Monteleone et al v. The Auto Club Group et al

Filing 100

OPINION and ORDER denying 77 MOTION to Certify Class of Their Declaratory Judgment Claims Under Fed.R.Civ.P.23(b)(2) and granting in part and denying in part 78 MOTION for Summary Judgment and Declaratory Judgment. Signed by District Judge George Caram Steeh. (MBea)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

FRANK MONTELEONE, and
SHERI MONTELEONE,
Plaintiff,
CASE NO. 13-CV-12716
HONORABLE GEORGE CARAM STEEH

v.
THE AUTO CLUB GROUP, el al.,
Defendants.
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OPINION AND ORDER
This putative class action arises out of plaintiffs’ claims for homeowners’ insurance
coverage for water damage in their basements. The named plaintiffs, Frank and Sheri
Monteleone, seek over $100,000 in damages.

(Amended Complaint, ¶ 25, 27).

Defendants are insurance companies The AutoClub Group, MemberSelect Insurance
Company, AutoClub Insurance Assoc., Auto Club Group Insurance Co., Auto Club
Property-Casualty Insurance Co., and Auto Club Services (collectively “defendants”).
Plaintiffs originally sought to proceed as a class action under three theories as set forth in
their three-count amended complaint: (1) certification under Federal Rule of Civil Procedure
23(b)(2) seeking a declaration as to the meaning of certain allegedly ambiguous coverage
and exclusion provisions within the insurance policy, (2) certification under Rule 23(b)(3)
for breach of contract on the theory that defendants categorically denied valid claims based
on an erroneous application of the policy terms, and that all individuals who merely
purchased insurance, even those who never filed claims, are entitled to a partial refund of
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premiums because certain coverage is allegedly illusory, and (3) certification under Rule
23(b)(3) for breach of contract arising out of rejected claims for certain water damage in
plaintiffs’ basements. By prior written orders of the court, class certification under both the
second and third theories for breach of contract has been denied. In addition, Count II,
which sought relief of partial premiums paid under the “phantom coverage” theory, has
been dismissed. The court is left now to decide whether class certification is appropriate
under Rule 23(b)(2) for the declaratory judgment claim.
Now before the court are: (1) plaintiffs’ motion for partial summary judgment and
declaratory relief which seeks judicial interpretation of certain contested policy terms and
exclusions, and (2) plaintiffs’ motion for certification of the declaratory judgment class in the
Monteleone’s case, 13-12716. The Bushway plaintiffs in the companion case, 14-11417,
have joined in the motion for declaratory relief, but not in the motion for class certification.
Oral argument was delayed at the parties’ request as they were engaged in settlement
negotiations. A hearing was eventually held on June 16, 2015. For the reasons set forth
below, plaintiffs’ motion for partial summary judgment shall be granted in part and denied
in part, and plaintiffs’ motion for class certification shall be denied.
I. Background
On January, 17, 2013, plaintiffs suffered water damage in their finished basement
of their Clinton Township home which caused significant harm, including loss of personal
property, and structural damage to their home. (Amended Complaint, ¶ 25). Plaintiffs
claim the water damage has been traced to a faulty back flow preventer in the plumbing
waste line that extends under the slab in their basement. Id. at ¶ 26. They claim coverage
for the loss existed under the policy’s provision providing that insured perils include:
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13. Accidental discharge or overflow of water or steam from within a
plumbing, heating, air conditioning or automatic fire protection sprinkler
system or domestic appliance.
Id. at ¶ 44 (quoting Homeowner’s Policy at 8, ¶ 13). Plaintiffs claim they paid for coverage
of water damage claims where water originating from within the home is prevented from
leaving the premises. Id. at ¶¶ 6-7. Specifically, plaintiffs claim they paid for coverage for
water damage losses where water “(1) from the home is unable to reach the municipal
sewer (2) due to a blockage or other plumbing failure (3) which forces the exiting water to
re-enter the home through a basement or floor drain.” Id. at ¶ 5. Plaintiffs describe such
water damage events as “overflows” which they claim were covered losses under their
homeowner’s insurance policies. Id. at ¶ 44 (citing Homeowner’s Policy at 8, ¶ 13).
Defendants denied coverage under the policies’ exclusion ¶ 3.b which provides no
coverage exists for:
water or water-borne material which backs up through sewers or drains or
water which enters into and overflows from within a sump pump, sump pump
well or other type system designed to remove subsurface water which is
drained from the foundation area.
Id. at ¶ 45 (quoting Homeowner’s Policy at 9, ¶ 3.b). Optional endorsements are available
to override this exclusion which provide limits usually between $5,000 to $25,000. Named
plaintiffs had purchased such an endorsement in this case, and under this option,
defendants disclaimed liability and coverage above the $5,000 provided on the
endorsement. Id. at ¶ 28. Plaintiffs claim that defendants wrongfully denied coverage
under the policy and failed to investigate the cause of their loss. Id. at ¶ 26.
There is no dispute that under the policies, claims for “backups” were not covered.
“Backups” occur when water originates from an external source, like a municipal sewer
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system. Id. at ¶ 7. Specifically, the policies describe “backups” which are excluded from
coverage under ¶ 3.b, supra, and ¶ 13.c which provides that no coverage exists for loss:
caused by or resulting from water which backs up through sewers or drains
or water which enters into and overflows from within a sump pump, sump
pump well or other type system designed to remove subsurface water which
is drained from the foundation area.
Id. at ¶ 44 (citing Homeowner’s Policy at p. 8, ¶ 13.c). Plaintiffs claim that beginning in
2009, defendants began conflating all “overflow” losses as “backups” and wrongfully denied
claims for “overflow” losses. Id. at ¶¶ 48-49. In support of this claim, plaintiffs rely on an
e-mail written by defendants’ director of claims, Nicole Whitlow, which states that “[a]ny
claim reported with water back up or overflow coming from a basement drain is not a
covered loss unless the insured has purchased the H-500 endorsement.” Id. at ¶¶ 49-50.
In their motion for summary judgment, plaintiffs seek a declaration that (1) the policy
in question afforded property and contents coverage for water overflow losses, (2) the ¶ 3.b
exclusion does not apply to basement/floor drain water claims caused by water originating
from within the resident premises, and (3) defendants bear the burden of establishing that
an exclusion applies.1 Defendants oppose the relief sought.
II. Summary Judgment Standard
Federal Rule of Civil Procedure 56(c) empowers the court to render summary
judgment "forthwith if the pleadings, depositions, answers to interrogatories and admissions
1

