Tennessee appeals court strips class status from total loss undervaluation suit against State Farm

An undervalued total loss lawsuit filed in Tennessee against State Farm has lost its class action status.

The United States Court of Appeals for the Sixth Circuit issued its opinion on April 24 based on the rulings in several similar cases across the country.

State Farm appealed the case, alleging that the district court erred in granting class status because the individualized nature of each plaintiff’s claim, including car valuation, contractual appraisal provision, and damages, does not meet the class status commonality and predominance requirements.

The Tennessee complaint is similar to those brought in six other states — Alaska, Arkansas, Illinois, Kentucky, Mississippi, North Carolina, and West Virginia. Cases in Kentucky and Mississippi were thrown out in October. The Arkansas case is moving through the settlement process.

The Tennessee class of plaintiffs is reportedly 90,000. All are current or former State Farm policyholders, or were covered by State Farm insurance, while living in Tennessee. They claim to be underpaid for their totaled vehicles.

The suit was first filed in May 2020 by Jessica Clippinger and amended the next month. The case was moved to federal district court, and State Farm’s motion for summary judgment was denied; however, its motions for appraisal and a stay pending appraisal were granted. Audatex is also a named defendant in the case.

The complaint states that State Farm systematically bases its valuations and payments of total loss claims on manipulated data and reports that don’t meet the duties of its insurance contracts, “imposing unreasonable, inappropriate, and unspecific Typical Negotiation Adjustments to artificially reduce the values of comparable vehicles.”

The Tennessee case is no different from other similarly filed cases in that proving undervaluation on an individual basis would be better suited, according to the Sixth Circuit Court of Appeals.

“Suppose an insurer promises to pay the ‘actual cash value’ of an insured’s vehicle if the vehicle gets destroyed in an accident,” the court’s opinion states. “Suppose further that the insurer uses the same formula to calculate actual cash value. If car owners believe that this general formula includes an improper reduction, may they pursue a class action? Five circuit courts have now said ‘no’ because individual issues about the unique value of each used car will dominate all other matters. This case asks the same question.”

The court adds that when calculating the “actual cash value” of destroyed vehicles, State Farm often relies on advertisements of comparable used vehicles.

“It then imposes a ‘typical negotiation’ adjustment that reduces the estimated value of these comparators to account for negotiations that lower their final sales prices. Jessica Clippinger brought a class-action challenge to this typical-negotiation adjustment, claiming that it generally undervalues the comparator vehicles. Even if Clippinger were correct, though, we agree with the other circuit courts that she cannot pursue this theory on a class-wide basis. To determine whether State Farm paid ‘actual cash value’ for the 90,000 used vehicles in the class, a jury would have to consider unique evidence about each vehicle’s value. And this individual valuation will ‘predominate’ over all other questions under Federal Rule of Civil Procedure 23(b)(3).”

The court reversed the district court’s class-certification order and remanded for proceedings consistent with its opinion.

The court noted that State Farm sought to end the lawsuit after it paid Clippinger an additional amount of over $4,000 — the difference between a higher valuation provided by an independent appraiser and the original valuation given, along with additional taxes. This was done before Clippinger sought class certification of the suit.

“It argued that the appraisal had authoritatively decided the actual cash value of Clippinger’s van,” the opinion states. “And it claimed that its decision to pay the higher amount eliminated Clippinger’s injury. But the district court disagreed with this mootness claim. It concluded that the typical negotiation adjustment forced customers to either accept less than the actual cash value or bear the costs of the appraisal
process.

“It added that a reasonable jury could find that the claimed breach injured Clippinger because the initial undervaluation required her to incur appraisal costs before obtaining her minivan’s actual cash value.”

In April, State Farm agreed to settle an Arkansas class action lawsuit over alleged undervalued actual cash values for nearly $15.6 million.

Rose Chadwick, the lead plaintiff, filed the suit in 2021, alleging that State Farm used Audatex North America valuation reports to systemically thumb the scale against its insureds when calculating ACVs by applying “typical negotiation adjustments.”

The complaint states that the adjustments are “contrary to appraisal standards and methodologies that do not permit arbitrary adjustments not based on observed and verifiable data.”

On March 27, U.S. District Court Judge D.P. Marshall Jr. preliminarily approved the settlement, noting that Chadwick’s case prevailed before a jury.

State Farm agreed to pay attorney’s fees, litigation costs, and the service award, and to reimburse class counsel for the costs of notice and administration separately, according to the order.

Marshall also notes in the order that the settlement doesn’t constitute an admission, concession, or indication by the parties of the validity of any claims or defenses in the action or of any liability, fault, or wrongdoing of any kind by State Farm.

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