Office of the Attorney General News Release Archive

Thursday, November 2, 2000

CORNYN WINS REFUNDS FOR STATE FARM POLICYHOLDERS

Attorney General gets "betterment" refunds on auto insurance claims

AUSTIN - Texas Attorney General John Cornyn today announced the settlement of a lawsuit against State Farm, the largest auto insurer in the country. The agreement will result in $3.1 million in estimated refunds to Texas consumers. The settlement concerns State Farm's practice of reducing auto repair claims payments to its policyholders for "betterment"of the vehicle. Under the settlement, State Farm agrees not to engage in the practice of deducting for betterment on its policyholders' claims, and will refund the amount charged for betterment, plus interest, to policyholders who had an auto repair claim against their State Farm policy from February 1, 1996 to the present. The settlement was approved today in Travis County District Court.

"State Farm is to be commended for its willingness to do what is right for its Texas policyholders," said Attorney General Cornyn. "I hope other insurers follow State Farm in giving policyholders what they deserve."

The settlement requires State Farm to pay an estimated $3.1 million in refunds to approximately 30,000 Texas consumers. State Farm also agrees that this settlement will not affect its insurance rates. State Farm will also pay $175,000 in attorneys' fees and other expenses to the Attorney General's office.

In February, Cornyn sued 15 other major insurance companies regarding their illegal betterment practices. Those suits are still pending. Cornyn has already reached agreements with USAA, GEICO, Safeco and Liberty Mutual insurance companies to issue betterment refunds to their Texas policyholders.

"Betterment" is an insurance industry term for increasing the value of a vehicle by paying to repair it with better or newer parts. For example, if your engine is damaged in a collision and your insurance company decides to replace it with a newer engine, some companies deduct an amount for betterment or depreciation on the claim payment. The standard Texas auto policy does not allow for such a deduction. A 1998 Austin Court of Appeals opinion, and a recent bulletin by the Texas Department of Insurance, also state that these deductions are not permitted.

This lawsuit was handled by Assistant Attorney General Jim Wenzel, in the Insurance Practices Section of the Attorney General's Office Consumer Protection Division.

- 30 -


Contact Mark Heckmann, Heather Browne, or Tom Kelley at (512) 463-2050
Go to Top