In the event you have some extra time on your hands, the following will provide you with the information alluded to in John's opening of this tread.
It is so ludicrous and mind boggling that one finds it difficult to believe. However the AG of the State of LA has filed suit and IF the State were to prevail, "KATIE BAR THE DOOR".
Attached you will find the date stamped petition filed by the Louisiana Attorney General against Allstate, Lafayette, Xactware, Marshall & Swift/Boeckh ("MSB", USAA, Farmers, Insurance Services Office ("ISO", State Farm, Standard Fire Ins., and McKinsey & Co.
The attached 29 page petition details how the above defendants set out to collectively defraud policyholders using an intricate plan to delay, deny and, in particular, lowball legitimate claims.
Somehow the ability to cut and paste the link has failed so here it is, Lock, stock and barrel"
_____________________________________________________________________________
CIVIL DISTRICT COURT FOR THE PARISH OF ORLEANS
NUMBER: 074 q 5% DIVISION: /-- (D
STATE OF LOUISIANA, EX REL, CHARLES C. FOTI, JR.
versus
ALLSTATE INSURANCE COMPANY, LAFAYETTE INSURANCE COMPANY,
XACTWARE, INC., MARSHALL & SWIFT/BOECKH, LLC, INSURANCE SERVICES
OFFICE, INC., STATE FARM FIRE AND CASUALTY COMPANY, USAA CASUALTY
INSURANCE COMPANY, FARMERS INSURANCE EXCHANGE, STANDARD FIRE
INSURANCE COMPANY, MCKINSEY & COMPANY
FILED:
DEPUTY CLERK
PETITION FOR TREBLE DAMAGES, INJUNCTIVE RELIEF AND JURY TRIAL
BROUGHT BY THE LOUISIANA ATTORNEY GENERAL
The State of Louisiana through its Attorney General, Charles C. Foti, Jr. and undersigned
counsel, bring this parens patriae action to enforce the laws of this state, more specifically, the
Louisiana Monopolies Act, and to redress the wrongs committed by defendants against this state and
its citizens. This action seeks forfeiture of illegal profits, treble damages and injunctive relief.
COMPLAINT
1.
Defendants formed a combination for the illegal purposes of suppressing competition in the
insurance and related industries, and to obtain greater illegal wealth for themselves than was possible
if acting individually.
Defendants' combination and conspiracy operated throughout, and in all parts of, the State of
Louisiana and continues to operate to manipulate commerce and to restrain trade in this state. The
acts of this combination have seriously impeded the economic growth and disaster recovery of this
State and its citizens and effectuated an on-going fraud on commerce in this state. The combination
and conspiracy between and among Defendants has adversely affected competition and trade within
both the construction and homeowners' insurance industries in Louisiana.
2.
In a scheme to thwart policyholder indemnity and in direct violation of their fiduciary duties,
insurer defendants and others continuously manipulated Louisiana commerce by rigging the value of
policyholder claims and raiding the premiums held in trust by their companies for the benefit of
policy holders to cover their losses as taught by McKinsey Company. Insurers coerced and
intimidated their employees into compliance with the McKinsey principle. Insurers coerced their
policy holders into settling their claims of damages for less than their value by editing engineering
reports, delaying payment and forcing policy holders to litigate claims to receive full value. All
defendants, ai-~do ther unnamed competing insurance companies, conspired, at all material times
herein, to horizontally fix andlor manipulate 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.
3.
Defendants, with the explicit approval of insurer management, deliberately designed a means
to reduce claim payments, commonly referred to as deny, delay and defend. Louisiana's insureds
were forced to buy property insurance (commercial or homeowners) which likely would never
provide full coverage for a loss.
4.
By using the same or substantially similar damage-estimating software, defendants signal
their acquiescence to low balling claim payouts. Those insurers who failed to participate in this
conspiracy were economically coerced into compliance by the competitive advantage gained in
having excessive profits to leverage against their competitors. By the time Hurricanes Katrina and
Rita struck Louisiana in 2005, virtually all of the property damage insurers were setting premiums
and adjusting claims under this arrangement.
5.
This continuous arrangement gave insurers an unjust advantage over policy holders, which
they took advantage of before, during and after the greatest disaster this country has ever suffered, by
reaping huge profits from the misfortunes of persons whom they pledged to protect from risk of loss.
They raised insurmountable odds against policy holders' abilities to recover.
The schemes operated under cover of secrecy and were perpetrated despite the fact of
numerous past law suits against insurers.
JURISDICTION AND VENUE
7.
This Court has subject matter jurisdiction under Louisiana Revised Statutes $5 1 : 121, et seq.
as this action brought is entirely and exclusively under Louisiana state law and is not intended,
directly or implicitly, to invoke or assert any federal causes of action.
8.
