Have you ever totaled a car and felt like your insurance company wasn't paying you what you felt your car was worth? CBS News reports that a jury in Arkansas found that State Farm did exactly that to 37,000 customers in the state, and likely others as well.
The plaintiffs claim that the software State Farm used to calculate payout amounts did not calculate those amounts in a way that was fair to customers. The software assumed that buyers would be able to haggle a lower price on the replacement vehicle
and calculated the payout based on that lower, negotiated purchase price. As car prices continue to skyrocket, there is significantly more demand for used cars than there used to be, leading to higher prices and dealers refusing to negotiate. The software calculating insurance payouts as though haggling is still possible leads to less buying power when it comes to purchasing a replacement vehicle.
"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," State Farm told CBS News. 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." Insurers can be reasonable, even generous sometimes.
Read more: These Are The Worst New Car And SUV Deals Right Now, According To Consumer Reports
The Floodgates Are Open
Typically, customers are not allowed to sue insurers after accepting a payout, but according to Ken Kieklak, Attorney at Law, customers may still sue if fraud is suspected. That's a hefty accusation, but it's essentially what the class action lawsuit accused State Farm of doing through the way the software calculated payouts. State Farm no longer uses this software package to calculate payouts, but faces lawsuits on this issue in multiple states for the time it used it. The victory in this lawsuit is bound to work against State Farm in these other cases.
Lawyers are even going after other insurance companies now, as the software in question was used by most insurers at the time, not just State Farm. My wife recently received a solicitation in the mail to join a class action lawsuit against Progressive for underpayment when a car was totaled last year. In her case, she'd owned the car for a year and received a larger payout than she originally paid for the car. This was more than fair, so she will not be joining the lawsuit.
This isn't always the case, however. Wells Fargo screwed up pretty badly and got caught. Many insurers suddenly dropped coverage for Hyundai and Kia owners during a St. Louis theft spree, leaving them with no options. Many of you have stories of insurance nightmares. Just remember that it's as illegal to try to scam the insurance company as it is for them to scam you.
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