A hot issue in recent years in property insurance class actions, an issue I’ve defended a number of cases on, is general contractor overhead and profit.  The issue is under what circumstances insurance companies are required to include in their estimates on property damage claims a fee for the services of a general contractor.  For those readers not well-versed in construction terminology, a general contractor is a person or company that typically does not perform any of the work themselves but is involved in selecting, coordinating and/or supervising the work of the tradespersons or companies that do the repairs.  They get paid a fee for that coordination and supervision work that is above and beyond the cost of the repairs.  Plaintiffs’ attorneys have taken the position that there is or should be a uniform “three trade rule” under which insurers must always include a general contractor fee if there are three or more “trades” involved in the loss (what exactly constitutes a “trade” in their view varies and is typically quite debatable).  Insurers frequently take the position that a general contractor fee is appropriate only if, on a case-by-case, totality of circumstances type of test, a general contractor is reasonably necessary in making the repairs.  The vast majority of courts have agreed with insurers on the standard and have denied class certification.  A few courts, largely in Oklahoma, have found class certification appropriate. 

In the new decision, National Security Fire & Casualty Company v. DeWitt, No. 1091225, 2011 Ala. LEXIS 196 (Ala. Nov. 18, 2011), the Alabama Supreme Court reversed a trial court’s grant of class certification.  The court held that, putting aside the parties’ debates about the plaintiff’s proposed “three trade rule” and what the insurer’s practices were, adjudicating the case would require evidence on numerous individual claims.  Predominance and superiority therefore were not satisfied.  Here is the heart of the opinion:

In reaching our decision to vacate the class-certification order, we are not addressing the merits of DeWitt’s argument that National Security engaged in a standard practice of not paying GCOP [general contractor overhead and profit] in cases where a general contractor was not hired or the merits of National Security’s assertion that its policy  was to pay GCOP when it was reasonably foreseeable that a contractor would be necessary and that it determined whether to pay GCOP on a case-by-case basis. Nor do we address the merits of the three-trade rule. Rather, we base our determination on the fact that the litigation of these issues will likely involve the presentation of evidence regarding numerous individual claims. Although this case will involve issues that are common to all class members, it is highly likely that it will also involve individualized evidence regarding whether it was reasonably foreseeable that the services of a general contractor would be necessary in each of those claims. Also, it is likely that the case will also involve evidence as to whether some of the estimates actually indicate that three or more trades would be involved in the repairs. Additionally, as the United States District Court for the Middle District of Florida noted in Mills, National Security would also be able to raise any affirmative defenses it might have against individual insureds. Finally, although DeWitt has presented a mechanical method for calculating the damages of each insured, as was the case in Mills an individual review of each claim file would still have to be undertaken to determine the damages in each case.

. . .

[One of the defendant’s witnesses] testified that [the case] would involve between 30,000 and 40,000 files and that each file contained between 20 and 40 pages. Therefore, a class action in this case could potentially involve National Security’s presenting evidence regarding thousands of individual claims. Therefore, in this case, common questions of law and fact do not predominate. 

The Alabama Supreme Court’s opinion conducts a thorough survey of the law that has developed around the country on this issue.  For that reason alone, it is a good read for those who are unfamiliar with overhead and profit class actions.  It seems likely this decision will now become one of the leading appellate decisions nationwide on this issue.  The principles articulated here are also of general applicability to many insurance claim-related class actions.  As I’ve noted before, a central question a court looks at on class certification should be an examination of how the case is going to be tried, by both sides, and whether it reasonably can be tried as one case or not.  That is the lens through which the Alabama Supreme Court viewed this case.

Email this postTweet this postLike this postShare this post on LinkedIn
Photo of Wystan Ackerman Wystan Ackerman

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you…

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you have something to say.  For those looking for my detailed law firm bio, click here.  If you want a more light-hearted and hopefully more interesting summary, read on:

People often ask about my unusual first name, Wystan.  It’s pronounced WISS-ten.  It’s not Winston.  There is no “n” in the middle.  It comes from my father’s favorite poet, W.H. (Wystan Hugh) Auden.  I’ve grown to like the fact that because my name is unusual people tend to remember it better, even if they don’t pronounce it right (and there is no need for anyone to use my last name because I’m always the only Wystan).

