State Farm's Mutual Automobile Insurance Company was recently hit with a federal class-action lawsuit, claiming that it unlawfully enriches itself with rental car payments that belong to its customers, according to the Daily Breeze (Torrance, Calif.).
The lead plaintiff in the lawsuit is Fresno, Calif. resident Stuart Chandler, who was driving his 2004 Acura when it was rear-ended in March 2007, according to court papers.
Chandler's auto insurance policy entitled him to a rental car while his Acura was being fixed, the lawsuit said. State Farm paid 80 percent of the $317.45 rental car expenses and Chandler was charged for the remaining 20 percent ($63.49) in out-of-pocket expenses, the lawsuit said.
State Farm then went to the other driver's insurance company to collect the money it paid Chandler, the lawsuit said. The other driver's insurance eventually reimbursed State Farm $70 for the rental car.
The lawsuit claims that State Farm's policy violates California’s “Make Whole Rule.”
“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,' Chandler's attorney Stephen Garcia said.
When State Farm kept the remaining $63.49, Chandler was not fully compensated for his loss, the lawsuit said.
According to the Daily Breeze, numerous other State Farm customers have been subjected to this practice, the lawsuit states.
Representatives from State Farm were not immediately available for comment.
State Farm's Web site states that the company insures more cars any other insurer in the United States and handled 12.3 million total claims in 2007.