants – the ratio was already at an unacceptable level of 25% in Fiscal Year (FY) 2000 and dropped to 22% in FY 2001.1 An indemnity/revenue ratio of 16% is unheard of in the insurance industry. OCA has received counsel on this matter from a highly respected economist, Dr. John Haldi. Dr. Haldi informed us that in the casualty insurance industry (heavily regulated by the states), the ratio of indemnification to revenues is generally on the order of 67%.2 At Dr.
1
Prior to FY 2000, i.e., in FYs 1998 and 1999, the payout ratios were 20% and 22%, respectively. See Attachment A for a more comprehensive presentation on postal insurance revenues and costs.
2
Dr. Haldi also contacted an expert in the auto insurance industry who informed him that payout ratios are generally about 60% and above.
Attachment A Page 3
Haldi’s suggestion, we contacted a policy expert at the American Insurance Association’s Washington headquarters who confirmed Dr. Haldi’s statements and observed that, when payout ratios fall below 50%, a great furor is created in the states’ regulatory agencies. There are other measures indicating that the Postal Service’s provision of insurance coverage is seriously sub-standard. In the last omnibus rate proceeding, OCA asked the Postal Service what it thought a reasonable time would be to resolve insurance claims. The Postal Service’s answer was 30 days. When OCA asked whether the Postal Service was able to meet its 30-day goal, the Postal Service answered that it averaged 62 days to resolve claims. Although OCA has no statutory role in the postal claims process, this office has received complaints from several frustrated claimants in the last few years that suggest that many claimants suffer a “death by a thousand cuts” in the claims process. In Attachment B to this paper, several examples are recounted. The cause for postal claimants’ weak position is that, in selling postal insurance and deciding claims, the Postal Service is answerable to no authority. State commissions regulate most insurance sold throughout the U.S.. No regulatory commission would permit payout ratios of 16%. Even carriers like United Parcel Service and FedEx (also unregulated in their provision of insurance) are likely influenced by the fact that a court may eventually adjudicate unresolved disputes. Plaintiffs in cases against private carriers would have to prove their claims by a preponderance of the evidence. This is generally viewed as presenting evidence slightly more convincing and credible than the evidence presented by the defendant. By
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contrast, courts impose a much less stringent standard on the Postal Service due to its status as a governmental agency with privileges given by Congress under the Postal Reorganization Act.3 A plaintiff who sues the Postal Service for failure to live up to its insurance contract obligations will fail if there is a sufficient amount of evidence to withstand the challenge that the Postal Service has made an arbitrary and capricious decision.4 Also, the courts defer to the Postal Service’s interpretation of the terms of the insurance contract because these terms have been established as postal regulations. Typically, governmental agencies have the power to interpret and apply the regulations they have promulgated with little interference from the courts. Another important advantage that the Postal Service has over private competitors is that it is under no obligation to provide to a purchaser of postal insurance a written statement of the limitations on coverage. Postal customers are considered to have “constructive” knowledge of all postal rules and regulations. The postal rules are lengthy, complicated, and vague. Most postal employees do not understand them and unwittingly give inaccurate advice to purchasers on limitations to coverage. Postal customers rely on advice given them by employees at their own peril. Courts rely on the rules and their interpretation by postal claims officers, not statements made to purchasers. Not only does the Postal Service have the freedom to limit insurance coverage to any degree and in any manner it wishes, but it enjoys the power of deciding whether the insurance claimant has presented sufficient evidence to justify payment of the claims. It is obvious that, when the Postal Service denies a claim, denial improves the
3
A more thorough discussion of the Postal Service’s legal position is presented in Attachment C.
4
The effect of these differing standards is to impose a much lower burden of proof on private plaintiffs than those who sue the Postal Service.
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Postal Service’s financial position. The American system of jurisprudence, in most other forums, places the highest importance on the disinterested adjudication of legal disputes. Even at sporting events, impartial referees resolve disagreements and apply the rules of the game evenhandedly. In the sport of postal insurance, however, the vitally “interested” Postal Service is effectively the final arbiter of claims disputes. Many postal insurance claimants have learned, to their dismay, that there is no “mercy rule” in this sport.
