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Allstate hit with first-of-its-kind lawsuit over "diminished value"

Allstate Insurance Co. has been hit with a unique class action lawsuit in Pennsylvania for allegedly failing to uphold its end of bargain on auto insurance policies. The lone named plaintiff, Regina Munoz, a paralegal from Lynwood, Penn., accuses Allstate of failing to pay her for the "diminished value" of her vehicle after it was crashed.

Diminished value is the difference between the fair market value of a vehicle before a crash and the value after a crash.

"We're in untested waters, but we think we have a good case based on [Allstate's] policy language."

The lawsuit was filed in Philadelphia Common Pleas Court on June 23, 1999, and specifically alleges that Allstate breached contract, breached the implied good faith agreement, breached fiduciary duty, and acted in bad faith with the class by "failing to pay the reduction in value to covered automobiles caused by . . . collision or theft."

"We're in untested waters, but we think we have a good case based on [Allstate's] policy language," says John Shub, lead attorney for the class and a member of Sheller, Ludwig & Badey, the Philadelphia law firm that represents the plaintiffs. He claims that Allstate's policy says that reimbursement for the diminished value of vehicles is covered.

Allstate's legal department cannot confirm that they have received a copy of the lawsuit and would not comment further.

The gripe

Prior her automobile accident on Nov. 21, 1998, the fair market value of Munoz's '95 Nissan Sentra was $6,895, according to Edmund's Ratings. After the accident repairs were paid for by Allstate, the Nissan was appraised at $4,000, a reduction of $2,895 in value.

The lawsuit asserts that the Nissan's diminished value is a result of an auto accident that was a "covered loss" under Munoz's policy and, because of that, Allstate is contractually obligated to pay for all "direct and accidental" losses to the vehicle, including diminished value.

"We're seeking at minimum the difference between the values of the vehicles before the accident and the values after the accident," says Shub. For Munoz, that would mean $2,895. Shub says the lawsuit is not seeking to change Allstate's policy language, but he predicts, "If they get tagged with a verdict, they'll certainly change the language."

The size of the potential plaintiff class is difficult to determine at this time, according to Shub, but he expects many more than 1,000 Allstate policyholders to be affected. Sheller, Ludwig & Badey will file four similar class actions in four different states in the coming weeks. Shub wouldn't specify where the lawsuits would be filed.


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