THE RAINMAKER (1997)

This is a Francis Ford Coppola-directed film adaptation of a John Grisham novel of the the same name. It has an all-star cast including Matt Damon, Jon Voight, Claire Danes, and Danny DeVito.  

Matt Damon plays Rudy Baylor, a recent law school graduate seeking employment in Memphis, TN. His options are few and he takes a job with a small law firm that has a less than stellar reputation.  Soon he is thrust into situations that challenge his notion of what's right and is fodder for many of the stereotypical lawyer jokes.  These jokes emanate from a popular expectation that lawyers are corrupt and we see several examples of that in the film including scenes of "ambulance chasing." The movie also shows Rudy defend a client against the injustice perpetrated by a large insurance company thereby offering a contrast between what might be called an ethical lawyer and an unethical one. 

The insurance scam depicted in the movie offers a good lesson in unethical capitalism.  Rudy defends a young man dying from leukemia whose insurance claims to pay for an expensive treatment were denied 8 times by the Great Benefit Insurance company.  The insurance company argued the claim was denied because the treatment was deemed experimental and the policy didn't cover such situations.  However, later it is learned that Great Benefit had a company policy to deny every claim brought to it for at least one year because it recognized that most customers would give up after a few denials.  If  a customer did not give up and instead went forward with a lawsuit against them, Great Benefit would hire an expensive legal team to defend itself and it is that legal battle that plays out in the movie.

Insurance is an industry ripe for fraud for a couple of reasons. First, insurance is an exchange that does not take place simultaneously. Instead, the customer agrees to pay monthly installments, or premiums, for an extended period of time and the insurance company promises to cover the customer's expenses when certain conditions arise, such as a medical illness or a car accident. For example, with medical insurance, if the customer is hospitalized, the insurance contract might cover the cost of the room up to a specified amount and subject to a customer co-payment of a specified amount. All of the potential situations and conditions are specified in a contract that the insurance company writes up and that the customer signs, thereby agreeing to the terms and conditions. However, because the events that insurance covers are extremely varied and complex, the contracts are also very complex and that can make it challenging for many customers to understand completely what the policy covers and what it does not.

It is the imperfect information that customers have about the details of insurance contracts that enabled Great Benefit to perpetrate the fraud of its customers in the movie. They gambled that if all insurance claims were summarily denied for at least a year, most of the claimants would simply give up trying. In that way the company expenses are reduced but its revenue stream is maintained, guaranteeing them higher profit. These higher profits are what economists call economic rents, because they are higher than would arise in a legitimate competitive market. Finding a way to make economic rents is also an effective way to get rich. It is these rents that also enables the company to hire the the best legal team money can buy to defend themselves in court for the few cases in which the claimant does not give up.

For many people, the movie shows us the true nature of capitalism, that firms will do anything necessary to make greater profit and that lawyers are used to defend them in these nefarious practices. And so, the businesses and the lawyers get rich together. Actually though this is not an example of capitalism, because the insurance companies and the lawyers are not following the ethical principles needed for economic efficiency. Although the exchange between the customer and the insurance company was mutually voluntary, it was based on imperfect information for the customer, and the unwillingness of the insurance company to fulfill its promises. The insurance company was using the complexity of its policies and its deeper pockets, enabling it to hire expensive lawyers, to renege on the promises it had made to its customers. As a result, the exchanges were not win-win, as would arise in a well-functioning capitalistic market, but were win-lose instead.

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Reflection Questions

1. What is ambulance chasing and what makes it an unethical practice?
2. The legal team defending the insurance company Great Benefit has a cozy relationship with the judge presiding over the case initially. What is the unethical behavior suggested by the bathroom breaks taken by the defense lawyer (Jon Voight) and the judge (Dean Stockwell) during the pre-trial meeting in chambers?
3. How did the legal team obtain "inside information" to help in its negotiation with the plaintiff? Is this an acceptable business practice?
4. Is it true that all lawyers are corrupt, or only most lawyers? (...that's a joke!). Comment nonetheless.
5. In the movie, punitive damages are awarded by the jury. Discuss why this is possible due to a violation of the implied covenant of good faith and fair dealing. (see also Insurance bad faith).