This San Francisco Bay Guardian article was published in June 18, 2003, and detailed a case... <INSERT LANGUAGE>

Burned out

A fire severely damaged the Blair family's Sunset District home in 1999. It still isn't habitable. They're not the only San Franciscans who say they weren't in good hands with Allstate.

By A.C. Thompson

ON THE AFTERNOON of April 15, 1999, the Sunset District building Aubrey and Emilia Blair had owned and lived in for nearly 30 years caught fire. The flames, San Francisco Fire Department investigators would later conclude, originated in a strand of faulty electrical wiring in the walls of the boxy, three-story structure. More than 100 firefighters sped to the scene of the three-alarm blaze, which would soon gobble part of an adjoining house.

For firefighters, it was a high-stakes game of cat and mouse. "The fire got into the walls and hid from us – until it decided to show its head and go everywhere," recalled Lt. Barry Wong. In the two hours it took to tame the inferno, 12 firefighters were injured, including one who fell from the third-story balcony when flames swallowed the floor he was standing on.

For the family, the blaze was even worse. "It was horrible," said Emilia Blair, now 83. "And when it was over, we had nothing," added her daughter Emilia Jimenez-Downes, who lived in the house.

The damage to the family's real estate – a garage, a ground-floor apartment, and two large three-bedroom flats – was severe. The garage doors were toast. Nearly every wall in the building was scorched. Large sections of flooring, which had recently been refinished, collapsed. The roof was charred. The ductwork, plumbing, phone lines, and electrical wiring were all wasted. Every window was ruined. A city inspector promptly deemed the building "in imminent danger of collapse."

Virtually all of the personal property of the Blairs and kin was smoke-damaged or reduced to cinders.

But the worst was yet to come. More than four years after the tax-day fire, the Blairs still haven't moved back into their home. The singed Ninth Avenue property remains a vacant, boarded-up shell, and the elderly couple, who'd lived in San Francisco since the 1940s, are crashing with relatives in Reno, Nev.

Though the Blairs were loyal customers of Allstate Insurance Co., even shelling out extra cash for a "deluxe" homeowners' policy, they now say they weren't in good hands with the insurance giant or the local contractor it handpicked to reconstruct their home, a San Bruno-based company called Spiteri Builders Corp.

According to a lawsuit the family has filed, Allstate lowballed the cost of repairs and violated state insurance law, while Spiteri botched the construction job, failing to follow architectural blueprints, recycling charred lumber, flouting building codes, and using substandard techniques for treating smoke damage.

A former Spiteri employee I interviewed said the litany of allegations sounded consistent with the shabby practices he saw on other Spiteri job sites.

But when the family questioned the quality of Spiteri's work, they found themselves embroiled in a knock-down-drag-out legal battle with America's second-largest insurance company, buried by Allstate attorneys in an avalanche of court filings.

Emilia Blair is a diminutive, semistooped woman with huge square eyeglasses. Family members refer to her as abuelita – Spanish for little grandmother – a nod to the clan's Central American roots. A retired nurse's aid, Emilia said she longs return to her neighborhood, to chat with friends and stroll through Golden Gate Park. "I hate to talk about it 'cause it makes me so sad," she told me, pushing up her glasses and rubbing her teary eyes. "I miss the park. I miss my house very, very much."

Aubrey Blair, who drove the 14 Mission bus for Muni before retiring in 1971, didn't expect to spend his golden years couch surfing. Not surprisingly, he feels betrayed by Allstate. Aubrey, 86, said, "I'd been with them for a very long period of time. I'd been paying Allstate for over 30 years."

The Blairs aren't the only San Franciscans to run into trouble with Allstate and Spiteri in recent years. On the other side of Golden Gate Park, an octogenarian named Charles Crawford experienced near identical hassles with the insurance company and its crony contractor when his small, single-family home burned in 2001.

The tale of these two disasters – pieced together from interviews, court documents, internal Allstate memos and training materials, the sworn testimony of former employees, and public records – offers a look at how the aggressive cost-cutting measures Allstate quietly instituted in the late 1990s can leave consumers without a roof over their heads.

Neither Spiteri nor Allstate would speak directly to the issues raised by this story. Spiteri directed calls to his attorney, Darryl Hottinger, who declined to be interviewed. "The Blair case is going to trial on July 7," Hottinger told me. "I don't want to try this thing outside of the courtroom."

Allstate followed suit. Company spokespeople did not return numerous phone calls requesting comment. And Allstate's counsel, Michael Barnes, said, "We don't comment on pending litigation." In court papers, however, both Allstate and Spiteri have strenuously refuted the charges.

