According to Texas Attorney General Greg Abbott, the state has reached a settlement with Farmers Insurance Group that requires the company to refund an estimated $2.4 million to about 13,000 Texas motorists who may have paid more for vehicle repairs than was required under their policies. In announcing the settlement, the attorney general noted that the agreement is not related to a proposed $117.5-million settlement with the state involving allegations the company deceived homeowners and misused credit scoring data.
The settlement marks the ninth such settlement obtained since 2000 with major auto insurers, emphasizing again that companies such as Farmers may not deceive motorists who pay deductibles and make proper claims for vehicle repair work.
This unlawful practice known as “betterment,” an insurance industry term, involves supposedly increasing the value of a policyholder’s vehicle by paying for repairs with better or newer parts. Companies such as Farmers have routinely reduced the amount to be paid to the motorist for repairs by an amount believed to equal the improved value of the vehicle because upgraded parts were installed, such as new rather than rebuilt transmissions.
“Companies have used this perceived loophole in the standard Texas auto policy to rationalize their way into consumers’ pocketbooks,” Abbott said. “They reasoned that if they increase the value of their policyholders’ vehicles, then they should be able to deduct an amount for improving the value of the vehicle. Auto policies in Texas just do not allow for this kind of deception and we’re fortunately seeing a turnaround in the industry.”
Under the settlement, Farmers will continue to refrain from deducting for betterment on its policyholders’ claims. The company agrees to refund the amount charged for betterment, plus interest, to policyholders who had an auto repair claim paid from Feb. 14, 1996, to the present.
Farmers will mail checks directly to policyholders who had electronic estimates that indicated the company made these deductions for betterment. For those policyholders whose deductions cannot be identified though electronic estimates, Farmers will mail notices requesting that eligible persons make a written claim.
If a policyholder makes a written claim, Farmers will review the claim file and send a refund check if the file indicates the company deducted for betterment. Farmers agrees that this settlement will not affect its insurance rates. Farmers will also pay $175,000 in attorneys’ fees and other expenses to the Attorney General’s office.
Since 2000, the Texas Attorney General’s office has also obtained betterment settlements with State Farm, Nationwide, USAA, Geico, Travelers, Safeco, Sentry and Liberty Mutual insurance companies for an estimated $7.9 million in total refunds. Several betterment lawsuits against other insurers are still pending.