A proposed class action claims State Farm Mutual Automobile Insurance Company has failed to include sales tax in payments made to insureds whose vehicles were deemed a total loss after accidental damage.
The lawsuit alleges State Farm has “systematically and uniformly” underpaid thousands of consumers whose insurance policies included comprehensive and collision coverage by refusing to pay the total cost to repair or replace a damaged vehicle (limited to the car’s actual cash value), which necessarily includes sales tax.
The exclusion of sales tax from total loss claims payments amounts to a breach of State Farm’s insurance policies, the case attests.
The complaint explains that under the terms of State Farm’s auto insurance policies, the insurer agrees to pay for “direct, sudden, and accidental damage” to a covered vehicle by either repairing or replacing the car, or paying the insured the amount it would cost to do so, to the end that the vehicle is restored, or can be restored, to its pre-loss condition. Per the suit, if State Farm chooses to pay the insured instead of repairing the vehicle, its liability is limited to the vehicle’s actual cash value minus any deductible. Thus, when State Farm determines that the repairs to a damaged vehicle would cost more than its pre-loss actual cash value, the car is deemed a “total loss” and State Farm pays the vehicle’s actual cash value, the case relays.
A vehicle’s actual cash value (ACV), the suit contends, is an “independent amount” not based on how much the consumer originally paid for the car, whether they replace it with another vehicle, or the price of the replacement vehicle:
“The ACV is the same whether the insured paid nothing for the total loss vehicle, paid less than what the vehicle was worth, or paid more than what the vehicle was worth. The ACV is the same whether the insured replaces the vehicle with a more expensive vehicle, a less expensive vehicle, or chooses not to replace the vehicle at all.”
Because sales tax, a “mandatory cost” imposed by California on the purchase of every vehicle, is “inherently part” of the cost to replace a vehicle, it must be included in the car’s ACV, the suit alleges.
“It is impossible to replace a total loss vehicle—or to purchase any vehicle under any circumstances—without payment for sales tax,” the complaint asserts.
The case proposes to cover the following class:
“All individuals insureds under a California policy issued by State Farm Mutual Automobile Insurance Company covering an insured vehicle with private-passenger auto physical damage coverage with comprehensive or collision coverage, who made a first-party claim determined by State Farm Mutual Automobile Insurance Company to be a total loss, and where the total loss payment did not include sales tax calculated as the applicable state and local percentage of the adjusted vehicle value (‘ACV Sales Tax’) within four years prior to the date on which this lawsuit was filed through the date of any certification order.”
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