Allstate has failed to tell more than 400 Texas policyholders that they were ripped off by a corrupt Allstate adjuster who diverted $1.3 million in claims payment money, an attorney said today.

Attorney Matthew R. Pearson, in San Antonio, who made the allegation, is involved in the case on behalf of an Allstate investigator who charges he was fired for disobeying an illegal company order to keep silent about the scandal in its San Antonio claims office.

Allstate denied Mr. Pearson's charges. Company spokesman Mike Trevino said Allstate cooperates with law enforcement and "any suggestion to the contrary is false."

Last year a federal investigation led to a 22 count indictment against adjuster Chandler S. Bruton, 38, and contractor Roland F. Villarreal on charges including insurance fraud conspiracy, wire fraud, and money laundering.

Both men have pleaded guilty to the indictment and are due for sentencing June 23 before U.S. District Judge Fred Biery in San Antonio.

According to the indictment against them, Mr. Bruton while an Allstate adjuster issued 408 checks to Mr. Villarreal and his "purported construction business" for work he did not perform on claimants' houses or for unauthorized or substandard services.

The indictment noted that on or near the times when Mr. Villarreal took out large sums from his bank account Mr. Bruton would make large deposits at his own bank.

According to Mr. Pearson, policyholders would be underpaid with small amounts for claims, while Mr. Bruton issued large checks to Mr. Villarreal for work supposedly done on their homes.

In some cases, according to Mr. Pearson, when the contractor actually showed up at a policyholder's home, the extent of Mr. Villarreal's work was to "move a little dirt around." According to the indictment the scheme went on for nearly seven years from Oct.21 1996 to Dec.31, 2002.

Mr. Pearson, who has filed a lawsuit on behalf of Fred Klecka, a member of Allstate's special investigative unit, said Allstate corporate security had reported the Bruton case to the FBI in 2003 after Mr. Bruton was fired.

However, after FBI agents showed up and began interviewing employees, management on the claims side of the carrier told his client, Fred Klecka, and other employees "not to cooperate with the FBI or they could lose their jobs," according to the complaint.

It further alleges that management not only knew about the Bruton scheme but participated. Also that the company did not want other employees hit with criminal charges and "did not want to disclose the misconduct to the hundreds of insureds."

The lawsuit alleges that after Mr. Klecka ignored orders and cooperated with the FBI, the company began giving him bad evaluations and eventually fired him.

Mr. Pearson said he believed management thought they could "throw Bruton to the FBI" and that would be the end of it.

"Based on my investigation no policyholders were informed as to the fraud that went on in their claim," the attorney said.

"If payment was not sufficient to cover a claim, certainly we would notify the customer," said Joe McCormick, a spokesman for the Allstate Texas region, who added that he had not had time to look into the specific details of the case.

Mr. Pearson said Mr. Klecka has witnesses to management's attempts to silence him and that he will also be calling Mr. Bruton and Mr. Villarreal to testify in the case The suit was filed May 31 in Bexar County District Court..

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