Allstate Accused of Quake Claims Fraud

In another case of alleged fraudulent handling of Northridge earthquake claims by a big insurer, the Allstate company was accused Tuesday of altering engineers’ reports and falsifying information in mediation hearings to reduce claims payments.

A lawsuit filed in Los Angeles Superior Court against Allstate by the Proposition 103 Enforcement Project, a consumer group, was joined by Jo Ann Lowe, a 25-year Allstate employee who says she observed and protested the alterations as a member of the company’s Catastrophe Center before quitting this year.

Consumer advocate Harvey Rosenfield, author of the 1988 insurance reform initiative, Proposition 103, heads the Enforcement Project. The lawyers representing the plaintiffs are from two firms that frequently litigate against the insurance industry.

The suit is believed to be the first of its kind “on behalf of the general public.” As such, it is not a class-action suit, but it does ask a court order for restitution to all policyholders Allstate allegedly shortchanged.

Such major sellers as State Farm, 20th Century, the Farmers Home Group and Chubb have been sued in a variety of individual cases charging that they dealt unfairly with Northridge quake victims. There have been adverse judgments against 20th Century, the Farmers Home Group and Chubb.

Insurers have paid about $12.5 billion in claims--$8.5 billion of that in residential claims--from the Northridge quake.

Allstate on Tuesday issued a general denial of the claims in the latest suit.

“Not only does Allstate deny the allegations, a Superior Court judge has already considered and rejected them in another case,” said spokeswoman Nancy Anderson. “Some of these same allegations were placed before a jury and the jury found in Allstate’s favor.”

However, a lawyer for the plaintiffs, Sharon Arkin, said this was a misstatement of the facts.

This is a new, different lawsuit, Arkin said, and the key declaration by former Allstate employee Lowe has never been heard in court.

The Lowe declaration has been sealed under a court order. However, it was obtained by The Times weeks ago on an embargoed basis in anticipation of the lawsuit.

In it, Lowe asserts that as an appointed Allstate analyst of numerous bad-faith Northridge lawsuits brought against the company, she became aware of “improper, unlawful, fraudulent and bad-faith” conduct by the insurance firm.

“Allstate’s adjusters were requiring engineers to provide a draft or preliminary report for the adjuster’s review,” she said. “Engineers were repeatedly instructed to alter draft reports in order to minimize the damage attributable to covered losses in order to reduce any potential payment to the insured and in order to benefit Allstate’s financial interests.”

Lowe asserts that as she evaluated more claims files, she learned that such alterations were “not isolated occurrences. . . . It became clear to me that the alteration of draft engineering reports was a standard practice throughout the Catastrophe Unit.”

Yet, she alleges, some company officials to whom she complained later declared in court that such alterations did not take place.

In another declaration released Tuesday, Steven A. Maragakis, a Los Angeles engineering and building contractor, asserted that in 1995 he had attended a meeting at which Allstate personnel had participated in “improper modification and deviation from original engineering findings” in about 22 cases.