This Court has personal jurisdiction over the Defendants because the Defendants are
authorized by the Louisiana Department of Insurance to transact, and regularly do transact business
in the State of Louisiana, because Defendants contract to provide insurance and insurance services
within the State of Louisiana, and because Defendants' unlawful conduct has caused and will
continue to cause injury throughout the State of Louisiana.
I
This action is brought by the Attorney General to restrain and enjoin and to seek other relief and
damages for Defendants' violations of Louisiana Revised Statutes 8 5 1 : 121, et seq. Venue in this
court is proper pursuant to 8 5 1 : 13 1 because Defendant Lafayette Insurance Company's domicile is
Orleans Parish, and the other Defendants carried out activities that gave rise to the claims for relief in
Orleans Parish and elsewhere in this State.
THE PARTIES
10.
Pursuant to Revised Statute $5 1 : 138, the Attorney General, Charles C. Foti, Jr., is authorized
to enforce all suits arising under the Monopolies Act. Pursuant to Art. IV, § 8 of the Louisiana
Constitution, the Louisiana Attorney General is mandated to institute, prosecute, or intervene in any
civil action or proceeding as necessary for the assertion or protection of any state right, and further,
pursuant to 5 13:5036, he is authorized to bring any suit he deems necessary for the protection of any
state right.
11.
The following are presently named defendants in the above captioned matter:
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a. ALLSTATE INSURANCE COMPANY, (hereinafter "Allstate" is a foreign insurer,
domiciled in Illinois, doing business in the State of Louisiana and which issued polices of insurance
in this State. At all material times, Defendant Allstate was a subsidiary and/or member company of
the Allstate Insurance Group and all allegations contained herein were at the direction and/or
implementation of Allstate Insurance Group.
b. LAFAYETTE INSURANCE COMPANY, (hereinafter "Lafayette" is a domestic
corporation licensed to issue insurance policies and in fact issuing insurance policies in the State of
Louisiana. At all material times, Defendant Lafayette was a subsidiary and/or member company of
United Fire Group and all allegations contained herein were at the direction and/or implementation of
United Fire Group.
c. XACTWARE, INC., (hereinafter "Xactware" is a foreign corporation, domiciled in
Utah, with its principal place of business in Utah, not authorized to do business in Louisiana but
having sufficient minimum contacts through repeated electronic communications with various
insurers in this state during the claims handling process following Hurricanes Katrina and Rita.
After August 2006, Defendant Xactware was a subsidiary and/or member company of Insurance
Services Office, Inc. (ISO) and all allegations contained herein were at the direction gnd/or
implementation of ISO.
d. MARSHALL & SWIFT/BOECKH, LLC, (hereinafter "MSB" is a foreign limited
liability company, domiciled in Wisconsin, not authorized to do business in Louisiana but having
sufficient minimum contacts through repeated electronic communications with various insurers in
this state during the claims handling process following Hurricanes Katrina and Rita.
e. INSURANCE SERVICES OFFICE, INC., ("hereinafter ISO" is a foreign
I
corporation, domiciled in New Jersey, not authorized to do business in Louisiana, but having
sufficient minimum contacts, including hosting ISOTECH conference at the end of October, 2007 in
New Orleans, as well as repeated electronic communications with various insurers in this state
during the claims handling process following Hurricanes Katrina and Rita. After August of 2006,
Xactware was a wholly owned subsidiary and/or member company of IS0 and all allegations after
August of 2006, contained herein, were at the direction and/or implementation of ISO.
f. STATE FARM FIRE AND CASUALTY COMPANY, ("State Farm" is a foreign
insurer, domiciled in Illinois, authorized and doing business in the State of Louisiana and which
issued policies of insurance to the Plaintiffs/Insureds, and other persons that are similarly situated,
that insured against various risks of loss to immovable property. At all material times, Defendant
State Farm was a subsidiary and/or member company of the State Farm Group and all allegations
contained herein were at the direction and/or implementation of the State Farm Group.
g. USAA CASUALTY INSURANCE COMPANY (hereinafter "USAA" is a foreign
insurer, domiciled in Texas, authorized and doing business in the State of Louisiana and which issued
policies of insurance to Louisiana citizens that insured against various risks of loss to immovable
property. At all material times, Defendant USAA was a subsidiary and/or member company of
USAA Group and all allegations contained herein were at the direction and/or implementation of
USAA Group.
h. FARMERS INSURANCE EXCHANGE (hereinafter "Farmers" is a
foreign insurer, domiciled in California, authorized and doing business in the State of Louisiana and
which issued policies of insurance to Louisiana citizens that insured against various risks of loss to
immovable property. At all material times, Defendant Farmers was a subsidiary andlor member
company of The Farmers Group and all allegations contained herein were at the direction and/or
implementation of The Farmers Group.
