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Allstate Loses Bid to Limit Lawsuit

April 27, 2004|From Bloomberg News

Allstate Corp., the second-biggest U.S. auto and home insurer, lost a U.S. Supreme Court bid to limit a lawsuit claiming it used customers' credit records to overcharge blacks and Latinos for home and auto insurance.

The justices rejected Allstate's effort to throw out a claim that the use of credit histories to set rates had a disproportionate effect on minorities, even if it wasn't intentional. Not at issue in the appeal was the customers' additional claim that Allstate deliberately discriminated against them. The federal suit was filed in Texas.

Allstate argued the disproportionate-effect claim doesn't belong in federal court because it would interfere with states' authority to regulate insurance. The customers' suit says that basing rates on credit ratings is similar to outlawed "redlining" practices of charging more to residents of non-white neighborhoods.

The insurer said customers' credit histories are a "race-neutral insurance tool that has gained broad acceptance as a strong predictor of risk of loss." Studies show that people with poor credit ratings are more likely to suffer an insurance loss, Allstate's lawyers said in court papers filed in Washington.

The lawsuit, filed by six black or Latino customers who bought auto or homeowners' insurance from Allstate, seeks nationwide class-action status.

A federal judge in San Antonio ruled the customers could pursue their claim that Allstate's use of customers' credit information to set rates, though a seemingly neutral policy, had a disproportionate effect on minorities.

The New Orleans-based U.S. 5th Circuit Court of Appeals upheld the judge's ruling in September, saying Allstate didn't identify any state policy that would be harmed by the federal suit. States have the main authority to regulate the insurance business.

The customers sued under the federal Fair Housing Act. Allstate, based in Northbrook, Ill., argued that letting customers pursue a disproportionate-effect claim under the civil rights law would cause "a dramatic and disruptive change in the way that insurance rates are regulated."

Such lawsuits might lead to federal courts barring practices that state insurance regulators have approved, Allstate's lawyers said.

"Grouping is fundamental to insurance" and risk assessment "must inevitably have an adverse effect on some groups of individuals," Allstate's lawyers said.

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