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Lafollette v. Liberty Mutual Fire Insurance Co.

United States District Court, W.D. Missouri, Central Division

August 1, 2016

ERIC LAFOLLETTE and CAMILLE LAFOLLETTE, individually and on behalf of others similarly situated, Plaintiffs,
v.
LIBERTY MUTUAL FIRE INSURANCE COMPANY, Defendant.

          ORDER

          NANETTE K. LAUGHREY UNITED STATES DISTRICT JUDGE

         Plaintiffs Eric and Camille Lafollette move for class certification. Doc. 155. The motion is granted. The Lafollettes’ motion to strike, Doc. 170, is denied.

         I. Background

         In January 2008, the Lafollettes’ home sustained hail damage and they submitted a claim for coverage to Defendant Liberty Mutual Fire Insurance Company. The Lafollettes made their claim under the section of their Liberty Mutual policy that provided for an “actual cash value” payment for damages prior to reimbursement for repair or replacement. The dispute in this case involves Liberty Mutual’s assessment of a $1000 deductible on the Lafollettes’ actual cash value claim, which the Lafollettes contend should not have been assessed under the terms of the policy.

         A. The Insurance Policy and Liberty Mutual’s General Claims Handling Procedure

         Liberty Mutual homeowner’s insurance policies are generally made up of three components: the declarations, the base policy language, and the endorsements. These sections work together to define the parameters of the policyholder’s coverage. The declarations set out the limits on recovery under the policy, list the endorsements included in the policy, and note the deductibles that may be assessed under the policy. The base policy language contains the standard terms of the policy. The endorsements contain additions to the policy which customize the coverage and terms of the base policy language to create the specific coverage purchased by the policyholder. The terms of the endorsements control over conflicting provisions in the declarations or base policy language. Grable v. Atlantic Cas. Ins. Co., 280 S.W.3d 104, 108 (Mo.Ct.App. 2009).

         When a homeowner sustains damage to their dwelling or other structure that is covered by a Liberty Mutual deluxe homeowner’s insurance policy, the claim is handled and paid in two phases: (1) the actual cash value (“ACV”) phase and (2) the replacement cost value (“RCV”) phase. [Doc. 106-3]. This procedure is set out in the base policy, [1] which provides as follows:

3. Loss Settlement. Covered property losses are settled as follows:
. . .
b. Buildings under Coverage A or B at replacement cost without deduction for depreciation, subject to the following:
(1) If, at the time of loss, the amount of insurance n this policy on the damaged building is 80% or more of the full replacement cost of the building immediately before the loss, we will pay the cost to repair or replace, after application of deductible and without deduction for depreciation, but not more than the least of the following amounts:
. . .
(4) We will pay no more than the actual cash value of the damage until actual repair or replacement is complete. Once actual repair or replacement is complete, we will settle the loss according to the provisions of b. (1) and b. (2) above.
. . .
(5) You may disregard the replacement cost loss settlement provisions and make claim under this policy for loss or damage to buildings on an actual cash value basis. You may then make claim within 180 days after loss for any additional liability according to the provisions of this Condition 3. Loss Settlement.

[Doc. 156-2, p. 13-14 (Lafollette Policy, Bates LMFIC000074-75)]. Most policyholders hold base policies supplemented by a variety of endorsements which provide expanded coverage beyond that which is provided in the base policy.

         After the policyholder makes his or her claim, an adjustor goes to the location of the insured property to ascertain the damage. The adjustor then uses a program called “Xactimate” to put a dollar figure on the amount of the damage. The total amount of the loss is referred to as the “replacement cost.” [Doc. 156-1, p. 6 (Summerlin Depo. p. 145)]. After the total amount of the loss is calculated, the adjustor inputs factors for depreciation, and the amount of depreciation is subtracted from the replacement cost to give the actual cash value of the loss. Id. at 6-7. Following this calculation, the policyholder is paid the ACV of the loss, minus the deductible.[2] No further payment on the claim is made unless the insured decides to repair or replace the damage to the property. The insured is not required to undertake this repair, but may take the ACV payment in satisfaction of their claim. Id. at 8-9. If the insured decides to repair or replace the damage and submits proof of the repairs to Liberty Mutual, the insured is entitled to recover the RCV. If the policyholder chooses to make a claim for the RCV, a separate check is written to the policyholder to compensate them for the cost the policyholder actually spent above the ACV to repair or replace their loss to account for the amount of depreciation withheld from the ACV payment.