1. STANDARD FIRE INSURANCE COMPANY, (hereinafter "Travelers" is a foreign
insurer, domiciled in Connecticut, authorized and doing business in the State of Louisiana and which
issued policies of insurance to Louisiana citizens that insured against various risks of loss to
immovable property, including but not limited to, loss and damage caused by wind. At all material
times, Defendant The Standard Fire Insurance Company was a subsidiary andfor member company of
St. Paul Travelers Companies and all allegations contained herein were at the direction and/or
implementation of St. Paul Travelers Companies.
j. MCKINSEY & COMPANY (hereinafter "McKinsey & Co." or "McKinsey" is a
foreign company, domiciled in New York, not authorized to do, but doing business in Louisiana, and
having sufficient minimum contacts with this State, in particular consulting with The Louisiana
Recovery Authority and Chairman Don Powell.
BACKGROUND
Allstate, Lafayette, State Farm, USAA, Farmers, and Travelers (hereinafter "Defendant
Insurers" or "Insurers" write policies of insurance covering immovable property, commercial and
residential, in the State of Louisiana. Xactware and MSB write software programs utilized by Insurers
to value covered immovable property damage, commercial and residential, in the State of Louisiana.
13.
FORMATION AND OPERATIONS OF THE COMBINATION
McKinsey, known as "The Firm" was founded in 1926 and is one of the world's most
powerful corporate advisers. Its client base is huge and encompasses 213s (two-thirds) of the Fortune
I
1000. It is the chief advisor and key architect of strategic thinking for 147 of the world's 200 largest
corporations, including 80 of the top 120 financial services firms, 9 of the 11 largest chemical
companies and 15 of the top 22 health-care and pharmaceutical companies. McKinsey became the
"standard setter" and thus, the agent of the combination formed to regulate the insurance industry,
which greatly impacts Louisiana commerce.
14.
McKinsey, since the 1980s, has been and is the architect of changing the insurance industry
fiom one guided by the indemnity and fiduciary principles which it advertises, to an industry that
raids the insurance premiums claims trust funds and diverts the premiums payments to management
andlor shareholders, while underpaying claims and victimizing policyholders. The premium trust
fund is affected with the public interest.
15.
Known McKinsey clients pertinent to this matter include, but are not limited to Allstate, State
Farm, and USAA. During the course of this matter, the Louisiana Attorney General will uncover more
of McKinsey clients and participants in the combination to privately regulate the insurance industry.
16.
McKinsey & Company ("McKinsey" initially advised insurers to stop "premium leakage"
by undervaluing claims using the tactics of deny, delay, and defend. The entire combination is
dedicated to preventing "premium leakage" to the detriment of the insureds. The first insurers to
adopt the principles invited others to adopt them as well. Many, if not most, agreed. Those who
- 6 -
adopt the principles adopt a system to raid the premium claims trust that insurers are required to
maintain. By undervaluing the value of the claims, insurers are free to raid the claims trust for the
benefit of management and/or stockholders.
McKinsey obtains clients "by word of mouth;" as knowing that a competitor has hired
McKinsey has historically been a strong impetus for companies to seek McKinsey's assistance
themselves.
18.
McKinsey's clients pay handsomely for management advice to increase profitability.
McKinsey protects from public scrutiny the results of its involvements with clients.
19.
Insurance Services Office ("ISO" is a leading provider of statistical, actuarial, and
underwriting information for the propertylcasualty insurance and risk management industries. It
provides products and services that help measure, manage, and reduce risk. It provides data,
analytics, and decision-support solutions to professionals in the insurance industry. The company
gathers premium, claim and loss data that it files with state regulators; the data is used to evaluate the
price of insurpnce in each state. Its clients use ISO's databases and services to classify and evaluate a
variety of risks and detect potential fraud. It is also an agent of the combination.
In the past, IS0 published suggested combined premium rates for specific lines of business in
specific geographical areas that were inclusive of all loss costs, expenses, premium taxes,
contingencies, and profit margins until this practice was challenged as a violation of antitrust laws.
Currently, IS0 publishes pure loss costs leaving the "loading" of expenses and profit margins
on top of loss costs for the individual member companies to supply in calculating final premium
rates. It is difficult to discern a difference in ISO's current practices and those which were
condemned under federal antitrust laws in the past.
Insurance Services Office, Inc. ("ISO) facilitates the operations of the combination by
providing a database and other computer programs which insurers tap into for standardization of
claims regardless of the individual value of the claims. IS0 also provides standard policy forms and
actuarial data on which premiums are based. IS0 is the agent of the combination while
simultaneously setting standards upon which insurance regulators rely.
23.
