Class Action Alleges State Farm Owes Certain Personal Articles Policyholders for Unearned Premiums

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State Farm faces a proposed class action lawsuit that claims the insurer has breached the terms of its personal articles policies by failing to refund policyholders when the replacement value of an insured article is found to be less than the amount insured.

The 10-page lawsuit alleges that defendants State Farm General Insurance Company, State Farm Fire & Casualty Company and State Farm Florida Insurance Company essentially collect premiums for insured personal items based on an inflated appraised value. In the event the insured article is deemed a total loss, State Farm determines its “replacement value” and pays that amount to the policyholder, according to the suit.

Per the case, if an item’s replacement value is less than the “amount insured,” which is based on the item’s appraised value, State Farm is required under the terms of its policies to refund the policyholder for its unearned premium—i.e., the difference between the actual premiums paid and the amount that would have been paid based on the item’s replacement value.

The lawsuit alleges, however, that it is State Farm’s “common and uniform business practice” to refuse to refund this unearned premium, in breach of its contracts with insureds.

The plaintiff in the case is an Indian River County, Florida resident who took out a State Farm personal articles policy in January 2016 for a diamond pendant. Per the suit, the amount insured, which was based on an appraisal State Farm required the plaintiff to obtain, was $34,496.

The lawsuit says the plaintiff made a claim for total loss under the policy after the pendant was stolen in January 2021. According to the case, State Farm paid the plaintiff $12,741.66, which was based on the insurer’s determination of the item’s replacement value.

The suit says that although State Farm was required under the terms of its policy to refund the plaintiff for its unearned premium—i.e., the difference between the premium he paid based on the amount insured ($34,496) and the amount he would have paid based on the pendant’s replacement value ($12,741.66)—the insurer never did so.

According to the suit, State Farm knows that appraisals for insured personal items are typically inflated and that the amounts insured under its personal articles policies are often much greater than the items’ replacement costs. Thus, the insurer collects premiums based on amounts that “far exceed[]” its actual exposure yet nevertheless refuses to refund these excess amounts after paying total loss claims, the complaint contends.

The lawsuit looks to cover anyone who, since January 31, 2017, was paid a claim for total loss pursuant to a State Farm personal articles policy and was not refunded the unearned premium that the insurer collected over the life of the policy.

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