Schumacher et al v. State Automobile Mutual Insurance Company et al

Filing 53

ORDER GRANTING DEFENDANTS' MOTION TO STRIKE CLASS ALLEGATIONS IN THE SECOND AMENDED COMPLAINT (DOC. 34 ). Signed by Judge Timothy S. Black on 2/2/2015. (mr1)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION

MARK SCHUMACHER AND
ANDREA SCHUMACHER, et al.,
Plaintiffs,
v.
STATE AUTOMOBILE MUTUAL
INSURANCE COMPANY, et al.,
Defendants.

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Case No. 1:13-cv-00232

Judge Timothy S. Black

ORDER GRANTING
DEFENDANTS’ MOTION TO STRIKE CLASS ALLEGATIONS
IN THE SECOND AMENDED COMPLAINT (DOC. 34)
This civil action is before the Court on Defendants’ motion to strike class
allegations (Docs. 34, 35) 1 and the parties’ responsive memoranda (Docs. 40, 42).
I.

FACTUAL BACKGROUND AS ALLEGED BY PLAINTIFFS
The standard homeowners policy sold in the United States is referred to as an

“HO0003” and includes the following coverages: Coverage A (for the dwelling),
Coverage B (other structures), Coverage C (personal property) and Coverage D (loss of
use) (Doc. 33 ¶¶ 22-26.) 2 Through an endorsement known as its “Defender
Endorsement,” State Auto markets a product to its customers that professes to provide
“100% replacement cost coverage” (id. ¶ 33). It also purports to provide an additional
1

Defendant State Auto Insurance Company of Ohio was granted leave to join in this motion (filed by
Defendants State Automobile Mutual Insurance Company and State Auto Property and Casualty
Insurance Company) by Notation Order docketed 01/22/2015.
2

State Auto sells a slightly different version of policy HO0003, known as Securgard (Doc. 33 ¶ 32).
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amount of insurance, up to 25% of the Coverage A limits, if losses under Coverage A
exceed the liability limit (id. ¶ 35). According to Plaintiffs, use of the catch-phrase
“100% replacement cost coverage” in the Defender Endorsement creates an impression
that a homeowner needs to purchase this endorsement in order to be adequately insured
(id. ¶ 34). However, as long as the structures are insured at 80% of their full
replacement cost, policy HO0003 provides that protection (id. ¶ 32).
Policyholders with the Defender Endorsement give State Auto full authority to
adjust the Coverage A limit (and corresponding premium) in accord with property
evaluations made by State Auto and any increases in inflation (id. ¶ 36). Enter State
Auto’s “Homeowners Remediation” plan, introduced in 2009 (id. ¶¶ 38-39).
Policies with the Defender Endorsement, through application of its “Insurance-toValue” Program (“ITV program”), allowed State Auto to recoup substantial underwriting
losses, caused by claims made in connection with a variety of natural disasters, by
unilaterally increasing its policyholders’ Coverage A limits. This action, in turn,
automatically increased the limits for Coverage B, Coverage C and Coverage D, as all
three are dependent on Coverage A. These upward adjustments naturally resulted in
higher premiums being paid.
Further, these increases effectively eliminated any chance that State Auto ever
would be required to provide the 25% bonus guaranteed by the Defender Endorsement.
In essence, roll out of the ITV program allowed for collection of extra revenue without
taking the more transparent step of raising premium rates, an approach to which
policyholders are characteristically averse. (Id. ¶¶ 40-46.)
2

