Allstate Settles Auto Suit For $59 Million
Allstate has become the latest auto insurer in Georgia to reach a multi-million-dollar class action settlement over claims for diminished market value of damaged vehicles.
A $59 million settlement fund will be created, the Northbrook, Ill.-based insurer said. The case, Earl et. al. v. Allstate, involved Allstate Insurance Company and Allstate Indemnity Company.
The suit leading to the settlement involves claims that customers in Georgia over the last six years were entitled to payment for their vehicles' loss of market value after an accident, in addition to repair costs.
The inherent diminished value at issue was defined as the alleged difference between a vehicle's pre-loss value and its post-loss value after complete and proper repairs.
Allstate said the settlement was reached as a result of the Georgia Supreme Courts Nov. 28, 2001, decision interpreting diminished value, which went against State Farm Insurance in a separate class action.
Dave Hurst, a representative for State Farm in its Bloomington, Ill., headquarters, said that as a result of that case, the insurer paid $50 million in attorney fees and set up a settlement fund of $100 million to cover claims going back to 1993 involving about 700,000 customers.
The settlement was reached, he said, because "we felt it was in the best interest of policyholders. We still dispute the allegations and continue to believe diminished value is a rare occurrence."
Both Mr. Hurst and an Allstate representative, Michael Trevino, noted that in other states–Delaware, Louisiana, Massachusetts and Texas among them–insurers have secured appeals court rulings that auto policies do not cover diminished value.
Mr. Trevino said he understood that the top-10 insurers in Georgia have all been hit with similar class actions.
Allstate said that since 1998, it has been implementing policy language in a majority of states reaffirming that its collision and comprehensive coverages do not include diminished value claims.
The company said it is still fighting several legal actions involving diminished value class actions in other states, including one Illinois case in which a multi-state class has been certified.
Allstate recorded a reserve related to the Georgia settlement in its fourth-quarter 2001 results, totaling $59 million on a pre-tax basis, and $38 million on an after-tax basis–or approximately 5 cents per diluted share.
Mr. Trevino said the suit pertained to 274,000 claims involving amounts, on average, of between $150 and $215. Allstate has a 12 percent auto insurance marketshare in Georgia, he said.
C. Neal Pope, with the law firm of Pope, McGlamry, Kilpatrick, Morrison & Norwood in Atlanta, whose firm brought the case, was not available for comment as this story went to press.
Last November, after the Georgia State Supreme Court ruling, David J. Colmans, an official with the Georgia Insurance Information Service, which represents insurers in the state, said the cost of diminished value claims could end up being passed on to consumers.
Mr. Hurst said that diminished value payments as implemented in Georgia involve a complicated formula that factors in such things as the mileage on the damaged vehicle.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, January 21, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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