Plaintiffs’ lawyers seeking to certify classes against insurance companies are likely to frequently cite the Sixth Circuit’s recent decision in Young v. Nationwide Mutual Insurance Company, Nos. 11-5015 et al., 2012 U.S. App. LEXIS 18625 (6th Cir. Sept. 5, 2012). Although the opinion does not make it clear, this decision appears to conflict with some decisions by other circuits on class certification, and it potentially raises the bar for defendants in defeating class certification in some circumstances.
The plaintiffs in Young claimed that the insurer defendants overcharged them for local government premium taxes in Kentucky by incorrectly determining which taxing jurisdiction their properties were located in. The opinion indicates that the plaintiffs’ contention was that these errors were made on 1% or less of the policies at issue. Id. at *22. The plaintiffs sought to certify putative subclasses of insureds of a particular insurer in Kentucky who purchased insurance during a particular time period “and who were charged local government taxes on their payment of premiums which were either not owed, or were at rates higher than permitted.” Id. at *6. The Eastern District of Kentucky certified these subclasses, and the Sixth Circuit affirmed on abuse of discretion review. The Sixth Circuit rejected the insurers’ contentions on several points (notably, Judge Suhrheinrich did not sign onto the opinion, joining only in the judgment):
- Fail-Safe Classes: The insurers argued that the proposed subclasses were improper “fail-safe” classes because the classes were defined as people who were overcharged, and thus deciding who the class members were would require a merits determination. The Sixth Circuit rejected this argument, stating that “a ‘fail-safe’ class is one that includes only those who are entitled to relief,” and that “Plaintiffs’ classes will include both those entitled to relief and those not.” Id. at *12. The court noted that the insurers asserted that they would not be liable to some persons who were overcharged (one example of this appears to be because the policyholder provided incorrect information that led to the error in determining their taxing district).
- Ascertainability: The insurers contended that the class was not administratively feasible to identify because numerous individual determinations would be required to determine who was overcharged. The Sixth Circuit found it sufficient that the plaintiffs proffered an expert witness, who had survived some Daubert scrutiny, and opined that the class could be identified through the insurers’ electronic records and geocoding software, along with some manual file review. The opinion does not indicate how many files would need to be manually reviewed. The Sixth Circuit noted that some courts have found certification appropriate notwithstanding a need to review individual files to identify class members. It agreed with the district court that if the need for a manual file review were dispositive, “defendants against whom claims of wrongful conduct have been made could escape class-wide review due solely to the size of their businesses or the manner in which their business records were maintained.” Id. at *18. The court seemed to ignore that insurers and other corporations cannot anticipate what kinds of records might be needed for some class action suit that might be filed against them years later.
- Numerosity: The Sixth Circuit agreed with the district court that numerosity was satisfied because a 1% error rate was found based on prior settlements of related actions and market conduct examinations performed by the Kentucky Department of Insurance. At a 1% error rate there would be approximately 270 to 9,000 class members per insurer. Id. at *22.
- Commonality and Typicality: The court found commonality and typicality satisfied, explaining that “[b]ecause Plaintiffs allege both a single practice or course of conduct on the part of each Defendant – the failure to implement a geocoding verification system – that gives rise to the claims of each class member and a single theory of liability . . . .” Id. at *27. This seems contrary to how other courts have viewed the commonality and typicality requirements. Every class action plaintiffs’ attorney worth their salt is going to allege a common theory and suggest some manner of attempting to prove liability on a classwide basis. Most courts in recent years have focused not on merely whether there is a common theory of liability but how the claims and defenses of the parties would be presented at trial and whether it would be feasible to present both sides’ cases in a classwide trial without trying many individual claims. The Sixth Circuit’s opinion fails to explain how, as a matter of law, the plaintiffs could require insurers to use a particular type of software (a geocoding verification system) in determining local premium tax rates in Kentucky. It might be a good thing to do but how is it a mandatory legal requirement?
- Predominance: The court found predominance satisfied based on the alleged common theory of failing to use the geocoding software, and rejected the defendants’ arguments that individual evidence would be necessary, for example, to show that some policyholders provided incorrect information to their insurer. Id. at *31-32. Again, this seems to be contrary to the way that other courts have been looking at predominance. The court does not explain how many instances the defendants were able to demonstrate where individual inquiries would be required. Defendants are in the strongest position in defending against class certification when they can show that individual inquiries would be necessary on a significant percentage of the putative class claims.
This opinion is one that, unless it is overturned en banc or by the Supreme Court, I would expect to see cited by plaintiffs’ lawyers regularly in support of class certification, particularly in the Sixth Circuit. It might also lead to more class action filings in that circuit. Notably, earlier this year, the Sixth Circuit issued another significant opinion affirming class certification in In re Whirlpool Corp. Front-Loading Washer Prods. Liab. Litig., 678 F.3d 409 (6th Cir. 2012). Both Young and Whirlpool were authored by Judge Stranch.