In their reply brief, plaintiffs modify the declaratory relief sought. Because a
reply brief is the last pleading filed and an opposing party has no right to file additional
papers, the Sixth Circuit has squarely held that it is impermissible to raise an issue for
the first time in a reply brief. United States v. Jerkins, 871 F.2d 598, 602 n.3 (6th Cir.
1989). Thus, the court shall consider the declaratory relief sought in plaintiffs’ original
motion only.
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on file, together with the affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to judgment as a matter of law." See
Redding v. St. Eward, 241 F.3d 530, 532 (6th Cir. 2001). The Supreme Court has affirmed
the court's use of summary judgment as an integral part of the fair and efficient
administration of justice. The procedure is not a disfavored procedural shortcut. Celotex
Corp. v. Catrett, 477 U.S. 317, 327 (1986); see also Cox v. Kentucky Dept. of Transp., 53
F.3d 146, 149 (6th Cir. 1995).
The standard for determining whether summary judgment is appropriate is "'whether
the evidence presents a sufficient disagreement to require submission to a jury or whether
it is so one-sided that one party must prevail as a matter of law.'" Amway Distributors
Benefits Ass’n v. Northfield Ins. Co., 323 F.3d 386, 390 (6th Cir. 2003) (quoting Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 251-52 (1986)). The evidence and all reasonable
inferences must be construed in the light most favorable to the non-moving party.
Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Redding,
241 F.3d at 532 (6th Cir. 2001). "[T]he mere existence of some alleged factual dispute
between the parties will not defeat an otherwise properly supported motion for summary
judgment; the requirement is that there be no genuine issue of material fact." Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986) (emphasis in original); see also National
Satellite Sports, Inc. v. Eliadis, Inc., 253 F.3d 900, 907 (6th Cir. 2001).
If the movant establishes by use of the material specified in Rule 56(c) that there is
no genuine issue of material fact and that it is entitled to judgment as a matter of law, the
opposing party must come forward with "specific facts showing that there is a genuine issue
for trial." First Nat'l Bank v. Cities Serv. Co., 391 U.S. 253, 270 (1968); see also McLean
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v. 988011 Ontario, Ltd., 224 F.3d 797, 800 (6th Cir. 2000). Mere allegations or denials in
the non-movant's pleadings will not meet this burden, nor will a mere scintilla of evidence
supporting the non-moving party. Anderson, 477 U.S. at 248, 252. Rather, there must be
evidence on which a jury could reasonably find for the non-movant. McLean, 224 F.3d at
800 (citing Anderson, 477 U.S. at 252).
III. Analysis
A.

Plaintiffs’ Motion for Declaratory Relief
1. Principles of Insurance Policy Construction
Insurance policies are subject to the same rules of contract construction as any

other contract. Rory v. Continental Ins. Co., 473 Mich. 457, 461 (2005). Where the text
of an insurance policy is clear and unambiguous, the court must enforce the provision as
written. Id. In interpreting an insurance policy, the court is to give the written terms their
ordinary and plain meaning. Id. at 464. If, on the other hand, a policy provision is
ambiguous, the ambiguity will be resolved in favor of the insured. Fire Ins. Exchange v.
Diehl, 450 Mich. 678, 687 (1996). "[T]echnical or constrained constructions are to be
avoided." UAW-GM Human Resource Ctr. v. KSL Recreation Corp., 228 Mich. App. 486,
491-492 (1998) (citations omitted)). “Clear and specific exclusionary provisions must be
given effect, but are strictly construed against the insurer and in favor of the insured.”
Hastings Mut. Ins. Co. v. Safety King, Inc., 286 Mich. App. 287, 292 (2009) (citations
omitted).
It is a cardinal principle of construction that a contract is to be construed as a whole;
all of its parts are to be harmonized so far as reasonably possible. Laevin v. St. Vincent

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De Paul Soc’y of Grand Rapids, 323 Mich. 607, 609 (1949). No part of a contract is to be
taken as eliminated or stricken by some other part unless such a result is fairly inescapable.
Id. at 610. “Every word in the agreement must be taken to have been used for a purpose,
and no word should be rejected as mere surplusage if the court can discover any
reasonable purpose thereof which can be gathered from the whole instrument.” Id. at 610
(internal quotation marks and citations omitted).
2.

