Miguel Estrada, who argued for Comcast in Comcast v. Behrend, will discuss the Supreme Court’s key ruling this year in that case involving Rule 23(b)(3)’s predominance requirement (see my blog post on Comcast).  Ted Boutrous, who argued Standard Fire Ins. Co. v. Knowles (I had the pleasure of being his co-counsel in that case), will discuss the Supreme Court’s key ruling on the Class Action Fairness Act in that case (see my blog post on Knowles).  Noah Levine, who represented the defendant in Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, will discuss the Supreme Court’s new decision in that case, which held that a plaintiff in a Rule 10b-5 case need not prove materiality at class certification.  The Court’s decision also has significant potential implications beyond the securities context with respect to merits inquiries at the class certification stage (see my blog post on Amgen).  Michael Kellogg, who represents AmEx in American Express Co. v. Italian Colors Restaurant, will discuss the Supreme Court’s forthcoming decision in that case on arbitration clauses with class action waivers (see my blog post about the AmEx oral argument).

And there will be much more.  The seminar also features a panel of in-house counsel from Coca-Cola, Pfizer and LP Building Products addressing class actions from the client’s perspective; and programs on trials of class actions; lessons learned from the Toyota MDL; international class actions; and more.

I will be there, plan to blog about it, and hope to see you there.  The attendance roster is looking strong and space may be limited, so sign up soon.  If you plan to attend, please let me know so I can be sure to look for you there.

In Phillips v. Prudential Insurance Company of America, No. 11-03870, 2013 U.S. App. LEXIS 9130 (7th Cir. May 6, 2013), the insurance policy provided that the insured “may choose to have any death benefit paid in a single sum or under one of the optional modes of settlement described below,” which included the retained asset account and several other options.  With respect to the policy at issue, the insured never selected a payment method.  After he died, the plaintiff (beneficiary) was provided with a claim form that gave her the opportunity to select a payment method, and stated that, if she did not select a payment method, the benefits would be paid through an Alliance Account.  The plaintiff returned the form without making a selection.

The Seventh Circuit affirmed the district court’s conclusion that there was no breach of contract, explaining that:

Prudential’s establishment of the Alliance Account as the default option, and its enrolling Phillips in an Alliance Account rather than providing her a lump-sum benefit payment, did not breach the insurance policy. The policy allowed Phillips to choose any available payment method—those listed in the Settlement Options brochure, those listed in the policy, or those, like the Alliance Account option, that Prudential “may have available at the time the proceeds become payable”—and by leaving the two lines blank on the Claim Form, Phillips chose to enroll in the Alliance Account option.

. . .

Contrary to Phillips’s suggestion, the policy did not make lump-sum payment the default payment method, such that Prudential was required to pay Phillips a lump sum unless she told them otherwise; the policy entitled her to “choose” how she would be paid, and she did just that.

The Seventh Circuit distinguished the First Circuit’s opinion in Mogel v. UNUM Life Ins. Co., 547 F.3d 23 (1st Cir. 2008), which ruled in favor of the plaintiff in a case involving a similar issue, but involved an ERISA claim, and different policy language.

Although there have been some notable decisions unfavorable to the life insurance industry in these cases, the tide seems to be turning in favor of the industry in these cases, perhaps based in part on some improvements to policy language and/or company procedures.

Whether an insurer, in determining the "actual cash value" of a covered loss under an indemnity insurance policy, may depreciate the costs of labor when the term "actual cash value" is not specifically defined in the policy?

Adams v. Cameron Mutual Insurance Company, No. 2:12-cv-02173-PKH, 2013 U.S. Dist. LEXIS 63544 (W.D. Ark. May 3, 2013).  Although the court concluded that decisions by the Oklahoma Supreme Court, a Texas federal court, and a Florida Court of Appeal all supported the insurer’s position that depreciation of labor costs was permissible, there was a lack of pertinent guidance in Arkansas law.  The court found the issue was sufficiently important and potentially case-dispositive to warrant certification to the state supreme court.  (The issue of class certification has not yet been reached in this case.)

