Oct. 24 (Reuters)—A judge threw out federal securities-law claims in Allstate Corp's fraud lawsuit against Bank of America Corp's Countrywide unit over $700 million of toxic mortgage debt, but said the insurer may pursue state law claims.

U.S. District Judge Mariana Pfaelzer in Los Angeles said Allstate waited too long to sue over the debt, which is not covered by other Countrywide residential mortgage-backed securities (RMBS) litigation she oversees.

She nonetheless let the largest publicly traded U.S. home and auto insurer pursue state law claims accusing Countrywide of failing to tell investors that loans underlying its mortgage securities did not comply with its own underwriting standards.

“Allstate has pleaded that the defendants misrepresented the value and risk of the underlying loans and the collateral securing those loans,” which it bought between 2005 and 2007, she wrote. “If true, the RMBS may have been worth less than Allstate paid for them.”

Pfaelzer said Allstate could restate additional claims that it failed to argue properly. She also dismissed Bank of America itself as a defendant.

Allstate spokeswoman Maryellen Thielen said the insurer is pleased that decision recognized that its claims are “amply supported by the law and the facts.” She said the insurer may amend the complaint or appeal the dismissal of various claims.

Shirley Norton, a spokeswoman for Charlotte, North Carolina-based Bank of America, declined to comment.

Pfaelzer oversees nationwide litigation over mortgage debt backed by loans from Countrywide, which was the largest U.S. mortgage lender before Bank of America bought it in July 2008.

She has issued other rulings favorable to Bank of America, including last November when she cut the amount of securities at issue to $31 billion from $352 billion.

Bank of America has sought to move other litigation over Countrywide debt to her court. This included the Allstate case, which a Manhattan federal judge sent to Pfaelzer in June.

Other defendants in the Allstate case include former Countrywide Chief Executive Angelo Mozilo. He had sought to be dismissed from the case, saying he had nothing to do with the sale of debt to the Northbrook, Illinois-based insurer.

Allstate has filed several lawsuits to recover losses on mortgage debt against lenders including Citigroup Inc , Deutsche Bank AG and JPMorgan Chase & Co .

Shares of Allstate closed Monday up 17 cents at $27.07.

The case is Allstate Insurance Co et al v. Countrywide Financial Corp et al, U.S. District Court, Central District of California, No. 11-05236.

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