Wilcox v. State Farm: Minnesota Supreme Court Decision In Labor Depreciation Class Action

Today the Minnesota Supreme Court issued its opinion in Wilcox v. State Farm Fire & Casualty Company, a putative class action alleging that State Farm, in estimating the “actual cash value” of property damage under homeowners’ insurance policies, improperly applied depreciation to the labor component of the replacement cost of damaged structures. A question pertaining to whether depreciation can properly be applied to labor costs was certified by Minnesota’s federal district court to the state supreme court. In a prior post, I covered the oral argument in the Minnesota Supreme Court. I represented the American Insurance Association as an amicus curiae in this case.

Today, the court held that “absent specific language in the insurance policy that identifies a method of calculating actual cash value, the trier of fact must determine whether depreciation of embedded labor components ‘logically tend[s] to the formation of a correct estimate of the loss.” (Slip op. at 3.) In other words, the court concluded that determining the correct amount of the “actual cash value,” based on all applicable factors, is an issue that should generally be decided by an appraisal panel or the finder of fact at trial, typically based on expert testimony. The court further concluded that this determination “depends on the facts and circumstances of the particular case (id. at 10), which means that class certification on this issue is unlikely. This decision is more favorable to insurers’ positions than some of the other recent decisions on this issue (see my January 18 blog post for more on those).

Key points from this decision include:

  • The court ruled that “actual cash value” is not ambiguous because it is “a legal term of art that refers to the ‘actual loss’ sustained by the insured.” (Slip op. at 7.) The term “actual cash value” is well-defined by case law in most jurisdictions.
  • The court relied on its prior adoption of the “broad evidence rule” for determining actual cash value. It explained that the “broad evidence rule” is “a flexible approach that allows the trier of fact to consider ‘every fact and circumstance which would logically tend to the formation of a correct estimate of the loss.’” (Slip op. at 7.) The court explained that “the broad evidence rule does not dictate whether labor is depreciable or is not depreciable.” Rather, it is a factor to consider, and “certain embedded labor costs may be depreciable, depending on the facts and circumstances of the particular case.” (Id. at 8.)
  • The court rejected the position that depreciation of embedded labor costs is illogical, explaining that “arguments about whether labor-cost depreciation is ‘logical’ according to accepted methods of appraisal in a given case are best presented to an appraisal panel or via expert testimony before a jury.” (Id. at 9.) The court noted that “[t]he appraisal of real estate includes elements of both art and science,” and “[i]t is not the role of the judiciary to define best practices for appraisers without regard for the facts and circumstances of the case presented.” (Id. at 9.)
  • The court also noted that insurers can revise their policy language to specifically address this issue.

Overall, this is a significant victory for insurers who are defending putative class actions on this issue across the country. The court’s ruling that the question of whether embedded labor costs are appropriately depreciated is a case-by-case determination means that class certification is likely to be denied. This is because any common issues of law and fact (if any exist) likely will not predominate over individual issues concerning the nature and extent of the damage to each individual property, and the appropriate calculation of the actual cash value of the damage at issue.

SPECIAL DISCLAIMER: Because this case is one in which Robinson & Cole LLP represented an amicus curiae, we reiterate that the intent of this blog is to serve as an informational resource for readers, not advertising for our legal services. Every case is different and the result achieved in the case described above may differ from the result in some other case, which may involve different facts, different applicable law or a different jurisdiction. Case results depend upon a variety of factors unique to each case. Case results do not guarantee or predict a similar result in any future case undertaken by the same lawyer(s). This blog does not constitute legal advice and you should always consult your own lawyer about your own case.

Delay In Seeking Class Certification May Be Grounds For Denial Of Certification

A recent decision by a Florida appellate court highlights an important point that defendants can effectively raise in other jurisdictions as well – a named plaintiff’s failure to timely seek certification can, by itself, be grounds for denial of certification.

In Osborne v. Emmer, No. 4D15-1761, 2016 Fla. App. LEXIS 1445 (Fla. 4th DCA Feb. 3, 2016), an amended complaint including class action allegations was filed in October of 2009. As of March 2016, more than five years later, the plaintiffs had not sought class certification. The defendant moved to deny certification, and the trial court granted the motion based on the delay alone, without holding a hearing on any other class certification issues. The appellate court affirmed. It explained that: (1) “extensive delay alone can warrant denial of class certification”; and (2) “[p]art of the adequacy determination includes the zeal and competence of the representative’s counsel, and courts may consider the delay in the progress of a case and in seeking class certification in deciding whether a representative is adequate.” Id. at *4-5.

