Allstate Settles Credit Score Class Action

Allstate Corp. will pay almost $12 million to settle a class-action discrimination suit over its use of credit scoring--mostly to cover attorneys fees--as well as issue a new scoring formula under terms of an agreement reached last week and approved by a federal court in Texas.

U.S. District Court Judge Fred Biery, sitting in the Western District of Texas in San Antonio, approved a settlement in the case of DeHoyos vs. Allstate Corp. on Feb. 14.

The case, first filed in 2001, alleged that Allstate's credit scoring formula discriminated against African-Americans and Hispanics, charging them higher rates than Caucasians. According to court documents, the case affects about 4.8 million policyholders.

In his opinion, Judge Biery determined there was no evidence that Allstate engaged in any overt discrimination.

"The undisputed evidence shows Allstate has no knowledge of the race or ethnicity of its customers and does not track such data," the judge wrote.

It was determined, however, that the settlement would be in the best interests of all concerned, and he approved the agreement without the Northbrook, Ill.-based company's admission or denial of any guilt.

In the settlement, Allstate denied any discrimination occurred and still "contends its use of information from credit reports is a valid and statistically sound predictor of insurance losses."

The new formula, according to the 143-page decision, will be rolled out on a state-by-state basis, contingent upon individual state approval. The formula will remain in effect for two years.

Under the agreement, Allstate will pay $11.7 million in attorneys' fees and an additional $30,000--or $5,000 each--to the six named plaintiffs in the case.

"This is a great day for Allstate's minority customers," said Christa Collions, the lead plaintiff's attorney, with the law firm James, Hoyer, Newcomer & Smiljanich out of Tampa, Fla. "This is a groundbreaking settlement because Allstate has agreed to change the way it uses credit information to price insurance. We believe this change significantly benefits Allstate's minority customers."

A representative for Allstate, Michael Trevino, said the carrier is "pleased that the judge has given his approval and that the process is moving forward."