When State Farm Mutual Insurance Co. agreed to pay $40 million to tens of thousands of car owners to settle allegations that it allowed salvaged automobiles to be resold without appropriate titles, the insurer was lauded for being forthright.
But a lawsuit claims State Farm crafted a sweetheart deal with attorneys general for 49 states, including Pennsylvania, under which it will pay a fraction of what car buyers say they have lost.
Robert G. Beaves of Sewickley said he is being offered up to $2,700 for a Honda Civic he bought two and one-half years ago for more than $14,000. Beaves said he never would have bought the car for his stepson had he known it was salvaged. His lawsuit was filed in Allegheny County court.
“The big problem is, we bought a car with a clean title and the state of Pennsylvania is saying we have to turn our clean title in,” Beaves said.
He must get a salvage title when the car is inspected in June, he said. That will reduce the car’s resale value and, should the vehicle be in an accident, he would be compensated based on the salvage title, not what he paid. He also will lose the extended warranty, he said.
Beaves said he can’t understand how State Farm didn’t realize it previously salvaged the car when it issued the policy.
Thousands have accepted
State Farm spokesman Fraser Engerman said he couldn’t comment on the lawsuit, but said thousands of people had accepted the settlement. About 30,000 cars were involved.
“Some people, sure, are not going to be happy, but we believe the compensation we are offering is fair,” he said. He was aware of two other lawsuits, which he expected to be amicably resolved.
State Farm approached state prosecutors after it said it uncovered instances in which vehicles that it had insured should have been branded as salvage, either from crashes, theft or other damage.
Engerman said he couldn’t discuss specifics of how the problem occurred, but said it was uncovered during an internal review.
“This is something we didn’t have to do. We were very proactive in coming to the attorneys general,” he said.
In announcing the settlement in January, state officials lauded the company.
“It is rare that a company comes to us, discloses a problem, and presents a very viable solution to correct the problem and help consumers,” Iowa Attorney General Tom Miller said at the time.
Beaves’ lawsuit claims State Farm had a financial motive for allowing salvage cars to enter the market without appropriate titles and delayed notifying car buyers in hopes of reducing its payout.
“I can’t fathom how this would be a mistake and I can’t fathom how it would get by the attorneys general,” said Beaves’ attorney, Craig Thor Kimmel. Kimmel also claimed attorneys general approved the settlement in part because their states also received money -up to about $1 million-from State Farm.
Engerman denied the insurer acted intentionally.
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