Repairer Driven News
« Back « PREV Article  |  NEXT Article »

California DA sues insurers, estimating system providers over alleged ‘lowball’ total loss payouts

By on
Insurance | Legal
Share This:

Alameda County District Attorney Pamela Price’s Consumer Justice Bureau has filed suit against USAA, Progressive, CCC Intelligent Solutions, and Mitchell International over alleged total loss undervaluations in violation of several California laws.

The bureau accuses the companies of working together to create and use altered automobile valuation software that systematically undervalues totaled vehicles and pays California insurance consumers “lowball” settlements that are less than the actual value owed under their policies, according to a news release.

The complaint alleges violations of California’s Insurance Code, Unfair Competition Law, and False Advertising Law. The DA’s Bureau seeks civil penalties, restitution for California consumers, injunctive relief, and associated fees and costs.

According to the complaint, USAA uses CCC and Progressive uses Mitchell.

The insurers and their affiliates allegedly use the software portals of both estimating systems to generate a market value report (MVR) that states a monetary value for the totaled vehicle, which is misrepresented as the actual cash value (ACV) of the vehicle, and forms the basis of what the insurers tell policyholders they’re owed, according to the complaint.

The complaint states this is done knowingly by the insurers so they can reduce their indemnity losses, and that CCC and Mitchell are aware of “the intended outcome, purposeful use of their MVR software to achieve that outcome, and the effect the scheme has on California insureds.”

The insurance companies then resell the totaled vehicles at auction to minimize their losses further, according to the complaint.

These practices violate the insurers’ duty of good faith and fair dealing, failing to meet “the legal duty to make an accurate and correct indemnity payment in the first instance,” the complaint states.

CCC and Mitchell, called the “valuation defendants” in the complaint, allegedly provide off-the-shelf licenses for their MVR software that, when used according to California law, “reasonably permit the user to generate accurate and fair approximations of ACV.”

Non-customized versions of Mitchell’s WorkCenter Total Loss or CCC One are regularly used by independent adjusters and appraisers, according to the complaint.

The complaint alleges USAA and Progressive’s versions of MVR software provided by CCC and Mitchell:

    • “Selects ‘comparable’ vehicles that do not accurately reflect the subject loss vehicle in the local market area;
    • “Relies upon an exclusive matrix of comparable vehicles and condition adjustments that are only available to the insurance company defendants and which is designed to underpay total loss claims; and
    • “Applies arbitrary and unsupported adjustments to the condition of the loss vehicle.”

The insurers are also accused of using misleading marketing to “conceal the scheme.” The complaint states the companies failed to disclose to their customers that they worked with the software developers to create exclusive versions of this software for their use or that they used the means built into that software to lower the ACV on which their settlement offers were based.

“Most insureds lack the tools or knowledge to independently calculate an accurate cost-free ACV,” the complaint states. “Insureds therefore have no means to ascertain the scheme on their own unless and until they hire an independent appraiser to challenge the valuation through appraisal or hire a lawyer to file suit.

“Even in cases where consumers suspect they were underpaid for their total loss, insureds have only limited available recourse to invoke appraisal and/or sue to enforce their rights under the policy. Informal negotiation is rarely successful because, on information and belief, the
insurance company defendants instruct their adjusters to avoid deviating from the MVRs whenever possible.”

According to the complaint, the total amount of underpayments by the insurance companies in the state is likely billions and each total loss underpayment is, on average, by $3,000 to $4,000.

“Therefore, even if insureds suspect an underpayment, most would conclude that it is not in their economic interest to bring suit against an insurance company defendant over that amount of money,” the complaint states. “The relatively small amount of any single underpayment and the extremely large amount of the underpayments in the aggregate are some of the insidious aspects of the scheme.”

Other insurers that use CCC and Mitchell could be added to the suit, according to the complaint.

“A vehicle is the lynchpin to life in California,” Price said in the release. “Many residents live paycheck to paycheck and go deeply into debt just to buy a car. When an insurance company underpays its customers for a totaled vehicle, that can result in missed loan payments, damaged credit scores, impacted borrowing, and the inability to buy a replacement vehicle. That can lead to job losses and even homelessness. California residents and small businesses try their best to follow the law. They expect their insurance companies and affiliates to do the same.

“Public safety includes protecting consumers from powerful companies that seek only to maximize profit. We are seeking to level the playing field for vehicle owners who face what looks like a rigged game when their car or truck is totaled because a loss of a vehicle can destabilize a person’s life.”

The suit claims not only policyholders and consumers are affected, but businesses are as well including car manufacturers and dealers, gap insurance providers, automobile loan institutions, and car repair facilities.

Images

Featured image credit: alfexe/iStock

Share This: