A class action lawsuit was filed against the insurance industry in the United States District Court, District of Colorado, on June 21, 2014. The suit names more than 100 insurers writing property policies, as well as trade groups and other trade and business organizations, such as ACORD Corporation, the American Association of Insurance Services, the Casualty Actuarial Society, and McKinsey & Company. Snyder, et.al. v. Acord Corp., et.al., 1:14-cv-01736-JLK.
The suit alleges that ACORD functions as an enterprise, effectively creating a system in which carriers and industry insiders can covertly communicate to further a conspiracy to prevent purchasers from understanding the policies they are purchasing and to undervalue and underpay property loss claims. The enterprise is facilitated by “best practices” promoted by both ACORD and McKinsey & Company. The class representatives are Colorado property owners who sustained various property losses, including losses resulting from a spate of natural disasters striking Colorado in recent years; the class is defined as including insureds nationwide.
The class contends that ACORD’s framework and standards allow industry insiders to communicate using what is termed “double speak,” i.e., language and terms which have a particular meaning to the industry, but which are intended to mislead those outside the industry. Invoking the Enron scandal, McKinsey & Company’s “best practices” are alleged to have created an industry culture that business is necessarily a “zero-sum” game; that is, the insurance company profits only at the expense of insureds. The enterprise allegedly utilized double-speak to prevent legislators in Colorado from effectively regulating the industry when enacting the Colorado Insurance Reform Act of 2013.
The class charges that replacement cost policies are actuarially designed to ensure claims are underpaid, leading to increased and unjustified profits for carriers. This goal is effected in a number of ways, including the use of undefined and improper methods of calculating depreciation, and intentionally creating financial hardships on insureds suffering catastrophic losses so that they cannot afford to repair or rebuild, thereby preventing full recovery under the policies. The enterprise creates a structure in which those with replacement cost policies are systemically underinsured, guaranteeing that an actuarially predictable portion of insureds cannot rebuild and will never receive the value of the policy. The complaint also alleges that actual cash value policies are treated differently and routinely over-insure properties, meaning that insureds will never receive the stated limits.
The suit alleges several RICO and antitrust violations, as well as numerous state law claims ranging from bad faith and violation of the Colorado Consumer Protection Act to strict products liability.