Insurers writing auto policies in California seeking to keep repair costs down by encouraging their insureds to use preferred repair facilities, and encouraging the use of non-original equipment manufacturer (OEM) parts, now have a potential roadmap to follow from the California Court of Appeal.

In Ortega v. Topa Insurance Company, No. B228889, 2012 Cal. App. LEXIS 621 (Cal. Ct. App. 2d Dist. May 24, 2012), the policy provided that the insurer would pay all of the reasonable costs incurred (above the deductible) in repairing damage to the insured vehicle if the insured used a repair shop that participated in the insurer’s preferred repair facility program.  If, however, the insured chose to use a non-preferred repair shop, the insurer would pay only 80% of the covered loss (minus the deductible).  The issues before the court were: (1) whether the application for insurance satisfied a statutory requirement that the application “prominently disclose” the policy provision with respect to the use of preferred repair shops; and (2) whether the trial court properly struck the class allegations concerning the use of non-OEM parts.

The court of appeal described the application for insurance as follows:

Topa’s application for auto liability and physical damage insurance states in bold lettering on the first page: “This is a restricted policy.” In the boxed-off section entitled “CERTIFICATION OF APPLICANT,” the application states in the second paragraph: “I certify that I understand that this is a restricted policy with coverage limitations and that I am aware of the policy limitations. I understand that in exchange for reduced physical damage premiums this policy has limited physical damage coverages and that repairs must be effected by an approved Preferred Repair Facility. Should I decide to have repairs performed by an unapproved facility, coverage will be limited to 80% of the covered loss subject to all applicable deductibles.” This boxed-off section includes three other paragraphs, each one separated by spacing. This section also has a signature line for the applicant to “certify” his or her understanding of the terms of the restricted policy. Ortega‟s wife signed the application.

Id. at *3-4.  The court concluded that this disclosure satisfied Cal. Ins. Code. § 758.5(d)(1), finding the application form sufficient to inform the insured of the limitations of the coverage and certify that he or she understood it.  The court rejected arguments by the plaintiff that a particular typeface, bold font and specific heading should be required.  The court also rejected an argument that this provision improperly “steered” policyholders to preferred repair shops.  The court agreed with prior appellate authority that this type of limited coverage where a non-preferred shop is used is consistent with the California statutory requirements.

The plaintiff also sought certification of a class on theories that: (1) non-OEM parts were universally inferior and thus the use of those parts did not restore putative class members’ vehicles to pre-loss condition; and (2) the putative class members did not receive adequate notice that the preferred repair facilities would use non-OEM parts.  The court of appeal affirmed the trial court’s order striking these class allegations on the pleadings, before discovery and before a motion for class certification was filed.  The court held that common issues did not predominate on the face of the allegations because each putative class member would have to prove that the particular non-OEM parts involved in their repair were inferior, and the question of whether and when a putative class member received notice that non-OEM parts were used would require an individual inquiry.  The court distinguished a case in which class certification was upheld, where the class allegations were narrowly tailored to only sheet metal parts (known as crash parts).

Insurers writing this type of coverage in California can now benefit from the availability of an application form that has the approval of a California Court of Appeal.  Insurers that want to encourage the use of non-OEM parts where appropriate can also take some comfort in the court’s decision on the class allegations, although insurers may wish to remind preferred repair shops to make disclosures about the use of non-OEM parts in accordance with the California statutes and regulations cited in this opinion.  States have taken a variety of different statutory and regulatory approaches on the issues presented by this case, so the approach outlined in this case may not be viable in some other jurisdictions.  Attempting to avoid class action exposure in connection with the use of a preferred repair shop program and the use of non-OEM parts requires a careful analysis of applicable state law together with the insurer’s practices and proposed changes thereto.

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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.