Declaration that Policy Covers all “Overflow” Losses

In their motion for summary judgment on their claim for declaratory judgment,
plaintiffs seek a court ruling that “Defendants’ “All-Risk” Homeowners’ policy afforded
property and contents coverage for water overflow losses.” (Doc. 78 at 13). The requested
declaration shall be denied inasmuch as the policy interpretation sought is overly broad and
ambiguous and fails to resolve any disagreement between the parties as to the correct
interpretation of the policies. Because there is no dispute that defendant-insurers cover
many “overflows” as defined by ¶ 13, it does not appear that the ruling plaintiffs seek is
necessary to resolve an actual dispute between the parties, or whether such a ruling would
in fact resolve the dispute if one does, in fact, exist. It appears that the parties’ real dispute
is over the question of when the exclusions set forth in ¶¶ 3.b and 13.c bar coverage of
certain water losses involving basement/floor drains. That issue is addressed below.
3.

Declaration of Policy Meaning of ¶ 3.b Exclusion

In their motion for summary judgment, plaintiffs also seek a policy interpretation that
“the ¶ 3.b exclusion does not apply to basement/floor drain water claims caused by water
originating from within the resident premises.” Id. For the reasons set forth below, the

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court shall grant plaintiffs’ motion and issue a declaratory judgment that the policy so
provides. As stated supra, ambiguities within the policy are resolved in favor of the insured.
Paragraph 13 provides coverage exists for:
13. Accidental discharge or overflow of water or steam from within a
plumbing, heating, air conditioning or automatic fire protection sprinkler
system or domestic appliance.
(Amended Complaint at ¶ 44 (quoting Homeowner’s Policy at p. 8, ¶ 13)). Exclusion ¶ 3.b
provides no coverage exists for:
water or water-borne material which backs up through sewers or drains or
water which enters into and overflows from within a sump pump, sump pump
well or other type system designed to remove subsurface water which is
drained from the foundation area.
Id. (quoting Homeowner’s Policy at p. 9 ¶ 3.b). In their papers, defendants appear to agree
with the court’s assessment that the coverage provision of ¶ 13 and the ¶ 3.b exclusion are
ambiguous. They claim to have resolved this conflict by interpreting the policy to require
coverage for damage caused by water which backs up through any drain other than a
basement or floor drain, including toilets, sinks, and other appliances, even where the water
originates from a municipal sewer backup. Defendants contend their interpretation is
reasonable, and actually provides more coverage than the interpretation argued by
plaintiffs. Furthermore, defendants claim that their “interpretation of the [¶ 3.b exclusion]
clause has never been addressed in any other case.” (Doc. 86 at 2).
Defendants’ interpretation of the policy is not grounded in the actual written terms
of the policy, and defendants appear to admit as much. The court rejects defendants’
interpretation because it would render the coverage provided for occurrences involving
accidental discharge of overflows of water from within a plumbing system meaningless in
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many instances. Plaintiffs’ interpretation, on the other hand, offers a solution to the
ambiguity which gives meaning to every term of the policy. Defendants argue that the ¶¶
3.b and 13.c exclusions can be read in conformity with coverage provided for in ¶ 13 for the
accidental discharge or overflow of water from within a plumbing system. Defendants state
the following:
The sewer-or-drain exclusion clearly does not swallow or negate the
coverage. That’s because not all overflows and discharges within the
insured’s plumbing system come from drain backups. For example, there
would be coverage and the backup exclusion would not apply to: a clogged
toilet, pipes leaking or bursting; water escaping from a crack in a hot water
tank; broken water lines attached to appliances; water damage involving an
air conditioner, humidifier or other appliance; and an overflow in a sink or
bathtub where the water is left on and the drain is stopped up by a plug. All
of these instances show that there is substantial coverage of overflows and
discharges and the sewer-or-drain exclusion clearly does not swallow the
coverage.
(Doc. 86 at 14-15). While defendants’ argument addresses certain circumstances where
they admit coverage exists, it does not address the ambiguity in the policy as to whether
coverage exists for water which enters the home through a basement or floor drain caused
by water originating within the home.
At oral argument, plaintiffs argue that their interpretation is consistent with the
manner in which defendants interpreted homeowners’ policies prior to 2009. In support of
this argument, plaintiffs relied on defendants’ claims adjuster’s training manual which
indeed comports with the interpretation plaintiffs urge here. (Amended Complaint, ¶ 6).
At oral argument, defendants largely conceded that prior to 2009, their interpretation of the
homeowners’ policies were consistent with the interpretation of the policies plaintiffs
advocate for here, but argued that their prior interpretation of the policies is at odds with the

