Class Action Involving Application of Deductible to Actual Cash Value Payment

An emerging issue in class action litigation against the insurance industry involves an attempt by plaintiffs’ attorneys to argue that insurers should not be permitted to apply any deductible to payments made on an actual cash value basis. Most homeowners and commercial property insurance policies provide for insurers to make an initial payment for the actual cash value of the damage (often calculated as the estimated replacement cost less depreciation), and then, after the repairs are completed, make an additional payment so that the total amount paid is the replacement cost value of the damage (in accordance with the terms of the policy).

In Bond v. Liberty Ins. Corp., 2017 U.S. Dist. LEXIS 114778 (W.D. Mo. July 24, 2017), the court, which had previously certified a class, granted, in part, the plaintiffs’ motion for summary judgment. The court reasoned that “[b]oth the Home Protector Plus Endorsement and base policy’s respective loss settlement provisions are silent regarding an ACV deductible in the face of their explicit references to an RCV deductible. This silence suggests the parties did not intend to make the deductible applicable to ACV payments.” The court rejected the insurer’s argument that the declarations page indicated that a deductible would apply, as well as other arguments raised by the insurer.

This decision appears to be contrary to longstanding, well-established insurance industry practice. I would not be surprised if the rulings in this case lead to additional class action filings against insurers in Missouri and perhaps other jurisdictions as well.

Update on Labor Depreciation Class Actions

There have been two recent federal district court decisions in the widespread class action litigation involving the application of depreciation to the labor cost component of replacement cost value on property insurance claims. (For background on this issue, see my February 21, 2017 blog post.) The “labor depreciation” litigation has been trending in favor of the insurers’ position, although these two decisions demonstrate that courts continue to reach conflicting results.

In Basham v. United Servs. Auto. Ass’n, 2017 U.S. Dist. LEXIS 118729 (D. Colo. July 28, 2017), a Colorado federal court recently granted a motion for judgment on the pleadings in favor of the insurer. The court explained that “[c]overed property, such as a roof, is often the product of both materials and labor. Accordingly, repair and replacement costs comprise the cost of materials (e.g., shingles and nails), and the cost of labor (e.g., roofing contractors). Both the cost of materials and the cost of labor are therefore subject to a depreciation deduction.” The court further reasoned that actual cash value coverage “is designed to avoid placing the insured in a better position than he or she was in before the” damage occurred, and that “[w]henever property is the indivisible product of materials (stuff) and labor (work), its physical components and the assembly of those pieces will decay over time.” The court rejected the plaintiffs’ argument that depreciation should be applied only to the cost of the materials.

In Arnold v. State Farm Fire & Cas. Co., 2017 U.S. Dist. LEXIS 122051 (S.D. Ala. Aug. 3, 2017), an Alabama federal district court denied the insurer’s motion to dismiss. The court wrote that “[t]he defendant certainly has not attempted to show that Alabama law requires insureds, before forming an understanding of what undefined policy terms mean, to discover and ponder the myriad and largely hidden commercial and societal considerations that underlie the insurance industry and its oversight by the three branches of state government. “ The court further explained that “[t]he defendant has identified no well-developed Alabama case law demonstrating that ACV encompasses depreciation for labor and [an Alabama Supreme Court decision] reflects that the common understanding of ACV does not encompass depreciation at all.” The decision in Arnold appears to conflict with the decision of another Alabama federal district court in Ware v. Metropolitan Prop. & Cas. Ins. Co., 220 F. Supp. 3d 1288 (M.D. Ala. 2016), which granted an insurer’s motion to dismiss in a “labor depreciation” class action.

In another recent development on this issue, on August 4, 2017, the Mississippi Insurance Department issued a bulletin stating as follows: “There is no statutory law in Mississippi prohibiting the practice of labor depreciation in the adjustment of property loss claims. If such a practice is used, the insurer should clearly provide for the depreciation of labor in the insurance policy. Likewise, if material and/or labor depreciation is applied, the insurer should clearly set out any such depreciation on the claim estimate furnished by the insurer.” Miss. Ins. Dep’t Bulletin 2017-8.