This is an argument that may sometimes be overlooked by defendants as litigation drags on. It is an argument that, as this case demonstrates, can be effectively made in appropriate cases.

Blog Name Change: Welcome To Class Actions Insider

After nearly four years of blogging, I’ve decided to make one small change. The name of the blog is now “Class Actions Insider” and the site is www.classactionsinsider.com.  You can still find it at www.insuranceclassactions.com, which will redirect you to the new site.

For my insurance industry readers, please be assured that I will still cover all major developments in class actions against the insurance industry. But I’ve realized that many of my posts have a broader reach, and are just as useful for readers involved in class actions outside of the insurance industry. And insurers themselves are often involved in defending class actions on behalf of other companies under liability policies. My class action defense practice has also grown to include cases involving various industries. The new name and site better convey that my blog has, and will continue to have, a broader reach than just insurance, although it will still closely follow insurance class actions. Thank you for your loyalty if you are a regular reader of my blog, and please feel free to reach out to me if you have any questions.

Property Insurance Diminution in Value Class Action: Georgia Federal Court Dismisses Declaratory Judgment Claim

A while back, I wrote about a Georgia Supreme Court decision, Royal Capital Development LLC v. Maryland Casualty Co., that held that diminution in value of real property is potentially covered  under a property insurance policy, in addition to the costs of repairs (see my June 6, 2012 blog post). This was an extension of a decision by the Georgia Supreme Court in the auto insurance context, which had held that diminution in value of a vehicle, after completing repairs, was covered under an auto policy. Vehicles are different than autos though. Unlike some used vehicles, real properties often gain in value when old materials are replaced with new. Nevertheless, as I predicted, the Royal Capital decision has resulted in some class action filings against homeowners’ and commercial property insurers, although not a large number of cases. As far as I know, the issue has not yet spread beyond Georgia.

In Brewton v. Liberty Mutual Holding Company, Inc.,  2016 WL 224124 (M.D. Ga. Jan. 19, 2016), a putative class action involving this issue, a Georgia federal district court recently granted the insurer’s motion to dismiss a declaratory judgment claim. The plaintiff sought a declaratory judgment that the insurer “is obligated under the homeowners insurance policies to assess insured properties for and pay diminished value when policyholders present first-party physical damage claims arising from direct physical losses to their insured properties, which are covered events.” Id. at *1. The court dismissed this claim because it was based on the possibility of a hypothetical or contingent future injury. The court reasoned that “[a]lthough it is possible that [plaintiff] may experience damage to her home and thus a dispute with First Liberty over diminished value in the future, her allegations are insufficient to establish a reasonable expectation that her alleged injury will be repeated. ‘[A] plaintiff seeking declaratory . . . relief must allege . . . a real and immediate – as opposed to a merely hypothetical or conjectural – threat of future injury.’” Id. at *3. “The mere possibility that [plaintiff’s] home may suffer damage in the future is ‘simply too remote to satisfy the case-or-controversy requirement and permit adjudication by a federal court.’” Id. (quoting O’Shea v. Littleton, 414 U.S. 488, 498 (1974)).

The argument made here is one that insurers and other defendants can often make in defending against declaratory judgment claims in putative class actions. With this type of claim dismissed, class certification will depend entirely on a breach of contract claim, on which class certification is governed by the more stringent Rule 23(b)(3) standard, which requires that common issues of law or fact predominate. With respect to diminution in value, for example, the defendant, in opposing class certification or moving to strike the class allegations, has a strong argument that the specific factual circumstances of each individual claim will predominate in determining whether there was any uncompensated diminution in value that falls within the scope of coverage as construed by the Georgia Supreme Court’s decision.

Supreme Court Opinion In Campbell-Ewald Co. v. Gomez: Kicking The Can Down The Road

Today the U.S. Supreme Court decided Campbell-Ewald Co. v. Gomez, No. 14-857. The question presented was whether an unaccepted offer of full relief on the named plaintiff’s individual claim will render a putative class action moot. The answer is “no,” according to a 5-3 opinion by Justice Ginsburg (with a separate concurrence by Justice Thomas). But the Court left open the question of whether, if the defendant had actually deposited the money being offered into court, or into a bank account payable to the plaintiff, the case would be moot. That is almost certainly what defendants will now do in some putative class actions. The Court eventually will have to decide that question.