According to Plaintiffs, State Auto intentionally overstated the costs to rebuild
their homes, such that they were charged for a benefit that they did not need, and, in the
event of an occurrence, would never realize. Plaintiffs paid more, but could never have
recovered more, as victims of the enhancing effect of Defendants’ ITV program vis-à-vis
their Defender Endorsement. Plaintiffs contend that State Auto’s plot to grow its
premium revenue by selling an overpriced and superfluous product to its insureds,
particularly those with whom it had on-going relationships, amounts to a tortious breach
of the duty of good faith and fair dealing (id. ¶¶181-199), negligent misrepresentation and
fraud (id. ¶¶ 200-217), fraudulent inducement (id. ¶¶ 226-236), and a violation of the
Ohio Deceptive Trade Practices Act (id. ¶¶ 218-225). 3 Plaintiffs seek to bring this action
on behalf of themselves and:
[A] class of persons or entities in the States of Ohio, Kentucky, Tennessee, Michigan,
Pennsylvania, West Virginia, Indiana, Illinois, and Wisconsin who purchased State
Auto Homeowners Insurance with State Auto’s Defender Endorsement prior to 2009,
and subsequently had their policy limits and premiums unilaterally increased after
2009 by State Auto under the guise of providing adequate replacement cost
coverage.
(Id. ¶ 172 (emphasis added).) Plaintiffs seek certification pursuant to Rule 23(b)(3) (id.
¶ 179).
II.

STANDARD OF REVIEW

“The party seeking the class certification bears the burden of proof.” In re Am.
Med. Sys., Inc., 75 F.3d 1069, 1079 (6th Cir. 1996). “Given the huge amount of judicial
resources expended by class actions, particular care in their issuance is required.”

3

The Court previously dismissed Plaintiffs’ contract claims (Doc. 29 at 12-14, 34).
3

Pipefitters Local 636 v. Blue Cross Blue Shield of Michigan, 654 F.3d 618, 630 (6th Cir.
2011).
A court may strike class action allegations before a motion for class certification
where the complaint itself demonstrates that the requirements for maintaining a class
action cannot be met. Pilgrim v. Universal Health Card, LLC, 660 F.3d 943, 945 (6th
Cir. 2011). A court may properly strike class allegations prior to discovery where
discovery would not have “alter[ed] the central defect in th[e] class claim.” Id. at 949
(affirming the district court’s judgment striking class allegations and dismissing a lawsuit
prior to discovery, finding that the defect in the class action at issue involved “a largely
legal determination” that “no proffered factual development offer[ed] any hope of
altering.”). In fact, this Court has previously struck class allegations on this basis. Rikos
v. Proctor & Gamble Co., No. 1:11cv226, 2012 WL 641946, at *4 (S.D. Ohio Feb. 28,
2012).
III.

ANALYSIS

Civil Rule 23 governs class actions brought in federal courts. To obtain class
certification, a plaintiff must meet all of the following prerequisites of Rule 23(a): (1) the
class is so numerous that joinder of all members is impracticable; (2) there are questions
of law or fact common to the class; (3) the claims or defenses of the representative parties
are typical of the claims or defenses of the class; and (4) the representative parties will
fairly and adequately protect the interests of the class. Pilgrim, 660 F.3d at 945. Once
the Rule 23(a) requirements are satisfied, a party seeking class certification also must

