By Jonathan Stempel
(Reuters) – Allstate agreed to pay $90 million to settle a class action lawsuit by shareholders who accused the insurer of defrauding them by concealing that it lowered underwriting standards to boost growth.
A preliminary settlement was filed on Monday in federal court in Chicago, and requires a judge’s approval.
The lawsuit came after Allstate on Aug. 3, 2015, reported unexpectedly high claims payouts from auto accidents, causing a larger-than-expected 38% decline in quarterly operating profit.
Allstate’s share price fell 10.1% the next day, wiping out $2.8 billion of market value.
Shareholders said Allstate had falsely assured earlier in the year that claims had been increasing because of factors beyond its control, such as the economy and weather.
They said the stock fell after it became clear that loosened underwriting standards were the cause.
The Northbrook, Illinois-based insurer denied wrongdoing, but settled to avoid the burden, cost and uncertainty of litigation, according to the settlement.
Allstate did not immediately respond on Wednesday to a request for comment. Its main auto insurance rivals include State Farm, Geico and Progressive.
The lawsuit is led by pension and annuity funds associated with the Carpenter Funds of Oakland, California.
Their law firms plan to seek up to $22.5 million from the settlement for legal fees and up to $4.6 million for expenses.
Shareholders may recover an average 46 cents per share if a judge approves the fee and expense request.
The case is In re Allstate Corp Securities Litigation, U.S. District Court, Northern District of Illinois, No. 16-10510.
(Reporting by Jonathan Stempel in New York; editing by Jonathan Oatis)