In recent years there has been a significant amount of class action litigation in various jurisdictions regarding labor rates for repairs on auto claims. The California Court of Appeal, Second Appellate District, recently affirmed a denial of class certification in one of these cases, focusing on the fact that the insurer handled each claim in a case-by-case manner, negotiating the labor rate where appropriate.
In Holzman v. Farmers Insurance Exchange, 2011 Cal. App. Unpub. LEXIS 7262 (Cal. Ct. App. Sept. 26, 2011), the plaintiff, a lawyer, had his Porsche 911 repaired at a Porsche dealer that charged $135 per hour. Farmers concluded that the market rate in the relevant geographic area was $65 per hour, but agreed to $85 per hour for this repair. Farmers refused, however, to pay $135 per hour. The plaintiff sued for the difference and sought to represent a putative class of luxury vehicle owners who paid out-of-pocket for repairs in excess of the deductible. Id. at *2-7.
The trial court denied class certification. The Court of Appeal affirmed based on a lack of predominance. The court focused on the need for a case-by-case determination of reasonableness, in light of the fact that Farmers negotiated the labor rate where appropriate:
Farmers’s practice of using the predominant market labor rate does not cause a member of the putative class to incur damages unless he or she is forced to pay out-of-pocket expenses that are not required by the insurance policy. Whether an insured incurs out-of-pocket expenses requires an individualized, case-by-case analysis. In some cases, Farmers negotiates a rate higher than the predominant market labor rate. The court must determine for each individual whether Farmers agreed to a higher labor rate and, if so, whether that rate was reasonable, or whether it was still so low that it violates the insurance policy, Insurance Code and/or applicable regulations. Accordingly . . . even if Farmers’s use of the predominant market labor rate were an improper claims practice, class certification is unwarranted because common questions of fact and law are not predominant. (Id. at *27.)
As I’ve noted before on this blog, one thing insurance companies can do to reduce their class action exposure is to give front-line adjusters discretion. While sometimes there are business reasons for a bright-line rule, or it might seem easier for adjusters to follow, when discretion is given on this kind of issue it increases the chances of defeating class certification. If Farmers had taken a bright-line position that it would never pay more than $65 per hour in this geographic area for auto repairs, regardless of whether the vehicle is a Hyundai or a Porsche, it would have been in a more difficult position in defending against class certification. Where adjusters have discretion to make determinations on a case-by-case basis, courts often must do the same, and that often makes class certification improper.