Back in May of 2011, I wrote on this blog about a new class action in California against Farmers involving claims of improper application of depreciation on property insurance claims, allegedly in violation of a California statute and regulation that govern application of depreciation (see my May 17, 2011 blog post).  In a similar case against State Farm, a California Superior Court judge has now certified a class.  This class certification ruling potentially could result in the filing of additional class action lawsuits on this issue, and insurers may want to review their practices with respect to the issue presented.

In Doan v State Farm General Insurance Company, Case No. 1-08-CV-129264 (Cal. Superior Ct., Santa Clara County, Mar. 18, 2013), the plaintiffs allege that State Farm failed to comply with a California statute and regulation with respect to adjustment of personal property (contents) claims, by failing to take into account the actual condition of contents items in calculating depreciation.  The plaintiffs allege that State Farm adjusters use a depreciation guide that measures depreciation based on age alone, without taking into account condition or even asking insureds about the condition of their items. 

The California statute and regulation at issue provide as follows:

In case of a partial loss to the structure, or loss to its contents, [actual cash value is] the amount it would cost the insured to repair, rebuild, or replace the thing lost or injured less a fair and reasonable deduction for physical depreciation based upon its condition at the time of the injury or the policy limit, whichever is less. In case of a partial loss to the structure, a deduction for physical depreciation shall apply only to components of a structure that are normally subject to repair and replacement during the useful life of that structure.

Cal. Ins. Code § 2051(b) (emphasis added).

When the amount claimed is adjusted because of betterment, depreciation, or salvage, all justification for the adjustment shall be contained in the claim file. Any adjustments shall be discernable, measurable, itemized, and specified as to dollar amount, and shall accurately reflect the value of the betterment, depreciation, or salvage. Any adjustments for betterment or depreciation shall reflect a measurable difference in market value attributable to the condition and age of the property and apply only to property normally subject to repair and replacement during the useful life of the property. The basis for any adjustment shall be fully explained to the claimant in writing.

10 C.C.R. § 2695.9(f) (emphasis added).

In its ruling on class certification, the California Superior Court found that certification of an injunctive relief class was appropriate because “Defendant does not adequately address Plaintiffs’ showing that insureds are not provided with a written explanation of how Defendant calculates depreciations for purposes of § 2695.9(f), which requires that the basis for any depreciation adjustment ‘be fully explained to the claimant in writing.’”  (Slip op. at 13.)  With respect to the proposed damages class, the court found that State Farm did not make an attempt to seek information about the physical condition of contents items.  The court found it significant that, based on a small sample of claim files, the plaintiff’s expert concluded that somewhere between 65% to 92% of claim files would have some items that were depreciated solely based on the depreciation guide.  (Id. at 14.)  The court rejected State Farm’s argument that individualized inquiries would be necessary in determining the appropriate depreciation on individual items, on the theory that the plaintiffs could seek to recover only for items that were depreciated solely based on the depreciation guide (and if this turned out to be not doable, the class could be decertified later).  The court also certified a bad faith claim, explaining only that “[a]ssuming commonality on the use of the Depreciation Guide, the issue of bad faith would flow from it.”  (Id.)   The court further concluded that State Farm had failed to present specific evidence that individualized defenses would predominate.  (Id.)

While I expect this decision will be appealed, insurers writing property policies in California might want to pay close attention to this case.  Insurers may also wish to review how they are handling depreciation in California in light of the issues raised in this case.

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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.