Many property and casualty insurers use the IS0 and National Council on Compensatory
Insurance ("NCCI" for rate-making purposes. These agencies receive information about premiums
and losses by class code, state and territory to establish loss-cost figures. Individual insurance
companies then file loss-cost 'multipliers,' expense factors for each company, that are multiplied by
the loss costs for each business line to determine rates.
IS0 publishes on its website, inter alia, that any business will get "measurable savings from
unifling your rating system on a single platform while eliminating redundant, resource-intensive rate
validations and testing."
Insurers accomplish the illegal diversion of claims funds, in part, by using damage estimate
computer programs such as Xactimate (manufactured by Xactware) and IntergriClairn (manufactured
by MSB) that are manipulated to reduce the value of claims.
26.
IS0 also gathers combined financial results for the entire insurance industry. It contributes to
the abilities of insurers to operate in a shroud of secrecy. The data provided by IS0 is tainted by
collusion and self-interest to the detriment of the insureds.
Farmers Insurance Group produced a video in 1999, with its CEO Marty Feinstein explaining
that Farmers 'was granted entree to the methods of the combination, implicating Fireman's Fund,
Royal, USF &G, Amica, Progressive, State Farm, Allstate, American Family, Safeco, USAA, and
Hartford. In particular, Farmers was shown, by the above named companies, the technologies
(software produced by Xactware and MSB) used in the claims handling scheme. Farmers adopted the
use of the Xactimate program as a direct result of those consultations.
28.
The combination has grown with rapid strides. It threatens the welfare and liberties of
- 8 -
consumers because it preys on policyholders at the time of their greatest need and helplessness, and
leverages the incredible economic and legal power of the insurance industry. As such, it runs afoul
of the Louisiana Monopolies Act.
Using these tools, insurers have combined to accumulate vast wealth for themselves by
I
violating the indemnity principle upon which the industry was founded and by violating their
fiduciary duties to their insureds. This combination has greatly impeded the ability of the entire
state to recover from the devastating effects of Hurricanes Katrina and Rita.
30.
The power and control of this insurance combination is explained in the paragraphs that
follow. The combination has interfered with and manipulated the natural flow of commerce in
Louisiana, extracted monopoly rents from victims and inflicted huge economic damage to this state
and its citizens. The alteration of the claims handling process implemented by this combination
lowered the claims payment ratio (known as the payout to premium ratio) from a historic average of
approximately seventy cents ($0.70) per premium dollar to approximately fifty cents ($0.50) per
premium dollar, allowing these insurers to suffer the worst catastrophe in history while still earning
sizable profits, as shown in the paragraphs below.
31.
WHAT THE COMBINATION HAS DONE IN ITS OWN WORDS
Insurance industry shows increased profits despite Hurricanes Katrina and Rita
ISO's website publishes "consolidated financial results" for the insurance industry. In 2005,
it published that "net income and surplus both increased in 2005 even though catastrophe losses rose
to a record high on a direct basis before reinsurance recoveries." (Insured property losses doubled
from the previous year.)
32.
ISO's industry statistics after Hurricanes Katrina and Rita demonstrate the vast wealth
accumulation by members of the combination. IS0 released a statement on December 27,2005, that
"(t)he industry's net income and surplus increased despite record catastrophe losses. Including losses
from Hurricanes Dennis, Katrina, Ophelia and Rita, direct insured property losses due to catastrophes
through nine-months 2005 totaled $47.6 billion-nearly double the $27 billion in direct insured
property losses due to catastrophes through nine-months 2004, according to ISO's Property Claim
Services (PCS) .... These figures are consolidated estimates for all private propertylcasualty insurers
based on reports accounting for about 96 percent of all business written by private U.S.
property/casualty insurers."
33.
"Given the massive catastrophe losses absorbed by insurers in nine-months 2005, the increase
in income and surplus during the first three quarters of the year is a testament to the underlying
'financial health' of the industry."
34.
Even more revealing is ISO's statement on profits or rate of return of the industry, enjoyed
while Louisiana suffered. "Excluding $3.3 billion in special dividends one insurer received fiom an
investment sybsidiary, the industry's annualized return through nine-months 2005 was 8.5 percent-
0.2 percentage points less than average annualized return through nine months from the start of
ISO's quarterly records in 1986-2004."
35.
"Combining realized capital gains and net investment income, net investment gains rose $5.4
billion, or 15.3 percent, to $40.7 billion in the first nine months of 2005 fiom $35.3 billion in the
first nine months of 2004."
36.
"The net loss on underwriting in nine-months 2005 amounts to 0.9 percent of the $309.9
billion in premiums earned during the period. The net gain on underwriting through nine-months
2004 amounted to 1.1 percent of the $309 billion in premiums earned during the period."
37.