Gomez involved a claim for violation of the federal Telephone Consumer Protection Act. The plaintiff received a single unwanted text message on his cell phone (it probably seems absurd to most non-lawyers that this kind of thing is what leads to Supreme Court cases, but Congress provided for even a single unwanted text message to trigger a potential statutory violation). The plaintiff was theoretically entitled to $1,503 plus costs as the maximum recovery under the statute. The defendant offered (both under Rule 68 and as a freestanding offer) to pay the full amount and consent to an injunction, but the plaintiff did not accept the offer.

Justice Ginsburg’s majority opinion adopted Justice Kagan’s dissent in Genesis Healthcare v. Symczyk, concluding that “[a]n unaccepted settlement offer – like any unaccepted contract offer – is a legal nullity, with no operative effect.” (Slip op. at 7.) That result is unsurprising as a matter of contract law and the plain language of Rule 68, which treats an unaccepted offer as withdrawn. Six of the federal courts of appeals reached the same result after Genesis Healthcare.

The majority distinguished other cases in which the defendant had actually paid or deposited the money at issue, or entered into a unilateral covenant not to sue to resolve equitable claims. Importantly, Justice Ginsburg’s opinion made clear that the result might be different if the defendant in this case had deposited the money being offered:

We need not, and do not, now decide whether the result would be different if a defendant deposits the full amount of the plaintiff’s individual claim in an account payable to the plaintiff, and the court then enters judgment for the plaintiff in that amount. That question is appropriately reserved for a case in which it is not hypothetical.

(Slip op., at 11-12 (emphasis added).)

Chief Justice Roberts wrote a dissent joined by Justices Scalia and Alito. The dissent agreed that an unaccepted settlement offer is a legal nullity as a matter of contract law, but viewed the question of whether a “case or controversy” exists under Article III as not controlled by contract law. Chief Justice Roberts reasoned that “[i]f the defendant is willing to give the plaintiff everything he asks for, there is no case or controversy to adjudicate, and the lawsuit is moot.” (Roberts, C.J., dissenting, at 9.) Chief Justice Roberts argued that the majority’s focus on the fact that the defendant had not yet tendered the money was exalting form over substance. Because the defendant was a multimillion dollar company, “it would be mere pettifoggery to argue that Campbell might not make good on [its] promise.” (Id. at 5.) Chief Justice Roberts noted that “[t]he good news is that this case is limited to its facts” because “the majority’s analysis may have come out differently if Campbell had deposited the offered funds with the District Court.” (Id. at 10.)

There were two additional separate opinions. Justice Thomas wrote a concurrence focusing on the historical common law practice with regarding to tenders (offers to pay the entire claim), finding that the common law required actual delivery of the money, which was deemed an admission of liability. But Justice Thomas did not reach a conclusion on whether an admission of liability would be required today. Justice Alito wrote a separate dissent, explaining that the “linchpin” for him was the defendant’s clear ability to pay the amount offered. Justice Alito would not find mootness where a defendant’s ability to pay was not clear. He also suggested that depositing the money with the court or a “trusted intermediary,” with delivery of the money to the plaintiff conditioned on dismissal of the case, might be sufficient rather than  actual delivery of the money to the plaintiff. That might avoid the prospect of the delivery of money being potentially characterized as a purported admission of liability.

Gomez was not a win for the plaintiffs’ bar. Defendants seeking to defeat putative class actions by providing complete relief to named plaintiffs will live to fight another day. Defendants will now ignore Rule 68 and simply tender a check to the plaintiff, or pay money into court or use Justice Alito’s tactic of depositing the funds with a “trusted intermediary,” contingent on dismissal of the case when the money is transferred.  Where the defendant provides complete relief on the plaintiff’s individual claim through one of these mechanisms, will that bar the plaintiff from continuing to prosecute a putative class action? There might be a majority of the Supreme Court to support that proposition. But we probably will not know that for a year or two.

Labor Depreciation Class Action Update

It’s been a while since I updated you on the status of class action litigation regarding the application of depreciation to labor costs on property insurance claims. There have been three decisions since my last update, with sharply conflicting results. So what does this mean? I expect that 2016 will bring a significant number of additional class action filings on this issue, including both filings against additional insurers in jurisdictions where the issue has been decided favorable to plaintiffs, and new filings in additional jurisdictions. Until there is more appellate law on this issue that is favorable to insurers’ position, plaintiffs’ attorneys are likely to file more class actions.

