Expert Witness

Xactimate is Never on Trial

Xactimate is Never on Trial

There is a persistent belief among contractors in the property restoration industry that Xactimate is part of the problem. Many feel the software is rigged in favor of insurance companies, that it’s “in bed with carriers,” or that it consistently undervalues the true cost of repair work. This narrative has fueled frustration, online debates, and even threats of lawsuits. But when we look at the facts—specifically the outcomes of actual court cases—a very different story emerges.

Despite being a central player in almost every insurance claim in the U.S., Xactimate has never been successfully sued or held legally responsible for claim underpayments. Courts across multiple jurisdictions have repeatedly affirmed that Xactimate is simply a tool—a software application that provides estimating capabilities. It does not make decisions, write checks, or promise to reflect market reality. It is up to the user—typically the insurance adjuster or estimator—to decide how to use that tool, including what pricing database or labor efficiency settings to select.

In fact, the courts have been clear: insurance policies generally do not require the use of any particular method of estimating damages. Judges have ruled that as long as the insurer pays what is ultimately owed under the terms of the policy, the estimating methodology itself is irrelevant. Whether an estimate was produced using Xactimate, a contractor’s bid, or another method altogether, what matters is whether the insured was indemnified according to the policy.

The real legal disputes center around payment—not the software. When insureds have taken their cases to court over lowball estimates or improper claim handling, it is the insurer who is on trial, not Xactimate. And when disputes over scope or value arise, most policies provide for an appraisal process to settle those differences without invoking questions about the software.

As contractors, it’s time we stop blaming the tool. Instead, we need to focus on how it’s being used, who controls the inputs, and whether the outputs are aligned with the real cost of doing professional restoration work. If we want to create real change, we have to engage the process with clarity, professionalism, and a firm understanding of the actual rules in play. Because when the gavel falls, it’s never Xactimate that’s on trial.

Legal Research Report: Belotti v. State Farm and the Xactimate “New Construction” Debate

Introduction

Jamie and Becky Belotti’s lawsuit against State Farm Fire & Casualty Co. in Pennsylvania is one of several recent cases accusing the insurer of undervaluing property damage claims by using Xactimate estimating software’s “new construction” settings instead of the higher-cost “repair/reconstruction” settings. In March 2025, U.S. District Judge Joseph F. Saporito, Jr. dismissed the Belottis’ proposed class action, finding no breach of the insurance contract or bad faith in State Farm’s estimating methods. This report examines the background of the Belotti case, the court’s reasoning, and how it compares to similar lawsuits in other states (including a dismissed California case and an Indiana case that survived summary judgment). We also analyze how courts interpret insurance policy language regarding loss estimation methods, and include expert commentary on the broader implications for restoration contractors and insurance estimating practices.

Background: Xactimate Settings and Insurance Claims

Xactimate (by Xactware) is widely used by insurers and adjusters to calculate repair costs for property damage. It offers two labor cost modes or databases: one for “Restoration/Service/Remodel” (intended for repair/rebuild projects after a loss) and one for “New Construction” (intended for building a structure from the ground up). The difference is significant. The new construction setting assumes optimal efficiency – an empty jobsite, no need to work around occupants or existing structures – so it generally yields lower cost estimates. The restoration setting accounts for extra labor and time needed to tear out and rebuild around existing structures, inhabited spaces, or partial damage (Phillips v. State Farm Fire & Cas. Co., No. CV-19-04605-PHX-GMS | Casetext Search + Citator). In short, using the new construction database produces a lower estimate than the restoration database would for the same scope of work (Phillips v. State Farm Fire & Cas. Co., No. CV-19-04605-PHX-GMS | Casetext Search + Citator) (Phillips v. State Farm Fire & Cas. Co., No. CV-19-04605-PHX-GMS | Casetext Search + Citator).

The Belotti Fire Loss: The Belottis’ home in Duryea, PA suffered a fire in October 2019. They held a State Farm homeowner’s policy with “Replacement Cost” coverage (the more generous “A1 – Similar Construction” option, which promised to pay to repair or replace with materials of like kind and quality). State Farm’s initial adjuster estimate, using Xactimate, set the replacement cost value (RCV) at about $172,015, yielding an actual cash value (ACV) payment of $130,852 after depreciation and deductible. The Belottis, through a public adjuster, obtained their own estimate (by Mr. Evans) using Xactimate’s “Restoration/Service/Remodel” setting – that estimate was $374,070 RCV, more than double State Farm’s figure. The stark difference (over $200k) was attributed to the labor efficiency setting: the Belottis contended State Farm wrongfully treated a repair job as “new construction,” suppressing the payout.

