By MATTHEW BRODSKY, senior editor/Web editor
Allstate Insurance Co. and other industry defendants won a decision to keep an anti-trust case against them in federal court, where they could have a better chance of killing it as early as this November.
The case--State of Louisiana v. Allstate Insurance Co., et. al.--stems from the Nov. 7, 2007, petition by the former attorney general of Louisiana, Charles Foti, to sue the likes of Allstate, Xactware Solutions, ISO, Marshall & Swift/Boeckh, and McKinsey & Co., among others, for carrying out a price-fixing scheme during the 2005 hurricane claims process.
In its complaint, the state contended: "An agreement, combination or conspiracy between all defendants, and other unnamed competing insurance companies, existed, at all material times herein, to horizontally fix the prices of repair services utilized in calculating the amount(s) to be paid under the terms of Louisiana insureds' insurance contracts with insurers for covered damage to immovable property."
The U.S. Fifth Circuit Court of Appeals said in its July 18, 2008 decision that the state of Louisiana asserted that global management consultants McKinsey cooked up the scheme in the 1980s.
"Initially, McKinsey advised insurers to stop 'premium leakage' by undervaluing claims using the tactics of 'deny, delay, and defend,' " the court summarized Louisiana's explanation of events. "As a result, many insurers began hiring McKinsey for management advice on how to increase their profits."
The defendants in the present anti-trust case removed it to federal court on Dec. 7, 2007. When the plaintiffs motioned to get the case back in state courts, the U.S. District Court for the Eastern District of Louisiana found for the defendants. The state of Louisiana appealed. Enter the Fifth Circuit.
It agreed with the District Court that the state was seeking compensation on behalf of its policyholder citizens, and as such, it was a "mass action" case to be held in federal court in accordance to the Class Action Fairness Act of 2005.
According to Richard L. Fenton, a partner at Sonnenschein Nath & Rosenthal LLP who argued for the defendants, CAFA was designed to prevent this sort of case from ending up in state courts. Federal legislators hoped to prevent a situation where a savvy plaintiffs bar could manipulate a state attorney general into pushing through such a case, said Fenton.
"Members of the private plaintiffs bar here brought very similar actions in federal court on behalf of private litigants," said Fenton. They weren't meeting with a great deal of success, he surmised, so they reasoned they could do better with Foti and state courts.
"Both in terms of hedging their bets and in terms of make allegations that would stick, they thought they would fare better under state anti-trust laws in state laws," said Fenton.
Many of the same plaintiffs attorneys were also involved in a lawsuit brought by Foti in Sept. 2007 called the Road Home case, in which the state claimed that insurers had paid out less than they should have after Katrina, leaving the state with less money than expected to pay for its recovery program.
"There was no evidence to say whether the underpayments were because insurers cheated people or because people had less insurance than the state thought. So what is this new lawsuit, a mulligan?" wrote attorney David Rossmiller, in his Insurance Coverage Law Blog in a post on Nov. 8, 2007.
According to Fenton, the defendants in the present case have filed in District Court to have it dismissed. That hearing will take place Nov. 12. Foti placed third last October in a three-way primary. James D. "Buddy" Caldwell won the contest.
October 1, 2008
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