The court also denied the insurer’s summary judgment motion, which was premised on an accord and satisfaction defense, based on the insured’s execution of a signed proof of loss.  The court wrote that:

The Court cannot find that there was a meeting of the minds between the parties as to whether the Adamses signed the Proof of Loss and accepted payment from Cameron Mutual in full satisfaction of their claims. The signed Proof of Loss does not include any language that would appear to release Cameron Mutual from future claims made by the Adamses in regard to the tornado loss, nor has Cameron Mutual pointed to any language in the Policy which would prohibit the Adamses from making a supplemental claim upon discovering that their losses were actually greater than previously thought. Therefore, a genuine dispute of material fact remains as to whether the parties agreed that the amount tendered by Cameron Mutual, and accepted by the Adamses, fully satisfied Cameron Mutual's obligations to the Adamses as to any tornado loss. Cameron Mutual has not sustained their burden of showing that summary judgment is appropriate on its asserted affirmative defense, and summary judgment must therefore be denied.

Id. at *16-17.

If the Arkansas Supreme Court answers the certified question in the insured’s favor, I would not be surprised to see additional class action filings on this issue in Arkansas (although the federal district court in this case has not yet decided whether to certify a class).  It is also possible that we might see this issue raised in other jurisdictions.

In most class actions, these changes, if adopted, will probably be welcomed by defendants.  Defendants devote most of their efforts in class actions to defensive discovery, with typically limited information available from the named plaintiffs and the putative (or certified) class.  In class actions that survive initial motion practice, discovery typically becomes a large expense for the defendant.  The real question will be how strictly courts enforce these new limitations, if they are adopted.  If courts take the view that class actions are so complicated that the new rules can largely be ignored, the new rules would have little practical impact.  But if courts recognize that class actions often are narrowly pled to focus on one or two limited issues, then applying these new limitations to class actions in such cases potentially could achieve swifter, less expensive resolution of these cases.

In Radcliffe v. Experian Information Solutions, Inc., 2013 U.S. App. LEXIS 7932 (9th Cir. Apr. 22, 2013), the plaintiffs alleged that the three major credit bureaus improperly issued credit reports that included negative entries for debts that had been discharged in bankruptcy.  A settlement was reached under which class members who could demonstrate that they were denied employment or denied credit could receive payments ranging from $150 to $750.  Other class members who could not demonstrate such harm, but affirmed that they qualified as class members, would receive payments ultimately calculated at $26.  Some of the named plaintiffs, however, withdrew as class representatives and, together with other objectors, opposed approval of this proposed settlement.  The district court approved the settlement, but the Ninth Circuit reversed.

The provision in the settlement agreement that the Ninth Circuit focused on provided for incentive awards “to each of the Named Plaintiffs serving as class representatives in support of the Settlement, [with] each such award not to exceed $5,000.00.”  Id. at *7 (emphasis added).  The Ninth Circuit interpreted the words “in support of the Settlement” as indicating that incentive awards would be provided only to those named plaintiffs who supported approval of the settlement.  The court rejected an argument that this language in the agreement was simply describing those named plaintiffs who were in fact supporting the settlement.  The court explained that this provision in the agreement required reversal of the approval of the settlement because it created an impermissible conflict of interest:

With the prospect of receiving $5,000 incentive awards only if they supported the settlement, Settling Plaintiffs had very different interests than the rest of the class. . . . [T]he conditional incentive awards changed the motivations for the class representatives. Instead of being solely concerned about the adequacy of the settlement for the absent class members, the class representatives now had a $5,000 incentive to support the settlement regardless of its fairness and a promise of no reward if they opposed the settlement. The conditional incentive awards removed a critical check on the fairness of the class-action settlement, which rests on the unbiased judgment of class representatives similarly situated to absent class members.

Id. at *15-16.

The court also suggested that the $5,000 award may have been too high for this case:

Although the conditional incentive awards themselves are sufficient to invalidate this settlement, the significant disparity between the incentive awards and the payments to the rest of the class members further exacerbated the conflict of interest caused by the conditional incentive awards. As the district court below noted, "[c]oncerns over potential conflicts may be especially pressing where, as here, the proposed service fees greatly exceed the payments to absent class members." White, 803 F. Supp. 2d at 1112. There is a serious question whether class representatives could be expected to fairly evaluate whether awards ranging from $26 to $750 is a fair settlement value when they would receive $5,000 incentive awards. Under the agreement, if the class representatives had concerns about the settlement's fairness, they could either remain silent and accept the $5,000 awards or object to the settlement and risk getting as little as $26 if the district court approved the settlement over their objections. The conditional incentive awards at issue here, like the disproportionately large awards in Staton, fatally alter the calculus for the class representatives, pushing them to be "more concerned with maximizing [their own gain] than with judging the adequacy of the settlement as it applies to class members at large." Staton, 327 F.3d at 977.