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plain language of the policies. Having already found the language to be ambiguous, the
court does not find this argument convincing.
Numerous courts in other jurisdictions faced with the same or similar policy
provisions deemed ambiguous here have adopted the interpretation urged by plaintiffs. In
Pichel v. Dryden Mut. Ins. Co., 986 N.Y.S.2d 268, 271 (3d Dep’t 2014), for example, the
court held that the competing policy provisions there required coverage for “an occurrence
originating within the insured’s property (i.e., in a property owner’s plumbing system)” but
excluded coverage for “a backup that originates off an insured’s property (i.e., in a
municipal sewer or drain).” Collecting cases from multiple jurisdictions reaching the same
result, the court explained:
In short, these cases stand for the proposition that water damage caused by
a backup/overflow that originates from a pipe or clogged drain located within
the insured’s property line comes from the insured’s plumbing system and is
covered by the policy; conversely, if the cause of the backup/overflow is from
outside the insured’s property boundaries - such as a clogged municipal
sewer that forces water from outside the insured’s plumbing system to
overflow- the sewer or drain exclusion is applicable.
Id. In light of the ambiguity between the coverage provided in ¶ 13 and the ¶ 3.b exclusion,
those policy terms can be reconciled under the same analysis employed by the Pichel
court.
Defendants argue that Cardio Diagnostic Imaging, Inc. v. Farmers Ins. Exch., 212
Cal. App. 4th 69 (2012) stands for the proposition that the back-up exclusion applies even
where the blockage originates inside the insured’s premises. In that case, the homeowner
sustained damage when a toilet overflowed caused by a blockage in the sewer line. Id. at
72. The policy excluded coverage for losses caused by “[w]ater that backs up or overflows
from a sewer, drain or sump.” Id. at 74. The policyholder argued the exclusion did not
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apply because the water must come out of the sewer or drain and not a toilet. Id. The
court disagreed finding the exclusion unambiguous and denied coverage. Plaintiffs argue
that Cardio Diagnostic is distinguishable because it excluded both “back ups” and
“overflows” whereas the ¶ 3.b exclusion here only applies to back ups. In addition, the
court in that case was not addressing a policy provision which provided for coverage for
accidental discharge or overflow of a “plumbing system.” In that case, the court did not
address competing policy provisions, nor did it attempt to resolve an ambiguity like that at
issue here.
Defendants argue that several courts have rejected plaintiffs’ “outside origin” theory,
but those cases are distinguishable. In Penn-Am. Ins. Co. v. Mike’s Tailoring, 125 Cal.
App. 4th 884, 892 (2005), the court rejected the insured’s argument that coverage existed
because the sewage backup was caused by a blockage of the sewer on its own premises.
The court distinguished its holding from other cases adopting plaintiff’s argument, noting
those cases involved policy provisions specifically covering an accidental discharge of
water from within a plumbing system. Id. at 893. Similarly, as to the other cases cited by
defendants which involved denials of coverage for losses caused by backups from sewers
in the plaintiffs’ own yard, none of those cases involved policy clauses which provided for
coverage for water losses caused by a homeowner’s “plumbing system.” See
Commandments, Inc. v. Penn-Am. Ins. Co., 2010 Phila. Ct. Com. Pl. LEXIS 394, at *5
(2010); Campbell v. Allstate Ins. Co., 2006 Pa. Dist. & Cnty. Dec. LEXIS 198, at *13 (2006).
Similarly, defendants’ reliance on Newlo Realty Co. v. U.S.F. & G. Corp., 624 N.Y.S.2d 33,
34 (1995) fails to support their interpretation as it involved denial of coverage for a
blocked-up bathroom sink drain, and there is no discussion in that one page decision
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discussing a coverage term, like the one at issue here, providing for losses resulting from
an accidental discharge from a homeowner’s plumbing system.
Defendants contend that plaintiffs’ policy interpretation ignores the word “drains” in
the ¶ 3.b exclusion, and impermissibly renders the word mere surplusage or negates it.
Plaintiffs respond that the ambiguity, if any, in the policy is caused by the use of the terms
“overflow” in ¶ 13 and that same term and the term “backs up” in ¶ 3.b, and that the word
“drains” is not surplusage because it excludes water which “backs up” through drains, but
not water which “overflows” through drains caused by water in a plumbing system within
the home. Plaintiffs’ argument is persuasive.
Additional support for plaintiffs’ interpretation of the ¶ 3.b exclusion lies in the policy
language surrounding that provision. The other exclusions set forth in ¶ 3 involve only
water losses occurring outside the premises: ¶ 3.a excludes losses from “flood, surface
water, waves, tidal water or overflow of a body of water,” and ¶ 3.c excludes losses from
subsurface water. Defendants respond that the placement of the ¶ 3.b exclusion is not
significant because the similar ¶ 13.c exclusion is set forth within a paragraph of the policy
which involves problems originating inside the insured’s premises, namely ¶ 13.a excludes
loss “to the system or appliance from which the water or steam escapes,” and ¶ 13.b
excludes loss “caused by or resulting from freezing.” While defendants’ observation
regarding the placement of the ¶ 13.c clause is no doubt accurate, nonetheless the
language surrounding the ¶ 3.b exclusion offers additional support to plaintiffs’
interpretation.
In sum, the court adopts plaintiffs’ interpretation of the ¶ 3.b exclusion, as argued
in their original motion for summary judgment. This declaration reconciles an ambiguity
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resulting from the coverage provision for accidental discharge of water within a plumbing
system as set forth in ¶ 13, and the exclusion for backups through sewers or drains as set
forth in ¶ 3.b. This holding is supported by persuasive case law from other jurisdictions,
is bolstered by the policy language surrounding the exclusion, and comports with the rule
that ambiguities in a policy are resolved against the insurer. Additional support for this
conclusion lies in the fact that defendants employed this policy interpretation prior to 2009.
4.

