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Seven-year GEICO ACV lawsuit hung up on MSRP vs. ‘reasonable purchase price’

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Insurance | Legal
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A New York class action lawsuit filed against GEICO has gone back and forth from district to appeals courts since 2016 over the alleged undervalued actual cash value (ACV) of a total loss vehicle, which has most recently come down to either MSRP, as argued by the plaintiff, or GEICO’s argument for what it believes to be the “reasonable purchase price” under state law.

The case was stayed last week pending the decision of an appeals court on GEICO’s appeal of breach of contract and consumer protection violations.

GEICO is accused in the lawsuit of New York Regulation 64 violations as well as breach of contract, negligence, unfair and deceptive trade practice, and unjust enrichment.

Regulation 64 lays out “prompt, fair, and equitable” settlement standards for vehicle physical damage claims. Among other requirements, it mandates fair market values be given for at least 85% of all makes and models of private passenger vehicles for the last 15 model years, taking into account the values of all major options for those vehicles.

CCC Information Services was also a defendant in the case until claims against it were dismissed.

The complaint, as amended in 2018, states that GEICO “deliberately and systematically failed to follow” Regulation 64, “deceiving claimants and failing to fully compensate them for the true vehicle replacement value,” which also violated its own policy obligations.

Plaintiff Lorena M. Milligan was in a rollover accident in May 2015 that totaled her 2015 Lexus with 1,000 miles on the odometer. The suit contends that GEICO’s use of CCC Information Services’ CCC ONE market valuation report of $45,924 was well below a reasonable purchase price of a new identical Lexus, less any deductible and depreciation.

CCC determined the value by comparing similar vehicles from three local dealers, which were reflective of the market value and GEICO issued a claim payment for $45,924, according to the suit.

The class applies to all persons and entities who, from 2009 to May 7, 2018, made total loss claims pursuant to a standard private passenger auto insurance policy issued by GEICO in New York and received a claim payment based on a valuation summary that didn’t follow Regulation 64.

No monetary amount is sought in the complaint but a jury trial is demanded and declaratory and injunctive relief requested.

GEICO and CCC filed motions to dismiss for failure to state a claim and argued that Milligan didn’t invoke the appraisal clause in her policy. An appraisal clause is invoked when the insurer and the policyholder can’t come to an agreement on the ACV of a vehicle. Two independent appraisers are hired, one by the carrier and one by the policyholder, to appraise the vehicle. If they can’t come to an agreement, an umpire makes the final decision.

By request from the presiding judge, U.S. District Judge Dora L. Irizarry, then U.S. Magistrate Judge Gary R Brown reviewed the case and wrote a Report and Recommendation (R&R).

Brown said GEICO’s motion to dismiss should be denied for breach of contract and a state’s consumer protection law (GBL § 349) but granted for violation of Regulation 64, negligence, and unjust enrichment. GEICO’s motion for summary judgment based on its demand for appraisal should also be denied, he wrote.

He wrote in his R&R that CCC’s motion to dismiss should be denied for the alleged GBL § 349 violation and unjust enrichment but granted for breach of contract, violation of Regulation 64, and negligence.

Irizarry adopted Brown’s R&R and allowed Milligan to replead. Within that time, Milligan took the Regulation 64 denial to an appeals court, which ruled that the district court would have to issue a judgment.

The disagreement with Regulation 64 had to do with wording in GEICO’s policy versus Regulation 64.

Irizarry found the answer in Regulation 64, (c)(4) — “Right of recourse,” which gives the claimant 35 calendar days from the time the claim payment is mailed to notify the carrier they can’t purchase a comparable vehicle for the market value. If done, the insurer is to reopen the claim and reach a settlement sufficient to purchase a similar vehicle or pay the difference between the price of a similar vehicle and the claim payment already made.

Irizarry ruled on Sept. 30, 2020 to dismiss the case with prejudice.

“Subsection (c)(3) provides only that GEICO must pay a reasonable purchase price and does not articulate how such a price must be calculated,” Irizarry wrote in her opinion and order. “The Court further notes that, if the New York State Legislature had intended for insurers to compensate insureds by paying a certain price, it would have used a more definite term than ‘reasonable.’ …Thus, by issuing a payment reflective of the market value of Plaintiff’s vehicle, GEICO complied with Regulation 64, and did not breach the Policy.”

A month later, Milligan filed an appeal in the U.S. Court of Appeals for the Second Circuit, which in February 2022 remanded the case back to district court on alleged breach of contract and the state’s GBL § 349 by GEICO. CCC’s motion to dismiss was granted and the company was taken off the complaint.

GEICO filed an appeal in the Second Circuit Appeals court on that ruling. In October, the parties were ordered by the appeals judge to retain expert appraisers to determine the value of Milligan’s total loss vehicle pursuant to the Second Circuit’s interpretation of the phrase “reasonable purchase price.”

“Plaintiff’s position is that the reasonable purchase price of a loss vehicle remains that of the manufacturer suggested retail price (“MSRP”),” Milligan states in a Jan. 6 joint status report. “The regulation provides in pertinent part that: ‘If the insured vehicle is a private passenger automobile of the current model year, the insurer shall pay to the insured the reasonable purchase price to the insured on the date of loss of a new identical vehicle, less any applicable deductible and an allowance for depreciation.’ 11 N.Y.C.R.R. § 216.7(c)(3).”

The plaintiff adds that the Second Circuit said the MSRP is a “starting point,” and the cost owed should be one “that a reasonable buyer and a reasonable seller would agree upon for the sale of the vehicle.”

GEICO’s appraiser determined the ACV at the time of the loss to be $46,244.50 — $320.50 more than GEICO and CCC’s original valuation.

Milligan argued the ACV was the MSRP price at the time of the loss, which isn’t given in the report.

“There is a fatal flaw in this reasoning that cannot be overlooked. Negotiations fail to be guaranteed, concrete in calculation, nor symmetrical across the board. Whether a negotiation occurred, whether it was successful or whether it results in any change to the MSRP is speculatory in nature. Negotiations cannot occur in the abstract. Any deviation from the MSRP in determining the reasonable purchase price would be pure speculation. Just like additions to damages, deductions to damages cannot be speculative. It is not speculative that the reasonable purchase price on the date of the loss is the MSRP.”

Last week, the district judge granted a stay of the case until the appeals court makes a decision.

GEICO notes a June U.S. Supreme Court ruling (Coinbase v. Bielski) that held when a party exercises its statutory right to an interlocutory appeal from an order denying a motion to compel arbitration, the district court must stay its proceedings while the interlocutory appeal is ongoing.


Featured image: (July 23, 2022) A GEICO office in Buffalo, New York. (Credit: JHVEPhoto/iStock)

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