         B. Lafollettes’ Policy

         Like most Liberty Mutual policies, the Lafollettes’ policy is made up the declarations, the base policy language, and the endorsements. The Lafollettes’ insurance policy includes two relevant endorsements. First, it contains a Home Protector Plus Endorsement, which has its own “loss settlement” provision that provides:

3. Loss Settlement. Covered property losses are settled as follows:
a. The applicable limit of liability for Buildings under Coverage A or B is the replacement cost, after application of deductible and without deduction for depreciation, subject to the following:
(1) We will pay the cost of repair or replacement, but not exceeding: . . .
(2) We will pay no more than the actual cash value of the damage until actual repair or replacement is complete. Once actual repair or replacement is complete, we will settle the loss according to the provisions of a. (1) above.
. . .
d. You may disregard the replacement cost provision and make a claim for loss of or damage to property on an actual cash value basis and then make claim within 180 days after loss for additional liability under this endorsement.

[Doc. 100, ¶ 13; Doc. 106, ¶ 5]. Where it applies, this loss settlement provision replaces the loss settlement provision present in the base policy language.

         The Lafollettes’ policy also contains a Windstorm or Hail Deductible Endorsement (“Wind/Hail Endorsement”), which states:

         The following special deductible is added to the policy:

With respect to the peril of Windstorm Or Hail, we will pay only that part of the total of all loss payable under Section I that exceeds the windstorm or hail deductible.
The dollar or percentage amount of the windstorm or hail deductible is shown on the policy declaration
. . .
No other deductible in the policy applies to loss caused by windstorm or hail.

[Doc. 100, ¶ 15; Doc. 106, ¶ 7].

         After the Lafollettes sustained hail damage to their home in 2008, they submitted a claim to Liberty Mutual under their policy. Liberty Mutual subsequently provided them with an ACV payment for their loss pursuant to the Wind/Hail Endorsement. Subtracted from the ACV payment was a $1000 deductible for the claim. The amount of this deductible appeared on the declarations page of the Lafollettes’ policy. The Lafollettes never requested that Liberty Mutual supplement this ACV payment with an RCV payment, and to date have only retained compensation for the initial ACV payment.[3]

         C. The Proposed Class

         The Lafollettes seek certification of a class of Liberty Mutual property insurance policyholders in Missouri whose ACV payments were reduced for payment of a deductible, specifically:

All persons who received an ACV payment, directly or indirectly, from Liberty Mutual Fire Insurance Company for physical loss or damage to their dwelling or other structures located in the state of Missouri arising under policy Form HO 03 (Edition 04 91) and endorsements, such payments arising from losses that occurred from April 8, 2004 to the date of class certification, where a deductible was applied to the ACV payment for the person’s dwelling or other structure (Coverage A and/or B). Excluded from the Class are: (1) All persons who received a replacement cost payment from Liberty Mutual Fire Insurance Company under Coverage A and/or B; (2) All persons whose payment(s) plus the amount of any deductible applied was less than $2, 500; (3) Liberty Mutual Fire Insurance Company and its affiliates, officers, and directors; (4) Members of the judiciary and their staff to whom this action is assigned; and (5) Plaintiffs’ Counsel.

         II. Discussion

         A. Article III Standing

         Liberty Mutual argues preliminarily that Article III bars this case from proceeding as a class action because the class includes individuals who have not been injured and therefore have no standing to pursue the lawsuit. According to Liberty Mutual, there are individuals within the definition of the class who could have replaced their loss for an amount equal to or less than the ACV. Liberty Mutual, therefore reasons that because it is entitled to apply a deductible to RCV payments, any class member whose ACV payment was sufficient to replace the damaged property was not injured by Liberty Mutual taking a deductible at the ACV stage.

         In order to bring a class action, the plaintiffs must have suffered an “injury in fact.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992). The injury must be both concrete and particularized, meaning it must actually exist and “must affect the plaintiff in a personal and individual way.” Spokeo, Inc. v. Robins, 2016 WL 2842447, at *6-7 (S.Ct. May 16, 2016).

         Liberty Mutual’s process for paying RCV and ACV claims reveals the underlying difference between the two types of payments, which in turn defeats Liberty Mutual’s argument that a deductible can be taken even if no claim for RCV is ever made. As set out above, after the policyholder makes a claim under their policy, an adjustor visits the damaged property to assess the RCV, after which the ACV is calculated based on depreciation. Following this calculation, the policyholder is paid the ACV of the loss, minus the deductible, and Liberty Mutual makes no further payment on the claim unless the insured chooses to repair or replace the damage and submits proof of the repairs to Liberty Mutual.

