State Farm class action suit over total loss payments thrown out in two states

An Illinois district court has ruled that a nationwide class action lawsuit against State Farm over alleged undervalued actual cash value (ACV) payments will not continue in two of four disputed states.

The plaintiffs allege State Farm paid out 4-11% less than what was owed by applying a discount, or “typical negotiation adjustment,” to the ACV of aggregated used vehicle internet prices similar to the ones involved in claims.

State Farm is accused of breach of contract, breach of covenant of good faith and fair dealing, unjust enrichment, and violations of Illinois’ Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/2.

State Farm said in its Nov. 21 motion that consumer protection laws in four states protect it from the relevant allegations made in the lawsuit:

• • Alaska and West Virginia: The insurance industry is exempt from consumer protection laws. The states’ consumer protection laws don’t allow class actions.

• • Mississippi: The consumer protection law only applies to merchandise and state courts have ruled that auto insurance isn’t merchandise. The state’s consumer protection law doesn’t allow class actions.

• • Kentucky: Courts agree the state’s consumer protection law doesn’t allow class actions.

In a Sept. 29 order, U.S. District Judge Virginia M. Kendall ruled that summary judgment is granted for claims brought under the consumer protection acts of Alaska and West Virginia and denied for those brought under the consumer protection acts of Kentucky and Mississippi.

“At the outset, plaintiffs ‘concede that the Alaska Consumer Protection Act excludes, more broadly, claims against insurers’ and offer nothing further to counter State Farm’s motion that this claim fails as a matter of law,” the order states. “Thus, the court grants summary judgment as to the claim, as well as the claim under the Consumer Protection Act of West Virginia. The court denies summary judgment as to all other relevant claims.”

The court ruled that State Farm’s argument that the Mississippi Consumer Protection Act (MCPA) only considers merchandise isn’t supported by the statutory text nor by any of the three cases used to support their position, and therefore, denied summary judgment.

Kendall granted summary judgment for the West Virginia claims because “even if a jury agreed with plaintiffs’ characterization, the facts do not amount to a viable claim under West Virginia law.”

Unjust enrichment and good faith, fair dealing

Regarding the unjust enrichment allegations, Kendall wrote that the claims are “premised on the same conduct as their claims for fraudulent concealment and fraud in inducement.”

“This court has already denied State Farm’s motion to dismiss the plaintiffs’ well-pled fraud claims… and State Farm does not challenge the merits of the fraud claims today,” the order states. “A jury could reasonably find that State Farm’s failure to disclose the TNA [typical-negotiation adjustment] amounted to fraudulent omission for many of the same reasons discussed in this Court’s earlier ruling.”

Kendall added that, despite State Farm’s argument, the validity of a contract is not the only pathway to an unjust enrichment claim; therefore, summary judgment on that claim was denied.

She also determined that whether or not State Farm’s use of the TNA, as well as the lack of disclosure of the TNA, was permissible under the terms of the contract, isn’t appropriate for summary judgment.

The next issue is whether 23 of the named plaintiffs’, who live in 20 states, good faith and fair dealing claims warrant summary judgment.

“The duty of good faith and [fair] dealing exists to ensure that a party to a contract exercises its contractual discretion ‘reasonably, and not arbitrarily or capriciously, or in a manner inconsistent with the reasonable expectations of the parties,’” the order states.

“Plaintiffs incorrectly assert that their claims for breach of the duties of good faith and fair dealing can exist separate and apart from their breach of contract claims under Illinois law… Whether or not there exists a dispute of material fact as to the defendants’ alleged breach of these duties is irrelevant when there is no independent legal claim at stake.”

And because “…there is no standalone claim for breach of the duty of good faith and fair dealing to support under Illinois law,” State Farm’s motion for summary judgment on the claims was granted.

Motion to compel appraisal

Kendall ruled that under State Farm’s typical consumer contract, policyholders must comply with the appraisal policy before disputing an ACV payout in court.

However, as the court previously determined, “to characterize the present litigation as simply an ACV dispute would misrepresent the nature of the action,” she wrote.

“A clear example of such an issue is the allegation of State Farm actively concealing the TNA,” the order states. “That is a legal dispute — one that State Farm’s appraisal process could not resolve.

“[P]laintiffs allege that State Farm’s wrongdoing derives not solely from the contents of the policy but from a spread of ‘misrepresentations, omissions, concealments, and/or failures to disclose material facts regarding their purported payment of ACV’ at point of purchase. They suggest that State Farm ‘suppressed’ information about the use of the TNA to ‘falsely assure consumers that defendants would calculate and pay ACV, and for the purpose of inducing plaintiffs and class members into purchasing a policy from defendants.”

Kendall concluded that it will be up to the plaintiffs to identify the direct statements or communications that led to them “‘actually be[ing] deceived.'”

“But that is plaintiffs’ case to present, and not State Farm’s to dictate,” she wrote.

Further rulings in the order

Kendall ruled that the Kentucky Consumer Protection does not prohibit class action claims.

As for the Mississippi Consumer Protection Act, Kendall ruled that plaintiffs can bring a claim under the act despite the state law ban on class actions because Federal Rule 23 governs.

Kendall also denied the plaintiffs’ motion for summary judgment on the unjust enrichment claims and granted all but four of the plaintiffs’ duty of good faith and fair dealing claims. Two of the remaining claims were dismissed on other grounds.

The order dismissed 16 individual plaintiffs’ breach of contract and declaratory judgment claims as time-barred; granted summary judgment on all of plaintiff Monica Woods’s claims; and reserved a ruling on State Farm’s requested summary judgment motion concerning Bernadette Williams’s claims.

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