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State Farm denies uniform undervalued ACV practices, breach of contract claims

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State Farm has denied allegations in an Illinois court that it has participated in a multi-state “deceptive, fraudulent, and unfair scheme” to undervalue total loss vehicles and arbitrarily reduce payments to claimants.

Plaintiffs allege State Farm paid out 4-11% less than what was owed by applying a discount, or “typical negotiation adjustment,” to the actual cash value (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.

In December, U.S. District Judge Virginia M. Kendall denied State Farm’s motion to dismiss and ordered the class action lawsuit to continue against State Farm by more than 20 plaintiffs over underpaid ACV on total loss vehicles. She wrote in her order that State Farm didn’t inform policyholders about the typical negotiation adjustment before they bought their policies.

State Farm argued in its January response to the amended complaint that it “has the option under its state-specific insurance policies, in the event a vehicle is deemed a total loss, to either repair or replace the totaled vehicle or pay its ‘actual cash value.'”

“State Farm denies that its insurance policies are ‘uniform’ or ‘materially identical’ as they vary from state to state… State Farm denies that it avoids any contractual obligation; denies that it or any ‘third-party vendor’ reduces total loss valuations, ‘systematically’ or otherwise; denies that Plaintiffs’ description of the process allegedly employed by the ‘third-party vendor’ is accurate or complete; and denies that the ‘third-party vendor’ applies any adjustment that is ‘arbitrary and baseless.’

“Plaintiffs’ allegation regarding what constitutes the ‘typical negotiation adjustment’ is so vague and ambiguous to make a meaningful response impossible. To the extent one is required, State Farm denies the allegation because third-party vehicle valuation vendors apply many adjustments to comparable vehicles.”

Historically, in some states, total loss settlement processes sometimes include obtaining a market-driven valuation report from Audatex to provide a valuation based on comparable vehicles, State Farm added.

“Sometimes, but not always, valuations based on comparable vehicles include comparable vehicles that have been adjusted for typical negotiation. No typical negotiation adjustment is applied if the comparable vehicle’s actual sold price is listed, or if the comparable vehicle is listed for sale by a known ‘no haggle’ dealer. State Farm further admits that it has used ‘Market-Driven Valuation’ reports from Audatex to assist claim handlers in estimating the actual cash value of totaled vehicles.”

Whether an independent appraisal of vehicles will be less or more than the initial settlement offer will vary on a claim-by-claim or case-by-case basis, according to State Farm.

“…appraisal can be a fair, efficient, and superior process for resolving disagreements as to actual cash value,” the carrier said.

State Farm contends the case should be dismissed for lack of standing, cognizable injury, and damages based on a valuation methodology that wasn’t used on each claim. The carrier also argues plaintiffs cannot bring “headless” claims, meaning allegations made without a plaintiff named.


Featured image: sshepard/iStock

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