Highlights From DRI Class Action Seminar 2017 – Day Two

Here are my highlights from the second day of DRI’s 2017 Class Action Seminar:

Class Action Waivers in Employment Agreements (Neal Katyal of Hogan Lovells)

Neal Katyal is a leading Supreme Court advocate and is litigating one of several cases involving class action waivers in employment agreements that will be argued in the Court early next Term. He offered some general thoughts on Supreme Court advocacy and how it differs from that in the courts of appeals. The Court is testing the logical limits of positions, focusing more on what the law should be as opposed to what the law is. It is thus helpful to have a broader understanding of what individual justices think the law is all about and try to move the law and your argument in the direction that fits with your client’s position. The central question in the upcoming cases involves the interplay between two federal statutes — whether the National Labor Relations Act supersedes the Federal Arbitration Act. The Solicitor General’s office has flipped its position to the employer side after President Trump took office, but the National Labor Relations Board is expected to remain on the other side.  The employer-side position focuses on an argument that the FAA’s savings clause does not apply when two federal statutes are at issue; it applies only if the other applicable law is state law. The employers also argue that under the Court’s decision in AT&T v. Concepcion, the savings clause does not apply to the fundamental aspects of arbitration. The employees argue that the savings clause applies based on illegality, and that the arbitration provision is illegal under the NLRA. This is an important case to watch next Term.

Rule 23 Amendments: What Comes Next? (Scott Burnett Smith of Bradley Arant and Judge Robert M. Dow, Jr. of the Northern District of Illinois)

This conversation focused on the work of the Rule 23 subcommittee of the Judicial Conference Advisory Committee on Civil Rules on proposed amendments to Rule 23. Judge Dow chairs that subcommittee. The subcommittee has endeavored to prioritize transparency and take input from a broad range of interested judges, lawyers and academics. The subcommittee elected not to move forward with proposals that were more substantive or where court of appeals’ decisions were in conflict and the Supreme Court potentially may weigh in. This included cy pres relief in settlements, issue classes, and ascertainability. The proposed amendments that if ultimately approved will go into effect in December of 2018 appear to be relatively uncontroversial. The amendments would provide more detail regarding what must be provided to a district court with a motion for preliminary approval of a class settlement; expressly permit electronic notice to class members (which is already taking place); insert into the rule criteria for approval of class settlements consistent with existing law (with no intent to override existing law); expressly require that objections to class settlements be made with specificity;  and require that any payment to an objector or the objector’s counsel be approved by the district judge. Judge Dow noted that the subcommittee has not been disbanded and it may consider other proposals in coming years.

Class Action Settlements (Tristan Duncan of Shook Hardy)

Tristan Duncan explained how the class action settlements that courts are finding the most problematic involve trifling issues, such as arguments for trivial additions to disclosures regarding corporate transactions.  Settlements of such cases fail to provide any real value for class members, only attorneys’ fees for class counsel. Similar “trifling” cases that have been dismissed involved the size of eye drops purportedly being too large and wasteful, and the amount of lip balm that cannot be accessed in a container.

Recent Developments in TCPA Class Actions (Christine Reilly of Manatt Phelps and Christine Brandt of Macy’s)

This session covered the latest developments in Telephone Consumer Protection Act (TCPA) cases. The D.C. Circuit’s long-awaited decision in ACA International v. FCC is expected to address important issues about what constitutes an automatic telephone dialing system, the meaning of “called party” (whether it means a current subscriber or intended recipient) and revocation of consent.  Courts have not been particularly well-receptive to arguments under Spokeo of a lack of injury or harm under the TCPA. The FCC is anticipated to become more business friendly under new chairman Ajit Pai. A newly emerging issue is whether a voice broadcast (where your phone does not ring but you have a voicemail) is subject to the TCPA.

Ethics (Matthew Berkowitz of Carr Maloney)

This session covered, among other topics, ethical issues regarding communications with putative class members (generally permitted in most jurisdictions, as long as counsel clearly states their role and makes no misrepresentations), potential settlements with putative class members, limitations on what class counsel can agree to as part of a settlement, and cy pres settlements where an attorney has a relationship with a cy pres beneficiary.

How Should Corporate Defendants Handle Media Inquiries Regarding Class Actions?