Policy Dispute and Appraisal: The State Farm policy contained a standard appraisal clause for disputes on the amount of loss. After negotiations failed, State Farm invoked appraisal in mid-2020. Each side selected an appraiser, and the appraisers (after delays due to COVID and other issues) agreed on an award in January 2022: RCV ~$267,382 and ACV ~$240,644. Notably, the appraisal was done without using Xactimate at all (neither setting). State Farm paid the Belottis an additional ~$66,690 to match the appraisal award (on top of what had been paid earlier). In effect, the appraisal confirmed that the true cost to repair was much higher than State Farm’s initial Xactimate-“new construction” estimate, and State Farm ultimately paid that higher amount.

Despite receiving the appraisal difference, the Belottis pursued a class-action suit in state court (later removed to federal court) alleging that State Farm’s use of the lower new construction Xactimate numbers violated their contractual rights and was part of a broader pattern of bad faith and unfair trade practices. Their Second Amended Complaint included claims for: breach of contract, breach of the implied covenant of good faith and fair dealing, statutory bad faith (42 Pa. Cons. Stat. § 8371), violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law, and even a count under the Illinois Consumer Fraud and Deceptive Business Practices Act (the latter presumably to facilitate a nationwide class claim, as State Farm is based in Illinois) (MEMORANDUM for Belotti et al v. State Farm Fire and Casualty Company :: Justia Dockets & Filings) (MEMORANDUM for Belotti et al v. State Farm Fire and Casualty Company :: Justia Dockets & Filings). They sought to represent all similarly situated State Farm policyholders allegedly underpaid due to this estimating practice (MEMORANDUM for Belotti et al v. State Farm Fire and Casualty Company :: Justia Dockets & Filings).

Judge Saporito’s Decision in Belotti v. State Farm (M.D. Pa. 2025)

In March 2025, Judge Saporito granted summary judgment for State Farm on all counts, effectively dismissing the class action. The court’s reasoning centered on insurance contract interpretation: the policy promised to pay for the cost of repair or replacement of the damage with similar construction, but nowhere did the policy dictate how those costs must be estimated.

  • No Contractual Duty for Specific Method: The judge found “no policy language that directly or indirectly concerns any method of computation, much less requires a singular method of computation.” He emphasized that the language of the policy should not be stretched beyond its plain meaning to create obligations that do not exist. In other words, as long as State Farm paid the amount required to repair or replace with similar materials (which it ultimately did after appraisal), the method it initially used to calculate that amount was not governed by the contract. The policy was deemed “wholly independent from any method of computation”. Thus, using a “new construction” pricing model in Xactimate, even if it yields a lower initial estimate, was not a breach of any express term of the insurance contract because the contract did not mandate use of the “restoration” setting (or any particular estimating software or setting).
  • No Ambiguity to Construe Against Insurer: The Belottis argued that the absence of a term specifically allowing the new construction model meant State Farm should not use it. The court rejected this, noting the policy also had no term forbidding it – it was simply silent on estimation methodology. That silence did not create an ambiguity; Judge Saporito quoted the principle that “[t]he language of an insurance policy should not be stretched beyond its plain meaning to create ambiguous terms.” Because the contract was unambiguous and did not speak to Xactimate settings, the court refused to infer an obligation that State Farm must use the higher restoration setting.
  • Appraisal as Remedy & No Bad Faith: Importantly, State Farm did eventually pay the full loss as determined by the appraisal panel. The judge noted that when the Belottis disputed the amount, the insurer adhered to the contract by agreeing to an appraisal and paying the award. The difference between State Farm’s initial estimate and the appraisal award was not proof of bad faith, the court said. “The fact that the parties’ appraisers ultimately assigned a higher value to the claim than State Farm’s estimate does not mean State Farm acted in bad faith,” Judge Saporito wrote. In Pennsylvania, statutory bad faith requires clear and convincing evidence that the insurer didn’t have a reasonable basis for its payment and knew or recklessly disregarded that. Here, State Farm could point to the policy’s appraisal process as the proper mechanism to resolve valuation disputes, and once the higher value was set, State Farm promptly paid it. There was no evidence of reckless refusal to pay a known amount – at most, a bona fide valuation dispute was resolved via the contractually agreed method.
  • Other Claims Dismissed: Given the core finding that no contract provision was violated and no bad faith could be shown, the derivative claims (implied covenant, consumer protection, etc.) also failed. The implied covenant of good faith and fair dealing in PA does not allow a separate cause of action distinct from the breach of contract (especially when the express terms weren’t breached). And using an Illinois consumer-fraud statute for what was essentially a claim-handling dispute also could not stand once the court found the conduct permissible under the contract. In sum, the judge concluded the Belottis “failed to provide any… support for their contention that State Farm breached the contract”, and he dismissed the case in its entirety at summary judgment (making the pending class certification motion moot).