  • Arkansas: In Shelter Mutual Ins. Co. v. Goodner, 2015 Ark. 460, 2015 Ark. LEXIS 658 (Ark. Dec. 10, 2015), the Arkansas Supreme Court majority held that, where the insurance policy expressly provided for the application of depreciation to labor costs, this provision was contrary to public policy because “providing for depreciation of labor violates established principles of indemnity . . . .” The court did not explain how depreciation of labor costs violates principles of indemnity. The basic principle of indemnity – that an insured should be placed in the same economic position as prior to the loss, and should not profit from a loss – supports the application of proper depreciation. Without application of the correct amount of depreciation, an insured that replaces, for example, an old roof with a new one with a much longer life expectancy will profit from the loss. The Arkansas Supreme Court had previously ruled, in Adams v. Cameron Mut. Ins. Co., 430 S.W.3d 675 (Ark. 2013), that an insurance policy that did not define the term “actual cash value” was ambiguous and, construing the policy against the insurer, application of depreciation to labor costs was improper. Arkansas has now taken this ruling a step further and concluded that an insurer cannot apply depreciation to labor costs even if the policy explicitly provides for that result. A strong dissent by Justice Wood, joined by Chief Justice Brill, stressed that “public policy lies almost exclusively in the legislative domain,” and the dissent could not “say that this contract term interferes with the public welfare to the extent that we would take the unprecedented step of creating public policy in the absence of legislation.” The dissent also emphasized freedom of contract, and that the insureds chose to purchase actual cash value rather than replacement cost insurance. In my mind, the Goodner decision demonstrates how Arkansas is an outlying jurisdiction on this issue. I would be surprised if other courts follow this decision. Even courts that may be perceived as hostile to the insurance industry rarely will usurp the prerogative of the legislature with respect to public policy.
  • Missouri: In Labrier v. State Farm Fire & Cas. Co., 2015 U.S. Dist. LEXIS 160020 (W.D. Mo. Nov. 30, 2015), a Missouri federal district court denied State Farm’s motion to dismiss a putative class action concerning depreciation of labor costs. The court concluded that: (1) certain Missouri statutes concerning loss payment under property policies applied only to fire losses (and thus were inapplicable to a hail loss); (2) the term “actual cash value” was ambiguous in State Farm’s policy where the policy did not define “actual cash value,” and the court therefore adopted the plaintiff’s definition of “actual cash value” as replacement cost less depreciation; and (3) under a replacement-cost-less-depreciation definition of “actual cash value,” the term “depreciation” was ambiguous with respect to whether labor costs could be included in estimating the depreciation. The court appeared to recognize that State Farm’s application of depreciation made more economic sense when applied to specific examples, but nevertheless found ambiguity.
  • Pennsylvania: In Papurello v. State Farm Fire & Cas. Co., 2015 U.S. Dist. LEXIS 154536 (W.D. Pa. Nov. 16, 2015), a Pennsylvania federal district court granted State Farm’s motion to dismiss with respect to the putative class claims. With respect to depreciation of labor costs, the court explained that “[w]hen a roof is in issue, as it is here, the ‘plain and ordinary’ meaning of the ‘property’ to which the Policy refers is the finished product in issue – the result or physical manifestation of combining knowhow, labor, physical materials (including attendant costs, e.g., the incurrence of taxes), and anything else required to produce the final, finished roof itself.” The court explained that the “property” to be depreciated could not refer to only the materials, as the plaintiffs asserted. This was because it was the full value of the finished roof that suffered depreciation over time, not merely the materials. The court further found that the plaintiffs’ position would convert actual cash value coverage into a form of replacement cost coverage (which was payable only where replacement was completed).

The next significant decision on this issue appears likely to come from the Minnesota Supreme Court, which has heard oral argument on the issue (see my November 8, 2015 blog post), but has not yet issued a decision.

