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Court reverses class certification in hail-damage action

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The 7th Circuit Court of Appeals has reversed the class certification granted by the District Court in a suit brought by unsatisfied homeowners following a 2006 hailstorm in central Indiana.

Policy holders with three different State Farm insurance companies brought a proposed class-action suit in state court, which was later moved to federal court, alleging breach of contract, bad-faith denial of insurance benefits, and unjust enrichment. The homeowners sought damages and an injunction requiring State Farm to re-inspect all the class members’ roofs pursuant to a “uniform, reasonable and objective” standard for evaluating hail damage.

U.S. District Judge William Lawrence denied certification of class under Rule 23(b)(3) under the Federal Rules of Civil Procedure, noting that each plaintiff’s claim of underpayment required an individualized factual inquiry on the merits.

The case should have ended there, the 7th Circuit concluded today, but Judge Lawrence did grant the plaintiffs’ class claim for injunctive relief under Rule 23(b)(2). The District Court certified a class to determine whether State Farm should have to re-inspect the roofs with a uniform and object standard.

But the case is not appropriate for class certification under Rule 23(b)(2), the judges decided in Cynthia Kartman, et al. v. State Farm Mutual Automobile Insurance Co., et al., No. 09-1725. The Circuit Court concluded that the lower court order “misconceptualizes” the claims in the case, and this is simply an action for damages and only suitable for class certification under Rule 23(b)(3).

The plaintiffs claimed to have suffered two separate injuries – underpayment of their hail-damage claims and a violation of the distinct right to have their roofs evaluated under a uniform and objective standard. But State Farm had no independent duty – whether sounding in contract or tort – to use a particular method to evaluate hail-damage claims, wrote Judge Diane Sykes.

The plaintiffs’ argument, that even if State Farm lacked a contractual duty to inspect their roofs pursuant to a uniform and object standard, the duty of good faith required it do so, reflected a fundamental misunderstanding of the tort of bad faith, the judge continued.

“Thus, to prove State Farm committed the tort of bad faith, the plaintiffs must establish that their claims were underpaid — or wrongfully denied — in the first place,” she wrote. “This requirement alone bars class certification because it cannot be established on a class-wide basis.”

A case may be certified as a class action under Rule 23(b)(2) where the “party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.” In this rule, there are two independent requirements: the equitable relief must be appropriate regarding the class as a whole and be final. In this case, the contemplated injunction doesn’t provide appropriate or final relief of the alleged underpayment of the plaintiffs’ hail-damage claims, wrote the judge.

The Circuit Court remanded with instructions to decertify the Rule 23(b)(2) class.

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