Supreme Court revives claim underpayment suit against State Farm, questions prevailing rate survey

A lawsuit against State Farm alleging claim underpayment has been revived on appeal in New York.

State Farm argued it didn’t breach the policy in question because, under the policy terms, it paid the plaintiff based on its own repair estimate written at the prevailing competitive rate. Court documents state that State Farm determined the rate according to its own survey.

The New York Supreme Court, Appellate Division, Second Judicial Department, unanimously reversed a lower court’s summary judgment in favor of State Farm.

The plaintiff, Prospect Auto Sales and Repairs, was given representative authorization by Janet Sukhram to repair her 2018 Audi Q7 and handle her claim with State Farm.

Sukhram executed an assignment of claim, assigning to the plaintiff all rights against the defendant for any damages from State Farm’s failure to pay for the total cost of the repairs.

As Sukhram requested, Prospect repaired the vehicle to its pre-accident condition for $19,736.60. However, State Farm paid the plaintiff $13,188.22 for the work, according to court documents.

In response, Prospect sued for breach of contract.

The suit contends that State Farm:

• • “Had an obligation under the policy to indemnify Sukhram for the reasonable and necessary repairs made to the vehicle as performed by the repair facility of her choice;
  • “Accepted full responsibility for payment for such repairs and entered into negotiations with the plaintiff regarding the specific cost of such repairs; and
  • “Had a duty under Insurance Law § 2601 and Regulation 64, Part 216, and the policy to negotiate in good faith with the plaintiff to repair the vehicle.”

It adds that State Farm violated two New York laws — Insurance Law § 2601 (unfair claim settlement practices) and 11 NYCRR 216.7 (standards for prompt, fair, and equitable settlement of motor vehicle physical damage claims). Prospect contends that State Farm breached Sukhram’s policy by failing to negotiate with Prospect in good faith and pay in full for the repair procedures, parts, materials, and costs necessary to return the vehicle to its pre-accident condition.

State Farm argued for summary judgment to dismiss the suit, alleging that no private right of action exists under Insurance Law § 2601 and 11 NYCRR 216.7. Prospect opposed the motion. In April 2024, the Supreme Court granted State Farm’s motion.

“Contrary to the Supreme Court’s determination and the defendant’s contention, under a fair reading of the complaint, it does not set forth a cause of action to recover damages for violations of Insurance Law § 2601 and 11 NYCRR 216.7 but rather properly seeks to recover damages for breach of contract predicated, in part, on allegations of such violations,” the Appellate Court’s Sept. 23 order states. “Therefore, the court improperly granted the defendant’s motion for summary judgment dismissing the complaint on the basis that there is no separate private right of action due to violations of Insurance Law § 2601 and 11 NYCRR 216.7.”

The court ruled that State Farm’s argument regarding the prevailing rate is “wholly conclusory and unsubstantiated, as the defendant never furnished the survey it purported to rely upon.”

“Further, to the extent an affidavit of the defendant’s representative submitted in support of the motion addressed the issue as to whether the defendant negotiated with the plaintiff in good faith regarding the procedures, parts, materials, and costs to return the vehicle to its pre-accident condition, the affidavit is not based on personal knowledge but rather improperly relies on hearsay within hearsay,” the order states.

In July 2025, Jay Sicht, Fender Bender and ABRN editor-in-chief, reported that 57% of 230 survey respondents said State Farm had reduced its labor rates offered to their shop without explanation.

In November 2025, Society of Collision Repair Specialists (SCRS) Executive Director Aaron Schulenburg discussed the issue at a Collision Industry Conference (CIC) meeting.

Shops are seeing a shift from prevailing competitive rates to a rate the insurance company has defined as “reasonable,” he said. He said the insurance company is not defining “reasonable,” providing documentation justifying the reduction, or giving any indication of a valid statistical survey.

“Simply, ‘We’ve determined it’s enough, even though we’ve lowered it significantly from what we recognized before,’ it’s concerning,” Schulenburg said. “I think in some cases, the claim is that the data is coming from information providers who also claim not to be conducting labor rate surveys or even reporting on prevailing rates. But there’s no way to argue it, and there’s no way to document it because there’s no documentation provided to the industry.”

State Farm’s claims handling practices, including a shift to a centralized claim review process, labor rate reductions, and other claims practices, were a topic of contention with regulators and attendees during April’s industry events week in North Carolina.

SCRS Chairman Michael Bradshaw shared his experience with those carrier practice changes at his shop and noted the publication of a P&C Specialist article. He also mentioned he discussed the same carrier conduct and its effect on shops like his several months ago during a CIC open mic.

“We’ve seen a dramatic reduction in labor rates across the country,” he said. “This has been confirmed by article after article. …Over 60% of shops surveyed by Fender Bender said their rates had been reduced by State Farm in the last 12 months.

“Many times, we’re fearful of mentioning names and calling out the individuals that are engaging in the conduct… I can confirm it’s not market-specific; it’s not claim-specific. It is a very tactful approach that is being engaged in nationwide by the largest carrier in the country, State Farm…”

State Farm has been sued in several states over allegations that it systematically lowers actual cash values (ACVs) on total loss claims, including Tennessee, Arkansas, Alaska, Illinois, Kentucky, Mississippi, West Virginia, and North Carolina.

Cases in Kentucky and Mississippi were thrown out in October 2025. In April, State Farm agreed to settle the Arkansas class action suit for nearly $15.6 million.

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