A federal judge last month approved a preliminary class settlement that resolves claims that State Farm used faulty valuation methods to underpay Arkansas policyholders on vehicle total-loss claims.
Under the settlement, State Farm will pay $15.6 million to policyholders who filed total loss claims between November 2016 and October 2021 and whose claim payments were based on Audatex appraisal reports.
The plaintiffs allege that State Farm used a valuation report prepared by Audatex that understated the actual cash value of the lost vehicles by applying typical negotiation adjustments. The plaintiffs argued that policyholders were systematically “measured against the odds” using typical negotiated adjustments.
State Farm stopped using Audatex in October 2021. The company denies all claims and allegations made.
Lead plaintiff Rose Chadwick’s vehicle was deemed a total loss in December 2020. Based on Audatex’s market-driven valuation report, State Farm valued the total loss claim at $4,121 and paid plaintiff Chadwick $1,383 as the net claim amount.
According to Chadwick’s class action complaint filed in the Eastern District of Arkansas in November 2021, the market-driven valuation report provided prices for four different comparable vehicles advertised for sale online, with a typical negotiated adjustment of approximately 9% for each vehicle.
Chadwick believes that the typical use of negotiated adjustments does not represent market reality and that online used car prices reflect fierce consumer competition for shopping.
The complaint alleges that State Farm violated the policyholder’s policy by using adjustments contrary to the proper valuation method when determining actual cash value.
“The use of the Audatex system is a common and major problem,” U.S. District Judge DP Marshall Jr. wrote in the March 27 preliminary approval.
Under the settlement, policyholders will receive an average of $489. According to the preliminary order, State Farm agreed to pay attorneys’ fees, litigation costs and service charges, and to reimburse class counsel’s notice and administrative costs, respectively.
Policyholders have filed a number of class action lawsuits against insurance companies in recent years, claiming they underpaid on total vehicle loss claims.
In 2024, Progressive agreed to a $48 million settlement with 93,000 New York drivers who claimed the carrier underpaid total loss claims.
Two class-action lawsuits against Progressive in Pennsylvania failed last year after a judge ruled that the underpayment claims were individual matters and could not be proven on a class-wide basis.
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