Cars sold with "clean titles" -- that is without salvage titles -- can bring sellers up to thousands of dollars more in purchase price.

Records show that Indiana authorities caught State Farm reselling wrecked cars in violation of its state law more than eight years ago. In 1998, a judge ordered the company to stop, and the company said it would.

Startling Discovery
That case began when a car dealer in Greenfield, Ind., made a startling discovery. After repairing what he thought was a relatively new Ford pickup, he routinely sent the manufacturer a bill for his warranty work.

Ford refused to pay. It told the puzzled dealer that a records check found that the pickup had been in a wreck, an insurance company had declared it a total loss and had resold it. That voided the warranty.

Outraged, the dealer called the state attorney general. How could this happen, the dealer asked, when state law requires that all wrecked vehicles have a salvage title to warn new buyers of possible safety problems?

What the attorney general found was even more surprising: After a two-year investigation, State Farm admitted selling about 1,400 totaled cars, trucks and sport utility vehicles in Indiana -- all without the required state salvage titles.

A totaled vehicle can be dangerous -- particularly if the driver doesn't know about hidden structural damage and assumes the vehicle is in good shape. Failure to disclose that a car or truck has been totaled is a crime everywhere but South Dakota.

Indiana went before a judge and got a permanent injunction to stop the practice. State Farm said it had made mistakes, promised to stop violating the law and agreed to buy back the vehicles or pay thousands of dollars to the new owners.

State Farm disclosed that for more than five years, from June 1997 through 2002, it had mistakenly resold at least 30,000 totaled vehicles without salvage titles. This was the same practice State Farm had acknowledged in Indiana, except this time the company said it had been doing it nationwide.

$40M Settlement
As stated above, State Farm signed a settlement with 49 state attorneys general and the District of Columbia to pay a total of $40 million to any consumers who could still be found driving the vehicles. Nearly all of the attorneys general praised State Farm for coming forward. Many called the settlement an "innovative" way to compensate victims.

After examining the settlement, consumer advocates agreed it is innovative -- for State Farm. They see the settlement as a win for the insurance company and not such a good deal for consumers.

The settlement doesn't provide any money for anyone who might have been injured by one of the totaled vehicles. Neither State Farm nor the state attorneys general could say how many vehicles were involved
in accidents after State Farm resold them, or how many people might have been injured.

Many consumers never will benefit from the settlement because State Farm will pay only the last person to buy one of the totaled vehicles, and then only if that owner hasn't already junked the vehicle.
The settlement also goes a long way toward protecting the company against class-action lawsuits: To get the settlement money, consumers first must agree not to sue State Farm.