Result: The Belotti class action was ended before trial, a clear win for State Farm. Judge Saporito’s ruling underscores that absent specific policy language, courts will not impose liability on an insurer for the choice of estimating technique, especially where an appraisal or other mechanism is available to ensure the insured ultimately receives the full repair cost.

Case Comparisons: Similar Lawsuits in Other States

The Belotti case is not unique – homeowners around the country have raised similar allegations about State Farm’s use of Xactimate’s new-construction rates to underpay claims. Below is a comparison of notable cases and their outcomes, illustrating how different courts have handled this issue:

Table: Key cases involving State Farm’s use of Xactimate “new construction” settings and their outcomes.

The California Case – Sheahan v. State Farm (N.D. Cal. 2020)

One high-profile case arose from the 2017 Northern California wildfires. In Sheahan v. State Farm, a group of wildfire victims sued State Farm and Verisk (Xactware’s parent) in federal court, alleging an antitrust and fraud scheme. Their theory was that State Farm, at the point of selling homeowners policies, used Verisk’s “360Value” tool to set coverage limits too low, and later used Xactimate to estimate rebuilding costs – resulting in the families being severely underinsured after their homes were destroyed (Sheahan v. State Farm Gen. Ins. Co., 442 F. Supp. 3d 1178 | Casetext Search + Citator) (Sheahan v. State Farm Gen. Ins. Co., 442 F. Supp. 3d 1178 | Casetext Search + Citator). For example, one plaintiff’s home was insured for ~$509k but actual rebuild cost was $2.1 million; they claimed State Farm’s valuation tools underestimated the true cost to rebuild (Sheahan v. State Farm Gen. Ins. Co., 442 F. Supp. 3d 1178 | Casetext Search + Citator). They argued this was not mere negligence but a “one-two punch” conspiracy: undervalue at policy inception and undervalue at claim time, so that customers always ended up short (Wildfire Victims Falter in Antitrust Case Against State Farm) (Sheahan v. State Farm Gen. Ins. Co., 442 F. Supp. 3d 1178 | Casetext Search + Citator).

Judge Edward Chen dismissed the Sheahan Third Amended Complaint with prejudice in 2020 (Sheahan v. State Farm Gen. Ins. Co., 442 F. Supp. 3d 1178 | Casetext Search + Citator). He found that the plaintiffs still failed to state a valid claim after multiple amendments. Key points from that decision:

The Indiana Case – Skender v. State Farm (S.D. Ind. 2024)

The Skender case in Indiana illustrates a more policyholder-favorable outcome (at least procedurally). The Skenders’ home in Bloomington, IN suffered a fire so severe that it was uninhabitable and essentially a partial rebuild situation (Skender v. State Farm Fire & Cas. Co., 1:22-cv-02054-JMS-KMB | Casetext Search + Citator). State Farm and the Skenders disagreed on the cost to rebuild. The Skenders hired Belfor Construction to estimate and perform the rebuild. Belfor’s estimate was higher than State Farm’s figure (with the discrepancy seemingly due to State Farm insisting the job could be done cheaper, likely by treating it akin to new construction efficiencies). According to the complaint, State Farm “repeatedly rejected” Belfor’s higher estimate yet did not identify any other contractor who would do the work for the price State Farm calculated (Skender v. State Farm Fire & Cas. Co., 1:22-cv-02054-JMS-KMB | Casetext Search + Citator). Facing a two-year policy deadline to use replacement cost coverage, the Skenders went ahead and rebuilt with Belfor at the higher cost, then demanded State Farm pay the full amount. State Farm refused to pay beyond its own estimate, which left the insureds tens of thousands of dollars out-of-pocket (Skender v. State Farm Fire & Cas. Co., 1:22-cv-02054-JMS-KMB | Casetext Search + Citator). They sued for breach of contract and bad faith.

