Multi-State Agreement with State Farm will Result in $40 Million to Consumers

FRANKFORT, KY (Monday, January 10, 2005) – Attorney General Greg Stumbo announced today that Kentucky and 48 other states plus the District of Columbia have reached an innovative agreement with State Farm Mutual Insurance Company which will result in $40 million in compensation to thousands of car, SUV, and truck owners nationwide.

Stumbo said that after titling research is complete an estimated 30,000 consumers nationwide may be eligible for payments ranging from about $400 up to over $10,000, depending primarily on the current average value of their vehicle, and the number of consumers who participate in the compensation program. The states believe most payments are likely to range from $800 to $1850.

Attorney General Stumbo said the agreement resulted after State Farm approached the states and indicated that, after an internal review, in a small percentage of cases it was unable to confirm that it had properly titled vehicles it had taken ownership of from policyholders due to damage or theft.

In Kentucky, a branded title is required if a vehicle has been wrecked, destroyed or damaged such that repairs costing more than 75% of its retail book value are required, or for water-damaged or vehicles purchased from out of state with branded titles. Most states have similar requirements depending on factors such as vehicle age and extent of damage. Insurance companies taking ownership in such situations must obtain “branded titles,” indicating the vehicles are “salvage,” “damaged,” or similarly-named titles. State Farm’s records showed that it had properly titled approximately 2.4 million vehicles in recent years nationwide that may have required a “branded title,” but that it could not confirm whether a much smaller number may not have been properly titled. Payment will go to the current owners of vehicles that may require branded titles.

Stumbo said the settlement was a good deal for affected consumers in Kentucky, many of whom may not even know that their cars were previously wrecked. “The company approached the attorneys general to address this issue in a proactive manner,” Stumbo said. “We encourage other companies to review their business practices, take responsibility for lapses, and make things right for consumers.”

In addition to the $40 million for consumers, State Farm also will pay the expense for the major project of identifying the vehicles, tracing the current owners, contacting owners, taking claims from owners, and making compensation payments. In the “Assurance of Voluntary Compliance,” or agreement with the states, State Farm also makes assurances about how it presently conducts its practices, as well as in the future.

Stumbo said that consumers who complete a claim form and are approved will receive a compensation payment from State Farm later this year or early 2006. Under the agreement, State Farm will work with state departments of motor vehicles in the coming months to determine in each state the specific vehicles which require a branded title. By law, these vehicles are required to have branded titles. Kentucky owners of such vehicles will receive a letter from the Attorney General with a claim form to complete and return to an independent Claims Administrator company already approved by the States to administer the notification and compensation program. State Farm is required to cover the costs and assist in acquiring new title. Each affected consumer will have the opportunity to decide to file a claim or to take other legal action. After all claims are in, the amount each consumer will receive will be finalized and checks mailed.

The final amounts received by consumers will depend on the current value of their vehicle and how many consumers elect to participate in the payment program. Payments will be made to the owners of currently-registered vehicles and will be based on the current average retail value of the vehicle. For example, owners of vehicles worth between $1,000 and $2,000 will receive $600; owners of vehicles worth between $5,000 and $6000 will receive $1400; owners of vehicles worth between $10,000 and $11,000 will receive $3000

Attorney General Stumbo said it is expected that current owners of eligible vehicles will be contacted by Fall 2005, after the identification process is completed.

State Farm also is making a payment of a total of $1 million to all the state participants, 15,000 of which will be distributed to Kentucky, for consumer education, future consumer litigation, public protection, local consumer aid funds, and attorney fees and costs.