State Farm has reached a $1.35 million settlement with Kentucky Attorney General Daniel Cameron over its agents’ failure to disclose information to some auto insurance claimants about possible additional underinsured and/or uninsured motorist coverage.
“This settlement with State Farm provides us confidence in State Farm in its role as an important insurer in the Commonwealth,” Cameron said in a written statement. “I’m grateful to State Farm for working with us to come to a fair resolution and for taking concrete steps to ensure something like this does not happen again.”
The $1.35 million will be paid to the state of Kentucky in a lump sum payment as reimbursement for the costs of the AG Office’s investigation.
Cameron issued a civil investigative demand on Feb. 11, 2019, and modified it on Oct. 11, 2019, to address:
- Whether State Farm had failed to identify and disclose uninsured motorist (UM) and/or underinsured motorist (UIM) coverages available under State Farm automobile insurance policies to affected claimants and insureds who were entitled to said coverage; and
- Whether State Farm agents or agent team members were signing UM selection/rejection forms without the policyholder’s authorization or consent.
Through its “good faith efforts” to respond to Cameron’s inquiries before his investigative demand, State Farm learned in 2018 that, on some occasions, its claims personnel were “inadvertently failing to identify and disclose UM and/or UIM coverage available under a State Farm automobile policy,” the Nov. 29 settlement agreement states.
The coverage could have possibly provided more coverage to a collision claimant if they qualified as an insured under an additional household policy as a named insured, named insured’s spouse, or resident relative. It would have only applied to vehicles involved in a collision and listed on the claim.
“State Farm voluntarily initiated a review of claims made by Kentucky claimants and made supplemental payments in situations where claimants qualified as an insured under the additional household policy and had damages that warranted payments above the initial UM or UIM limits payment,” the settlement agreement states. “Upon receipt of the Civil Investigative Demand, State Farm expanded the timeframe of the claims to be reviewed by an additional one year.”
Twice in 2019, State Farm provided its claims personnel with specific and detailed steps to find and disclose UM and UIM coverages. In 2020, personnel were provided with a search tool to find potential additional policies, the agreement states.
A civil Circuit Court lawsuit was filed by a policyholder in May 2019, which was later made a class action suit and moved to federal court. A settlement was reached that paid those who were found to have had UM and/or UIM coverage at the date of loss and didn’t know they could use it.
The unauthorized signature allegations were found to be true, at least in one instance, and each active policyholder with UM coverage was given coverage equal to their liability limits until the next renewal date at no charge, according to the settlement document.
As a result of the discovery, one employee was fired, and another retired.
The Kentucky Department of Insurance also investigated whether State Farm agents were signing UM selection/rejection forms without policyholder authorization and closed its investigation without any findings.
Under the terms of the settlement agreement, State Farm agreed to:
- Require internal policy and procedure compliance against signing selection/rejection forms without permission;
- Continue training its claims personnel on the importance of complying with the revised claim procedures; and
- Train claims personnel on the importance of using the updated search tool to confirm that all available coverages are reasonably identified and disclosed.
State Farm is also to “use its best efforts” to file a proposed multi-car policy form with the Kentucky DOI in 2025.
The AG’s Office says the settlement is not an admission of liability or wrongdoing on State Farm’s part. If Cameron isn’t satisfied with State Farm’s written response to his investigative demand then he may request more information or materials from the carrier to address the concerns raised in the notice or may find State Farm liable for all or a part of stipulated civil penalties for $400,000, according to the settlement agreement.
According to Glassbytes, State Farm has also made changes to its Offer and Acceptance (O&A) agreement, effective Dec. 15, barring auto glass shops from subletting services, such as camera recalibrations, to third-party firms.
The O&A agreement directs auto glass shops to confirm that the vehicle on dispatch matches the one having the work done, agree to fulfill requests for its moulding invoices when asked, and requires prior authorization for calibration when not completed by the company itself, according to the Glassbytes article.
However, another portion of the agreement states no work can be done by another company. The new agreement also requires the auto glass shop to notify State Farm of billing discrepancies first before agreeing to arbitration. This could be an effort by the carrier to avoid litigation like what’s ongoing between GEICO and Glassco Auto Glass in Florida.
The litigation started in August 2019 when Glassco filed suit against GEICO over alleged “deeply discounted” payments the carrier made based on the “prevailing competitive price” in the National Auto Glass Specifications (NAGS) for auto glass repair. Glassco argued that nearly all of the 1,773 claims it filed with GEICO between 2016 and 2019 were underpaid. The plaintiffs sought to collect the difference between its invoiced charges and what GEICO paid, which Glassco found to be $700,000.
GEICO then countersued Glassco in federal court for more than $700,000 paid on claims from 2016 forward, alleging Glassco isn’t entitled to payment because it violated Florida’s Repair Act. GEICO appealed the district court’s ruling in favor of Glassco to the 11th Circuit.
The 11th Circuit judges considered the case and determined the Supreme Court needed to weigh in. The judges sent two questions to Florida’s Supreme Court:
- Does Fla. Stat. § 559.921(1) grant an insurance company a cause of action when a repair shop does not provide any written repair estimate?
- Do the violations here under the Repair Act void a repair invoice for completed windshield repairs and preclude a repair shop from being paid any of its invoiced amounts by an insurance company?
Fla. Stat. § 559.921(1) is a trade, commerce, investments, and solicitations regulation that allows customers to sue for damages and injunctive relief.
In response to questions from Repairer Driven News on both the AG settlement and O&A agreement, a State Farm spokesperson said, “State Farm has nothing to share with Repairer Driven News.”
Featured image: State Farm corporate headquarters in Bloomington, Illinois on March 26, 2022. (Credit: JHVEPhoto/iStock)