•  •  •

Aubrey and Emilia emigrated to the States from Panama in the 1940s, settling in San Francisco, toiling in a series of blue-collar jobs (including a seven-year stint running a corner store in the Western Addition), and raising three daughters. In 1971 the couple purchased the Ninth Avenue building, between Noriega and Moraga Streets, for approximately $87,000, city property records indicate. Jimenez-Downes moved into the second-floor flat with her two children. A longtime family friend rented the street-level apartment.

The Blair compound was a something of a Benetton ad come to life, with the family playing host to a stream of visitors from around the globe. "In San Francisco we had friends from Africa, Panama, Colombia," Emilia Blair recalled, mentioning one pal who was supposed to stay for three nights but ended up living with them for five years. "We always had fun in that house," Aubrey said, launching into a long yarn about his wild 80th-birthday shindig.

The fire put a halt to the good times.

On the day of the blaze, as the family huddled on the sidewalk, Allstate adjusters introduced them to Patrick Spiteri, principal of Spiteri Builders. Spiteri had been doing work for Allstate for a number of years as part of what's known as the Quality Vendor program, which the adjusters explained, connects Allstate customers with licensed contractors – plumbers, electricians, carpenters – who are available to do any necessary repairs.

As part of the program, Allstate documents I obtained indicate, the insurer guarantees that the work of its chosen contractors "will be of the quality generally accepted in the Home Repair business."

On April 16, 1999, Aubrey signed a contract authorizing Spiteri Builders to perform "emergency repairs." But Spiteri's work, expert analysis later determined, was anything but top-notch.

Aubrey, explained Jimenez-Downes, knew "that Spiteri was with Allstate, and he trusted Allstate. He put his trust in the hands of Allstate."

It took Spiteri two and a half months to come up with a written estimate of the reconstruction costs. When he did, he put the cost of rehabbing the structure at $498,861.06. Allstate handed the contractor $300,000, and work on the house proceeded slowly, something not entirely unexpected given the extent of the destruction.

But in November 1999, the Blairs began to get suspicious when one of their grandchildren noticed Spiteri's laborers were spray painting over burnt framing studs rather than replacing the damaged lumber.

Aubrey and Emilia called public adjuster Art Fonden. Public adjusters are paid advocates for insurance policyholders, helping people hit by catastrophe negotiate with their insurers. Like most public adjusters, Fonden, a streetwise New Jersey native, is part ambulance chaser, part pit bull.

Fonden tapped architect Alan Coon to calculate an independent estimate of the reconstruction costs. Coon put the figure at $700,000, more than $200,000 higher than Spiteri and Allstate's number, which suggests the insurer hadn't allocated enough money to properly fix the home. (The Blairs' policy covered them for $620,000.)

And Fonden took a hard look at the construction contract Aubrey had signed before repairs commenced. The document states, "Allstate Insurance Company is instructed to pay Spiteri Builders Corp. directly" for the reconstruction.

To Fonden, the language was a red flag. California Insurance Code Section 570, notes Insurance Department spokesperson Norman Williams, bars insurance companies from paying contractors until the homeowner has signaled in writing that "all work was completed" satisfactorily. "They signed a contract unlike anything that I had seen before in the industry," Fonden told me.

With the problems piling up, the public adjuster figured it was time to get a lawyer. Attorney Charles Miller, a former insurance adjuster now working for the Oakland firm Wendel, Rosen, Black, and Dean, eventually took the case. The Blairs sued Allstate and Spiteri, alleging breach of contract and fraud – among other charges – and legal fireworks have been going off ever since.

"If Allstate had paid the real value for the repairs of the house back in 1999, these people would be in their home today," Miller told me. The attorney said Allstate has "spent tens of thousands of dollars fighting this case," so far filing 30 to 40 briefs in San Francisco Superior Court.

During the course of the courthouse slugfest, Miller and Allstate agreed to an independent appraisal of the property, bringing in Sea Hawk Enterprises, a well-known firm of private building inspectors, to scope out the work done on the Blairs' house. Sea Hawk wasn't impressed. In a 33-page report, Sea Hawk highlighted a slew of defects in Spiteri's work. According to the inspectors:

• Spiteri didn't adhere to rebuilding plans drawn up by an engineer specifically for the Blairs' home. For example, in defiance of the engineer's instructions, Spiteri allegedly failed to replace a key supporting wall.
• In several instances the builder performed "substandard" structural work that didn't meet state building codes.
• Spiteri painted over smoke damage with latex house paint, rather than using a proper smoke sealant. "The lack of proper and timely remediation ... has resulted in the continued languid presence of smoke odor. The contractor's futile attempt at remediation by applying a standard latex paint has not mitigated the damage, is substandard and in contradistinction to industry custom and practice," Sea Hawk investigators wrote.
• Spiteri failed to replace burnt two-by-six-inch framing beams. "Industry custom and practice," the inspectors asserted, "would call for the replacement of the framing member rather than an expedient painting over of the damaged framing."

