18 F.4th 976
8th Cir.2021Background
- Shawn Smith owned a 2006 Ford F-150 insured by Southern Farm Bureau; the truck was totaled and the policy required payment of the "actual cash value" ("ACV") considering fair market value, age, and condition.
- Farm Bureau relied on a Mitchell International valuation using three dealer-listed comparable vehicles and a 9% "Projected Sold Adjustment" that reduced each comparable’s listed price.
- Smith sued (proposed class action) for breach of contract and declaratory relief, alleging Farm Bureau undervalued the truck and violated Arkansas Insurance Rule and Regulation 43; he asserted Regulation 43 was incorporated into the policy via a "Conformity Clause."
- The district court dismissed for failure to state a claim, concluding Regulation 43 was not part of the policy; the court did not clearly address any separate common-law breach theory.
- The Eighth Circuit affirmed dismissal as to any claim based on Regulation 43, reversed and remanded as to a common-law breach theory based on the policy language (holding Smith plausibly alleged Farm Bureau failed to pay ACV by applying the arbitrary 9% adjustment), and denied certification to the Arkansas Supreme Court. Judge Coloton dissented, arguing the complaint did not adequately plead a distinct second breach theory.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Arkansas Ins. Reg. 43 is incorporated into the insurance policy | Smith: Reg. 43 is incorporated automatically into policies and/or via the policy's Conformity Clause | Farm Bureau: Reg. 43 is not a private right of action and is not part of the policy; the Conformity Clause is not triggered | Reg. 43 is not incorporated; claim based on Reg. 43 dismissed/affirmed |
| Whether Farm Bureau breached the contract by using the 9% "Projected Sold Adjustment" (i.e., failed to pay ACV based on fair market value) | Smith: the adjustment is arbitrary, contrary to market realities, and produced an artificially low ACV | Farm Bureau: valuation methodology (including third-party report) was permissible under the policy which permits consideration of market value, age, condition | Smith adequately pleaded a plausible common-law breach: reversing and remanding that claim |
| Whether federal court should certify questions to the Arkansas Supreme Court about construction of "actual cash value" and the Conformity Clause | Smith: certify whether Reg. 43 can construe ACV and whether the Conformity Clause can incorporate Reg. 43 standards | Farm Bureau: existing precedent and policy interpretation resolve the issues; certification unnecessary | Certification denied |
| Pleading sufficiency (raised by dissent) | Smith: the complaint sufficiently alleged both a Reg. 43-based theory and a separate common-law ACV theory | Farm Bureau: complaint only alleged a Reg. 43-based theory; no distinct second claim was pled | Majority: complaint fairly alleged two theories and the common-law claim survives; dissent would affirm dismissal in full |
Key Cases Cited
- Design Pros. v. Chi. Ins. Co., 454 F.3d 906 (8th Cir. 2006) (Regulation 43 does not create a private right of action and is not automatically incorporated into Arkansas policies)
- Ferguson v. Order of United Commercial Travelers of Am., 821 S.W.2d 30 (Ark. 1991) (construing conformity clauses to require an actual conflict between policy terms and state law)
- Smith v. Eisen, 245 S.W.3d 160 (Ark. Ct. App. 2006) (elements of a common-law breach of contract claim under Arkansas law)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard: factual allegations must state a plausible claim)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading standard articulated for plausibility)
- McKesson v. Doe, 141 S. Ct. 48 (2020) (certification to state supreme court is discretionary; not obligatory when state law unsettled)