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Louisiana Says Insurers Conspired To Cheat Hurricane Katrina Victims

NEW ORLEANS (CN) - The State of Louisiana accuses McKinsey & Co. of directing an antitrust insurance conspiracy that fixed prices, underpaid claims, suppressed competition and defrauded policyholders through coercion and intimidation so that insurers could rack up record profits even in the aftermath of Hurricanes Katrina and Rita. The state wants the monopoly broken up and demands treble damages from 10 defendants, including Allstate, State Farm, Farmers, Lafayette Insurance, USAA Casualty Insurance and Standard Fire Insurance Co. Among the way the conspirators allegedly cheated policyholders was through using the same or similar damage-estimating software.

Attorney General Charles Foti accuses the conspirators of "rigging the value of policyholder claims and raiding the premiums held in trust by their companies for the benefit of policyholders to cover their losses, as taught by McKinsey Company. Insurers coerced and intimidated their employees into compliance with the McKinsey principle. Insurers coerced their policyholders into settling their claims of damages for less than their value by editing engineering reports, delaying payment and forcing policyholders to litigate claims to receive full value. All defendants, and other unnamed competing insurance companies, conspired, at all material times herein, to horizontally fix and/or 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.

"Defendants, with the explicit approval of insurer management, deliberately designed a means to reduce claims 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.

"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 their arrangement."

The State also sued Xactware, which became a subsidiary of defendant Insurance Services Offices Inc. in August 2006; and Marshall & Swift/Boeckh LLC.

Foti claims the director of the conspiracy was McKinsey & Co., of New York, whose chairman is Don Powell.

"McKinsey, known as 'The Firm,' was founded in 1926 and is one of the world's most powerful corporate advisers," the suit states. "Its client base is huge and encompasses two-thirds of the Fortune 1000. It is the chief adviser 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.

"McKinsey, since the 1980s, has been and is the architect of changing the insurance industry from 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 and/or shareholders, while underpaying claims and victimizing policyholders."

Foti says McKinsey initiated and instructed insurers to use the principle of "deny, delay and defend," which they did, so that "by undervaluing the value of the claims, insurers are free to raid the claims trust for the benefit of management and/or stockholders."

See complaint.

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