Stakes Huge in Quake Suits

Litigation often generates more heat than light. Such is certainly the case, thus far, in a series of Northridge earthquake lawsuits involving the Allstate Insurance Co.

A leading trial attorney has accused Allstate attorneys of suborning perjury. But the judge in whose court that charge was made has compared the conduct of the attorney who made it to “Mike Tyson biting off an opponent’s ear.”

After 12 years of covering the wars between insurers and trial lawyers, I’m no longer surprised by contentious exchanges in what is frequently an unmannerly rivalry of special interests.

But this one has gone further than most. The FBI has raided Allstate offices, seizing records. Allstate attorneys have sought a finding of contempt against Michael Bidart, the man who accused them of suborning perjury, and two others, and the judge, Alban I. Niles, has come close to abandoning impartiality.

Behind it all, there is a serious question: Did Allstate cheat some of its policyholders by ordering engineers’ reports revised to reduce quake damage assessments and, therefore, payouts on claims?

That’s the central allegation of Jo Ann Lowe, a 25-year Allstate employee, in a declaration that Allstate General Counsel Bob Pike acknowledges has “created an interest by the U.S. Justice Department.”

Pike says he has concluded that Lowe’s allegations inspired the embarrassing series of swoops by FBI agents on Allstate offices in California, Texas and Illinois, where they seized thousands of pages of documents.

Federal authorities, as usual, will not discuss the FBI inquiry. But a former member of the U.S. attorney’s office in Los Angeles says plaintiffs’ lawyers inspired the inquiry by alleging that Allstate was guilty of criminal fraud.

Allstate has denied wrongdoing, and is suing some independent adjusters and engineers it hired to expedite handling of Northridge claims on grounds they defrauded Allstate itself by overstating costs and taking kickbacks.

The stakes in this are huge. If the Lowe declaration is believed, Allstate will owe substantial sums to policyholders whose cases have long been thought closed.

Settlement negotiations have begun between Allstate, Bidart and at least two other trial attorneys, Thomas Girardi and Walter Lack.

Gina Calabrese, a plaintiffs attorney, estimates that thousands of policyholders could get more repair money as part of a settlement.

Often, settlement amounts are kept confidential to save corporate face. If this one were made public, it could fortify suspicions that the industry has shortchanged quake victims.

The Northridge quake, according to official estimates, caused more than $40 billion in damage, making it the costliest disaster in U.S. history.

Private insurance payouts have been $12.5 billion, including about $8.5 billion to homeowners.

Allstate spokesman Peter Debreceny says the initial estimate for Allstate payouts was five times too low, and the company ended up paying 47,000 claimants a total of $1.7 billion. Pike said that of 275 lawsuits, 130 are still pending, while the eight that went to trial ended in verdicts for the company.

But the class-action suit is still pending.

The Lowe declaration surfaced at the end of a jury trial won last summer by Allstate.

A key allegation in this case was that engineers’ damage assessments had been altered on Allstate’s orders. Judge Niles would not allow Lowe to testify, and, on the motion of Allstate, he ordered her declaration sealed. No one was to pass it out or talk about it. Court officials last week even insisted that papers in the case are missing.

Some trial attorneys refused to acquiesce in the Niles order, however, saying it went against a recent appellate decision unsealing two declarations of a State Farm employee who had alleged wrongdoing against that company.

“I am not returning the declaration of Jo Ann Lowe,” wrote Lack. “In fact, I have disseminated copies . . . to a number of people who I feel should be told about the conduct of Allstate. . . .

“Even worse to my way of thinking is the fact that a Superior Court judge would countenance such activity by protecting it from public disclosure.”

The contempt filing against Bidart, and Lowe as well, came last fall from Allstate attorneys who accused him of using part of Lowe’s declaration in the complaint in a new lawsuit.

Even before the filing, relations between Bidart and Niles fell apart.

On Aug. 4, in a motion for a new trial, Bidart wrote that Niles had “violated . . . rules of judicial neutrality and treated both plaintiff’s counsel and her witnesses with scorn, derision and contempt, in the presence of the jury.”

He also said Allstate attorneys had “suppressed Ms. Lowe’s testimony in subornation of . . . perjury.” These attorneys, he said, “knew” their witnesses were lying about the revision of engineering reports.

Niles struck back at a Sept. 10 hearing.

“Mr. Bidart’s reference to opposing counsel exhibits a degree of unprofessionalism never before seen by this court and hopefully never to be seen again,” he said.

“It is despicable, disgraceful, unprofessional, scurrilous, shameful, below the belt and rivaled only by Mike Tyson biting off an opponent’s ear,” said the judge, according to an official transcript provided by Allstate.

Bidart last week refused to comment on Niles’ statement. Associates said he is afraid that if he did, the judge might be more inclined to take severe action against him if contempt proceedings go forward.

Bidart partner William M. Shernoff called the statement “particularly unwarranted comment” that “doesn’t describe Mike at all.”

But when Niles, a 16-year veteran on the bench, was asked through his court clerk whether he stuck by his statement now, eight months later, he responded only that it would be “unethical” for him to comment because the contempt filing is still pending.

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Reich can be contacted with your accounts of true consumer adventure at (213) 237-7060, or by e-mail at ken.reich@latimes.com