The thunderous shock came at 4:31 a.m., knocking an apartment building six feet off its foundation, tossing a 64-car freight train like a toy and buckling five major highways. Some 57 Angelenos were killed.
Yet for all its obvious destructive power, the 1994 Northridge earthquake did plenty of hidden damage as well. Only trained engineering and building contractors could properly assess the problems, and determine the repairs that were needed.
That’s where Californian Jo Ann Lowe came in.
As a liability analyst for Allstate Insurance Co., Lowe reviewed some of the 46,000 earthquake-related claims that poured into the Northbrook-based property-casualty insurer.
It was a duty that would lead her to a wrenching conflict: Whether to go about her business, or go public with the shocking claim that Allstate had systematically ripped off earthquake victims.
Lowe’s allegations about how Allstate handled quake-damage reports, which the insurer emphatically denies, appear to be at the heart of a federal criminal investigation that surfaced last week.
Her story, described in California court documents obtained by the Tribune, puts a harsh spotlight on one of Chicago’s biggest and most familiar public companies.
Lowe says Allstate secretly changed the findings of its engineering and construction experts to reduce its payouts to quake-stricken policyholders.
That accusation came in a civil complaint she filed against the company last year and attempted to bolster with sworn testimony that apparently runs hundreds of pages.
In the quake’s aftermath, Lowe resigned from the company where she had spent her entire 25-year career–a company known for its good pay and the long tenure of its employees, and for which her husband, Frank, continues to work.
In turning against her former employer, she would hold herself out as a self-sacrificing whistle-blower, even as Allstate Corp. suggests that she’s a money-hungry liar.
The company lashed out at Lowe in a press conference Tuesday, after the Tribune reported that federal agents led by the U.S. attorney of Los Angeles had searched four Allstate offices and impounded thousands of documents related to quake claims.
Allstate distributed six pages out of the hundreds from Lowe’s civil deposition, saying her responses in that portion proved that her other assertions were baseless.
“She has no evidence whatsoever,” said Robert Pike, the company’s general counsel. “She is unable to supply any specific information.”
Without naming Lowe, Pike suggested that witnesses against Allstate had told lies to make their civil lawsuits potentially more lucrative.
The company later in the week produced a ruling in a separate civil case that Allstate won in which California Superior Court Judge Alvin Niles appears unmoved by Lowe’s accusations. The judge described her as “the disgruntled employee, whistle-blower, mole, informant, snitch or whatever you want to call her.”
Lowe couldn’t be reached for comment, and her California attorney declined to comment, citing a judicial gag order.
To be sure, no criminal charges have been brought against Allstate. The investigation is in an early stage, and will probably stretch on for months before any resolution, sources familiar with it said.
But with dozens of federal agents fanning out across three states for unannounced visits to Allstate offices, it is evident that Lowe’s accusations have aroused deep suspicion.
In court records, a portrait emerges of a highly experienced insurance worker who had a successful career until its abrupt end last year.
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After completing high school and some community college courses, Lowe went to work for Allstate on Jan. 31, 1972, as a clerk at an Inglewood, Calif. claims-support unit.
After three years, Lowe became a casualty field adjuster, handling bodily injury claims and litigation that grew out of those cases. She spent seven years as a field adjuster, eventually obtaining authority to settle claims on her own.
Around 1982 Lowe was promoted again, becoming a supervisor with greater authority to settle claims.
Among her colleagues was Paul S. Castellani, a former Allstate claims executive in California who managed Lowe during his 19-year career with the company before he moved in 1983 to another insurer–one he, too, later would accuse of mishandling quake claims.
He remembers Lowe as “a very reputable, straightforward and honest person.” Yet Castellani, now retired in Las Vegas, said her accusation surprised him, and that it is inconsistent with his experiences at Allstate. “I don’t remember anyone trying to alter anything. I never saw it in my tenure there.”
If engineering reports were altered, it would be “serious,” he added. “The only reason you go to a specialist . . . is to get their opinion. You’re looking for the truth.”
After Castellani left Allstate, Lowe continued advancing.
A promotion 10 months after the quake brought her into contact with Northridge-related lawsuits. In her new job, Lowe worked with dissatisfied clients trying to settle claims before suits went to court. Again, she was given authority to settle claims on her own up to $10,000.
In court declarations, Lowe said that while she was in her final job at Allstate, she handled 60 to 80 complaints brought against the company as a result of the Northridge quake.