Id. at *16-17 (emphasis added).  It is unclear whether, if the incentive awards were not “conditional,” the Ninth Circuit would have disapproved them because of their size.  In addition, one member of the panel would have disqualified class counsel from receiving any fees on remand because they had a conflict of interest (an issue the majority left up to the district court).  Id. at *28-29 (Haddon, D.J., concurring).

I see this decision as potentially significant for two reasons.  First, in a typical class action settlement, it is ordinarily the case that an incentive award to a class representative is only going to be paid if the settlement is approved.  Settlement agreements typically provide that they are invalid if not approved, and thus defendants have no obligation to pay an incentive award in a failed settlement.  A class representative thus typically has at least an implicit (if not explicit) incentive to support the settlement, because he or she will not receive the proposed incentive award if the settlement is not approved.  The Ninth Circuit’s decision seems to ignore this reality.  Presumably the Ninth Circuit would not have a problem with the implicit incentive, or would they really want defendants to agree to pay the incentive award in every proposed settlement even if the settlement is not approved?  That would seem odd, and I wonder whether any defendants would agree to that.  Second, an incentive award of $5,000 is not unusual at all, and, given the nature of nearly all class actions, such an award is almost always going to be much larger than what individual class members receive in the settlement.  Do the Ninth Circuit’s comments about this incentive award effectively portend the end of incentive awards in that circuit?  Or is this decision limited to the “conditional” nature of the award?

A recent decision by the D.C. Circuit provides a detailed analysis of how the circuit courts of appeal have applied the commonality standard articulated in Wal-Mart v. Dukes. The key point I see here is that not only do plaintiffs need to identify at least one common question, the answer to which is likely to drive resolution of the litigation, but where the common question is a question of law, there must be evidence that the alleged legal violation was committed in the same manner with respect to the entire class. Broadly-framed, vague common questions are unlikely to succeed, forcing plaintiffs to frame their cases more narrowly.

In DL v. District of Columbia, No. 11-7153, 2013 U.S. App. LEXIS 7375 (D.C. Cir. Apr. 12, 2013), the plaintiffs brought a putative class action alleging that the District of Columbia has systematically failed to properly identify preschool children in need of special education and provide services to them where required by the Individuals with Disabilities Act. The district court certified a class of children who were or may be eligible for such services and had not been identified. The district court framed the common question as whether the class members had received a "free appropriate public education," finding that issue susceptible to classwide proof. Id. at *7-8, 13. After certifying the class, the district court found liability and imposed an injunction.

The D.C. Circuit vacated the certification of the class, and therefore also vacated the finding of liability and the injunction. Focusing on the issue of commonality and citing a number of opinions by other circuits applying Wal-Mart, which "changed the landscape," the court of appeals explained that:

After Wal-Mart it is clear that defining the class by reference to the District’s pattern and practice of failing to provide FAPEs [free appropriate public educations] speaks too broadly because it constitutes only an allegation that the class members ‘have all suffered a violation of the same provision of law,’ which the Supreme Court has now instructed is insufficient to establish commonality given that the same provision of law ‘can be violated in many different ways.’ Wal-Mart, 131 S. Ct. at 2551. In the absence of identification of a policy or practice that affects all members of the class in the manner Wal-Mart requires, the district court’s analysis is not faithful to the Court’s interpretation of Rule 23(a) commonality.

. . . [T]he harms alleged to have been suffered by the plaintiffs here involve different policies and practices at different stages of the District’s Child Find and FAPE process; the district court identified no single or uniform policy or practice that bridges all their claims. . . . Wal-Mart instructs that holding that the District has violated the IDEA as to each class member is not enough to establish Rule 23(a) commonality, 131 S. Ct. at 2551, in the absence of a uniform policy or practice that affects all class members.

Id. at *18-24 (emphasis added). The court noted, however, that, the use of subclasses proposed by the plaintiffs (which had not been addressed by the district court) potentially could satisfy commonality, making clear that it did not believe that a class action on this type of issue could never be certified. This would require that there be a uniform policy or practice affecting all members of each subclass. Id. at *25. Judge Edwards’ concurring opinion noted that "[a]n illegal policy or practice affecting all class members would provide the ‘glue’ necessary to litigate otherwise individualized claims as a class." Id. at *34 (Edwards, J., concurring).

