Federal Court Certifies Class in Lawsuit Against State Farm Over Depreciation of Sales Tax

In a significant win for California homeowners, a federal judge in the Northern District of California has certified a class action against State Farm Insurance Company. Plaintiffs Melissa Pitkin and Dan Grout alleged that State Farm violated California Insurance Code § 2051(b) by systematically depreciating sales tax when calculating Actual Cash Value (ACV) on personal property claims. This, they argude, unlawfully reduced insurance payouts to thousands of policyholders.

Despite State Farm acknowledging this depreciation practice, it argued that the method was legal and that damages and class membership couldn’t be determined on a classwide basis. The court disagreed, finding that the plaintiffs presented reliable expert testimony and a feasible methodology for identifying affected policyholders and calculating damages.

This decision revives a critical debate on how insurers calculate ACV and whether sales tax should be reduced in payouts. The matter is now set to proceed as a class action.

The case is Pitkin v. State Farm, Case No. 3:23-cv-924, U.S. District Court for the Northern District of California.