In February, there was a new class action filed against Citizens Property Insurance Corporation, Florida’s property insurer of last resort, alleging that it was using Xactware’s 360Value software to purportedly overvalue homes and charge inflated premiums. This week, Allstate was sued in a putative nationwide class action in Illinois federal court making claims on a similar theory, based on Allstate’s use of Marshall Swift & Boeckh (MSB) software to estimate replacement cost value of homes for purposes of setting policy limits and premiums. I’m not yet prepared to say this is a trend, but other insurers may wish to take another look at their valuation software.
The complaint in Diskey v Allstate Indemnity Company.pdf, Case No. 1:12-cv-03728 (N.D. Ill., filed May 15, 2012), alleges that MSB performed an analysis for Allstate in 2004 which determined that 59% of homes insured by Allstate nationwide were underinsured, with an average undervaluation of 27%. The plaintiff claims that Allstate went too far in remedying that problem and allegedly used MSB software to unduly inflate the valuations of homes used in determining policy limits and thus unduly increase premiums. The complaint also alleges that Allstate’s homeowners insurance policies provide for the use of a “Property Insurance Adjustment” (PIA) index to adjust policy limits at each policy anniversary, and that when the PIA indices went down, Allstate still increased policy limits and premiums. The complaint also makes a vague, non-specific allegation that the MSB system that is used by Allstate to determine replacement cost of homes for underwriting purposes is inconsistent with the MSB system used by Allstate adjusters in valuing property damage when claims are submitted.
The complaint seeks certification of several nationwide classes: (1) a class of policyholders whose properties were appraised using a software program, resulting in an increase in policy limits, and who “paid excessive premiums”; (2) a class of policyholders whose properties were appraised using a software program, resulting in an increase in policy limits, who do not reside in a valued policy law state, and who suffered a loss within the limitations period; and (3) a class of policyholders whose policy included Allstate’s PIA provision, and whose policy limits were increased at the same time that the PIA indices decreased, within the limitations period. The causes of action alleged include restitution, breach of contract (including breach of the implied covenant of good faith and fair dealing), bad faith and unjust enrichment/constructive trust.
This case is similar, in part, to the Cox v. Allstate case (see my April 11, 2012 blog post) in which certification was recently denied by the Western District of Oklahoma on a claim involving Allstate’s PIA provision. The court reasoned that determining whether Allstate inappropriately raised a policy limit would require comparing every individual policy limit with the property’s fair market value, an individualized analysis that defeated certification under Wal-Mart v. Dukes. As the Cox decision demonstrates, this is an issue on which insurers often have strong defenses to class certification. But given that the plaintiffs’ bar seems to be focusing a bit more on valuation and premium calculation issues, and on whether underwriting valuation methods are consistent with valuations used for loss estimating purposes, this is an area insurers may want to pay attention to in their efforts to avoid potential class action exposure.