Stuart Ex Rel. Situated v. State Farm Fire & Cas. Co.Stuart Ex Rel. Situated v. State Farm Fire & Cas. Co.
I
State Farm entered into replacement-cost homeowner‘s insurance contracts with plaintiffs. Under the form policy used in the contracts, State Farm‘s obligation to pay for property damage would be satisfied in two stages. First, prior to the insured making any repairs, State Farm agreed to pay the “actual cash value at the time of the loss of the damaged part of the property,” up to the policy‘s liability limit, “not to exceed the cost to repair or replace the damaged part of the property.” “Actual cash value” or “ACV” is calculated under the policy by estimating “the amount it would cost to repair or replace damaged property” and subtracting depreciation. This process would generally involve sending an adjuster to inspect the damage and prepare an estimate using software called Xactimate. Xactimate estimates the price of each task necessary for repair, including the cost of materials and labor, and then applies depreciation using an established formula. During the class period, State Farm‘s Xactimate software depreciated both materials and labor when calculating ACV.
State Farm would generally use Xactimate‘s ACV calculation to make a payment to the insured, minus deductible. The policy imposed no obligation on the insured to use this ACV payment to actually make repairs to the property. If the
In 2013, the Arkansas Supreme Court held that “the costs of labor may not be depreciated when determining the actual cash value of a covered loss under an indemnity insurance policy that does not define the term ‘actual cash value.‘” Adams v. Cameron Mut. Ins. Co., 430 S.W.3d 675, 679 (Ark. 2013), superseded by statute,
II
Before certifying a class under
Our review of a district court‘s decision to certify a class is limited. A district court has “broad discretion” to determine whether certification is appropriate. Ebert, 823 F.3d at 477 (quoting Smith v. ConocoPhillips Pipe Line Co., 801 F.3d 921, 925 (8th Cir. 2015)). The district court‘s rulings on questions of law are reviewed de novo and its application of the law is reviewed for an abuse of discretion. In re Zurn Pex Plumbing Prods. Liab. Litig., 644 F.3d 604, 618 (8th Cir. 2011). The district court‘s factual findings are reversible only if clearly erroneous. Ebert, 823 F.3d at 477.
Plaintiffs argue that their claims share a common legal question: whether State Farm breached their contracts by depreciating labor from their ACV payments. In order to state a cause of action for breach of contract under Arkansas law, plaintiffs need only assert the existence of valid and enforceable contracts with State Farm, an obligation of State Farm thereunder, a violation of that obligation, and resulting damages. Farris v. Conger, 512 S.W.3d 631, 634 (Ark. 2017). The form policies in plaintiffs’ insurance contracts obligated State Farm to pay plaintiffs the ACV of their loss, and specified that ACV would be calculated as “the amount it would cost to repair or replace damaged property, less depreciation.” In Adams, the Arkansas Supreme Court examined a similar contract that did not define ACV. The court concluded the undefined term was ambiguous and applied a definition that is essentially identical to the definition of ACV explicitly included in plaintiffs’ contracts: “[r]eplacement cost minus normal depreciation.” 430 S.W.3d at 678 (alteration in original) (quoting Actual Cash Value, Black‘s Law Dictionary (9th ed. 2009)). That definition, the Adams court concluded, does not permit the insurer to depreciate labor when calculating ACV. Id. at 679. While materials may suffer depreciation over time due to wear and tear, the court reasoned, labor does not: “to depreciate the cost of labor would leave [the insured] with a significant out-of-pocket loss, a result that is inconsistent with the principle of indemnity.” Id. (alteration in original) (quoting Redcorn v. State Farm Fire & Cas. Co., 55 P.3d 1017, 1023 (Okla. 2002) (Boudreau, J., dissenting)).
It was not an abuse of discretion for the district court to conclude that plaintiffs’ claims share a common, predominating question of law. Plaintiffs’ theory is that State Farm violated its contractual obligations by depreciating both materials and labor when calculating ACV, thereby reducing the size of their ACV payments. The viability of this theory is a common question well suited to classwide resolution. The district court previously concluded that these allegations stated a claim for breach
Relying heavily on our recent decision in LaBrier, State Farm asserts that plaintiffs cannot demonstrate predominance and superiority because individual issues of liability and damages exist for each plaintiff that cannot be established with common evidence. In LaBrier, we analyzed the claims of a group of Missouri homeowners who argued that State Farm breached its contracts by deducting labor depreciation from their ACV payments. Missouri law, we noted, defines ACV as “the difference between the reasonable value of the property immediately before and immediately after the loss.” 872 F.3d at 573 (quoting Porter v. Shelter Mut. Ins. Co., 242 S.W.3d 385, 390 (Mo. Ct. App. 2007)). Different methods may be used to estimate the fair market value of a property before and after a destructive event, and the policies at issue in LaBrier did not specify which should be used. State Farm opted to estimate the cost of fully replacing or repairing the damaged property and then subtract depreciation. That is the same method that State Farm used here, and it is “an eminently practical and reasonable method for making an initial estimate of actual cash value at the time of loss.” Id. at 576.
