Did State Farm Insurance use a clever device to lower its payouts – sometimes to zero – on Alabama business claims?
The insurance company has declined to pay less and other damages, but has agreed to settle a lawsuit filed by Alabama homeowners. Lawmakers who want to challenge the decision have until Aug. 24. Final approval will be given on Sept. 23 in federal court in Mobile, Alabama.
In Annie Arnold et al vs. State Farm Fire and Casualty, a class of plaintiffs said that between 2011 and 2017, the insurance giant systematically reduced the cost of labor and other non-material aspects of the repair of insured property. In some cases, the price drop reduced the bill so much that the price dropped below the homeowner’s expense.
Depreciation was not allowed under the policy, and non-material costs could not be reduced, in any case, the lawsuit said.
“The terms and conditions are initially agreed to be fair, adequate, and reasonable, and the request by the plaintiff and other parties to accept the settlement is granted in its entirety, subject to further consideration at a formal hearing,” US District Judge Terry Moorer wrote in his order.
A State Farm official issued a statement regarding the settlement: “While we are confident that we have followed through on our commitments to our policyholders and are confident that we would have prevailed in court, to avoid further litigation costs and uncertainty, we determined that we would be able to resolve this case. in favor of those who had modern and ancient laws.”
The dollar amount of the settlement agreement was not disclosed, nor was the number of policyholders in the class. But the plaintiffs’ settlement fees could be as much as $9 million, meaning the total amount could be three to four times that amount. If 5,000 point holders are in the class, the payout can be about $7,200 each.
Attorneys for the plaintiffs declined to comment and attorneys for State Farm could not be reached Thursday. But the lawsuit and the insurance’s response to the complaint explains what is going on.
Annie Arnold said her home in Selma, central Alabama, was damaged in 2013. State Farm paid her the actual amount but cut back on repairs, leaving the homeowner with a small fee and unable to “collect the money.” at a time of great need and great stress,” his lawyers said in the suit.
A State Farm adjuster determined Arnold’s home lost $95,720, including labor and salvage. After subtracting the $2,000 deductible and $21,486 in depreciation, the payment to the insurance company was $72,233.
The suit provided an example of the cost reductions: At State Farm’s entry point, the cost will be about $106 for materials and labor. But when the price went down, the payment was just $64, the suit said.
Alabama law allows an insurer to deduct the cost of construction materials but does not allow a deduction for the cost of labor, the suit said. Materials used to repair or replace damaged items, such as shingles or metal, depreciate over time due to wear and tear.
expiration is age, the suit said, quoting from Black’s Law Dictionary. “Thus these are goods that can depreciate in value. In contrast, labor cannot be affected by age or wear. Its value does not diminish over time.”
The practice was widespread in the state, the complainants said.
“Consequently, … by deducting the cost of labor from the ACV calculations in Alabama, State Farm has acted, and continues to act, in a systematic and inconsistent manner with regard to insurance claims,” he argued.
State Farm did not agree that operating expenses were not accounted for by depreciation and denied the claim.
More information about refunds can be found on the claims manager’s website, Here.
This is not the first time State Farm has been accused of underpaying. In March, Illinois lawmakers filed a lawsuit against State Farm Automobile Insurance Co., alleging that the insurer used a “negotiated temporary adjustment” to improperly reduce the value of a car that was apparently lost in an accident.
State Farm instructed its accountants to incorporate the change, which reduced the payout by 4% to 11%, the suit contends. A California lawsuit in 2008 required the insurer to stop using the state’s methods, the complaint states.
Other insurance companies have done the same, regulators said.
In Georgia, the state’s insurance commissioner last spring ordered auto insurers to stop calculating tax credits for all vehicles. Some carriers were paying the actual value of the vehicle but subjecting the sales tax, and the liability to the insurance, to a lower price, calculated from the value groups and dealers.
Lawsuits Wanted in Alabama