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.....Below is the continuation of some extracts from a very long article which is reported to be from the 2/10/95 of fortune Magazine. Consumers should ask themselves if this is the kind of company they would want to be dealing with if they had suffered a disaster and were depending on their insurance company to help reconstruct their lives as best they can. You should ask yourself what are the consequences of ignoring this kind of business practice.
They are crooks because they broke the law
The final straw for Barchas came when he realized that agents were being required to discriminate against many people with spotless driving records, in violation of Texas law. For instance, the law clearly stated that single people or people without prior insurance could not be denied standard rates on that basis. Allstate, in heavy cost-cutting mode and apparently believing such people represented higher risks, tried to skirt the law by accepting only customers that owned two cars. When the state nixed that loophole, Allstate created another: It excluded people who lived in apartment buildings without covered parking garages. Customers they did accept were placed in the highest risk bracket available, paying double what others paid for the same insurance. "Allstate decided that it would cheat to beat its competitors," Barchas says. "They are crooks because they broke the law, and cowards because they couldn't admit it. If everyone just worked together honestly, we could have destroyed the competition."
he received an anonymous death threat on the telephone
In early November 1993, Barchas decided to lodge a formal complaint against his regional managers through Allstate's "We Care" program, which supposedly assures whistle blowers confidentiality. Yet three days after the complaint was made, says Barchas, he received a call warning that a supervisor was on his way over and would "break down the door" if necessary. Barchas refused to let him in. Several days later, Barchas says, he received an anonymous death threat on the telephone and began noticing people following him. Overwhelmed by fear, Barchas warned an Allstate manager that "anyone comes through the plane of my door, they get shot." On November 16 he had a security system installed in his home. The man who installed the alarm, a former police officer, saw that Barchas was in such a panicky state that he moved the Allstate agent into his own home in a rural town 80 miles from Dallas. For several weeks, Barchas, believing his life was in danger, barely slept and rarely walked outside the ex-cop's house, which was surrounded by private investigators hired by Allstate.
The company placed Barchas under 24-hour surveillance
The company placed Barchas under 24-hour surveillance for several periods spanning six months--November 1993 to April 1994--at a cost of at least $145,000, according to internal records. Midway through that period, the agent's computers were suddenly turned off, while his customers received letters stating that Barchas had retired (some letters said he had "terminated his employment"). Allstate insists that the stalking, and the agent's ultimate termination, were justified by Barchas's shooting threat and a range of "peculiar behavior," defined by the insurer as the following: suddenly "abandoning" his job and customers, leaving "rambling" voice-mail messages on the answering machines of top executives, and refusing to deal with anyone at headquarters except for then-CEO Wayne Hedien, who received "garbled, incoherent" letters from the agent at his office and home. Allstate also says it hired a psychiatrist to analyze Barchas's letters, "just to make sure he wasn't dropping bombs in airline packages or anything," according to Allstate lawyer MacKay. "He only wanted to talk to Hedien."
I was in a terrorized state of mind.
Barchas didn't abandon his job, as Allstate suggests. While being stalked, he kept his office door locked and referred new customers to other agents; his staff continued to service existing customers. And though his letters to Hedien are occasionally wobbly, they complain articulately about the surveillance and the violations of Texas law. "I'm not proud of the letters," says Barchas. "I was in a terrorized state of mind. But I wanted to make sure that Hedien couldn't pass the buck."
Allstate claims it was particularly rattled when Barchas called headquarters to announce that a package of materials would be sent to the CEO's home around Thanksgiving. But the package contained only audiotapes proving that agents were breaking the law, plus a copy of a book called How to Succeed in Business Without Lying, Cheating or Stealing.
Everybody who has insurance paid for that [surveillance].
