State Farm Wins Dismissal of Homeowners’ Class Action Over Use of Xactimate Software

A federal judge has dismissed a proposed class action filed on behalf of Pennsylvania homeowners who believe that State Farm undervalued their property damage claims in its use of the Xactimate software that is popular with insurers.

The lead plaintiffs, Jamie and Becky Belotti, sustained a fire loss at their home in Duryea, Pennsylvania. Their complaint contains counts for bad faith, fraud and deceptive business practices, breach of contract, bad faith, and unfair trade practices. They sought relief as a class action.

The homeowners maintained that State Farm wrongfully treated their home damage repair as “new construction” when it should have used Verisk Analytics’ Xactimate numbers for “repair/reconstruction” and the difference led to an alleged underpayment.

The plaintiffs did not contest that State Farm failed to pay for the cost of repair and replacement of its losses with similar construction. Rather the plaintiffs’ concerns related to the insurer’s alleged failure to use a specific method of computation concerning its assessment of their losses.

State Farm filed a motion for summary judgment seeking to dismiss all claims alleged, arguing that it had no contractual duty to use a particular setting when estimating losses and it did not breach its loss settlement obligations.

After the parties could not agree on a loss payment amount, they entered into an appraisal process as called for in the policy. At the time, the parties were approximately $200,000 apart in their respective replacement cost estimates.

The appraisers selected by State Farm and the plaintiffs agreed that the replacement cost estimate and the actual cash value amounts for the plaintiffs’ loss were $267,382 and $240,643 respectively. The appraisal award was not prepared using Xactimate and did not use either Xactimate’s “new construction” or “Restoration/Service/Remodel” settings. State Farm paid the plaintiffs the difference between its initial total payments and the amount resulting from the appraisal process.

Judge Joseph F. Saporito, Jr., in the Middle District of Pennsylvania, agreed with State Farm that its policy did not require the insurer to use a specific computation method for loss calculations. The judge also noted that the insurer agreed to an appraisal process after the homeowners’ public adjuster and the insurer differed over the right amount and the insurer paid the difference.

The judge said he could not identify any policy language that “directly or indirectly” concerns any method of computation, “much less” any language that requires a singular method of computation. “The language of an insurance policy should not be stretched beyond its plain meaning to create ambiguous terms,” the judge commented.

Indeed, the court said, the reason that the policy does not include a provision allowing the defendant to use the “new construction model” for damages is because the policy is “wholly independent” from a method of computation. The Belottis failed to provide any additional information that indicates any potential ambiguity or any additional general support for their contention that State Farm breached the contract.

The fact that the parties’ appraisers ultimately assigned a higher value to the claim than State Farm’s estimate does not mean State Farm acted in bad faith, the judge also found.

The court granted State Farm’s motion for summary judgment.

State Farm has faced other cases involving its calculation of damages including one in California where it won dismissal and another in Indiana where it lost summary judgment and the parties settled before trial.