Burden of Proof

Plaintiffs also seek declaratory judgment that defendants bear the burden of proof
that a policy exclusion applies. The law is well settled that an insured bears the burden of
establishing that there is coverage under the terms of the policy. Hunt v. Dreilick, 496
Mich. 366, 373 (2014). Once an insured proves coverage exists under the terms of the
policy, the insurer bears the burden of proving that coverage is negated by an exclusion.
Id. “[E]xclusionary clauses in insurance policies are strictly construed in favor of the
insured.” Id. (quoting Auto-Owners Ins. Co. v. Churchman, 440 Mich. 560, 567 (1992)).
B.

Plaintiffs’ Motion for Class Certification
1.

Standard of Law for Class Certification

The court now turns to plaintiffs’ motion for class certification under Rule 23(b)(2).
By prior order of the court, plaintiffs’ motion to certify a class seeking monetary relief under
Rule 23(b)(3) was denied as individual issues of liability predominated over any common
question regarding the interpretation of the ¶¶ 3.b and 13.c exclusions set forth in the
homeowner’s policy. Having lost certification of that class seeking monetary relief, plaintiffs
now seek to certify a class for the sole purpose of providing notice of the court’s declaratory

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relief to potential litigants, who are not eligible to proceed as a class in this or any other
court, but may only bring individual suits for money damages. For the reasons set forth
below, plaintiffs’ motion for certification under Rule 23(b)(2) shall be denied.
In order to determine whether to grant class certification, the court is required to
engage in a “rigorous analysis” which may require analysis behind the pleadings. Wal-Mart
Stores, Inc. v. Dukes, __ U.S. __, __, 131 S. Ct. 2541, 2551 (2011); Gooch v. Life Investors
Ins. Co., 672 F.3d 402, 417-18 (6th Cir. 2012). “The class-action device is an exception
to the usual rule that litigation is conducted by and on behalf of the individual named parties
only.” Comcast Corp. v. Behrand, __ U.S. __, __, 133 S. Ct. 1426, 1432 (2013) (internal
quotations and citations omitted). Class relief is “peculiarly appropriate” when the “issues
involved are common to the class as a whole” and when they “turn on questions of law
applicable in the same manner to each member of the class.” Califano v. Yamasaki, 442
U.S. 682, 701 (1979). For in such cases, “the class-action device saves the resources of
both the courts and the parties by permitting an issue potentially affecting every [class
member] to be litigated in an economical fashion under Rule 23.” General Tel. Co. of S.W.
v. Falcon, 457 U.S. 147, 155 (1982) (internal quotation marks and citations omitted).
District courts have broad discretion in certifying class actions, and their decisions on
whether to certify a class will only be set aside under the abuse of discretion standard.
Califano, 442 U.S. at 703. In order to be classified as a class action, the four threshold
requirements of Rule 23(a) must be met which requires numerosity, commonality, typicality,
and adequacy of representation. In addition to satisfying those prerequisites, the action
must fall within one of the three categories of Rule 23(b). Amchem Prods., Inc. v. Windsor,
521 U.S. 591, 614 (1997). Plaintiffs bear the burden of proving that they satisfy all the
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requirements for class certification. Thompson v. County of Medina, 29 F.3d 238, 241 (6th
Cir. 1994).
In their opening brief, plaintiffs argue that they have met the four requirements of
Rule 23(a), numerosity, commonality, typicality, and adequate representation. In their
written response, defendants concede that the Rule 23(a) requirements have been met.
Once the requirements of Rule 23(a) have been met, plaintiffs must establish that they are
entitled to certification of one of the three methods set forth under Rule 23(b). Plaintiffs
seek to proceed under Rule 23(b)(2) which provides for class certification where:
the party opposing the class has acted or refused to act on grounds that
apply generally to the class, so that final injunctive relief or corresponding
declaratory relief is appropriate respecting the class as a whole.
Fed. R. Civ. P. 23(b)(2). Plaintiffs argue certification is necessary to avoid the risk that
other courts will make inconsistent rulings regarding policy interpretation of the ¶ 3.b and
¶ 13.c exclusions, and to give notice to potential class members that their insurance claims
for water damage may not have been fully compensated. Defendants oppose certification
on the grounds that (1) declaratory relief would inure to the benefit of all similarly situated
policyholders without certification, (2) class notice is unwarranted, and (3) the defined class
is overly broad.
2.

