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Monday, February 14, 2011

Ind. Decisions - 7th Circuit issued one Indiana ruling today

In Kartman et al. v. State Farm Mutual (SD Ind., Lawrence), a 24-page opinion, Judge Sykes writes:

After a severe hailstorm struck central Indiana in April 2006, thousands of homeowners filed claims with State Farm Fire and Casualty Company for hail damage to the roofs of their homes. State Farm thereafter paid millions in property-damage claims, but not all of the policyholders were satisfied with their payments. Several brought this proposed class action in state court alleging breach of contract, bad-faith denial of insurance benefits, and unjust enrichment. The lawsuit sought damages and an injunction requiring State Farm to reinspect all class members’ roofs pursuant to a “uniform, reasonable, and objective” standard for evaluating hail damage. State Farm removed the case to federal court.

The plaintiffs moved to certify a damages class under Rule 23(b)(3) of the Federal Rules of Civil Procedure and also—or alternatively—a class for injunctive relief under Rule 23(b)(2). The district court issued a split decision on the motion. The court declined to certify a Rule 23(b)(3) damages class, holding that each plaintiff’s claim of underpayment required an individualized factual inquiry on the merits. But the court concluded that a class claim for injunctive relief could proceed under Rule 23(b)(2); the court certified a class to determine whether State Farm should be required to reinspect policyholders’ roofs pursuant to a “uniform and objective standard.” State Farm appealed, arguing that certification under Rule 23(b)(2) is not permissible for this action.

State Farm is right. This case is not appropriate for class certification under Rule 23(b)(2). As an initial matter, the plaintiffs’ claim for injunctive relief suffers from some serious conceptual confusion. This is a suit for breach of contract and bad-faith denial of insurance benefits, the remedy for which is damages. State Farm had a contractual obligation to pay policyholders for their hail-damage losses and a corresponding duty in tort not to deny claims in bad faith. But there is no contract or tort-based duty requiring the insurer to use a particular standard for assessing hail damage. As such, there is no independent cognizable wrong to support a claim for injunctive relief requiring State Farm to conduct a class-wide roof reinspection pursuant to a “uniform and objective” standard.

More generally, certification of a class under Rule 23(b)(2) is permissible only when class plaintiffs seek “final injunctive relief” that is “appropriate respecting the class as a whole.” FED. R. CIV. P. 23(b)(2). Here, the requested injunction is neither “appropriate” nor “final.” The relief is not appropriate for several reasons, not least of which is that the normal remedy for wrongful denial of insurance benefits is damages, not equitable relief. Moreover, the injunction envisioned by the plaintiffs would in no sense be a final remedy. A class-wide roof reinspection would only lay an evidentiary foundation for subsequent individual determinations of liability and damages.

Finally, certification of an “issues” class under Rule 23(c)(4) is neither sought nor appropriate here. The particular standard State Farm used to evaluate policyholders’ hail damage is not an element of any case presented by these plaintiffs for final injunctive relief. In some circumstances, the applicable standard of care might be a proper separable issue, but in this case, the ultimate relief sought is money damages, and thus the requirements for certification of a damages class under Rule 23(b)(3) must be satisfied. Here, they were not. Accordingly, we reverse the district court’s order and remand with instructions to decertify the class.

Posted by Marcia Oddi on February 14, 2011 12:07 PM
Posted to Ind. (7th Cir.) Decisions