A recent court ruling has provided significant clarity on whether State Farm’s use of Xactimate’s “New Construction” labor efficiency setting is legally permissible in property damage estimates. 1 The decision, which favored State Farm, has broad implications for homeowners, contractors, and insurers across the country who rely on Xactimate estimates to determine repair costs after a loss.
The case stemmed from allegations that State Farm systematically underpaid policyholders by using the “New Construction” setting in Xactimate rather than the “Restoration / Service / Remodel” setting when estimating repair costs for damaged homes. Policyholders argued that this practice unfairly reduced payouts by applying lower labor costs, which are generally associated with brand-new construction projects rather than restoration work. They contended that their insurance policies required coverage for repairs using materials and labor consistent with pre-loss conditions, not as if their homes were being built from the ground up. 2
State Farm countered by asserting that the insurance policies did not require the company to use any specific estimating methodology. The insurer emphasized that Xactimate is an industry-standard tool and that the choice of labor efficiency setting is a matter of professional judgment. State Farm also argued that its estimates were sufficient to cover the necessary repairs and that policyholders had the opportunity to dispute estimates through the appraisal process, which was ultimately used in this case. 3
The court ultimately ruled in favor of State Farm, concluding that the insurance policies did not impose an obligation to use the “Restoration / Service / Remodel” setting. The judge found that the key issue was whether the estimated payout was sufficient to cover repairs, not which methodology was used to arrive at that figure. Because State Farm had provided payment in line with the final appraisal award and there was no contractual language mandating a particular Xactimate setting, the plaintiffs’ claims for breach of contract and bad faith were dismissed. Additionally, the court rejected consumer fraud allegations under Illinois and Pennsylvania law, noting that these statutes primarily regulate the marketing and sale of policies, not the claims handling process.
This ruling has practical consequences for both policyholders and the broader property insurance industry. By upholding State Farm’s discretion in using the “New Construction” setting, the decision reinforces insurers’ ability to determine estimating methodologies without explicit disclosure. This means that many homeowners may continue receiving lower estimates than expected if insurers apply construction cost assumptions that do not fully reflect real-world restoration expenses.
For policyholders, this case highlights the importance of carefully reviewing claim estimates and challenging discrepancies through the claim and appraisal process when necessary. Public adjusters who assist homeowners should be particularly vigilant about how labor efficiency settings are applied, as they can significantly impact the final repair cost calculations. Restoration contractors will also find that this setting will generally result in lower estimates despite the court’s findings.
This ruling also raises concerns about transparency in the insurance claims process. If insurers can use estimating settings that reduce claim payouts without clearly informing policyholders, state regulators or legislators may step in to require disclosure of these methodologies. Policyholders should also be aware that while class-action claims against insurers for estimating practices may face legal hurdles, individual challenges to disputed estimates may remain a viable option in many jurisdictions.
Ultimately, this case demonstrates the complex nature of insurance claim disputes and the role that estimating software like Xactimate plays in determining payouts. While State Farm prevailed in this instance, the broader debate over fair claims handling practices and transparency in the industry is far from over. New cases brought by policyholders will undoubtedly learn from this loss and present different evidence and arguments.
Most estimators, restoration contractors, and virtually all public adjusters I have spoken to believe this practice and use of the “new contraction” setting is wrong. I predict more insurers will now start to use it based on this case and that new challenges will be made.
I previously made reference to this issue in Are Insurers Using “New Construction” Xactimate Settings Wrongfully Underpaying Claims. I will update as other “new construction” Xactimate setting cases are decided.
Thought For The Day
“A computer once beat me at chess, but it was no match for me at kickboxing.”
– Emo Philips
1 Belotti v. State Farm Fire & Cas. Co., No. 3:22-cv-1284 (M.D. Penn. Mar. 25, 2025).
2 Belotti, [Doc. 76, Reply Memo. in Support of Class Certification].
