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Consumer advocates are attacking an out-of-court settlement that State Farm Insurance Cos. obtained from 49 states over thousands of rebuilt wrecks that it admittedly put back on the roads over the last decade without disclosing that they had been totaled in accidents. The country’s biggest motor vehicle insurer first approached Iowa’s attorney general in November 2003 after discovering irregularities in auto titles. State Farm signed a settlement agreement last January with the attorneys general of 47 of 50 states, Georgia, Hawaii and the District of Columbia. In September, the attorneys general began sending out settlement notices to 32,000 vehicle owners offering compensation of roughly 25 percent book value on the rebuilt wrecks that owners unknowingly bought as used cars. In return, the owners would release their claims against State Farm. Consumers who do not elect to join the settlement may pursue individual causes of action against the insurer in court. However, automobile fraud litigator Bernard E. Brown, a solo practitioner in Kansas City, Mo., alleges that State Farm, realizing that it faced exposure to substantial liability, quietly worked out a “sweetheart deal” with the states to settle the matter. He added that the agreement was forged without either side saying a word to at-risk consumers while settlement negotiations were pending. Jonathan Sheldon, a staff attorney at the National Consumer Law Center, a nonprofit national consumer law advocacy group in Boston, agrees with Brown, calling the compensation offered “laughable in comparison with the damages they’ve suffered.” Insurers will drop coverage of motorists who get notice that they are driving cars that should have salvage titles, both Brown and Sheldon said. Loss of coverage will prompt banks to call in loans on those vehicles which, as rebuilt wrecks, are worth a fraction of the value of the used vehicles that consumers thought they had purchased. “There are clear indications that a number of attorneys around the country will be bringing suits for individuals,” Brown said, adding that he has no clients yet and may not take clients so he can continue to talk about the case. SETTLEMENT DEFENDED William L. Brauch, the Iowa special assistant attorney general and division director of consumer protection who was instrumental in negotiating the deal, called Brown’s criticism “really baseless and ridiculous.” As one of eight states negotiating the settlement on behalf of the other parties, Iowa, along with California, Florida, Illinois, Nebraska, New York, South Carolina and Texas, “got a $40 million settlement for consumers nationwide, one of the largest such settlements ever. For consumers, it’s a very good deal,” Brauch said, and consumers are not bound by the settlement if they don’t like it. “State Farm really opened itself up here, it really took a gamble when it came to us,” he said, adding that those “criticizing our action have every right to go out and hire an attorney, file a lawsuit and do better.” Jeffrey W. Jackson, State Farm’s corporate general counsel and vice president, said that the title issue is more complicated than critics of the settlement imagine, “with lots of moving parts and lots of entities involved.” “It’s not easy to negotiate your way through the maze of [50 states' different] salvage title laws today,” Jackson said, adding that State Farm needed to work with each state’s motor vehicle registering agency, and that it took the initiative by going directly to the attorneys general in order to update the histories of all the titles in question. By working through the attorneys general, the company was able to narrow 100,000 questionable titles down to about 32,000, Jackson and Brauch said. In the end, the company pledged not only to pay “a substantial sum of money” to people who own cars, but to defend lawsuits against those who decide not to participate in the settlement, Jackson said. “I think we did the right thing, and I still believe that to this day,” he said. Indiana is the only state not to join the settlement. The Hoosier State settled a similar matter in Marion County Superior Court in 1998 with a consent judgment that included a permanent injunction against such activities in the future, a buy-back provision or $2,500 to owners who chose to keep their vehicles. Indiana v. State Farm Mutual Automobile Insurance, No. 49D07-9807-CP-001043 (Marion Co., Ind., Super. Ct.). The $40 million national settlement does not include an injunction.

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