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show that the proposed class is maintainable under one of the three provisions of Rule
23(b).
Relying on the allegations within the Second Amended Complaint, Defendants
observe that the crux of Plaintiffs’ claims centers on the contention that Plaintiffs bought
some undefined amount of homeowners insurance coverage that they did not need by
virtue of their purchase of a State Auto Defender Endorsement; and Plaintiffs seek, in
damages, the difference between the premiums they paid for the “inflated” coverage
limits versus what they should have paid for ones “appropriately set” (Doc. 34, Exh. A
(Plaintiffs’ Rule 26 Disclosures) at 4). But Defendants also observe that Plaintiffs
acknowledge that their annual policies were about to expire and, as part of the renewal
process, State Auto reevaluated the replacement costs of their homes on a case-by-case
basis that resulted in proposed new (and increased) coverage limits (Doc. 33 ¶¶ 49-54).
That reevaluation and consequent revision to coverage limits was based on information
conveyed by Plaintiffs to their insurers by virtue of conversations with their insurance
agents, completion of worksheets regarding any structural changes to their homes, and
interviews with and property inspections conducted by third-party representatives.
Accordingly, Defendants claim that the class allegations should be stricken because:
(1) the proposed class definition is vague, argumentative and implicates the merits of
Plaintiffs’ claims, and thus is not ascertainable; (2) Plaintiffs cannot satisfy the
commonality requirement of Rule 23(a)(2) or the predominance and superiority
requirements of Rule 23(b)(3); and Plaintiffs cannot satisfy the typicality requirement of
Rule 23(a)(2).
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A. The Putative Class Is Not Ascertainable
Before analyzing the requirements of Rule 23(a), a court should first consider
whether a precisely-defined class exists and whether the named plaintiffs are members of
the proposed class. Givens v. Van Devere, Inc., No. 1:11-cv-666, 2012 WL 4092803, at
*13 (N.D. Ohio Apr. 12, 2012) (Report and Recommendation), adopted 2012 WL
4092738 (N.D. Ohio Sept. 17, 2012); Berger v. Cleveland Clinic Found., No. 1:05-cv1508, 2007 WL 2902907, at *23 (N.D. Ohio Sept. 29, 2007). Although not an express
requirement of Rule 23, “ascertainability goes to whether the class has been defined such
that it encompasses an identifiable group.” Stuart v. Cheek & Zeehandelar, 252 F.R.D.
387, 391 (S.D. Ohio 2008) (Marbley, J.). The “touchstone of ascertainability is whether
the class is objectively defined, so that it does not implicate the merits of the case or call
for individualized assessments to determine class membership.” Id.
Defendants maintain that the proposed class definition is vague because there is no
objective method to determine whether a particular coverage limit increase was made
“unilaterally” or “under the guise of providing adequate replacement cost coverage.” As
recounted by Plaintiffs in the Second Amended Complaint, they (and members of the
proposed class) received a “standard work sheet” regarding the characteristics of their
homes and spoke with third-party representatives from Marshall & Swift/Boeckh for the
purpose of documenting their values (Doc. 33 ¶¶49-54). Consequently, Defendants posit,
any increases are more correctly termed “collaborative” rather than “unilateral.” Yet
even if both pieces of this “argumentative” language were excised, thus defining the
proposed class to include all policyholders who purchased the Defender Endorsement
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whose coverage limits increased since 2009, it would nonetheless remain overbroad.
Because Plaintiffs allege that they have not made any “significant improvement” to their
homes, and thus their coverage limits should not have increased so dramatically
(id. ¶¶ 75, 77; 101, 103; 127, 129; 152, 154), Defendants reason that insureds whose
coverage limits increased but who did make “significant improvements” to their homes
ought not be members of the proposed class. And the issue of how to assess what
constitutes a “significant improvement"—and whether, on a property-by-property basis, it
has been made—is without any objective measurement as the class definition now stands.
Plaintiffs’ arguments in opposition are unavailing. Without question, the plain
meaning of the phrase “under the guise of” is argumentative. So, too, is the connotation
that Plaintiffs seek to attribute to the word “unilateral,” which ostensibly narrows the
class to those whose policy limits were inflated “by uniformly padding the material and
labor costs necessary to replace homes” in execution of the ITV program rather than
because of “material changes to a class member’s dwelling” (Doc. 40 at 6 (emphasis
added)). The problem remains that Plaintiffs provide no objective measure to allow the
Court to determine what constitutes a “material” change, or whether one has been made.
Additionally, Plaintiffs have not identified a class-wide manner to determine the
“appropriate” coverage limits for each of the homes captured in the proposed definition,
and additional discovery simply will not serve to cure this defect.
Accordingly, the Court finds that the proposed class is not ascertainable, as it calls
for individualized assessments to determine membership.

