FTCR Allstate Earthquake Case

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Policyholders To Be Paid in Full, New Foundation Established

The Lawsuit. On September 30, 1997, FTCR filed suit against Allstate Insurance Company. (Jo Ann Lowe and Proposition 103 Enforcement Project v. Allstate (BC178734)). It was filed in Los Angeles Superior Court under California’s Unfair Business Practices Act (Business and Professions Code §17200).The suit alleged that Allstate improperly handled claims filed by policyholders as a result of the Northridge, California earthquake in 1994. Jo Ann Lowe, a former employee of Allstate, became a whistleblower who documented the allegations contained in the complaint.

Unlike traditional tort or damages suits, §17200 cases are considered “citizen attorney general cases.” Such suits are brought on behalf of the public, and primarily seek an injunction: a court order requiring the defendant cease improper conduct. “Restitution,” or “disgorgement” of profits obtained through the wrongful conduct, are also sometimes awarded by the courts. Attorneys who bring such cases on behalf of the public are entitled to obtain reimbursement of their fees (usually at a set hourly rate) and expenses.

The filing of the FTCR lawsuit created enormous publicity, and also led to an investigation by federal authorities.

In settling the FTCR case, Allstate also sought to resolve a class action brought by numerous policyholders who had filed claims against Allstate after the Northridge earthquake. The class action (Sherman v. Allstate), alleged misconduct in Allstate‘s claims handling practices similar to that charged in the FTCR lawsuit but also sought damages from Allstate.

In the proposed settlement of the class action lawsuit, as reviewed and modified by FTCR, Allstate agreed that:

  • It would contact, through independent notice, all Allstate policyholders who made Northridge earthquake-related claims against the company.
  • Any policyholders requesting a re-opening and review of their claim would receive an independent engineering review.
  • Allstate would make any additional payments found necessary under that review.
  • Allstate would pay the claimants’ legal and other expenses above and beyond payments made under the policy.
  • A panel of independent, retired judges will oversee any disputes or other matters.
  • The Superior Court retains jurisdiction over the class action lawsuit to ensure that its terms are properly carried out.

Those plaintiffs not participating in the class action were not subject to the terms of the settlement.

Allstate and plaintiff’s lawyers estimated that Allstate‘s liability under the settlement would amount to between $50 million and $150 million.

As part of the settlement of the lawsuit brought by FTCR, Allstate agreed:

  • To investigate thoroughly the allegations of wrongdoing in the FTCR complaint and rectify them, as accomplished by the resolution of the class action case.
  • To take all steps needed to protect its policyholders in the future.
  • To appoint a respected independent “Consumer Consultant” to review Allstate‘s catastrophe claims practices and its internal and external communications processes.
  • To provide a $5 million grant for the establishment of a new consumer education and advocacy organization known as the Consumer Education Foundation (CEF) to focus on three areas: loss prevention and mitigation, the conversion of mutual (policyholder-owned) insurance companies to for-profit companies, and general consumer protection issues.

As part of the settlement of Lowe & Prop. 103 Enforcement Project v. Allstate, Allstate also agreed to pay FTCR’s attorneys fees and costs in the amount of $9,957. That settlement was finalized in October of 1998. The settlement of the class action lawsuit was subsequently submitted to the court and approved in June 11, 1999.

Limits on the CEF’s activities.

Pursuant to the settlement agreement, the CEF may not make expenditures for litigation or advocacy on property-casualty insurance issues other than those noted above. Funding of California Proposition 103-related activities is also prohibited. Nor may the CEF fund any individual or organization associated with the insurance industry.

Allstate has no control over the operation or activity of the CEF.

The CEF’s Structure and Board of Directors.

The CEF is a non-profit, tax exempt organization incorporated under Section 501 (c)(4) of the Internal Revenue Code. Thus, the CEF is authorized to engage in advocacy as well as litigation and lobbying. (Because (c)(4) organizations are given broad latitude under federal non-profit laws to engage in advocacy, donations to such organizations are not tax-deductible).

Pursuant to the settlement agreement with Allstate, the organization was incorporated by Harvey Rosenfield, who designated the CEF’s initial Board of Directors. Rosenfield also serves as its President. The other members of the Board of Directors are nationally-recognized advocates who have been active in non-profit endeavors throughout their professional lives. The Board elects its own members and determines who shall serve as officers of the organization. To accomplish its mission, the CEF is authorized to sponsor legislation, engage in public education, litigation and grassroots organizing — the full panoply of tools available to non-profits. It may also provide grants to or partner with other organizations in order to accomplish its goals.

The Board has determined to proceed carefully to determine how best to maximize the organization’s resources. The CEF is presently in the project analysis and planning stage. Generally speaking, the CEF intends to utilize its resources in ways which will significantly leverage the organization’s expertise in order to make a unique and effective impact.

The CEF is a separate organization from FTCR. For more about the Consumer Education Foundation, you can write to P.O. Box 1895, Studio City, California 91604.

Consumer Watchdog
Consumer Watchdoghttps://consumerwatchdog.org
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