A class action lawsuit was filed today in United States Federal Court,
Central District, alleging that State Farm is enriching itself with
payments rightfully belonging to its insureds in violation of
California law, particularly the "Make Whole Rule."
When State Farm policyholder Stuart Chandler of Fresno, Calif., was
rear-ended, his personal automobile insurance policy entitled him to a
rental car while his car was being fixed. Under Chandler’s auto policy,
State Farm paid 80 percent of the $317.45. Chandler was charged for his
rental car, leaving Chandler to pay 20 percent, or $63.49, in
out-of-pocket expenses.
State Farm then went to the other party’s insurance company to collect
the money it had paid out to Chandler. That insurance company
reimbursed State Farm $70 for the rental car. The complaint alleges
that pursuant to California’s "Make Whole Rule," State Farm should have
refunded Chandler from that amount the $63.49 for out-of-pocket
expenses he incurred before it could retain any of those funds for
itself. Instead, the complaint alleges, State Farm kept the full amount
for itself, ignoring the fact that Chandler has not been fully
compensated for his loss as required by law.
"California common law provides that when a policyholder suffers a
loss from a car accident, the policyholder must be reimbursed for all
of his losses before State Farm has a right to reimbursement for any
money it paid out under its policy," says Long Beach, Calif. plaintiff
attorney Stephen M. Garcia of The Garcia Law Firm.
This rule is known as the "Make Whole Rule," and is a common law
exception to an insurance company’s subrogation right. The "Make Whole
Rule" basically states that before any of the recovery is allocated to
the insurer, the insured who suffered the loss must be fully
compensated for all the elements of damages, not just those for which
the insurer has indemnified the policyholder.
According to State Farm’s Web site, the company insures more cars
any other insurer in the United States and handled 12.3 million total
claims in 2007.
"Mr. Chandler’s case is just $63 and change," says Garcia. "Imagine $63
times the tens of thousands of claims State Farm handles in California
alone. We believe that State Farm is enriching itself with money that
rightfully belongs to its policyholders."
