We brought you this story first in September and you can see it here:
Legal File: State Farm Underpaying for Totaled Cars →
Now, a federal appeals court has agreed to take a fresh look at whether thousands of State Farm auto insurance customers can pursue a class-action lawsuit accusing the insurer of systematically undervaluing vehicles that were declared total losses.
The full U.S. Court of Appeals for the Sixth Circuit said it will rehear the case en banc, meaning all active judges on the court will reconsider an earlier ruling that allowed the lawsuit to proceed as a class action. The decision to rehear the case is relatively rare and signals disagreement among judges about how broadly class actions should be allowed in insurance disputes.
The lawsuit involves roughly 90,000 State Farm policyholders who say the insurer underpaid them after their vehicles were totaled in crashes. The plaintiffs claim State Farm used a valuation process that consistently reduced the “actual cash value” of vehicles, resulting in lower payouts than policyholders were owed under their insurance contracts.
Under most auto insurance policies, when a vehicle is declared a total loss, the insurer must pay the actual cash value of the vehicle immediately before the loss. That value is typically based on comparable vehicle prices in the local market, adjusted for factors such as mileage, condition and optional equipment.
According to the lawsuit, State Farm relied on third-party valuation reports that included downward adjustments — sometimes referred to as “negotiation” or “condition” deductions — that plaintiffs say were applied in a standardized way and reduced vehicle values without proper justification. The policyholders argue that these practices violated the terms of their insurance policies and shortchanged customers across multiple states.
A federal district court certified the case as a class action, finding that common issues — specifically whether State Farm’s valuation method breached policy contracts — outweighed individual differences between claims. In October, a three-judge panel of the Sixth Circuit upheld that decision, ruling that the legality of State Farm’s valuation approach could be decided on a class-wide basis, even if individual damages varied.
State Farm asked the full court to reconsider, arguing that class treatment is inappropriate because each claim involves unique factors such as vehicle condition, local market pricing and accident circumstances. The insurer contends that determining whether any individual policyholder was underpaid requires a case-by-case analysis, which defeats the requirements for class certification under federal law.
The Sixth Circuit’s decision to grant en banc review puts the earlier panel ruling on hold and reopens the debate. The judges will now reconsider whether the class meets the requirements of Rule 23 of the Federal Rules of Civil Procedure, which governs when class actions are permitted.
Legal observers say the case has broader implications beyond State Farm. Courts across the country have wrestled with how to handle insurance and consumer contract cases where plaintiffs allege uniform corporate practices but damages may differ among individuals. Some appellate courts have taken a more restrictive view of class certification in such cases, while others have allowed them to proceed.
The Sixth Circuit’s decision could either reinforce or limit the ability of policyholders to band together in lawsuits challenging insurance valuation practices. If the court ultimately decertifies the class, individual customers would have to pursue their claims separately, a step that often discourages litigation over relatively modest dollar amounts. If the class remains intact, the ruling could encourage similar lawsuits against insurers over total-loss valuations.
State Farm has denied wrongdoing and has said in court filings that its valuation methods comply with policy language and industry standards. The company has not commented publicly on the court’s decision to rehear the case.
Plaintiffs’ attorneys have argued that class treatment is necessary because the alleged underpayments stem from a uniform valuation process applied across thousands of claims, and that few policyholders would challenge the practice on their own.
The Sixth Circuit has not yet scheduled oral arguments. A decision is expected later this year and is likely to be closely watched by insurers, consumer advocates and auto policyholders nationwide.