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Appellate decision could hold Audatex responsible for class action undervaluation lawsuit settlement

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Insurance | Legal
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A District Court ruling that dismissed a lawsuit filed against Audatex claiming it undervalued total loss claims has been overturned.

Mackenzie Zuern sued Ameriprise subsidiary IDS Property Casualty Insurance Co. in a Washington state court in November 2019 on behalf of a proposed class. Audatex’s Autosource valuation or AudaExplore software allegedly provided vehicle valuations with a “typical negotiation” adjustment of 6-7%.

Ameriprise settled the suit in 2020 and, in July 2022, sued Audatex in a New York federal district court to recover the $2.5 million it paid to settle the case and in defense costs. The settlement was $1.75 million. Audatex sought dismissal contending that its vendor agreement with Ameriprise didn’t require it to pay the settlement and defense costs.

A three-judge panel of the United States Court of Appeals for the Second Circuit states in its May 23 order that Ameriprise sufficiently proved vehicles were undervalued as a result of the company’s use of Audatex’s services.

“To survive a motion to dismiss, Ameriprise was required to plead facts sufficient to establish a plausible claim that Audatex’s services or Ameriprise’s use thereof had ‘some causal relationship’ with the Zuern class claims,” the order states. “In its complaint, Ameriprise alleged that Audatex provided it with a vehicle valuation tool and that Ameriprise used the tool to calculate payments on its customers’ total-loss insurance claims.

“According to Ameriprise, that tool generated total cash values that had been reduced by a ‘typical negotiation adjustment,’ which reflected the assumption that vehicle buyers typically negotiate a lower price than the price advertised by a dealer.”

Ameriprise also argued that the “typical negotiation adjustments violated Washington state law, and “that law, it alleged requires insurance companies calculating the value of a total-loss vehicle to make ‘only appropriate deductions or additions for options, mileage, or condition when determining comparability,'” the order states.

“While Audatex’s valuation tool may not have been the proximate cause of the Zuern claims, it need not have been: under New York law the phrase ‘arising out of’ does not require proximate cause,” the judges wrote. “We therefore conclude that the district court erred in finding that the Zuern claims did not ‘arise out of’ Audatex’s valuation tool or Ameriprise’s use thereof.”

The July 2022 complaint filed by Ameriprise contends Audatex breached its contract by refusing to indemnify and reimburse IDS for money it and its insurer, ACIC, paid to defend and settle the class action lawsuit.

“The contract obligated Audatex to defend, indemnify, and hold IDS harmless for any lawsuit resulting from or arising out of Audatex’s systems or services,” the suit states. “ACIC and IDS were required to spend over $2 million dollars to defend and settle claims that Audatex’s software and systems unfairly and unlawfully calculated vehicle damage totals in violation of Washington state law.

Audatex has refused to honor its contract and refuses to reimburse the money ACIC and IDS spent defending and settling claims that resulted from and arose out of IDS’s use of Audatex’s system, services, and content. All conditions precedent have been met and this dispute is ripe for adjudication.”

The Second Circuit order didn’t rule on whether Audatex owes Ameriprise those costs.


Featured image credit: BrianAJackson/iStock

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