So what does this mean for insurance class actions? The mere fact that an insurer has allegedly breached the same insurance contract or committed a statutory violation with respect to the putative class members should not be enough to establish commonality. Rather, where the claimed breaches of contract or statutory violations occurred in different manners with respect to different class members (or members of a subclass), plaintiffs are unlikely to obtain class certification. What class certification is likely to come down to, as I’ve said before, is a detailed examination of the facts of individual putative class members’ claims, with a focus on how those claims would be tried if they were tried as individual cases. Insurers should demonstrate that, even where mistakes may have been made on some individual claims or transactions, those mistakes were made for different reasons, and different defenses, based on different factual scenarios, would be presented at trial. The only way to demonstrate this is by an in-depth examination of individual claims and transactions. In light of this and other similar decisions, I also expect to see more attempts to certify subclasses, with more narrowly-framed common questions, as plaintiffs’ lawyers try to find a way around the obstacles that Wal-Mart and its lower court progeny impose. Smaller classes focusing on narrower common issues are likely to be the wave of the future.

In Ross, the Seventh Circuit’s opinion focused on: (1) whether the district court’s class certification order satisfied the requirement in Rule 23(c)(1)(B) that a class certification order must adequately define the class and the class issues, claims and defenses; and (2) whether the commonality requirement was satisfied under Wal-Mart v. Dukes.  Neither of these issues were directly addressed in Comcast.  The cert petition in Ross (see SCOTUSblog page) raised the following issues: “(1) Whether it is consistent with Wal-Mart Stores, Inc. v. Dukes to hold that a defendant to a Federal Rule of Civil Procedure 23(b)(3) class action has no right to raise statutory affirmative defenses on an individual basis if the class seeks ‘only’ monetary relief; and (2) whether a district court can conclude that the Rule 23(a)(2) commonality requirement is satisfied when a class claims the denial of overtime pay, without resolving whether dissimilarities in the class would preclude it from establishing liability on a class-wide basis.”  The second issue, which touches on the extent to which merits determinations must be made at class certification, was addressed in Comcast (albeit consistently with Dukes).  Perhaps that is what the Court wants to be reconsidered.

Whirlpool involves claims of mold/mildew problems with front-loading washing machines.  The Sixth Circuit upheld class certification, finding that the district court had conducted a “rigorous analysis” and had appropriately declined to decide merits questions that were not necessary for purposes of class certification.  The district court and court of appeals concluded that the questions of whether there were design defects that caused the problems at issue, and whether product warnings were adequate, were common issues that were appropriate for classwide resolution and predominated.  The class was certified only for purposes of liability, with damages reserved for individual determination.  The cert petition in Whirlpool (see SCOTUSblog page) raised the following issues: “(1) Whether a class may be certified under Federal Rule of Civil Procedure 23(b)(3) even though most class members have not been harmed and could not sue on their own behalf; (2) whether a class may be certified without resolving factual disputes that bear directly on the requirements of Rule 23; and (3) whether a class may be certified without determining whether factual dissimilarities among putative class members give rise to individualized issues that predominate over any common issues.”  Issues (2) and (3) seem to fall within what Comcast addressed, as well as the question of whether the lower courts’ approach of certifying a class only for liability and not for damages in Whirlpool is consistent with Comcast.

These two orders seem to confirm that the Court’s majority views the Comcast decision as substantially more than merely a narrow ruling relatively limited to the unique circumstances of that case.  It will be interesting to see what the Sixth and Seventh Circuits do with these cases on remand. 

In Albert v. Erie Insurance Exchange, 2013 PA Super 59, 2013 Pa. Super. LEXIS 146 (Pa. Super. Ct. Mar. 20, 2013), the auto policy provided that the insurer would pay for “reasonable expenses [of] anyone we protect may incur at our request to help us investigate or defend a claim or suit.  This includes up to $100 a day for actual loss of earnings.”  Id. at *2.  The trial court dismissed the complaint (on the equivalent of a motion to dismiss) based on the plaintiff’s failure to allege that she made any request for reimbursement under this provision.  It appears that the plaintiff did not want to make that allegation because it would be detrimental to pursuit of a class action (perhaps on the assumption that many insureds do not request reimbursement under this coverage, and those who do request it likely receive it).  The Pennsylvania Superior Court majority agreed with the trial court’s reasoning that the insurance policy did not require Erie to advise the plaintiff of the terms of the policy, which the plaintiff had read and signed.  The court also relied upon a policy provision requiring that the insured notify the insurer or insurance agent “when a loss happens,” concluding that this provision required an insured to make a claim for the reimbursement of litigation expenses.  Id. at *8.  The court cited with approval the Ohio Supreme Court’s decision in a similar case, Kincaid v. Erie Ins. Co., 944 N.E.2d 207 (Ohio 2010).  The court also rejected arguments that an obligation to advise the insured about the availability of this coverage was created when Erie hired counsel to defend the insured.  The court found no basis for bad faith liability where there was no duty to inform the insured about the policy provision, and no duty to provide reimbursement without a request.  Id. at *17. 