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B. Neither the Commonality or Typicality Prerequisites of Rule 23(a), nor the
Predominance and Superiority Requirements of Rule 23(b)(3), Can be Met
1. Commonality Under Rule 23(a), and Predominance and Superiority
Under Rule 23(b)(3)
a. Commonality
Commonality is determined by whether the issues raised have “the capacity [in] a
classwide proceeding to generate common answers apt to drive the resolution of the
litigation. Dissimilarities within the proposed class are what have the potential to impede
the generation of common answers.” Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541,
2551 (2011) (internal quotation marks and citation omitted); Sprague v. Gen. Motors
Corp., 133 F.3d 388, 398 (6th Cir. 1998) (test is whether there is a “common issue the
resolution of which will advance the litigation[]”). “To demonstrate commonality,
plaintiffs must show that class members have suffered the same injury.” In re Whirlpool
Corp. Front-Loading Washer Prods. Liab. Litig., 722 F.3d 838, 852 (6th Cir. 2013).
“[T]here need be only one common question to certify a class.” Id. at 853. “The mere
fact that questions peculiar to individual class members could remain does not necessarily
defeat a finding of commonality.” Goldson v. Fed. Home Loan Mortg. Corp., No. 2:08cv-844, 2010 WL 3786631, at *8 (S.D. Ohio Sept. 28, 2010) (Sargus, J.).
This Court finds instructive the ruling in Cox v. Allstate Ins. Co., No. CIV-071449-F (W.D. Okla. Mar. 28, 2012). 4 Plaintiffs claimed that their home was over-insured
as a result of Allstate’s “Property Insurance Adjustment (“PIA”)” program, which
“automatically adjust[ed] dwelling limits coverage based on construction cost indices
4