Attachment A Page 1
Attachment A: Postal Revenue and Expense Details Cost and Revenue Analysis (CRA) FY 2002 Insurance Revenues of $130 million Total attributable costs of $113.3 (FY2002 Cost Segments and Components, PRC version, Exh. 3, p. 14). Partial breakdown of Total Attributable Costs below (for relevant cost segments and components): • • • • • • • • $43 million clerk/mailhandler costs (segment 3) (Id., Exh. 4, p. 2) Component 3.1 consists of $4.2 million of mail processing costs Component 3.2 consists of $36 million of window service costs Component 3.3 consists of $2.5 million of administrative clerk costs
$12 million city carrier costs (segments 6/7) (Id.) $11.5 million rural carrier costs (segment 10) (Id., p. 4) $7 million Admin & Area Operations costs (segment 18) (Id., p. 6) $25.5 million of Other accrued costs (segment 20) (Id., p. 6) • Component 20.4 consists of $20.6 million of indemnity costs
CRA, FY 2001 Insurance revenues of $119 million (p. 2) Indemnity expense of $26 million (Component 20.4) (p. 66) CRA, FY 2000 Insurance revenues of $105 million (p. 2) Indemnity expense of $26 million (p. 66) CRA, FY 1999 Insurance revenues of $ 91.4 million (p. 2) Indemnity expense of $ 20 million (p. 66)
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CRA, FY 1998 Insurance revenues of $ 72.5 million (p. 14) Indemnity expense of $ 14.6 million (p. 68) Ratio of indemnity reimbursement to revenues: FY 2002 FY 2001 FY 2000 FY 1999 FY 1998 16% 22% 25% 22% 20%
Attachment B Page 1
Attachment B: Five Individual Claimant Experiences Mona D. Mona D. was $200 out of pocket because the Postal Service failed to deliver an Express Mail (EM) piece to her in a timely fashion. She was scheduled to attend a funeral on a Tuesday. Her friend (whose father had passed away) sent her a voucher for a free airline ticket so that Mona could attend the funeral without paying for the airline travel. (The friend’s husband was an airline employee who enjoyed voucher privileges). The voucher was mailed as EM on a Saturday. The EM piece did not arrive on Monday, as guaranteed. Rather, it arrived on a Friday, 4 days late, and 3 days after the funeral had taken place. On the Tuesday that Mona had to travel by air to the funeral, she frantically tried to locate the EM piece with the assistance of a postal employee. Although EM is advertised as a trackable service, the piece could not be located. Mona was put in touch with an EM specialist in her region who informed her that the Postal Service would pay her expenses for a purchased airline ticket (this had now become necessary) because the Postal Service was the cause of her having to incur the expense. Mona did so. Mona submitted her claim for reimbursement to her local post office 10 days after the EM piece was finally delivered. In support of her claim, she was asked to turn over the original (not a copy) of the voucher, and she did so. The Postal Service’s official procedure is to have the local postal clerk transmit the documentation to the Claims and Inquiry Section in St. Louis. The Postal Service lost the documentation somehow; it was not forwarded to the St. Louis office, but it resurfaced 2 months later at the St. Paul
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Mail Recovery Center. The letter Mona received from the Recovery Center stated that, “This matter is being forwarded to you because in was found in the U.S. Mail without the proper amount of postage affixed.” Of course, the fault lay with the local postal clerk, not Mona. Mona’s claim was turned down. She appealed the decision and was turned down again by the Postal Service’s Consumer Advocate. The denial of Mona’s claim was based on the vague, complicated framework of limitations on the Postal Service’s liability contained in the telephone-book-sized Domestic Mail Manual. Following the final refusal of her claim, Mona made dozens of telephone calls to the St. Louis office and the Consumer Advocate’s office. The individuals assigned to her case were never there when she called and never returned her calls. At this time, Mona has reluctantly accepted that she will not be reimbursed for her ticket purchase. Ernest W. Ernest W. is a collector of antique guns who is licensed by the federal Bureau of Alcohol, Tobacco, and Firearms to possess, sell, and mail them. Ernest sold two antique guns to a dealer for $550 each. When mailed in their glass front display cases as Express Mail, they were in flawless condition. The clerk at his local post office assured Ernest that by marking the packages “Handle with Care” and “Breakable,” they would be handled very carefully. When they arrived at the recipient’s place of business, the display cases were in fragments, and the guns had been seriously scratched and marred. The dealer refused the guns in that condition. Ernest explained to me that when guns have been “scratched, dinged, or marked . . . their value to a collector is nil.” Ernest submitted his insurance claim one week later. As required by the Postal Service,
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the dealer turned over the guns to his local post office so that the damage could be inspected. Approximately 3 weeks after submitting his claim, Ernest received a letter from the St. Louis claims office denying his claim on the ground that firearms are not mailable items. Ernest appealed the claim, and provided a copy of his ATF license. Three months later, Ernest received a letter from the St. Louis appeals section informing him that he must be patient. Two weeks later, he received a letter from the St. Louis office informing him that his claim was being denied for failure to turn over the guns for inspection. This was flatly wrong – the guns had been turned over to the dealer’s local post office 4 months earlier. He appealed again and was turned down again. This time no explanation was given for denying his claim, merely “We are bound by specific guidelines set forth by U.S. Postal Headquarters. Based on those guidelines, the disallowance of this claim must be sustained.” One would think that Ernest would be entitled to know the reason his appeal was denied. Two weeks later he received another letter from the St. Louis office, this time stating that “there is no evidence that the article was damaged in the mails. Postal authorities examined the mailing carton and were unable to find any visible sign of damage to the exterior or interior . . . there is no evidence of Postal damage or mishandling.” He was informed that he could retrieve his parcel from the dealer’s local post office by submitting a request within a 90-day period following this final appeal. Ernest’s fortunes seemed to be on the rise when he received a letter from the gun dealer offering him $400 each for the damaged guns (instead of the $550 each originally offered). Ernest agreed. He asked the Postal Service to ship the guns to the
