The Sixth Circuit recently ruled in a health insurance case that a claim for a declaratory judgment regarding insurance contract interpretation could be certified under Rule 23(b)(2) under Wal-Mart v. Dukes, even if the declaratory relief would be a predicate to monetary relief, under which certification was sought under Rule 23(b)(3) but not yet ruled upon.  This decision is significant for insurers faced with opposing class certification under Rule 23(b)(2).

Gooch v. Life Investors Insurance Company of America, Nos. 10-5003/5723, 2012 U.S. App. LEXIS 2643 (6th Cir. Feb. 10, 2012) is a class action brought under a cancer insurance policy.  The plaintiff contends that the policy requires payment of the full “list prices” on medical bills, rather than the lower prices that are accepted as full payment by the medical providers (the idea seems to be that the insureds would get to pocket the difference).  The Sixth Circuit’s opinion is lengthy and involves a number of issues.  The court rules that a nationwide class action settlement by the defendant in Arkansas was binding and prevented the plaintiff from seeking certification of a class that overlapped with the class in the Arkansas case, but did not prevent the plaintiff from seeking certification of a class that did not overlap with the class in the Arkansas case (e.g., a different time period or a potential class of opt-outs). 

What I found most significant was the court’s ruling that class certification was appropriate on a declaratory relief claim under Rule 23(b)(2) on an issue of insurance contract interpretation.  The court wrote as follows:

[Plaintiff] requested that the district court certify a “Declaratory Relief Class . . . pursuant to Rule 23(b)(2) . . . and, at such time as the Court deems proper, then certify the Restitution/Monetary Relief Sub-Class as a class action pursuant to Rule 23(b)(3).” R. 1 (Compl., Prayer for Relief A) (emphasis added). He explicitly asked the court to enter a declaratory judgment separate from the request for restitution and monetary damages, which would be the subject of a distinct sub-class certified under a different subsection of Rule 23.[15] Id. at Prayer for Relief B, C; see also id. ¶¶ 71, 88. He did not “combine any claim for individualized relief with [his] classwide injunction.” Wal-Mart, 131 S. Ct. at 2558. The point is not simply that declaratory relief predominates over monetary relief or that monetary relief is incidental to declaratory relief. It is that, in this case, declaratory relief is a separable and distinct type of relief that will resolve an issue common to all class members.

Not every class member will have a claim for damages because some presumably did not make a claim for payment after the May 2006 policy clarification. Still, the declaratory judgment will apply to a uniform interpretation of a contract that governs or governed each class member, making Rule 23(b)(2) certification appropriate. “All of the class members need not be aggrieved by . . . [the] defendant’s conduct in order for some of them to seek relief under Rule 23(b)(2). What is necessary is that the challenged conduct or lack of conduct be premised on a ground that is applicable to the entire class.” 7AA Wright & Miller, supra, § 1775. “It is sufficient if class members complain of a pattern or practice that is generally applicable to the class as a whole. Even if some class members have not been injured by the challenged practice, a class may nevertheless be appropriate.” Walters v. Reno, 145 F.3d 1032, 1047 (9th Cir. 1998). “The key to the (b)(2) class is `the indivisible nature of the injunctive or declaratory remedy warranted—the notion that the conduct is such that it can be enjoined or declared unlawful only as to all of the class members or to none of them.'” Wal-Mart, 131 S. Ct. at 2557 (quoting Nagareda, 84 N.Y.U. L. Rev. at 132). Because Life Investors interprets the phrase “actual charges” the same way for each policyholder, uniform declaratory relief is appropriate.

This point also disposes of Life Investors’s contention that the district court’s “piecemeal certification” of a single count of Gooch’s complaint “does not materially advance the litigation.” Appellant 10-5723 Br. at 53.[16] We find nothing objectionable about the district court certifying one count of Gooch’s complaint, an approach that we have affirmed in the past. See Beattie, 511 F.3d at 568. In sum, certifying declaratory relief under Rule 23(b)(2) is permissible even when the declaratory relief serves as a predicate for later monetary relief, which would be certified under Rule 23(b)(3).

Id. at *56-59.  The court also noted in a footnote that it did not view claim splitting as a problem for piecemeal certification in this case.  Id. at *59 n.16.  The court does not really address whether certification under Rule 23(b)(2) would remain proper if the district court concludes that a (b)(3) class for damages is improper, an issue not yet addressed by the district court.  The district court ruling was vacated and remanded for further proceedings.

This decision seems somewhat inconsistent, for example, with the Seventh Circuit’s opinion last year in Kartman v. State Farm Mut. Auto. Ins. Co., 634 F.3d 883 (7th Cir. 2011) (blog post), in which the Seventh Circuit explained that “Rule 23(b)(2) governs class claims for final injunctive or declaratory relief and is not appropriately invoked for adjudicating common issues in an action for damages,” which seems to be how declaratory relief is sought to be used in Gooch.  Id. at 895.

I expect this decision could lead to more attempts by policyholders to seek certification of Rule 23(b)(2) classes for declaratory relief against insurance companies on issues of contract interpretation.  Stay tuned.