On top of that, Jimenez-Downes said the contractor "didn't board up the house properly; therefore the rain came in. When we went in the house, we were attacked by pigeons. It was like the movie The Birds. There were bird feces and bird feathers all through the house."

The Sea Hawk investigators found "a proliferation of what appears to be pigeon dung" in the home, a further indication that the place wasn't tightly sealed.

The moisture – which also could have come in part from the fire-fighting efforts – transformed the place into "a mold factory," Fonden said in an interview. "There's all kinds of horrible stuff growing in there. It's going to be a couple hundred thousand bucks just to clean the place before [further] construction and repairs can be done." A report by industrial hygenists identified several varieties of hazardous mold growing in the space.

•  •  •

Allstate Insurance Co. is a behemoth. The Illinois-based firm that came into being in 1931 with a little seed money (provided by the Sears, Roebuck and Co. department store chain) and a single customer now controls the second-largest slice of the American insurance market. It covers more than 16 million households. It employs roughly 38,000 people. And it makes money hand over fist – last year, in what was widely regarded as a bad year for the insurance biz, Allstate posted profits in excess of $5 billion.

Evidence suggests Allstate has gotten fat, at least partially, at the expense of consumers like the Blairs. During the late 1990s, shortly after Sears spun off Allstate in a much ballyhooed IPO, its executives began dramatically retooling the company's approach to paying insurance claims – with the express purpose of shrinking the amount of money given to policyholders who've been beset by tragedy.

The first sector to be revamped was the automobile division, specifically personal injuries caused by car crashes. Allstate was one of the first major insurers to bring in the Colossus software system. Colossus, according to its manufacturer, Computer Sciences Corp., is the insurance industry's leading digital tool "for evaluating bodily injury claims." Thirteen major insurance firms now use Colossus.

The program, which reportedly contains a large portion of the American Medical Association's guidelines for treating injuries, is supposed to standardize insurance payments by putting a price tag on agony: a guy with a crushed cervical vertebra that requires surgery should be paid one amount; a woman who can't work for six months because of a snapped femur should get a different sum.

Colossus, according to CSC's Web site, helps insurance company personnel evaluate "the degree of pain and suffering experienced, the effect of the injury on permanent impairment to the claimant's body and the impact on the claimant's lifestyle." Generating settlement figures with Colossus guarantees "consistency in how bodily injury claims are evaluated."

This "consistency," according to a consumer advocate familiar with Colossus, appears to translate into computerized lowballing. The program is "geared to generate the lowest possible payment," said Doug Heller, an insurance expert with the Santa Monica-based Foundation for Taxpayer and Consumer Rights. "Allstate, apparently, is coming up with a number of different schemes and mechanisms to reduce their payouts – in spite of the contracts they sign with customers."

The company's internal memoranda seem to confirm Heller's allegations. A 1997 issue of Acclaim, Allstate's glossy in-house magazine, gushed that Colossus, then in a trial phase, had trimmed the cost of its auto-related claims in eastern Florida by "a full 24.8 percent compared to 1996.... The negative numbers are truly outstanding."

While the media have sporadically reported on Colossus – the Seattle Post-Intelligencer, for example, has done a series of stories about the program over the past few years – less has been said about the quiet but substantive transformation of Allstate's home insurance division.

According to internal company documents, Allstate exec Toni Marie Boyd in 1996 crafted the company's new approach to handling claims on homes wrecked by flooding, fires, tornadoes, or other disasters. Boyd essentially applied the Colossus strategy, developing a computerized system that tracked types of home damage and the costs of repairing or rebuilding homes. After inspecting 525 homes and interviewing 200 employees, Boyd concluded that Allstate could save substantially on roof-replacement costs. "The areas with the largest economic potential were in fire, as well as wind and hail – specifically how roofs are handled," she explained in a company newsletter.

Allstate made sure to dress up the new initiatives in warm, fuzzy management-speak. In a training video from the mid 1990s, one employee said Allstate was being "very fair to the customer." Another said customers would feel "they are dealing with a friend versus a big insurance company."

But for all the rhetoric about cordial customer relations, the company was also honing another harsh cost-cutting tactic: taking policyholders to trial rather than settling disputes over insurance payments out of court. In another 1997 issue of Acclaim, Allstate boasted of hiring 225 new employees in the company's litigation offices. "The bottom line," the magazine said, "is that Allstate is trying more cases than ever before."