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dealer, but was informed that the guns had been destroyed pending his appeals. This was gross carelessness on the part of the Postal Service. This occurred 9 months after the original mailing. At that point he frantically contacted my office. I contacted the Postal Service’s Consumer Advocate and intervened on Ernest’s behalf. The Postal Service paid him the $1100 about a month later. Michael L. Michael L. purchased a diamond, from a wholesale diamond vendor, to be set in an engagement ring, at a selling price of $2500. The vendor used Priority Mail (PM) to ship the diamond to Michael and insured it for the full value. Michael had the diamond shipped to a commercial mail facility where he rented a box. When the PM package arrived, he opened it in the presence of the CMRA owner. The PM envelope contained a smaller envelope. The small envelope, in turn, enclosed a small plastic bag that had once contained the diamond. Both the small envelope and the plastic bag had been torn open. Both were empty. The PM envelope had been opened and re-sealed. Three weeks later, Michael brought the envelope and its contents to his local post office and filed a claim for reimbursement. A little over two months later, Michael received a letter from the St. Louis claims office denying his claim. The St. Louis office incorrectly stated that no postal employee had examined the PM envelope or its contents. This incorrect statement was plainly contradicted by the form that Michael used to submit his claim. On that form, a postal clerk had signed that she had examined the envelope and its contents. In addition, the postal clerk corroborated Michael’s view of what had happened to the diamond.
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Michael appealed the denial of the claim. The St. Louis office sent Michael an identical letter one month later. Only the date had been changed. Michael appealed once more. After scores of calls to the St. Louis office and the Consumer Advocate’s office in Washington, D.C., Michael called my office in desperation. I advised him to continue calling the Consumer Advocate’s office and gave him several direct telephone numbers for that purpose. I also offered to intervene on his behalf. He said that he had informed the Consumer Advocate’s office that my office was involved in his case. Michael was paid recently. Dorothy F. Dorothy F. is an antiques dealer in the southwestern region of the U.S. She sold a $2000 sculpture to Robert A. of Florida, who asked Dorothy to ship it to Denice R. in the United Kingdom. Dorothy shipped the sculpture to Denice using one of the international mail services and insured it. The sculpture arrived damaged. Dorothy filed a claims form with her local post office about 3 weeks after the sculpture had been shipped. The claim was forwarded to the Postal Service’s international insurance claims office in New York. In the U.K., Denice filled out necessary forms. Also, Denice received a visit from an inspector for Parcel Force Worldwide with whom the U.S. Postal Service has an arrangement for parcel delivery in Europe. Parcel Force’s inspector photographed the package and sculpture, but did not take the sculpture. Dorothy turned over all of the necessary documentation to her local post office 2 months after the sculpture had been shipped. At that time, Dorothy made a full refund to Robert, the purchaser.
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Two months after filing the claim, the local post office informed Dorothy that there was no record of any claim. All of the documentation had to be produced again, and the claim was re-filed. Two and one half months after re-filing, Dorothy checked again and was told that the claim had been lost a second time. The claim was re-submitted a third time. Two weeks later, all of the claims documentation disappeared from the New York claims office and the claim had to be re-submitted a fourth time. After 10 months, the New York office was finally able to hold onto the documentation. At around the same time, the sculpture was re-shipped to Dorothy in the U.S. Two months after that (one year after the shipment of the sculpture), Dorothy called the New York office. She was told to bring the sculpture to her local office – she attempted to do so, but the local office would not accept the sculpture. The New York office wrote to the local post office directing the employees to accept the sculpture. They did. The local postal clerk advised Dorothy that the check for the full amount would be sent immediately. Over the next 3 weeks, Dorothy called the New York office 6 times. Either no one answered (although the call was placed during regular business hours), or if someone did, Dorothy was promised return calls that were never made. After Herculean effort, Dorothy finally managed to speak to the claims officer handling her case. This officer said that, “She could not find the file . . . [but] remembered doing something with it.” Later that day, a supervisor called who said that she did not have all of the information required from the U.K. The supervisor insisted on delaying any further action for 3 weeks until she received the information she sought from the U.K. One month later, the supervisor called Dorothy, explaining that she had been out of the office for several weeks and would call back in a “week or so.” Dorothy
