Allstate Units Agree to Coverage Checks Sought After Ariz. Wildfire

Two Allstate Insurance units have agreed to implement new procedures to re-evaluate coverage needs of homeowners – steps sought by Arizona regulators in the wake of consumer complaints after a devastating 2003 wildfire on Mount Lemmon.

Allstate Insurance and Allstate Indemnity, both based in Northbrook, Ill., are the latest of seven major insurers to agree to similar consent orders with the Arizona Department of Insurance, department spokeswoman Erin Klug said.

The two Dec. 19 consent orders involving the Allstate units and the preceding ones with the other insurers stem from examinations conducted by the department after insured homeowners complained that companies weren’t providing adequate payouts for insured property destroyed or damaged by the June 2003 Aspen fire.

The fire charred 84,750 acres and destroyed 322 homes in the hamlet of Summerhaven on Mount Lemmon, located in the Catalina Mountains overlooking Tucson. Seven businesses and four other structures were also destroyed.

Klug said the department’s examiners found no violations of state law but did turn up widespread discrepancies between the products of the companies’ own current coverage calculation methods and higher rebuilding costs estimated by the companies’ own adjusters.

“It seemed to us that there was a disconnect,” said Klug, adding that it was especially troubling to regulators because the methods were in place two years after the Mount Lemmon fire.

In the two orders, Allstate did not admit or deny wrongdoing but agreed to contact policyholders to get information on property improvements, to recalculate and adjust policy limits based on the new information and to let policyholders change their policy limits accordingly. It also said it would document its efforts to contact the owners and to check on the accuracy of its new software.

It’s very possible that Arizona may have more major wildfires but the department hopes the new practices and procedures will reduce the number of homeowner complaints about inadequate insurance coverage and payouts, Klug said.

J. Michael Low, an attorney-lobbyist who represents Allstate in dealings with state officials, did not immediately return a call for comment Thursday.

Klug said the previous similar orders involved Hartford Insurance Co. of the Midwest, Property and Casualty Insurance Co. of Hartford, Country Mutual Insurance Co., American Family Insurance Co. and Farmers Insurance Co. of Arizona.

Klug said the department is continuing to talk with another company which she declined to identify.

The regulatory actions follow the filing of lawsuits last May in Pima County Superior Court in Tucson by at least 70 homeowner families against 16 insurers. The lawsuits accused insurance companies of failing to provide enough coverage on homes.