Allstate's psychiatrist concluded a week later that Barchas posed no danger to any employee, except perhaps to himself. Yet the surveillance continued on and off until the following April. "Myles was scared to death," says Tim Rose, the ex-cop who took the agent into his home. "There's no way Myles was going to hurt anybody. I was going to teach him how to shoot, and he was so uptight about it he wouldn't even hold the pistol. Everybody who has insurance paid for that [surveillance]. Allstate shouldn't have done it."
When Barchas flew to Austin to visit state insurance regulators, two Allstate private investigators were on the same American Airlines flight. On another occasion he drove nearly three hours to see the regulators, tailed by three investigators at speeds reaching 100 mph, according to Allstate's own surveillance reports. Still the surveillance continued, night and day. When Barchas used his cellular phone, his calls were apparently monitored by a scanning device. A second Allstate agent who furnished Barchas with documents was followed. So was Terry Munoz, an employee of Barchas's, as she drove from work to pick up her son at his school. After 30 minutes of being stalked, she finally lost the tail by pulling into the parking lot of a police station. "I was panicked," she recalls. "I don't think Allstate deserves to do that to anybody." Echoes Barchas: "I can't even fathom having billions of dollars at my disposal and following women. My only consolation is that God will get them."
At every stop, agents refused to insure him for a multitude of illegal reasons:
Backed into a corner, Barchas began to work with a Dallas TV reporter. The frenetic energy he had poured into his sales career would now be applied toward exposing his bosses. The agent went undercover in ten cities, carrying a hidden camera in a shoulder bag and posing as a prospective customer. At every stop, agents refused to insure him for a multitude of illegal reasons: For being single, for owning one car, for declining to buy more than one policy, for having been insured previously by a high-risk carrier, and so on. The TV expose, which aired across Texas in early 1994, prompted what was then the largest insurance fine in Texas history--though at just $850,000 it equaled about six hours' of Allstate's earnings and was a painful lesson for future whistle blowers. "The undercover operation was the impetus to the fine," says Mary Keller, an attorney with the Texas department of insurance. "It was because ofMyles's work. We owe him a lot. Allstate flatly broke the law, and they thought they could get away with it."
company memos clearly show that Allstate directed them to do so.
Allstate agreed to pay the fine without conceding guilt. The company then canceled its advertising with the TV station and sent a letter to policyholders promising to "eliminate any lingering misconceptions" among its agents about what the rules were. But while the letter suggested agents were skirting the law on their own, company memos clearly show that Allstate directed them to do so.
find some way they don't qualify
Wallace Davis, a former Allstate senior manager who supervised 70 employees, recalls a meeting of top Texas managers and two dozen agents in Austin in October 1993. At the meeting, he says, the company's top-ranking regional official, Gary Briggs, announced that the company had lost its fight with the state and could no longer turn away people simply because they owned one car. According to Davis, Briggs then stated: "When these people come to your office, use your imagination, go through the motions, but find some way they don't qualify." Explains Davis: "These executives feel above such petty things as rules from the Texas department of insurance." Briggs denies the allegation.
Is this the way to protect individuals and society from wrong
Curiously, when Allstate was nailed, then-governor Ann Richards went on TV to attack the industry in general but not Allstate in particular. FORTUNE has obtained sworn statements, previously unreleased, from five Allstate agents that may shed some light on the matter. The agents claim they attended a meeting during which a high-level Allstate official bragged about a quid pro quo involving the governor that was allegedly orchestrated by Texas Representative Al Edwards, the head of the state's black caucus. According to the sworn statements, Edwards agreed that the governor would not mention Allstate's name on television. Soon after, the company expanded its minority vendor program through Edwards, according to an internal company memo. Edwards and Allstate deny any such deal. Richards couldn't be reached. To nobody's surprise, last December a 12-member grand jury blasted the state of Texas for a "significant reluctance" to investigate insurance company fraud, "undue influence from the industry," and "political pressure on the regulators."
It is a violation of federal law for credit reports to be obtained for improper purposes.