Declaratory Relief Will Inure to the Benefit of All Similarly Situated
Policyholders Without Certification

The Sixth Circuit has denied certification under Rule 23(b)(2) where the declaratory
relief will inure to the benefit of proposed class members regardless of certification. Craft
v. Memphis Light, Gas & Water Div., 534 F.2d 684, 686 (6th Cir. 1976) (denying
certification to putative class of homeowners whose utilities were shut off without due
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process where declaration of unconstitutionality of utility companies’ termination policies
would inure to benefit of all proposed class members without certification); see Galvin v.
Levine, 490 F.2d 1255, 1261 (2d Cir. 1973) (denying Rule 23(b)(2) certification where state
bound by court’s declaration that its policies regarding unemployment compensation were
unconstitutional; thus, certification unnecessary); Drumright v. Padzieski, 436 F. Supp. 310,
325 (E.D. Mich. 1977) (denying class certification for declaratory relief under Rule 23(b)(2)
where declaration that certain state regulations were unconstitutional would inure to the
benefit of all individuals deprived of due process when their unemployment benefits were
denied without a hearing).
More recently, the Sixth Circuit faced the issue of whether class certification was
appropriate under Rule 23(b)(3) for a proposed class of self-insured employee health and
welfare plans where the district court found that defendant-insurer wrongfully imposed
certain fees in violation of Michigan insurance laws.

The court explained that the

declaration that defendant’s conduct violated Michigan law did not justify class certification
as individual issues predominated and the court’s declarations about the legality of the
charges would inure to the benefit of all similar self-insured employee health and welfare
plans without certification. Pipefitters Local 636 Ins. Fund v. Blue Cross Blue Shield of
Mich., 654 F.3d 618, 631-32 (6th Cir. 2011). The Sixth Circuit explained that the better
course of action would have been to enter final judgment in the individual action to allow
the insurer to file an appeal, where the resolution of such appeal would allow other potential
class members to decide whether to prosecute individual suits. Id. at 632. The same
analysis applies with equal force here.

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3.

Policies Justifying Maintenance of Class Actions Would Not Be
Advanced by Certification

Certifying a class here does not advance the policies justifying deviation from the
general rule that suits are brought in an individual’s capacity. Califano, 442 U.S. at 700-01.
One of the primary purposes of class action litigation is to allow a suit to be maintained on
behalf of a group of individuals who are similarly situated where their individual claims
would be too small to justify the commencement of a legal action. As the Supreme Court
recently explained, “[t]he policy at the very core of the class action mechanism is to
overcome the problem that small recoveries do not provide the incentive for any individual
to bring a solo action prosecuting his or her rights.” Amgen, 133 S. Ct. at 1202 (citations
omitted). The policy of creating an incentive to prosecute claims too small to justify the
bringing of a lawsuit would not be vindicated here. The Monteleones seek damages in
excess of $100,000 and the named plaintiffs in the companion case seek damages in the
amount of $40,000 and $70,000 respectively. Indeed, by plaintiffs’ own admissions, the
damages at stake as to the individual policyholders sought to be joined as class members
here, number in the tens of thousands of dollars. (Doc. 90 at 7 n.5). Thus, this is not the
typical putative class action where there is an insufficient incentive to prosecute individual
claims.
Another policy reason for allowing class actions to proceed is that the possibility of
greater attorney fees in a class suit may provide a “greater incentive to attorneys to
undertake what otherwise may be unpopular litigation.” 7 AA Fed. Prac. & Proc. Civ. §
1785.2 (3d Ed. 2015). There is nothing unpopular about the prosecution of an insurance
coverage dispute which would justify certification here.
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Looking to another of the policy reasons behind the maintenance of class actions,
that is allowing claims to be streamlined and addressed in an expeditious and cost-effective
manner both for the litigants and the courts, that goal also would not be fulfilled by certifying
the class sought in this case. The court has already granted plaintiffs’ motion for summary
judgment, and defendants have not only agreed to be bound by the court’s ruling, which
unless reversed on appeal would have collateral estoppel preclusive effect, but have
stipulated that they will not appeal the court’s ruling. Having already denied plaintiffs’
motions for class certification on their money damages claims under 23(b)(3), and having
already granted plaintiffs’ motion for summary judgment and issued its interpretation of the
disputed clauses of plaintiffs’ homeowners’ policies, certifying a declaratory judgment class
would serve no legitimate purpose.
4.

Putative Class Members Not Entitled to Notice

Plaintiffs’ sole remaining reason in seeking class relief is to send notice to putative
class members to advise them that the court’s interpretation of certain policy provisions
might possibly entitle them to benefits they were denied, or to greater benefits than they
have already received, after submitting insurance claims for water damage. A class
certified under Rule 23(b)(2) allowing for declaratory or injunctive relief, however, is not
automatically entitled to notice like a Rule 23(b)(3) class allowing for money damages
would be, one reason being that a Rule 23(b)(2) class is mandatory and there is no opt-out
provision. Wal-Mart Stores, 131 S. Ct. at 2559. Rather, the decision to grant notice in a
Rule 23(b)(2) class is a matter within the district court’s sound discretion to be granted only
in appropriate cases. Fed. R. Civ. P. 23(c)(2)(A). In determining whether notice would be
appropriate, the district court must resolve “the conflict between the policy of facilitating
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. . . class actions and the need to protect the rights of absent class members.” Fuller v.
Fruehauf Trailer Corp., 168 F.R.D. 588, 604 (E.D. Mich. 1996) (Rosen, J.) (internal
quotation marks and citations omitted). Having already found that policy reasons justifying
a departure from the general rule that suits are to be brought in an individual capacity are
lacking here, and that potential class members already have a sufficient incentive to file
individual claims based on the amount at stake, notice in this case is not warranted.
The hallmark of the Rule 23(b)(2) class is “the homogeneity of the interests of the
members of the class” which is why certification is mandatory and notice is not required.
Reeb v. Ohio Dep’t of Rehab. & Corr., 435 F.3d 639, 649 (6th Cir. 2006).