At the recent DRI Class Action Seminar, I asked Alison Frankel of Thomson Reuters how she thinks corporate defendants should best handle media inquiries relating to class action suits. Here’s what I gleaned from her answer:

  • Statements issued by corporate media relations departments are usually worthless. They do not help a reporter understand a court ruling or what is important about it.
  • Defense counsel should ask their client for permission to talk to the reporter on background, off the record, so that the reporter can get a more accurate understanding of the background, what the court decided and why it is important or not important. You make the rules and a reputable reporter will honor that. If the reporter does not honor that, speak with their editor.
  • Court papers and opinions can be helpful to reporters but they don’t have the time to wade through a lengthy brief or opinion and try to figure out what matters. You should send the brief and point the reporter to particular pages.
  • If your client has not yet responded to an argument made by the other side, consider helping the reporter predict what your responsive brief will say, obviously on background and with your client’s permission. This will make the reporter look good when your brief is later filed and they accurately predicted what it would say.

Highlights From DRI Class Action Seminar 2017 – Day One

I recently had the privilege of serving as vice chair for this year’s Defense Research Institute (DRI) Class Action Seminar. As I’ve done in years past, here are some highlights from the first day’s programming:

Forecast for Class Actions Under a Trump Administration (Alison Frankel of Thomson Reuters)

Alison Frankel predicted that it is doubtful that the Fairness in Class Action Litigation Act (see my March 28 blog post) will get through the Senate, at least in its current form. She noted that there is little basis to predict Justice Gorsuch’s views on class actions (I agree, see my February 2 blog post). She noted that Gorsuch represented the Chamber of Commerce in amicus briefs as a practicing lawyer, and that on his first day on the Supreme Court bench, in the CALPERS v. ANZ Securities case involving whether the filing of a class action tolled a statute of repose, Justice Gorsuch was aggressively focusing on the plain language of the statute. She noted that Gorsuch’s negative view of Chevron deference to administrative agencies may come into play in the upcoming cases involving whether employers can require employees to arbitrate disputes and waive their right to a class proceeding. And it will be interesting to see if the Court grants certiorari in Briseno v. ConAgra Foods, Inc. (see my January 6 blog post), a case in which the Ninth Circuit rejected an ascertainability requirement. I asked Ms. Frankel about how she thinks corporate defendants should handle media inquiries relating to class actions. I think her answer to that was sufficiently important to warrant a separate blog post. Stay tuned for that one.

Microsoft v. Baker (Stephen Rummage of Davis Wright Tremaine)

In this case, the Supreme Court held that plaintiffs could not appeal a decision striking class allegations by stipulating to a voluntarily dismissal of the case in a stipulation that purported to reserve their right to appeal, with the defendant disputing that there was any such right (see my June 13 blog post for a summary of this decision). Rummage, who worked on this case, noted that this decision will make it more difficult for both sides to obtain review of a class certification ruling in circumstances where they both want review – the only options will be a Rule 23(f) petition (in the discretion of the court of appeals) or certification under 28 U.S.C. 1292(b) (in the discretion of the district court and then in the discretion of the court of appeals). Rummage also noted that Baker may have an impact on the line of cases addressing whether the plaintiff has standing to sue where a defendant tenders the amount sought into court after a denial of class certification (Roper, Genesis Healthcare and Campbell-Ewald). He also noted that Baker is likely to have an impact beyond class actions, in individual cases where an interlocutory decision is crippling to the merits of a claim and the plaintiff wants to take an appeal without going through a pointless trial.

Insights from the Supreme Court of Canada (Justice Suzanne Coté)

We were honored to have Justice Coté speak to us. She has extensive class action experience, having participated in the largest class action trial in Canada, involving the tobacco industry, before taking the bench. She highlighted some key differences and similarities between Canadian and U.S. law on class actions. In Canada, class actions began more recently, in 1977 in Quebec, in 1993 in Ontario, and then other provinces after that. Class action law is based on provincial legislation in each province, not on federal law, except for cases against the Crown or a province. Factors that Canadian courts consider in deciding whether to authorize (similar to certify) a class action include judicial economy, avoiding duplication of factfinding and legal analysis, access to justice, forcing corporations to change behavior, and whether the plaintiff has an arguable case (this seemed to me similar to our Rule 12(b)(6) standard).

