Property insurance policies typically provide for an initial payment on an actual cash value (ACV) basis, which is often calculated as the replacement cost less depreciation.  After the repairs are completed, under many policies the insured can recover an additional payment up to the full replacement cost value (RCV) of the loss.  Insureds have brought numerous class actions against insurers alleging that ACV payments on homeowners’ insurance claims were insufficient because particular items were not included in an ACV payment.  If the named plaintiff’s claim is paid on a RCV basis and the policy provides that RCV payments are capped at the actual costs of repair, the insurer may have no obligation to make further payments regardless of whether there was an underpayment at the ACV stage.  State Farm successfully obtained the dismissal of a putative class action in the Eastern District of Tennessee because the named plaintiffs’ claim was paid on an RCV basis and thus nothing more was owed even if there had been a deficiency in the ACV calculation.

In Stiers v. State Farm Insurance, No. 3:11-CV-437, 2012 U.S. Dist. LEXIS 87591 (E.D. Tenn. June 25, 2012), the complaint alleged that State Farm improperly failed to include general contractor overhead and profit in its ACV payment to the plaintiffs, and also improperly withheld from the ACV payment what State Farm described as “Paid When Incurred” items.  It appears that the only “Paid When Incurred” item on the plaintiffs’ estimate was “roof tear off and felt.”  Id. at *4.  State Farm later made a RCV payment which included the roof tear off and felt, but did not include general contractor overhead and profit.  Id. at *5.

State Farm’s policy provided that “when the repair or replacement is actually completed, we will pay the covered additional amount you actually and necessarily spend to repair or replace the damaged part of the property, or an amount up to the applicable limit of liability shown in the Declarations, whichever is less . . . .”  Id. at *6.  The court dismissed the breach of contract claim based on this provision, explaining that “the Stiers cannot claim a breach of contract relating to the PWI items in the May 23 ACV estimate when they ultimately received payment for those items” and “[e]ven if there is some dispute with the amount of the ACV payment, such as an alleged failure to include O&P, the actual costs of repair cap the insurer’s obligation when a replacement cost adjustment has been made.”  Id. at *9-10 (emphasis added).  The court further explained that, under the terms of the State Farm policy, “a full replacement cost payment will render moot any ACV underpayment . . . .”  Id. at *13 (emphasis added).

This decision will be particularly useful to property insurers defending against putative class actions that assert underpayments of ACV.  If a named plaintiff’s claim was paid on an RCV basis, the insurer should have a strong defense to that claim.  Even if there is a named plaintiff who was paid only on an ACV basis, this decision provides a strong argument for reducing the size of any putative class that the named plaintiff could properly represent, so that, even if class certification were granted, any class would have to be limited to insureds paid on an ACV-only basis.

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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.