ALL Allstate Corporation

In an effort to recoup over $1 million paid in personal injury protection benefits, Allstate Corp. (ALL) has filed a lawsuit against 10 New York area defendants.

According to the complaint filed by Allstate under the Racketeer Influenced and Corrupt Organizations Act (RICO) and New York common law, four professional service corporations, a licensed psychologist and five laypersons unlawfully owned and controlled the professional corporations.

The Allegation

Allstate alleged that HK Psychological, P.C., Kingshwy Psychological, P.C., Omega Psychological, P.C. and Jay Psychological, P.C. were illegally incorporated through a scheme using the name of licensed psychologists. However, in reality, Ben L. Adler, Alex Gormakh, Milana Gormakh, Peter Kerner and Shari Matatov, none of whom were licensed practitioners, secretly owned and controlled the professional service corporations.

The Allstate lawsuit alleges that the defendants had submitted or aided in submitting claims for psychological services through the professional corporations. But these corporations were not eligible to collect insurance benefits as they were not controlled by licensed professionals.

This represents the third insurance fraud lawsuit in 2011. In May, Allstate filed two insurance fraud lawsuits. In the first fraud lawsuit, the company sought to recover $4 million against 20 New York area defendants. In the lawsuit, Allstate had alleged six physicians, eight medical professional corporations, and lay-owned companies of controlling medical professional corporations.

In the second fraud lawsuit, Allstate sought to recoup $2.1 million against 37 New York area defendants. It alleged that the defendants engaged in a scheme in which fraudulent and misleading bills were submitted to Allstate for durable medical equipment, medical supplies and orthotic devices.

Since 2003, Allstate has filed 30 fraud lawsuits in New York, seeking nearly $169 million in damages. If the money is recovered, it would add to the company’s financials.

In the News Recently…

Allstate was in the news late last week, after it made an upward revision to its preliminary estimate of catastrophe losses (cat losses) from property damages owing to adverse weather conditions that continued into May.

After the revision, the company expects pre-tax cat losses of around $2 billion, up $600 million from $1.4 billion that was announced during April, for the storms in the southern states of the U.S. In May, Allstate was affected by unprecedented tornadoes.

Allstate’s expected second quarter loss of $2 billion is considerably higher in magnitude as against $2.21 billion incurred for the whole of 2010. Its peer Travelers Companies Inc. (TRV) estimates April and May cat losses to cost between $1 billion to $1.05 billion.

Following years of sharp price declines, we believe that a hard market might return as the disasters caused by severe weather-related events this year are pushing prices higher in the insurance industry.

Going forward, we believe Allstate’s excellent underwriting margins, prudent capital management and strong liquidity will continue to impress results. Further, the ongoing agency expansion plan explains Allstate’s strategy to revitalize its distribution channel by increasing its market presence.

Though continued synergies are expected from the company’s industry-leading position, diversification and pricing discipline, we believe that the current volatile economy will continue to impact its premiums until the markets regain momentum.

Shares of Allstate currently retain the Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.

 
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