Class Action Alleges American Family Mutual Applies Baseless Adjustment to Total Loss Claims

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A proposed class action claims that American Family Mutual Insurance Company applies an arbitrary and unlawful “typical negotiation” adjustment when determining the value of a totaled vehicle.

The 21-page case contends that this “arbitrary and unsupportable” adjustment contradicts the terms of the defendant’s auto insurance policies and results in policyholders being paid less than they’re contractually owed for their totaled cars.

The lawsuit claims that the typical negotiation adjustment that American Family instructs its third-party valuation vendor to apply to the list price of every comparable vehicle when determining a totaled car’s actual cash value is “not based on any negotiations, typical or otherwise.” Instead, the adjustment is a blanket four- to 11-percent adjustment to each comparable vehicle’s online list price, the case relays.

“This percentage reduction artificially reduces the total-loss payment for the totaled vehicle and, with the sliding percentage scale, ensures that every total loss payment Defendant makes to insureds is significantly and unconscionably reduced,” the complaint attests.

American Family represents in its contracts with consumers that in the event of a “total loss” to an insured vehicle, i.e., when repair of the vehicle is impossible or uneconomical, the insurer will pay for the loss of the vehicle, limited to its actual cash value, the lawsuit explains. According to the suit, the defendant determines a covered vehicle’s actual cash value by using a third-party valuation vendor to gather pricing data for comparable vehicles listed for sale online in the relevant market. 

Contrary to its contractual obligations, however, the defendant instructs the third-party vendor to apply an “arbitrary and baseless” typical negotiation adjustment to the list price of every comparable vehicle, the lawsuit alleges. Though the defendant represents that the adjustment reflects the price for which a dealer would actually sell the vehicle after negotiating its price, “[t]his is false,” the case insists.

Per the suit, the defendant does not contact any of the car dealers who are selling the comparable vehicles to determine whether they are willing to negotiate on price, and instead “simply makes it up.”

The case claims the four- to 11-percent reduction to each comparable vehicle’s value is not based on negotiations and does not reflect market realities, especially given most car dealerships do not negotiate online pricing. Moreover, during the COVID-19 pandemic, used cars “have been selling for a premium” due to supply chain issues and typically sell for more than their posted selling price, the suit adds.

“If Defendant’s valuation was based in actual fact and market reality of what is ‘likely’ to happen, Defendant would increase the amount from the online listed price,” the complaint attests.

Per the case, the typical negotiation adjustment applied to every comparable vehicle does not reflect the insured car’s actual value or any negotiation but is instead “meant to ensure that Defendant’s total loss payments are significantly reduced, even when a vehicle is not valuable.”

The lawsuit looks to cover Illinois citizens insured by American Family Mutual who, from the “earliest allowable time” through the date of class certification, received a first-party total loss valuation and payment on an auto total loss claim that included a “typical negotiation” or similar adjustment.

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