State Farm Hit with Class Action Over Allegedly ‘Arbitrary’ Deductions to Total Loss Claims

New to ClassAction.org? Read our Newswire Disclaimer

State Farm Mutual Automobile Insurance Company faces a proposed class action that claims the insurer has artificially reduced payments for total loss claims by applying an arbitrary “typical negotiation” adjustment to the values of comparable vehicles.

The 402-page lawsuit claims State Farm “ignores and avoids its straightforward contractual obligation” to pay the actual cash value of an insured vehicle that was declared a total loss. Per the suit, State Farm directs its third-party valuation vendor to “systematically” reduce the value of comparable vehicles listed for sale in the relevant market by applying a blanket adjustment to the cars’ selling prices, which in turn reduces the actual cash value of the totaled car. As a result, insureds are regularly underpaid for total loss claims, the case alleges.

The lawsuit stresses that its dispute is not with insured vehicles’ actual cash value, but State Farm’s “systematic and fraudulent scheme” to miscalculate the vehicles’ value in a manner that does not align with its contractual obligations “in order to illegally increase its own profits.”

“As a result of Defendant’s deceptive, fraudulent, and unfair scheme, Plaintiffs did not receive the benefit of the bargain, and thus sustained actual damages,” the complaint contests.

The lawsuit explains that State Farm and other auto insurance companies typically use third-party vendors to help determine the actual cash value (ACV) of vehicles that are determined to be a total loss—i.e., when repair of the vehicle is impossible or uneconomical. Per the case, State Farm uses third-party vendor Audatex or AudaExplore who use a system to identify the selling prices of comparable vehicles in the relevant market to determine a totaled car’s ACV.

The suit alleges, however, that State Farm has attempted to avoid its contractual obligation to pay insureds for the full ACV of totaled vehicles by instructing its valuation vendor to apply what it calls a “typical negotiation adjustment” to the selling prices of comparable vehicles. According to the case, the defendant represents that this “arbitrary and unsupportable” four- to 11-percent reduction of comparable vehicles’ values represents “some sort of average difference between a dealer list price and ‘what the dealer would be willing’ to sell [the vehicle] for.”

The lawsuit claims the so-called typical negotiation adjustment is not based on negotiations and does not reflect market realities. Indeed, State Farm applies the adjustment without contacting the dealerships or sellers or considering whether they ever discount their vehicles, the case argues. The defendant has also failed to consider that more and more used car sellers are implementing “no haggle” pricing, particularly with respect to vehicles listed for sale online, according to the complaint. Moreover, the lawsuit points out that during the COVID-19 pandemic, supply chain problems and a dearth of available parts for new vehicles have caused used cars to sell at a premium, with their sale prices typically increasing from listed prices.

Per the suit, State Farm’s typical negotiation adjustment fails to reflect a vehicle’s actual value or any “typical negotiation” and serves merely to “significantly reduce[]” the insurer’s total loss payments.

The case goes on to claim that an “integral part” of State Farm’s “fraudulent scheme” is the appraisal provision in the insurer’s auto policies that requires the parties to hire appraisers at their own expense if there is a disagreement regarding a vehicle’s actual cash value. The suit states that because the cost of an appraisal is likely more than the amount insureds are underpaid for their total loss claims, State Farm knows that most policyholders will skip this process and accept the reduced ACV payments.

The lawsuit further claims that State Farm does not apply typical negotiation adjustments when paying total loss claims for vehicles insured in California because the settlement of a 2008 lawsuit required that the insurer stop applying what was then called a “projected sold adjustment” to the values of comparable vehicles. Nevertheless, State Farm “continues to use this arbitrary and unfair” adjustment to reduce total loss payments in other states, the case alleges.

The suit looks to cover anyone insured by State Farm in any state who, from the earliest allowable time through the date of resolution in the case, received a first-party total loss valuation and payment on an automobile total loss claim that included a “typical negotiation” or similar adjustment.

Get class action lawsuit news sent to your inbox – sign up for ClassAction.org’s newsletter here.