State Farm faces a federal lawsuit alleging the use of discriminatory algorithms and unfair claims practices that allegedly targeted elderly, disabled Black homeowners in Alabama.
A newly filed complaint in the United States District Court for the Middle District of Alabama details sweeping allegations against the State Farm Insurance Company and its agent, Kris Stallworth. The plaintiffs, Gregory Kelly and Annette B. Kelly, both elderly and disabled residents of Montgomery, Alabama, claim State Farm subjected their insurance claims to heightened scrutiny because of their race and disabilities, resulting in delayed payments and financial hardship.
At the center of the lawsuit is the Kellys’ assertion that State Farm failed to make prompt payment for lightning and water damage to their home, totaling $372,437.36. The complaint alleges that State Farm’s Premier Service Program (SFPSP) contractors, including Servpro and HVACi, committed acts of gross negligence and breached contractual obligations by filing false engineering and environmental reports about the damage. The plaintiffs allege these actions led to delays in urgent home repairs and devalued their property.
The complaint goes further, accusing State Farm of exploiting elderly, blind, and partially blind policyholders by selling them unneeded, unnecessary, overpriced, or unsuitable insurance products. The Kellys allege that State Farm used false data from credit reporting agencies to deny, refuse, or cancel insurance contracts, and that these practices disproportionately harmed Black and non-white policyholders. According to the complaint, State Farm’s claims-processing methods relied on “cheat and defeat AI algorithms as discriminatory tools,” which the plaintiffs say subjected their claims to greater scrutiny than those of white policyholders.
The lawsuit is broad in scope, citing violations of numerous federal and state laws. The Kellys allege breaches of 42 U.S.C. 1981 (race discrimination in contracting), the Fair Housing Act, the Americans with Disabilities Act, the Dodd-Frank Act’s UDAAP provisions, the Fair Credit Reporting Act, and Alabama’s prompt pay and domestic abuse insurance protection statutes. The complaint also references alleged violations of wire and mail fraud statutes, as well as the Fourteenth Amendment’s Equal Protection Clause.
The Kellys further claim that State Farm’s documentation requirements for proof of citizenship and identity - such as only accepting certain state-issued driver’s licenses and rejecting ITINs - resulted in additional discrimination, particularly impacting survivors of domestic violence and hate crimes. The complaint describes business practices that allegedly fail to protect the interests of vulnerable policyholders, including those with disabilities and those who are survivors of abuse.
The plaintiffs are seeking damages of $372,437.36 plus interest, medical costs, court costs, and other relief. They also ask the court to order State Farm to monitor and audit its claims-processing methods to prevent future discrimination. The complaint does not quote specific insurance policy clauses but alleges that State Farm failed to honor its homeowners insurance contract, particularly regarding coverage for lightning, water, mold, and mildew damage.
It is important to note that these are allegations only; the case is in its earliest stages and no findings of fact have been made by the court. Still, the breadth of the claims and the involvement of a major national insurer make this lawsuit one to watch for insurance professionals.