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asked to speak to someone in the legal department, but was told that everyone was too busy to speak to her. A week later Dorothy contacted the Consumer Affairs department of the Postal Service. During the next month, Dorothy was bounced between the New York office and the Consumer Affairs department. After 15 months of delays and unfulfilled promises, Dorothy retained a lawyer who contacted me. I intervened on Dorothy’s behalf and she was eventually paid. Carrie E. Carrie E. sold a laptop computer on Ebay for $600. It was in good working order when sold and shipped via Express Mail. At the post office where the laptop was mailed, a clerk assisted Carrie in the final packaging. No one at the post office of mailing informed Carrie of the limitations on insurance coverage. (Indeed, says Carrie, she has discussed this matter with several postal employees, none of whom have ever heard of this regulation). When the computer arrived at the recipient’s home, it was found to be seriously damaged and no longer working. Soon after, Carrie submitted her claim for compensation to the St. Louis claims office. Carrie filed three claims to that office, and they were denied as follows: • • • First Request. The claims officer denied this claim on the ground that no proof had been furnished that the computer was in working order prior to shipping. Carrie was able to furnish the proof and resubmitted the claim. Second Request. The claims officer denied this claim on the ground that there was no visible damage to the outer package. Third Request. The claims officer denied this claim on the ground that there was no visible damage to the outer package. Carrie also appealed twice to the Postal Service’s Consumer Affairs and Claims office, but her appeals were also denied. Following her last appeal, the Consumer
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Affairs office advised her that her only recourse was a civil lawsuit. Carrie filed suit in the United States District Court. The Court’s opinion is described in Attachment C. Carrie raised several significant issues in her lawsuit against the Postal Service. She stated that no postal employee had given her a written copy (or even an indication) that there were postal rules limiting coverage. Furthermore, the oral advice given her by employees was not given any weight by the Court. In summary, the Court concluded implicitly and explicitly that: • • • • • • • • The Postal Service has no duty to inform consumers about postal regulations limiting coverage. Consumers are charged with constructive knowledge of regulations limiting coverage. Postal clerks’ oral statements at the time of mailing have carry no weight with the Court. Postal clerks’ assessments of the efficacy of packaging at the time of mailing carry no weight with the Court. Mailers will have no way of knowing at the time of mailing whether their packaging is sufficient to make a successful insurance claim because it is impossible to tell in advance whether the outer packaging will sustain damage. Mailers have no knowledge about the Postal Service’s poor track record of paying claims; and the Postal Service has no duty to inform them. Mailers will be unable to predict at the time of mailing how a postal claims officer will view the extent of damage or apply the postal rules and regulations. In their letters rejecting claims’ requests, claims and consumer officers have no duty to address each of the claimant’s arguments; nor do these officers have to set forth their reasoning in denying the claim. A bare statement of denial referencing one of the postal regulations is sufficient. The Postal Service is free to reap the benefits of its unpredictable rule on damage to the outer packaging – if an item is damaged while in the custody of the Postal Service, but shows no significant damage to the outer packaging, by definition it has been packaged improperly. If one can only tell at the end of the entire process whether packaging was sufficient to withstand postal handling, i.e., there has been interior and exterior damage, then how can a mailer ever know at the time of mailing whether this particular insurance purchase has value or not?
•
Attachment C Page 1
Attachment C: The Role of the Courts in Adjudicating Postal Disputes In the case of Paul Elsass and Carrie Elsass v. USPS, Case No. CV-01-1103PCT-JAT (U.S.D. Ariz. March 7, 2003), at 3, Judge Teilborg ruled that: A reviewing court may not overturn a USPS action unless it was arbitrary and capricious. . . . This Court is “not empowered to substitute its judgment for that of the agency,” but instead must “consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment.” [A] “decision of less than ideal clarity [should be upheld] if the agency’s path may reasonably be discerned. . . .” The Postal Service’s decision, which sets forth its interpretations and application of its regulations and policies, should be affirmed under this standard unless it is “plainly erroneous.” Citing the decisions of earlier courts, Judge Teilborg observed that “the extent of the USPS’s liability is governed by the postal laws and regulations.” (Id. at 4). These regulations (couched as limitations on its liability in the Domestic Mail Manual)) are drafted by and for the Postal Service. According to Judge Teilborg (Id.), the Postal Service is liable to the owners of lost or damaged mail only to the extent to which it has consented to be liable, and the extent of its liability is defined by the Postal Laws and Regulations. Insurance claimants would have a far better chance of prevailing in a legal dispute with a private carrier because, in contrast to them, “traditional contract doctrine does not apply to postal insurance coverage because the terms of postal insurance are published as regulations of the Postal Service.” (Id.) The Postal Service does not routinely provide a list of limitations and exceptions to its insurance liability (published as DMM rules). Nevertheless, consumers are “deemed to have notice of postal regulations constituting the terms and substance of
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any contract of insurance on the item mailed.” (Id. at 5). Since the insurance form used to issue the insurance at the retail window states that “insurance is provided only in accordance with postal regulations in the [DMM] . . . [t]his language properly put [the] Plaintiff on notice that the insurance contract was governed by provisions in the DMM.” All of this establishes the following legal relationship between the Postal Service and its customers: • • • • The Postal Service has no duty to provide information to insurance purchasers on the limitations of liability. It need only state that rules exist in the DMM that limit its liability. The Postal Service can establish (in the form of DMM rules) any limitations it wishes. When a claim is made, the Postal Service, a vitally interested entity, decides whether or not to pay. The court will uphold the Postal Service’s decision unless it clearly incorrect or is utterly unsupported by any interpretation of the evidence presented.