Future of Privacy Class Actions (Stewart Baker of Steptoe & Johnson, Kurt Beyerchen, Jr. of Hyundai Motor America, Craig Halseth of Ford Motor Co., Christiana Lin of comScore, Inc., and Yael Weinman of Verizon)

New automotive technologies, Internet of Things devices, and new state legislation present an ever-changing landscape for privacy class actions. Vehicle hacking cases to date have presented issues about a lack of harm or injury. Cases involving companies keeping data too long (longer than what is in the terms and conditions) have not been successful due to lack or injury or harm. In some cases, focusing on substantive state law arguments may be preferable to making Article III standing arguments if there will be standing for the same case in state court. Important issues in these cases may be presented involving the obtaining and tracking of consent and the use of the product by persons who are not the original purchaser.

Litigating Statutory Damage Class Actions After Spokeo (Bryan Merryman of White & Case)

Bryan Merryman presented extensive statistics on post-Spokeo decisions. Relatively few courts have found standing in cases under the Fair and Accurate Credit Transactions Act (FACTA), such as cases involving putting too many credit card digits on receipts. Cases under the Fair Credit Reporting Act (FCRA) are more evenly split. Courts have been more likely to find standing under the Fair Debt Collection Practices Act (FDCPA), under which plaintiffs are more likely to allege monetary damage, and some courts have viewed the disclosure obligations as substantive protections. Courts have also been more likely to find standing in Telephone Consumer Protection Act (TCPA) cases. There is a developing circuit split over whether a mere statutory violation suffices for standing or whether consequential harm is needed. One court in the Northern District of Illinois issued a fine where a defendant removed a case to federal court and then filed a motion to dismiss for lack of standing which, if granted, would result in a remand.

Plumbing the Depths of American Pipe (Mark Perry of Gibson Dunn)

Mark Perry provided a historical perspective on how the old distinction between law and equity was “abolished,” but still retained with respect to certain doctrines such as equitable tolling of statues of limitations and equitable estoppel. In more recent years, the Supreme Court has been gradually eliminating or limiting equitable doctrines and focusing more on Congress’s responsibility for setting, modifying and adjusting timely filing requirements. In Perry’s view, the Court seems to be moving toward a rule that broad categories of cases will not be exempted from timely filing requirements without a case-specific showing of prejudice. This potentially could bring an end to or substantially modify the American Pipe doctrine on class action tolling. The Court’s recent decision in CALPERS v. ANZ Securities concludes that Rule 23 does not require tolling, thereby limiting American Pipe to an equitable tolling rule. There is less concern today about a multiplicity of duplicative filings by individual putative class members than there was in 1974, given the electronic filing systems that are in use today and the possibility of protective notice type filings. This may open the door to the end of American Pipe.

Ascertainability (Angela Spivey of McGuire Woods)

Angela Spivey represents the defendant in Briseno v. ConAgra Foods (see my January 6 blog post), in which the Ninth Circuit concluded that there is no ascertainability requirement (although manageability remains, where applicable). A petition for certiorari is pending in that case, set for the Supreme Court’s September 25, 2017 conference. There is a sharp circuit split on this issue, with some circuits requiring a reliable and administratively feasible way to determine who is in the class without minitrials, while other circuits require only that there be objective criteria for the class definition, not administrative feasibility. In those circuits that have not recognized ascertainability as such, however, the need for minitrials still matters, and the defendant can make largely the same type of argument under Rule 23(b)(3), due process and the Rules Enabling Act.

