State Farm Makes History

Last week, 814 women who were denied jobs as State Farm insurance agents won $157 million from the company in the largest settlement ever under the 1964 Civil Rights Act. Previous settlements in the case bring the total recovery to $200 million. According to the settlement terms of the case, originally filed as a class action in federal court in San Francisco, the women plaintiffs will receive on average $193,000. The award comes in one of the country's most egregious employment discrimination cases.

It was almost ten years after the passage of the Civil Rights Act that the case began. State Farm was routinely denying women jobs as agents. Today, the company's official response to the announcement of the settlement has been to sidestep the judgment of intentional discrimination and argue that they just weren't doing enough to recruit women. Spokesman Stahly insists, "We weren't recruiting very well. We didn't know where to find them (women). There were not as many of them out there." This kind of rationale may be indicative of why State Farm got in so deep: the 814 women who will share the $157 million did not need to be recruited. They had applied for jobs at State Farm and were turned away.

Here's what happened. At first, the Bloomington, Illinois- based insurance carrier lied to women who applied for the lucrative agent jobs, telling them they needed college degrees (it was not a requirement for men). When pressed, the company told lead plaintiff Muriel Kraszewski, now a successful agent with another firm who was an $8,000-a-year State Farm secretary when she applied, that State Farm simply did not hire women agents. Though Kraszewski often performed the function of an agent, who made $60,000 then and more than twice that now, she was denied the title and compensation.

Prior to the State Farm award, there have been settlements of race and sex discrimination cases that reach into the millions. Just last year, AT&T Technologies paid $60 million to women who were denied benefits when they became pregnant. In 1985, Northwest Airlines flight attendants ended epic litigation that won them a $58 million sex discrimination award.

The State Farm case, however, has quickly become larger-than-life, a case that attorneys say will be quoted for years as a watershed. Coming after the Clarence Thomas/Anita Hill hearings and following the record $20.3 million Texaco award to Janella Sue Martin, employment attorneys around the country predict the State Farm case will have a profound effect on both employers and women considering sex harassment and sex discrimination actions.

"I think it will do the same thing for sexual discrimination that Anita Hill did for sexual harassment," said Lindy Cater, executive director of the Northwest Women's Law Center in Seattle. Further, the size of the award could put sex discrimination on a par with race discrimination as an acknowledged social wrong.

The case also dramatically demonstrates the impact on a company that ignores the reality that hiring women makes good economic sense.

Ironically, State Farm has discovered that women make effective insurance agents. "In terms of rational business decisions, it is totally irrational to discriminate," said employment attorney Barbara Bryant. "They lose some of their best workers." Indeed, the women agents at State Farm have opened up entire new markets for the company, which is selling more insurance to women than before the suit.

State Farm's decision-making about how to deal with the litigation also seems to veer toward the irrational. The total cost to State Farm, including damages, costs, and attorneys' fees, is approximately $230 million. The company had many opportunities to end the process and significantly reduce the amount of the loss -- but it chose to fight the women for almost two decades.

The case itself began when Kraszewski filed a complaint with the Equal Employment Opportunity Commission (EEOC) in 1975, after State Farm refused to hire her in 1974. At the time, fewer than 1 percent of the new agents hired by State Farm in California were women.

The EEOC acted slowly. In 1979, they finally gave Kraszewski the go-ahead to sue. One month later, the Oakland, California-based firm of Saperstein, Mayeda, Larkin & Goldstein brought suit against State Farm on behalf of Kraszewski and others. Eventually, the class grew to include more than 950 women who had been denied jobs as agents between 1974 and 1987.

At the close of a four-month trial in April, 1985, a federal judge issued a 160-page opinion, meticulously detailing the company's intentional discriminatory practices. State Farm signed a consent decree that mandated changes in company policy. The court specifically ordered the company to hire at least 50% women in California over the next ten years.

In 1988, State Farm produced a complicated formula by which it estimated that the class's claims were worth $13 million -- or approximately $13,700 for each woman who was denied a job as an agent. The plaintiffs rejected this offer, and began the arduous process of trying each woman's case individually. Two years later, in 1990, nine judges began hearing the "mini-trials".

The trials progressed -- very slowly. After two years, just 150 of almost 1000 cases had been resolved, winning $33 million for the individual women. At that pace, the litigation would stretch well into the 21st century.

Even though the company had already been judged to have discriminated against women as a class, State Farm resolutely fought damages in each individual case. "Private investigators did document searches looking for dirt on these people. It was disgusting," said Brad Seligman, of counsel to the Saperstein firm.