By February 2024, the Skender case reached summary judgment motions. State Farm moved for partial summary judgment on the bad faith claim (likely arguing no reasonable jury could find its handling rose to bad faith). Judge Jane Magnus-Stinson denied State Farm’s motion, allowing the Skenders’ claims to proceed to trial (Skender v. State Farm Fire & Cas. Co., 1:22-cv-02054-JMS-KMB | Casetext Search + Citator). In doing so, the court also overruled some evidentiary objections, including permitting the Skenders to use deposition testimony from another case about State Farm’s training on the duty of good faith (Skender v. State Farm Fire & Cas. Co., 1:22-cv-02054-JMS-KMB | Casetext Search + Citator) (Skender v. State Farm Fire & Cas. Co., 1:22-cv-02054-JMS-KMB | Casetext Search + Citator). The denial of summary judgment indicates the judge found triable issues of fact – for instance, whether State Farm’s insistence on the lower “new construction” estimate was reasonable given that no contractor would do the job for that amount. The court explicitly noted Mr. Skender’s testimony about the project’s difficulty and appropriate pricing (though it struck his lay opinion on those issues as evidence) (Skender v. State Farm Fire & Cas. Co., 1:22-cv-02054-JMS-KMB | Casetext Search + Citator) (Skender v. State Farm Fire & Cas. Co., 1:22-cv-02054-JMS-KMB | Casetext Search + Citator). However, the core facts – that State Farm stuck to a low figure and the insured had to pay more – could support a jury finding that State Farm breached the policy’s replacement cost promise and/or acted in bad faith by failing to indemnify the loss fully.

Importantly, after the court’s ruling, the parties reached a settlement before the scheduled April 2024 trial. This suggests State Farm, faced with the risk of an unfavorable jury verdict (possibly with bad faith punitive damages), opted to resolve the case. The Indiana case therefore stands in contrast to Belotti: the absence of an appraisal remedy and the insurer’s refusal to adjust its estimate left it exposed to liability. It shows that courts can view the use of an unjustifiably low estimate as potential bad faith, even if the policy doesn’t mandate a particular estimating tool – especially if the insurer won’t budge when confronted with credible higher estimates and no alternative justification (Skender v. State Farm Fire & Cas. Co., 1:22-cv-02054-JMS-KMB | Casetext Search + Citator).

Other Notable Cases and Developments

Beyond Pennsylvania, California, and Indiana, the issue has surfaced elsewhere:

  • Arizona – Phillips v. State Farm: As summarized above, an Arizona federal court found that allegations of State Farm knowingly using the wrong Xactimate database to underpay claims could support fraud and unjust enrichment claims (Phillips v. State Farm Fire & Cas. Co., No. CV-19-04605-PHX-GMS | Casetext Search + Citator). That case was allowed to proceed as a class action on behalf of Arizona policyholders, though its ultimate resolution is not public. It demonstrates receptiveness (at least at the pleading stage) to the idea that if an insurer intentionally uses a method it knows will shortchange claimants, it could be liable under consumer fraud statutes or equity.
  • New Jersey – Han v. State Farm (filed 2021): In 2021, a class action was filed (Han) alleging State Farm “wrongfully used lower ‘new construction’ estimates” for what were really reconstruction projects. The complaint cited internal data: over 6 years, State Farm allegedly estimated over $90 million in repair costs using new-construction pricing for New Jersey claims. It described the practice as a “scheme” to generate estimates “below the fair and reasonable cost for the reconstruction”, affecting insureds in NJ, NY, PA, etc.. That case was removed to federal court in NJ; while detailed updates are scarce, it signals that the Belotti’s lawsuit was part of a larger trend, not an isolated incident. (The mention of Avery v. State Farm, an Illinois case decertifying a nationwide class in an auto claim context, suggests class certification in such multi-state cases is challenging.)
  • Kentucky and Others – Labor Depreciation Angle: Some related class actions focus on labor depreciation (whether insurers can depreciate labor when calculating ACV), which also involve Xactimate in the sense of how estimates are generated. For instance, a Kentucky class action (not against State Farm) highlighted how Xactimate’s default settings depreciated labor costs, affecting thousands of claims (Xactimate Error Causes Class Action Lawsuit – C3 Group) (Xactimate Error Causes Class Action Lawsuit – C3 Group). Those cases (e.g., Hicks v. State Farm in Tennessee/Kentucky) have seen mixed results, with many courts now ruling that depreciating labor without clear policy authorization is improper ([PDF] Hicks, et al. v. State Farm Fire & Casualty Co.). While not the same issue, it reflects increased scrutiny of insurer calculation methods in property claims.