"The combined ratio for nine-months 2005 was the second best combined ratio through ninemonths
since the start of ISO's quarterly records in 1986, surpassed only by the combined ratio
through nine-months 2004."
38.
"The $20.4 billion increase in the industry's consolidated surplus in nine-months 2005
compares with a $22.3 billion increase in nine-months 2004. The increase in surplus in nine-months
2005 consisted of $28.8 billion in net income after taxes and $6.3 billion in new funds paid in, less
- 10-
$0.4 billion in unrealized capital losses on investments, $9.6 billion in dividends to stockholders and
$4.7 billion in miscellaneous charges against surplus."
39.
ISO's website describes its services as follows: "IS0 Rating Service is the only system of its
kind to provide these key features: Content supported by automated updates to loss costs, rules, and
policy forms through ISOnet, inheritance-based technology, component-based, XML-driven design
that facilitates interface with quote, submission, and policy-administration systems, rate-management
tools that facilitate company maintenance, ongoing interpretation of the rating rules by IS0 line
experts and actuaries, and analysis of IS0 updates."
40.
The unification of power and control was the inevitable result of the insurance industry's use
of McKinsey advice and IS0 tools of industry-wide claims standardization. These acts of enhanced
power present a prima facie presumption of intent to restrain Louisiana commerce and to bring about
monopolization of the industry. The power of the combination is actually greater than that of a
monopoly. It is more akin to the power of a trust.
41.
NEWS MAGAZINES AND CONGRESSIONAL TESTIMONY
According to Bloomberg Markets Magazine, companies have sharpened the use of
technology in the past 20 years to help tighten claims payouts. Insurers, following McKinseyYs
advice on claims processing, have adopted computer programs with names such as Xactimate and
IntregriClaim (used to value and underpay property damage claims). Insurers, as a part of the
scheme, manipulate these programs to pay out as little as possible. They are designed to
systematically underpay policyholders' claims.
42.
On April 1 1,2007, Mr. J. Robert Hunter, Director of the Consumer Federation of America
testified before the U.S. Senate Committee on Commerce, Science and Transportation that the
Senate should investigate the collusive practices in the insurance industry and claims systems.
43.
He further testified that appalling abuses of consumers occurred in the wake of Hurricane
Katrina. He stated that the revelations and settlements by New York Attorney General Eliot Spitzer
- 11 -
show that even the most sophisticated consumers of insurance can be duped into paying too much for
insurance through bid-rigging, steering, undisclosed kickback commissions to brokers and agents
and through other anti-competitive acts.
44.
He pointed out a startling blog from the President of the Association of Property/Casualty
Claims Professionals, James Greer, posted on the web site of the Editor of the National Underwriter,
that on the Mississippi Gulf Coast and in New Orleans, the insurance carriers "behaved as one," in
taking a total hands off approach to indemnity.
45.
Mr. Greer further wrote that the animosity and litigation is about the failure of the insurance
industry to keep its promise of indemnity.
46.
Mr. Hunter further testified that "Insurers have reduced their payouts and maximized their
profits by turning their claims operations into 'profit centers' by using computer programs and other
techniques designed to routinely underpay policyholder claims."
ADDITIONAL MEMBERS OF THE COMBINATION
According to its website publicity release, "Insurance Services Company, ("ISO" acquired
the assets of Xactware, Inc., the leading provider of estimation software and services for the property
insurance, remodeling and restoration industries for an undisclosed amount. Xactware's customers
now include 16 of the top 20 property insurers and approximately 80 percent of insurance repair
contractors and service providers. During the record-breaking hurricane seasons of 2004-2005,
Xactware's products were used to settle more claims than all of its competitors combined."
"Founded in 1986, Xactware (www.xactware.com) is a technology services company
I
specializing in the property insurance and restoration industries. Xactware's technology tools
include software estimating solutions as well as powerful systems for replacement cost calculations,
estimate tracking and real-time data trending."
THE COMBINATION'S REACH THROUGH IS0 IN ITS OWN WORDS
"IS0 is a leading provider of products and services that help measure, manage and reduce
risk. IS0 provides data, analytics and decision-support solutions to professionals in many fields,
including insurance, finance, real estate, health services, government and human resources. Clients
use ISO' s databases and services to classify and evaluate a variety of risks and detect potential fiaud.
In the United States and around the world, ISO's services help customers protect people, property
and financial [assets. For more information, visit www.iso.com."
50.
XactValue (very similar to IS0 Homevalue), one of Xactware's products, advertises that it is
"built on the Xactimate data engine-the industry leader in claims estimation." It builds an ITV
(insurance-to-value) calculator on top of the component-level system of Xactimate, which means that
XactValue utilizes the same pricing methodology that Xactimate uses, and is also automatically
updated with new price lists each quarter.
