Montana, United States — Insurance provider State Farm will pay a US$2 million settlement following a two-year investigation by the Montana State Commissioner of Securities and Insurance (CSI) into the insurer’s claims handling practices.
The investigation revealed that State Farm had underpaid some drivers who had been in accidents with State Farm’s insureds from November 1, 2018, through April 15, 2022.
The settlement and order also require State Farm to reevaluate all affected claims and pay any additional money that may be owed to Montana customers.
CSI also recommended that State Farm “review and update, if necessary, [the] claim handling policies and procedures and manage the products of vendors to ensure a reasonable investigation is completed.”
If State Farm does not take corrective actions, CSI will fine the insurer an additional US$2 million.
As a result of CSI’s investigation, State Farm reports that it has reviewed more than 2,436 Montana claims and made an additional US$1,182,927.43 in payments to Montana customers.
Prior to the investigation, CSI received “numerous complaints from consumers about [State Farm] applying comparative negligence against them in situations where the customer believed they were not at fault.”
State Farm then signalled it found 573 claims dated between November 1, 2018, and November 1, 2020, wherein comparative negligence was applied to the third-party claimant. CSI selected 65 for review, at random, and discovered 20 which it believed State Farm “did not conduct a reasonable explanation of the basis of the decision in relation to the factors or applicable law after applying comparative negligence and reducing payment accordingly.”
When a further 32 complaints were received, CSI found 10 that lacked reasonable investigation or explanation.
Examination Resources then examined 200 claims from 841 filed between late 2021 and early 2022. State Farm had previously audited the claims, making additional payments to 49 applicants—all of whom had filed complaints with CSI.
Following the investigation, CSI concluded that errors were found in 91 out of 198 claims—a 46 percent error rate—for which the insurer did not promptly provide a reasonable explanation for claim denial or offer a compromise settlement, and failed to conduct an investigation.
It also said State Farm did not pay for loss of vehicle use, as required by a 2022 memorandum, in 96 of 153 sampled claims; an error percentage of 62.8 percent.
Finally, it concluded that State Farm did not make a “good faith” attempt to come to equitable settlements in which liability was “reasonably clear,” according to Montana law.
“Today we send a clear message that Montana will not tolerate unsupported fault being placed on victims of auto accidents,” said Troy Downing, Montana Commissioner of Securities and Insurance. “I expect insurance companies to complete a full, fair, and transparent examination of the facts and law and to pay what is owed as required by law.”
This is reportedly one of the largest settlements of its kind in the CSI’s history.