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Allstate Learns a $600,000 Lesson: No Accident Forgiveness in California

By George Khoury, Esq. | Last updated on

San Diego, Riverside, and Los Angeles District Attorneys prosecuted Allstate as a result of the insurer's 'Accident Forgiveness' advertising campaign. Under California law, auto insurers may not offer consumers accident forgiveness in their insurance policies. Allstate's national advertising campaign reached California consumers and failed to clearly disclose that accident forgiveness was not available to California consumers. Now, they've agreed to pay a $600,000 settlement.

If this sounds familiar, that's because Liberty Mutual learned a $300,000 more expensive lesson at the hands of the same DAs for the exact same thing just over a month ago. While the Liberty Mutual advertisements had a disclaimer, it was deemed to be too small to be an effective one. Both Liberty Mutual and Allstate settled out the claims against them and entered into a stipulated judgment, which, of course, did not admit any wrongdoing.

What Is Accident Forgiveness, and Why's It Illegal in California?

Accident forgiveness is an auto insurance policy term where insurers agree to not raise a policy holder's rates after causing an accident. These policies are illegal because the California voters approved proposition 103 back in 1988. That proposition requires insurers to justify their rates while also prohibiting excessive rates. Accident forgiveness policies just can't be justified.

The way that accident forgiveness policies work is by charging consumers a little more up front, so as to offset the future cost of not performing a rate adjustment after an accident. Under prop 103, these types of insurance policies charge an excessive rate and are not approved.

Why the Big Fines?

Allstate and Liberty Mutual's big fines have been the result of consumer protection false advertising laws. It was reported that Allstate's advertising campaign reached 90% of California households. Like Liberty Mutual, Allstate's disclaimers were also deemed to be ineffective. California law requires that advertisements provide clear information so consumers are not misled. Unreadable disclaimers generally do not cut it.

In addition to the fines, both Allstate and Liberty Mutual are now under a court order to comply with California law. The companies will be required to provide clear disclaimers that the accident forgiveness policies are not available in every state.

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