The Texas Department of Insurance was never informed about anAllstate adjuster who siphoned off $1.3 million in company fundsand scammed 408 insureds, a TDI spokesman said yesterday.

"We were not aware of that Allstate adjuster situation," saidTDI's Jerry Hagins, responding to a National Underwriter inquiry tothe department. However, he added, "at the time of this incident[1996-2002], Allstate, or any insurance company would not have beenrequired to have reported it to us."

The adjuster in the case--Chandler S. Bruton--is due to besentenced June 23 in federal court in San Antonio on a racketeeringcharge. He pleaded guilty to a seven-year-long scheme in which hefunneled money that was supposedly going to pay for policyholders'repair work to a corrupt contractor, Roland F. Villarreal, who didlittle or no actual work on the damaged properties.

An offshoot of the case has been a civil suit by anotheradjuster in the San Antonio office, Fred Klecka, who charges thathe was fired when he ignored management orders not to cooperatewith the FBI investigation of the case. His attorney, Matthew R.Pearson, said the company feared if the FBI had the full details,other employees might be charged in the case.

Mr. Pearson also alleges that policyholders whose claims wereimproperly handled by Mr. Bruton were never informed, or made wholeby the company. Allstate denies his accusations.

According to Mr. Hagins, when Mr. Bruton was dismissed in 2003,all Allstate was required to do was report his activity to lawenforcement, which they did.

He explained that "the law was changed during our lastlegislative session so that now, as a result of this change in thefraud reporting statute, an insurance company does have to reportthose things to us, and that was effective September 2005. So thiscase was handled differently, but according to the law of thetime."

Mr. Hagins added that "as far as the policyholders who were leftholding the bag, that is probably an issue that would fall underour consumer protection area, as far as whether they are able torecover any of the money they lost."

He added that according to a TDI fraud section official, "sincethe sentencing is coming up on the 23rd, the court may order thecompany to make good with the policyholders, so some of this may beresolved by court. But it's certainly something our consumerprotection division would like to help with in any way we can."

Mr. Hagins said any policyholder in Texas could call thedepartment and file a complaint, and TDI will help them to recoverany money that's owed them.

"As a group, I'm not sure the best way to approach that. I guesswe would want to see what the court decides in the sentencingphase," he said.

Mr. Pearson said no criminal complaint had been filed againstthe Allstate managers in the claims section who allegedly told hisclient to keep mum.