The past life of AIG CEO Ed Liddy

As the top guy at Allstate, Liddy presided over an insurance company that boosted profits while getting tough on claims. So why are U.S. legislators calling him a selfless "white knight?"

Published March 18, 2009 10:00PM (EDT)

Nearly every House member, Democrat or Republican, who addressed a question to AIG CEO Edward Liddy during Wednesday's House Financial Services subcommittee hearing on AIG prefaced his or her remarks with a cloying expression of sympathy for the thankless job that the former Allstate CEO had been saddled with. Several referred to him as "one of the good guys" -- a man who had come out of retirement in patriotic service to his country. Others noted approvingly that he was taking no salary and did not stand to benefit financially from AIG's potential return to financial health.

"I know you are not doing this for the money, you're making a dollar a year," said Thaddeus McCotter, R-Mich. "You are in many respects the white knight riding in on the horse, and I'm not talking about your white hair," said Jackie Speier, D-Ca. And so on.

As the former CEO of Allstate, one thing's for sure: Liddy certainly doesn't need the money. Allstate made globs of cash during Liddy's tenure and the CEO received his fair share.

A more interesting question is whether Liddy really is one of the good guys. According to at least one critic, Santa Fe attorney David Berardinelli, the author of "From Good Hands to Boxing Gloves," Allstate boosted its profits  during the 1990s and early 2000s via a calculated strategy of getting tough on policy holders for the benefit of shareholders. Specifically, Allstate made it for difficult for policy holders to get what they were owed by playing several varieties of hardball -- including ramping up litigation against its own customers.

Bearing in mind the caveat that Berardinelli has  engaged in extensive litigation against the insurer and is hardly an unbiased party, you can read his own summation of the issues in "An Insurer in the Grip of Greed -- Allstate." But following upon his work, the Sarasota Herald-Tribune conducted is own extensive investigation last April, and came to a fairly compelling conclusion.

For more than a decade, Allstate Insurance Co. kept a secret from its auto policyholders -- a national strategy to force customers to accept reduced cash payouts or face years in court.

Thousands of pages of Allstate documents reviewed by the Herald-Tribune detail how the nation's second-largest insurer systematically cut payments to customers as a way to boost profits.

According to Berardinelli, Liddy "amassed a personal fortune of over $150 million in stock, options, and incentive bonuses" as a result of how the company restructured its claim system.

From the Herald-Tribune:

Allstate Chairman Ed Liddy touted the results at an international business conference in New York two years ago, showing Allstate had reduced its average check to a car accident victim by 20 percent, and held growth in other auto and home claims below industry averages.

"We obviously pay what we owe, that is a given," Liddy told attendees, according to a transcript of his remarks. "But we do it more efficiently, and we avoid overpayments ..."

One reason why there is such an undercurrent of anger raging through the American public these days is that the more we learn about how American corporations conducted their business in recent decades, the more it becomes clear that that good guys are in exceedingly short supply.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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