I recently came across two new class action filings against insurance companies that may be of interest to readers of my blog. One case involves whether it is appropriate to depreciate labor costs in estimating actual cash value. Another case involves the application of the “made whole” doctrine, where applicable, to insurers’ handling of subrogation recoveries.
- Adams v Cameron Mutual Insurance Company.pdf, Case No. 2:12-cv-02173-PKH (W.D. Ark., filed Aug. 1, 2012): This case alleges that Cameron Mutual Insurance Company improperly applies depreciation to the estimated cost of labor in preparing estimates of actual cash value (ACV). The complaint asserts that it is appropriate to depreciate materials, which diminish in value based on age and wear and tear, but not labor because that cost does not diminish in value over time. (Complaint, ¶ 10.) The complaint seeks to certify an Arkansas statewide class of persons whose claims were paid on an ACV basis, excluding from the class insureds who were paid on a replacement cost value (RCV) basis. (Id., ¶ 19.) Putting aside the issue of whether the claim being asserted in this case has merit (i.e., whether depreciation of labor is appropriate under property insurance coverage), in defending this type of case an insurer may want to consider, among other issues, the various alternative methods that courts have allowed for calculation of ACV, and the case law providing that whether there is a breach of contract depends on whether the total amount paid is sufficient to comply with the policy, without breaking things up into particular components of a claim. It also may be significant that putative class members who have not yet made a claim on an RCV basis also may wish to do so, and that likely would provide them with a larger payment than they could recover on this issue. (For more on this, see my July 10, 2012 blog post.)
- Erlich v American International Group, Inc.pdf, Index No. 652672/2012 (N.Y. Supreme Ct., N.Y. County, filed Aug. 1, 2012): The complaint in this lawsuit alleges that AIG and one of its subsidiaries, New Hampshire Insurance Company, have failed to comply with the “made whole” doctrine as applicable in New York by retaining subrogation recoveries without making the insureds whole to the extent required by New York law. The named plaintiffs’ claim was a property insurance claim for fire damage. The complaint alleges that the defendants have “retain[ed] payments from third-party wrongdoers prior to making their Insureds whole. In so doing, Insurers retains [sic] monies that Insureds are legally entitled to receive, thereby causing Insureds damages, which include but are not limited to: (i) deductible expenses; (ii) losses incurred by the Insured but exempted from policy coverage; (iii) losses incurred due to wrongful withholding (hold backs) and depreciation; and (iv) losses incurred by the Insured beyond the policy limits of the coverage of the Insured.” (Complaint, ¶ 1.) The proposed class is quite vaguely defined as “a class of individuals and businesses covered under insurance policies issued by NHIC, its subsidiaries and affiliates, during the class period.” (Id., ¶ 26.) Notably, the Pennsylvania Supreme Court recently dealt with a putative class action involving the application of the “made whole” doctrine to auto collision coverage, and held that the doctrine was not applicable to deductibles or losses above policy limits. For more on the Pennsylvania case, see my December 29, 2011 blog post.