State Farm ordered to turn over some docs in lawsuit over total loss values

A federal judge ordered State Farm to turn over a portion of the documents plaintiffs requested in their class-action lawsuit over vehicle loss assessments.

Illinois Magistrate Judge Keri L. Holleb Hotaling last week gave plaintiffs the partial win in their motion to compel State Farm to turn over several documents. Plaintiffs claim the insurer is utilizing another stall tactic in the ongoing legal dispute.

Plaintiffs filed their lawsuit in March 2022 and spent months in 2023 trying unsuccessfully to get State Farm to produce information on its use of “typical-negotiation adjustment,” court documents say. The lawsuit alleges that State Farm used TNA to reduce the total-loss amount of totaled vehicles.

Hotaling ruled that State Farm must turn over documents “regarding the selection of vendors (specifically regarding the 2015 and 2021 change in vendors) and their methodology for total loss calculations.”

Also, the judge ordered the insurer to turn over the requested deposition transcripts from "parallel cases," and to search individuals who held the "head of total loss" title since 2015, and anyone they reported to, "to determine whether they have relevant, non-privileged documents about the total loss valuation methodologies at issue."

Fraudulant scheme alleged

Filed in Illinois, where State Farm is headquartered, the ongoing lawsuit accuses the insurer of "a fraudulent scheme" to undervalue vehicle loss claims. The class action is up to 33 plaintiffs with totaled vehicles who submitted claims to State Farm, according to court documents.

In December, a judge denied State Farm's motion to dismiss the lawsuit filed in U.S District Court for the Northern District of Illinois.

In a March court brief, plaintiffs accused State Farm of "evasive tactics" during the discovery phase, which was supposed to wrap up by late March under a schedule set by the court in July 2023.

In its own motion filed March 15, State Farm said that its use of third-party Audatex, a vehicle valuation service, is standard industry practice. “Every major insurer” uses one of the three third-party vehicle valuation services for market research to help estimate the actual cash value of totaled vehicles: Audatex, Mitchell, and CCC.

State Farm is accused of applying an across-the-board adjustment of 4-11% to vehicle total loss valuations. The adjustment "was not based on any empirical data derived from actual negotiations," the plaintiff's brief states. "Rather, this downward 'adjustment' was entirely arbitrary and unrelated to Defendant’s policies with its insureds, including Plaintiffs, who paid their premiums expecting they would receive the full policy benefits they bargained for, but they were defrauded."

Plaintiffs note that State Farm does not apply the adjustment in California because it was sued there in 2008 and agreed to stop the practice. State Farm settled recent lawsuits over its coverage and claims policies in Montana and in Kentucky.

"Regulatory authorities in every state that require approval have inspected and approved Audatex for this use, including in many of Plaintiffs’ home states," State Farm said in its March 15 brief. "Despite these publicly available facts, and absolutely zero evidence that any Plaintiff was unaware of how his or her vehicle was valued before explicitly agreeing to the valuation, Plaintiffs do their best to create a false narrative of alleged fraud apparently to obscure what is, at bottom, a meritless discovery motion."

Judge: California case 'not relevant'

In its motion to compel discovery, plaintiffs said State Farm has not provided information about the 2006 California lawsuit, Garner vs. State Farm Mutual Insurance Co. That case ended with State Farm paying out a settlement over its use of "projected sold adjustment," a similar method of adjusting claims payments.

Judge Holleb ruled that the Garner materials "are not relevant."

Plaintiffs in that case alleged that State Farm, through its use of Mitchell’s vehicle valuation service, violated 2003 amendments to California’s total loss regulation that required insurers to use only “the asking price or actual sale price” of a comparable car.

"Plaintiffs alleged that because Mitchell used a 'projected sales price' and an 'ad-age adjustment' in some of its vehicle valuations, State Farm had violated the regulation," State Farm said.

The main issue in the case concerned the effective date of the regulation, the insurer said. Because the actual sale price data was not available to any insurer, the California Department of Insurance had agreed to stay the effective date of the regulation until “sixty days after sales price data becomes available from the Department of Motor Vehicles,” State Farm's motion explains.

State Farm contended that because no exact sales price data had become available, the regulation had not yet taken effect at the time of the named plaintiff’s total loss in April 2007. The court later rejected that argument.

Following that decision, the parties settled the case in 2009.

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.