Oct. 24 (Reuters)—A judge threw out federal securities-lawclaims in Allstate Corp's fraud lawsuit against Bank of AmericaCorp'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 saidAllstate waited too long to sue over the debt, which is not coveredby other Countrywide residential mortgage-backed securities (RMBS)litigation she oversees.

She nonetheless let the largest publicly traded U.S. home andauto insurer pursue state law claims accusing Countrywide offailing to tell investors that loans underlying its mortgagesecurities did not comply with its own underwriting standards.

“Allstate has pleaded that the defendants misrepresented thevalue and risk of the underlying loans and the collateral securingthose loans,” which it bought between 2005 and 2007, she wrote. “Iftrue, the RMBS may have been worth less than Allstate paid forthem.”

Pfaelzer said Allstate could restate additional claims that itfailed to argue properly. She also dismissed Bank of America itselfas a defendant.

Allstate spokeswoman Maryellen Thielen said the insurer ispleased that decision recognized that its claims are “amplysupported by the law and the facts.” She said the insurer may amendthe complaint or appeal the dismissal of various claims.

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

Pfaelzer oversees nationwide litigation over mortgage debtbacked 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 atissue to $31 billion from $352 billion.

Bank of America has sought to move other litigation overCountrywide 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 CountrywideChief Executive Angelo Mozilo. He had sought to be dismissed fromthe case, saying he had nothing to do with the sale of debt to theNorthbrook, Illinois-based insurer.

Allstate has filed several lawsuits to recover losses onmortgage debt against lenders including Citigroup Inc , DeutscheBank 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. CountrywideFinancial Corp et al, U.S. District Court, Central District ofCalifornia, No. 11-05236.