Allstate's Latest Trouble: Mississippi's Burning a Hole Through Its Pocket

Allstate Corp. (ALL) has suffered a legal set back in the huge unresolved claims controversy in Mississippi. As reported by AP, Reuters and Wall Street Journal OnLine a Mississippi couple has been awarded $2.5 million in punitive damages because State Farm Fire & Casualty refused to recognize their claim from Katrina. The punitive award was jury decided. The judge has also awarded $223,292 to cover the actual property damages. This blog first alerted readers on Oct 11, 2006 about the seriousness of the issue.

AP quoted “Robert Hartwig, chief economist for the Insurance Information Institute in New York, said before the jury announced its decision that a punitive damage award would be 'distressing' for insurers.”

If punitive awards are ten times the underlying claim, Allstate has a very huge problem. The State of Mississippi Attorney General, Jim Hood, is attempting to negotiate overall settlements with the entire industry. There are approximately 600 lawsuits and thousands of disputed claims. Allstate and other insurance companies are looking at some very ugly numbers.

State Farm spokesman Phil Supple says he is disappointed in the ruling. State Farm plans to appeal.

It seems to me that the present value of settling the claim is much cheaper than the cost of litigation and the inevitable punitive damages that are piled on top. The insurance industry cannot screw an entire state and expect that this is just another disputed claim, which may go to litigation.

If, as and when the settlements occur and are paid out, expect significant building activity, housing starts, temporary labor shortages and consumer rip offs as a well-funded boom takes off. Which stocks are well positioned for this wave? Also next time your insurance agent wants to review your policy, accept the appointment but make sure your lawyer is present.

ALL 1-yr chart:

Comments

[Austin Travis:]

Sometimes folks do not understand their insurance policies and expect "total" reimbursement for all types of things that happen. Certainly if a insurance company tries to "get out" of their legal policy requirements they should be legally made to do so. But I have found people just expect to much for what they pay for! And to sue the companies with these hugh awards over and above what actually should be paid is absoutely nonsense and destructive to the entire system in our nation! We need some help on both sides here, the policyholder and the insurance company. Both need protected fairly.

Now, what about the investment brokers and their brokerage firms? They take your money and invest anywhere they wish and when they make unwise investments to make high commissions and you lose all of your money - they go scott free and you go broke! Those jerks need to be put in jail and there also needs to be "insurance" to protect the average investor who just wants a fair return on their money being invested. Then these firms make you sign a form which says you can't sue them! Isn't that real nice and helpful for the investor client? I think that should be changed and all of us should have the right to sue in a court of law judged by our peers on all situations in life! No one has a right to side step the American system of justice by getting some form signed up front and many times the client doesn't even really know what they are signing due to the "snowjob" brokers who con them! I personally have lost $100,000 due to a investment made by a stupid broker into the Lehman Brothers failing firm! He knew the company was on the ropes and yet he took my money without my knowledge and placed it into that firm. Now I don't have any way to get it back but only to compalin to the FINRA group and hope in Arbitration I may get some back but I feel they are all in bed together and will not get a dime! These crooks need to be prosecuted. The broker needs to be covered by an errors and ommisions policy just like the insurance agent. But now, they have signed documents saying you can't sue them! What a rat hole! This country has to many stupid and harmful rules and laws and the average citizen is the one taking the hits all the time!

2008 Oct 29 10:11 AM