A federal judge last month approved a preliminary class settlement resolving claims that State Farm underpaid Arkansas policyholders for total loss vehicle claims by applying an erroneous valuation method.
Under the settlement agreement, State Farm will pay $15.6 million to policyholders who filed a total loss claim between November 2016 and October 2021 and whose claim payment was based on an appraisal report from Audatex.
Plaintiffs allege that State Farm used valuation reports prepared by Audatex that underrepresented the actual cash value of a loss vehicle by applying typical negotiation adjustments. The use of the typical negotiation adjustments systematically “thumbs the scales” against policyholders, plaintiffs argue.
State Farm stopped using Audatex in October 2021. The company denies all the claims and allegations raised.
Lead plaintiff Rose Chadwick’s vehicle was deemed a total loss in December 2020. State Farm valued total loss claim at $4,121 and paid Plaintiff Chadwick $1,383 as the net claim amount, relying on a market-driven valuation report from Audatex.
According to Chadwick’s class action complaint, filed in November 2021 in the Eastern District of Arkansas, the market-driven valuation report provided the prices of four different comparable vehicles advertised for sale online and applied a typical negotiation adjustment of approximately 9% to each one.
Chadwick argued that the use of the typical negotiation adjustment did not represent market realities, where list prices for used vehicles online reflect intense shopping competition from consumers.
State Farm applied adjustments contrary to proper appraisal methodologies for determining actual cash value, the complaint alleged, violating the policyholder’s policy.
“The use of the Audatex system was the common and predominant issue,” U.S. District Judge DP Marshall Jr. wrote in the March 27 preliminary approval.
Policyholders will receive an average amount of $489 under the settlement agreement. State Farm has agreed to pay attorney’s fees, litigation costs, and the service award, and to reimburse class counsel for the costs of notice and administration separately, according to the preliminary order.
Multiple class action lawsuits have been filed against insurers in recent years by policyholders who say they were underpaid for total loss claims on vehicles.
In 2024 Progressive agreed to a $48 million settlement with a class of 93,000 New York drivers who alleged the carrier underpaid total loss claims.
Two class actions against Progressive filed in Pennsylvania failed after a judge ruled last year that underpayment claims were an individual issue incapable of proof on a class-wide basis.
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