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State Farm allegedly using ‘evasive tactics’ in undervalued ACV lawsuit

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Insurance | Legal
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State Farm has now been accused of using “evasive tactics” to avoid supplying documents and information in an ongoing lawsuit regarding allegations it has undervalued total loss claims and arbitrarily reduced payments to claimants.

Documents filed March 1 by the plaintiffs state that their first requests were made in August 2023. The requests included State Farm’s policy documents in effect with policyholders as well as information that would prove its use of a “typical negotiation adjustment (TNA) to reduce its payments to claimants, conceal its use of the TNA, its change in estimating vendor, and the discontinuation of the use of the TNA.

The discontinuation allegedly occurred in 2020 when the first of several lawsuits, like this one filed in Illinois, were filed.

Plaintiffs allege State Farm paid out 4-11% less than what was owed by applying a discount, or TNA, 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. The lawsuit was filed in March 2022.

In November, State Farm objected to the discovery requests, according to court documents. The insurer said the inclusion in the requests of “your valuation of total loss claims” was “vague and ambiguous.”

“That phrase could be interpreted to include any case where any insured or third-party claimant was challenging any aspect of a total loss claim, including cases involving taxes, fees, or other adjustments not at issue here,” State Farm wrote. “The proposed definition could also encompass individual suits.”

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.

In a March 1 memorandum, the plaintiffs allege State Farm knew long before 2020 that its use of the TNA was illegal.

“Indeed, the TNA was merely a repackaging of State Farm’s prior fraudulent scheme that ended in it paying out a class action settlement. At the end of 2006, State Farm resolved, on a class-[wide] basis, claims against it arising from its then use of a ‘Projected Sold Adjustment’ in California in Garner v. State Farm Mut. Ins. Co.

“Like TNA, the Projected Sold Adjustment was ‘an adjustment to the asking price of comparable vehicles used in Total Loss Comparable Vehicle Valuation Reports… to reflect the price for which that comparable vehicle was projected to sell…’ to date, Defendant has produced little discovery beyond the ‘claims file’ it maintains for each Plaintiff, while repeatedly misstating that this case is not ‘document-intensive’ or ‘ESI-heavy.'”

The plaintiffs did note that some of the discovery objections had already been resolved.

However, they argue that, “State Farm cannot shape discovery to suit its defenses and prevent disclosure of documents and information evincing State Farm’s fraudulent practices. Plaintiffs are entitled to discovery concerning their claims and allegations. Accordingly, the Court should grant Plaintiffs’ Motion and order Defendant to comply with its discovery obligations…

“State Farm’s intentional delay is significant here because, as this Court recognized, this case is broader than all the other similar actions pending against State Farm and, thus, it is likely the ‘superior vehicle’ for resolving State Farm insureds’ claims.”

In January, State Farm argued in 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.’”

The insurer denies the allegations that it has participated in a multi-state “deceptive, fraudulent, and unfair scheme” to undervalue total loss vehicles and arbitrarily reduce payments to claimants.

Last month, State Farm agreed to pay a $2 million fine over underpaid automobile claims following a two-year examination of its claim handling practices by the Montana Commissioner of Securities and Insurance (CSI).

State Farm will be fined an additional $2 million if corrective actions aren’t made, according to the CSI. State Farm settled rather than appealing to the District Court, CSI said.

Corrective actions include all recommendations in an independent market conduct examination report by Examination Resources, and an error rate below 8% in the categories examined of a sample of 50 third-party claims since April 15, 2022.


Featured image credit: JHVEPhoto/iStock

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