A Washington appeals court has partially overturned the decertification of a class action lawsuit against State Farm regarding the undervaluation of total loss vehicles.

Two lawsuits, which have been consolidated, alleged that State Farm applied two putatively unlawful negotiation and condition discounts in calculating their vehicles’ actual cash values (ACVs).

A condition adjustment assumes that the typical car in use is in worse condition and would sell for less than comparable cars advertised by dealers thus reducing the advertised price by that difference, according to an Aug. 19 Ninth Circuit opinion. A negotiation adjustment assumes that the typical customer negotiates with the dealer to buy a car for less than the advertised price and is designed to capture that price difference.

The district court first split the case into two classes — negotiation and condition. However, based on a separate case ruling by the U.S. Ninth Circuit of Appeals, Lara v. First National Insurance Company of America, the court backpedaled and decertified the classes claiming they hadn’t proven injury.

The district court declined to certify a proposed damages class “because it held both that individual questions predominated over common questions and that individualized trials were superior to a class action,” according to the opinion.

In Lara, the panel “held that a district court faced with what was, in some respects, a similar putative class action — but which focused only on disputed ‘condition’ adjustments — did not abuse its discretion in declining to certify a class.”

“In Lara, “[p]laintiffs’ theory of the case [wa]s that Liberty violate[d] Washington’s insurance regulations by not itemizing or explaining this downward ‘condition adjustment,’ which makes it impossible to verify,” the panel wrote.

In its opinion on the State Farm appeal, the panel reversed the lower court’s summary judgment against each plaintiff and the decertification of the negotiation class. They remanded the case to the district court to “analyze whether plaintiffs have introduced sufficient evidence of injury.”

“The panel held that the district court abused its discretion in decertifying the negotiation class because plaintiffs established that injury could be calculated on a class-wide basis by adding back the putatively unlawful negotiation adjustment to determine the value each class member should have received,” the judges wrote.

The panel agreed with the district court on the decertification of the condition class because “measuring each class member’s injury required an individualized comparison of the putatively unlawful condition adjustment that their insurers actually applied and the hypothetical condition adjustment that their insurers could have lawfully applied.”

“Washington’s insurance regulations set forth various ways in which an insurer may go about ascertaining actual cash value, including by basing it on data for comparable vehicles in the local area, obtaining quotes from licensed dealers, analyzing data of advertised comparable vehicles, and so on,” the opinion states. “While these regulations do not themselves create a direct cause of action, plaintiffs contend they are incorporated into their insurance contracts and that a violation of the insurance regulations also constitutes a violation of the Washington Consumer Protection Act (WCPA) pursuant to which they are authorized to sue.”

Judge Johnnie B. Rawlinson dissented with the panel’s majority opinion because it directly conflicts with Lara and creates an unnecessary circuit split.

On appeal, the Ninth Circuit concluded that “[n]either holding was an abuse of discretion” and affirmed the district court’s ruling.

“In both of the cases consolidated and under review here, plaintiffs challenge the negotiation adjustment,” the panel wrote. “They argue that Washington law specifies which price components insurers may consider when determining “actual cash value,” and that negotiation discounts are not among them. State Farm moved to dismiss, but the district court agreed with plaintiffs that Washington law does not allow insurers to make negotiation adjustments and that plaintiffs had therefore stated claims for both breach-of-contract and unfair trade practices under the WCPA.”

One of the cases also challenged the condition adjustment. Washington law requires insurers to make “appropriate” condition adjustments.

The district court concluded the plaintiff’s allegations that State Farm had “provided no basis on which to verify whether the perceived condition deduction was ‘appropriate’” were sufficient to show a violation of Section 391(4)(b) and a breach of contract claim.

The Ninth Circuit added, “We hold that nothing in Lara prevents Plaintiffs from relying on the Autosource reports as evidence of injury. We do not decide whether plaintiffs have presented sufficient evidence of injury to survive summary judgment. Instead, we remand that question to the district court.”

State Farm uses Audatex’s Autosource to prepare an initial valuation report on totaled vehicles.

In May, the Washington Office of the Insurance Commission (OIC) levied a $25,000 fine against Allstate for mishandling an auto insurance claim, according to a consent order signed by Insurance Commissioner Mike Kreidler.

OIC said the fine came after a consumer complained they received a low estimate from Allstate. The insurance company also incorrectly stated that a right to appraisal could not be invoked after repairs had been made, failing to conduct the appraisal in a timely manner.

Allstate initially paid $8,816 for a vehicle crash claim filed in January 2023 — an amount that the policyholder’s repair shop said was too low to return the vehicle to pre-loss condition, the order says.

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