Opinion ID: 2512331
Heading Depth: 3
Heading Rank: 1

Heading: Allstate's Claim Core Redesign Process

Text: In the mid-1990s, Allstate devised a plan to redesign the process by which it handled personal injury claims. This plan was referred to in internal implementation training manuals as the Claims Core Process Redesign or CCPR. Excerpts of those manuals were attached as exhibits to the first amended complaint. The CCPR plan was intended to increase profits by over $200,000,000.00 annually by underpaying claims and denying claimants just and reasonable compensation. According to the CCPR manual, one of the plan's primary goals was to manage specific components of severity (average amount paid per claim) to provide greater financial support to the company. One such component was the rate at which claimants were represented by legal counsel. Allstate's CCPR manual directed claim representatives to realiz[e] that the way we approach claimants and develop relationships will significantly alter representation rates and contribute to lower severities. The manual explained that when an attorney represents a claimant, we pay 2-3 times more to settle the claim. Consequently, Allstate instructed its claim personnel to do whatever it takes to remove any need for an attorney. Allstate implemented this directive by requiring representatives to [e]stablish a trust-based relationship with claimants through [e]xtremely rapid contact to educate claimants about Allstate's approach to fair claim settlement and through [a]nticipation and resolution of a broad range of claimant needs in a genuine and emphatic manner. Representatives were also directed to initiate a [p]roactive discussion of attorney economics with claimants through this process, and to follow up regularly with claimants to reduce the need for attorney involvement. In addition to oral assurances, Allstate representatives were supposed to provide a written quality service pledge. The pledge informed claimants that, [b]ecause you have been involved in an accident with an Allstate policyholder, we will provide you with quality service. The pledge additionally stated that Allstate will make an appropriate offer of compensation for any injuries you may have suffered. By dissuading claimants from seeking legal counsel, Allstate was able to prey upon injured and unrepresented claimants' trust and lack of knowledge and to deny or settle claims for a fraction of their value. In handling minor-impact, soft-tissue or MIST claims, Allstate calculated settlement offers through its Colossus computer valuation system. [2] Allstate's CCPR manual instructed adjusters that, [w]hile every case should be evaluated on its merits and adjustments in settlement value will often be required, the new evaluation approach should lead to more settlements in the base value range and fewer settlements greater than the historical median. The Colossus system was intended to create unreasonably low evaluations and settlements for personal injury claims. If a settlement offer were not accepted or the claimant hired an attorney, Allstate would fully litigate virtually every claim, irrespective of its insured's liability or the real physical harm and value of the injuries suffered by the claimant. Allstate thereby sought to subject claimants to unnecessary and oppressive litigation and expenses, or, in other words, scorched-earth litigation tactics. Allstate intended to force claimants and their attorneys through arbitration and trial unnecessarily. For example, if a non-binding arbitration award were anything more than nominal, Allstate's practice was to appeal the award. The insurer employed these tactics to discourage claimants from pursuing injury claims. Allstate also sought to discourage attorneys from representing claimants by creating so much work and expense that they could not afford to advocate for a client with minor, moderate, or sometimes even serious injuries. Aside from the rate at which claimants were represented by counsel, another significant severity component was the amount paid for bodily injury claims. According to the CCPR manual: Of the components that account for paid losses, [bodily injury] is by far the largest. Controlling loss payout is clearly the most effective means of controlling casualty costs. The manual illustrated that a five percent reduction in the amount paid on bodily injury claims would yield profits of $201,000,000.00 per year. The manual gave specific instructions to representatives handling MIST claims, which typically arose from minor-impact automobile accidents that caused connective tissue, organ, or muscle damage, but not broken bones. According to the CCPR manual, MIST claims rarely reached trial, because on a case-by-case basis, a settlement [could] be justified when litigation costs [were] considered. Consequently, Allstate instructed its claim representatives to meet with the claimants' attorneys to emphasize those costsÔÇö i.e., attorney economicsÔÇöthrough threats, intimidation, and strong-arm tactics. Representatives were directed [t]o send a message to attorneys of [Allstate's] proactive defense stance on MIST cases, which force[d] the claimant and attorney to think about the obstacles they must overcome to recover a significant settlement or the benefits of a small `walk-away' settlement. Allstate carried out its policies through the active participation of its attorneys. The Litigation Management section of the CCPR manual segmented, or targeted, certain claims for litigation and trial. One such litigation segment was referred to as Settle for `X' or lessÔÇödefault to trial. In outlining the nature of such cases, the manual noted that the [p]rimary reason [that the] case [wa]s being defended [wa]s that [the] plaintiff ha[d] not accepted Allstate's offer. Once a case was targeted for trial under the Settle for `X' or less segment, an Allstate attorney was required to appeal [the] non-binding arbitration/mediation award as directed by [the] claim rep[resentative]. Likewise, an intended resolution by Allstate's claim representative to try [a] case had to be followed by Allstate's staff counsel. Allstate's attorneys were required to increase trial activity in appropriate cases, such as where settlement [could not] be reached for [the] evaluated amount. The reason that Allstate's attorneys were expected to have more trials was to reduce loss payout. Allstate used incentive compensation programs to encourage its attorneys to try more cases, irrespective of whether such litigation was justified by the facts. For Allstate's staff attorneys, increased trial activity was an objective set forth in the CCPR manual, with compensation and financial reward programs for the attorneys who met CCPR objectives. The more cases they tried, the more they might qualify for awards and salary increases. Allstate's attorneys' performance was also measured by whether they achieved results at or below the evaluated claim amount. Allstate's managing attorneys were expected to monitor their staff counsel aggressively. For example, under the CCPR manual, one corrective action for poorly performing offices was to put managing attorney bonuses at risk or change [the] managing attorney.