In summary, State Farm has faced a flurry of lawsuits across jurisdictions over Xactimate usage. The outcomes differ: some courts dismiss the claims early (as in PA and CA) on contract/law grounds, others let them proceed to fact-finding or settlement (IN, AZ, MS). A unifying theme is that insurance policies do not explicitly regulate estimate methodologies, so courts must decide if using a suboptimal method breaches an implicit duty or not. We turn now to how policy language is interpreted in these scenarios.

Policy Language Interpretation: Estimating Methods vs. Payment Obligations

At the heart of these cases is a question: Does an insurer’s duty to “pay the cost to repair or replace” imply a duty to use a particular estimating technique (or the most accurate technique) to determine that cost? The answer from most courts so far is “No” – the policy obligates result (payment of the actual cost up to policy limits, under the terms) but not the process by which the insurer arrives at that number.

Explicit Terms: Homeowners policies typically state that the insurer will pay either ACV or replacement cost, and define those in terms of the cost to repair or replace with similar materials and quality, possibly allowing depreciation for ACV. They also often include an appraisal clause for resolving disagreements on amount of loss (as in the Belotti policy). What they do not usually include is any promise about the software or pricing methodology the insurer will use to estimate the damage. This gives insurers flexibility: they can use in-house estimates, independent adjusters, computer programs like Xactimate, contractor bids, etc., as long as the insured can ultimately recover the necessary amount (either initially or after negotiation/appraisal).

In Belotti, Judge Saporito firmly held that no contractual breach occurs merely from using a different valuation method, absent a specific policy directive. The Belotti policy’s promise to pay “similar construction” costs was fulfilled once State Farm paid the appraisal award; the policy did not require State Farm to initially calculate that cost in any particular way. Similarly, in Sheahan (CA), the policyholders couldn’t point to a violated contract term – their gripe was more with how the insurer’s practices left them underinsured, which is outside the contract’s scope once the loss exceeds policy limits.

In Skender and similar cases, while the contract didn’t mandate an estimating method, a breach of contract could still be argued if the insurer ultimately fails to pay the full repair cost. In Skender, State Farm paid only its own estimate, not the full cost the insureds actually incurred rebuilding (Skender v. State Farm Fire & Cas. Co., 1:22-cv-02054-JMS-KMB | Casetext Search + Citator). If a jury found that the actual cost was necessary and reasonable to restore the home to its pre-loss condition, then State Farm’s shortfall would mean it did not pay the “cost to repair or replace” as promised – a direct breach of the loss settlement provision. State Farm would likely counter-argue that the cost it calculated was sufficient and the insureds overpaid or chose an expensive contractor. This becomes a factual dispute: was State Farm’s lower estimate within a reasonable range for the job, or was it objectively too low to do the repairs? In appraisal cases (like Belotti), that question gets answered by appraisers. In non-appraisal cases (like Skender), it could be answered by a jury.

Implied Covenant and Bad Faith: Even if using the new construction setting isn’t an express breach, plaintiffs argue it breaches the implied covenant of good faith and fair dealing, which requires an insurer to honestly and adequately investigate and evaluate a claim. If State Farm knew that applying the new construction rates would undervalue the claim (and did so to save money), an insured can claim that is bad faith – a willful failure to indemnify fully. Courts have split on this. Pennsylvania’s judge took the view that because the insurer followed the contract’s appraisal process and paid the award, it did not act in bad faith or deal unfairly. Indiana’s court, on the other hand, saw enough evidence of potential bad faith to let that claim go forward – presumably because State Farm’s stance (refusing to adjust its estimate despite contrary evidence) could be seen as indifferent to the insured’s rights (Skender v. State Farm Fire & Cas. Co., 1:22-cv-02054-JMS-KMB | Casetext Search + Citator).

