Auto Insurance Claims: Ex Sister-in-law leaves car damaged, small claims court, small claim court

Question
My father co-signed for my Brother's and SIL's auto.  When separating, SIL took over her car and insurance payments.  Court ordered her to either get loan in her name or turn over the car by end of Jan. 2007.  She turned over the car after hitting a deer, reporting damage to State Farm and cashing a check on Jan. 2, 2007 for over $800.  (she had $500 deductible - damage was over $1,300)  Who is liable?  Isn't this fraud that she turned the car over with damage not repaired?  How is State Farm without blame for their part in allowing her to not fix the car?  Isn't there some provision for insurance companies to make sure that the auto covered gets the proper repair due? My brother's attorney says small claim court procedure will potentially cost more than it is worth.
Where is the justice?  Any advice would be appreciated.

Answer
Well as far as you're brother's statement about small claims court, I don't know where you live. In my state of GA, it's under $100 in court fees and there is no reason why an attorney would need to be involved.  

Statefarm has a responsibility to the owner or insured and/or lien holder.  If there was a lien holder then their name should have been on the check as well or that of a body shop.  If SIL was not the owner or the lien holder wasn't protected, then Statefarm is liable.  It is not fraudulent for someone to cash a check for the repair of their own, paid for vehicle and choose not to repair it.

Obviously, I'd have to have a lot more detailed info and see the policy to give you an exact answer.
Good luck!