Wednesday, October 11, 2006

Allstate Fights Mississippi

Allstate ALL has run into legal bad weather over it’s handling of Katrina claims. In particular the Mississippi southern federal district has become a hotbed of investigations and grand juries. Plaintiffs maintain that Allstate is following a pattern of fraudulent claim settlement established in Texas and Oklahoma. The core issue revolves around whether damage was caused by wind damage, which is insurable, or whether damage was caused by storm surge and high water, which is not covered. The engineering report commissioned by Allstate is a one size fits all and looks suspiciously favorable to Allstate. So far Allstate has avoided any class action certifications, fighting each legal skirmish separately. Homeowners who have lost their home generally do not have sufficient financial resources to mount a vigorous legal battle.

Richard T. "Flip" Phillips of Smith, Phillips, Mitchell, Scott & Nowak of Batesville, Miss., represents a mass tort on behalf of Mississippi homeowners who lost their homes, alleges that State Farm's tactics reveal "a calculated strategy of wrongful claims denial." He is seriously concerned that if Allstate gets away with this tactic the insurance industry will have learned that in mass catastrophe situations, a calculated course of across-the-board, wrongful claims denial and trying one case at a time is financially efficient. This legal time bomb is ticking loudly for Allstate. Many who have lost everything have been force to abandon their homes. Mortgage lenders may end up holding the bag if Allstate prevails. What is surprising is the absence of the mortgage lenders. In the meantime Allstate has its finger in the legal dyke because the numbers will be ugly when it swings the other way.