Notably, many policies do not explicitly forbid or endorse using new construction pricing for a rebuild, so there’s a gray area. If a house is almost entirely destroyed (taken “down to the studs”), State Farm might argue the situation is akin to new construction and thus the lower pricing is appropriate (Skender v. State Farm Fire & Cas. Co., 1:22-cv-02054-JMS-KMB | Casetext Search + Citator). The insured will argue that even in a stripped-down house, restoration is more complex than building new (due to partially damaged structures, etc.), and Xactware’s own literature says new construction pricing is for true ground-up builds (Skender v. State Farm Fire & Cas. Co., 1:22-cv-02054-JMS-KMB | Casetext Search + Citator). This becomes an interpretive question: does “similar construction” mean using like materials and accounting for the circumstances of rebuilding (which would favor the restoration setting)? Or can the insurer price as if it’s a new build as long as materials are similar? The Phillips case summary explicitly defined the two databases and implicitly suggested using the wrong one for a given loss would miscalculate the “cost to repair” (Phillips v. State Farm Fire & Cas. Co., No. CV-19-04605-PHX-GMS | Casetext Search + Citator) (Phillips v. State Farm Fire & Cas. Co., No. CV-19-04605-PHX-GMS | Casetext Search + Citator). Arizona law allowed a fraud claim to proceed on the theory that State Farm “knowingly and intentionally underpaid” claims by using the new construction database on losses that did not warrant it (Phillips v. State Farm Fire & Cas. Co., No. CV-19-04605-PHX-GMS | Casetext Search + Citator).

Thus, courts interpreting policy language have generally concluded:

  • The written contract does not oblige the insurer to use any particular estimating method – it just must pay the amount of loss (subject to any deduction or limit). Failure to use a higher Xactimate setting is not a breach per se.
  • However, if the insurer’s chosen method yields an amount that is not sufficient to actually repair the damage, the insurer risks breaching the substantive promise of coverage. At that point, it’s not about the method but the outcome.
  • The implied duty of good faith may be breached by a systematic underestimation practice if an insurer refuses to correct known underpayments. Where courts see an insurer eventually paid what was owed (e.g. via appraisal), bad faith is hard to prove. Where an insurer digs in its heels (as alleged in some cases), courts may let a jury decide if that was in bad faith.

In short, using Xactimate’s new construction setting is not illegal on its face, but it can lead to legal trouble if it results in chronic underpayments. Insurers defend it by claiming efficiency or that the damage was essentially equivalent to new construction needs (Skender v. State Farm Fire & Cas. Co., 1:22-cv-02054-JMS-KMB | Casetext Search + Citator), while insureds claim it’s a bad-faith cost-saving tactic outside the spirit of the policy.

Broader Implications and Expert Commentary

Implications for Policyholders and Restoration Contractors: The core issue has significant real-world impact on homeowners trying to rebuild after disasters and the contractors hired to do the work. When an insurer uses artificially low labor cost settings, the insurance payout may not cover the actual cost of repairs, leaving the homeowner to either pay out-of-pocket or fight the insurer. Restoration contractors often find themselves caught in the middle – their professional estimates (using proper restoration pricing) come in higher than the insurer’s number, leading to delays and disputes before work can even begin (Skender v. State Farm Fire & Cas. Co., 1:22-cv-02054-JMS-KMB | Casetext Search + Citator). In Belotti’s case, the parties were $200k apart until an appraisal resolved it. In Skender, the rebuild was delayed 8 months and still ended with the family owing money because State Farm wouldn’t increase its estimate (Skender v. State Farm Fire & Cas. Co., 1:22-cv-02054-JMS-KMB | Casetext Search + Citator). Such scenarios undermine the purpose of insurance and can cause severe financial strain or construction slowdowns.

From a business perspective for contractors, if insurers routinely undervalue using new construction pricing, contractors might either (a) cut corners to meet the budget (which is problematic), (b) refuse jobs where the insurance won’t cover their costs, or (c) work with homeowners to challenge insurers (e.g., through public adjusters or litigation). The issue has become well known enough that some public adjusters and restoration consultants specifically check which Xactimate setting was used on an insurance estimate. If it’s the wrong one, that’s a red flag that the estimate is too low.

