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Lizard Wins, Auto Adjusters Lose in Geico Case

During the darkest days of World War Two, Russia developed a strategy for winning the war. As portrayed in the movie, Enemy at the Gates, it shot its own troops on the front line.

Now Geico, the auto insurer owned by Warren Buffett's Berkshire Hathaway Corp., seems to have come up with the same idea. The Washington Post reports that Geico, whose television ads are fronted by the gecko, a seemingly amiable lizard with an Australian accent, won an appeals court battle against its own auto adjusters.

The background: hundreds of adjusters in New York and other states filed suit claiming that Geico had improperly denied them overtime pay for the hours they worked. But the legal arguments proved a bit bizarre. The adjusters originally won their case when a district judge ruled they were simply pencil pushers who filled out forms for broken headlights and dented fenders.

Then Geico won its case on appeal when the higher court decided that the adjusters' jobs involved "discretion and independent judgment." It was a compliment they didn't need, because it bumped them into the class of administrative employees exempt from federal laws on overtime.

The decision may make Buffett, already the nation's second richest man, even richer because these adjusters represent a significant portion of Geico's workforce.

But there's a caveat: Geico relies heavily on television advertising and basically sells to anyone who can pick up the phone or get on the Internet. By definition this means that its screening process is looser than other insurers whose clients are vetted by agents. Hence, there's a higher degree of chance that these faceless clients will exaggerate the extent of their medical injuries; torch the old clunker or, in some instances, do a "squat and bump" fake accident.

Insurance fraud typically rises in a recession, and sources say Geico, because of its "come one, come all" policy, is especially prone. Auto adjusters are an insurer's front line of defense against fraud. So if they are merely pencil pushers who refuse to work more than 40 hours a week, where will that leave Geico? Perhaps Buffett should consult the Gecko.