Insureds not entitled to Rule 23(b)(2) certification for past hail damage

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March 1, 2011

Insureds not entitled to Rule 23(b)(2) certification for past hail damage 

The Seventh Circuit Court of Appeals held that a class seeking injunctive relief requiring that an insurer use a reasonable and uniform standard for reevaluating past hail damage was erroneously certified under Federal Rule of Civil Procedure 23(b)(2).

After a hailstorm, thousands of homeowners filed claims with State Farm Fire and Casualty Co. for roof damage. Some of the claimants believed their compensation was inadequate and filed a class action, alleging the insurer breached their contracts and acted in bad faith because it didn’t use a single, uniform test for assessing damage, resulting in conflicting assessments. They sought certification under Rule 23(b)(3) and Rule 23(b)(2).

The trial court denied Rule 23(b)(3) certification for monetary damages because the claims required individual determination of roof damage and underpayment. But it certified the 23(b)(2) injunctive relief class, which sought an order that State Farm reinspect the roofs using a uniform and objective standard.

Reversing certification on interlocutory appeal, the Seventh Circuit first held that the plaintiffs’ only cognizable injury was underpayment of their claims, making this solely a damages action. Despite the plaintiffs’ claims that State Farm had an independent duty to use a uniform standard, the insurer’s only obligation was to compensate the insureds, regardless of the method used to assess claims, the court determined.

Further, the plaintiffs’ claims that the duty of good faith required a uniform standard failed because to prove bad faith, the plaintiffs must first establish that their claims were wrongfully underpaid, which requires individualized proof.

Turning to the Rule 23(b)(2) certification, the court noted that the equitable relief must be appropriate respecting the class as a whole and must constitute final relief for the plaintiffs.

The court found that the class could not satisfy the test for equitable remedy. The plaintiffs didn’t suffer irreparable harm because their injury was easily remedied by monetary damages. Also, the plaintiffs could not meet their burden of showing that the remedy was needed to balance the hardships between the parties. The injunction would require that State Farm perform an affirmative act, which would impose a significant and disproportionate burden on the defendant because it would have to reinspect about 7,000 roofs, even if the insured was fully compensated. Moreover, the court would essentially be writing an insurance-adjustment code to determine a “reasonable, uniform standard.”

Injunctive relief would also not be final relief, the court ruled, because classwide reinspection would provide only evidentiary proof to be used in the insureds’ individual claims for damages. It would shift the burden to prove the plaintiffs’ claims by requiring State Farm to establish whether it underpaid the policyholders and by how much, the court noted. Injunctive relief would also not provide any prospective relief for the insureds because they were seeking only retrospective damages, which fall under Rule 23(b)(3). Thus, the plaintiffs were not entitled to certification under Rule 23(b)(2).

Citation: Kartman v. St. Farm Mut. Automobile Ins. Co., 2011 WL 488879 (7th Cir. Feb. 14, 2011).

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