Allstate Loses In Front Of Supreme Court

Allstate may have been knowingly violating the law, or they may have just have forgotten to pay claims in a timely manner as required by New York insurance law. According to the complaint in the class action suit of Shady Grove Orthopaedic Associates v. Allstate, the insurance company was required to pay no-fault claims within 30 days of receipt or pay interest on those claims. The complaint alleges that Allstate has been witholding payment on legitimate claims, witholding the required interest on those no-fault claims once they are eventually paid, and that Allstate is often dishonest about their receiving of documents that would start the clock ticking on the 30 day payment requirement.

Doesn't sound very good for Allstate, especially now that the Supreme Court ruled that the suit could continue in Federal court. The issue that the Supreme Court faced was one of a possible conflict of rules. In New York, a class action lawsuit is barred from seeking relief in the form of statutory penalties (in this case, interest). SCOTUS came to the conclusion that the law being procedural and not substantive only barred the claim in NY State Courts and that because it is a diversity case (parties from different states) it could continue in Federal court.

Really makes you wonder if Allstate was just backed up with claims or if they were well aware of the New York rule and were relying on it to avoid a massive class-sized payout. The amounts for each claim are probably small, which explains why Allstate may have refused to pay out interest, who was going to challenge their refusal over such small amounts? And with the class-action bar to statutory penalty recovery they probably thought they were in the clear in New York. While recovery may be limited, some class-action lawsuits such as this one are important in keeping massive corporations in line. Others, such as the lawnmower case I just blogged about, are ridiculous. This case is a warning to Allstate and all others that insurance code is there to be followed, not flippantly disregarded. We will see how this case plays out now that it's passed muster with highest court.

Here's the original complaint that alleges Allstate's bad behavior and unlawful denial of interest.