According to State Farm, they were winning approximately 60 percent of the mini-trials. Seligman disagrees, saying State Farm was winning only 50% of the cases, not including cases where evidence was so strong that they were settled before trial.

Whatever the actual percentage, State Farm's management made the decision to continue, despite ponderous costs. They had more than 50 attorneys from Morrison & Foerster, one of the country's largest law firms, continuously working on the case. With partners billing $300 per hour, and junior associates half that, the meter ran to tens of thousands of dollars each day. Plaintiffs' attorney Seligman said that "we estimated a year or two ago they were spending $30 million a year on defense costs. Defense did not deny those figures." (Kirby Wilcox, a partner at Morrison & Foerster who managed State Farm's defense, expressed consternation at Seligman's disclosure, but did not deny the number. A State Farm spokesman would not comment on the specific costs of the case.)

State Farm's unrelenting defense, which Seligman calls a "scorched earth policy," was their undoing. "There was a very basic strategic decision the defendants made in this case, which was an awesome mistake." The company came back to the bargaining table in the fall of 1991. "Damages increase not only because of interest, but in discrimination cases where the main damages are lost earnings, the damages continue to increase every day, year after year," Seligman pointed out.

In 1979, when the lawsuit began, Seligman estimates it was worth only a couple million dollars. By State Farm's own estimate, it was worth $13 million in 1988. By continuing to litigate four more years, State Farm "ended up paying 15 times what they had offered". Seligman believes that State Farm learned a valuable lesson too late: that at some point certain defense strategies become unproductive. "Part of what may have brought them to the bargaining table was that their $30 million a year was not buying a lot in the way of avoiding liability," he said.

Defense attorney Wilcox denied that the costs were "exorbitant". Numerous factors played a role in the settlement, he said.

Perhaps even more important than the monetary settlement are the changes the Saperstein firm wrought at State Farm. "I think the internal changes are even more important than the money. [The case] forced them to reform themselves nationally, and on a permanent basis," plaintiff's attorney, Seigel said.

State Farm is the largest carrier for automobile and homeowners insurance in the country. They have nearly $18 billion in their policyholder protection fund. Nationwide, 15% of State Farm's 17,535 agents are women. In California, 18% of the 2,100 agents in the state are women. Company spokesman Jim Stahly described the company's response to the mandate not to discriminate against women: Over the last seven years in California, 52% of State Farm's new hires have been women; nationally, 43% of new hires are women.

Only a few attorneys say there will never be another case like State Farm. "I would like to think that in 1992 employers don't engage in that kind of conduct," said Bay Area defense attorney Joseph Wiley.

Expectedly, plaintiffs' attorneys disagree. "What we see today is a defense bar that is scrambling frantically to convince its more Neanderthal clients to come into the 20th century, just as we are about to go into the 21st," said longtime civil rights attorney Dan Stormer, who represented Janella Sue Martin in Martin v. Texaco. Other plaintiffs' attorneys agree. "It is only the tip of the iceberg," said Fay Clayton, a Chicago employment attorney. Stormer said his office can barely answer all the phone calls it receives since the Texaco verdict, much less represent all of the aggrieved women. "The Martin case had tremendous reverberations, far beyond what I expected," Stormer said. "And the State Farm case will go far beyond that."

Some observers believe that women are finally beginning to feel empowered, particularly after the Hill/Thomas hearings. "Women more than [other groups] tend to feel they are without recourse when they experience discrimination," said Abby Leibman of California Women's Law Center. "We have a long history in this country of condoning behavior based on gender that we wouldn't condone on any other basis."

Perhaps that "long history" explains State Farm's extraordinary resistance in this case. If so, then perhaps the women's victory marks a new epoch.

Several of the attorneys we spoke with put some of the responsibility for the case's long delays and large verdict on the EEOC. The Commission took four years to investigate Kraszewski's claim, and then gave her only the right to sue. "Their progress was glacial, at best," said Saperstein attorney David Pesonen.

Despite State Farm's alarming statistics, the EEOC never launched a broad investigation into the company's hiring practice.

To a large extent, the hands-off attitude was due to a strategic shift in the agency, implemented by Clarence Thomas, to avoid large class actions, which smack of affirmative action, and process individual claims. "More of these cases would have been discovered and pursued fully if the EEOC had had the staff and the inclination to do its job," said attorney Barbara Bryant.