"We had received a notice of non-compliance issued by the Department of Insurance. It was a formal administrative process that the department follows. Our company and the Department of Insurance discussed this and tried to work out arrangements. It's not like a civil action in civil court or criminal court," Allstate spokeswoman Lisa Wanamaker told National Underwriter.

"Settlement involves Allstate paying $3 million to the California Department of Insurance," Ms. Wanamaker said.

But she noted that despite the settlement, Allstate still believes its actions were permissible under California law. "Allstate decided to settle because we did not want to incur additional costs and engage in lengthy litigation," she said.

California's insurance department cited two Allstate subsidiaries in its case: Allstate Indemnity Co. and Allstate Property & Casualty Insurance Co. The regulators claimed that Allstate violated Proposition 103 between 2001 and 2003, by declining at least a thousand prospective customers eligible for "good driver" discounts.

Ms. Wanamaker noted that Proposition 103 prohibits the use of credit scores to determine auto rates, or to decline or limit coverage, for good drivers. "Now, Allstate followed the law?we didn't use credit information to determine auto rates or to decline or limit coverage to good drivers. Allstate used credit information to determine the down-payment amount and the payment plan for new auto insurance customers," she said.

Ms. Wanamaker also noted that in California, most of the debate around credit scoring has been in reference to qualifying customers to homeowners insurance, in contrast to the national debate, which has involved both homeowners and auto. "At least here in California, it's been primarily about homeowners insurance," she said.

Allstate is California's fourth-largest auto insurer, commanding more than nine percent of the market in the state.

The continuing controversy over insurer use of credit scores in determining rates for customers has intensified recently with publication of two state reports examining the impact of that process on low-income and minority-population sectors. An 11-state study of the issue is in the works.

Both the Maryland Insurance Administration and Missouri Insurance Department have released studies. Maryland said the issue needed more research. Missouri found that the poor and minorities were impacted unfairly by credit scoring. Missouri's governor reacted by urging legislators to enact a credit scoring ban.