Insurance Coverage Issues Raised by Class Claims (Courtney Horrigan of Reed Smith and Alexander Potente of Sedgwick)

This presentation highlighted a lengthy list of issues that both policyholders and liability insurers needs to consider with respect to the defense of class actions. Various policies may come into play, including commercial general liability, employment practices liability, directors and officers liability, professional liability, and cyber and data privacy liability. Timely notice is important, and in some jurisdictions insurers will have no obligation to pay fees incurred before the case is tendered to them. Typical issues that arise between policyholders and their insurers include selection of defense counsel, rates, the insurer’s litigation guidelines, staffing, budget, and any sharing of defense and indemnity among multiple insurers (which is another reason why early notice to all insurers can be important). In addition to exclusions that may apply, damages sought in class actions that are likely not covered likely include punitive or multiple damages, penalties, attorneys’ fees taxed as costs, and wages. The presenters also highlighted how insurers need enough information about the case sufficiently in advance of a mediation to make a decision on settlement authority, and how written confidentiality agreements may be needed.

Scope of Personal Jurisdiction In Nationwide and Multistate Class Actions Potentially Impacted By Supreme Court Decision In Bristol-Myers Squibb Case

This week the Supreme Court issued a new opinion in a case that involved the scope of personal jurisdiction in a nationwide mass action brought in a state court. Although it is not entirely clear the extent to which this decision may apply in a class action or in a case brought in federal court, defendants may be able to use this case to argue that nationwide or multistate class actions cannot proceed in a jurisdiction where the defendants are not subject to general jurisdiction (typically that is where they are headquartered and/or incorporated). The case also highlights for large corporations the importance of locating their headquarters and incorporating in a jurisdiction or jurisdictions where the judicial climate is potentially more favorable to them.

Bristol-Myers Squibb Co. v. Superior Court is a mass action brought by more than 600 plaintiffs in a California state court. The plaintiffs, most of whom were not California residents, asserted claims for personal injuries allegedly caused by Plavix, a Bristol-Myers Squibb drug. The drug was developed and manufactured in New York and New Jersey, and was sold and marketed nationwide. The non-California residents could not demonstrate that they sustained any harm in California. Given that Bristol-Myers was not subject to general jurisdiction in California (it is incorporated in Delaware and headquartered in New York), the issue was whether the California court had specific jurisdiction over the non-California residents’ claims. Specific jurisdiction, as the Court explained, depends on whether the claims alleged arose out of the defendant’s contacts with California.

In an 8-1 decision by Justice Alito, the Court held that there was no specific jurisdiction with respect to the non-California residents’ claims in the California state court because “[w]hat is needed – and what is missing here—is a connection between the forum and the specific claims at issue.” (Slip op. at 8.) Merely because other plaintiffs were injured in California was not enough for the California court to have jurisdiction over the nonresidents’ claims, where “the nonresidents’ claims involve no harm in California and no harm to California residents.” (Id. at 8-9.) The Court noted that plaintiffs seeking to bring a mass action could bring it in a state where the defendant is subject to general jurisdiction, and that there remains an open question as to whether it is constitutional for a federal court to exercise personal jurisdiction based on contacts with the nation as a whole rather than a specific state. The due process clause of the Fifth Amendment, rather than the Fourteenth Amendment, would govern the issue in the federal courts. Federal courts, however, have long evaluated these jurisdictional issues in essentially the same manner as if they were a state court in the jurisdiction in which they sit.

Justice Sotomayor’s dissent described the majority’s opinion as “holding that a corporation that engages in a nationwide course of conduct cannot be held accountable in a state court by a group of injured people unless all of those people were injured in the forum State.” (Slip op., Sotomayor, J., dissenting, at 1.) That is the rule that I would expect to see defendants advocating based on the majority’s opinion. Justice Sotomayor believed it was sufficient under Supreme Court precedent that the claims of the California residents and nonresidents arose out of the essentially the same acts by the defendant. She was concerned about situations where, because of the need to sue multiple defendants, or a defendant headquartered and incorporated outside of the U.S., there may be no state where all defendants would be subject to personal jurisdiction. In a footnote, she suggested that the Court’s opinion might not apply to a class action if absent class members were not treated as parties for purposes of personal jurisdiction.

I expect defendants will use Bristol-Myers Squibb to seek to reduce the breadth of nationwide or multistate putative class actions and certified class actions brought in jurisdictions in which the defendants are not headquartered or incorporated.  And if the named plaintiff is not a resident of the state where the suit is brought that may be a basis for dismissal of the case in its entirety.

