Policyholders accuse State Farm of using AI to discriminate against vulnerable homeowners.
State Farm Insurance is facing a federal lawsuit in Alabama after policyholders alleged that the company used artificial intelligence and unfair practices to discriminate against elderly, disabled, and Black homeowners. The AI discrimination lawsuit, filed in the United States District Court for the Middle District of Alabama, names both State Farm and one of its agents, Kris Stallworth. The plaintiffs, Gregory Kelly and Annette B. Kelly of Montgomery, claim that the insurer subjected their claims to extra scrutiny because of their race and disabilities, causing delays and financial difficulties.
The case centers on damage to the Kellys’ home from lightning and water, with total losses listed at $372,437.36. According to the complaint, contractors involved through State Farm’s Premier Service Program, including Servpro and HVACi, provided inaccurate engineering and environmental reports. These alleged errors delayed necessary home repairs and reduced the property’s value. The Kellys say that these delays created serious hardship, particularly given their health and age.
The complaint goes beyond the handling of a single claim. It accuses State Farm of selling elderly or disabled policyholders insurance products that were overpriced, unnecessary, or inappropriate. It also alleges that the insurer used false information from credit reports to cancel or deny coverage. The plaintiffs say that Black and non-white policyholders were disproportionately affected by these practices. The lawsuit claims that State Farm relied on AI tools in ways that discriminated, giving certain policyholders more hurdles than others when processing claims.
The Kellys are citing multiple laws in their complaint, including 42 U.S.C. 1981 on race discrimination in contracts, the Fair Housing Act, the Americans with Disabilities Act, and provisions of the Dodd-Frank Act regarding unfair practices. They also reference the Fair Credit Reporting Act, Alabama’s prompt-pay insurance laws, and the Equal Protection Clause of the Fourteenth Amendment. Allegations extend to mail and wire fraud as well.
One aspect of the lawsuit focuses on State Farm’s documentation requirements. The complaint says that only certain state-issued IDs were accepted, while others, like ITINs, were rejected. This reportedly affected survivors of domestic violence and hate crimes, creating further obstacles to fair treatment. According to the plaintiffs, these policies show a pattern of business practices that fail to protect vulnerable policyholders.
The Kellys are seeking the full amount of the claimed damages, plus interest, medical costs, court fees, and other relief. They also request that the court require State Farm to audit and monitor its claims processes to prevent future discrimination. While the complaint does not cite specific policy clauses, it argues that State Farm did not fulfill its obligations under the homeowner’s insurance contract, particularly regarding lightning, water, mold, and mildew coverage.
At this stage, the lawsuit is in its early phase, and all allegations are unproven. No court rulings have been made, and State Farm has not admitted any wrongdoing. Legal experts note that the case could have broader implications for how major insurers use AI and manage claims, especially regarding claims handling for elderly, disabled, or minority policyholders.
The lawsuit has drawn attention because it combines questions about race, disability, and technology in the insurance industry. It highlights concerns about fairness, transparency, and accountability in how large insurers handle claims. While the outcome is uncertain, the case serves as an example of growing scrutiny over how AI tools are applied in industries that affect vulnerable populations.
This matter will be closely followed by insurance professionals, regulators, and consumer advocates, as it could influence future practices for claims management and AI use across the insurance sector.
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State Farm hit with lawsuit as policyholders claim AI-driven discrimination
State Farm hit with lawsuit over AI bias, discrimination and unpaid insurance claims
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