This unpublished Memorandum and Order is discussed in the instant Motion to Strike and attached as its Exhibit B
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provided by an independent company, Marshall and Swift /Boekh[]” (Doc. 34, Exh. B at
4 n.3). Allstate argued that simply because use of the PIA may have resulted in the
named plaintiffs’ home being over-insured did not mean that all members of the putative
class were likewise over-insured. Moreover, determining whether each policyholder was
over-insured, and thus injured, Allstate contended, would require individualized
consideration on a file-by-file basis. The court agreed, and ruled, citing Dukes, 131 S. Ct.
at 2251, that plaintiffs failed to establish commonality because a classwide proceeding
would not “generate common answers” (Doc. 34, Exh. B at 11). As described, Allstate’s
PIA program operates in a manner nearly identical to State Auto’s ITV program (as it
affects its Defender Endorsement) at issue now. Applying Dukes, this Court also finds a
lack of commonality here.
This Court is likewise persuaded by the reasoning in Gooden v. SunTrust
Mortgage, Inc., No. 2:11-cv-2595, 2013 WL 6499250 (E.D. Cal. Dec. 11, 2013). There
two named plaintiffs alleged that their mortgage company unnecessarily added coverages
and increased their homeowners insurance limits. They moved to certify a class of
mortgagors “who were force placed for hazard insurance in excess of the lesser of (1) the
replacement cost of the property or (2) the greater of the unpaid principal balance at the
time of force placement and 80% of the replacement cost of the property” as of a
particular date. Id. at *3. The federal court in Gooden denied certification, deciding that
individualized issues regarding replacement cost value doomed the class claims. Id. at *6
(“[A]scertaining the classes and ultimately determining Defendant's liability would
require the Court to examine the individual replacement value of each class member's
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home to determine if they suffered an actual injury from the force placement of policies.
Such an individualized inquiry makes certification of this claim inappropriate.”)
As Defendants in this case correctly point out, the common law and statutory fraud
counts pled are tethered to “a host of issues related to each Plaintiff’s specific coverage
limits[]” (Doc. 35 at 12). Plaintiffs generally reference, but do not specifically identify,
the actual construction costs necessary to repair or replace any of their homes during any
portion of the applicable time band. Yet it is a determination of these very costs that
drives whether Plaintiffs’ coverage limits were “appropriately set” versus “inflated.”
Moreover, each inquiry requires meticulous attention not only to the property itself, but
also to its geographic location and the timing of the repair or replacement.
Young v. Nationwide Mut. Ins. Co., 693 F.3d 532 (6th Cir. 2012), does not dictate
a different result, as it did not involve disputes with respect to coverage limits, home
valuations, or premium calculations. Rather, plaintiffs there sought to certify a class of
persons who were charged local government taxes on premium payments that either were
not owed or at rates higher than permitted. Their “common contention” that was
“capable of classwide resolution” was that use of geocoding software could have
prevented the tax misassignment and, so, the harms suffered by all class members.
Accordingly, Rule 23(a)’s commonality—and typicality—requirements were satisfied.
Id. at 542-44. But Dukes defines “capable of classwide resolution” to mean that
determination of the “truth or falsity” of the “common contention” will resolve an issue
that is “central” to the validity of each one of the claims “in one stroke.” Id. at 542
(quoting Dukes, 131 S. Ct. at 2551). Plaintiffs’ contention here, while key, is not
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necessarily conclusive, and obviously more than a single stroke will be required to
determine “appropriately set” coverage limits.
Accordingly, the Court finds that the commonality prerequisite of Rule 23(a)
cannot be met.
b. Predominance
To satisfy the predominance requirement of Rule 23(b)(3), a plaintiff must show
that “questions of law or fact common to class members predominate over any questions
affecting only individual members.” See Pilgrim, 660 F.3d at 946. It is imperative that
the proposed class be “sufficiently cohesive to warrant adjudication by representation.”
Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 632 (1997). A court must determine if
the questions common to the class are “at the heart of the litigation.” Powers v. Hamilton
Cnty. Pub. Defender Comm’n, 501 F.3d 592, 619 (6th Cir. 2007). “[T]he mere fact that
questions peculiar to each individual member of the class action remain after the common
questions of the defendant’s liability has been resolved does not dictate the conclusion
that a class action is impermissible.” Sterling v. Velsicol Chem. Corp., 855 F.2d 1188,
1197 (6th Cir. 1988). “The predominance requirement is satisfied unless it is clear that
individual issues will overwhelm the common questions and render the class action
valueless.” In re Cardizem CD Antitrust Litig., 200 F.R.D. 297, 307 (E.D. Mich. 2001)
(internal quotation marks and citation omitted).
The Court agrees with Defendants that, in this instance, individualized issues will
indeed “overwhelm” any common questions. Plaintiffs cite this Court’s decision in
Cowit v. CitiMortgage, Inc., No. 1:12-cv-869, 2013 WL 940466 (S.D. Ohio Mar. 8,
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2013), and urge that the Court wait for determination of the question of predominance
until after preliminary discovery has occurred. In Plaintiffs’ view, State Auto engaged in
a common course of conduct of inflating the amount of the cost of materials necessary to
