Auto and property insurers in the last three months have settled class-action lawsuits in Southern states alleging the carriers systematically underpaid claims. A federal appeals court in Georgia has decided a similar issue in favor of the insurer, noting that plaintiffs in a State Farm lawsuit are too disparate to form a class.
The 11th Circuit U.S. Court of Appeals affirmed a lower court ruling in Rashad Baker et al vs. State Farm Mutual Automobile Insurance Co. The court found that, despite concerns over the insurer’s method of determining the diminished value of damaged vehicles, the plaintiffs did not prove that all affected policyholders since 2017 – about 600,000 drivers – were equally injured by the use of the formula.
“Appellants failed to demonstrate that State Farm’s use of the 17(c) formula always resulted in the underassessment of diminished value claims,” the Atlanta-based appeals court wrote in the per curiam opinion.
The 17(c) formula is a court-approved method that State Farm adopted for calculating the payout on vehicles damaged or totaled in accidents, following a 2001 Georgia Supreme Court decision. The plaintiffs in this case argue that State Farm has misused the formula to undercut the value of its insured vehicles involved in accidents.
The claimant attorneys relied mostly on the testimony of Richard Hixenbaugh, founder of Collision Claim Associates, in Atlanta. He is a certified collision analyst and has spent years adjusting claims, his website shows.
“In the course of our vehicle diminished value research, information was collected pertaining to all 50 states. As a result, we launched CollisionClaims.com to assist consumers nationwide with vehicle diminished value claims,” the site notes. Hixenbaugh’s Linkedin page said he has participated as an expert witness in three class-action lawsuits on diminshed value.
Hixenbaugh testified in the Baker case that his analysis of 75 claims found that the formula always produced low-ball values. Among other issues, State Farm set a 10% cap on the diminished value factor, or the amount it will bump up the market value of a crashed vehicle. The formula also factored in the mileage twice and undervalued the worth of cars with high mileage.
The appeals court said that, “to be sure, Dr. Hixenbaugh identified some fundamental flaws with the 17(c) formula.” But he based his opinion on a small and unrepresentative sample size. He also claimed that the formula State Farm used was incorrect, based mostly on his “generalized knowledge and experience,” the judges noted.
The district court and the appeals court said each policyholder’s case was highly individualized and the request for class certification did not meet the requirements spelled out in the Federal Rules of Civil Procedure. The rules require that the class members have commonality and that the “common questions of law or fact predominate over questions affecting only individual class members.”
Each policyholder’s case must be examined to determine if their vehicles were low-balled and if State Farm breached its contract, the court said.
The lawsuit by Baker and two other policyholders will now continue in federal district court, but not as a class action involving hundreds of thousands of drivers.
The court’s opinion deviated from the outcome in two other recent class-action cases in which policyholders argued that insurers had artificially reduced the value of property in thousands of claims. In Alabama, State Farm in July agreed to settle claims brought by homeowners. The claimants argued that the insurer inappropriately depreciated the cost of labor and other non-material costs on repairs to insureds’ property.
In Mississippi, USAA insurance company in August settled a class action from drivers who said that the insurer did not include taxes and fees when paying out on totaled vehicles.
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