Expert and Industry Commentary: Insurance attorneys and claim experts have weighed in on this trend:

  • Chip Merlin, a policyholder attorney, noted that these lawsuits “are starting to be filed on a more regular basis” regarding State Farm’s use of new construction Xactimate settings. He explains that the restoration setting accounts for additional labor/time in a restoration project, and using the new construction setting omits those, thus lowering the payout. Merlin emphasizes the question of intent: Was State Farm intentionally using the setting to minimize payouts? If so, it “touches on key aspects of fair claims handling” and could indicate bad faith. He suggests these cases could set precedents, encouraging other policyholders with similar grievances to come forward.
  • Edward Cross, an attorney for restoration contractors, has similarly highlighted the issue. In discussing the Han class action, his firm’s blog defines “new construction” as rebuilding from the ground up and “reconstruction” as rebuilding where some of the original structure remains. By conflating the two, the complaint alleged State Farm engaged in a **“routine” scheme to generate estimates it “knows full well to be below the fair and reasonable cost” of reconstruction. Cross notes many insureds aren’t represented by experts and wouldn’t know they were short-changed. This hints at a broader ethical issue: if an insurer systematically applies a less appropriate pricing model expecting many insureds won’t notice or will simply accept the lower payout, it raises questions of fairness and transparency.
  • Xactware’s Stance: Interestingly, Xactware (the software maker) itself provides guidance on when to use each setting. State Farm’s own defense in some cases has been that what they did was consistent with Xactware’s literature: e.g., in Skender, State Farm argued new construction pricing is appropriate for a “total ‘ground-up’ rebuild,” implicitly justifying its choice because the home was gutted to studs (Skender v. State Farm Fire & Cas. Co., 1:22-cv-02054-JMS-KMB | Casetext Search + Citator). On the other hand, Xactware would likely agree that if a loss is not a total rebuild, the restoration database should be used. One can misuse any tool; Xactware isn’t inherently at fault if an insurer selects the wrong profile for a given claim. The Sheahan case put Xactware in the crosshairs, but the court found no culpability on their part (Sheahan v. State Farm Gen. Ins. Co., 442 F. Supp. 3d 1178 | Casetext Search + Citator) (Sheahan v. State Farm Gen. Ins. Co., 442 F. Supp. 3d 1178 | Casetext Search + Citator).
  • Claims Industry Reaction: Publications like Insurance Journal and Claims Journal have covered these cases, indicating the insurance industry is well aware of the controversy. The fact that State Farm settled some of these cases (Indiana, possibly Arizona) and won others shows there’s no uniform outcome yet. Insurers might re-evaluate their guidelines for large loss estimating. One takeaway is that invoking appraisal can shield insurers from prolonged litigation – it solved the dispute in Belotti (and Mississippi’s case via court order), whereas not using appraisal left State Farm more vulnerable in Indiana.
  • Underestimation Trends: Broader analysis by experts like Jeff Major (a professional estimator) and Chip Merlin reveals that Xactimate price lists in general may be lagging behind actual market costs, especially if not updated or adjusted for local conditions (Xactimate Price Warning—Xactimate Finally Admits It Is Not So Exact! | Property Insurance Coverage Law Blog) (Xactimate Price Warning—Xactimate Finally Admits It Is Not So Exact! | Property Insurance Coverage Law Blog). Merlin wrote that Xactimate’s pre-loaded prices had been declining year over year, possibly because “its biggest consumers are insurance carriers and they are simply giving their customers what they want” – i.e., lower prices (Xactimate Price Warning—Xactimate Finally Admits It Is Not So Exact! | Property Insurance Coverage Law Blog). If true, this is a systemic issue: even using the “proper” setting might yield a low figure if the price database is outdated. Merlin warns this “disturbing trend is hurting insureds” who trust their insurer’s numbers (Xactimate Price Warning—Xactimate Finally Admits It Is Not So Exact! | Property Insurance Coverage Law Blog). He advises policyholders and their advocates to scrutinize the details of Xactimate estimates: often insurer estimates omit certain line items or quantity allowances that a contractor’s estimate would include (Xactimate Price Warning—Xactimate Finally Admits It Is Not So Exact! | Property Insurance Coverage Law Blog). In practice, a savvy public adjuster or contractor will go line-by-line to identify where an insurer’s scope might be missing components (which can also cause undervaluation aside from the labor rate issue).
  • Academic View: While there isn’t extensive law review literature yet on “Xactimate settings,” the cases touch on classic insurance law themes: reasonable expectations of the insured (would an average insured expect the insurer to fully account for the complexities of reconstruction? likely yes), and unequal bargaining power (policyholders don’t get to negotiate the terms or methodologies). If courts consistently ruled in favor of insurers on this issue, one might see a push for regulatory or legislative clarification. For example, a state insurance department could issue a bulletin that using software in a way that knowingly underestimates claims is an unfair practice. To date, no such regulation is evident, but the publicity of these class actions may draw regulatory attention. State Farm’s large market share means its practices, if deemed problematic, could affect many consumers, which is why multi-state class actions were contemplated (though class certification is an uphill battle due to varying state laws and individualized claim facts).

