Allstate Insurance Co. has reportedly agreed to pay as much as $120 million
to settle a lawsuit accusing it of deliberately falsifying homeowners
insurance estimates for as many as 1 million California policyholders.
The insurance giant agreed to make refunds that are expected to average
$120 each but denied wrongdoing, the San Diego Union-Tribune reported Thursday.
The homeowners claimed Allstate gouged them by charging premiums based
on falsely inflated estimates of how much it would cost to replace or
They claimed Allstate inflated the premiums by adding nonexistent features
such as spiral staircases to one-story homes along with marble floors,
basements and air conditioning. They also said the company overestimated
the square footage of some homes.
These inaccuracies were added to computer-generated "profile sheets"
used to calculate costs of repairing or replacing homes, according to
Allstate profited from the overestimates that had increased premiums because
most homeowners didn't collect on their policies.
The plaintiffs argued that the insurance firm took advantage of customers
who unknowingly paid higher premiums because they trusted Allstate's
expertise. Most homeowners are ignorant about how much it would actually
cost to replace their homes, according to the lawsuit.
"Plaintiff, and hundreds and thousands of duped customers . . . reasonably
believed the defendants possessed . . . specific expertise in their field
and that they would not place profits over the needs and expectations
of their customers," Harvey Levine, who represented the policyholders,
said in court papers.
A gag order imposed by a federal judge barred both sides from commenting
on the settlement reached last week in U.S. District Court in San Diego.
The impetus for secrecy came from Allstate, which receives yearly premiums
of more than $15 billion, according to court papers.
Policyholders in the class action were contacted about the settlement when
it was proposed last fall and soon will be notified of their eligibility
The lawsuit was originally filed by Judith Rubin, a San Diego homeowner
who claimed Allstate increased policy limits by knowingly changing the
size and features of homes to boost premiums.
Lawyers for the Northbrook, Ill.-based insurance company argued in court
papers that the figures were innocent mistakes and in some cases the homeowners
may have provided false or incorrect information.
Allstate fought the lawsuit for three years.
Lawyer Michael Strumwasser, whose Santa Monica firm has represented the
state in fraud cases, characterized the huge settlement as rare.
"I do not know of any other case in the country where there has been
a successful challenge . . . as brought in this case," Strumwasser said.
"There have been cases in which persons were wrongly billed on an
individual basis," he said. "But this is unique in that a company
was held to answer over an unfair practice so widespread it was programmed
into computers and then inflicted on hundreds of thousands of policyholders."
The complaints against Allstate have caught the attention of state Insurance
Commissioner Chuck Quackenbush, according to state insurance officials.
"We don't discuss ongoing investigations, but if Allstate or any
other insurance company is found charging excessive rates, then we could
fine the company," said Dana Spurrier, spokeswoman for the Department
Quackenbush has warned insurers in the past to communicate accurately with
consumers about replacement costs