Allstate's surveillance of Barchas is itself under investigation by the Texas Board of Private Investigators, a state agency. One reason is that Barchas's credit report was pulled on three occasions by two companies that have since been linked to a group of Dallas private investigators. When the companies could not justify pulling the reports, their relationships with a major credit agency were terminated. It is a violation of federal law for credit reports to be obtained for improper purposes. Allstate officials say they are not aware of any reason why Barchas's credit reports would have been gathered.
Should individuals and families be the ones to carry this burden or is this an issue for everyone
Barchas is suing Allstate and believes he is still being harassed. He entered a parking lot in April to discover that all four of his car doors were wide open, yet no valuables had been removed. Later he nearly lost a wheel while driving down a highway; the lug nuts had all been loosened, according to a Honda repairman. Barchas says he and his father receive repeated hang-up calls at their homes. Shortly after a conversation with this magazine in August, Barchas says he experienced "20 straight hang-ups," followed by an egg splattered against his front door. Allstate says all surveillance activities against Barchas ceased in the spring of 1994. Other agents feel sure they've been stalked by the company, despite its denials. A former Arizona agent, Edward DeLorenzo, believes he was a target in 1987. He was an enormously successful, award-winning salesman, earning upwards of $200,000 a year. Then one day investigators began visiting and grilling his customers. When DeLorenzo called his managers to find out what was happening, "nobody would talk to me, or they'd say they didn't know what I was talking about." One day a manager tailed the agent in his car all the way to a customer's house. Next, De Lorenzo observed a car going back and forth repeatedly in front of his own home; he slept on the couch with a baseball bat.
Why would DeLorenzo be harassed? Last year, in a tape-recorded statement for an unrelated lawsuit, a former high-ranking manager admitted that DeLorenzo was "targeted for termination" because he was highly compensated. The ex-manager, Bill Adams, also stated that he, Adams, was ordered to fly to an operations center in Texas to pull 100 of DeLorenzo's customer applications and "find some dirt" that could be used to get rid of him.
Who wins and is the winning worth the price?
The scheme apparently worked: DeLorenzo suffered a nervous breakdown, was briefly hospitalized, and never returned to Allstate. "I was the white buffalo," he says today. "And when you gun down the top buffalo, you can then go after the rest of them, or at least get the rest of [the agents] scared enough to jump through hoops." DeLorenzo says that Adams, wracked by guilt, visited him six years later to apologize. Adams refuses to comment, but in his 1994 statement he described the company's culture in the following way: "It was like a big fraternal system. I mean, you either played the game their way by their rules or you got dealt a bad hand or you got eliminated from the game. It's just the way it worked."
Randy Lane, a former Nevada agent, had a similar experience. Lane has a box in his home stacked with two dozen trophies and plaques from Allstate. A three-inch-thick loose-leaf binder is filled with letters from management, dated 1976 through 1991, praising Lane for his performance. His 3,000 customers provided him with annual income of about $150,000. "Randy was a very good agent," recalls his former immediate manager, Charles Murphy, who now works for Metropolitan Life. "When he worked for me, he produced, he wrote good quality, he was profitable, and he retained a lot of his business."
Do you want to live in a society where might makes right?
But Lane had infuriated a number of higher-ups. When the company issued an underwriting guideline, he would verify its legality with insurance regulators-treasonous behavior at a place like Allstate. He was even threatening to steer customers to regulators when he felt they were improperly rejected by Allstate's underwriting department. An internal document in 1989 states that Lane "either needs to join the program or get out of the way." Payback time began several months after Lane's manager, Murphy, left Allstate in 1991. Lane says a new manager began to target him, overscrutinizing his work, soliciting customer complaints, and cutting Lane off from communicating with a major claims center. Lane was also subjected to a massive corporate security probe and repeated audits.
