Allstate Settles Auto Insurance Claim Spike Suit for $90 Million

Allstate Corp. struck a $90 million settlement in a shareholder class action alleging that the auto insurer failed to disclose details about a spike in claims, according to a motion for preliminary approval of the deal.

Allstate has agreed to pay a consolidated class of investors to drop their suit, which had estimated $556 million in total damages from to a stock drop that occurred as a result of the alleged misrepresentations.

The insurance company misled investors about the auto claims and failed to disclose that the spike resulted from softened underwriting policies, according to the consolidated complaint filed in US District Court for the Northern District of Illinois.

The case survived Allstate’s bid to get it dismissed in July 2022, when a federal judge found he could not determine executives’ motives for not disclosing the spike in auto claims or their later decision to blame the higher rate of claims on macroeconomics and weather.

Allstate aimed to prove at trial that it didn’t misrepresent the claim frequency, arguing that it voluntarily disclosed its understanding of factors behind the increase at the time.

The class of investors attributed the spike to Allstate loosening its underwriting standards for auto insurance in an attempt to attract new customers and promote its growth strategy, the complaint says.

When Allstate disclosed on Aug. 3, 2015, that the increase in claims frequency had persisted for a third consecutive quarter and revealed that the increase was related to underwriting standards, the company’s stock price fell by 10% in one day, according to the complaint.

The selloff on Aug. 4, 2015, was the stock’s biggest since March 2009, when the market neared its low point of the financial crisis, according to data compiled by Bloomberg.

Bloomberg

Class members include investors who bought shares of Allstate stock between Oct. 29, 2014, and Aug. 3, 2015, according to the motion filed Aug. 14.

Labaton Sucharow LLP and Pomerantz LLP represent plaintiffs and the class. The plaintiffs’ lawyers didn’t immediately respond to requests for comment.

McDermott Will & Emery LLP represents Allstate. The company and its lawyers didn’t immediately respond to a request for comment.

The case is In re Allstate Corp. Sec. Litig., N.D. Ill., No. 1:16-cv-10510, 8/14/23.