Appeals Court Says Fla. Can Suspend Allstate; Carrier Releases McKinsey Report

BY MATT BRADY
NU Online News Service

A Florida appeals court lifted a stay today that had prevented the state’s Office of Insurance Regulation from suspending the license of Allstate Companies to write new business in the state.

In its ruling, the First District Court of Appeal in Tallahassee concluded that the regulators did not have to navigate the court system before suspending the company.

Florida Insurance Commissioner Kevin McCarty had issued the suspension in the midst of a battle with the insurer to secure information about the process it used to determine it needed a large rate increase. He also sought data about the company’s alleged questionable claims handling methods.

Allstate, following the court ruling, agreed to release the controversial McKinsey & Company consultant’s report concerning its claims handling practices.

The company link to the material on the Internet requires viewers to agree not to alter any of the 150,000 pages of linked documents, and to view them for informational and news media purposes only--not commerce.

The documents can be viewed at: http://media.allstate.com/categories/52/releases/4390.

In Missouri, a judge had held Allstate in contempt for refusing to release the McKinsey report.

The Florida court, in a ruling written by Judge Paul Hawkes, said that, “OIR was not required to pursue enforcement of its subpoenas in circuit court.”

“Suspension of Allstate’s Certificates of Authority is one of OIR’s available enforcement options,” the decision added, and the suspension order complied with the requirements for issuing such an order as dictated by state law.

Speaking with reporters, Commissioner McCarty said “it is hard for me to contain my enthusiasm” in the wake of the ruling, which he called “good news” for both consumers and “law-abiding insurance companies.”

OIR had argued that Allstate’s failure to supply information constituted a “willful failure” to comply with the subpoena. Mr. McCarty said the company “did not take this process seriously,” and added that Allstate has submitted 196 pages worth of objections claiming that some documents are privileged. “There’s still a significant amount of information to be had,” Mr. McCarty said.

Allstate said in a statement that it was “very disappointed” with the ruling. The company said it has worked with the OIR, noting that it has produced 400,000 pages of requested documents.

One issue that remains unresolved for the moment, however, is when exactly the suspension order will take effect. The court ruling notes that it is not final until the time allowed for Allstate to file a motion for a rehearing has expired, or the disposition of that motion if it is filed.

Mr. McCarty said the company had 15 days to seek a new hearing, but also noted OIR would be filing a motion seeking clarification on the exact timeframe.

For its part, Allstate noted that “since the court’s ruling is not yet final, we believe the stay is still in effect and continue to write new business.”

The OIR initially issued its subpoena for the documents as part of a challenge to Allstate’s rate increase filing, and according to the OIR, the company was initially supposed to provide all witnesses and documents for a January 15 hearing. The company raised objections to parts of the subpoena but delivered some documents. The OIR was not satisfied with the response, however, and on Jan. 17, Mr. McCarty issued an order suspending the company from writing any new business.

Allstate contended that the OIR exceeded its authority and challenged the suspension, winning a temporary stay of the suspension order that was the subject of Friday’s ruling.

The Association of Insurance and Financial Advisors reacted to the court ruling with a statement saying its “concern is with the hundreds of small-business people and employees in the Allstate agencies—on Main Streets all over Florida—who have been shown no regard in this matter.

“The confusion this will cause their customers should have been avoided. State records clearly show that the claims handling practices of the company and these agents over the past five years—including two brutal hurricane seasons—has been exemplary.

“This office had the legal tools at its disposal to deal with this matter as a regulatory body but resorted to political theater instead…The negative message being sent to the entire insurance community will not be helpful going forward.”

In releasing the McKinsey report, Allstate put out a press release that said in part the company “is aggressive in fighting fraud to protect our customers and reduce the cost of insurance. The company employs a special investigative unit (SIU) that is specifically charged with identifying and combating fraud.

"We became the largest publicly held personal lines insurance company in the United States in no small part because we built a reputation of being there for our customers in their time of need by resolving claims fairly, accurately and in a timely manner," said Allstate spokesperson Rich Halberg. "The fact that we have added millions of new customers over the past 15 years speaks to the outstanding claim service we provide."