Copyright 2007 The Times-Picayune Publishing Company Times-Picayune (New Orleans) August 22, 2007 Wednesday
SECTION: MONEY; Pg. 1
LENGTH: 1190 words
HEADLINE: Allstate's dirty secrets revealed, lawyer claims; Its playbook calls for paying pennies on the dollar, he says
BYLINE: By Rebecca Mowbray, Business writer
When David Berardinelli hears stories of New Orleanians battling Allstate Insurance Co. and feeling shortchanged on their Hurricane Katrina claims, he says he knows the culprit: the McKinsey documents.
People are having trouble collecting insurance proceeds because they're up against a corporate strategy hatched by the high-powered consulting group McKinsey & Co. that taught Allstate how to boost profits by squashing claims, said Berardinelli, a Santa Fe, N.M., lawyer who has written a book about the strategy.
"They are vital to an understanding of why the people down there, two years later, haven't had their claims paid," Berardinelli said of the McKinsey documents that were developed in the mid-1990s. "The real catastrophe has been the failure of these major insurers, especially Allstate . . ., to keep their promises. These big companies have turned their backs for the sake of profits on people at the time they needed them the most in order to be able to show Wall Street how much more money they had made."
Berardinelli has been hired by a number of New Orleans plaintiffs attorneys to try to prove the link behind the corporate strategy and Katrina claims problems. His quest to get thousands of McKinsey presentation slides placed into the public realm has surfaced in the Lake Catherine case, Dale Delatte v. Allstate, in a hearing on the issue in front Magistrate Judge Alma Chasez today in U.S. District Court in New Orleans. Local attorneys say the hard-nosed claims-squelching tactics Berardinelli outlined can be seen in the volumes of Katrina disputes and more specifically, in the first two federal court cases against Allstate, where the company accused the claimants of fraud when the claimants pushed for more money.
Allstate says in court filings that the documents are outdated and irrelevant to the settlement of Katrina claims. Spokesman Mike Siemienas declined to address the allegations raised in Berardinelli's book, but offered a written statement about the "attacks on Allstate."
"Allstate's goal is to neither underpay or overpay a claim, but to make fair and reasonable offers based on the nature and circumstances of the individual claim as quickly as possible. . . . Our claims processes have a positive impact by improving the accuracy, timeliness, and consistency of claims payments, and no amount of baseless attacks from trial lawyers can change those facts," he said.
McKinsey spokesman Mark Garrett said his company can't discuss the confidential advice it offers clients.
Berardinelli has become something of a celebrity in trial lawyer circles after he briefly got a hold of 12,000 McKinsey slides in a personal injury auto case in New Mexico. Although he was required to return the documents to Allstate, he took notes on the slides and wrote a book about what he says are fraudulent claims practices at the Northbrook, Ill. company, the nation's largest publicly held personal lines insurer. The 2006 book "From Good Hands to Boxing Gloves," gets its title from a McKinsey slide advising Allstate to don boxing gloves for any customer who doesn't accept a settlement officer for pennies on the dollar.
Insurance used to be considered a quasi-public trust that's supposed to function as the safety net for the middle class, Berardinelli says in his book. But McKinsey, which worked for other insurance companies before perfecting its strategies with Allstate, orchestrated a radical shift by transforming that all-important trust into a high-stakes zero-sum game where the interests of Wall Street are placed above those of policyholders.
"It's more than just a change in one company. It's more about a replacement of the traditional paradigm of insurance," Berardinelli said in an interview in New Orleans in early May.
The basic concept, Berardinelli says, is that Allstate gives customers a choice: accept a settlement now for a fraction of the true cost of damage, or expect to spend several years in grueling litigation. McKinsey predicted that 90 percent of claimants would be forced to capitulate because they'd need the money in a prompt settlement, Berardinelli said.
"People are giving them money for something they will never receive," Berardinelli said. "What that really means is they're selling uncollectible insurance."
Allstate's strategy has paid off handsomely, Berardinelli says. In the years since it began implementing McKinsey's strategy, the company's profitability shot through the roof. In the ten years before the McKinsey strategy was implemented, Allstate was making an average of $82 million a year in pre-tax operating income. In the ten years after the McKinsey plan roll-out began in 1995, Allstate was making an average of $2.4 billion a year in pre-tax operating income.
"That does not happen unless they're cheating. There's no place for that to come from unless they're underpaying claims," said Berardinelli, who has a request pending before the New Orleans court to name him an outside legal counsel in the Delatte case.
Allstate denies Berardinelli's allegations. In court filings, Louisiana's second largest residential insurer says the McKinsey documents weren't used in the adjustment of Delatte's claim or any other Katrina claim, and has asked Judge Chasez to stop the "plaintiff's fishing expedition."
Allstate says that while it redesigned some of its claims-processing procedures based on McKinsey's recommendations, much of the advice was never implemented, and producing the now-outdated slides, which were used in brainstorming sessions, would "create a highly misleading picture" of Allstate.
The company says it considers the slides to be confidential and proprietary information, and disclosure of the slides would harm Allstate's competitive position. Moreover, just because Berardinelli, "who has made a career out of his anti-Allstate crusade," disclosed summaries of Allstate's slides without the company's consent, it doesn't mean U.S. District Court in New Orleans should open them up for Katrina litigation.
"The McKinsey documents have no conceivable relevance to plaintiff's claims," Allstate's opposition motion by attorney Judy Barrasso reads. "Those documents, which address McKinsey's and Allstate's review and analysis of Allstate's claims handling procedures in the early 1990s, are clearly not relevant to plaintiff's property damage claim arising from Hurricane Katrina in August 2005."
But Berardinelli says the proof is in the profits. In a December 12, 2006, presentation to Goldman Sachs Financial Services, Allstate bragged about its profitability to investors, saying that its average payout on homeowners claims is lower than for the property and casualty industry as a whole.
Berardinelli said that slide is tantamount to an admission that Allstate shorts people on claims and that the McKinsey tactics are at work.
"That slide in my opinion is the smoking gun. What other explanation is there for why everyone else is paying so much and Allstate is paying so little? That obviously relates to the Louisiana homeowners claims," he said.
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Rebecca Mowbray can be reached at rmowbray@timespicayune.com or at (504) 826-3417.
LOAD-DATE: August 22, 2007
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