State Farm lawsuit says policyholders shortchanged in wrecks

That has the combined effect of trimming what State Farm otherwise would pay to settle the claim and lowering the amount the customer gets in coverage.

“The ‘typical negotiation’ adjustment is not based on any negotiations, typical or otherwise, and is not based on any market realities,” the complaint states.

Indeed, in recent times given soaring prices for used cars, the idea that a typical negotiation would lead to something lower than asking price is debatable at best.

“Defendant applies the ‘typical negotiation’ adjustment without contacting the identified dealerships or sellers, or considering whether the online retailer ever discounts its vehicles,” according to the complaint. “Notably, in applying a universal percentage-based ‘typical negotiation’ adjustment reduction , defendant failed to consider that it is increasingly the practice in the used car market to avoid price negotiation by implementing ‘no haggle’ pricing, particularly as to internet-posted prices the related supply-chain problems with parts such as electronics for vehicles, used cars have been selling for a premium, with sale price typically increasing from posted price if it changes at all.”

If policyholders want to challenge what State Farm offers in a total loss, they are required under their policy to hire an appraiser to provide an alternative value, according to the lawsuit. They then must shoulder half the cost of a referee the two appraisers agree to use to settle the difference.

“Since the amount by which the insureds’ total-loss claims are underpaid is likely less (or only marginally greater) than the cost of the appraisal, defendant knows and intends that the insureds will forgo the appraisal process and accept the artificially determined loss- payment for their total-loss claims,” the complaint alleges.

The lawsuit describes the system as a “deceptive, fraudulent and unfair scheme” that violates state consumer protection laws, including Illinois’ Consumer Fraud and Deceptive Business Practices Act. The lawsuit asks the federal court to apply Illinois law to most of the rest of the US, since State Farm is domiciled here and regulated by the Illinois Department of Insurance.

On their face, the allegations, if proven, could be enormously costly to State Farm. The company’s auto claims and loss adjustment expenses topped $34 billion last year. Unknown is what percentage of that total reflected total losses of State Farm policyholders. But it obviously was in the billions.

If the total was even $5 billion, and State Farm was found to have improperly shaved 4% off that amount, that would come to $200 million. Add claims payouts for years before 2021, and that amount climbs fast.

“As an organization, we take pride in our customer service and are committed to paying what we owe, promptly, courteously, and efficiently,” a State Farm spokeswoman says in an email. “Each claim is unique and handled based on its own individual merits. The filing of a lawsuit does not substantiate the allegations within the complaint. We’ve recently learned about the filing, and it is premature to comment at this time.”

State Farm has long enjoyed a good reputation for claims handling. Most recently, its customer satisfaction ratings have increased noticeably thanks to lower rates than rivals that currently are aggressively hiking prices in response to used-car price inflation.

The suit is the latest development in what’s shaping up as a high-stakes year in the courts for State Farm. The company is facing multiple lawsuits alleging discrimination against Black people, both in employment and in handling claims—litigation that was spotlighted in a recent in-depth New York Times story. State Farm has said it will vigorously defend itself in those lawsuits.

State Farm has a history of more than vigorously defending itself in national class action suits. A $1 billion-plus judgment against the company in 2005 for improper use of aftermarket car parts in repairing autos was reversed by the Illinois Supreme Court. But later exposure of the key vote in the high court by a newly elected justice whose campaign was chest was overwhelmingly funded by State Farm.

State Farm ended up setting the case for $250 million, but only after its hardball tactics were exposed.

This case involving valuing autos that are total losses is similar in that it’s a national class action suit. But it’s starting in federal court rather than state court.

Some of the plaintiffs’ attorneys are well known in the world of class-action lawsuit and mass torts. Seeger Weiss, a Philadelphia area firm, has extensive experience in major national litigation, including acting as lead counsel in the former NFL players’ lawsuit against the league over concussions.

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