A federal appeals court has turned down a bid by three Georgia plaintiffs for class recognition in their suit accusing State Farm of years of lowball diminished value (DV) settlements, although it acknowledged that there are “fundamental flaws” in the formula that a number of carriers, including State Farm, follow.
The Eleventh Circuit Court of Appeals affirmed a lower court’s ruling that plaintiffs Rashad Baker, Rachael Leonard, and Zelma Stovall had not established that the court-approved formula used by State Farm “is wrong for all claims across the spectrum of vehicle makes, model years, mileage, severity levels, and repair costs.”
“The district court ruled in favor of State Farm to hold that the central liability question was too individualized to satisfy [Federal Rules of Civil Procedure] Rule 23’s commonality and predominance requirements. After careful review, we affirm,” reads the court’s order, made public on Wednesday.
In their complaint, filed Dec. 7, 2018, the plaintiffs had asserted that more than 600,000 State Farm insurance policy holders were injured by the carrier’s use of “an inherently unfair assessment methodology” that resulted in too-small settlements of DV claims.
They had sought certification of a class consisting of “All persons issued a Georgia vehicle insurance policy by State Farm who – based on loss dates between December 7, 2017 and the date of certification – made physical damage claims under their policies” that were assigned certain comprehensive or collision cause of loss codes.
Generally, DV is the difference between the value of the vehicle if there had never been damage, and its value after repairs have been completed.
The appeals court acknowledged that the plaintiffs’ expert witness, vehicle appraiser Richard Hixenbaugh, had found “some fundamental flaws” with the a state-approved formula, known as 17(c), that State Farm and other insurers follow in DV cases.
Still, the court affirmed the Sept. 2, 2021 ruling by Georgia U.S. District Court Judge Clay D. Land, who “agreed with State Farm that Dr. Hixenbaugh’s sample was too small and not representative of the class; therefore, Appellants failed to demonstrate that State Farm’s use of the 17(c) formula always resulted in the underassessment of diminished value claims.”
Hixenbaugh had testified that State Farm’s use of 17(c) results in under-assessment of diminished value 100% of the time. He pointed out three flaws in the formula: DV is capped at 10% of a vehicle’s pre-loss value, though DV losses can run up to 25%; mileage is double-counted, both in estimating pre-loss value and again as part of the mileage modifier, and vehicles over a certain mileage — either 100,000 or 150,000, depending on the vehicle — are incorrectly assumed to have no retail sale value.
He analyzed 51 State Farm DV cases, in which he was hired to help challenge the insurer’s assessment. In each case, he found, an appraiser’s figure exceeded the 17(c) assessment.
The plaintiffs hired appraisers to conduct DV appraisals, and “both appraisers opined that the diminished value was significantly more than the value State Farm calculated using the 17 (c) formula,” Land wrote. State Farm, he added, hired its own expert, who found the same thing.
Yet, Land wrote, the plaintiffs “recognize that calculating damage using a traditional approach, such as case-by-case diminished value appraisals like the ones Plaintiffs commissioned, would result in individual issues predominating over common issues and make class certification inappropriate.”
The Eleventh Circuit agreed. It found that the “generalized evidence” presented indicates that the members of the putative class would each have to have their cases examined individually, meaning that the damage could not be repaired with a single, broad remedy. “[T]he answer to the central liability question—whether State Farm breached its contractual duty to accurately assess diminished value claims by applying the 17(c) formula—requires a finding that each putative class member received a lower reimbursement for his diminished value claim than the contract entitled him to. These are individualized inquiries,” the court said.
State Farm has been under a court order to use 17(c) since the resolution of State Farm Mutual Insurance Co. v. Mabry in 2001. Finding that State Farm had no appropriate methodology for calculating DV, the Georgia Supreme Court gave the carrier a number of options, including the 17(c) formula. State Farm adopted 17(c), and, as Land noted, is still bound to use the formula today, under threat of contempt.
The Mabry ruling prompted John Oxendine, then Georgia’s insurance commissioner, to issue a 2008 directive clarifying that the department “has never promulgated or produced by regulation any formula for use in the determination of diminution of value as it relates to physical damage claims nor has the Department endorsed any specific formula or method.”
“The nature of each claim demands that carriers must take into consideration all relevant information in the evaluation of diminished value claims including, but not limited to, relevant information provided by an insured regarding diminution of value,” Oxendine wrote.
The original suit remains to be resolved, with only the individual claims of the named plaintiffs to be considered. Land has given the parties 21 days to file a status report as to whether their claims will be tried or otherwise resolved.
Featured image: A State Farm office in Falmouth, Maine. (Dave LaChance/Repairer Driven News)