State Farm Fraudulently Undervalued Total Loss Vehicles
For years, State Farm engaged in a deceptive scheme to systematically undervalue total loss vehicles in order to reduce the company’s payments to insurance customers to replace their damaged vehicles.
In the event of a total loss, State Farm car insurance policies promise to pay customers the actual cash value (“ACV”) of the vehicle, which is commonly determined by using the price of comparable vehicles (i.e. cars with the same make, model, year, and similar condition, mileage, and features).
However, State Farm directed a third-party vendor to apply an arbitrary and baseless flat-rate adjustment to the value of comparable vehicles, which it termed the “typical negotiation adjustment,” resulting in adjustment ranges from 4-11% of the value of the comparable vehicle. This percentage reduction ensured that every total loss payment State Farm made to customers was significantly and artificially reduced below the ACV and led to regular underpayment of total loss claims.
Through this fraudulent scheme, State Farm allegedly breached its contractual obligations to its customers to unlawfully increase its own profits and acted in bad faith by undervaluing total loss claims. The company also allegedly concealed its fraudulent conduct, in violation of consumer protection statutes.
What is a Total-Loss Claim?
A total-loss claim is one where repair of the damaged vehicle is impossible or uneconomical requiring the owner to replace the vehicle. Typically, this indicates that the cost of repairs exceeds the actual cash value of the vehicle. In such circumstances, the car is deemed a total loss, and your insurer will provide payment to you equivalent to the value of your vehicle.
Vehicle Valuation and the “Typical Negotiation” Adjustment
As a part of their valuation process, State Farm considers the market value of the vehicle including the mileage on your vehicle, comparable cars, wear and tear from use, as well as a “typical negotiation” adjustment to the car.
The “typical negotiation” adjustment implemented by State Farm decreased the valuation of total loss claims by 4-11% in, ensuring that every total loss payment the company makes is significantly lower than the true value of the vehicle. This adjustment is arbitrary and not based on any negotiations, nor market realities, meaning insurance customers receive lower values for their vehicles resulting in lower payouts of their total-loss claim.
For this process, State Farm used a third-party vendor called Autosource to identify the price of comparable vehicles sold or listed for sale online in the relevant market. Autosource then, at State Farm’s directive, applied an arbitrary “typical negotiation” adjustment to the value of the comparable vehicles before determining the total-loss payment State Farm was obligated to make.
State Farm Knew Low Total Loss Valuations Were Fraudulent
Notably, State Farm did not apply baseless “typical negotiation” adjustments to reduce the value of insured vehicles in California. In 2008, the company settled a similar lawsuit in California. As part of the settlement agreement in Garner v. State Farm Mutual Automobile Insurance Company, State Farm agreed to stop applying “projected sold adjustment,” which is effectively the same as a “typical negotiation” adjustment, as part of their valuation process in the state. But the company continues to use the arbitrary and unfair “typical negotiation” adjustment to artificially reduce its total loss payments in other states.
State Farm Customers Seek Compensation
State Farm engaged in a systematic and fraudulent scheme to misvalue vehicles that are declared a total loss in order to decrease their payouts to insurance customers. If you received a total loss valuation from State Farm that included a “typical negotiation” or similar adjustment, you may be eligible for compensation.