State Farm Class Action Says Insurer Underpays Total Loss Claims

State Farm Total Loss Class Action Lawsuit Overview:

• Who: A group of 20 plaintiffs filed a class action lawsuit against State Farm.
• Why: State Farm allegedly systematically undervalues total loss vehicles to reduce the amount it pays to policyholders.
• Where: The State Farm class action lawsuit was filed in Illinois federal court.

Twenty plaintiffs have filed a class action lawsuit against State Farm Mutual Automobile Insurance Company over allegations the insurer systematically underpays for total loss vehicles.

The State Farm class action lawsuit alleges the insurer engages in a “deceptive, fraudulent and unfair scheme” by systematically undervaluing total loss vehicles so it can reduce the amount it pays to policyholders with total loss claims.

The plaintiffs point to State Farm insurance policies that promise to pay for the actual cash value of a total loss vehicle.

“[State Farm] ignores and avoids its straightforward contractual obligation by directing or relying on its third-party vendor to systematically reduce total loss evaluations,” the State Farm class action lawsuit states.

The third-party vendor allegedly identifies the price of comparable vehicles and subsequently applies an “arbitrary and baseless flat-rate adjustment” to their value, which State Farm refers to as a “typical negotiation” adjustment, the total loss class action lawsuit states.

The plaintiffs allege that the “typical negotiation” adjustment is not actually based on any negotiations and is not based on market realities. Instead, the adjustment allegedly ranges from 4%-11% of the comparable vehicle’s value.

“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, but unconscionably, reduced,” the State Farm class action lawsuit alleges.

The lawsuit points out that the insurer does not apply the adjustments to reduce the value of vehicles in California because of a settlement in which State Farm agreed to stop applying a similar adjustment in the state.

State Farm Policy Also Includes Unfair Appraisal Scheme, Class Action Says

State Farm reportedly requires parties to submit to an appraisal if there is a dispute about the actual cash value of the vehicle. Under this State Farm policy provision, State Farm and the insured must each hire an appraiser at their own expense and share the cost of an umpire chosen by the two appraisers.

“Since the amount by which the insured’s total-loss claims are underpaid is likely less (or only marginally greater) than the cost of the appraisal, [State Farm] knows and intends that the insureds will forego the appraisal process and accept the artificially determined loss-payment for their total-loss claims,” the State Farm class action lawsuit states.

The plaintiffs filed the State Farm class action lawsuit on behalf of themselves and a proposed class of individuals insured by State Farm who received a total loss valuation and payment on an automobile total loss claim that included a “typical negotiation” or similar adjustment.

The State Farm class action lawsuit asserts claims for violations of the  Illinois Consumer Fraud and Deceptive Business Practices Act, breach of contract, breach of the covenant of good faith and fair dealing, unjust enrichment and declaratory judgment.

Are you insured by State Farm? Let us know what you think about the allegations State Farm underpays for total loss claims in the comments below!

The plaintiffs are represented by Andrew J. Shamis of Shamis & Gentile PA, Scott Edelsberg and Chistopher Gold of Edelsberg Law PA and Christopher A. Seeger, Christopher L. Ayers and Scott A. George of Seeger Weiss LLP.

The State Farm Total Loss Class Action Lawsuit is Bernadette Williams, et al. v. State Farm Mutual Automobile Insurance Company, Case No. 1:22-cv-01422, in the U.S. District Court for the Northern District of Illinois.

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