Louisiana Attorney General Charles Foti is suing the state's largest property insurance companies, accusing insurers of conspiring to limit payments to policyholders after hurricanes Katrina and Rita and engaging in an elaborate price-fixing scheme.

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Attorney General Charles Foti

Foti's wide-ranging lawsuit, filed Wednesday in a state court in New Orleans, alleges that Allstate Insurance Co., State Farm Fire and Casualty Co. and other insurers worked together to manipulate damage estimates and low-ball claims payments after the 2005 hurricanes.

The lawsuit claims the companies coerced policyholders into settling damage claims for less than their actual value by editing engineering reports, delaying payments and forcing policyholders to go to court to challenge the estimates.

"The acts of this combination have seriously impeded the economic growth and disaster recovery of (Louisiana) and its citizens and effectuated an ongoing fraud on commerce in this state," alleges the 29-page lawsuit from Foti, who recently lost an re-election bid.

Named in the lawsuit are Allstate, State Farm, Lafayette Insurance Co., USAA Casualty Insurance Co., Farmers Insurance Exchange, Standard Fire Insurance Co., and several companies that worked with the insurers on handling claims after Katrina and Rita.

Foti, whose suit accuses the companies of violating the Louisiana Monopolies Act, seeks unspecified monetary damages, plus attorneys' fees and costs.

"This alleged scheme," Foti said in a written statement, "gave insurers an unjust advantage over policyholders ... by reaping huge profits from the misfortunes of persons whom they pledged to protect from the risk of loss."

State Farm spokesman Phil Supple said he hadn't seen the lawsuit and couldn't comment on Foti's allegations, but he defended the Bloomington, Ill.-based company's handling of Katrina claims.

"At State Farm, each claim is handled individually, and we pay what we owe based on our contract with our policyholders," Supple said.

Allstate spokesman Michael Siemienas also said he hadn't seen the suit and wouldn't immediately comment on it.

Robert Hartwig, president of the industry-funded Insurance Information Institute in New York, called it "ludicrous" to accuse companies of engaging in any kind of conspiracy.

"Insurers operate independently from one another," he said. "They do not act in concert with each other under any circumstances."

Hartwig said insurers paid about $28 billion for about 1.2 million policyholder claims in Louisiana after Katrina and Rita. "The industry made fair offers and settlements to people who filed claims in the wake of these two storms," he added.

Foti, a New Orleans Democrat, ran for re-election this year but will leave office in January after finishing third in an Oct. 20 primary. He finished about 6,000 votes behind Republican Royal Alexander who will meet Democrat James "Buddy" Caldwell, the top vote-getter, in a Nov. 17 runoff.

Louisiana Insurance Commissioner Jim Donelon, who was briefed on the suit by an aide, said Foti was obligated to sue if he found evidence of collusion between the companies.

"I expect that (the case) will be a long and tedious process, spreading out over months, if not years," Donelon said.

Foti's suit accuses McKinsey & Co., a consulting firm, of being the "architect" of sweeping changes in the insurance industry, starting in the 1980s. McKinsey advised insurers to "stop 'premium leakage' by undervaluing claims using the tactics of deny, delay, and defend," the suit alleges.

In response to a request for comment, McKinsey spokesman Mark Garrett said they "don't discuss matters related to client work."

Randy Maniloff, a Philadelphia-based attorney for insurance companies who has closely followed Katrina-related litigation, said Foti's suit appears to contain "an awful lot of unproven allegations" that date back years before Katrina.

"I was waiting to read that someone from the insurance industry was the second shooter on the grassy knoll," Maniloff said. "The industry makes a lot of money, and that makes them a target for these kind of lawsuits."

J. Robert Hunter, a former Texas Insurance Commissioner who is now director of the Consumer Federation of America, said he believes insurers rely on many of the same methods and tools to systematically underpay claims.

"There are a least conscious parallels, if (they're) not sitting down together and making a deal," he said. "It's less the latter and more the former."

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Associated Press writers Melinda Deslatte and Doug Simpson, both in Baton Rouge, La., contributed to this story.

(Copyright 2007 by The Associated Press. All Rights Reserved.)