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April 2016

Gordon & Rees Team Defeats Class Certification of Washington Auto Insurance Diminished Value Suit

Gordon & Rees San Francisco partners Fletcher Alford and Jordan Altura, along with Seattle partner Shannon Wodnik, defeated a motion for class certification in a case brought against their client, an auto insurer. This was a particularly noteworthy victory given that the same plaintiffs’ attorneys have obtained class certification in multiple cases against other auto insurers in Washington State using the exact same theories of liability and even the same stable of experts in each case. As a result, plaintiff’s counsel was extremely confident of winning cert in this case as well.

In this case, as in the others, Plaintiff alleged the auto insurer failed to adequately compensate its insureds for the diminished value of their vehicles after they had been repaired following an accident.  In 2011, the Washington Supreme Court ruled that such post-accident diminished value was covered under the auto policy at issue and that “[a] vehicle suffers ‘diminished value’ when it sustains physical damage in an accident, but due to the nature of damage, it cannot be fully restored to its preloss condition.” Moeller v. Farmers Ins. Co. of Wash., 173 Wn.2d 264, 271 (2011). Since the Moeller decision, multiple Washington state courts and one federal court have certified classes in the other diminished value cases. 

In its effort to buck the certification trend, the Gordon and Rees team focused on the individualized factual issues in determining whether each vehicle in the proposed class could be returned to its pre-loss condition, such as whether each vehicle had pre-existing damage prior to the accident. The team also presented evidence showing changes to the policy language and claims-handling procedures during the proposed class period, and differences between types of coverage within the proposed class. Additionally, with the help of expert testimony, the team attacked the plaintiff’s proposed damage model, demonstrating that it could not only over-compensate some class members, but in a novel argument that it could also undercompensate some class members, a point on which the court relied in denying cert.     

After prolonged briefing, a battle to exclude experts on both sides, and a lengthy and heated oral argument, the district court issued its 12-page order denying Plaintiff’s motion for class certification. The district court affirmed its duty to conduct a ‘rigorous analysis’ of the Rule 23 requirements for class certification, despite the fact that other Washington courts had certified essentially identical cases for class treatment. The district court concluded that the plaintiff failed to satisfy the Rule 23 requirements of typicality, predominance, and superiority. Significant to its determination were the following factors: as to typicality, the proposed class included two types of coverage requiring members to make different legal arguments to state a breach of contract claim, and the different claims-handling practices over time meant that not all members of the class were subject to the same course of conduct; as to predominance, individual factual assessments were necessary to determine coverage under the different types of coverage and to determine whether a vehicle sustained diminished value; and as to superiority, class members have an interest in individually controlling the prosecution of separate actions because otherwise they could be undercompensated.

Significantly, the court distinguished the policy language from that at issue in Moeller, by pointing out that the policy provision for collision/comprehensive coverage limits liability to “the lesser of”  the value of the damaged vehicle or the cost to repair or replace the vehicle, and that other jurisdictions had denied recovery for diminished value where the policy includes the “lesser of” limitation. It was significant to the Washington Court of Appeals and the Washington Supreme Court that the policy language in Moeller did not contain the “lesser of” limitation. The district court did not go as far as holding there was no coverage for diminished value where the policy contains the “lesser of” limitation, but it certainly opened the door for such a holding. Overall, this court’s decision could create a significant hurdle for Plaintiff’s counsel, who have built a cottage industry out of these types of diminished value suits. 

Fletcher C. Alford
Jordan S. Altura
Shannon L. Wodnik