GEICO faces allegations it systematically shortchanged Ohio policyholders on total loss claims using arbitrary deductions never disclosed in their policies.
Four Ohio residents filed a proposed class action in federal court last week accusing the insurance giant of breaching contracts and committing fraud by underpaying actual cash value settlements through hidden adjustments to vehicle valuations.
The lawsuit, filed October 30 in the United States District Court for the Northern District of Ohio, targets GEICO's use of a valuation methodology that allegedly applies arbitrary "condition adjustments" to comparable vehicles without ever inspecting them to systematically reduce what policyholders receive for totaled cars.
At the heart of the allegations is a practice the policyholders say has quietly cost them money: When GEICO declares a vehicle a total loss, it uses reports from CCC Intelligent Solutions Inc. that identify similar vehicles for sale nearby. But after adjusting for verifiable differences like mileage and options, CCC then deducts an additional amount from each comparable vehicle's price, purportedly to account for condition.
The policyholders say neither GEICO nor CCC ever inspects these comparable vehicles to justify the deduction.
In one example, GEICO valued a policyholder's vehicle using 11 comparable cars with mileage ranging from 46,912 to 115,643 miles. Despite dramatic differences in wear and tear, the insurer allegedly deducted exactly $1,511 from every single vehicle—assuming without inspection that each had better-than-average condition across every component, from headliners to mechanical parts.
The only explanation provided in valuation reports, according to the filing, is a vague statement claiming the reduction "sets that comparable vehicle to Average Private condition." There is no explanation for why that is the case, how the amount is determined, or any basis to believe the comparable vehicles were not already in such condition.
The policyholders argue this violates both their insurance contracts and Ohio regulations governing total loss settlements. Their policies promise to pay actual cash value, defined as "determined by the market value, age, and condition of the vehicle or property at the time the loss occurs less depreciation or betterment." Betterment, the policies state, means "improvement of the auto or property to a value greater than its pre-loss condition." Depreciation means "a decrease or loss in value to the auto or property because of use, disuse, physical wear and tear, age, outdatedness or other causes."
But the challenged practice, they say, bears no relation to either concept. No vehicle is being improved beyond its pre-loss state—GEICO is paying actual cash value, not providing a replacement vehicle. And the deduction is not based on any actual assessment of depreciation in the comparable vehicles being used for valuation.
The filing points to Ohio Administrative Code 3901-1-54, which GEICO cites in its valuation reports as governing the actual cash value calculation. The regulation requires insurers settling total loss claims to base offers on "the actual cost to purchase a comparable automobile" less deductible and any betterment deductions. Any betterment deductions "shall be itemized and specified on the written estimate as to dollar amount and shall be appropriate for the amount of deductions."
The condition adjustment, the policyholders say, is neither itemized nor appropriate. It appears as a single unexplained reduction applied identically across vehicles with vastly different characteristics.
The filing states that CCC has never conducted any random sample or random inspection program of used car dealerships, either in Ohio or nationally, that would provide a statistically valid basis for its assumption that all dealer-offered cars are in above-average condition compared to average private passenger vehicles.
While GEICO inspects policyholders' vehicles using detailed condition inspection guidelines to determine the condition of key components prior to the loss, it never inspects the comparable vehicles whose prices form the basis of that valuation—yet still reduces their values through the adjustment, according to the allegations.
The policyholders describe this as "thumbing the scales" in GEICO's favor, distorting what should be a straightforward market-based comparison. The valuation reports state that adjustments are "made to reflect differences in vehicle attributes, including mileage and options," which the filing characterizes as at best a fraudulent half-truth because the condition adjustment does not reflect the actual attributes of the comparable vehicles, which are never inspected.
Beyond contract claims, the lawsuit alleges fraud. The policyholders say GEICO sold policies promising to pay actual cash value while knowing at the time it would not pay actual cash value in the event of total loss but would instead pay a lesser amount. This constitutes entering a contract with no present intent to perform, which the filing states is recognized as a tort under Ohio law when "the person who makes his promise of future action, occurrence, or conduct, and who at the time he makes it, has no intention of keeping his promise."
They also challenge GEICO's appraisal clause, which requires policyholders who dispute valuations to pay for the appraisal process themselves. The filing alleges GEICO was aware at the time that the amount of money this would cost any customer would make it virtually certain the customer would not be willing to proceed, since in many cases the cost of the appraisal process would be more than the deficiency in the actual cash value payment. Even those who prevail cannot recover appraisal costs under the policy language, meaning in every appraisal case the customer always receives less than the award because they must deduct the cost of the appraisal.
The proposed class would include all Ohio residents insured by any GEICO entity who received actual cash value payments for total losses based on CCC One Market Valuation Reports during the longest period permitted by Ohio law before the filing and thereafter. The class excludes plaintiffs' counsel, officers of the court handling the matter, and GEICO employees.
This is the second such case GEICO faces in the same Ohio court. The filing notes it is related to another class action pending before District Judge Dan A. Polster, Civil Action No. 1:24-cv-00736-DAP.
All GEICO operating units doing business in Ohio have the same centralized claim adjustment operation, using the same claims adjusters, forms, valuation vendor, policies and procedures, including those challenged in this lawsuit, according to the allegations.
The policyholders cite a recent decision they view as supporting their position. In Davis v. Geico Casualty Co., 659 F.Supp.3d 843 (S.D. Ohio 2023), a Southern District of Ohio judge granted summary judgment to a policyholder class, ruling that actual cash value payment for the cost to acquire a replacement car must include all costs and if the insurance company wanted to exclude them it was required to say so in the policy.
The filing seeks class certification, a declaration of rights under the policies, compensatory, consequential and general damages including nominal damages, statutory and punitive damages, restitution or disgorgement, attorneys' fees, costs and litigation expenses, and pre- and post-judgment interest.
It also alleges breach of the implied covenant of good faith and fair dealing, citing Ohio case law that "every contract, no less in insurance or consumer transactions, has an implied covenant of good faith and fair dealing to it," defined as "an implied undertaking not to take opportunistic advantage in a way that could have not been contemplated at the time of drafting, and which therefore was not resolved explicitly by the parties."
