Attorney General: State Farm Encouraged Shoddy Car Repairs

State Farm engaged in illegal and fraudulent business practices that forced its policyholders to use auto body shops that did shoddy and substandard work. That’s the allegation in a lawsuit filed against the insurer by Louisiana Attorney General Buddy Caldwell on August 19.


Investigators discovered that State Farm had violated Louisiana’s unfair trade practice act hundreds of times by steering customers to the cheapest repair shops, Caldwell told the Associated Press. The Attorney General also accused the insurer of lying to customers.

The suit alleged that State Farm falsely told customers that they could only use certain repair shops. It also accused the insurer of telling policyholders that they would have to pay for all the work done at other repair shops. That apparently was not true; the policies would have paid for work done at those shops as well.

The reason State Farm directed consumers to certain shops was that those facilities were cheaper. A press release from Caldwell’s office went so far as to accuse State Farm of sending customers to repair shops that made unsafe repairs.

State Farm is the largest auto insurer in Louisiana; around one third of the state’s drivers have State Farm policies. Louisiana historically has had some of the nation’s highest car insurance rates.

The lawsuit centers around a State Farm policy called Select Service, in which repair shops that agree to State Farm’s pricing policies are placed on a list of preferred service providers. Garages that use Select Service have to use a computer program called Parts Trader to order replacement parts. Caldwell alleged that Parts Trader, which was developed by State Farm, only chooses the cheapest parts.

Select Service also limited the number of repair shops customers were referred to. The shops had to follow repair standards set by State Farm rather than industry standards. Those standards may have violated the guidelines for vehicle repair set by car manufacturers.

Caldwell claims he filed the suit after receiving numerous complaints from State Farm policyholders. Not surprisingly, State Farm is denying the claims.

“The description in this lawsuit is not in line with State Farm’s mission to serve the needs of its customers, and our long, proud history of achievements in advancing vehicle safety,” State Farm spokesman Phil Supple told Businessweek. Supple said his company’s lawyers were reviewing the suit and would file a response soon.

What You Can Do

The main lesson here is to try to find your own auto body shop after an accident. Read your insurance policy, and search for an auto body shop that meets its guidelines rather than relying on a list from an insurance company.

Another good piece of advice is to call shops or your car dealer and ask if they accept your insurance. Most auto body shops do accept most insurance policies. That means you should be able to take your vehicle to any shop.

It might also be a good idea to check your policy next time you change insurers and see what restrictions it places on repair. If you see something like State Farm’s Select Service, it might be a good idea to look elsewhere.