On Monday, August 19, 2024, the Ninth Circuit Court of Appeals issued a published opinion in Jama, et al. v. State Farm Mutual Auto. Ins. Co., et al, No. 22-35499, 2024 U.S. App. LEXIS 20881, __ F.4th___ (9th Cir. 2024) reversing in part a Western District of Washington summary judgment ruling decertifying class action claims against two State Farm entities.
At the trial court level, the insureds asserted class action claims against State Farm based on how State Farm compensated vehicle owners for actual cash value (ACV) after accidents that involved the total loss of the insured vehicle. The insureds initially sought class certification for two classes: 1) the negotiation class; and 2) the condition class.
To determine ACV, State Farm would use an Autosource report from a third-party vendor which reported information regarding advertised price of comparable vehicles and then would make adjustments including adjustments for the condition of a vehicle and adjustments for “negotiation.” The condition adjustment was based on the assumption that vehicles were in different conditions than those on the market and would adjust the value of the car accordingly. The negotiation adjustment was based on an assumption that a customer would negotiate with a dealer and buy a car for less than advertised price.
The District Court decertified the classes and dismissed claims against State Farm on summary judgment based on the court’s reading of Lara v. First National Ins. Co. of Amer., 25 F.4th 1134 (9th Cir. 2022) finding that just because the insureds could establish an illegal adjustment was not sufficient to establish injury on a class-wide basis “by relying class members’ car value as calculated in the Autosource reports less the amount of the challenged negotiation or condition adjustments.”
The Ninth Circuit affirmed with respect to the condition class because it was undisputed that an insurer could take condition into account and adjust ACV accordingly and because any injury would be individualized based upon the condition of each individual’s vehicle. However, it reversed with respect to the negotiation class.
With respect to the negotiation class, the insureds argued that Washington law did not allow an insurer to reduce ACV payments by a “typical negotiation discount”. The Court of Appeals agreed with the trial court’s finding that applicable Administrative Code (WAC) provision (WAC 284-30-391) did not allow for such discounts and only provided for discounts specifically set forth in the WAC. See WAC 284-30-391(4)(b). Accordingly, any reduction in ACV payment for a negotiation discount was unlawful.
The insureds asserted that class certification for the negotiation class was appropriate because it could be determined on a class wide scale for those who were paid according to the Autosource report and had their payment reduced by a uniformly applied negotiation discount. State Farm argued that measuring injury that way would effectively allow the class to establish injury just based upon the illegality of the act, which was prohibited by the Lara decision.
The trial court effectively agreed with this argument when it decertified the class and entered summary judgment for State Farm. The Ninth Circuit, however, reversed. In doing so, it clarified that its holding in Lara was distinguishable because in Lara the proposed class was broader than the proposed class in Jama. In Lara, the proposed class included those who received a report containing an unlawful adjustment but nevertheless received ACV for other reasons. The class Jama was not as broad.
Instead, the proposed negotiation class was limited only to:
…those class members who (1) were paid based on the Autosource report, excluding those who negotiated or pursued an appraisal; and (2) were paid a negotiation adjustment that, according to the Plaintiffs, can never measure a lawful deduction.
The Ninth Circuit concluded that narrowing the class avoided the issues raised in Lara. It further summarized that the Plaintiff’s arguments were that the ACV was originally calculated based on permissible factors, but then reduced by a factor that was not allowed under Washington law. The Court went on to state that “[n]othing in Lara precludes common proof of injury as the amount of State Farm’s estimates less the impermissible deduction as to the class of owners who were paid the Autosource valuation.” Accordingly, the Court reversed the trial court’s decertification and dismissal. This included reversing summary judgment against the individual class representatives and remanding the case for consideration in light of the Court’s holding.
Lether Law Group has represented and advised auto insurers on all aspects of coverage including valuation disputes for over 30 years. If you would like to discuss the implications of the Jama decision or coverage issues involving these types of claims, please feel free to contact our offices.