Supreme Court Closes The Door On A Tactic Used By Plaintiffs To Appeal Denials of Class Certification

The Supreme Court recently decided a case involving an Xbox 360, although the issue before them had nothing in particular to do with the video game system itself. It got me wondering, however, how many justices would you guess have played a video game on an Xbox 360? The answer might be zero. But the Chief Justice and newly-minted Justice Gorsuch have teenagers at home. And I could envision Justice Sotomayor or Justice Kagan playing with a young relative. A majority of the Court? Justice Kennedy vs. Justice Breyer playing against each other in chambers? I doubt it.

Microsoft Corp. v. Baker involved whether a plaintiff can appeal a decision denying class certification (or, in this case, striking the class allegations) by voluntarily dismissing the case while purporting to reserve a right of appeal. This case was a putative class action alleging that the Xbox system scratched game discs thereby damaging them during normal game-playing conditions. The district court granted a motion to strike the class allegations based on an earlier decision in a similar case denying certification. The plaintiffs petitioned the Ninth Circuit for permission to appeal under Rule 23(f), which was denied. They then stipulated to a dismissal with prejudice, purporting to reserve a right of appeal, and thereby trying to force the Ninth Circuit to take their appeal. On this second try, the Ninth Circuit concluded they did have a right of appeal because there was a final judgment under 28 U.S.C. § 1291. But the Supreme Court reversed, finding that there was no appellate jurisdiction under § 1291.

Justice Ginsburg wrote the majority opinion (joined by Justices Kennedy, Breyer, Sotomayor and Kagan). Her opinion made essentially two points. First, the tactic that plaintiffs’ counsel attempted to use here was contrary to the rationale behind the Court’s opinion in Coopers & Lybrand v. Livesay, 437 U.S. 463 (1978), which held that a decision denying class certification was not appealable under a “death-knell” doctrine  on the theory that such a ruling effectively ended the litigation. The Court concluded that such a “death-knell” doctrine was an improper end-run around §§ 1291 and 1292. Second, allowing this type of appeal would be contrary to the purpose and intent of Rule 23(f) and its enabling statutes, under which appeals from class certification orders may be heard only in the discretion of the court of appeals. If permitted, the voluntary dismissal route would allow a plaintiff to force a court of appeals to hear an appeal where not permitted under Rule 23(f).

Justice Thomas (joined by Chief Justice Roberts and Justice Alito) reached the same result but for an entirely different reason. They concluded that Rule 23(f) was not relevant to determining whether an appeal was “final” under § 1291, and that in this case the district court’s order was final because it ended the litigation. They would have held, however, that the court of appeals lacked jurisdiction under Article III of the Constitution because there was no longer a “case or controversy” that was adversarial. Justice Thomas explained that, after the individual claim was resolved, “[c]lass allegations, without an underlying individual claim, do not give rise to a ‘case’ or ‘controversy’” because a class action is simply a procedural mechanism.

So what can a plaintiff do if he or she wants appellate review of a denial of class certification and the court of appeals denies a Rule 23(f) petition? Justice Ginsburg suggested three options. First, she suggested that a plaintiff could ask the district court to certify its order for interlocutory review under § 1292(b). But some lower courts have found that to be an improper avenue for seeking appellate review of a class certification decision. And if the court of appeals is not interested in a Rule 23(f) petition, it would probably take a strong request from a district court to get the court of appeals to reach a different result. Second, Justice Ginsburg suggests that the plaintiff could simply proceed with the case in the hopes of perhaps changing the district court’s mind on class certification later. But that is usually a longshot, and at some point it’s too late for that because class members must have notice before they would be bound, and the one-way intervention rule may preclude a late certification. Third, Justice Ginsburg suggests that the plaintiff litigate the individual case to a final judgment and then seek review of the denial of class certification (if the plaintiff wins). We may see more cases where that happens, depending on the circumstances. The costs of taking the named plaintiff’s individual case to trial may be low in some contexts and high in others (such as those requiring extensive discovery and expert testimony to prove the claims on the merits). From the defendant’s perspective, such a  trial might demonstrate why class certification was properly denied because individual issues mattered. But in some contexts defendants may not welcome such an individual trial because of concerns about collateral estoppel.

