A) THE PROBLEM BEFORE ALCON:
Assume that an individual is injured by a negligent driver in a car accident. Furthermore, assume that this victim sustains injuries that prevent him from working for four months. Typically, insurance companies resist compensating injured victims for wage loss claims by asserting that they need supporting documentation. But, they are not looking for a pay stub or a letter from an employer. Instead, they demand 10 years of tax returns, 10 years of bank statements, a complete personnel file from all employers for the past 10 years, and probably a note from a doctor documenting the injuries that prevent the injured victim from returning to work.
Insurance companies insist that they cannot pay out on a wage loss claim unless they receive ALL of these records. In fact, insurance companies avoid paying wage loss claims by casting their nets wider and wider by requesting more and more documentation. Even if an injured victim makes the effort to gather ten years of wage/income records to respond to the unduly burdensome request by the insurance company, the response will likely be more foot-dragging and more requests by the insurance company. Consequently, making a wage loss claim is tantamount to a moving target, a fishing expedition, or an endless paper chase.
These exhaustive requests by insurance companies have a devastating effect on members of the community who do not have a solid history of filing or paying taxes. In fact, the insurance industry knows full well that requesting tax records causes many legitimately injured people who cannot work to give up their efforts to recover lost wages. As a result, we generally counsel clients with less than pristine tax records to give up any efforts to seek lost wages to avoid the ensuing scrutiny.
B) ALCON SEEMED TO SUGGEST A NEW SHERIFF HAD COME TO TOWN:
Alcon v. Spicer, 113 P.3d 735 (Colo. 2005) involved a case where the defendants sought exhaustive financial records from the plaintiff (tax returns, bank statements, etc.) for her wage loss claim even though plaintiff had already provided proof of her earnings through her W-2 forms. Plaintiff's attorney argued that the insurance company should not be allowed to hamstring injured folks with burdensome financial document requests, especially if plaintiff had already provided documentation of her wage loss.
Surprisingly, the Colorado Supreme Court agreed and denied defendant's request to have plaintiff produce the last ten years of her income tax returns. Instead, the court shifted the burden to the party seeking the production of the financial records by finding that they must demonstrate a compelling need for the tax records. The court found that other less intrusive documents could prove wage loss, thereby shutting down the endless paper chase.
Initially, attorneys who represent the rights of injured folks against insurance companies rejoiced. We saw this decision as the court taking a stand for individuals who do not keep extensive financial records or who simply have not filed tax returns. Realistically, a family that is beginning to starve because their breadwinner cannot work does not deserve to starve just because that breadwinner was getting paid under the table and did not file taxes. Furthermore, should the multi-billion dollar insurance industry really be able to withhold compensation from injured victims simply because the victims did not pay the Federal Government? Why does the insurance industry get to profit from this circumstance?
C) ALCON CHANGES NOTHING, Really:
More than six years have passed since the Colorado Supreme Court handed down the Alcon decision. Unfortunately, what was originally perceived as a landmark Colorado court decision that took a rarely seen compassionate approach to the typical David v. Goliath struggle between injured victims and big insurance companies has not turned out to be so impressive or revolutionary.
While Alcon continues to be the accepted law relative to the disclosure of financial documents in the discovery process of a civil case, what it does not do and does not stand for really limits its legal application and significance. In fact, after trying these cases for 22 years, it is evident to me that the Alcon decision really changed nothing.
1) THE GOOD NEWS:
Today, we can credit Alcon for putting an end to the "laundry list from hell" that was the insurance industry practice of demanding detailed tax records during discovery to support a wage loss claim. If an insurance company demands tax returns now, I can stand on solid legal ground and tell them on behalf of my client that they are not entitled to those records. Instead, we can simply furnish a W-2, a 1099, or perhaps a handwritten letter from an employer.
2) THE BAD NEWS:
The very second I refuse to produce tax returns on behalf of my client, big red flags go up that prompt the insurance company to assume that my client refuses to produce tax returns only because she does not file taxes. In fact, there is nothing that prevents the insurance giants from walking into court and calling my client a tax cheat in front of the jury. In fact, the courts regularly uphold an insurance company's right to launch such callous credibility attacks.
Consequently, Alcon allows us to refuse to produce tax records. Unfortunately, the act of refusing to produce tax records telegraphs the very reason we are refusing to produce tax records. Thus, what might have been an effort by the court to curtail oppressive financial disclosure obligations really turns out to be nothing more than an anemic court opinion that changes nothing.
If you do not pay your taxes, you are still not going to be able to walk into court and claim those lost wages without facing a brutal cross examination about your failure to be honest with the Federal Government. In that situation, the only way to avoid being called a "tax cheat" is to produce enough tax records in discovery to prove your honesty. Nevertheless, opening up that Pandora's Box is extremely intrusive and allows the insurance company to learn private information about you, your finances, your spouse's finances, and your investments.
At Anderson Hemmat, we believe that injured victims should be compensated for any wage loss that they have suffered. At the same time, we are aware that juries may be skeptical of people with less than pristine tax records. Whether you should assert a wage loss claim is a case-specific decision that requires a meeting with an experienced trial attorney. If you have been injured and cannot work due to your injury, please call and speak with one of our attorneys today.