We concluded that the plaintiffs in LaBrier could not show predominance because whether State Farm‘s chosen methodology produced a reasonable estimate of the difference in a property‘s value before and after a loss was a question for the jury to determine on a case-by-case basis. See id. In other words, because the contracts did not specify how ACV payments would be calculated, whether State Farm was in breach would depend on whether its methodology produced a reasonable estimate of ACV, as defined by Missouri law, in an individual case. Because this question could not be answered on a class basis, certification under
The potential need for individualized damages inquiries is not sufficient to overcome the district court‘s findings of predominance and superiority. Tyson Foods, 136 S. Ct. at 1045. State Farm argues that insureds who went on to obtain RCV payments cannot show damages because they ultimately received a payment that included no labor depreciation. The district court concluded that this defense could be resolved using common proof, and that conclusion was not an abuse of discretion. State Farm also argued that it may have overestimated some plaintiffs’ ACV payments by such a degree that the labor depreciation resulted in no injury. But insureds were under no obligation to use the ACV payment to actually repair or replace the damaged property, so any overestimation by State Farm simply operates as an error in the insured‘s favor. Regardless, the district court found there was insufficient evidence that this issue would affect a significant portion of the class, and that decision was not clear error.
It was not an abuse of discretion for the district court to conclude that common questions predominate over individualized issues and that adjudicating the claims as
IV
State Farm argues that class certification is inappropriate because certain plaintiffs cannot demonstrate the injury-in-fact element of standing. See Lujan v. Defs. of Wildlife, 504 U.S. 555, 560 (1992) (describing the injury-in-fact requirement as one of three elements forming the “irreducible constitutional minimum of standing“). It is well established that a class must be defined “in such a way that anyone within it would have standing.” Avritt v. Reliastar Life Ins. Co., 615 F.3d 1023, 1034 (8th Cir. 2010) (quoting Denney v. Deutsche Bank AG, 443 F.3d 253, 264 (2d Cir. 2006)). However, our analysis of standing is “not a review of the merits.” Campbell v. Minneapolis Pub. Hous. Auth. ex rel. City of Minneapolis, 168 F.3d 1069, 1073 (8th Cir. 1999). The fact that some plaintiffs may be unable to succeed on their claims does not necessarily mean that they lack standing to sue.
State Farm argues that plaintiffs who completed their repairs at or below the cost of the ACV payment, or who ultimately received RCV payments, have suffered no injury and accordingly lack standing. Although couched as disputes about standing, State Farm‘s arguments really go to the merits of plaintiffs’ claims. Under plaintiffs’ theory, all individuals who received an improperly-depreciated ACV payment suffered a legal injury—breach of contract—regardless of whether the ACV payment was more than, less than, or exactly the same as the ultimate cost of repairing or replacing their property. “[A] party to a breached contract has a judicially cognizable interest for standing purposes, regardless of the merits of the breach alleged.” Kuhns v. Scottrade, Inc., 868 F.3d 711, 716 (8th Cir. 2017) (quoting
Finally, State Farm argues that some plaintiffs’ claims are barred by res judicata because they are parties to a class settlement in Chivers v. State Farm Fire & Casualty Co., No. CV-2010-251-3 (Ark. Cir. Ct.). In a separate order entered before the class certification decision at issue in this appeal, the district court dismissed the claims of all plaintiffs who were members of the Chivers class. See Dennington, 2016 WL 1021003, at *4–5. In its certification order, however, the district court did not expressly exclude from the class definition those covered by the Chivers settlement. Plaintiffs agree that the class should be amended to reflect the district court‘s prior ruling. We therefore modify the district court‘s certification order to exclude those subject to the Chivers settlement from the class definition.
The order of the district court is affirmed as modified, and the case is remanded for further proceedings consistent with this opinion.