A divided U.S. Supreme Court on Wednesday revived a class-action lawsuit in New York alleging that Allstate Insurance Co. routinely failed to pay interest on overdue insurance benefits.

The court, in an opinion by Justice Antonin Scalia, said the lawsuit against the company, a unit of Allstate Corp. (ALL), could proceed in federal court even though New York's state-court procedural laws would not have allowed a class action for such a claim.

Two lower courts had sided with Allstate, ruling that New York's prohibition on class action lawsuits meant that the case could not proceed.

The Supreme Court, however, ruled 5-4 that New York's law did not override a federal law allowing class actions, which allow a group of plaintiffs to pool their claims into one large lawsuit.

Scalia acknowledged that the court's ruling could allow plaintiffs to shop for friendly court forums, but he said such a result was inevitable.

"Congress itself has created the possibility that the same case may follow a different course if filed in federal instead of state court," he said.

The lead plaintiff in the case, a Maryland medical practice, had treated a patient injured in a car accident who held a New York-based no-fault auto insurance policy from Allstate.

The medical practice sued Allstate under New York law, alleging the company routinely paid claims late and ignored the interest it owed on such late payments.

The practice said it could file the suit in federal court because the parties in the case were citizens of different states.

Allstate said the plaintiff was unfairly attempting to shop for a better court forum that would allow it maximize the company's liability.

The Supreme Court's divided ruling produced an unusual ideological split among the justices. Two conservative justices and two liberal justices joined with Scalia, while two conservatives and two liberals dissented.

The court's dissenters, in an opinion by Justice Ruth Bader Ginsburg, criticized the court's ruling for approving the plaintiffs' "attempt to transform a $500 case into a $5,000,000 award, although the state creating the right to recover has proscribed this alchemy."

The case is Shady Grove Orthopedic Associates v. Allstate Insurance Co., 08-1008.

-By Brent Kendall, Dow Jones Newswires; 202-862-9222; brent.kendall@dowjones.com
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