5 1
Xactware further advertises "efficient" workflow solutions for underwriting such as:
"Automatic recalculate valuations in the future-as prices change over time, you can recalculate upon
renewal with a click of a button and automate the process for your entire book of business."
Xactware advertises "convenient integration with other Xactware products: XactNet-utilize
North America's largest claims assignment network to send and receive XactValue assignments.
Now the same network available to claims professionals is available to underwriting professionals."
53.
XactAnalysis is advertised to allow network users to "view industry trends, track valuation
volumes, manage training needs, and even view geographical mapping of valuation locations with
the management reporting tool."
54.
XactAnalysis allows access to "a list of major third-party service providers already connected
to the system and ready to receive assignments, line item auditing of estimates for identification of
common scoping issues, graphical and text management reporting with automated alerts, quarterly
industry trends for claims averages, key materials pricing, and labor rates, and real-time workflow
management and reviewing tools." (Emphasis added).
55.
XactAnalysis has an integrated "management tool" for "service providers, such as repair
contractors, cleaning specialists and independent adjusters." It comes with the same Industry Trend
Reports that assignment senders (e.g. insurance carriers and underwriters) have access to within
XactAnalysis. Service providers can view the same details. It includes industry reports, customer
surveys, and labor rate calculators, assignment tracking, with automatic notifications, action items,
and geocodes and XactNet pricing.
56.
"XactAnalysis Quality Review is designed specifically for reinspection workflows and works
in real time. It can be customized to meet your specific needs and data can be separated from other
claims management programs.
With the XactAnalysis Quality Review program you can automatically assign reinspections,
document finkings, track progress, follow-up on recommended actions, and report on discovered
trends."
57.
Xactware's website boasts XactAnalysis provides "powerful" Industry Trend Reports to its
customers "at the click of a mouse." "Being the clear market leader for online property claims
management puts Xactware in the unique position of providing essential reports that represent
pricing trends for the entire industry. We can provide these reports because of the massive amount
of claims data sent through our systems. That means you can have historical trends at your fingertips
for the components that most affect your claims."
"The Industry Trend Reports will show you at-a-glance how prices have changed for key
industry indicators such as lumber, drywall, and floor coverings over the past 10 quarters. You can
track labor prices for individual trades, see how any pricing area compares to the rest of the country,
or even compare what a small bathroom loss costs today versus last quarter or last year."
"Both XactAnalysis and XactAnalysis for Service Providers users have access to these
Industry Trend reports, which are updated each quarter. Along with publishing these reports,
qualified statisticians provide insight to these trends and identify the leading reasons for any increase
or decrease. "
"You can view Industry Trend reports for the entire country (USA or Canada) or drill down to
a specific state, province or city. Some of the reports available include: composite reports for such
items as carpet, drywall, lumber and roofing; retail labor reports; average estimate value reports; and
basket of goods reports. You can also view newly added price list items and other quarterly
enhancements made to our pricing database. When you are connected to XactAnalysis, you are
connected to the entire industry!"
58.
On January 9,2007, IS0 announced "a major milestone today as its IS0 ClaimSearch allclaims
database surpassed 500 million industry claims. The IS0 ClaimSearch system is the
property/casualty insurance industry's first resource for evaluating claims histories and detecting
claims fraud."
Richard Boehning, senior vice president at IS0 has stated, "IS0 has worked hand-in-hand
with the industry to build and enhance the all claims fraud-fighting resource over the past few
years.. ..We're pleased to have reached this milestone in the size of the database-which is just one
measure of the improvement in the quality of the data we provide the industry for claims handling
and fraud detection.. . .Insurers representing nearly 95 percent of the industry in premium volume use
IS0 ClaimSearch for day-to-day claims handling and evaluation. Hundreds of thousands of claims
and claim updates are processed daily. And each day, tens of thousands of queries are run against the
database by insurers' investigators, law enforcement personnel, National Insurance Crime Bureau
investigators and state fraud bureaus. The system now receives more than 48 million claims
annually."
Vincent Cialdella, vice president of IS0 ClaimSearch has stated, "We're pleased that the
industry has supported the data-expansion and enhancement program so enthusiastically by
converting to our enhanced data-reporting format and submitting larger volumes of claims.. . ."
59.
". . ..In addition to expanding the database, IS0 has also enhanced the system's processing and
claims-handling resource by integrating fraud-detection capabilities, such as claim scoring and data
analysis and visualization. IS0 has also added an integrated, web-based case-management function."
60.
"IS0 ClaimSearch serves thousands of insurers, 24 state workers compensation insurance
- 1 5 -
funds, 650 public and private self-insured organizations and 480 third-party administrators
(TPAs) ..."
61.
