Steve Badger offered a short observation in a LinkedIn discussion about State Farm’s Oklahoma regulatory resolution: “Sometimes it’s easier to pay than fight.”
Sometimes it is. Lawyers on both sides of insurance disputes understand that settlements can reflect the expense and uncertainty of continued litigation. But State Farm’s obligations in Oklahoma extend beyond writing checks. The Commissioner adopted findings of improper claim handling, ordered a corrective action plan, and required every director to acknowledge receiving the examination report and order. Those requirements deserve attention, especially given the company’s history in Oklahoma and the unanswered questions about its use of Haag training.
In yesterday afternoon’s post, State Farm’s Oklahoma Roof Claims Findings Should Put Other States on Notice, I discussed the Department’s independent examination of roof claims and its findings that State Farm failed to attempt prompt, fair, and equitable settlements in at least 22 claims where liability had become reasonably clear. The Department also found that State Farm failed to timely provide responsive records to its examiners. These are adopted regulatory findings, rather than allegations that disappeared when someone agreed to pay money.
The financial announcement naturally attracted attention. At least $35 million is designated for consumer restitution, another $10 million for strengthening Oklahoma homes, and $2.86 million for fines and examination expenses. The expenses were not broken out, so for all we know, it is a reimbursement of the expenses. Eligible policyholders will have an opportunity to seek independent review of their claims.
Those provisions matter. So does the question of what State Farm must change to prevent the same problems from recurring. The Commissioner’s order requires State Farm, within 30 days of receiving it, to develop and submit a corrective action plan detailing the steps it will take to comply fully with Oklahoma insurance law. Separately, each director must execute an affidavit acknowledging receipt of the examination report and related order.
The directors are required to acknowledge receiving the findings and order. They are not expressly required to swear that the corrective measures have been completed or will work. Nevertheless, the requirement places these findings before the board. This is a corporate governance issue that cannot fairly be dismissed as a disagreement between a homeowner and a field adjuster. It sets up the question of what corrective actions will be taken.
A meaningful corrective action plan should identify what went wrong, what will change, who is responsible, and how the Department will determine whether the changes work. Another training course and a revised manual may accomplish little if the underlying standards continue producing the same improper decisions. The test should be whether covered damage is identified accurately and paid promptly.
That brings me to Haag. This is not State Farm’s first Oklahoma storm-claims rodeo involving questions about Haag. Following the 2006 Watkins verdict, contemporary reporting described State Farm suspending work with Haag Engineering and commissioning an independent investigation. That litigation concerned structural damage from a 1999 tornado, an important distinction from the present roof-claim examination. But the historical concern about the objectivity of engineering assessments is relevant to the questions being asked today.
State Farm has an explanation for its continued use of Haag training. In a statement reported by KFOR, the company said its moratorium on using Haag Engineering to evaluate Oklahoma customer claims remains in place. It distinguished Haag Engineering from Haag Education, which supplies training materials, and noted that Haag Education offers widely used courses, including courses approved by Oklahoma. State Farm denied that the training relationship establishes the wrongdoing alleged against it.
This curious explanation tries to identify a distinction between services and companies, which seem to be the same to me. It does not resolve the question about what adjusters are being taught.
The examination’s own attachments include March 2020 correspondence describing State Farm’s work with Haag Education to develop a hail and wind damage assessment video series supporting its claims-quality plan. The proposed communication expressly identified Texas and Oklahoma as examples of locations for initial training attention. This was connected to how State Farm prepared its claim handlers to evaluate storm damage.
If concerns about an engineering firm’s assessments justified restricting its use on individual claims, what review establishes that the educational material teaches an accurate and objective approach? Are the relevant methods different? Who developed and approved them? What independent testing demonstrates that adjusters trained under those methods reliably recognize covered damage? I don’t get it, and my bet is most outside of State Farm don’t understand this either.
The potential reach makes the issue especially important. An engineer inspecting one property influences one claim. Training used by many adjusters can influence thousands. If the training is sound, that reach can improve claim handling. If it contains a consequential error, the same reach can multiply the harm.
The public examination does not establish that Haag training caused the 22 identified claim-handling violations. Nor does it establish that using Haag Education violated the engineering moratorium. Those conclusions require evidence that the report does not supply. But the report’s findings make an independent review of the training and its application a reasonable subject for corrective action.
I would also want the Department to examine how State Farm measures claims quality. Does an adjuster receive the same scrutiny for overlooking covered damage as for paying too much? Do management reviews identify underpayments with the same energy devoted to reducing estimates? A process that consistently produces lower payments has not demonstrated “accuracy.”
Badger’s comment captures one reason companies settle. It does not answer whether the conduct requiring correction has actually changed. Paying benefits that should have been paid earlier is necessary. Preventing the next improper denial requires examining the decisions, instructions, and incentives that produced the first one.
Other insurance departments and journalists should follow the corrective action process as closely as the money. They should ask whether the identified practices operated elsewhere, whether the same training was used, and whether independent inspections would reveal similar problems. Oklahoma’s examination provides a concrete example of testing claim decisions against physical evidence rather than accepting the insurer’s file as the complete story.
State Farm has to do more than pay. It must submit a plan to correct the problems, and its directors must formally acknowledge receiving the findings and order. Policyholders deserve follow-through that establishes whether the corrections work. Otherwise, Oklahoma risks finding itself back in the same arena, watching another round of the same rodeo.
Thought for the Day
“Sometimes it’s easier to pay than fight.”
— Steve Badger, commenting on LinkedIn about the State Farm Oklahoma resolution
