An Arkansas jury found recently that a major car insurance carrier had shortchanged customers who had been in accidents that left their cars “totaled,” and now plaintiffs in other states are pursuing similar cases.
The Arkansas lead plaintiff, Rose Chadwick, said she initially assumed the reimbursement for her “totaled” 2011 Hyundai was reasonable compensation, “because that’s what I pay them for, is to be fair with me.”
But after learning about potential legal action challenging the way insurance carrier State Farm calculated the replacement cost, she decided to bring her case to court. Her lawyers alleged that the company used technology to estimate the amount of buying a replacement. That program factored into the calculation the potential for the car buyer to negotiate a discount from used car dealers – a haggling discount that Chadwick’s attorneys argued was no longer consistent with how modern-day used cars are priced and sold.
“The computer program that State Farm used to calculate the replacement value of the car, did it systematically unfairly,” said Chadwick’s attorney, Brian Glasser. Glasser says his firm argued that commonly used software systematically low-balled the value of total-loss cars for tens of thousands of drivers across the country.
In an Arkansas federal court in June, a jury agreed – finding in favor of Chadwick and 37,000 other plaintiffs. The jury determined Chadwick had been underpaid by about $600 for a car worth $4,700.
State Farm is fighting lawsuits on the issue in multiple states, arguing that the system the company used at the time was standard for most automobile insurers. It no longer uses the same program to calculate reimbursement amounts.
“State Farm always seeks to pay what we owe within the terms of the policy to help our customers recover from a loss,” the company said in a statement to CBS News.
“We work with the policyholder to determine the actual cash value of a total loss vehicle considering the age, condition, equipment, mileage of the vehicle at the time of the loss,” the company said, adding that customers are “also invited to share additional information and has the option to use a third-party appraisal to help reach agreement on the value of their totaled vehicle.”
A “totaled” car is typically one that has sustained damage that would cost more to repair than the value of the car itself.
Company officials noted that appellate courts in multiple jurisdictions have agreed with their contention that a challenge to the reimbursement process cannot be made en masse, in the form of a class action lawsuit, as it was in Arkansas. The courts have split over whether each reimbursement case is unique, and must be filed separately, or whether all customers whose loss was calculated the same way can file suit together as a class.
Chadwick’s case began five years ago, when her daughter borrowed her car for an early morning run to the store when she was struck from behind while going through an intersection.
After learning of the reimbursement issue in a social media post, Chadwick became the lead plaintiff in a class action lawsuit against the insurance giant accusing it of undervaluing and shorting payouts on claims like hers.
“State Farm moves billions of dollars to people for their broken cars every year and, and insurance companies around America do similar numbers,” Glasser said. “So we’re talking about these computer programs that calculate the value of your replacement vehicle that affect billions of dollars every year.”
Attorneys are launching similar cases against several insurance carriers in at least 19 states while regulators in some of those states weigh whether insurers must change how they value total loss cars.
State Farm said customers are not without recourse if they have questions about the estimate the company provides to reimburse a customer whose car was a total loss. Among them, customers are encouraged to ask their insurer how they determined the payout amount, to an agreeable price, and to get an independent appraisal of what the car was worth.
In the end, Chadwick said the dispute was less about the money than about principles.
“It was like hiding something and you shouldn’t hide,” she said.
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