Breaking: Allstate Fined $250,000, Ordered to Reinstate Policies

Thanks to Mr CLS for the heads up to this Times Picayune story.

BATON ROUGE -- Insurance Commissioner Jim Donelon fined Allstate $250,000 Wednesday and ordered the state's second-largest insurer to reinstate the wind and hail coverage of several hundred customers whose policies were dropped in disregard of a key consumer-protection law.

It is the only fine that Louisiana has levied against a homeowners insurance company since Hurricane Katrina, and the fine is the maximum penalty allowed by state law.

"I'm doing that because of the continuing efforts of the company to circumvent the consumer
protections that have served us so well," Donelon said. "This statute is the law of Louisiana. It was the law of Louisiana when these policies were written, and it will be enforced."

Donelon said he has tangled with Allstate three times in the past year and a half over the company's efforts to circumvent a Louisiana consumer-protection law that makes it difficult for insurers to drop policyholders after three years, and he said he is tired of it.

In July 2006, Allstate announced plans to drop 30,000 customers in south Louisiana in a way that Donelon said would violate the three-year law, and it took five months of negotiations to get the company to take a different tack. In spring 2007, Allstate conducted cursory drive-by inspections of homes and tried to cancel hundreds of homes that it deemed "abandoned" that were actually under repair or occupied before the state Insurance Department intervened.

And most recently Allstate has been reclassifying some longtime customers as new ones so their wind and hail coverage could be dropped. Donelon said the ongoing problems with Allstate's practices led him to conclude that the company was flouting the law and needed to be penalized.

Allstate admits no wrongdoing. The suburban Chicago company said it disagrees with the Louisiana Insurance Department on its interpretation of insurance laws.

But Allstate, the sponsor of the Sugar Bowl, said in the consent agreement and stipulation signed Tuesday that it decided to settle the matter "in recognition of the catastrophic events of 2005, the continuing concern for its customers and as a gesture of goodwill."

In a news release Wednesday, Allstate said it agreed to pay the money "to avoid expenses associated with a hearing."

But Donelon said the $250,000 is indeed a fine. "In my view, absolutely," he said. "No one else has gotten close to the need for punitive action."

Cursory inspections done

Though the fine was triggered by Allstate's recent efforts to drop the wind and hail coverage of longtime customers who should be protected by state law, the fine technically was levied on the company as a result of a flawed property-inspection process that was supposed to determine whether homes were occupied or being rebuilt.

Last year Allstate dropped 4,772 customers after conducting drive-by inspections of 40,500 homes in the New Orleans area that averaged about a minute a home. Allstate said it dropped the policies because the inspections revealed that the homes were unoccupied or not being repaired. Within a few weeks, 588 people filed written complaints with the Insurance Department saying they were in fact living in the home or rebuilding.

The department ordered that Allstate temporarily reinstate all policies and redo the inspections, with documentation. How many of the 4,772 customers ultimately qualified to keep their reinstated insurance coverage is unknown, but 552 of the 588 people who complained were found to have been improperly terminated and were reinstated.

When the department forged an agreement with Allstate on the issue in March, Donelon reserved the right to impose sanctions. As the department began investigating a new round of complaints that began just a month later with Gretna homeowner Michael Scioneaux, Donelon decided he needed to do so.

Dropped after 31 years

Scioneaux had been insured by Allstate for 31 years at the same home and never made a claim outside of Hurricane Katrina, but he got a letter in April saying his wind and hail coverage would be dropped because he had been with the company for less than three years.

The letter made no sense because Louisiana has a law that says once a customer has been with an insurance company for three years, it's very difficult to drop them. Customers can be dropped only if they stop paying their bills, make excessive claims for non-"act of God" events such as hurricanes or tornadoes, commit fraud, or unless the company can prove to the Insurance Department that it risks going bankrupt if it keeps them.

But several years earlier, Scioneaux had taken advantage of a good-credit discount that Allstate offered. Unknown to Scioneaux, Allstate rewrote his policy from letterhead that said "Allstate Insurance Co." to stationery that said "Allstate Indemnity Co." to process the discount.

In the April 2007 letter, Allstate now said the May 2004 change meant that Scioneaux was a new customer whose wind and hail coverage would be dropped in June. Scioneaux said he was not informed of any such risks when he accepted the discount offer and that the shift amounted to a bait-and-switch for the company's benefit. Allstate has been under a corporate mandate to reduce its exposure in coastal areas.

Scioneaux was overjoyed at the news that his policy would be reinstated. "I just heard I won. I'm in a state of shock," he said Wednesday.

Since the summer, Scioneaux has been forced to buy his wind and hail coverage from Louisiana Citizens Property Insurance Corp. But because he was angry that Allstate cut the most important part of his policy, he moved to Louisiana Farm Bureau Mutual Insurance Co. for his fire, theft and liability coverage as payback, and cut Allstate out of the deal so it would be unable to earn easy premiums.

Even though Scioneaux says he has no love for Allstate, he said he plans to return to the company because it's a better deal than a split policy. "I'm really not in a position that I can pick and choose. I need to take the best coverage and the best price to protect me and my family and our biggest investment: our house," said Scioneaux, who is also personnel director for Jefferson Parish.

For now, Scioneaux plans to celebrate. His Allstate agent, a friend who also lost his wind and hail coverage, called and invited him out to dinner Friday night. Scioneaux also will be having a celebration lunch with two other dissatisfied Allstate customers whom he met during the course of complaining to the Insurance Department.

"We're comrades in a cause," he said. "I never thought I would feel so happy about being able to go back to a company where I'm going to have to pay an expensive policy."

Unknown number affected

About 21 people in Scioneaux's situation have complained to the Insurance Department, but it is not known how many customers of Allstate or Encompass, the brand of Allstate insurance sold by independent agents, were affected. Allstate's news release says "a few hundred" are in the group.

According to the terms of the agreement, Allstate must give the Insurance Department a list of people like Scioneaux who were dropped within seven days and send customers an offer to come back within 30 days. That offer will include wind and hail coverage, but it will carry a 5 percent storm deductible, as all Allstate policies have done since June. The company must "take all reasonable and necessary efforts to contact each customer directly," and within 90 days, it must give the Insurance Department a list of how many of those people opted to come back.

Not everybody was impressed with the settlement.

Bob Hunter, director of insurance for the Consumer Federation of America, said a $250,000 fine for a company that earned $4.6 billion in net income last year is negligible. "The fine, for Allstate, is chump change. It's a cost of doing business," he said.

Hunter, who is originally from New Orleans and who served as insurance commissioner in Texas in the early 1990s, said Louisiana needs to make sure Allstate doesn't pass on the cost of its fine to customers because the state doesn't have a law barring companies from throwing the cost of fines into rate filings.