Allstate’s Secret Documents Revealed in $1.4B Trial

Allstate Insurance Company, one of the largest insurance companies in the United States, recently had secret documents revealed in what started out to be a small Kentucky civil trial that is now getting national attention.

The case

A Kentucky woman is suing Allstate for a 1997 automobile accident in which she suffered neck and back injuries when a truck loaded with firewood rear-ended her pickup truck. According to reports, it took nearly two years to settle the claim with Allstate, the other driver’s insurance company. The two sides have very differing opinions on what really happened. Allstate claims that the plaintiff is exaggerating her injuries and failed to disclose that she previously suffered back injuries. All in all, it sounds like a fairly straight forward case that a jury would simply have to decide whose story to believe. But wait – here’s where the story gets interesting…

The McKinsey reports

The accident victim’s lawyer introduced evidence that Allstate has been trying to keep secret for over 10 years – the McKinsey reports. In the mid 1990’s, Allstate reportedly hired the McKinsey Company, a New York consulting firm, to show them how to increase their profits. McKinsey did so, but in a way that would make most policyholders cringe.

McKinsey’s advice to save the company money? Avoid paying claims, and when you do – pay less. According to reports, the McKinsey documents showed Allstate how to save nearly $700 million and increase their stock price at the same time. The most damaging part of the reports involved two analogies where McKinsey said that:

  • policyholders who accepted lower settlement offers were “in good hands” (Allstate’s slogan), but those that fought the settlement offer should get Allstate’s “boxing gloves”, and
  • Allstate should take an “alligator approach” to claim payments and settlement offers – meaning that the company should just “sit and wait” in the hope of frustrating policyholders to accept less or simply go away.

Needless to say, these reports are extremely damaging to Allstate – and the accident victim’s attorney seems to know it.

Big, bigger, biggest…

The plaintiff’s settlement demands in this bad faith case started at $7,300, then increased to $75,000, then to $6million and ended up at $1.4 billion (that’s with a “B”) last month. It seems that the more evidence that is introduced against Allstate via the McKinsey reports, the higher the settlement demand. While it’s unlikely that a settlement would ever come near to the last amount, it’s clear that Allstate’s reputation will suffer because of this case’s publicity.

The Allstate case is just another example of how many insurance companies have shifted their practices from risk management to finding ways to simply collect premiums and avoid paying out claims. If your insurance company has avoided paying your valid claims, they too may have acted in bad faith. To contact an attorney whose practice focuses on bad faith insurance litigation, click here.

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