Office of the Attorney General News Release Archive

Tuesday, February 15, 2000


Attorney General takes action against 16 companies for auto policy violations

AUSTIN - Texas Attorney General John Cornyn today filed lawsuits against 16 major auto insurance groups alleging that the companies illegally underpaid auto repair claim payments to some of their Texas policyholders. The lawsuits allege that State Farm, Allstate, Farmers, USAA, Progressive County Mutual, Farm Bureau, State and County Mutual, Travelers, Trinity, Nationwide, Old American County Mutual, Home State County Mutual, Sentry, Maryland Casualty, Consumers County Mutual, and CNA insurance companies have violated Texas law by taking illegal deductions for betterment or depreciation on some of their policyholders' repair claims.

"Deduction for betterment or depreciation on policyholders' auto repair claims has been an industry custom in Texas,"said Cornyn. "But the personal auto insurance policy does not allow it. Several companies have informed us that they have recently stopped reducing claim payments for betterment, and I applaud this step. However, I intend to make sure that policyholders get the refunds they are entitled to and that all companies play by the same rules."

"Betterment" is an insurance industry term for increasing the value of a vehicle by paying to repair it with better or newer parts. For example, if your engine is damaged in a collision and your insurance company decides to replace it with a newer engine, some companies deduct an amount for betterment or depreciation on the claim payment. The standard Texas auto policy does not allow for such a deduction, and a recent Austin Court of Appeals opinion indicates that these deductions are not permitted.

The lawsuits ask the court for permanent injunctions to end all betterment-related practices by these insurance companies against their policyholders, and ask for civil penalties to be paid to the State of up to $10,000 per violation of the Texas Insurance Code. Under the terms of the proposed injunction, each insurance company would also be required to refund its policyholders all money deducted for betterment or depreciation on auto repair claims, plus interest.

Assistant Attorney General Jim Wenzel, in the Insurance Practices Section of the Attorney General's Consumer Protection Division, is handling these cases.

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Contact Mark Heckmann, Heather Browne, or Tom Kelley at (512) 463-2050