Allstate 2008 Annual Report Download - page 295

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
●Due to the complexity and scope of the matters disclosed in the ‘‘Proceedings’’ subsection below and the
many uncertainties that exist, the ultimate outcome of these matters cannot be reasonably predicted. In the
event of an unfavorable outcome in one or more of these matters, the ultimate liability may be in excess of
amounts currently reserved and may be material to the Company’s operating results or cash flows for a
particular quarterly or annual period. However, based on information currently known to it, management
believes that the ultimate outcome of all matters described below, as they are resolved over time, is not
likely to have a material adverse effect on the financial position of the Company.
Proceedings
There are a number of state and nationwide class action lawsuits pending in various state courts challenging
the legal propriety of Allstate’s medical bill review processes on a number of grounds, including the manner in
which Allstate determines reasonableness and necessity. These lawsuits, which to a large degree mirror similar
lawsuits filed against other carriers in the industry, allege these processes are used by Allstate systematically to
undervalue claims. Plaintiffs seek monetary damages in the form of contractual and extra-contractual damages.
The Company denies these allegations. One nationwide class action has been certified. The Company continues to
vigorously defend these cases.
There is a nationwide putative class action pending against Allstate that challenges Allstate’s use of a
vendor’s automated database in valuing total loss automobiles. To a large degree, this lawsuit mirrors similar
lawsuits filed against other carriers in the industry. Plaintiffs allege that Allstate systematically underpays first
party total loss vehicle claims. The plaintiffs are seeking actual and punitive damages. The lawsuit is in the early
stages of discovery and Allstate is vigorously defending it.
The Company is defending a number of matters filed in the aftermath of Hurricanes Katrina and Rita,
including individual lawsuits, and several statewide putative class action lawsuits pending in Mississippi and
Louisiana. These matters are in various stages of development. The lawsuits and developments in litigation arising
from the hurricanes include the following:
●The Mississippi Attorney General filed a suit asserting that the flood exclusion found in Allstate’s and other
insurance companies’ policies is either ambiguous, unenforceable as unconscionable or contrary to public
policy, or inapplicable to the damage suffered in the wake of Hurricane Katrina. In December 2008, the
trial court ruled that, as a matter of law, the flood exclusions are not ambiguous, unconscionable or against
public policy and do not constitute a deceptive trade practice. The Court also ruled that the Attorney
General lacks standing necessary to bring the suit, as he is not a party to the insurance contracts at issue.
Thus, all of the claims filed against the Company were dismissed.
●Six members of the Mississippi Windstorm Underwriters Association (‘‘MWUA’’) have filed two separate
lawsuits against the MWUA board members and the companies they represent, including an Allstate
subsidiary, alleging that the Board purchased insufficient reinsurance to protect the MWUA members. One
of these lawsuits (filed by four MWUA members) is pending in federal court and was filed as a class
action. In that case, Plaintiffs’ motion for class certification has been denied. Defendants filed motions for
summary judgment as to the individual plaintiffs’ claims. These motions for summary judgment were
denied. The trial on the individual plaintiffs’ claims is scheduled to start on March 3, 2009. After the court
denied class certification in the first case, two MWUA members that are not named plaintiffs in the first
case filed another virtually identical lawsuit which is currently pending in Mississippi state court.
●The Company has also been sued in a putative class action in the United States District Court for the
Western District of Louisiana. The plaintiffs allege that they were entitled to, but did not receive, payment
for general contractor overhead and profit (‘‘GCOP’’) or that the GCOP they received was not adequate to
compensate them for the entire costs of a general contractor. The plaintiffs also alleged that Allstate
incorrectly calculated depreciation on property losses. The Court granted partial summary judgment, and
dismissed the claim challenging the method of calculating depreciation. In October 2008, the Court heard
plaintiffs’ motion to certify three subclasses: the first class would impose a ‘‘three trade rule’’, meaning any
time three or more trades are reflected on the estimate, GCOP must be paid; the second class
encompassed the alleged miscalculation of GCOP when both general and specialty contractors are
involved; and the third class sought to impose on the Company statutory penalties for its alleged breach of
contract with regard to the first two subclasses. The Court denied plaintiffs’ motion on the certification of
the two subclasses regarding the ‘‘three trade rule’’ and statutory penalties. The plaintiffs’ motion for
certification of the third subclass alleging that GCOP is not properly calculated when both general and
specialty contractors are involved is pending.
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Notes