According to court papers, Lowe said that in mid-1995 she discovered that Allstate claims adjusters were requiring engineers to secretly provide draft, or preliminary, reports for review.
When an engineer’s report cited damage that an adjuster felt could possibly be attributed to a pre-earthquake condition, or which was exacerbated by the quake, adjusters would instruct the engineers to alter their reports to reflect the adjusters’ version of what happened. This, Lowe said in court documents, was designed to minimize the amount of damage that could be attributed to the quake and thus reduce Allstate’s potential liability.
In some cases, Lowe said, the engineers’ draft reports would be returned and only the revised version placed in a claimant’s file. That, in effect, hid any changes from the policyholders.
Lowe claimed that she reported her alleged discoveries to an Allstate supervisor. Jeffrey Hirshfeld, who was a property claims manager, allegedly assured her that altering reports was not common practice at Allstate. Lowe said she concluded that she had stumbled on isolated incidents.
As time went by, however, Lowe said, she found repeated instances of reports being altered to lessen the company’s liability, and again went to Hirshfeld. He supposedly relayed Lowe’s concerns to another manager, but also told her to drop the issue, according to Lowe’s account. “Don’t stand in front of a runaway train,” the court documents quoted him as saying.
In early 1996, Lowe proposed setting up a new mediation section in the California Catastrophe Unit to head off litigation by resolving disputes with clients. Her superiors approved the idea.
While at the mediation unit, Lowe was assigned 143 Northridge quake files. In reviewing those cases and discussing them with adjusters and engineers, she came to the conclusion that the practice of editing draft reports to suit the adjusters was routine.
In the summer of 1996, Lowe said, she forwarded an engineering report that allegedly had been altered by an adjuster to Allstate’s home office. Lowe said she sent this particular report as an example of what she believed was happening all the time in the Catastrophe Unit.
Hirshfeld reported to Lowe that the home office was “comfortable” with Allstate’s practice of altering the drafts to minimize Allstate’s liability, according to Lowe’s version of events. Another manager is said to have told her that the company’s higher-ups did not want her wasting any more time on the issue.
Allstate tells a different version, saying it took Lowe’s allegations “very seriously,” and launched an internal investigation of them. “While the investigation is not yet complete, we have found no credible evidence to support or substantiate the allegations,” said Allstate’s Pike.
The investigation also turned up a separate earthquake-related fraud against Allstate, Pike disclosed last week. Independent contractors hired to assess damage in the quake overcharged the company, Pike said, declaring Allstate a “victim.”
In court records, Lowe dates the beginning of the end of her Allstate career to a meeting held at the company’s Catastrophe Center in Glendale, Calif., on Dec. 10 and 11, 1996.
During that meeting, Lowe later alleged in the documents, she was assigned to discuss a case in which engineering reports had been altered. Following that presentation, Lowe later claimed, she “suffered an ongoing and gradual erosion of her job responsibilities” to the point where she was denied authority to carry out her work.
“It was apparent that Jo Ann Lowe was being punished for speaking out, within the company, against certain of Allstate’s claims handling practices,” her court documents allege.
Allstate officials, citing the confidentiality of personnel issues, would not comment on Lowe’s career or departure.
Lowe said she was shocked when she heard that her supervisor, Hirshfeld, had testified in a civil lawsuit against the company that he would never condone changing engineering reports.
Lowe maintains she quit “as a consequence of that and other similar unethical practices occurring at Allstate over the past few years, and due to what I believe to be retaliatory actions taken against me,” according to court documents.
Allstate points to other parts of the court record. In an exchange Allstate released to the press last week from a Dec. 4 deposition, Lowe appears to concede that she was never present when anyone working for Allstate supposedly altered an engineering report.
Under questioning by an Allstate attorney, Lowe said that no adjusters ever told her they had changed or pushed for changes in the conclusions set forth in an engineering report. Yet she also claimed to have seen reports that had been altered by adjusters.
When she was asked whether she thinks Allsate pressured engineers to prepare false or inaccurate reports, she responded, “I don’t have a personal opinion on that.”
For Allstate, the stakes are high in the investigation spurred by Lowe’s allegations. The former unit of Sears, Roebuck and Co. has seen its stock price soar since the earthquake, as its strong profits overcame the $1.7 billion it took to pay off claims in Northridge.
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The company’s reputation on Wall Street remains good. Among thousands of insured homeowners, though, the federal investigation could raise a question that may not be put to rest for some time to come.