Implications for the Future: The outcomes of these cases will likely influence how insurers use estimation software. A clear win like Belotti might reassure insurers that they have leeway to use their preferred methods (knowing that if challenged, they can always fall back on appraisal or pay the difference). However, the Skender example serves as a caution: if an insurer pushes an obviously low estimate without resolution, they could face a bad faith trial with potential punitive exposure. As a result, we may see more insurers agreeing to appraisal early or compromising on estimates when a discrepancy is pointed out, rather than risk litigation.

For policyholders and contractors, these rulings highlight the importance of the appraisal clause as a remedy – it can get the claim paid properly, but it doesn’t compensate for delays or extra hassle unless you pursue a bad faith claim. Only if a court were to squarely hold that using the wrong Xactimate setting itself is bad faith would insurers truly be deterred from doing so. So far, no court has issued such a sweeping ruling; the Indiana case was headed that way, but settled. The Pennsylvania and California decisions land on the opposite side, essentially sanctioning the practice as long as the end result (payment) is per the contract.

Commentary from the Restoration Industry: Restoration contractors have welcomed the scrutiny these lawsuits bring. Many contractors feel that insurance company estimates are frequently too low – not just on labor rates, but on omitted items, insufficient hours for skilled labor, etc. The Restoration Rebel community (an online forum of contractors) and others have shared anecdotes of State Farm’s Xactimate estimates being “severely reduced,” and some contractors now educate homeowners to ask whether the adjuster used new-construction pricing (since a layperson would never know to check) (I want an honest opinion on the State Farm strategy of placing …) (Restoration Rebel Roundtable 6-14-23 : State Farm Claim Games). Public adjusting firms like Clarke & Cohen have publicized the class actions, suggesting homeowners might be victims of an improper practice (State Farm’s Class Action Lawsuit – Clarke & Cohen). On the other hand, insurance adjusters defend that they follow guidelines provided by carriers, and if the carrier’s protocol is to use new construction in certain scenarios, the individual adjuster might not have discretion. It places adjusters and carriers in a delicate position: balancing cost control with fair indemnification.

Conclusion

The dismissal of the Belotti class action in Pennsylvania demonstrates that courts will not rewrite insurance contracts to police an insurer’s choice of estimating software settings – at least not when the insured ultimately receives the coverage they are due. Judge Saporito’s ruling rested on clear contract language (or the lack thereof) and reinforced the principle that an insurer’s obligation is to pay for the loss, not to use any particular formula in doing so. In contrast, the experiences in California, Indiana, and other states show that when the outcome of using a “new construction” model is an unpaid loss to the homeowner, insurers can face serious legal challenges.

For now, insurance policy language regarding estimating methods remains sparse, which means disputes will be resolved on general contract and bad-faith principles. We see a spectrum of judicial responses – from strict contractualism (PA: no term, no breach) to a fact-intensive inquiry into insurer conduct (IN: low estimate + no adjustment could be bad faith). As these cases develop, they are drawing attention to how insurance claims are adjusted behind the scenes.

Broader Impact: The wave of lawsuits already has State Farm and likely other insurers reviewing their use of Xactimate. Restoration contractors and policyholder advocates are empowered by the Skender and Phillips cases to push back on inadequate estimates, knowing courts might side with them if an insurer is unreasonable. Meanwhile, insurers can point to Belotti and Sheahan as validation that they have not violated the policy by using new construction pricing per se (Sheahan v. State Farm Gen. Ins. Co., 442 F. Supp. 3d 1178 | Casetext Search + Citator).

Going forward, we may see: (1) more transparent claim handling – perhaps insurers disclosing when they use a new construction factor and why; (2) faster resort to appraisal – since it moots the dispute without conceding bad faith; and (3) possibly, state insurance regulators issuing guidance if the practice is deemed unfair. The conversation sparked by these cases is ultimately healthy for the industry: it shines light on a technical but crucial aspect of claim valuation that can significantly affect disaster recovery for homeowners.

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