Insurers and other corporations defending against putative class actions often struggle with how to try to achieve an early resolution of a putative class action, and thereby reduce legal expense, when the case is not appropriate for resolution on a motion to dismiss, or a motion to dismiss is denied. One approach is to move to strike the class allegations on the pleadings. But in some cases the class certification issues are not sufficiently developed in the pleadings, or the judge is unwilling to rule on them based on allegations alone. Another approach that can be used, and is sometimes overlooked, is filing a motion to deny class certification. On such a motion, the defendant typically introduces evidence in support of its position that the case is not appropriate for class certification, and argues that the issues are clear enough that the court need not await completion of discovery before denying certification.
A Michigan federal court recently granted a motion to deny class certification, in part, in an insurance case. This decision is a good example of how a motion to deny class certification can be used successfully and should be considered as a potential defense strategy.
In Monteleone v. Auto Club Group Memberselect Insurance Co., Case No. 13-cv-12716, 2014 U.S. Dist. LEXIS 56233 (E.D. Mich. Apr. 23, 2014), the plaintiffs had water damage to their basement allegedly caused by a faulty back flow preventer in the plumbing waste line. They claimed that their insurer improperly paid them only the $5,000 limit under a sewer backup endorsement, relying on a provision in the main policy form that insured against “accidental discharge or overflow of water or steam from within a plumbing, heating, air conditioning or automatic fire protection sprinkler system or domestic appliance.” Id. at *2-3. They sought to bring a class action on behalf of two proposed classes: (1) a “property damage” class consisting of policyholders who made water-related property damage claims and received less than $10,000 in claim payments; and (2)a “premium” class consisting of everyone who purchased homeowners’ insurance during the class period. The claim on behalf of the “premium” class was that all policyholders paid excessive premiums for coverage that the defendants never intended to provide. Id. at *4-5.
The court found that the class allegations with respect to the proposed “property damage” class could be resolved early because “[n]o additional discovery will alter the fact that adjudication of the ‘property damage’ claims would require individual coverage determinations as to every member of the class.” Id. at *11. The court explained that the determination of each putative class member’s claim “would require analysis of the type of water damage, the cause of the water damage, and whether coverage for the water damage was subject to an exclusion in the policy depending on the origination of the water,” and in some cases “the source [of the water] may be unclear or in dispute.” Id. at *12. An individual investigation of each claim would be necessary to analyze coverage. Regardless of whether the insurer had an improper claim handling practice, the court could not determine whether class members were entitled to relief without determining the facts of each individual claim. Id. at *16.
With respect to the “premium” subclass, the insurer introduced evidence demonstrating that it paid some overflow claims. The court found that this raised a factual dispute and did not demonstrate that class certification should be denied. Id. at *19-20. The court appeared to suggest, however, that the claims of the “premium” subclass may be subject to dismissal on other grounds, stating that “it is unclear how policyholders, who have not suffered any insured loss, can pursue claims for breach of the policy at all.” Id. at *23.