According to the American Association for Justice, State Farm has become notorious for denying claims in order to increase shareholder profits. Indeed, State Farm is ranked as the 4th worst insurance company in America for denying valid consumer claims. The company has gone to amazing lengths to avoid paying claims including forging signatures on earthquake waivers after the Northridge earthquake and altering engineering reports regarding damage after Hurricane Katrina.
State Farm has embraced a culture of spending less money on claims to boost profits. Claims agents are taught the “three Ds”—deny the claim, delay the payment and then do anything to defend against the lawsuit. This pattern of abuse has continued for 20 years despite State Farm being one of the largest property casualty companies in the country.
In 1994, the Northridge earthquake in California killed 57 people and caused almost $34 billion in damage. It was the costliest earthquake in US history and State Farm, like most insurance companies, tried everything to avoid paying for it. A State Farm employee testified that company officers forged signatures on earthquake waivers to avoid paying claims and withheld evidence when the company was sued. State Farm was fined $3 billion for its actions.
In 1999, a series of tornadoes killed 44 people in Oklahoma and cause $1.8 billion in damages. Homeowners brought a class action lawsuit alleging that State Farm had undervalued damage to homes or tried to blame the damage on other factors such as faulty construction. A jury ruled State Farm acted “recklessly” and “with malice”. The engineering firm that State Farm used would also go on to alter reports for State Farm in the wake of Hurricane Katrina.
Hurricane Katrina showed State Farm at its worst. The storm killed 1,600 people and caused $135 billion in damages. State Farm claimed that if a home had water damage it was the result of a “flood” which was not covered instead of hurricane damage which was covered. In addition, State Farm asked its engineering company to alter reports to blame damage on previous defects or other non-insured problems. In order to keep the State Farm contract, the CEO of the engineering company went along with State Farm’s requests. However, State Farm made a powerful enemy when it denied the claim of Senator Trent Lott whose beach house was destroyed in the storm. A former industry supporter, Mr. Lott passed legislation requiring insurance companies to write policies in plain English and forced State Farm to reevaluate 3000 Hurricane Katrina claims. State Farm went on to pay nearly $30 million in additional settlements.
Despite the bad press, lawsuits and reevaluation of claims, State Farm has continued to make record profits. Consequently, State Farm is unlikely to change its behavior. Indeed, it has stopped writing policies in high-risk areas such as Mississippi and Florida which causes homeowners to have to find more expensive insurance through state funded programs. Moreover, State Farm recently spent huge sums to assist electing Judge Lloyd Karmeier to the Illinois Supreme Court. Once on the job, he reversed a $9 billion judgment against State Farm.