UPDATE: US High Court Revives Class Action Lawsuit Against Allstate
March 31 2010 - 5:01PM
Dow Jones News
A divided U.S. Supreme Court on Wednesday revived a class-action
lawsuit in New York alleging 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 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 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 to 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 plaintiffs' lawyer, Scott Nelson, an attorney with the
consumer advocacy group Public Citizen, said in a statement that
the ruling "is good for those who use class actions as a remedy to
corporate wrongdoing."
Allstate spokesman Mike Siemienas said the company was
disappointed in the ruling but said it did not affect the merits of
the case.
"Allstate will continue to defend itself accordingly," he
said.
He said Allstate pays claims fairly and promptly and is in
compliance with New York law.
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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