965 F.3d 452
6th Cir.2020Background:
- State Farm homeowners policies used a two-step payment: an initial actual cash value (ACV) estimate (RCV minus depreciation and deductible) and a later replacement-cost (RCV) payment if the insured completed repairs and documented costs.
- State Farm used Xactimate to compute RCV and, until July 25, 2015, depreciated both materials and labor when calculating ACV; insureds were not required to spend ACV payments or return any unused portion.
- Plaintiffs (Hicks and Williams) received ACV payments with labor depreciation withheld; Hicks later recovered withheld depreciation after repair, Williams did not rebuild and kept the ACV payment.
- Plaintiffs sued as a putative Kentucky-wide class, alleging State Farm breached contracts by depreciating labor in ACV calculations under Kentucky law; an earlier Sixth Circuit decision interpreted Kentucky’s ACV formula as prohibiting labor depreciation.
- State Farm briefly ran a refund program (identifying ~1,854 claimants) by changing an Xactimate parameter (unchecking a box) to stop depreciating labor and issuing refunds; many refunds were small (often under $1,000).
- The district court certified a Rule 23(b)(3) class of Kentucky homeowners who received ACV payments from Feb 28, 2013–July 25, 2015 where labor was depreciated; State Farm appealed the certification order.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Commonality (Rule 23(a)) | Liability issue—whether State Farm breached by depreciating labor—is common and dispositive for all class members. | Commonality fails because merits issues were already resolved or individualized questions remain. | Commonality satisfied: a single common legal question (labor depreciation breach) exists and is amenable to classwide resolution. |
| Predominance (Rule 23(b)(3)) | Common liability question predominates; damages can be computed by a formula mirroring State Farm’s own refund method. | Individualized damages/overestimation defenses and post-ACV RCV recoveries will overwhelm common questions. | Predominance satisfied: liability is common; overestimation defenses operate in insureds’ favor and damages formula is consistent with liability theory. |
| Superiority / Manageability | Class action is superior because individual recoveries are small and common proof exists. | Individual inquiries and management difficulties make class litigation inappropriate. | Superiority satisfied: centralized adjudication is superior given small individual recoveries and a predominant common issue. |
| Expert admissibility / Motion to Strike (Daubert) | Plaintiffs’ damages formula (and supporting expert) support certification. | District court abused discretion by not resolving State Farm’s Daubert motion before certifying. | No abuse: district court did not rely on the expert’s testimony for certification; State Farm’s own refund program independently supports the damages model. |
Key Cases Cited
- Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (class certification commonality standard)
- Young v. Nationwide Mut. Ins. Co., 693 F.3d 532 (6th Cir. 2012) (predominance and ascertainability principles)
- In re Whirlpool Corp., 722 F.3d 838 (6th Cir. 2013) (broad discretion to certify; predominance despite individualized damages)
- Sprague v. General Motors Corp., 133 F.3d 388 (6th Cir. 1998) (limits on commonality when remaining issues are individualized)
- Pipefitters Local 636 Ins. Fund v. Blue Cross Blue Shield of Mich., 654 F.3d 618 (6th Cir. 2011) (individualized proof defeat predominance)
- Rikos v. Procter & Gamble Co., 799 F.3d 497 (6th Cir. 2015) (damages model must align with liability at certification)
- Stuart v. State Farm Fire & Cas. Co., 910 F.3d 371 (8th Cir. 2018) (similar labor-depreciation class—common question favors certification)
- Mitchell v. State Farm Fire & Cas. Co., 954 F.3d 700 (5th Cir. 2020) (similar labor-depreciation class—predominance upheld)
- In re State Farm Fire & Casualty Co. (LaBrier), 872 F.3d 567 (8th Cir. 2017) (distinguished—Missouri law required individualized reasonableness inquiry)
- Zehentbauer Family Land, L.P. v. Chesapeake Expl., L.L.C., 935 F.3d 496 (6th Cir. 2019) (distinguish merits vs. certification issues)