2015 Amendments to Federal Rules – Impact on Class Actions

Various amendments to the Federal Rules of Civil Procedure are taking effect on December 1. Here are my thoughts on how these amendments may impact the defense of class actions:

  • Greater Emphasis on Proportionality: The new Rule 26(b)(1) will expressly limit discovery to that which is “proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.” While class actions are generally large and important cases, they can vary widely in the amount in controversy, for example. Defendants can use this change as an important new tool in seeking to limit the scope of the discovery they are burdened with in class actions.
  • Cost-Sharing: The new Rule 26(c)(1)(B) has an express provision for a protective order directing cost sharing for discovery. It will be interesting to see how courts apply this in class actions when defendants seek to shift costs to the named plaintiffs or their counsel (who almost always are funding the litigation).
  • Preservation of Evidence and Clawback Agreements: The new Rule 16 suggests that the initial scheduling order include a provision with respect to preservation of electronically stored information (ESI) and a provision with respect to a clawback agreement under Fed. R. Evid. 502 for inadvertent disclosure of privileged material. These are sometimes but not always included in initial scheduling orders, and generally desirable to have, so that the defendant can be assured that the scope of its litigation hold in a class action is court-approved early in the case.
  • Document Productions: The new Rule 34 allows a party objecting and responding to a document request to specify “another reasonable time” for producing the responsive documents. This should give large corporate defendants some leeway where document productions take longer. Another new provision requires the responding party’s objection to “state whether any responsive materials are being withheld on the basis of that objection.” One thing the new rule seems to overlook on that point, however, is that often a responding party will not know whether there are additional responsive materials because the objection is to the burden of searching beyond a particular scope. I would expect responding parties will state in their objections what they are not searching for, and thus do not know what exists. Hopefully judges will view that as adequate compliance with the new rule.
  • Sanctions for Failure to Preserve ESI: The new Rule 37 narrows the scope of sanctions for failure to take reasonable steps to preserve ESI. An adverse inference instruction or other severe sanction is permitted “only upon finding that the party acted with the intent to deprive another party of the information’s use in the litigation . . . .” This should reduce the stress level when oversights or mistakes are made in the preservation of ESI.

On a related note, if you are interested in a program on strategies for the use of absent class member discovery in defending class actions, my fellow class action blogger Andrew Trask and I are doing a webinar for Stafford on that subject on December 2. I have a small number of free registrations available for clients and friends – if you are interested just e-mail me.

Thoughts on Tyson Foods Oral Argument

Tyson Foods, Inc. v. Bouaphakeo, the third and last of the three class action cases that the U.S. Supreme Court is hearing this Fall was argued yesterday. Articles in the New York Times and USA Today have suggested that the plaintiffs are likely to win this case because Justice Kennedy’s comments suggested he would side with them, and his vote could prove crucial, as it often is. My reading of the transcript is that how the case will be decided seemed very much up in the air. How the majority opinion is written, more than the result itself, will have the most impact (or lack thereof) on class action law more broadly, including insurance cases.

Tyson Foods is an employment class action alleging that Tyson failed to  pay overtime wages for time spent by employees putting on and taking of their protective equipment. The case involves both a class action and a collective action under the Fair Labor Standards Act (“FLSA”). It was tried to a jury verdict in which the plaintiffs introduced evidence based on statistical sampling, but the amount of the verdict reflected that the jury rejected that evidence in substantial part. The questions presented involve the propriety of class certification based on the statistical sampling technique, and whether the class could be properly certified where it includes many members who were not injured.

Towards the end of the argument, Justice Sotomayor summarized a key question that her colleagues had asked about repeatedly, involving how the Court could know what the jury decided where it did not accept the plaintiffs’ evidence:

Sotomayor photo

Clearly, the expert here, Dr. Joy, said – I’m using a hypothetical – there’s 10 minutes of overtime. And the figure that comes out with 10 minutes of overtime is a million dollars. Now the jury comes back with half a million dollars.  . . . How do we know what – how the jury calculated that half million? (Transcript, at 55.)

The Government’s counsel (supporting the plaintiffs) conceded that the answer to that question is not known, and Justice Sotomayor then asked, then why is it fair to distribute the award pro rata? The Government’s counsel responded that this issue should be left to the district court on remand, and that Tyson may have waived the issue by asking for a lump sum verdict.  Justice Ginsburg suggested that Tyson should not care about that because they have to pay the same amount of money regardless. On rebuttal, Carter Phillips (arguing for Tyson) said Tyson would be happy for a remand for allocation, but noted that the district court had already entered a final judgment, with no provision for allocation. Justices Scalia and Alito had suggested earlier in the argument that there was no way at this point to identify who was injured, and whom to pay. Justice Kagan appeared to blame that on Tyson’s litigation strategy in the district court. Chief Justice Roberts suggested that the Court may need to address how this case was presented to the jury, and then whether there was a waiver by Tyson.