Georgia Diminished Value Putative Class Action: Motion to Dismiss Decision

In prior blog posts, I’ve covered developments in the putative class actions against insurance companies in Georgia involving diminution in value on property insurance claims (see my March 11, 2016 post, for example). These cases stem from a 2012 Georgia Supreme Court decision ruling that diminution in value following completion of repairs was potentially covered under a property insurance policy (see my June 6, 2012 blog post). A Georgia federal court recently decided a motion to dismiss in one of these class actions.

In Morrow v. Allstate Indem. Co., 2017 U.S. Dist. LEXIS 46245 (M.D. Ga. Mar. 29, 2017), the court ruled as follows on the central issues:

  • The court denied the motion to dismiss the breach of contract claim, rejecting an argument that the policy did not cover diminished value because it covered only “sudden and accidental direct physical loss,” and rejecting an argument based on the policy’s replacement cost coverage provision. On the second point, the court noted that the policy provided actual cash value coverage unless and until the repairs were completed. The court wrote that “[a]ctual cash value’ implies the obligation to compensate for any diminished-value losses sustained by the insured,” and that “because the Building Reimbursement Payment is a payment in addition to the actual cash value payment, any limitations in the Building Structure Reimbursement provision are irrelevant.” at *12. The court further concluded that, for pleading purposes, it was sufficient for the plaintiffs to allege “that their home suffered foundational and/or structural support damage, water damage, and mold damage,” and that “despite these repairs, the fair market value of their home diminished because of the damage.” Id. at *15.
  • The court denied the motion to dismiss the claim for injunctive relief or specific performance, stating that “[t]he Court cannot say at this point that Plaintiffs have an adequate remedy at law in the form of a damages award.” at *20.
  • The court granted the motion to dismiss the declaratory judgment claim. Plaintiffs argued that they had a likelihood of future injury, asserting that they have a 10% chance of submitting a covered claim for property damage in any given year. The court concluded that this was insufficient to allege a reasonable expectation of a future injury, and thus dismissed the declaratory judgment claim. at *23-24.

It may be advisable for insurers to continue to monitor these cases. I’m not aware of any cases in which plaintiffs have sought to litigate the issue outside of Georgia. The diminished value issue has the potential to spread beyond Georgia, as occurred in the auto insurance context.

DRI Class Action Seminar 2017

The Defense Research Institute (DRI) is once again hosting what is sure to be a superb and well-attended class action seminar this year, on July 20-21, 2017, in Washington D.C. The program will include, among other sessions:

  • a presentation by Alison Frankel of Thomson Reuters on the impact of the Trump Administration and Justice Gorsuch on class actions;
  • presentations on the anticipated Supreme Court decisions on class action waivers in employment agreements and appellate review of denials of certification;
  • insights from Justice Suzanne Cote of the Supreme Court of Canada on class actions north of the border;
  • insights on the Rule 23 amendment process from Judge Robert M. Dow, Jr., a member of the advisory committee;
  • a program on the hot topic of data privacy class actions;
  • a session on liability insurance coverage issues raised by class claims;
  • sessions on ascertainability, American Pipe tolling, and class action settlements.

I’ve attended this program every year since its inception, and I am really looking forward to this year’s installment. (In the interests of full disclosure, I will be the vice chair for this year’s seminar.) Register soon for a lower registration fee and to ensure that you receive the hotel discount. Free registration is available for in-house counsel and claims executives whose companies are members of DRI, or who are sponsored by a DRI member.

Thoughts on the Fairness in Class Action Litigation Act of 2017

A fair amount of attention has been given in the legal media to the Fairness in Class Action Litigation Act of 2017, H.R. 985, which has passed the House of Representatives and is currently under consideration by the Senate. Corporate groups and the defense bar have sung its praises, and the plaintiffs’ bar has railed against it. Less attention has been given to areas where, if this bill becomes law, courts will need to decide what it means. Here are a few thoughts on that:

