State Farm met with California Insurance coverage Commissioner Lara yesterday about an emergency assembly concerning its charges following the Los Angeles wildfires. In the meantime, State Farm has been busy suppressing the strategies it makes use of to regulate water loss claims in Tong v. State Farm Normal Insurance coverage Firm. This case continues to make clear State Farm’s dealing with of water harm claims. What started as a routine insurance coverage dispute over denied protection for a burst water provide line has now escalated right into a battle over discovery violations, alleged obstruction, and a movement for sanctions in opposition to State Farm.
On the coronary heart of the dispute are the inner protocols and coaching supplies State Farm makes use of to evaluate and deny water harm claims—supplies that might expose a scientific strategy to denying legitimate claims. The court docket has already compelled discovery however allowed a protecting order to protect sure alleged proprietary paperwork from broader public disclosure. Now, the policyholders are searching for sanctions, arguing that State Farm has been dragging its toes in producing court-ordered supplies.
William Tong and his spouse suffered intensive water harm to their house when a water provide line burst beneath their kitchen. State Farm initially denied their declare, citing a coverage exclusion for water strains “beneath the floor of the bottom.” The denial was based mostly on an adjuster’s preliminary evaluation that the ruptured pipe was exterior the coverage’s protection zone.
Nevertheless, additional investigation revealed that the broken line was truly contained in the slab, making it eligible for protection underneath the coverage phrases. Regardless of this discovery, State Farm upheld its denial, and it wasn’t till seven months later—after the policyholders in litigation deposed key adjusters—that State Farm reversed its place and agreed to pay $274,000 in advantages. At the very least State Farm paid the contract declare, however a lawsuit was required for it to take action.
That delay of cost requiring a lawsuit to be filed is a key part of the dangerous religion lawsuit. The policyholders argue that State Farm intentionally ignored proof that supported their declare, didn’t conduct a correct reinvestigation, and solely relented when confronted with depositions that uncovered inner decision-making.
Final December, the court docket issued an order requiring State Farm to show over vital paperwork, 1 together with:
- Inner coaching supplies on dealing with water loss claims.
- Declare denial letter templates.
- Tips utilized by adjusters when evaluating water harm.
- Communications concerning how water loss claims are assessed and denied.
Nevertheless, State Farm argued that these supplies contained delicate industrial info and sought a protecting order to forestall broad dissemination. The court docket agreed to the protecting order however insisted that the paperwork be produced.
This was a big victory for the policyholders as a result of it pressured State Farm to reveal the way it trains adjusters to judge water loss claims. The supplies might reveal whether or not State Farm has a sample of systematically denying water harm claims underneath doubtful interpretations of coverage exclusions.
It must be famous that State Farm modified its contract from the usual ISO coverage language. I counsel it was a blatant try to deny extra water harm claims than in any other case could be paid underneath the usual ISO language.
Regardless of the court docket’s order, the policyholders now allege that State Farm has didn’t comply in a well timed method. In a current movement searching for sanctions, they argue that State Farm has engaged in obstructionist techniques, 2 together with:
- Delaying manufacturing of paperwork effectively past court-imposed deadlines.
- Producing unrelated or irrelevant supplies as a diversion.
- Withholding vital water declare denial templates and coaching guides.
The policyholders assert that State Farm has performed a “delay recreation” since August 2024, initially refusing to provide paperwork, then agreeing to take action solely after a protecting order was entered, and now stalling once more regardless of the court docket’s clear directive. They declare that State Farm has solely made token productions whereas withholding essentially the most damaging proof.
State Farm argues that it has been actively producing paperwork and is complying with the court docket’s order. In its response to the movement for sanctions, 3 the insurer states that:
- There was no set deadline for manufacturing, so there is no such thing as a violation.
- The plaintiffs’ movement is a “manufactured dispute” designed to safe an unfair benefit.
- Paperwork are being produced in a rolling style, however some require extra time to find and overview.
State Farm additionally factors to the protecting order, arguing that its issues over confidentiality necessitate a cautious overview course of earlier than handing over paperwork.
State Farm’s Water Protocol
One of the contentious elements of this case is State Farm’s water protocol, which the policyholders allege promotes improper water declare denials. Whereas a lot of this info stays underneath the court docket’s protecting order, paperwork already revealed in litigation counsel that State Farm:
- Makes use of standardized declare denial templates that adjusters choose from when rejecting water loss claims.
- Trains adjusters to depend on particular coverage exclusions, such because the “beneath the floor of the bottom” clause, even when proof suggests protection applies.
- Has inner pointers which will steer adjusters away from approving claims the place any ambiguity exists.
This isn’t the primary time these protocols have come underneath scrutiny. In different litigation, related supplies have been sought in dangerous religion circumstances in opposition to State Farm, resulting in allegations that the insurer has institutionalized practices that favor declare denials over honest protection determinations.
If the court docket finds that State Farm has violated its discovery obligations, it might impose sanctions. If, alternatively, State Farm convinces the court docket that it has complied in good religion, the plaintiffs could face an uphill battle proving dangerous religion past mere negligence. Allegations are one factor, and proof is one other. We must look ahead to the end result.
This case serves as a stark reminder of how litigation in opposition to insurers typically extends past the preliminary declare denial into the realm of procedural battles over transparency. It appears ironic that whereas good religion requires sincere therapy, when the policyholder asks how the declare was to be handled based mostly on inner paperwork, many insurers then argue that these processes are secret. Why are these secret? If the processes are in good religion, which is required by regulation, there must be no secrets and techniques.
State Farm’s insurance coverage brokers can clarify to their clients why State Farm refuses to supply these water protocol claims processes and why State Farm will be trusted if they’ve a water loss. I guess will probably be a tough promote.
Thought For The Day
“We by no means know the price of water until the effectively is dry.”
—Thomas Fuller
1 Tong v. State Farm Gen. Ins. Co., No. 2:24-cv-02219 (C.D. Cal. Dec. 20, 2024).