There was also extensive discussion about the interplay here between class action law and the substantive law under the FLSA. Back in 1946, the Supreme Court adopted a burden shifting framework under the FLSA – the employee must prove liability, but then “[u]nless the employer can provide accurate estimates, it is the duty of the trier of facts to draw whatever reasonable inferences can be drawn from the employees’ evidence as to the amount of time spent in these [compensable] activities in excess of the productive working time.” Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680, 693 (1946). Justices Kagan and Kennedy both suggested that the answer here may lie more in that rule than in class action law. But the case appears to involve a class action under state law as well.

Kennedy photo

Justice Kennedy asked whether the plaintiffs’ counsel would concede that the class might not be certifiable under Rule 23 absent the Mt. Clemens decision. Plaintiffs’ counsel did not concede that point, but the Government’s counsel agreed that the case would be much closer if it did not involve the FLSA. Justice Kennedy seemed to struggle with how an opinion might be written if the result were in plaintiffs’ favor. He asked about what the standard would be and expressed dissatisfaction with the suggested answers. Given that he is the senior justice if the majority consists of Justice Kennedy and the four liberal justices, he will either write the opinion or decide who writes it. And that will determine to what extent this case impacts class action law more broadly. The Supreme Court is usually not in the business of deciding cases narrowly based on their facts. That is not its role. But it has to decide the case, not just expound on the law, and sometimes the result is a narrow decision. That seemed to be where Justice Kennedy might be headed, if he is the lynchpin in forming a majority. But I also see the possibility here of a majority being formed that might, as the Chief Justice suggested, explain how the case was not properly presented to the jury and the verdict now cannot properly be distributed, and then send it back to the lower courts.

Depreciation of Labor Class Action — Minnesota Supreme Court Oral Argument

I’ve been following closely a series of class actions around the country alleging that, in calculating the “actual cash value” of property damage under a homeowners or commercial property insurance policy, insurance companies should not be applying depreciation to the labor component of the replacement cost of a damaged structure. When insurers estimate “actual cash value,” they typically estimate the replacement cost of the damage based on the materials, labor and other costs necessary to make the repairs, and then apply depreciation to that amount, to arrive at the actual cash value.

Plaintiffs’ lawyers have filed numerous class actions arguing that labor costs are not depreciable, and that the actual cash value thus should be calculated based on the full cost of labor and depreciated value of materials. If you haven’t been following this issue and would like more background, I suggest you read my August 10, 2015 and March 29, 2015 blog posts. This is, in my view, the hottest area in insurance class actions right now.

One of the benefits of modern technology for those who like to follow important cases closely nationwide is that many state supreme courts are now recording oral arguments and posting them online, or in some instances streaming the argument live (as the Massachusetts Supreme Judicial Court did in a case I recently argued).

The Minnesota Supreme Court recently heard oral argument on the issue of depreciation of labor costs (on a certified question from the Minnesota federal district court) in Wilcox v. State Farm Fire & Casualty Company. (In the interests of full disclosure, I wrote an amicus brief for the American Insurance Association in this case.) The oral argument video was recently posted online. The court dug deeply into both sides of the issue. Here are a few observations I had:

Minnesota Supreme Court photo

  • The court focused some of its initial questioning on how an appraiser of real estate, using the “cost approach” to valuation, will depreciate the full value of the building, including the labor component, as economically appropriate. Plaintiffs’ counsel appeared to concede that this approach is correct for a total loss, but argued that it is not appropriate for a partial loss. Those justices who commented on that issue did not seem persuaded by his argument that partial losses should be treated differently in this respect.
  • There was some discussion about a hypothetical where a roof was nearing the end of its useful life, with some justices appearing to take the view that it would not be an accurate method of calculating the actual cash value of the roof to apply depreciation only to the materials and not to the labor component.
  • Some of the court’s questions focused on how the State Farm policy at issue (like most homeowners’ policies) provides replacement cost coverage if the insured makes the repairs. One justice appeared to suggest that this demonstrates that State Farm is correct about what is intended by actual cash value.
  • There was a fair amount of discussion about how Minnesota’s adoption of the “broad evidence rule” for determining actual cash value impacts the question presented. One justice pointed out that the “broad evidence rule” allows for methods of calculation other than replacement cost less depreciation, which is the method that State Farm used here. He suggested that there may be circumstances where there are issues of fact.
  • One justice asked about a hypothetical scenario in which the repairs involved $200 of materials, but $10,000 of labor, and how that loss would be treated.
  • The chief justice asked whether State Farm would lose if the court found an ambiguity, and why State Farm had not revised its policy language to specifically address the issue.
  • One justice suggested that the plaintiffs’ argument is equating actual cash value with replacement cost.

