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Consumer Rights: Allstate settles a false advertising lawsuit in California

The San Diego Union-Tribune recently reported that district attorneys in three counties in California had reached a $600 million settlement in a false advertising lawsuit against the insurance giant Allstate. At issue was Allstate’s advertising claims that it offers accident forgiveness for its line of automobile insurance policies. The problem is that Allstate neglected to mention sufficiently that this feature is not available in the state of California, where it has been prohibited, thanks to the passage of Proposition 103 in 1988.

The ads started in 2012 and reached 90 percent of California households, including Spanish-speaking ones in the state. Even though the ads offered a small disclaimer at the bottom of the TV screen, the district attorneys decided that it was insufficient and in violation of consumer rights and therefore filed suit. California law states that material facts in an ad have to be clear and conspicuous, which the disclaimer was not.

The settlement, typical of such things, allowed Allstate not to admit to liability while paying $75,000 in investigative costs and $525,000 in civil liability. The company decided that paying the money up front would be better for its bottom line than going to trial and risking having to pay an even larger settlement.

The suit and its result should serve as a warning for companies that think using fine print will protect them from false advertising litigation. States such as California have started to judge this practice as false advertising even though, technically, correct information is given in the ad.

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