A lawsuit against State Farm over alleged undervaluation of total loss vehicles has reached the United States Supreme Court.

“[T]he only thing policyholders were ‘owed’ was the ‘actual cash value’ of their vehicles,” State Farm wrote last week. “You’d never know it from reading respondents’ brief but the regulations they invoke specifically define ‘[a]ctual cash value’ as ‘the fair market value of the loss vehicle immediately prior to the loss.’

The plaintiffs allege that State Farm applied two putatively unlawful negotiation and condition discounts in calculating its vehicles’ actual cash values (ACVs).

On State Farm’s appeal of the district court’s partial ruling in favor of the plaintiffs, the Ninth Circuit concluded that, “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.”

“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,” the opinion states.

Now, State Farm is appealing the Ninth Circuit’s ruling to the Supreme Court.

In its petition to the court, State Farm wrote, “The question courts must resolve in these cases is straightforward but significant: can plaintiffs obtain certification under Rule 23(b)(3) merely by alleging such a violation, or must they also show that there will be evidence capable of resolving, on a classwide basis, that each class member was actually shortchanged as a result?

“The Fifth Circuit holds that plaintiffs must show that each class member suffered a real-world injury, and because disputes over the value of vehicles involve so many individualized questions, that means class certification is inappropriate. But the Ninth Circuit disagrees. The resulting conflict on this critical, recurring issue will have dramatic consequences for class actions across the country in a variety of contexts. Insurance policies typically promise that when a vehicle is deemed a total loss, the insurer will pay the ‘actual cash value,’ i.e., fair market value of the vehicle right before the accident. Plenty of datapoints help shed light on a totaled vehicle’s fair market value, including advertised prices for similar vehicles offered by used car dealers. But because no two vehicles are the same, insurers adjust those datapoints to make sure they reflect the fair market value of the totaled vehicle. These commonplace valuation methods have come under attack in a spate of class actions involving plaintiffs from over 40 states.”

The respondents (the plaintiffs who sued State Farm) argue that the district court ruled the insurance company’s deduction failed to comply with relevant state-law insurance requirements. They contend there is “undisputed evidence” that the deduction resulted in every class member suffering financial injury of $751.19, on average.

“At issue here is a deduction (which always reduces the value paid to insureds) for what is listed in the Autosource valuation’s fine print as ‘typical negotiation,'” the respondents wrote in their opposition to State Farm’s petition to the Supreme Court.

“State Farm applies this ‘negotiation’ deduction to reflect what it claims is the amount by which its insureds could typically be able to negotiate down on the price of a replacement car. This deduction is not specific to any insured’s vehicle, nor is it individually determined by State Farm or its vendor, Audatex. Rather, it is simply a percentage deduction from the actual prices of comparable vehicles that is taken off vehicles within a specific ‘price band.’ …Because the percentage does not vary by make, model, year of vehicle, age, car type, condition, local area demand, or in fact anything other than the price band it was offered for sale in, the amount of the percentages that State Farm deducted for each price band are found on a single sheet of paper sealed in the record.”

The respondents contend that State Farm “relies on hypothetical facts to conjure conflict” and “forfeited the central theory behind its petition that the ‘typical negotiation’ discount was allowed under Washington law by not raising it in the Court of Appeals.”

State Farm holds that the class of plaintiffs is “filled with untold numbers of people who didn’t suffer any actual harm.”

“The issue… is whether unlawfulness alone is enough to prove that all class members ‘received less than they were owed,'” State Farm wrote. “That’s a real-world question requiring real-world evidence, yet respondents assume it away by equating unlawfulness with injury.”

“The record here, as in similar cases, leaves no doubt that dealer negotiations are commonplace and that valuations adjusting for negotiation will often equal or exceed valuations from other permissible methods.”

As of Friday afternoon, no further arguments or documents had been filed in the case.

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