The

“homogeneity” of the proposed class is not evident in this case as the court’s policy
interpretation here does not necessarily establish liability in any particular case, but may
merely offer some limited assistance in deciding the coverage issues unique to every
policyholder’s claim. As this court explained in its prior order denying certification of a
23(b)(3) class, “a declaratory judgment by this court would not answer the question of
whether particular plaintiffs were entitled to relief for their water damage losses.” (Doc. 61
at 11). Adjudication of a policyholder’s claims for water damage depends on a factintensive inquiry as the court noted in its opinion denying the 23(b)(3) class:
a class member may only recover by proving that she had a claim for water
damage that was improperly denied which would require a fact-intensive
inquiry. That determination would require analysis of the type of water
damage, the cause of the water damage, and whether coverage for the water
damage was subject to an exclusion in the policy depending on the
origination of the water. Although in some cases the water’s entry point may
be evident from the claim file, in other cases . . . the source may be unclear
or in dispute. The court would need to consider evidence as to whether the
water or waste entered the home from a floor drain, as opposed to a toilet,
shower or appliance. Even if plaintiffs’ interpretation of the policy is correct,
each claim would likely require a separate investigation to determine if the
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water originated from inside or outside the home and this would require
consideration of such individual factors as whether a blockage prevented
water from leaving the residence, how weather conditions affected the water
damage, the municipal system’s historical issues, the amount off water in the
basement and how quickly it accumulated, whether neighboring homes
suffered similar damage, and other related evidence. In sum, each property
loss claim will require individual investigation to determine if coverage is
owing.
(Doc. 61 at 8-9). In short, the declaratory relief granted in this case does not establish
defendants’ liability in favor of the Monteleones or any putative class member.
In this case, the only possible purpose for providing the notice sought is to advise
certain policyholders, the exact number of whom remains unknown, that their insurance
claims may not have been fully compensated. Because the court has already ruled that
individual issues predominate and that a class action would not be the superior method for
resolving plaintiffs’ claim for money damages, the notice sought would merely advise
policyholders that they might want to pursue claims in their individual capacities and might
wish to use plaintiffs’ counsel in this case to do so. Plaintiffs have not cited to cases
standing for the proposition that a class can be certified for the sole purpose of providing
notice to potential litigants that they might want to pursue individual claims.
In deciding whether to grant the notice requested, the court has considered the costs
and benefits involved. Plaintiffs approximate that the class consists of approximately
10,500 members, which is all policyholders who submitted claims for water losses over the
past several years, the exact number of years depending on the statute of limitations period
in the jurisdiction where the policyholder resides. Defendants complain that the class is
overly broad, and plaintiffs respond that the class is so largely defined solely because of
defendants’ record keeping which defendants admit categorizes claims only as ones for
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water losses, and does not break down the claims filed by type or origin of loss which would
allow them to determine those claimants who suffered water damage caused by a
basement or floor drain. Whatever the size of the proposed class, it is unclear if the
declaratory relief granted here will substantially advance the interests of the proposed
class, not just because the class is so broadly defined, but also because the narrow policy
interpretation made by this court does not establish liability as to the class as a whole, or
even to the subclass of those policyholders whose claims were denied under ¶ 3.b and ¶
13.c exclusions, and does not entitle any policyholder to damages as a matter of law.
Given the limited value of the court’s declaratory judgment, the expense of providing class
notice cannot be justified.
Plaintiffs argue that certification is warranted under the Sixth Circuit’s holding in
Young v. Nationwide Mut. Ins. Co., 693 F.3d 532, 540 (6th Cir. 2012), where the court
affirmed certification under Rule 23(b)(2) and rejected defendant’s argument that the class
was not administratively feasible because of the large number of insurance policies
involved. Young fails to support certification here. Most significantly, in Young, the claims
of individual class members ranged from $32.60 to $126, thus making it unlikely that
potential class members would discover the tax overcharges in dispute. Id. at 545. In
sharp contrast, as admitted by plaintiffs in this case, the claims at stake here number in the
tens to thousands of dollars; thus, many claimants already have a sufficient incentive to
contact an attorney to challenge the handling of their claims.

Accordingly, the

administrative procedures and fees involved in providing notice to approximately 10,500
policyholders are unwarranted.