To protect himself, the agent secretly tape-recorded more than 700 of his conversations with colleagues. In early 1992 he sued the company and went on stress leave. He never returned. A judge split his suit in half: a federal case, which Allstate narrowed to the issue of age discrimination and Lane lost, and a state case that was dismissed because of Lane's surreptitious taping; he is appealing the decision. Meanwhile, Allstate created a 12-page single-spaced "job in jeopardy" report. Virtually every petty disagreement with a customer was transformed by management into a career-threatening violation by Lane, whether he was involved in the incident or not. Observes ex-manager Murphy: "I thought it was unusual that in a short period of time, they had written Randy up. I had absolutely no complaints about him."
Do you want to risk your safety or your family's safety?
Is war too string a description?
After viewing a videotaped deposition of an Allstate security officer in 1993, Rebecca Lane insisted he was one of her stalkers. So did a neighbor, Vivian Helms, who provided a sworn statement to that effect. "He put a newspaper in front of his face, but I was close enough to see exactly who he was," Helms recalls. "There's no doubt in my mind. I worked in a bank years ago, and we were told how to observe people." The security officer, Peter Ellena, who has since died, admitted to investigating Lane but denied conducting any physical surveillance. Allstate says Ellena was dying of cancer at the time of the deposition and was thus unrecognizable in the videotape. "He was a mere shadow of himself," says Allstate lawyer Ed Moran. "He was a skeleton."
Two of Lane's lawyers, Jack Kennedy and Sherry Bowers, claim they were placed under surveillance by Allstate earlier this year. Bowers says that during the month-long trial in Reno, she was regularly stalked, was subjected to repeated hang-up calls in the middle of the night, and even had wooden nails wedged into one of her tires, causing a slow leak. She slept with a snub-nosed .38-caliber pistol by her side. During the day she kept an assistant in her hotel room to guard her files and computer. In one instance, she says, a white truck followed her to an automatic bank teller, where she parked and climbed out of her car. The truck stopped on the far side of the lot, where a man donning a cap and sunglasses climbed out and began talking on a cellular phone. Bowers immediately jumped back into her car and raced to her hotel, the white truck in hot pursuit. "I don't know whether they were trying to get into my room or just make me uneasy," she says. "Maybe they were hoping I would stay awake at night, unable to sleep." In another instance, says Bowers, she was stalked on a snowy Friday night on the long, mountainous drive from Reno to her home in California. "For having the nerve to sue them, I have been followed and I have been harassed," she says, adding that she is worried it could happen again. "I have a family of five, and I don't want to be harassed by them anymore."
Allstate vehemently denies stalking or harassing any of Lane's lawyers. "It flabbergasts me that, five months after the trial, I'm now first hearing that they thought we had them under surveillance," says Allstate attorney Moran. "I was there for most of the trial. If they really believed that Allstate was surveilling them, why would they not have called me? Or why didn't they run to the Nevada police and complain?" Responds Bowers: "Would he [Moran] have done anything about it to assist us? Did they do anything about it when Randy Lane complained about the surveillance? Instead, what they did was make a motion to suppress the evidence so that it would never be brought before the jury."
It's concerted action by consumers on a mass scale that will tip the scales of justice
Though much of the acrimony at Allstate has involved NOAs, the "cost-sharing agents" instituted ten years ago, not all of it has. Nearly 1,300 Allstate agents have refused to convert to NOA entrepreneurship. They work in Sears stores or company-owned offices, where all their overhead is paid for. But many of them complain of harassment for failing to convert. One such agent, 48-year-old Cornell Vandegrift of central Florida, has worked for 18 years for Allstate. He and his two partners claim that in recent years they have suffered continuous audits and verbal abuse from managers. For failing to become an NOA, Vandegrift is not permitted to purchase Yellow Pages display ads, which help draw customers. And yet--Catch-22--he is threatened with termination for not meeting production quotas.