THOSE WHO ARE NOT A PART OF THE COMBINATION ARE DRIVEN OUT OF
BUSINESS
Frank J. Coyne, Chairman, President and Chief Executive Officer of IS0 said, "Spurred by
intensifying competition, breakthroughs in analytics are transforming dynamics in insurance markets.
Sophisticated insurers able to harness large volumes of high-quality data to drive decision making
all along the value creation chain can look forward to a long and prosperous future. But insurers
unable to keep up in the intellectual and technological arms race face a grim prognosis, according to
an industry leader.
In just a decade and a half, approximately a third of the insurers serving the United States
vanished as escalating competition ate into top-line revenue growth and bottom-line profitability.
But it isn't just the intensity of competition that's changing,. . .The nature of competition is changing
too, as advances in predictive modeling and other analytical techniques enable leading insurers of all
sizes to target their marketing, underwriting and pricing as never before."
62.
Coyne also noted the application of predictive modeling and other advanced analytics to
Main Street commercial lines business. Coyne states, "With premiums for business owner's policies
or BOP business averaging approximately $1,500, spending significant sums on painstaking
underwriting is out of the question .... But, with the right technology, it only takes a junior
underwriter seconds to enter a few facts from a policy application and get a score that indicates
whether the risk should be underwritten."
63.
Additionally, Coyne stated, "Predictive modeling and intelligent database matching now
enable insurers to spot flawed information and stop premium leakage;" i.e., the McKinsey principle
at work. ,
64.
SECRET PRICE MANIPULATION IS MADE EVEN EASIER
IS0 coordinates virtually every aspect of insurance industry business, from risk assessment
- 16-
and underwriting, to policy form creation and administration, to every aspect of claims handling.
65.
IS0 individually, and through its subsidiary Xactware, Inc., employed numerous uniform
programs and databases to achieve the conspiracy, including but not limited to PushPin, HomeValue
and Xactnet.
66.
IS0 Pushpin contains specific and detailed data on key building features for more that 50
million residential properties in the United States. Agents, underwriters, and inspectors can enter
additional prdperty information into IS0 HomeValue. By employing IS0 HomeValue to gather and
maintain property data, insurers were able to manipulate estimates of an individual property's
catastrophe loss potential, in addition to its replacement cost.
67.
ISO's HomeValue is a property replacement valuation system that enables insurers and their
agents to make estimates of the replacement cost of residential properties in the event of total loss.
By providing a means to justify a full replacement value for property policies, IS0 HomeValue
enabled the manipulation of the amount of replacement coverage on a home, thereby underwriting
profitability. The web-based interface streamlines the uniform manipulation of the replacement cost
estimation process. It was integrated with in-house and third-party applications, as well as with a
wealth of data sources from ISO.
68.
As another example, XactNet is used by insurance carriers and other professionals to send
requests for estimates and services to adjusters, contractors and service providers. Once a request is
received, estimates are returned over the same network. Estimates sent over XactNet can contain
line items, photos, notes, audio files and floor plans. XactNet is also used to assign and receive
valuation estimates for underwriters.
69.
After Hurricanes Katrina and Rita, Defendant Insurers adjusted claims filed by their insureds
in the State of Louisiana.
70.
Defendant Insurers, individually and collectively, andlor others acting on its behalf, inspected
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the property and calculated/adjusted the monetary value of the damage or loss to immovable property
by using computer programs called Xactimate and IntegriClaim.
Xactimate and IntegriClaim are estimating software programs designed for
adjustingtestimating damaged property replacement cost (to which a depreciation amount is applied
if actual cash value is the proper amount to be paid under the contract).
Xactimate or IntegriClaim is used by the insurance claims adjuster entering in the damaged
immovable property component parts (e.g. drywall or siding) and the size of the damaged property
(e.g. square feet or linear feet) and the program applies a pre-determined price for that damaged item
and calculates that "line item's" replacement cost.
73.
The "line item" prices purportedly include labor, materials and other necessary items for each
repair (e.g. nails, caulk, etc.).
Upon information and belief, claims adjusters are pressured or required by the Defendant
Insurers to accept the pricing database prices in the estimates, and any supplements, they write.
75.
Upon information and belief, if the claims adjuster does not use the database price, they risk
their submission being flagged by the insurance carrier's claim examiner and "kicked back" or
rejected, thus, delaying the adjuster's payment.
76.
The line item prices used by the Defendant Insurers are, upon information and belief,
consistently below the lowest market price.
77.
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.
78.
The maker of the Xactimate program, Xactware, is a wholly owned subsidiary of Insurance
Services Office, Inc. (ISO), which also acts as an information repository and exchange for the
insurance industry including, upon information and belief, Defendant Insurers.
79.