         Liberty Mutual’s construction of the policy assumes that policyholders were obligated to seek an RCV payment upon actually repairing or replacing damage to their home and that the limitations applicable to the RCV payment are equally applicable to an ACV payment. This obligation is explicitly disclaimed in the policy, which notes,

You may disregard the replacement cost loss settlement provisions and make a claim under this policy for loss or damage to buildings on an actual cash value basis. You may then make claim within 180 days after the loss for any additional liability according to the provisions of this Condition 3 Loss Settlement.

[Doc. 160-1, p. 14 Bates LMFIC000075] (emphasis added). Under this provision, it is the choice of the policyholder whether to pursue an ACV or RCV payment. Nothing in this provision requires a policyholder to make a claim for RCV payment at any point in the process. [See Doc. 163-2, p. 8-9 (Depo. of Ricky Summerlin at p. 150-51)]. Once a policyholder receives an ACV payment for their loss it is not for Liberty Mutual to decide what will be done with the money. [Doc. 163-2, p. 7-8 (Depo. of Ricky Summerlin at p. 149-50)]. Nor is the payment transformed into an RCV payment simply because the policyholder chooses to repair damage to the home with the ACV payment, [See Doc. 163-4, p. 7-8 (Depo. of Bryan Tilden at p. 58-59)], much less because the ACV payment was sufficient to make the repairs, even though repairs are not made. If the policyholder chose not to seek the RCV payment under these circumstances, as the policy permitted them to do, the ACV payment is not effectively transformed into an RCV payment and subject to limitations only applicable to RCV payments. See Tritschler v. Allstate Ins. Co., 144 P.3d 519, 529 (Ariz.Ct.App. 2006) (“[T]he determination of actual cash value is not based upon what the insured actually pays to repair or replace the damaged property. Therefore, the amount an insured ultimately spends to make needed repairs, if any, is irrelevant.”).

         Policyholders who received an ACV payment and subsequently returned to Liberty Mutual for an RCV fall outside the definition of the proposed class, which excludes “[a]ll persons who received a replacement cost payment from Liberty Mutual Fire Insurance Company under Coverage A and/or B.” These policyholders specifically sought an RCV payment, which was paid by Liberty Mutual and therefore were not harmed by any preliminary deficiency in the ACV payment.[4]

         B. Class Certification Standard

         Under Federal Rule of Civil Procedure 23, a motion for class certification involves a two-part analysis. First, under Rule 23(a), the proposed class must satisfy the requirements of “numerosity, commonality, typicality, and fair and adequate representation.” Luiken v. Domino’s Pizza, LLC, 705 F.3d 370, 372 (8th Cir. 2013). Second, the proposed class must meet at least one of the three requirements of Rule 23(b). Comcast Corp. v. Behrend, 133 S.Ct. 1426, 1432 (2013). The Lafollettes assert that the proposed class qualifies under Rule 23(b)(3).

         It is the Lafollettes’ burden to show the class should be certified. See Luiken, 705 F.3d at 372. This burden is met only if, “after a rigorous analysis, ” the Court is convinced the Rule 23 requirements are satisfied. Comcast, 133 S.Ct. at 1432 (quoting Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541, 2551-52 (2011)). In the Eighth Circuit, the rigorous analysis includes examining whether the proposed class “is adequately defined and clearly ascertainable.” Sandusky Wellness Center, LLC v. Medtox Scientific, Inc., 2016 WL 1743037, at *3 (8th Cir. May 3, 2016) (citing Ihrke v. N. States Power Co., 459 F.2d 566, 573 n.3 (8th Cir. 1972)). Rigorous analysis may further “entail some overlap with the merits of the plaintiff’s underlying claim, ” because “[t]he class determination generally involves considerations that are enmeshed in the factual and legal issues comprising the plaintiff’s cause of action.” Wal-Mart, 131 S.Ct. at 2551-52 (quoting Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 160 (1982)).

         District courts have broad discretion in deciding whether class certification is appropriate. Prof’l Firefighters Ass’n of Omaha, Local 385 v. Zalewski, 678 F.3d 640, 645 (8th Cir. 2012) (citing Rattray ...


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