I grew up in Deep River, Connecticut, a small town on the west side of the Connecticut River in the south central part of the state.  I’ve always had strong interests in history, politics and baseball.  My heroes growing up were Abraham Lincoln and Wade Boggs (at that time the third baseman for the Boston Red Sox).  I think it was my early fascination with Lincoln that drove me to practice law.  I went to high school at The Williams School in New London, Connecticut, where I edited the school newspaper, played baseball, and was primarily responsible for the installation of a flag pole near the school entrance (it seemed like every other school had one but until my class raised the money and bought one at my urging, Williams had no flag pole).  As a high school senior, my interest in history and politics led me to score high enough on a test of those subjects to be chosen as one of Connecticut’s two delegates to the U.S. Senate Youth Program, which further solidified my interest in law and government.  One of my mentors at Williams was of the view that there were far too many lawyers and I should find something more useful to do, but if I really had to be a lawyer there was always room for one more.  I eventually decided to be that “one more.”  I went on to Bowdoin College, where I wrote for the Bowdoin Orient and majored in government, but took a lot of math classes because I found college math interesting and challenging.  I then went to Columbia Law School, where I was lucky enough to be selected as one of the minions who spent their time fastidiously cite-checking and Blue booking hundred-plus-page articles in the Columbia Law Review.  I also interned in the chambers of then-Judge Sonia Sotomayor when she was a relatively new judge on the Second Circuit, my only connection to someone who now has one-ninth of the last word on what constitutes the law of our land.  I graduated from Columbia in 2001, then worked at Skadden Arps in Boston before returning to Connecticut and joining Robinson+Cole, one of the largest Connecticut-based law firms.  At the end of 2008, I was elected a partner at Robinson+Cole.

I’ve worked on class actions since the start of my career at Skadden.  Being in the insurance capital of Hartford, we have a national insurance litigation practice and I was fortunate to have the opportunity to work on some prominent class actions arising from the 2004 hurricanes in Florida and later Hurricane Katrina, including cases involving the applicability of the flood exclusion, statutes known as valued policy laws, and various other issues.  My interest and experience in class actions gradually led me to focus on that area.

In Connecticut courts I’ve defended various kinds of class actions that go beyond insurance, including cases involving products liability, securities, financial services and consumer contracts.

My insurance class action practice usually takes me outside of Connecticut.  I’ve had the pleasure of working on cases in various federal and state courts and collaborating with great lawyers across the country.  While class actions are an increasingly large part of my practice, I don’t do exclusively class action work.  The rest of my practice involves litigating insurance coverage cases, often at the appellate level.  That also frequently takes me outside of Connecticut.  A highlight of my career thus far was working on Standard Fire Ins. Co. v. Knowles, the U.S. Supreme Court’s first Class Action Fairness Act case.  I was Counsel of Record for Standard Fire on the cert petition, and had the pleasure of working with Ted Boutrous on the merits briefing and oral argument.

I started this blog because writing is one of my favorite things to do and I enjoy following developments in class action law, writing about them and engaging in discussion with others who have an in interest in this area.  It’s a welcome break from day-to-day practice, keeps me current, broadens my network and results in some new business.

When I’m not at my desk or flying around the country trying to save insurance companies from the plaintiffs’ bar, or attending a conference on class actions or insurance litigation (for more on those, see the Seminars/Programs page of this blog), I often can be found playing or reading with my young daughter, helping my wife with her real estate and mortgage businesses, reading a book about history or politics, or watching the Boston Red Sox (I managed to find bleacher seats for Game 2 of the 2004 World Series when Curt Schilling pitched with the bloody sock).  When the weather is good I also love to take the ferry to Block Island, Rhode Island and ride a bike or walk the trails there. If you go, I highly recommend the Clay Head Trail.