I have had a busy summer and am overdue in updating readers on recent decisions in class actions against insurers involving the “labor depreciation” issue. The issue involves whether, when insurers estimate the “actual cash value” of damage to real property under a property insurance policy, depreciation is properly applied to the full estimated replacement cost (as insurers have done for decades) or must only be applied to the materials component of the replacement cost and not the labor component (as plaintiffs’ lawyers have argued). For more background on this issue, see my February 10, 2016 blog post and January 18, 2016 blog post. This is currently the hottest issue in class actions against property/casualty insurers. It likely will get even hotter after these recent decisions.

There have been three recent federal district court decisions granting class certification in these cases. The first one was Labrier v. State Farm Fire & Cas. Co., 2016 U.S. Dist. LEXIS 96476 (W.D. Mo. July 25, 2016). The court found that the commonality requirement was satisfied because of “the overarching, undisputed, and common fact of State Farm’s practice of withholding payment from all its insureds for the depreciated labor component of mixed items of loss,” and because of the central legal issue, which had been decided (see my January 18, 2016 blog post for discussion of that decision). The court also found that the requirement that common issues of law or fact predominate was satisfied because “[t]he record shows that State Farm used the same method for calculating the ACV payment for each member of the class regardless of the type of casualty suffered or any other factor.” Id. at *16, 30.  The court also relied upon the testimony of a State Farm adjuster, who testified that State Farm used the Xactimate software to prepare estimates, and he “could not recall ever adjusting a claim without an Xactimate estimate, or any instance in which Xactimate was inaccurate.” Id. at *33. The court ultimately found that “[t]he putative class members’ damages are data driven and can be mechanically calculated.” Id. at *47. State Farm has filed a petition for permission to appeal this decision in the Eighth Circuit.

Following the decision in Labrier, two decisions granting class certification were issued by Judge Susan O. Hickey of the Western District of Arkansas, in Dennington v. State Farm Fire & Cas. Co., Case No. 4:14-cv-04001 (W.D. Ark. Aug. 24, 2016) and Green v. American Modern Home Ins. Co., Case No. 4:14-cv-04074 (W.D. Ark. Aug. 24, 2016). In Arkansas, the state supreme court had previously ruled that depreciation of labor costs was improper, as explained in my January 18, 2016 blog post. In Dennington and Green, the court found commonality satisfied based on the common legal issue of whether it is proper to apply depreciation to the entire estimated replacement cost value (including both the labor and materials components thereof). The court also found that the predominance requirement was satisfied because, although individual file reviews would be required, the court did not believe that “mini-trials” would be necessary on individual claims. The court noted that, to the extent that the estimates on some claims may have been overly generous and thus no additional amount would be owed under the Arkansas Supreme Court’s decision, or the class members were otherwise fully compensated by what was paid, the evidence did not establish that this would apply to a “significant portion” of the putative class claims. The court also concluded that identifying class members who were paid full replacement cost could be determined by common proof (although the court did not explain how this could be done). In Green, the court found that the amount of labor depreciation could be determined from a search of the insurer’s data on approximately 65% of the claims, and that the need for a file-by-file review on the remainder was not a sufficient basis to deny certification. The insurers likely will petition the Eighth Circuit for permission to appeal.

Assuming the Eighth Circuit decides to review some or all of these class certification decisions — and I expect it will, given that there are many labor depreciation class actions pending in that circuit (including ones I am involved in defending) – the Eighth Circuit will be faced with deciding issues of substantial importance to the insurance industry. If review is granted, the case potentially could have broad implications for insurance class action litigation, at least in that circuit. The key focus is likely to be on commonality and predominance. On commonality, other circuits have ruled that a legal issue that has already been decided (such as the “labor depreciation” issue here) cannot be a proper common issue. See Pipefitters Local 636 Ins. Fund v. Blue Cross Blue Shield, 654 F.3d 618, 630 (6th Cir. 2011). On predominance, as the Supreme Court recently explained, it would violate the Rules Enabling Act to “giv[e] plaintiffs and defendants different rights in a class proceeding than they could have asserted in an individual action.” Tyson Foods, Inc. v. Bouaphakeo, 136 S. Ct. 1036, 1048 (2016). If one of these “labor depreciation” cases were tried individually, it seems likely that the insurer would be allowed to put on evidence that nothing more is owed on the claim. This would go to liability, not necessarily or exclusively an affirmative defense. Assuming that the right to put on this type of evidence cannot be taken away from the insurer simply because the proceeding is a class action (as Tyson Foods and other cases explain), then a key question should become how many individual trials will be needed and whether the district court could feasibly conduct them. If it would be hundreds or thousands of individual trials, a class proceeding would seem to be unworkable.

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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.