Allstate Settles Bad-Faith Lawsuit

By Dan Margolies, The Kansas City Star, Mo.

Jul. 11--A bad-faith case against Allstate Insurance that drew national attention and prompted the judge to levy fines against the insurer topping $7 million has been settled on undisclosed terms.

A court hearing on whether to approve the settlement has been scheduled for July 21, the day the case was scheduled to go to trial before Jackson County Circuit Judge Michael Manners.

Attorneys for both sides declined to disclose the terms of the settlement.

Mike Siemienas, a spokesman for Allstate, the nation's second-biggest home and auto insurer, said the company was pleased the case had been resolved but declined to elaborate.

The case stemmed from a collision on Interstate 70 near the U.S. 65 exit. On Sept. 15, 2000, Warrensburg resident Dale Deer stopped in a construction zone. Some time later, a car driven by Paul Aldridge of Hawaii and traveling an estimated 70 miles an hour slammed into the rear of Deer's pickup truck.

Deer staggered out of the truck. He was taken to a hospital and released later that day. In 2003, he was diagnosed with severe damage to his back and neck, which doctors attributed to the accident.

Deer sued Allstate and Aldridge for his medical expenses, which ran into the hundreds of thousands of dollars. Allstate eventually agreed to pay him $750,000 plus interest. That would have ended the matter, but Allstate did not pay him. Deer sued the insurer again. This time Allstate settled for about $1.2 million.

In the meantime, Aldridge also sued Allstate, claiming that it had mishandled his case and acted in bad faith. Attorneys for both Aldridge and Deer sought Allstate documents to show how the company set up a claims payment system in the 1990s that low-balled clients and allowed the company to reap huge profits.

Allstate refused to produce the documents, which it said contained trade secrets used to create policies and claims procedures. Releasing them, it said, would give the plaintiffs' lawyers information on trial strategy.

The documents included slides prepared in the early 1990s by McKinsey & Co., a consulting firm that allegedly advised Allstate to settle claims quickly for pennies on the dollar and fight claimants who resisted -- for years, if necessary. One slide was titled "Good Hands or Boxing Gloves," an allusion to the insurer's "You're in good hands with Allstate" slogan.

After Allstate refused to turn over the documents, Manners last September held the insurer in contempt and fined it $25,000 per day. The fine eventually grew to more than $7 million.

In November, the Missouri Supreme Court ordered Allstate to disclose the documents. Allstate turned over more than 120,000 pages.

The documents have figured prominently in other litigation and regulatory proceedings. In January, Florida's insurance commissioner, Kevin McCarty, suspended Allstate's authority to sell insurance in that state after it resisted subpoenas to produce the documents. A Florida appeals court later upheld McCarty's ruling.

The suspension was lifted after Allstate furnished a sworn affidavit stating that it had turned over the documents and would comply with additional document requests.

In April, Allstate posted on the Internet 150,000 pages of documents related to its claims-handling practices.

In an accompanying statement, Allstate said, "Public criticisms by people with a vested interest in creating an inaccurate picture of the company's claim practices have been based unfairly on only snippets from the documents taken out of context. Because of the need to address misunderstandings resulting from the growing misplaced focus by our critics on very small pieces of the whole, we have decided to make the documents public."

To reach Dan Margolies, call 816-234-4481 or send e-mail to dmargolies@kcstar.com.

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