Judge: Allstate engaged in "negligent practice of law"

Allstate Insurance Co.'s "Quality Service Pledge" has landed the nation's No. 2 insurer in hot water in Washington state. King County Superior Court Judge Philip Hubbard has ruled that Allstate "engaged in the unauthorized, negligent practice of law and breached its fiduciary duties" to its policyholders.

Allstate's claims-handling manual is under fire. Here's a sampling of the manual: "What can I tell claimants about attorneys?

The ruling stems from a case in King County, Wash., Jones vs. Allstate Insurance Co., in which Allstate advised its policyholders, the Joneses, that they would get only $25,000 for their medical expenses as a result of an accident with another Allstate policyholder. The Jones' medical expenses exceeded $75,000, but they took Allstate's advice and settlement money, and released the other driver from responsiblity.

Allstate had given the Jones family the company's "Quality Service Pledge," which includes a question and answer section regarding hiring attorneys after auto accidents. The "Do I need an attorney?" section tells policyholders, "people who settle insurance claims without an attorney generally settle their claims more quickly than those who have hired attorneys . . . [and attorneys] commonly take between 25 to 40 percent of the total settlement you receive from an insurance company, plus expenses incurred." An Allstate claims adjuster also told the Joneses that the company would no longer go to bat for them in the settlement process if they hired an attorney.

Judge Hubbard opined that Allstate claims adjusters were reducing the number of policyholders who sought legal representation "by mimicking what an attorney would do," or practicing law — in this case illegally. As a result, Allstate is liable for any legally recoverable damages, the judge ruled.

The claims adjusters were following procedures laid out in the company's "Unrepresented Unit of the Future," part of which tells adjusters how to broach claimant-lawyer relationships.

But just how much money is Allstate liable for? Perhaps millions. "We think it's likely that Allstate has defrauded thousands of citizens out of fair settlements for their injuries," says Janet Rice, president of the Washington State Trial Lawyers Association. At least 50 similar cases are reportedly on file across the country.

Allstate has vowed to appeal the Washington judge's ruling.