Terra Extraneus

Allstate won the battle in a Kentucky civil case last week, but the war continues. In several suits across the country, plaintiffs accuse Allstate of bad faith in how it handles claims, pointing to the now-famous “McKinsey documents” as proof.

However, in the Bluegrass State last week, a jury unanimously denied a $1.4 billion claim against Allstate. The case has some good lessons for attorneys and plaintiffs, even in claims that little resemble the bad-faith insurance lawsuit.

According to the Lexington Herald Leader, a 60-year-old woman sought the whopping $1.4 billion claim from Allstate Insurance Co. after a 1997 automobile accident. The car the woman was in was rear-ended by a truck driven by an Allstate insured. The woman claims permanent neck and back injuries. Allstate paid her $25,000, taking more than two years to settle her claim.

In her subsequent suit against Allstate, the woman’s attorney, J. Dale Golden (Golden & Walters, Lexington, KY) relied heavily on the “McKinsey documents.” McKinsey & Co. is the consulting firm that helped Allstate overhaul its claims-handling process in the 1990s. The documents are 12,500 PowerPoint slides which McKinsey created for Allstate, but which fell into the hands of Santa Fe trial lawyer David Berardinelli a few years ago. In various lawsuits, Allstate is in defiance of a court order in Missouri to produce the documents and has been sanctioned in two others states.

Berardinelli and two other attorneys wrote the 2006 book, From Good Hands to Boxing Gloves: How Allstate Changed Casualty Insurance in America. The book describes how Allstate’s claims-handling process changed under McKinsey & Co.’s guidance. As the title implies, Berardinelli claims McKinsey’s recommendations not only led to big changes at Allstate, but have transformed claims practices across the insurance industry.

As Business Week reports:

The title of Berardinelli’s book is drawn from a McKinsey slide that suggests that Allstate should treat some of its claimants with “boxing gloves,” rather than with its trademark “good hands.” … [T]he documents present a portrait of business strategies that are at odds with the insurer’s carefully cultivated public image. Rather than simply rushing to the scene of an accident and doling out cash, Allstate deploys a variety of systems set in place by McKinsey to make sure it pays the minimum necessary — and it plays hardball with those who seek more.

The Kentucky woman’s claims against Allstate were bolstered by dramatic testimony from a former Allstate claims manager, Debbie Niemer. Testimony from Niemer and others claimed that Allstate:

● Has focused on reducing its payouts on “minor-impact, soft-tissue” injuries, called “MIST cases,” which constitute the majority of injury claims.

● Seeks quick low-dollar settlements. If the injured fails to cooperate, Allstate switches to the alternate strategy of dragging out the claim to drive up litigation costs and force the claimant into submission.

● Has withheld potentially damaging information from claims files.

“If they just wouldn’t have been so consumed by the numbers and allowed the human element,” Niemer said. “If they had allowed the adjusters to see the person, not just the number, it would have been different.”

LESSONS FROM THE JURORS
With a “smoking gun” like the McKinsey docs, plus damaging testimony from one of Allstate’s own, how did Allstate walk away with a unanimous verdict? Jury verdicts are one of the great mysteries of courtroom life, but juror comments provide some clues:

● Golden’s tactic to seek a billion-dollar-plus bonanza backfired. In his closing, Golden told jurors the only way to drive Allstate to repentance was to deliver a massive verdict that would create headlines. “If you award 10, 20 or 30 million dollars in this case, Allstate will be high-fiving all the way to the champagne store,” he said.

One juror said the dollar amount turned her off. “I thought the figure that [the plaintiff] was asking for was outrageous,” said juror Betty Sherwood. “…I thought that when I first went into the trial two weeks ago. … [I]t was so obnoxious of her to ask for so much money.”

● Allstate also earned points when it pointed out that the plaintiff continued to buy her auto insurance from Allstate! We’ve seen this in our practice more than once, for example, when an investor wants to file suit against a brokerage house alleging mismanaged funds, but the investor still has his investments placed with that same house. Juror Kelli Miller said: “If Allstate is such a bad company, why in the world would you keep renewing policies from the very company you are seeking a billion dollars from?”

Golden said he will appeal the verdict. He also said he is considering a class-action suit against Allstate, even though a judge last year denied Golden’s attempt to turn the present case into a class action.

(Hat tip to Jeremy Thurman of Nix & McIntyre for pointing us to the Kentucky case.)