Are Insurers Using “New Construction” Xactimate Settings Wrongfully Underpaying Claims?

Lawsuits are starting to be filed on a more regular basis regarding State Farm’s alleged wrongful use of Xactimate to underpay claims based on “new construction” settings. A judge in a Mississippi case 1 recently ordered the parties to appraisal, noting:

The lawsuit concerns only property insurance coverage for buildings, referenced as the ‘A1 coverage,’ and not for personal contents. In particular, Plaintiff disputes the manner in which State Farm used the ‘Xactimate’ software program to calculate her repair and construction costs for her loss. Plaintiff alleges that instead of using the ‘Restoration/ Service/Remodel Labor Efficiency’ setting in Xactimate, State Farm intentionally used the ‘New Construction Labor Efficiency’ setting in the program. The difference, Plaintiff alleges, is that use of the ‘Restoration/Service/ Remodel Labor Efficiency’ accounts for additional labor and time involved in a restoration project that is not present in a new construction project. Therefore, an estimate for repair and subsequent calculation of an actual cash value payment to an insured will be higher under the ‘Restoration/ Service/Remodel Labor Efficiency’ than when using the ‘New Construction Labor Efficiency’ setting in Xactimate.

By allegedly using the “New Construction Labor Efficiency” setting, which assumes a more streamlined and predictable process, State Farm is accused of lowering its cost estimates for the insured’s repairs, resulting in a lower payout. The plaintiff argues that this underpayment violates the terms of her insurance policy, leading to litigation and, ultimately, an order for appraisal by the court.

This lawsuit touches on key aspects of fair claims handling, as it brings up questions about the intent behind using a specific Xactimate setting and whether it was done intentionally to minimize payouts. It could potentially set a precedent, as other policyholders facing similar discrepancies in Xactimate usage could pursue claims against insurers. Additionally, this case underscores the technical nuances in insurance claim software that can significantly impact the final compensation paid to the insured.

Thought For The Day

Justice will not be served until those who are unaffected are as outraged as those who are.
—Benjamin Franklin

1 Young v. State Farm Fire & Cas. Co., No. 2:23-cv-175, — F.Supp.3d — ( S.D. Miss. Aug 12, 2024).