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The other cases plaintiffs rely upon are also distinguishable. Perhaps the most
analogous case plaintiffs identify is Gooch v. Life Inv. Ins. Co. of America, 672 F.3d 402
(6th Cir. 2012) where the court ruled certification for declaratory relief permissible under
Rule 23(b)(2) because the court’s interpretation of certain policy terms entitled all
policyholders who filed claims to relief. But Gooch fails to support plaintiffs’ request for
class certification here. In that case, insured policyholders seeking class certification sued
their health insurance carrier for reducing the amounts of benefits paid for their
supplemental cancer-only policy. Id. at 410. The insurer had been paying costs listed on
bills submitted by hospitals and care providers, but later changed this policy, and paid only
the amounts actually accepted by the providers as full payment from the primary insurer
and the insured. Id. at 409. Policyholders sought Rule 23(b)(2) certification. Id. at 427.
The Sixth Circuit, while denying class certification because the class overlapped with a
class certified in state court, discussed whether Rule 23(b)(2) certification would be
appropriate as to those class members whose claims were not accounted for in the state
litigation. Id.
The Sixth Circuit ruled Rule 23(b)(2) certification would be warranted where the
declaratory judgment involved a uniform interpretation of a policy term that would govern
each class member. Id. at 428. What is unique about Gooch is that the policyholders also
sought to recover money damages to be certified under Rule 23(b)(3), and the declaratory
relief granted was likely to significantly advance those claims. Moreover, in Gooch, the
court’s interpretation of the disputed policy terms amounted to a finding of liability for all
policyholders who submitted a claim. By contrast, the court’s interpretation here of the ¶¶

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3.b and 13.c exclusions does not amount to a finding of liability for any putative class
member, and the court has denied certification of claims for money damages.
Finally, plaintiffs’ reliance on Potter v. Blue Cross Blue Shield, No. 10-cv-14981,
2011 WL 9378789, *9 (E.D. Mich. 2011) (Murphy, J.) in support of class certification is also
misplaced as that case involved certification under both Rule 23(b)(2) and (b)(3) for a class
of policyholders whose claims for medical expenses for autism were denied as
experimental and class members sought money damages and injunctive relief requiring
defendant to pay benefits. Unlike Potter, no class wide claims for money damages are
viable here, and the court’s interpretation of certain policy provisions does not establish
liability.
5.

Whether Declaratory Relief Resolves Coverage Issue for Putative Class
Members

Plaintiffs also argue that this court’s denial of certification of plaintiffs’ claims for
money damages “compels the need for this (b)(2) class” because coverage questions must
be decided by the court prior to appraisal. (Doc. 77 at 22). Plaintiffs appear to be
suggesting that the award of declaratory relief here is a final determination that coverage
is due to class members who would then be entitled, under the terms of their homeowners’
policies, to proceed directly to an appraisal. This is not accurate. The court’s interpretation
here of the ¶ 3.b and ¶ 13.c exclusions does not resolve the coverage question in every
case involving water damage. Plaintiffs are correct that questions about whether a loss is
covered under a policy is a matter for the court to decide, whereas the appraisal process
mandated by statute and set forth in the homeowners’ policy, is a method for determining
the amount of the loss only. Auto-Owners Ins. Co. v. Kwaiser, 190 Mich. App. 482, 486
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(1991). But granting the declaratory relief sought does not automatically entitle every
policyholder who experienced water damage caused by water entering through the
basement or floor drain to a recovery. A coverage question still exists as to what caused
the overflow or back up - for example, the municipal sewer, or a cause related to the
plumbing system within the home. Contrary to plaintiffs’ suggestion, the granting of
declaratory relief here does not mean all policyholders experiencing certain water damages
are entitled to proceed immediately to an appraisal. Quite likely, coverage issues will exist
which require a judicial determination, one likely informed by the court’s granting of
declaratory relief here, but that relief is not dispositive of the coverage issue.
In sum, as this court’s declaration of the meaning of certain disputed provisions of
the Monteleones’ homeowners’ policy will inure to the benefit of all similarly situated
policyholders without certification, and because putative class members would not be
entitled to notice even if the court certified the class sought, no useful purpose would be
served by granting class relief and plaintiffs’ motion for class certification shall be denied.
IV. Conclusion
For the reasons set forth above, plaintiffs’ motion for summary judgment on their
claim for declaratory relief (Doc. 78) is GRANTED IN PART as follows, and the court holds
as a matter of law that:
1.

the ¶ 3.b exclusion does not apply to basement/floor drain water
claims caused by water originating from a plumbing system within the
resident premises; and

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2.

once plaintiffs prove that coverage exists under the terms of the
policy, defendants bear the burden of proof that coverage is negated
by an exclusion,

and is DENIED IN PART as to the other declaratory relief sought in the original motion and
in the reply brief.
IT IS FURTHER ORDERED that plaintiffs’ motion for class certification (Doc. 77) is
DENIED.
IT IS SO ORDERED.
Dated: July 2, 2015
s/George Caram Steeh
GEORGE CARAM STEEH
UNITED STATES DISTRICT JUDGE

CERTIFICATE OF SERVICE
Copies of this Order were served upon attorneys of record on
July 2, 2015, by electronic and/or ordinary mail.
s/Marcia Beauchemin
Deputy Clerk

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