1
Prior to FY 2000, i.e., in FYs 1998 and 1999, the payout ratios were 20% and 22%, respectively. See Attachment A for a more comprehensive presentation on postal insurance revenues and costs.
2
Dr. Haldi also contacted an expert in the auto insurance industry who informed him that payout ratios are generally about 60% and above.
Attachment A Page 3
Haldi’s suggestion, we contacted a policy expert at the American Insurance Association’s Washington headquarters who confirmed Dr. Haldi’s statements and observed that, when payout ratios fall below 50%, a great furor is created in the states’ regulatory agencies. There are other measures indicating that the Postal Service’s provision of insurance coverage is seriously sub-standard. In the last omnibus rate proceeding, OCA asked the Postal Service what it thought a reasonable time would be to resolve insurance claims. The Postal Service’s answer was 30 days. When OCA asked whether the Postal Service was able to meet its 30-day goal, the Postal Service answered that it averaged 62 days to resolve claims. Although OCA has no statutory role in the postal claims process, this office has received complaints from several frustrated claimants in the last few years that suggest that many claimants suffer a “death by a thousand cuts” in the claims process. In Attachment B to this paper, several examples are recounted. The cause for postal claimants’ weak position is that, in selling postal insurance and deciding claims, the Postal Service is answerable to no authority. State commissions regulate most insurance sold throughout the U.S.. No regulatory commission would permit payout ratios of 16%. Even carriers like United Parcel Service and FedEx (also unregulated in their provision of insurance) are likely influenced by the fact that a court may eventually adjudicate unresolved disputes. Plaintiffs in cases against private carriers would have to prove their claims by a preponderance of the evidence. This is generally viewed as presenting evidence slightly more convincing and credible than the evidence presented by the defendant. By
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contrast, courts impose a much less stringent standard on the Postal Service due to its status as a governmental agency with privileges given by Congress under the Postal Reorganization Act.3 A plaintiff who sues the Postal Service for failure to live up to its insurance contract obligations will fail if there is a sufficient amount of evidence to withstand the challenge that the Postal Service has made an arbitrary and capricious decision.4 Also, the courts defer to the Postal Service’s interpretation of the terms of the insurance contract because these terms have been established as postal regulations. Typically, governmental agencies have the power to interpret and apply the regulations they have promulgated with little interference from the courts. Another important advantage that the Postal Service has over private competitors is that it is under no obligation to provide to a purchaser of postal insurance a written statement of the limitations on coverage. Postal customers are considered to have “constructive” knowledge of all postal rules and regulations. The postal rules are lengthy, complicated, and vague. Most postal employees do not understand them and unwittingly give inaccurate advice to purchasers on limitations to coverage. Postal customers rely on advice given them by employees at their own peril. Courts rely on the rules and their interpretation by postal claims officers, not statements made to purchasers. Not only does the Postal Service have the freedom to limit insurance coverage to any degree and in any manner it wishes, but it enjoys the power of deciding whether the insurance claimant has presented sufficient evidence to justify payment of the claims. It is obvious that, when the Postal Service denies a claim, denial improves the
3
A more thorough discussion of the Postal Service’s legal position is presented in Attachment C.
4
The effect of these differing standards is to impose a much lower burden of proof on private plaintiffs than those who sue the Postal Service.
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Postal Service’s financial position. The American system of jurisprudence, in most other forums, places the highest importance on the disinterested adjudication of legal disputes. Even at sporting events, impartial referees resolve disagreements and apply the rules of the game evenhandedly. In the sport of postal insurance, however, the vitally “interested” Postal Service is effectively the final arbiter of claims disputes. Many postal insurance claimants have learned, to their dismay, that there is no “mercy rule” in this sport.