Heller argues that Allstate's Quality Vendor program is another money-saving measure. Allstate, the consumer advocate theorizes, collaborates with companies like Spiteri in hopes "of finding the cheapest way to get the work done.... We see it in the auto insurance industry a lot. A variety of insurance companies have deals with auto shops that result in shoddy repair work and the use of cheap knock-off parts."

Miller, the Blairs' lawyer, says the exact relationship between Spiteri and Allstate remains somewhat murky. "There's some sort of price agreement between the [Quality Vendor program] contractors and Allstate. We've been trying to get a copy of that agreement between Spiteri and Allstate, and thus far we haven't been able to get it."

One man familiar with the program accused Allstate of "short-changing" customers. In a letter to company officials filed as part of a 1997 court case, Mike Brown, a San Diego-area plumber who participated in the Quality Vendor arrangement during the 1990s, charged Allstate with pushing contractors to skimp on repairs. "I have also been specifically admonished, in no uncertain terms, by many different adjusters on dozens of occasions ... not to mention [water-caused] cracks (which is referred to as the 'C' word), in walls, foundations or slabs" to policyholders, Brown wrote.

I interviewed a former Spiteri employee who said the company regularly cut corners while doing jobs for Allstate. This man, who worked for the contractor for a brief time during the early 2000s and asked to remain anonymous, claims to have seen Spiteri workers doing the exact things alleged in the Blairs' suit – hiding smoke damage under household paint and reusing seriously burnt lumber – on other job sites.

"Any charred or burnt lumber should be replaced," he told me. "The concern is that the charred lumber isn't sound. And when the summer heat hits the house, the microscopic smoke particles will be released and the house will smell like smoke."

•  •  •

Nobody's home at 7239 Geary Blvd. In 2001 a serious blaze gutted the property, a small wood-paneled cottage owned by 86-year-old Charles Crawford. Like the Blairs', Crawford's home, which was built in 1908, had been insured by Allstate. And like the Blairs, he had nothing but migraines with Spiteri Builders.

Crawford – along with his son and daughter-in-law – filed suit against Spiteri in 2002, charging the contractor with performing work that was defective in 26 different ways. The suit could be a carbon copy of the Blairs' case.

Court papers allege Spiteri incorrectly described the reconstruction work in building permits, did substandard framing and structural repairs, didn't follow architectural drawings, failed to effectively seal smoke-damaged lumber, and did substandard roofing, exterior finishing, and window installation.

Spiteri vigorously refuted the charges in court papers, saying the company "denies generally and specifically each and every allegation" and had done quality construction for the Crawfords.

The case recently settled out of court. The agreement included a confidentiality clause, and thus the Crawfords couldn't grant me an interview. But I did drop by the house on Geary. More than two years after the blaze, it's still totally uninhabitable: there are no shingles on the roof, there's a gaping hole above the front door, the interiors walls are unfinished, and you can still see scorch marks on the peeling yellow paint on the front of the house.

Some of the homes restored by Spiteri are in better shape. Raymond Jimenez is pleased with the job the contractor has done on his aunt's two-story Victorian, a Mission District property trashed by fire roughly two years ago. "I'm happy with his work," said Jimenez, no relation to Jimenez-Downes. "I haven't had no problems. Pat's a pretty nice guy, and he's good for his word."

•  •  •

After dwelling in a series of hotels and rented apartments, the Blairs are staying with their daughter Crystal Blair and her family in a subdivision on the outskirts of Reno. Aubrey, who's had a series of heart attacks since the fire, looks frail, his right hand trembling, an oxygen hose dangling from his nostrils, and the family obviously worries he'll never again set foot in his own home.

The successive calamities – the fire and its handling by Allstate and Spiteri – "have caused our family to be strewn throughout the world," said Jimenez-Downes, who doesn't have a steady place to live.

"My parents," Crystal Blair said, the bitterness evident in her voice, "worked hard all their lives, and now their house is gone."

When I interviewed the Blairs and their kin, Aubrey spoke fondly of a neighbor named Jeneal. When I got back to San Francisco, I looked her up. Turns out Jeneal Granieri lived next door to the Blairs. Hers was the other house wrecked by the fire – the flames did about $300,000 worth of destruction to Granieri's property, leaving gaping holes in the exterior walls.

Granieri, however, was insured by USAA and did not hire Spiteri Builders. And while the reconstruction process wasn't entirely smooth – "We had issues, but they were resolved reasonably," Granieri told me – she returned to her home 14 months after the blaze.

Today her home, with its stained glass windows and deep blue paint and ornate mailbox, looks beautiful.