Defendant Insurers set up Xactimate and/or IntegriClaim as ostensible independent and
objective benchmark(s) for reasonable replacement cost pricing, which they can rely on for the
payment of proceeds due under the policy. However, these insurers, through coordination with each
other and Xactware and/or MSB, intentionally devalue the market price in order to underpay their
policyholders and/or artificially deflate, or attempt to deflate, construction and repair costs in the
affected market.
80.
The repair services market that was the target of the price fixing was the repair/restoration
services being provided in Louisiana, immediately after Hurricanes Katrina and Rita through to today.
81.
Upon information and belief, from on or about January 1998 to July 1999, Farmers received
permission to visit Fireman's Fund, Royal, USF&G, AMICA, State Farm, Allstate, American Family,
Travelers, USAA, Hartford; a staff of people actually went to these companies, sat down with their
claims personnel and discussed their strategies, their technologies, and where they were headed. As
a direct result of those meetings, in December 1999, Farmers mandated the use of the Xactimate
program for all property damage claim adjustments, where previously they had no mandated
adjustment process.
82.
Upon information and belief, the adoption and coordinated use of the Xactimate program
and/or the IntegriClaim program was a direct result of the collusion between and among the
Defendants.
83.
State Farm has stated under oath that "Xactware generates and issues the price lists to State
Farm. However, State Farm invests time and money reviewing and modifving the Xactware Price
Lists prior to using the lists to adjust claims. Within each region, at least one Pricing Specialist
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contacts and/or surveys suppliers in the region for current pricing issues ... the New Orleans price list
was updated a number of times per quarter from 2005 through 2007."[emphasis added.]
84.
However, State Farm's price list LAN05F5D3, active on or about November 15,2005, upon
information and belief, was identical to Traveler's price list LAN02S52, active on or about
November 15, 2005; with each price list containing over 10,0000 line items, this is a statistical
impossibility without collusion.
85.
State Farm and other insurers submitted settled claim amounts to Xactware which were
knowingly manipulated to be lower than the market price.
86.
Allstate and other insurers also manipulated IntegriClaim price lists and software to output
prices lower than the market price with the full knowledge of MSB.
87.
Upon information and belief one primary mechanism for the creation of these lower settled
claims amounts was through the use of preferred contractors.
88.
Each insurance company uses a different name for their preferred contractor program, some
examples are: USAA's Property Direct Repair Program (PDRP), Liberty Mutual Insurance Group's
Contractor Network Referral Program (CNRP), State Farm's "Premier Service" plan, and Allstate's
Quality Vendor Program (QVP).
89.
These contractors are provided a higher volume of business referrals from the insurance
company in exchange for following the mandates of the insurance company.
90.
For example, one such mandate for preferred contractors with State Farm is that building
materials can only be sought at selected large home repair retailers, who, upon information and
belief, have contracts with State Farm for discounts of twenty percent (20%) or more. Upon
information and belief, State Farm pays directly for these building supplies and the preferred
contractor never knows the actual building materials cost.
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91.
The preferred contractors, at a minimal overhead and profit margin dictated by the insurer,
then complete the repair work for the insurer's estimated cost.
92.
This allows the insurance company to justifl the below market pricing it submits to Xactware
or MSB for input into the settled claims amount database.
93.
Upon information and belief, Xactware and MSB sell their estimatics programs updated with
pricelists created in part by the taintedlbiased data being submitted by the insurance companies and
enjoy sizeable profits therefrom.
94.
Upon information and belief, at all material times, Xactware and MSB had knowledge that
the tainted data was being submitted by the Defendant Insurers to intentionally deflate the value of
the damaged property payments owed to Louisiana insureds.
95.
Despite this knowledge, Xactware and MSB, upon information and belief, conspired with
Defendant Insurers to include this data for input into the pricing databases, thus skewing the output
prices to below the actual market.
96.
. Current "settled claim amounts," and their component prices, are shared by the Defendant
Insurers through a free program that comes with the Xactimate program: Xactanalysis or
Xactanalysis for Service Providers (SP).
97.
Xactanalysis and Xactanalysis SP contain a function called "Industry Trend Reports."
98.
Defendant Insurers employ the "Industry Trend Reports" to share the current prices being
submitted by competitors, and thus, coordinate the horizontal price-fixing suppression, or
attempted suppression, of the overall market in repair services at virtually every geographic level
and price component.
99.
Additionally, Defendant Insurers employ Xactanalysis with the ability to "drill down to" and
monitorlcompare the individual claim adjuster's payout performance, and thus, ensure compliance
with the pricing levels set by the company.
100.
The repair services market that was the target of the current price sharing and usage was the
repairlrestoration services being provided in Louisiana, immediately after Hurricanes Katrina and
Rita through to today.
101.
Defendant Insurers' use of the current price sharing through the "Industry Trend Reports"
creates an anti-competitive means of coordinating horizontal price-fixing which is unreasonable and
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