Chamber of Commerce, APCIA and NAMIC support State Farm’s Supreme Court appeal

By Michael Loney

April 2 - (The Insurer) - The Chamber of Commerce and two insurance trade groups have filed an amicus brief in support of State Farm’s appeal to the U.S. Supreme Court in a dispute over the use of a “negotiation adjustment” in determining estimates of policy payouts.

Plaintiffs in the original putative class action had moved to certify a class of individuals whose vehicles were deemed total losses in accidents.

Disagreeing with the Fifth Circuit, a divided Ninth Circuit panel last year held that plaintiffs are entitled to class certification.

Appealing to the Supreme Court, State Farm said that this ruling was based on allegations that the methods insurers use to determine actual cash value violate a statute, regulation or contract, “no matter whether any class member was actually shortchanged as a result of the insurer’s valuation method.”

The plaintiffs in the original dispute had alleged that State Farm applied a “negotiation adjustment” in determining its estimates of cash value.

They alleged that State Farm first determined the asking price of comparable vehicles and then adjusted that figure downward to account for the fact that vehicles are typically sold for less than their asking price, and argued that this violates Washington insurance law.

The Ninth Circuit held that the class should be certified, ruling that plaintiffs contended that because a negotiation adjustment is unlawful, each class member would be entitled to recover the amount of the negotiation adjustment.

The Chamber of Commerce, American Property Casualty Insurance Association and National Association of Mutual Insurance Companies filed an amicus brief on March 31 in support of State Farm’s appeal.

The brief argues that the court never assessed whether the theory of liability was correct as a matter of law but “simply concluded that because plaintiffs had raised a theory under which liability could be resolved classwide, common questions predominated and class certification was appropriate.”

It added: “This analysis reflects a fundamental misunderstanding of class-action practice that warrants this Court’s review.”

The trade groups also argued that not only is the Ninth Circuit’s decision wrong, it also creates a circuit split with several other courts of appeals.

“The Ninth Circuit’s decision only deepens its attractiveness to would-be class-action plaintiffs and increases the risks for defendants. In the insurance industry in particular, these suits are a serious threat—even when a class claim is meritless, the potentially staggering liability is a vehicle for extracting settlements from defendants once a class is certified,” the brief said.

State Farm filed its petition with the Supreme Court in January.

The insurer presented two questions to the court.

First, whether a Rule 23(b)(3) damages class can be certified based on an alleged violation of a statute, regulation, or contract, even if determining whether the violation resulted in any real-world harm to each class member would require highly individualized proceedings.

Second, whether a Rule 23(b)(3) damages class can be certified when some members of the proposed class lack any Article III injury.

The Washington Legal Foundation also filed an amicus brief on March 31 in support of State Farm’s appeal.

The case is State Farm Mutual Automobile Insurance Company, et al v. Faysal A. Jama, et al.