Attachment A Page 1
Attachment A: Postal Revenue and Expense Details Cost and Revenue Analysis (CRA) FY 2002 Insurance Revenues of $130 million Total attributable costs of $113.3 (FY2002 Cost Segments and Components, PRC version, Exh. 3, p. 14). Partial breakdown of Total Attributable Costs below (for relevant cost segments and components): • • • • • • • • $43 million clerk/mailhandler costs (segment 3) (Id., Exh. 4, p. 2) Component 3.1 consists of $4.2 million of mail processing costs Component 3.2 consists of $36 million of window service costs Component 3.3 consists of $2.5 million of administrative clerk costs
$12 million city carrier costs (segments 6/7) (Id.) $11.5 million rural carrier costs (segment 10) (Id., p. 4) $7 million Admin & Area Operations costs (segment 18) (Id., p. 6) $25.5 million of Other accrued costs (segment 20) (Id., p. 6) • Component 20.4 consists of $20.6 million of indemnity costs
CRA, FY 2001 Insurance revenues of $119 million (p. 2) Indemnity expense of $26 million (Component 20.4) (p. 66) CRA, FY 2000 Insurance revenues of $105 million (p. 2) Indemnity expense of $26 million (p. 66) CRA, FY 1999 Insurance revenues of $ 91.4 million (p. 2) Indemnity expense of $ 20 million (p. 66)
Attachment A Page 2
CRA, FY 1998 Insurance revenues of $ 72.5 million (p. 14) Indemnity expense of $ 14.6 million (p. 68) Ratio of indemnity reimbursement to revenues: FY 2002 FY 2001 FY 2000 FY 1999 FY 1998 16% 22% 25% 22% 20%
Attachment B Page 1
Attachment B: Five Individual Claimant Experiences Mona D. Mona D. was $200 out of pocket because the Postal Service failed to deliver an Express Mail (EM) piece to her in a timely fashion. She was scheduled to attend a funeral on a Tuesday. Her friend (whose father had passed away) sent her a voucher for a free airline ticket so that Mona could attend the funeral without paying for the airline travel. (The friend’s husband was an airline employee who enjoyed voucher privileges). The voucher was mailed as EM on a Saturday. The EM piece did not arrive on Monday, as guaranteed. Rather, it arrived on a Friday, 4 days late, and 3 days after the funeral had taken place. On the Tuesday that Mona had to travel by air to the funeral, she frantically tried to locate the EM piece with the assistance of a postal employee. Although EM is advertised as a trackable service, the piece could not be located. Mona was put in touch with an EM specialist in her region who informed her that the Postal Service would pay her expenses for a purchased airline ticket (this had now become necessary) because the Postal Service was the cause of her having to incur the expense. Mona did so. Mona submitted her claim for reimbursement to her local post office 10 days after the EM piece was finally delivered. In support of her claim, she was asked to turn over the original (not a copy) of the voucher, and she did so. The Postal Service’s official procedure is to have the local postal clerk transmit the documentation to the Claims and Inquiry Section in St. Louis. The Postal Service lost the documentation somehow; it was not forwarded to the St. Louis office, but it resurfaced 2 months later at the St. Paul
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Mail Recovery Center. The letter Mona received from the Recovery Center stated that, “This matter is being forwarded to you because in was found in the U.S. Mail without the proper amount of postage affixed.” Of course, the fault lay with the local postal clerk, not Mona. Mona’s claim was turned down. She appealed the decision and was turned down again by the Postal Service’s Consumer Advocate. The denial of Mona’s claim was based on the vague, complicated framework of limitations on the Postal Service’s liability contained in the telephone-book-sized Domestic Mail Manual. Following the final refusal of her claim, Mona made dozens of telephone calls to the St. Louis office and the Consumer Advocate’s office. The individuals assigned to her case were never there when she called and never returned her calls. At this time, Mona has reluctantly accepted that she will not be reimbursed for her ticket purchase. Ernest W. Ernest W. is a collector of antique guns who is licensed by the federal Bureau of Alcohol, Tobacco, and Firearms to possess, sell, and mail them. Ernest sold two antique guns to a dealer for $550 each. When mailed in their glass front display cases as Express Mail, they were in flawless condition. The clerk at his local post office assured Ernest that by marking the packages “Handle with Care” and “Breakable,” they would be handled very carefully. When they arrived at the recipient’s place of business, the display cases were in fragments, and the guns had been seriously scratched and marred. The dealer refused the guns in that condition. Ernest explained to me that when guns have been “scratched, dinged, or marked . . . their value to a collector is nil.” Ernest submitted his insurance claim one week later. As required by the Postal Service,
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the dealer turned over the guns to his local post office so that the damage could be inspected. Approximately 3 weeks after submitting his claim, Ernest received a letter from the St. Louis claims office denying his claim on the ground that firearms are not mailable items. Ernest appealed the claim, and provided a copy of his ATF license. Three months later, Ernest received a letter from the St. Louis appeals section informing him that he must be patient. Two weeks later, he received a letter from the St. Louis office informing him that his claim was being denied for failure to turn over the guns for inspection. This was flatly wrong – the guns had been turned over to the dealer’s local post office 4 months earlier. He appealed again and was turned down again. This time no explanation was given for denying his claim, merely “We are bound by specific guidelines set forth by U.S. Postal Headquarters. Based on those guidelines, the disallowance of this claim must be sustained.” One would think that Ernest would be entitled to know the reason his appeal was denied. Two weeks later he received another letter from the St. Louis office, this time stating that “there is no evidence that the article was damaged in the mails. Postal authorities examined the mailing carton and were unable to find any visible sign of damage to the exterior or interior . . . there is no evidence of Postal damage or mishandling.” He was informed that he could retrieve his parcel from the dealer’s local post office by submitting a request within a 90-day period following this final appeal. Ernest’s fortunes seemed to be on the rise when he received a letter from the gun dealer offering him $400 each for the damaged guns (instead of the $550 each originally offered). Ernest agreed. He asked the Postal Service to ship the guns to the
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dealer, but was informed that the guns had been destroyed pending his appeals. This was gross carelessness on the part of the Postal Service. This occurred 9 months after the original mailing. At that point he frantically contacted my office. I contacted the Postal Service’s Consumer Advocate and intervened on Ernest’s behalf. The Postal Service paid him the $1100 about a month later. Michael L. Michael L. purchased a diamond, from a wholesale diamond vendor, to be set in an engagement ring, at a selling price of $2500. The vendor used Priority Mail (PM) to ship the diamond to Michael and insured it for the full value. Michael had the diamond shipped to a commercial mail facility where he rented a box. When the PM package arrived, he opened it in the presence of the CMRA owner. The PM envelope contained a smaller envelope. The small envelope, in turn, enclosed a small plastic bag that had once contained the diamond. Both the small envelope and the plastic bag had been torn open. Both were empty. The PM envelope had been opened and re-sealed. Three weeks later, Michael brought the envelope and its contents to his local post office and filed a claim for reimbursement. A little over two months later, Michael received a letter from the St. Louis claims office denying his claim. The St. Louis office incorrectly stated that no postal employee had examined the PM envelope or its contents. This incorrect statement was plainly contradicted by the form that Michael used to submit his claim. On that form, a postal clerk had signed that she had examined the envelope and its contents. In addition, the postal clerk corroborated Michael’s view of what had happened to the diamond.
