State Farm ‘Arbitrarily’ Undervalues Total-Loss Vehicles, Class Action Says

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State Farm faces a proposed class action that claims the car insurance company has violated Missouri law by applying “unfounded” and “arbitrary” deductions when calculating the actual cash value (ACV) of vehicles deemed a total loss.

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The 15-page lawsuit says that despite purporting to pay the ACV of insured total-loss vehicles based on the list price of comparable cars, State Farm systematically “thumbs the scale” against policyholders when determining the value of their vehicles. The case claims State Farm does this by applying so-called “typical negotiation deductions”—adjustments based on the bogus assumption that insureds would be able to negotiate a discount from a comparable car’s asking price.

“That is simply not how the [used car] market works anymore, given, amongst other things, the ubiquity of Internet advertising and shopping and the development of sophisticated pricing tools (for dealers) and comparison tools (for consumers),” the filing says.

According to the suit, State Farm reportedly calculates the ACV of total-loss vehicles through third-party vendor Audatex, which determines the list price of comparable vehicles. However, State Farm reduces the asking prices of these comparable vehicles by applying “typical negotiation deductions,” which results in lower total-loss valuations and thus lower payments to insured consumers, the case contends.

As the complaint tells it, the deductions at issue “do not reflect market realities” and indeed “run contrary to customary automobile dealer practices.” Further, these deductions are not based on State Farm’s knowledge that the sellers of comparable vehicles are willing to negotiate, nor do the adjustments reflect any sort of verifiable data, the filing alleges.

“[State Farm’s] Typical Negotiation Deduction is arbitrary, conflicts with data … demonstrating that vehicles typically sell for the internet list price, and is nothing more than an illegitimate and capricious way to undervalue the total-loss vehicles,” the lawsuit charges.

After his 2015 Chevrolet Silverado K1500 was deemed a total loss in June 2018, the plaintiff, a St. Louis resident insured by State Farm, submitted a first-party property damage claim with the company, the suit says. Upon receiving Audatex’s valuation report—which determined the vehicle’s ACV based on the list prices of four comparable trucks—and after State Farm applied to each truck a “typical negotiation deduction” of roughly three percent, the insurance company valued the plaintiff’s total-loss vehicle at $36,106, the case relays.

Similarly, a second Missouri-based plaintiff filed a property damage claim with State Farm after her vehicle was totaled in October 2020, the complaint states. Per the filing, after the third-party valuation report supplied an ACV of the woman’s car, and after State Farm applied a deduction of about six percent to each comparable vehicle used in the calculation, the plaintiff’s automobile was valued at $12,636.

The suit argues, however, that “were it not for this unfounded, factually erroneous adjustment, State Farm’s payment to [the first plaintiff] would have been $1,128.00 higher, and its payment to [the second plaintiff] would have been $750.00 higher.”

The lawsuit looks to represent any Missouri residents who made a first-party claim on an insurance policy issued by State Farm Mutual Automobile Insurance Company, who, since March 24, 2013, received compensation for the total loss of a covered vehicle, where that compensation was based on an Audatex valuation report and the actual cash value was reduced because of “typical negotiation deductions” applied to the comparable vehicles used to determine the ACV.

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