The Eighth Circuit recently addressed class certification in an insurance class action involving medpay and personal injury protection (PIP) coverage. The case involved the use of third-party bill reviewers and the application of a guideline comparing charges for medical services to the 80th percentile of such charges in the geographic area. The court applied the Supreme Court’s recent decision in Comcast v. Behrend, and reversed certification on the grounds that common issues of law and fact did not predominate because individual analysis of each claim payment was required. The court also stressed that each putative class member must have standing to sue, an important principle of class action law that can be quite useful in defending insurance class actions.
In Halvorson v. Auto Owners Insurance Company, No. 12-1716, 2013 U.S. App. LEXIS 13580 (8th Cir. July 3, 2013), the plaintiffs brought a putative class action against Auto-Owners Insurance Company and its subsidiary, Owners Corporation, for breach of contract and bad faith. The district court certified a putative class of policyholders in North Dakota who made claims for medical expenses under medpay or PIP coverage, and received less than the amount sought after a percentile-based review of their claim. Id. at *4-5. The policy required payment of the “reasonable charges incurred.” Auto-Owners employed third-party bill reviewers who determined pricing for particular medical services within a geographic area, and identified charges submitted exceeding the 80th percentile of charges in the area. Id. at *2-3. There was testimony that adjusters were expected to limit amounts paid to the 80th percentile, although Auto-Owners asserted that adjusters had discretion. Id. at *7. The district court certified the class because it concluded that whether the bill review process was in compliance with the insurance policies was a common question that predominated. Id. at *8.
The Eighth Circuit reversed, finding that the district court abused its discretion. The Eighth Circuit concluded that the commonality requirement was satisfied based on the common question of “whether the routine and relatively rigid use of the 80th percentile cutoff for claims breach the contract or constituted bad faith.” Id. at *17-18 n.2. The predominance requirement, however, was not satisfied. Applying Comcast, the court explained that “individual inquiries regarding what is ‘usual and customary’ for each class member will predominate over whether Auto-Owner’s process was reasonable and ‘overwhelm questions common to the class.’” Id. at *14-15.
The Eighth Circuit also explained that “[a] district court may not certify a class . . . if it contains members who lack standing.” Some members of the putative class would not have standing because, for example, “[i]f a health-care provider accepted Auto-Owners’ payment at the 80th percentile as payment in full (or if Auto-Owners settled the dispute without involving the plaintiff), the plaintiff was not injured.” Id. at *15-16.
The Eighth Circuit’s ruling on standing grounds is one that I see of broader importance in defending insurance class actions. It is frequently the case that the class is defined in a manner that would encompass people who were not injured, or would not want the requested relief (and might even be disadvantaged by the requested relief or implications thereof). Often it is not possible for the plaintiff to re-define the class in a manner that would only include people who were injured (or who want the requested relief) because such a class is not ascertainable without individualized inquiries into each class member’s circumstance and preferences. That can be a powerful line of argument in defending these cases, and one that is sometimes overlooked, or not framed in terms of standing. The Eighth Circuit’s holding here could be applied outside of the context of this case, such as in a class action on property insurance claims, where some putative class members received sufficient payments to make the repairs to their property regardless of the alleged improper practice. Similarly, this holding could be useful in defending a class action involving underwriting, where some putative class members received the coverage they desired irrespective of the alleged improper practice.