This was the first time I’ve watched an argument in the Minnesota Supreme Court, so any prognostication I make is not based on experience with that court but my experience with the issue presented. My guess (and I could be wrong) is that the court will rule that depreciation may be applied to labor costs in appropriate circumstances.

Thoughts on Supreme Court Oral Argument in Spokeo, Inc. v. Robins

Yesterday, the Supreme Court heard oral argument in Spokeo, Inc. v. Robins, No. 13-1339 (SCOTUSBlog page). The question presented is “Whether Congress may confer Article III standing upon a plaintiff who suffers no concrete harm, and who therefore could not otherwise invoke the jurisdiction of a federal court, by authorizing a private right of action based on a bare violation of a federal statute.” The case has been highlighted as one that potentially could have a significant impact on class action practice because many class actions involve claims in which the named plaintiff at least arguably did not suffer a concrete harm, and thus may not have standing to sue. The impact on insurance class actions is likely to be in circumstances where: (1) insurers are subject to regulation under federal statutes, such as the Fair Debt Collection Practices Act or Telephone Consumer Protection Act; (2) insurers are subject to state regulation, but the suit is brought in or removed to federal court; or (3) insurers are sued in state court, but the state jurisprudence on standing aligns itself with the Supreme Court’s Article III case law.

Based on my review of the oral argument transcript, the Justices were most concerned about where to draw the line. The case involves allegations that the defendant violated the Fair Credit Reporting Act by publishing personal information about the plaintiff that was grossly inaccurate, but the plaintiff could not identify particularized harm that he suffered beyond the publication of inaccurate information (which may or may not have been seen by anyone). The Ninth Circuit concluded that Congress could, in this context, essentially create standing by statute.

The Court seemed to be largely in agreement that there has to be some concrete harm beyond a mere statutory violation, and thus that the Ninth Circuit’s opinion was incorrect or not well-written in at least some respects. The Justices appeared to disagree about whether, on the allegations in this case (which was decided on a motion to dismiss), there is a harm sufficient to confer standing. Andrew Pincus, arguing for the defendant, asserted that the plaintiff would need to show that something happened to his credit or with an employment opportunity. Justice Kagan responded “that’s a really hard thing to do,” and suggested that it should be sufficient merely that someone was inaccurately represented in a credit report. Justice Breyer appeared to agree with that. Pincus later pointed out how an amicus brief detailed how actual harm can be shown. Justice Kennedy suggested that in the Internet age there “has to be some real injury” in this type of circumstance, and that perhaps Congress was holding credit agencies to a higher standard.  Chief Justice Roberts suggested that “you have to look at whether the plaintiffs have been injured in fact, and that some plaintiffs will be able to proceed if they can make that showing and others may not.” He noted that “the requirement of a case or controversy . . . has always been recognized as at the core of Article III jurisdiction. And we have a legion of cases that say you have to have actual injury.” Justice Breyer seemed to indicate that he read the Fair Credit Reporting Act as requiring a showing that false information was published, not merely that there was a bad practice by the defendant. He later suggested that the statute would need to be construed in that manner to save its constitutionality. Justice Alito asked about whether there was any indication that anyone actually searched the defendant’s database for information about the plaintiff (there was not). He suggested that, in the absence of such a showing, any harm would be speculative. Justice Sotomayor, however, took the view that “I think the breach of any legal right you’re given . . . gives Article III jurisdiction” and “[t]here is a difference between that and whether you’re within the zone of interest of a statute.” That view, however, did not appear likely to command a majority.

My prediction is that this case will be a close call, possibly a 5-4 decision. The decision might turn on the language of the statute at issue and the specific allegations here more than on the broader constitutional principles of standing. If that is the case, it won’t be a blockbuster decision. But you never know.

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