The Seventh Circuit recently reversed a class certification against State Farm in a case involving hail damage claims.  This decision is likely to be frequently cited in insurance coverage-related class actions.  In Kartman v. State Farm Mut. Auto. Ins. Co., Plaintiffs asserted that State Farm’s adjustments of hail damage to roofs were inconsistent — in one case, three different adjusters were sent out to inspect the damage, with results that varied substantially.  An Indiana federal district court granted certification of a class under Rule 23(b)(2) seeking injunctive relief requiring State Farm to reinspect all of the roofs of class members’ homes using a “uniform and objective” standard. 

The Seventh Circuit overturned the district court decision on several grounds:

  1. Despite the request for injunctive relief, this case was “simply an action for damages” and therefore not appropriate for certification under 23(b)(2), but rather only could be certified, if at all, under (b)(3).  (The issue of the scope of appropriate certifications under 23(b)(2) where damages are sought is before the Supreme Court in Wal-Mart Stores, Inc. v. Dukes.)
  2. The court explained that “[i]nsurance entails a promise to pay covered losses, not a covenant to use a particular standard for evaluating property damage.  If a given policyholder was fully compensated for the damage attributable to the hailstorm, then State Farm will have satisfied its contractual obligation regardless of whether it used a ‘uniform and objective’ or an ad hoc standard to assess the damage.”
  3. Injunctive relief was not appropriate because monetary damages would be an adequate remedy.
  4. Injunctive relief would not be “final” as required by Rule 23(b)(2) because there would need to be individual determinations on whether there was a breach of contract and on damages.

Lessons Learned:  The court’s statements about insurance being a promise to pay the bottom line amount required by the contract, not a promise to use any particular methodology in adjusting or estimating has important implications for insurance claims-related class actions.  I have not seen other courts articulate this point as clearly or as broadly.  Insurers can use this part of Kartman effectively in opposing class certification in a number of other contexts.  For plaintiffs, this case explains why seeking injunctive relief will rarely be an effectively strategy in insurance class actions.