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FBI RAIDS ALLSTATE!!!
Based on a report from The Wall Street Journal -- Internet Edition
The Federal Bureau of Investigation has executed search warrants as part of a investigation by the U.S. attorney from the central district of California at three offices of Allstate Insurance Co., seeking documents related to allegations the company falsified engineering reports in order to minimize claims after the 1994 Northridge earthquake. Offices searched include one in Santa Fe Springs; the company's Northbrook, Ill., headquarters; and a data warehouse in the Dallas suburbs. An Allstate spokesperson said the company has been cooperating fully with the investigation, but denies the allegations.
FBI RAIDS ALLSTATE IN QUAKE PROBE
By Greg Burns and Vincent Schodolski Chicago Tribune Staff Writers May 5, 1998
Federal investigators armed with search warrants have descended on Allstate Insurance Co. offices in three states, including its Northbrook headquarters, in a criminal probe related to the 1994 California earthquake, the company confirmed Monday.
Allstate is being investigated for allegedly altering engineering reports systematically to reduce the amount of claims
Allstate is being investigated for allegedly altering engineering reports systematically to reduce the amount of claims it owed after the Northridge quake, which did more than $20 billion in damage to the Los Angeles area, sources familiar with the investigation said.
The company said it did nothing improper. "We strenuously deny the allegations," spokesman Peter Debreceny said.
The allegations were aired in a civil lawsuit filed last year by a consumer-advocacy group and a former Allstate employee, described as a "whistleblower," who had worked on the team that processed earthquake claims.
"It's fraud to attempt to rip off the policyholders,"
"It's fraud to attempt to rip off the policyholders," said Harvey Rosenfield, director of the Proposition 103 Enforcement Project, which brought the suit. "People got squeezed by the `good hands,' " he said, referring to an Allstate ad slogan.
The company apparently came under criminal investigation early this year, when officials from the U.S. attorney's office in Los Angeles began asking questions. Company officials have met with the U.S. attorney's office on four separate occasions, Debreceny said.
On April 24, federal prosecutors and FBI agents raided an Allstate claims office in Santa Fe Springs, Calif., that had been the nerve center of the company's earthquake response efforts, according to Debreceny. Some documents were seized, he said, though he didn't know how many.
On Wednesday, teams of about 15 investigators arrived unannounced at Allstate's Northbrook headquarters
On Wednesday, teams of about 15 investigators arrived unannounced at Allstate's Northbrook headquarters and at a Dallas records warehouse, where they examined and impounded documents. A couple of investigators also searched an Allstate office in Barrington, though no documents were taken away, Debreceny said. Though Debreceny said he could not quantify the number of documents seized, other sources said "thousands" were carried out in the raids.
Federal investigators served a subpoena indicating they may seek additional documents from the company, he said. "We are cooperating," Debreceny said. California insurance officials said they, too, are participating in the investigation. Though no charges have been filed, the probe represents a black eye for the company, one of the nation's largest property-casualty insurers.
"That's the type of thing you might see in a smaller company, or one in shaky financial condition,"
The accusations are highly unusual for such a large, well-capitalized insurer, said Frederick Townsend, an insurance consultant. "That's the type of thing you might see in a smaller company, or one in shaky financial condition," he said.
Meantime, the company said it is proud of its performance in the aftermath of the quake. "The efforts of Allstate personnel throughout this period reflected very well on the company and its ability to meet its customers' needs in an unprecedented catastrophe," Debreceny said.
The quake in the early morning hours of Jan. 17, 1994, already has cost Allstate plenty. The firm, one of California's largest insurers, has incurred more than $1.7 billion in claims. Of the 46,034 property claims related to the temblor, 120 remain open, Debreceny said.
The civil suit alleges that Allstate told its engineers to alter draft reports so that covered losses would be minimized.
At issue are Allstate's efforts to assess damage from the quake. It had more than 650 adjusters on the scene within a week, among them independent engineers who recommended steps needed to repair damaged buildings and to prop up the shaky soil beneath them. The civil suit alleges that Allstate told its engineers to alter draft reports so that covered losses would be minimized. That reduced Allstate's payments to the insured, the suit claims.
The former Allstate employee who joined in the lawsuit, Jo Ann Lowe, said altering reports was a standard practice, "not isolated occurrences," according to a statement published last year by the Los Angeles Times. Lowe, a 25-year Allstate employee, said she complained about the alleged practice to company officials, who later denied that it had occurred, according to the statement.
Similar allegations were raised in a separate lawsuit brought by a group calling itself Homeowners Policy Holders.
Debreceny said the company never tried to influence the judgments of the engineers it hired. Damage from the quake "was repaired in accordance with (the) insurance policies as quickly as possible, so that families were able to resume their normal lives," he said.
Although other insurers working in California have had civil suits brought against them for alleged underpayment of claims related to the quake, sources said that Allstate was the only one to come under federal investigation thus far.
The sources said that the investigation was likely to continue for at least six months.
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