State Farm is facing accusations of operating a "Denial Enterprise" in Oklahoma, as revealed by unsealed court documents detailing internal policy changes that allegedly saved the insurance giant approximately $1.4 billion in a single year. The documents are at the center of a legal battle involving nearly 1,000 Oklahoma homeowners and the state's Attorney General.
Internal emails indicate that starting in 2020, State Farm altered its methods for evaluating hail and wind damage to roofs. One email stated there was "About a $1.4B decrease in indemnity from 2020 to 2021." The company's approach to roof replacements also shifted, with replacement ratios significantly decreasing. In 2021, the ratio was 2.0 replacements for every one repair, increasing to 2.2 in 2022, down from a previous rate of 5.6 to 1.
Executives reportedly calculated that a 1% reduction in claim approvals could save the company $78.8 million annually, based on an average claim severity of $15,768. The company's internal business plan identified roofs, which constituted 70% of claims and 57% of payouts, as the primary area for cost-saving opportunities.
State Farm reportedly engaged the consulting firm Haag Engineering to retrain its adjusters. However, internal correspondence suggests that Haag's damage metrics did not align with State Farm's own policy language, leading to a disconnect between engineering perspectives and insurance coverage standards.
Some State Farm agents expressed concern over the new claims process. One agent wrote to leadership in 2021, warning that the system was "broken" and negatively impacting business. The agent described inspectors as "low balling at best and almost NEVER replace a roof" due to fear of repercussions from the company.
Oklahoma Attorney General Gentner Drummond filed a lawsuit against State Farm in June, alleging the company operated a scheme to defraud Oklahomans under the state's anti-racketeering statute. Drummond suggested that if a deliberate scheme by State Farm leadership can be proven, the case could extend into criminal territory.
A State Farm lawyer, however, argued during a hearing that the documents represent routine business analysis and that the company was merely evaluating if claims were being paid properly, citing instances where claims were paid with "no evidence of damage." A company spokesperson stated that each claim is evaluated based on its specific facts and that State Farm has paid over $1 billion to Oklahoma customers for wind and hail damage in the past two years, with bad-faith suits comprising about 1% of their annual claims.
Only 31 documents have been unsealed thus far in the ongoing legal proceedings, with hundreds of thousands more remaining under seal. Internal communications from 2023 suggest the company's strategy has not changed.