Did State Farm Mutual Underpay You for Total Loss Insurance?

State Farm Mutual Automobile Insurance Company is under investigation for possibly underpaying total loss vehicle insurance claims.

How Does State Farm Mutual Determine Total Loss?

According to State Farm’s website, the company’s insurance adjusters evaluate the vehicle’s damage to determine whether it can be repaired or if it should be declared a total loss after the vehicle has been damaged in an accident.

Like most insurance companies, State Farm has its own proprietary software that helps calculate whether or not a vehicle should be totaled. The mileage, condition, options, age, geographical location and other factors help the adjuster determine the pre-accident value of the automobile. This value is determined as if a snapshot was taken of the vehicle right before it was in an accident and is called the actual cash value (ACV).

Keep in mind that according to Carfax, the average vehicle depreciates more than 20 percent during its first year plus about 10 percent more each additional year for the initial five years.

Still, if you have invested money in the vehicle by having a new transmission installed or a refined sound system put in, you may be able to receive consideration for the additional money you invested in the car.

The adjuster also must consider the resale value of the vehicle’s parts, which collectively is known as the salvage value.

Another factor is whether the car can be safely repaired and trusted to be back on the road.

In the end, if the cost to repair the vehicle will exceed its actual cash value, the automobile will most likely be considered a total loss.

Does Actual Cash Value Include Sales Taxes or Fees?

State Farm Mutual says it provides actual cash value based upon “your vehicle’s value on its year, make, model, mileage, overall condition, and major options – minus your deductible and applicable state taxes and fees.”

However, many states have laws that require an insurance company to include sales tax and title and registration fees as part of the actual cash value. Thirty-four states, including the state of Ohio, prevent insurance companies from excluding sales tax and fees from the actual cash value of the totaled vehicle.

Many consumers have claimed that as taxes and fees are an unavoidable part of replacing a totaled vehicle, insurers who refuse to include these costs in total loss settlements may be engaging in unethical behavior or even violating their own policies.

What is a Total Loss Threshold?

Individual states may set their own threshold to determine whether a vehicle is considered a total loss. Many states agree that when a vehicle has sustained damage equal to 75% of the car’s value, the car should be totaled. However, some states require 100 percent of the vehicle’s value to be consumed by damage before it may be totaled.

Have Any Class Action Lawsuits Been Filed Over Insufficient Insurance Payouts?

Yes. In January, an Ohio driver filed a lawsuit against an insurance company that she claimed failed to pay her sales tax, title fees and registration fees when her 2006 Chevrolet Impala was totaled in a car accident in 2018.

In that lawsuit, the woman sought to represent a class of Ohio residents who incurred a first-party total loss of a covered vehicle within the past eight years and who had the same insurance company she did. She alleged that none of them were properly paid the full amount of sales tax, title transfer fees, and registration fees on their respective claims.

In November 2020, State Farm Mutual and several other insurance agencies were fined by the New York Department of Financial Services (DFS) for allegedly violating insurance statutes and regulations when it came to policyholders’ auto claims.

According to investigations by the DFS, State Farm and other insurers denied policyholders their full benefits by failing to pay or deny claims in a timely manner, failing to correctly calculate no-fault payments for policyholders who suffered loss of earnings, and failing to pay interest on overdue no-fault payments.

Additionally, DFS claims that State Farm failed to properly use inspection reports and vehicle photographs in order to determine settlement amounts in cases where vehicles were damaged. Under New York laws, insurers are required to keep detailed records of the condition of the vehicle and any damages sustained throughout the policy, in order to determine the value of the vehicle.

The insurer has also been accused of failing to disclose to policyholders whose vehicles were stolen that they were entitled to have their transportation costs paid for by the company under their insurance policy. State Farm was fined $644,700 for these violations by the Department of Insurance. Additionally, State Farm has been ordered to pay nearly $10 million in customer restitution.

Is My Car’s Loan Value the Same as the Actual Cash Value?

No, the loan value is not the same thing. Every vehicle depreciates even after one day because then it’s considered a used vehicle. Any new vehicle owner who changes their mind and decides to return the vehicle within a week or two of owning it might be surprised to learn they won’t receive all of their money back, no matter how few miles have been placed on it.

The actual cash value will not be the same as the cost to replace your vehicle, either. Any time a vehicle is a total loss, the amount of money you will need to buy a similar new replacement auto will be more than the amount you receive for the totaled car.

In some cases, car owners opt for additional insurance called replacement value insurance, which adds to the expense of the insurance premium, but offers piece of mind that they will receive more money if the car is totaled.

Another option is to purchase GAP insurance, which may benefit consumers who choose to finance a vehicle for 5 years or longer. GAP insurance will allow the totaled vehicle owner to receive the difference between what is owed on the car and the car’s actual total value. Just like replacement value insurance, GAP insurance will be an extra cost to your auto insurance premium.