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 injury 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 injury claims—supplies that might expose a scientific strategy to denying legitimate claims. The courtroom has already compelled discovery however allowed a protecting order to defend sure alleged proprietary paperwork from broader public disclosure. Now, the policyholders are looking for sanctions, arguing that State Farm has been dragging its ft in producing court-ordered supplies.
William Tong and his spouse suffered intensive water injury to their dwelling when a water provide line burst beneath their kitchen. State Farm initially denied their declare, citing a coverage exclusion for water traces “beneath the floor of the bottom.” The denial was primarily based on an adjuster’s preliminary evaluation that the ruptured pipe was outdoors the coverage’s protection zone.
Nonetheless, 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 least State Farm paid the contract declare, however a lawsuit was required for it to take action.
That delay of fee requiring a lawsuit to be filed is a key element of the dangerous religion lawsuit. The policyholders argue that State Farm intentionally ignored proof that supported their declare, did not conduct a correct reinvestigation, and solely relented when confronted with depositions that uncovered inner decision-making.
Final December, the courtroom issued an order requiring State Farm to show over crucial paperwork, 1 together with:
- Inner coaching supplies on dealing with water loss claims.
- Declare denial letter templates.
- Pointers utilized by adjusters when evaluating water injury.
- Communications concerning how water loss claims are assessed and denied.
Nonetheless, State Farm argued that these supplies contained delicate industrial info and sought a protecting order to stop broad dissemination. The courtroom 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 injury claims underneath doubtful interpretations of coverage exclusions.
It needs to be famous that State Farm modified its contract from the usual ISO coverage language. I counsel it was a blatant try and deny extra water injury claims than in any other case could be paid underneath the usual ISO language.
Regardless of the courtroom’s order, the policyholders now allege that State Farm has did not comply in a well timed method. In a latest movement looking for sanctions, they argue that State Farm has engaged in obstructionist ways, 2 together with:
- Delaying manufacturing of paperwork effectively past court-imposed deadlines.
- Producing unrelated or irrelevant supplies as a diversion.
- Withholding crucial water declare denial templates and coaching guides.
The policyholders assert that State Farm has performed a “delay sport” 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 courtroom’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 courtroom’s order. In its response to the movement for sanctions, 3 the insurer states that:
- There was no set deadline for manufacturing, so there isn’t 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 assessment.
State Farm additionally factors to the protecting order, arguing that its considerations over confidentiality necessitate a cautious assessment course of earlier than handing over paperwork.
State Farm’s Water Protocol
Probably the most contentious features 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 courtroom’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 instances in opposition to State Farm, resulting in allegations that the insurer has institutionalized practices that favor declare denials over truthful protection determinations.
If the courtroom finds that State Farm has violated its discovery obligations, it might impose sanctions. If, then again, State Farm convinces the courtroom 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 watch for the end result.
This case serves as a stark reminder of how litigation in opposition to insurers usually extends past the preliminary declare denial into the realm of procedural battles over transparency. It appears ironic that whereas good religion requires sincere remedy, when the policyholder asks how the declare was to be handled primarily based 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 needs to be no secrets and techniques.
State Farm’s insurance coverage brokers can clarify to their prospects 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 wager will probably be a tough promote.
Thought For The Day
“We by no means know the value 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).
