State Farm’s claims handling process is the subject of a new lawsuit alleging disparities between the insurer’s treatment of claims from Black policyholders versus claims from white policyholders.
The suit filed Dec. 14 against State Farm Fire & Casualty Company under the Fair Housing Act in U.S. District Court for the Northern District of Illinois seeks class-action status, lead by plaintiff Jacqueline Huskey of Matteson, Illinois.
“Unfortunately, race-based economic inequities currently manifest in the homeowners insurance market in several ways, from how policies are sold, to how clients are treated once they have coverage, to how claims on those policies are received and ultimately adjudicated. Specifically, as to Black policyholders, State Farm’s claims processing methods exacerbate existing barriers to achieving and maintaining home ownership, in violation of the FHA,” the suit alleges.
According to the lawsuit, Huskey in June 2021 contacted her insurer State Farm after hail damaged her roof. She said State Farm’s response was lacking and delays caused additional damage to the inside of her home. Huskey said she has had 20 to 30 calls with State Farm, which has only resolved claims for internal repairs.
The basis for the lawsuit is a study from the Center on Race, Inequality and the Law at the NYU School of Law that focused on State Farm. The group, which partnered with law firm Fairmark Partners in the study and in submitting the lawsuit, surveyed about 800 State Farm homeowners insurance policyholders (648 white and 151 Black) in Illinois, Indiana, Michigan, Missouri, Ohio, and Wisconsin and exposed “marked disparities between State Farm’s handling of claims filed by white homeowners relative to claims filed by Black homeowners,” according to the lawsuit.
Specifically, more delays are experienced by Black policyholders during the claims process, with the alleged discrimination “perpetuated by the modern trend toward automation and data mining” to create algorithms that “too often have discriminatory effects,” the lawsuit said. State Farm’s use of algorithms in the claims-handling process “disproportionately subjects the claims of Black policyholders to greater suspicion,” the plaintiffs added.
According to the groups’ survey, white policyholders were nearly a third more likely than Black policyholders to have a claim resolved in less than a month, and Black policyholders needed to have more interactions with the insurer during the process. Also, Black homeowners had to submit more paperwork than whites to justify claims, the lawsuit alleges.
“We take this filing seriously. This suit does not reflect the values we hold at State Farm,” said State Farm spokesperson Gina Morss-Fischer. “State Farm is committed to a diverse and inclusive environment, where all customers and associates are treated with fairness, respect, and dignity. We are dedicated to paying what we owe, promptly and courteously.”
The suit calls out State Farm’s relationship with claims management tech company Duck Creek Technologies as being “especially relevant” since it partners with FRISS, which uses artificial intelligence to detect fraud and issues a “FRISS Score” to indicate the likelihood of fraudulent activity in claims at multiple points along the claims process, according to the lawsuit.
The plaintiffs allege Black policyholders are forced to live in substandard living conditions longer as they wait for a claim to be resolved; therefore, Black policyholders get a less valuable insurance product at the same price as whites. The proposed class seeks damages as well as declaratory and injunctive relief.
Insurance Journal has requested comment from Duck Creek.
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