Judge Colville dissented with respect to the breach of contract and declaratory judgment claims. The dissent would have held that the policy was silent with respect to whether a request for reimbursement is required.  To the extent that the policy required the insured to provide notice to the insurer “[w]hen there is an accident or loss,”  Judge Colville concluded that a claim for reimbursement of litigation expenses would not be an “accident” or a “loss,” and thus this policy provision was inapplicable.

Although appellate courts in both Ohio and Pennsylvania have now ruled in favor of insurers on this issue, insurers may wish to continue to monitor this issue and review their own policy language that governs this type of claim.  There is of course no assurance that a court in some other jurisdiction would not agree with the dissent in this case.  It also might be good business to pay this coverage proactively – it may create goodwill and not cost very much to pay $100 to those insureds who actually testify at a deposition or trial.

Comcast is an antitrust case in which the plaintiffs allege that Comcast, by acquiring competitors in the greater Philadelphia area, improperly enabled itself to charge higher prices.  The district court certified the class on one theory, that Comcast deterred “overbuilders” (i.e., companies that would compete in areas where Comcast already was operating).  The plaintiffs’ expert, however, calculated damages that were not limited to the “overbuilder” theory but also took into account three other theories that were rejected by the district court for purposes of class certification.  This failure to segregate the damages calculation to the “overbuilder” theory ultimately was the death knell when the case reached the Supreme Court.  (For more detailed background on the case, see my previous blog posts about the oral argument and grant of certiorari.) 

Justice Scalia, writing for a 5-4 majority (including the Chief Justice and Justices Kennedy, Thomas and Alito), issued an 11-page opinion.  These short opinions are great because it makes it so much easier for lower courts and counsel to get through them and apply the Court’s reasoning (and for bloggers like me to get their posts out more quickly).  Here are the key points: 

• Rigorous Analysis Requirement:  The Court reiterated that a “rigorous analysis” of the class certification requirements is necessary, and that this extends to both Rule 23(a) requirements and Rule 23(b) requirements, including the requirement of predominance of common questions of law or fact where certification is sought under (b)(3).  This “will frequently entail ‘overlap with the merits of the plaintiff’s underlying claim.”  The Court described Rule 23(b)(3) as an “adventuresome innovation” designed for cases where class treatment may not be called for, and noted that the district court has a “duty to take a ‘close look’ at whether common questions predominate over individual ones.”  (Slip op. at 6.)  This largely reiterates what the Court said in Wal-Mart v. Dukes, except that the Court did not reach Rule 23(b) issues in Wal-Mart.  But lower courts have generally viewed the “rigorous analysis” requirement as applicable to Rule 23(b), including predominance. 
• Damages Requiring Class-Wide Proof:  The Court found that “respondents’ model falls far short of establishing that damages are capable of measurement on a classwide basis,” and that “[q]uestions of individual damage calculations will inevitably overwhelm questions common to the class.”  (Slip op. at 7.)  The Court further explained that “a model purporting to serve as evidence of damages in this class action must measure only those damages attributable to that theory [i.e., the theory on which the class was certified].  If the model does not even attempt to do that, it cannot possibly establish that damages are susceptible of measurement across the entire class for purposes of Rule 23(b)(3).”  (Id.) 
• Consideration of the Merits at Class Certification:  The Court rejected the Third Circuit’s view that a more detailed calculation of damages was a merits issue not appropriate for resolution at class certification.  Justice Scalia wrote that the Third Circuit’s reasoning “flatly contradicts our cases requiring a determination that Rule 23 is satisfied, even when that requires inquiry into the merits of the claim.”  (Id.)  This further emphasizes that lower courts must dig into the merits at class certification.  Of course, that increases the litigation cost and the time it takes to reach a decision on certification.

