State Farm Sued Over Salvaged Auto Settlement with 49 States
The Insurance Journal
Posted November 10, 2005
When State Farm Mutual Insurance Co. agreed to pay $40 million to tens of thousands of car owners to settle allegations that it allowed salvaged automobiles to be resold without appropriate titles, the insurer was lauded for being forthright.
But a Pennsylvania lawsuit now claims State Farm crafted a sweetheart deal with attorneys general for 49 states, including Pennsylvania, under which it will pay a fraction of what car buyers are out.
Robert G. Beaves, 51, of Sewickley, said he is being offered up to $2,700 for a Honda Civic he bought two and one-half years ago for more than $14,000.
Beaves said he never would have bought the car for his stepson had he known it was salvaged. His lawsuit was filed last week in Allegheny County court.
"The big problem is, we bought a car with a clean title and the state of Pennsylvania is saying we have to turn our clean title in,'' Beaves said.
He must get a salvage title when the car is inspected in June, he said. That will reduce the car's resale value and, should the vehicle be in an accident, he would be compensated based on the salvage title, not what he paid. He also will lose the extended warranty, he said.
"We're kind of addedly chagrined by the fact that they're our insurance company,'' he said of State Farm.
Beaves said he can't understand how State Farm didn't realize it previously salvaged the car when it issued the policy. State Farm won't tell him about the car's past, he said.
State Farm spokesman Fraser Engerman said he couldn't comment on the lawsuit, but said thousands of people had accepted the settlement. About 30,000 cars were involved.
"Some people, sure, are not going to be happy, but we believe the compensation we are offering is fair,'' he said. He was aware of two other lawsuits, which he expected to be amicably resolved.
State Farm approached state prosecutors after it said it uncovered instances in which vehicles that it had insured should have been branded as salvage, either from crashes, theft or other damage.
"This is something we didn't have to do. We were very proactive in coming to the attorneys general,'' he said.
In announcing the settlement in January, state officials lauded the company.
"It is rare that a company comes to us, discloses a problem, and presents a very viable solution to correct the problem and help consumers,'' Iowa Attorney General Tom Miller, who helped craft the settlement, said at the time.
Beaves' lawsuit claims State Farm had a financial motive for allowing salvage cars to enter the market without appropriate titles and delayed notifying car buyers in hopes of reducing its payout.
"I can't fathom how this would be a mistake and I can't fathom how it would get by the attorneys general,'' said Beaves' attorney, Craig Thor Kimmel.
Engerman denied the insurer acted intentionally.
Kimmel said attorneys general approved the settlement in part because their states also received money, up to about $1 million, from State Farm.
A call seeking comment from the National Association of Attorneys General was not immediately returned.
Beaves suit seeks damages for the cost of the car, punitive damages and attorneys fees.
The suit also named Moon Township Automobiles Inc. as a defendant, claiming that it either knew or should have known that Beaves' Honda had been salvaged but sold the car anyway without disclosing that. A message left for Moon was not immediately returned.