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Alameda County District Attorney Pamela Price announced that her Consumer Justice Bureau has sued multiple automobile insurance companies and their affiliated software developers, alleging they worked together to create and use automobile valuation software to systematically undervalue “totaled” vehicles and pay California insurance consumers less than the actual value owed under the policies.

The civil consumer protection Complaint alleges this automobile undervaluation scheme violates numerous California laws, including California’s Insurance Code, Unfair Competition Law, and False Advertising Law. The Complaint demands civil penalties, restitution for California consumers, injunctive relief, and associated fees and costs.

“A vehicle is the lynchpin to life in California. Many residents live paycheck to paycheck and go deeply into debt just to buy a car. When an insurance company underpays its customers for a totaled vehicle, that can result in missed loan payments, damaged credit scores, impacted borrowing, and the inability to buy a replacement vehicle. That can lead to job losses and even homelessness. California residents and small businesses try their best to follow the law. They expect their insurance companies and affiliates to do the same,” said District Attorney Pamela Price.

The 69-page Complaint filed in Alameda Superior Court on April 26, 2024, amended on April 30, alleges that multiple automobile insurance companies – including The Progressive Corporation and its affiliates (“Progressive Insurance”), United Services Automobile Association and its affiliates (“USAA”) – owed duties of good faith and fair dealing to “hundreds of thousands of California residents and businesses each year.” Despite these legal duties, the Complaint alleges the insurance companies use specially designed automotive valuation software to undervalue totaled vehicles to pay vehicle owners less money than they are owed.

The Complaint further alleges that the software developers (including CCC Information Systems and Mitchell International) worked with these automobile insurance companies to build into the software the means to manipulate and lower the reported “actual cash value” of the totaled vehicles and that the modified software is sold exclusively to automobile insurance companies. Specifically, the Complaint alleges that the software uses a deceptive set of so-called “comparable” vehicles and outcome-determinative adjustments to allow the insurance companies to lower the reported “actual cash value” of the totaled vehicles. The insurance companies then allegedly make “lowball” settlement offers to their customers and refuse to negotiate in good faith, relying on the purportedly “independent” software-generated deflated “actual cash value”. The Complaint alleges that these insurance companies failed to disclose to their customers that they worked with the software developers to create exclusive versions of this software for their use or that they used the means built into that software to lower the “actual cash value” on which they base their settlement offers.

The Complaint further alleges that once the insured accepts the lowball offer, the insurance companies can resell the same vehicle at auction to minimize its losses further: “Inherent to the Scheme is this loss recoupment opportunity: the [insurance company] would rather total a vehicle than repair it because of the opportunity to recoupIf [it] pays to repair the vehicle, it has no ability to recoup any of that loss.”

The Complaint alleges this scheme harms all Californians paying insurance companies for what they expect to be a fair deal but is especially impactful on “disadvantaged Californians, including senior citizens, economically disadvantaged persons, and persons of color.” Under California’s Unfair Competition Law and False Advertising Law increased civil penalties are imposed for unlawful acts that target specially protected California citizens like seniors and veterans.

The Complaint alleges the scheme impacts California businesses as well, including (1) car manufacturers and dealers (by systematically lowering the market value of their vehicles); (2) gap insurance providers (whose “gap insurance” policies must make up the difference between an outstanding loan amount and undervalued amount paid); (3) automobile loan institutions (i.e., when underpaid car owners can no longer pay their car loans); and (4) car repair facilities (that lose out on potential repair business when vehicles are systematically totaled instead of repaired).

“Public safety includes protecting consumers from powerful companies that seek only to maximize profits,” said District Attorney Pamela Price. “We are seeking to level the playing field for vehicle owners who face what looks like a rigged game when their car or truck is totaled because a loss of a vehicle can destabilize a person’s life.”

Alameda County residents who believe their insurance company may have undervalued their totaled vehicle may complete a Consumer Fraud Complaint Form with the Alameda County District Attorney’s Office Consumer Justice Bureau. A link to that complaint form is here: Alameda County District Attorney Consumer Complaint Form.