State Law Can Be Displaced, Justices Say

(CN) - A hospital can sue Allstate Insurance for interest that accrued on overdue benefits, the Supreme Court ruled in a 5-4 vote. The decision reverses a 2nd Circuit finding that Shady Grove Orthopedic Association was prohibited by New York law from bringing a class action against the insurance giant.

In dismissing the action, the 2nd Circuit had affirmed a lower court's decision that Shady Grove was precluded from proceeding with its class action, since it was only seeking to recover unpaid interest "and the suit did not belong in federal court."

Writing the opinion for the Supreme Court, Justice Antonin Scalia said Shady Grove's lawsuit may proceed as a class action on behalf of all medical providers who were denied interest on overdue benefits from Allstate.

He said federal rules preempt New York law in this case without significantly interfering with state's rights.

Justice John Paul Stevens wrote, "It is important to observe that the balance Congress has struck turns, in part, on the nature of the state law that is being displaced by a federal rule." While "that does not mean the federal rule always governs," Stevens wrote, in this case, state law can be displaced.

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