Allstate Corp. will pay almost $12 million to settle a class action discrimination suit over its use of credit scoring and 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, charged 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 that 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.
Under the terms of the settlement, Allstate will:
o Begin using a new credit scoring formula.
o Create an appeals process for those people whose credit score was impacted by an extraordinary circumstance, defined as: divorce; death in family; unemployment; medical expenses; care of an adult dependent; identity theft; long-term injury; illness or disability; care of a dependent; and/or domestic violence.
o Finance a credit education program designed to increase minority understanding of the use of credit and the management of their credit.
o Increase its marketing to minorities by 15 percent from 2005 through 2008.
o Pay between $50 to $150 to minorities whose premiums were adversely affected by the old credit scoring formula.
In the settlement, Allstate denied any discrimination occurred and “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 state approval. The new formula will remain in effect for two years.
Under the agreement Allstate pays $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, 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.”
Michael Trevino, a spokesman for Allstate, said, “We are pleased that the judge has given his approval and that the process is moving forward.”
The company released a statement in June 2006 announcing a preliminary settlement.
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