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

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

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

An offshoot of the case has been a civil suit by another adjuster in the San Antonio office, Fred Klecka, who charges that he was fired when he ignored management orders not to cooperate with 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 were improperly handled by Mr. Bruton were never informed, or made whole by 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 law enforcement, which they did.

He explained that "the law was changed during our last legislative session so that now, as a result of this change in the fraud reporting statute, an insurance company does have to report those things to us, and that was effective September 2005. So this case was handled differently, but according to the law of the time."

Mr. Hagins added that "as far as the policyholders who were left holding the bag, that is probably an issue that would fall under our consumer protection area, as far as whether they are able to recover any of the money they lost."

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

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

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

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

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