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Michael appealed the denial of the claim. The St. Louis office sent Michael an identical letter one month later. Only the date had been changed. Michael appealed once more. After scores of calls to the St. Louis office and the Consumer Advocate’s office in Washington, D.C., Michael called my office in desperation. I advised him to continue calling the Consumer Advocate’s office and gave him several direct telephone numbers for that purpose. I also offered to intervene on his behalf. He said that he had informed the Consumer Advocate’s office that my office was involved in his case. Michael was paid recently. Dorothy F. Dorothy F. is an antiques dealer in the southwestern region of the U.S. She sold a $2000 sculpture to Robert A. of Florida, who asked Dorothy to ship it to Denice R. in the United Kingdom. Dorothy shipped the sculpture to Denice using one of the international mail services and insured it. The sculpture arrived damaged. Dorothy filed a claims form with her local post office about 3 weeks after the sculpture had been shipped. The claim was forwarded to the Postal Service’s international insurance claims office in New York. In the U.K., Denice filled out necessary forms. Also, Denice received a visit from an inspector for Parcel Force Worldwide with whom the U.S. Postal Service has an arrangement for parcel delivery in Europe. Parcel Force’s inspector photographed the package and sculpture, but did not take the sculpture. Dorothy turned over all of the necessary documentation to her local post office 2 months after the sculpture had been shipped. At that time, Dorothy made a full refund to Robert, the purchaser.
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Two months after filing the claim, the local post office informed Dorothy that there was no record of any claim. All of the documentation had to be produced again, and the claim was re-filed. Two and one half months after re-filing, Dorothy checked again and was told that the claim had been lost a second time. The claim was re-submitted a third time. Two weeks later, all of the claims documentation disappeared from the New York claims office and the claim had to be re-submitted a fourth time. After 10 months, the New York office was finally able to hold onto the documentation. At around the same time, the sculpture was re-shipped to Dorothy in the U.S. Two months after that (one year after the shipment of the sculpture), Dorothy called the New York office. She was told to bring the sculpture to her local office – she attempted to do so, but the local office would not accept the sculpture. The New York office wrote to the local post office directing the employees to accept the sculpture. They did. The local postal clerk advised Dorothy that the check for the full amount would be sent immediately. Over the next 3 weeks, Dorothy called the New York office 6 times. Either no one answered (although the call was placed during regular business hours), or if someone did, Dorothy was promised return calls that were never made. After Herculean effort, Dorothy finally managed to speak to the claims officer handling her case. This officer said that, “She could not find the file . . . [but] remembered doing something with it.” Later that day, a supervisor called who said that she did not have all of the information required from the U.K. The supervisor insisted on delaying any further action for 3 weeks until she received the information she sought from the U.K. One month later, the supervisor called Dorothy, explaining that she had been out of the office for several weeks and would call back in a “week or so.” Dorothy
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asked to speak to someone in the legal department, but was told that everyone was too busy to speak to her. A week later Dorothy contacted the Consumer Affairs department of the Postal Service. During the next month, Dorothy was bounced between the New York office and the Consumer Affairs department. After 15 months of delays and unfulfilled promises, Dorothy retained a lawyer who contacted me. I intervened on Dorothy’s behalf and she was eventually paid. Carrie E. Carrie E. sold a laptop computer on Ebay for $600. It was in good working order when sold and shipped via Express Mail. At the post office where the laptop was mailed, a clerk assisted Carrie in the final packaging. No one at the post office of mailing informed Carrie of the limitations on insurance coverage. (Indeed, says Carrie, she has discussed this matter with several postal employees, none of whom have ever heard of this regulation). When the computer arrived at the recipient’s home, it was found to be seriously damaged and no longer working. Soon after, Carrie submitted her claim for compensation to the St. Louis claims office. Carrie filed three claims to that office, and they were denied as follows: • • • First Request. The claims officer denied this claim on the ground that no proof had been furnished that the computer was in working order prior to shipping. Carrie was able to furnish the proof and resubmitted the claim. Second Request. The claims officer denied this claim on the ground that there was no visible damage to the outer package. Third Request. The claims officer denied this claim on the ground that there was no visible damage to the outer package. Carrie also appealed twice to the Postal Service’s Consumer Affairs and Claims office, but her appeals were also denied. Following her last appeal, the Consumer
