Sagamore Insurance Company was alleged to have engaged in a practice whereby, with each bill sent out for an installment payment on an auto insurance policy, it would send a “notice of cancellation” that would cancel the policy if the installment payment was not received by the due date. If the payment was not made on time, the insurer would send out an application for a new policy with a $20 or $25 “rewrite” fee.
The plaintiffs alleged that this practice violated an Arkansas statute requiring a notice of cancellation to be sent out 10 days before cancellation would take effect, and state the reason for the cancellation.
The magistrate judge recommended certification of a state-wide class, and the district judge recently adopted the recommendation. See Walls v. Sagamore Ins. Co., 2011 U.S. Dist. LEXIS 26705 (W.D. Ark. Jan. 27, 2011); Walls v. Sagamore Ins. Co., 2011 U.S. Dist. LEXIS 26633 (W.D. Ark. Mar. 15, 2011). What is most interesting about this case is that the class was certified under Rule 23(b)(2) as a class seeking injunctive or declaratory relief. Although the class was seeking refunds of the $20 or $25 “rewrite” fees, the court held that “the $20.00 and $25.00 amounts requested are merely incidental to the declaratory and injunctive relief sought.”
It will be interesting to see if this ruling stands up if it is reviewed by the Eighth Circuit. It seems to me that the monetary damages, when aggregated across thousands of class members, are what is driving this case, not the declaratory relief sought. The issue of whether claims for monetary relief can be certified under 23(b)(2), and, if so, under what circumstances, is before the Supreme Court in Wal-Mart Stores, Inc. v. Dukes (docket), which will be argued on March 29, 2011.
Key Lesson for Insurers: Cancellation and nonrewal practices that are implemented in an across-the-board way are potential fodder for class actions because: (1) state statutes and regulations are highly detailed and can change frequently; (2) some courts have certified classes on these types of issues under 23(b)(2) or (b)(3). Insurers should carefully monitor their practices and the law in each jurisdiction in this area.