State Farm’s algorithmic software deliberately underpaid 90,000 people.

Tens of thousands of Tennessee drivers may have been quietly underpaid by their insurance for their totaled vehicles. Recent court documents reveal that State Farm– attached at the bottom of this article– the nation’s largest auto insurer, systematically shaved down payouts using a computer-generated “negotiation adjustment” that reduced car values (and therefore insurance settlements) across the state. The Sixth Circuit Court of Appeals has now affirmed class-action status for over 90,000 policyholders, opening the door to one of the most consequential insurance accountability cases in years.

A Pattern of Algorithmic Undervaluation

• State Farm partnered with a data company, Audatex, to calculate the “actual cash value” (ACV) of totaled cars.
• Audatex located comparable vehicles and listed their prices, then automatically deducted a “Typical Negotiation Adjustment” (TNA), a discount meant to reflect what buyers might haggle off sticker prices.
• This adjustment was always negative, even though in today’s digital car market, most used cars sell at or near their listed price.
• The deduction directly reduced insurance payouts for thousands of Tennessee policyholders, often by hundreds or even thousands of dollars each!
• Plaintiff / victim Jessica Clippinger, whose Dodge minivan was totaled, received an initial payout of $14,490. After invoking the contract’s appraisal clause, the vehicle’s actual value was found to be $18,476, nearly $4,000 more than State Farm’s first offer.
• The court ruled that this “negotiation” deduction could constitute a breach of contract and potentially violate Tennessee insurance regulations requiring fair-market valuations based on local data.
• The appellate court affirmed class certification, holding that the same flawed valuation process applied to every insured driver, a systemic issue, not a series of isolated errors.

The Macro Consequences

The Economic Fallout

Every artificially reduced payout represents money extracted from local economies, cash that would otherwise circulate through repair shops, dealerships, and households. For 90,000 Tennessee claims, even a modest $1,000 undervaluation would mean tens of millions of dollars siphoned from policyholders to pad corporate margins.

The Public Trust Deficit

Insurance is built on a promise of financial protection. When that promise is algorithmically discounted, the damage extends beyond any single claim. The court’s opinion underscores a broader concern: automated valuation systems can quietly embed systematic bias in favor of insurers, leaving consumers with little transparency or recourse until class actions expose the scheme.

The Regulatory Blind Spot

Tennessee’s regulations require valuations to reflect “fair market value” based on local sales data. Yet State Farm’s system relied on nationwide algorithms and hypothetical negotiations, effectively bypassing those consumer protections. The scandal exposes a regulatory gap where technology-driven adjustments operate outside meaningful oversight, eroding state authority over fair-claims practices.

The Erosion of Accountability

By embedding these deductions into software, the insurer outsourced the act of underpayment to an algorithm. That distance insulated decision-makers from direct responsibility. It took five whole ass years of litigation for the courts to even reach the class certification stage, a reminder that the burden of proof still falls on consumers to challenge digital mechanisms of corporate self-interest.

The Bottom Line: A System Built to Underpay

This Sixth Circuit’s ruling allowed the case to proceed on behalf of tens of thousands of victims of State Farm’s greed. Insurance algorithms are not exempt from the laws of contract and fairness. At least they aren’t in theory…

State Farm, like other insurers, designed a process that looked objective but operated as a quiet cost-cutting machine. The payout shortfalls weren’t accidents; they were the predictable outcome of a valuation model that assumed every customer would have negotiated for less, even when they never had that chance.

State Farm may eventually pay restitution or face settlement pressure, but as with most corporate penalties, it will likely do so without admitting wrongdoing as is always the case here. Unless regulators modernize oversight of algorithmic pricing and valuation systems, the machinery of underpayment will continue… just under a different name next time.

Here is a different article on State Farm’s corporate misconduct. This time it was for (allegedly) illegally firing an employee just because they helped a disabled employee out: https://evilcorporations.com/corporate-misconduct-state-farm-retaliation-disability-rights/