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Affairs office advised her that her only recourse was a civil lawsuit. Carrie filed suit in the United States District Court. The Court’s opinion is described in Attachment C. Carrie raised several significant issues in her lawsuit against the Postal Service. She stated that no postal employee had given her a written copy (or even an indication) that there were postal rules limiting coverage. Furthermore, the oral advice given her by employees was not given any weight by the Court. In summary, the Court concluded implicitly and explicitly that: • • • • • • • • The Postal Service has no duty to inform consumers about postal regulations limiting coverage. Consumers are charged with constructive knowledge of regulations limiting coverage. Postal clerks’ oral statements at the time of mailing have carry no weight with the Court. Postal clerks’ assessments of the efficacy of packaging at the time of mailing carry no weight with the Court. Mailers will have no way of knowing at the time of mailing whether their packaging is sufficient to make a successful insurance claim because it is impossible to tell in advance whether the outer packaging will sustain damage. Mailers have no knowledge about the Postal Service’s poor track record of paying claims; and the Postal Service has no duty to inform them. Mailers will be unable to predict at the time of mailing how a postal claims officer will view the extent of damage or apply the postal rules and regulations. In their letters rejecting claims’ requests, claims and consumer officers have no duty to address each of the claimant’s arguments; nor do these officers have to set forth their reasoning in denying the claim. A bare statement of denial referencing one of the postal regulations is sufficient. The Postal Service is free to reap the benefits of its unpredictable rule on damage to the outer packaging – if an item is damaged while in the custody of the Postal Service, but shows no significant damage to the outer packaging, by definition it has been packaged improperly. If one can only tell at the end of the entire process whether packaging was sufficient to withstand postal handling, i.e., there has been interior and exterior damage, then how can a mailer ever know at the time of mailing whether this particular insurance purchase has value or not?
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Attachment C: The Role of the Courts in Adjudicating Postal Disputes In the case of Paul Elsass and Carrie Elsass v. USPS, Case No. CV-01-1103PCT-JAT (U.S.D. Ariz. March 7, 2003), at 3, Judge Teilborg ruled that: A reviewing court may not overturn a USPS action unless it was arbitrary and capricious. . . . This Court is “not empowered to substitute its judgment for that of the agency,” but instead must “consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment.” [A] “decision of less than ideal clarity [should be upheld] if the agency’s path may reasonably be discerned. . . .” The Postal Service’s decision, which sets forth its interpretations and application of its regulations and policies, should be affirmed under this standard unless it is “plainly erroneous.” Citing the decisions of earlier courts, Judge Teilborg observed that “the extent of the USPS’s liability is governed by the postal laws and regulations.” (Id. at 4). These regulations (couched as limitations on its liability in the Domestic Mail Manual)) are drafted by and for the Postal Service. According to Judge Teilborg (Id.), the Postal Service is liable to the owners of lost or damaged mail only to the extent to which it has consented to be liable, and the extent of its liability is defined by the Postal Laws and Regulations. Insurance claimants would have a far better chance of prevailing in a legal dispute with a private carrier because, in contrast to them, “traditional contract doctrine does not apply to postal insurance coverage because the terms of postal insurance are published as regulations of the Postal Service.” (Id.) The Postal Service does not routinely provide a list of limitations and exceptions to its insurance liability (published as DMM rules). Nevertheless, consumers are “deemed to have notice of postal regulations constituting the terms and substance of
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any contract of insurance on the item mailed.” (Id. at 5). Since the insurance form used to issue the insurance at the retail window states that “insurance is provided only in accordance with postal regulations in the [DMM] . . . [t]his language properly put [the] Plaintiff on notice that the insurance contract was governed by provisions in the DMM.” All of this establishes the following legal relationship between the Postal Service and its customers: • • • • The Postal Service has no duty to provide information to insurance purchasers on the limitations of liability. It need only state that rules exist in the DMM that limit its liability. The Postal Service can establish (in the form of DMM rules) any limitations it wishes. When a claim is made, the Postal Service, a vitally interested entity, decides whether or not to pay. The court will uphold the Postal Service’s decision unless it clearly incorrect or is utterly unsupported by any interpretation of the evidence presented.
