State Farm Mutual Insurance Co. will pay $40 million to thousands of car owners nationwide who did not know they had purchased stolen or salvaged vehicles.
The Bloomington, Ill.-based insurer reached a settlement announced yesterday with 49 states, including Maryland, after it discovered that it had not obtained proper titles for up to 40,000 vehicles that it had assumed from policyholders because of damage or theft.
The title errors are possible violations of state consumer fraud laws that require full disclosure of vehicle histories, because the vehicles were resold.
Affected consumers may be eligible for compensation ranging from $400 to more than $10,000, depending on the value of their vehicle. Most payments will be between $800 and $1,850, state officials said.
"Consumers have a right to know that vehicles that they have purchased have been damaged," said Tom Miller, Iowa's attorney general. "This settlement will help make things right."
State Farm, the largest U.S. insurer of autos and homes, blamed the errors on the complexity of complying with different state laws. For example, states have different guidelines as to when a vehicle can be declared a "total loss." In Illinois, damages of 73 percent qualify the vehicle as a total loss.
If a vehicle is rebuilt and resold, insurance companies must obtain a title that indicates "salvage," "damaged" or a similarly named title, a fact that can affect the vehicle's value. In Illinois, the document is known as a "rebuilt" title.
After an internal review, State Farm's records showed a small fraction of the more than 2.4 million cars and trucks acquired from policyholders in recent years did not have proper titles.
In Illinois, State Farm identified 255 vehicles with improper documentation, said Debby Hagan, chief of the consumer protection division in the state attorney general's office.
State Farm said it voluntarily approached the Iowa attorney general about a year ago after learning of the problem. Only Indiana opted out of the settlement because State Farm had an agreement there more than a year ago, said Jeffrey Jackson, State Farm vice president and counsel.
"We are committed to resolving this matter," Jackson said. "This agreement is consistent with our commitment to do the right thing when we find out we have made some mistakes."
In addition to the $40 million, the company also will pay for the expense of contacting the owners of the vehicles and taking their claims. Current owners of eligible vehicles are to be contacted by the fall and payments sent out this year or early in 2006.
Miller said the attorneys general will be investigating whether other insurance companies might have engaged in similar practices but declined to comment on any active reviews.
The Chicago Tribune is a Tribune Publishing newspaper.