Allstate Insurance Corp., the largest publicly-traded U.S. home and auto insurer, is the latest “investor” to square off against the banking industry over mortgage-backed securities. Allstate claims it was “misled” about the safety of investing in mortgage debt; you remember: the debt which, ultimately, went sour during the economic meltdown.
To prove its point, Allstate has filed suit against JPMorgan, alleging negligent misrepresentation and securities violations, stating that the banker knew that the “bundle of loans” it was selling were very likely filled with loans to borrowers who were likely to default. Allstate claims that JPMorgan fraudulently sold it more than $750 million of these “toxic” mortgage-backed securities in order to get higher ratings on securities than what it deserved. Allstate seeks to undo the securities purchases, which occurred between 2004 and 2007 and/or recover lost principal and interest, as well as other damages in an amount to be proven at trial including losses and court costs.
Allstate maintains that JP Morgan abandoned its underwriting standards and misrepresented key information about the underlying mortgage loans. The insurer claims that the company presented securities backed by the mortgages as safe investments to Allstate and others by concealing relevant facts.
This looks like a case of “greed on greed” to me. Did JPMorgan misrepresent the value of these “toxic” assets to Allstate? Was Allstate dealt the same “Bad Hand” they deal their policy holders? JP Morgan says this is simply a case where Allstate is looking for someone to blame for a downturn in the economy and losses on an investment it made. Allstate probably failed to do its homework before purchasing these securities and now it suffers from a serious case of “buyer’s remorse”. So, what will Allstate do about recovering these losses if it loses the lawsuit? You guessed it! It will raise premiums, blame “lawsuit abuse” or “frivolous lawsuits” for its poor investment decisions, lobby for more unnecessary tort reform, and continue its sordid policy of “delay, deny, confuse and refuse” in its claims handling of victims with serious injuries or serious property loss caused by negligence. You see, whenever a liability insurance company loses substantial money on its investments, it turns on those it is supposed to assist and provide insurance coverage and benefits to; it turns on its own policy holder and/or injury and casualty victims.
Can a citizen turn to the government for help? This situation arose, in part, from the government’s bailout of the banking industry. Most citizens now feel that this Wall Street bailout was unreasonable. Government bailouts for big business have been going on for years. The last time liability insurance companies had significant investment losses, the first round of State sponsored tort reform resulted. The cry was that “juries are out of control.” Another was that doctors can’t afford malpractice insurance because of the “greedy trial lawyers.” It was a smokescreen for bad investment decisions then, and the same is true today. Why doesn’t the government bailout “Main Street”?
Efforts to limit a person’s right to collect damages in court have nothing to do with “frivolous lawsuits” or “jackpot justice,” but it does have everything to do with bad investment decisions and greed. Just as the Republicans in Congress are now trying to balance the budget (after years of unwise spending while cutting revenue) on the backs of the poor and middle class, insurance companies have engaged in this practice for years; first these carriers make atrocious investment decisions, then they “delay, deny, confuse and refuse” to conserve assets, then they seek government bailouts in the form of tort reform, using their favorite catch phrases, like “lawsuit abuse”, “frivolous lawsuits” and “jackpot justice”. Why does the public stand by, silently, and let them get away with it? Why do we only become vocal when we or a precious family member becomes a victim?
It is ironic that this insurance company is pursuing litigation because it failed to do its own investment “homework”. If Allstate was negligent in not qualifying what it was buying, isn’t it responsible for its own misfortune? Is this a “frivolous lawsuit”? Insurance companies like Allstate blame large damage recoveries on “runaway juries” or on “greedy trial lawyers”. Allstate is portraying itself as the victim here as it does when lobbying for more tort reform. While calling itself the “Good Hands People”, it happily takes premiums from policy holders and just as happily denies them when those same premium-paying policy holders seek the coverage paid for by their premiums. If you don’t believe me, ask Hurricane Katrina victims; ask serious automobile accident victims. Think about it; insurance is the only product in the marketplace that penalizes its customers for using it exactly as they are supposed to.
So here is Allstate, a greedy insurance company, crying that it was damaged by the big, bad mortgage giant to the tune of $750 Million. If Allstate prevails in the litigation, perhaps Congress should propose legislation that caps Allstate’s recovery at $250,000, but requires JPMorgan to pay the $750 Million award back to the taxpayers. Now that would be justice! After all, $250,000 is the amount that Allstate and its ilk happily lobby for (and spend millions of our premium dollars on) as a pain and suffering “cap” in liability cases. We could apply this “tax and cap” to every situation where one greedy, bailed out corporation sues another. We would balance the budget in no time and we wouldn’t have to do it on the backs of the poor, the middle class, the injured or disabled. What do you think?
Mark Bello has thirty-three years experience as a trial lawyer and twelve years as an underwriter and situational analyst in the lawsuit funding industry. He is the owner and founder of Lawsuit Financial Corporation which helps provide legal finance cash flow solutions and consulting when necessities of life litigation funding is needed by plaintiffs involved in pending, personal injury litigation. Bello is a Justice Pac member of the American Association for Justice, Sustaining and Justice Pac member of the Michigan Association for Justice, Business Associate of the Florida, Tennessee, and Colorado Associations for Justice, a member of the American Bar Association as well as their ABA Advisory Committee, the State Bar of Michigan and the Injury Board.
Attorney, certified civil mediator, and award-winning author of the Zachary Blake Betrayal Series—Mark Bello is also the CEO of Lawsuit Financial and the country’s leading expert in providing non-recourse lawsuit funding to plaintiffs involved in pending litigation. He is also a member of the State Bar of Michigan, a sustaining member of the Michigan Association for Justice, and a member of the American Association for Justice.