  1. Type and Scope of Injury Requirement: The bill provides that a class action for monetary relief may not be certified unless the plaintiff “affirmatively demonstrates that each proposed class member suffered the same type and scope of injury as the named class representative or representatives.” A court is required to conduct a “rigorous analysis” of this question. Expect extensive disputes over what constitutes the “same type and scope of injury.” This does not appear to mean that every class member has the same amount of damages. What constitutes “type” and “scope” would be left to the courts to figure out.
  2. Class Representative Conflicts of Interest: The bill requires disclosure in a class action complaint regarding whether any named plaintiff is a relative or present or former employee of class counsel, or present or former client of class counsel with respect to a different matter, or has any other contractual relationship with class counsel. It further requires that “the complaint shall describe the circumstances under which each class representative or named plaintiff agreed to be included in the complaint . . . .” Courts would have to determine what level of detail is required here, and the extent to which, if any, the attorney-client privilege applies. Courts would also need to determine what type of motion could be used to attack a complaint that the defendant claims insufficiently complies with these requirements, perhaps a Rule 12(b)(6) motion to dismiss.
  3. Ascertainability: The bill further provides that a class cannot be certified unless the class is “defined with reference to objective criteria and the party seeking to maintain such a class action affirmatively demonstrates that there is a reliable and administratively feasible mechanism (a) for the court to determine whether putative class members fall within the class definition and (b) for distributing directly to a substantial majority of class members any monetary relief secured for the class.” I expect courts would continue to debate, as many of them currently are, what constitutes a “reliable and administratively feasible mechanism.” Could this include self-identification by affidavit, or not? Would compliance with this requirement depend on how many people come forward?
  4. Attorneys’ Fees: The bill would require that attorneys’ fees in cases involving monetary awards be limited to a “reasonable percentage” of funds actually received by class members, and that attorneys’ fees could not exceed the amounts actually received by class members. In cases involving equitable relief, attorneys’ fees would be limited to a “reasonable percentage of the value of the equitable relief, including any injunctive relief.” The litigation here seems likely to focus on what constitutes a “reasonable percentage,” and how you value the equitable relief. There is some existing precedent on these issues, and the extent to which Congress intends to either adopt or modify that precedent could be an issue.
  5. Issues Classes: The bill provides that a court may not certify an issues class under Rule 23(c)(4) unless the court determines, after a “rigorous analysis,” that “the entirety of the cause of action from which the particular issues arise satisfies all the class certification prerequisites of Rule 23(a) and Rule 23(b)(1), Rule 23(b)(2), or Rule 23(b)(3).” I don’t see a lot of room for debate here, although the application of the other requirements of Rule 23, of course, remain hotly debated by the courts.
  6. Stays of Discovery: The bill mandates a stay of discovery pending a motion to dismiss, motion to transfer, motion to strike the class allegations or other motion to dispose of the class allegations, unless particularized discovery is necessary to preserve evidence or prevent undue prejudice. Would this mean that a defendant would be entitled to multiple stays of discovery if it files, seriatim, a motion to dismiss and then, if that is denied, a motion to strike the class allegations or to deny certification?
  7. Appeals: The bill makes appeals of class certification orders mandatory, providing that “[a] court of appeals shall permit an appeal from an order granting or denying class-action certification under Rule 23 of the Federal Rules of Civil Procedure.” Would this mean that a court of appeals is required to hear multiple interlocutory appeals in a case that involves more than one certification order, or a partial decertification of the class? Would an order granting or denying a motion to strike class allegations be appealable?
  8. Rulemaking Authority Provision: The bill provides that “Nothing in this title shall restrict in any way the authority of the Judicial Conference and the Supreme Court to propose and prescribe general rules of practice and procedure under chapter 131 of title 28, United States Code.” Would this mean that the Judicial Conference and the Supreme Court, by virtue of their rulemaking power, could directly override any part of this bill (if enacted), at any time?
  9. Retroactivity: The bill provides that “[t]he amendments made by the title shall apply to any civil action pending on the date of enactment of this title or commenced thereafter.” Would this mean that, if a case is pending where the court has certified a class already, it must revisit certification following the enactment of this law? Would a court have to reevaluate a class settlement or attorneys’ fees that had been approved? Would a court of appeals have to accept an appeal it had previously rejected under Rule 23(f)? There seem to be lots of questions here that courts would need to decide.