The formula involves several calculations including a "base loss of value" of 10% of the vehicle's pre-loss retail value, along with modifiers for damage severity and mileage. (Photo: anekoho/Adobe Stock)
Judge Clay Land of the U.S. District Court for the Middle District of Georgia denied class action certification to more than 600,000 State Farm insurance policyholders over claims that the insurer had undervalued replacement and repair costs for accident-damaged vehicles for years.
Land wrote that a 20-year-old court decision aimed at providing a formula for evaluating the value of a vehicle's lost value — which also allows for an insured to challenge such an estimate, if need be — seemed to settle the issue.
With its 2001 opinion in a prior class action, State Farm v. Mabry, 556 S.E.2d 114, "the diminution in value litigation seemed settled," Land wrote.
"But now another generation of creative lawyers wants in on the action," he continued. "They have focused their attack on the court-approved Mabry formula, claiming it systematically underestimates diminution of value claims. They maintain that the formula should be rewritten, and they seek to do so through this putative class action."
The plaintiffs did present evidence backing up their claims that some vehicles lost more of their value than the insurer was willing to pay for, the judge said, but their "bold assessment that the formula underestimates diminished value every time … must be subjected to closer scrutiny."
As detailed in the complaint and judge's order, the cases hinge on the resolution Georgia's justices reached in Mabry, when they ruled that "State Farm's vehicle insurance policies covered property damage claims for post-repair diminution in value," and that the insurer must have the means to assess that loss.
"At the time, State Farm did not have any methodology for determining the post-repair diminution in value for claims under its vehicle insurance policies," Land wrote, and the trial court in Muscogee County "gave State Farm several options for making diminished value assessments, including a methodology designated as the '17(c) formula,'" which State Farm adopted.
"After the Georgia Supreme Court affirmed the trial court's orders, the parties agreed to a settlement of the class action claims. In its order and final judgment approving the settlement, the trial court concluded that the 17(c) formula 'is an acceptable methodology for assessing diminished value claims'" and was approved for assessing such claims in Georgia.
The formula involves several calculations including a "base loss of value" of 10% of the vehicle's pre-loss retail value according to the National Automobile Dealers Association website, along with modifiers for damage severity and mileage.
If an insured disputes State Farm's assessment, the claim is routed to a "Tier 2" unit "that specializes in handling Georgia diminished value disputes."
"If the 17(c) formula was applied correctly, State Farm invites the insured to present evidence regarding the diminished value," the order said. "The State Farm Tier 2 unit is instructed that deviation from the 17(c) formula should be rare."
In 2018, a second class action asserting claims for breach of contract was filed against State Farm in Muscogee County Superior Court, asserting that the insurer made it a practice to "surreptitiously misapply" the formula "so as to avoid paying its policyholders even the modest diminished value that an accurate application of the formula would generate."
State Farm had the case removed to federal court, and the plaintiffs moved to certify a class of everyone insured by State Farm who filed damage claims with the insurer after Dec. 7, 2017, with the exception of those whose vehicles were declared a total loss.
In denying the motion, Land wrote that the plaintiffs' expert had testified that his research showed that State Farm underestimated the diminution of value in every case he examined.
The court "is not convinced that plaintiffs have established that every member of the proposed class was injured by State Farm's application of the 17(c) formula," Land wrote.
While the plaintiff's expert "did conclude that State Farm under-assessed diminished value compared to his individualized appraisals in all fifty-one cases he evaluated," his "small sample of claims differs substantially from the entire universe of proposed claims data."
"At most," the judge wrote, the expert's analysis "suggests that the 17(c) formula does not accurately calculate diminished value for claims involving late model, low mileage vehicles with high repair values."
"Plaintiffs also did not point to evidence that the 17(c)'s mileage modifier results in a statistically significant reduction to a diminished value 100% of the time," he said, and "did not point to evidence that every high mileage vehicle suffers diminished value. Simply put, the present record does not show that alleged flaws in the 17(c) formula injured all the proposed class members."
Land also said the settlement in Mabry meant that State Farm was constrained to use the 17(c) formula or risk violating its terms.
"When one steps back for a moment to catch a glimpse of that often elusive big picture, he notices the stunning nature of what plaintiffs' counsel asks be done here," he wrote. "Plaintiffs in effect maintain that the only way State Farm could not breach its contracts with its insureds who presented property damages claims was for it to subject itself to contempt by refusing to use the judge-approved Mabry formula."
In a footnote, Land also took issue with "any suggestion that a class action is the only feasible way for these property damage claims to be pursued."
"[S]mall claims courts exist in this state for a reason, and Georgia law does provide for the recovery of litigation expenses, including attorney's fees, in the appropriate case," he said. "So these putative class members are certainly not without a remedy."
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