A Northern Illinois District Court judge has ordered a class action lawsuit to continue against State Farm by more than 20 plaintiffs over underpaid actual cash value (ACV) on total loss vehicles.
Plaintiffs allege State Farm paid out 4-11% less than what was owed by applying a discount, or “typical negotiation adjustment,” to the ACV of aggregated used vehicle internet prices similar to the ones involved in the claims. The suit calls this practice “a fraudulent scheme” and a breach of their insurance policy contracts.
The discounts that State Farm instructs its data provider, which the suit claims is Audatex or AudaExplore, to apply are not based on negotiations and do not reflect market realities, according to the lawsuit. They note that State Farm is ignoring the realities of no-haggle pricing that has become common in the used car market.
Common law and statutory violations under the laws of 47 states and Washington D.C. and 25 consumer protection laws are alleged, including breach of covenant of good faith and fair dealing, unjust enrichment, and violations of Illinois’ Consumer Fraud and Deceptive Business Practices Act.
The suit seeks unspecified damages, costs, and pre- and post-judgment interest, as well as an injunction against State Farm.
U.S. District Judge Virginia M. Kendall wrote in her Dec. 21 order that State Farm didn’t inform policyholders about the typical negotiation adjustment before they bought their policies.
“Rather, in the policy — which was consistent across all of Plaintiffs’ states… State Farm shall ‘[p]ay the actual cash value of the covered vehicle minus any applicable deductible….’ Further, it states ‘[i]f a deductible applies to Comprehensive Coverage, then it is shown on the Declarations Page. The deductible that applies to the Collision Coverage is shown on the Declarations Page.'”
Kendall also provided an example. Plaintiff Diane Newkirk, a New York resident, owned a 2015 Subaru Impreza insured by State Farm, which deemed it a total loss in January 2021.
“The market valuation report, dated February 1, 2021, was attached to the letter… Yet, on the report, State Farm, through Autosource, applied a typical negotiation adjustment of approximately 4-6% across comparable vehicles to arrive at a lower valuation,” the order states. “Moreover, Newkirk’s Declarations Page listed the various premiums, deductibles, and expenses associated with her claim, but it did not mention a typical negotiation adjustment.”
Kendall denied State Farm’s motion to dismiss for failure to state a claim, which she called improper according to federal Rule 12(g)(2). The rule seeks to reduce piecemeal consideration of a case by consolidating similar motions. She wrote that State Farm delayed the case for months by waiting to file its motion to dismiss.
“State Farm could have raised its present failure-to-state-a-claim arguments in its previous motion,” she wrote. “By saving its new arguments for a successive motion, State Farm has delayed this litigation by months. While that delay may be State Farm’s goal, it is antithetical to the spirit of Rule 12(g). State Farm ‘has presented precisely the kind of piecemeal litigation Rule(g) is meant to avoid.'”
Kendall also notes in the order that State Farm faces several concurrent lawsuits that challenge its use of a typical negotiation adjustment to determine total loss payments.
One case against State Farm involving adjusted total loss payment took place in Texas, where Joseph Wayne Collins sued State Farm for deducting money from his total loss settlement and was awarded $288,517.59 by a jury in July.
The court heard that the funds were deducted to cover pre-repair work completed during a short window when State Farm had deemed the vehicle repairable. After it received the repair estimate it declared the vehicle a total loss and paid the repair shop for its work, only to deduct those fees from Collins’ settlement.
State Farm initially offered Collins $13,450 for the truck but agreed to pay him $16,000 plus taxes after Collins hired appraiser Robert McDorman to conduct a third-party appraisal, which determined the vehicle’s value to be higher.
In the Illinois case, while siding with the plaintiffs that the lawsuit should continue, Kendall also agreed with State Farm that one plaintiff’s breach of contract claim should be arbitrated rather than resolved in court. That determination was made according to Minnesota’s No-Fault Act arbitration requirement and the arbitration agreement in the plaintiff’s insurance policy.
Kendall ordered the plaintiff’s claims stayed, pending arbitration.
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