State Farm Mutual Auto Insurance “Typical Negotiation” Reduction in ACV Class Action

This class action tackles the issue of the actual cash value (ACV) of vehicles that are declared total losses after an accident. The complaint alleges that State Farm Mutual Automobile Insurance Company arrives at an ACV, then arbitrarily and improperly reduces it by a “projected sold adjustment” that supposedly takes into consideration a “typical negotiation.”

The Multistate Class is all persons insured by State Farm Mutual Automobile Insurance Company who, from the earliest allowable date through the date this action is resolved, received a first-party total loss valuation and payment on an automobile total loss claim that included a “typical negotiation” or similar adjustment.

Subclasses have been proposed for Alabama, Alaska, Arizona, Arkansas, Colorado, Connecticut, District of Columbia, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine Maryland, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, Wisconsin, and Wyoming, citizens of those states.

State Farm’s auto insurance policies promise to pay for the ACV of vehicles that are declared total losses. However, the complaint alleges that the company ignores and avoids its straightforward contractual obligation by directing or relying on its third-party vendor to systematically reduce total loss evaluations.” It does this by directing its valuation vendor to apply a flat-rate adjustment to the prices of the various comparable vehicles found that it calls a “typical negotiation” adjustment.

The complaint claims, “The ‘typical negotiation’ adjustment is not based on any negotiations, typical or otherwise, and is not based on any market realities.” Rather, it reduces by 4-11% the value of the comparable vehicles the valuation vendor finds. According to the complaint, “[t]his percentage reduction artificially reduces the total-loss payment for the totaled vehicle and, with the sliding percentage scale, ensures that every total loss payment [State Farm] makes to insureds is significantly, but unconscionably, reduced.”

Can the insured protest the final ACV? Yes, but the complaint alleges that this must be done through an appraisal process, in which State Farm and the insured each hire an appraiser at their own expense and equally share the expense to hire an umpire for a final decision. The complaint claims that as the cost for the insured of going through this process is more, or only marginally less, than the loss of to the payout, insureds are likely not to make use of this option.

Also, the complaint alleges that the issue in question in this case is not the ACV itself, but the reduction applied to it, so that it cannot be resolved by an appraisal.

There is one state, the complaint says, in which State Farm does not apply this “typical negotiation” reduction: California. The complaint alleges that this is because State Farm was sued in 2008 for applying a similar “projected sold adjustment,” and that, as part of the settlement, the company agreed to stop applying it, at least for now.

Article Type: Lawsuit
Topic: Insurance
Tags: Actual Cash Value, Auto Insurance, Breach of Contract, Breach of the Covenant of Good Faith and Fair Dealing, Incomplete payment of benefits due, Insurance