Earlier this year Vandegrift decided he had had enough. He filed several discrimination complaints with the federal Equal Employment Opportunity Commission. Allstate was alerted to the complaints in April. A month later Vandegrift noticed a strange-looking car--low to the ground, tinted windows, two antennas--passing outside his home. Ninety minutes later he hopped into his pickup truck to run an errand. Suddenly, after two blocks, the odd car was following him. Vandegrift pulled into a shopping center and entered a store to buy aspirin. When he got back behind the wheel, he soon spotted his stalker making a swift turn from a vacant corner of the lot. Allstate denies putting a tail on Vandegrift.
It also denies it ordered surveillance of Carolyn Penzo, the Georgia agent who was stalked by a silver van that police traced to an insurance-related investigative outfit that has done work for the company. At the time, Penzo had been organizing fellow agents in a RICO suit against Sears. A federal judge dismissed the suit in March, concluding that "mere puffery" about business opportunities doesn't constitute fraud. In addition, a personal fraud suit by Penzo in Georgia was dismissed because "fraud cannot consist of mere broken promises." What's more, because Penzo was an employee, under Georgia law "no misrepresentations or fraudulent silence is actionable."
Caveat Emptor on a grand scale
Encouraged by six-figure promises, Penzo herself has sunk more than $200,000 into her Allstate agency since she began in 1989. "She's apparently doing okay," says Allstate attorney Greg Rohlfing. "She's still there." But just barely: She has exhausted her life savings while failing to earn the minimum wage, has laid off her office staff, and is facing eviction because she cannot afford the office rent.
Yet for several years Penzo's annual reviews stated she was meeting or exceeding performance levels expected of an Allstate agent--while losing her shirt. The Booz Allen plan recommended that rookies be given 600 to 800 policies at the starting gate; Penzo began with only 180. At an average commission of roughly $45, that generated about $8,000 per year. A company document and a former top manager maintain that the average agent sells roughly 200 policies a year. Given Penzo's routine office expenses, she would have had to sell twice that amount just to break even.
Allstate's own records suggest this would have been a Herculean task: Penzo was situated by the company in a zip code that had only 888 households per agent. "In my opinion, they want to penetrate rural markets like State Farm, but they want to spend as little as possible," says Penzo. "So they stuck me here and used my free labor and assets. They always told us, 'Don't worry, we'll cover your expenses. You're in good hands.' " Given what's taken place over the past ten years at Allstate, it's little wonder that so many agents are bitter. Their cynicism is fueled by superiors who try to tell them what opinions they should hold when they complete their confidential surveys. "If you can mark your survey as 'overall satisfied,' all things considered, it will reinforce your own attitude positively and add to your success," wrote Allstate's top New York official in a letter to employees last year. "Marking your survey 'not satisfied overall' is to perpetuate and aggravate a false and destructive perception that nothing good yet is possible." Many employees who answered their surveys positively were given a free day off.
Once burned, twice shy
Allstate's top regional official in Dallas wrote a similar note to his employees. "Many of you feel we, the management team, are not giving you the straight story," he observed. He then instructed underlings who could not answer their opinion surveys in a positive way to call him directly--on a special "straight story" hotline.
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An Allstate memo told company executives about his visit to the Texas state insurance department. Text of that memo:
CORPORATE SECURITY
Midwestern Territorial Office
December 4, 1993
RE: Nyles Barchas
NEA
Dallas Region
SURVEILLANCE STATUS
12/3/93 - 10:30 PM
Michael O'Brien of Parker & Jones, Inc. reported that ... Barchas took a taxi from the airport to the Texas Insurance ... Department, arriving just before 5:00 pm. He carried a black ... brief case and a box which was about six inches deep; he was ... heard telling the security guard in the lobby that he had ... o'clock appointment. He went to the 10 th floor where the ... department is located and then left the building at 6:15 pm ... the brief case, but not the box and returned to the airport.
Barchas caught a flight back to DFW, left the airport in his rented van, drove an erratic route -- sometimes with his headlights out, stopped to eat at a TGI Friday's restaurant and then returned to his apartment.
Surveillance was to remain on the apartment.
James (Jim) P. Duffy
cc: Don Bird
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