The dissent, authored jointly by Justices Ginsburg and Breyer, and joined by Justices Sotomayor and Kagan, argued that the Court should have dismissed certiorari as improperly granted.  When it granted certiorari, the Court had reformulated the question presented in a manner that suggested that the question presented was a Daubert question regarding whether admissibility of expert testimony was a proper consideration at the class certification stage.  In fact, Comcast had never filed a Daubert motion (but the majority concludes that the Court could still properly address whether the evidence, assuming it was admissible, satisfied Rule 23 requirements). 

The dissent also attempts at length (at pp. 3-5) to suggest that the Comcast decision is limited to the circumstances of this case, where apparently there was no dispute between the parties that the damages issue was an appropriate consideration at class certification.  The dissent suggests that the majority is not rejecting prior lower court decisions concluding that a need for individual damages calculations often does not prevent a class from being certified.  But Justice Scalia’s majority opinion says nothing of that sort, and does not suggest any agreement with the dissent on that point.  When the Court’s majority wishes to limit the scope of its decision, it typically says so expressly, and there was no such statement here.  The majority opinion appears to require that plaintiffs present, with admissible evidence, a method for proving damages on a class-wide basis.  While I’m sure plaintiffs’ lawyers will cite the dissent in attempting to limit the reach of the majority opinion, lower courts bound to follow the majority opinion may not be inclined to read it so narrowly.

In Doan v State Farm General Insurance Company, Case No. 1-08-CV-129264 (Cal. Superior Ct., Santa Clara County, Mar. 18, 2013), the plaintiffs allege that State Farm failed to comply with a California statute and regulation with respect to adjustment of personal property (contents) claims, by failing to take into account the actual condition of contents items in calculating depreciation.  The plaintiffs allege that State Farm adjusters use a depreciation guide that measures depreciation based on age alone, without taking into account condition or even asking insureds about the condition of their items. 

The California statute and regulation at issue provide as follows:

In case of a partial loss to the structure, or loss to its contents, [actual cash value is] the amount it would cost the insured to repair, rebuild, or replace the thing lost or injured less a fair and reasonable deduction for physical depreciation based upon its condition at the time of the injury or the policy limit, whichever is less. In case of a partial loss to the structure, a deduction for physical depreciation shall apply only to components of a structure that are normally subject to repair and replacement during the useful life of that structure.

Cal. Ins. Code § 2051(b) (emphasis added).

When the amount claimed is adjusted because of betterment, depreciation, or salvage, all justification for the adjustment shall be contained in the claim file. Any adjustments shall be discernable, measurable, itemized, and specified as to dollar amount, and shall accurately reflect the value of the betterment, depreciation, or salvage. Any adjustments for betterment or depreciation shall reflect a measurable difference in market value attributable to the condition and age of the property and apply only to property normally subject to repair and replacement during the useful life of the property. The basis for any adjustment shall be fully explained to the claimant in writing.

10 C.C.R. § 2695.9(f) (emphasis added).

In its ruling on class certification, the California Superior Court found that certification of an injunctive relief class was appropriate because “Defendant does not adequately address Plaintiffs’ showing that insureds are not provided with a written explanation of how Defendant calculates depreciations for purposes of § 2695.9(f), which requires that the basis for any depreciation adjustment ‘be fully explained to the claimant in writing.’”  (Slip op. at 13.)  With respect to the proposed damages class, the court found that State Farm did not make an attempt to seek information about the physical condition of contents items.  The court found it significant that, based on a small sample of claim files, the plaintiff’s expert concluded that somewhere between 65% to 92% of claim files would have some items that were depreciated solely based on the depreciation guide.  (Id. at 14.)  The court rejected State Farm’s argument that individualized inquiries would be necessary in determining the appropriate depreciation on individual items, on the theory that the plaintiffs could seek to recover only for items that were depreciated solely based on the depreciation guide (and if this turned out to be not doable, the class could be decertified later).  The court also certified a bad faith claim, explaining only that “[a]ssuming commonality on the use of the Depreciation Guide, the issue of bad faith would flow from it.”  (Id.)   The court further concluded that State Farm had failed to present specific evidence that individualized defenses would predominate.  (Id.)

While I expect this decision will be appealed, insurers writing property policies in California might want to pay close attention to this case.  Insurers may also wish to review how they are handling depreciation in California in light of the issues raised in this case.