repair or rebuild so as to justify an increase in coverage limits (Doc. 40 at 16). Cowit,
however, is not apposite. There plaintiff had entered into a note and mortgage with
defendant that required him to pay any costs or expenses actually incurred by defendant
in enforcing those instruments. Plaintiff defaulted and defendant foreclosed, incurring
$33 in court costs. Plaintiff then entered into a contract to sell his real property, and the
pay-off letter he received included those costs. The foreclosure was dismissed and the
costs refunded to defendant’s counsel, but that refund was never returned to plaintiff as
borrower. Id. at *1. This Court concluded that the predominance requirement was met,
because there were “no individualized facts related to class members’ conduct or state of
mind.” Id. at *5. Rather, the only conduct at issue was whether defendant consistently
retained refunded court costs that belonged to its borrowers. Id.
It is not so here. Defendants’ liability and Plaintiffs’ damages will hinge on a
case-by-case analysis of the replacement costs (including, as one component, the cost of
materials) of every insureds’ home, discernment of which will require a thorough
analysis. Furthermore, unlike in Cowit, issues of reliance abound. “[A] fraud class
action cannot be certified when individual reliance will be an issue. Stout v. J.D. Byrider,
228 F.3d 709, 718 (6th Cir. 2000) (internal quotation marks and citation omitted).
“‘Fraud actions must therefore be separated into two categories: fraud claims based on
uniform misrepresentations made to all members of the class and fraud claims based on
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individualized misrepresentations. The former are appropriate subjects for class
certification . . . . Where there are material variations in the nature of the
misrepresentations made to each member of the proposed class, however, class
certification is improper . . . .’” Lichoff v. CSX Transp., Inc., 218 F.R.D. 564, 571 (N.D.
Ohio 2003) (quoting Moore v. PaineWebber, Inc., 306 F.3d 1247, 1253 (2d Cir. 2002)).
Plaintiffs argue that reliance may be presumed or inferred when the alleged
fraudulent statements are made “through uniform materials sent to each member of the
class,” citing Stanich v. Travelers Indem. Co., 249 F.R.D. 506, 519-21 (N.D. Ohio 2008).
However, the alleged fraud in Stanich was an insurer offering identical homeowners
policies at multiple prices, with a failure to disclose a lower-priced option. The court
concluded that a presumption of reliance attached because one could assume that the
cheaper policy—as all things were otherwise equal—would be preferred had the
disclosure been made.
Here, however, affirmative statements—in contrast to across-the-board
omissions—are at issue. Plaintiffs were consulted regarding the characteristics of their
homes and spoke with third-party representatives for the purpose of documenting their
values. In contrast to Stanich, these circumstances are more akin to those facing the
employer policyholders who alleged that their insurers defrauded them by charging
excessive premiums on workers’ compensation plans, the cost of which they negotiated.
See Sandwich Chef of Texas, Inc. v. Reliance Nat’l Indem. Ins. Co., 319 F.3d 205 (5th
Cir. 2003). In Sandwich, the Fifth Circuit concluded that the district court abused its
discretion in certifying a class, observing that the trier of fact ultimately would need to
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decide “whether a specific policyholder thought an invoice complied with the approved
rate and paid an inflated premium in reliance on that belief.” Id. at 221. A comparable
individualized policyholder assessment will be necessary here.
Accordingly, because the issues at hand are not subject to generalized proof, the
Court finds that the predominance requirement of Rule 23(b) cannot be met.
c. Superiority
A class action solves the problem of small individual recoveries “by aggregating
the[m] into something worth someone’s (usually an attorney’s) labor.” Windsor, 521
U.S. at 617 (quoting Mace v. Van Ru Credit Corp., 109 F.3d 338, 344 (7th Cir. 1997)).
Lacking predominance, however, this Court need not evaluate whether a class action is
the superior method of litigating the questions presented. The property-by-property
survey the Court identifies as required would, by necessity, fragment into countless minitrials. Accordingly, a class action would not be the superior means of resolving this case.
2. Typicality Under Rule 23(a)
Although commonality and typicality are separate and distinct requirements, they
“tend to merge” and are often discussed together. Gen. Tel. Co. v. Falcon, 457 U.S. 147,
157 n.13 (1982). “The premise of the typicality requirement is simply stated: as goes the
claim of the named plaintiff, so go the claims of the class.” Sprague, 133 F.3d at 399.
“There must be some connection . . . between the merits of each individual claim and the
conduct affecting the class. Absent such a connection, there is no basis upon which to
fashion class-wide relief.” Romberio v. UnumProvident Corp., 385 Fed. App’x 423, 431
(6th Cir. 2009). “Where a class definition encompasses many individuals who have no
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claim at all to the relief requested, or where there are defenses unique to the individual
claims of the class members . . . the typicality premise is lacking, for—under those
circumstances—it cannot be said that a class member who proves his own claim would
necessarily prove the claims of other class members.” Id.
Defendants contend that typicality is absent because Plaintiffs cannot show that
every person in the proposed class actually wants their coverage limits reduced, possibly
owing to “material changes” made to their home, or that no class member would be hurt
should a mass reduction result. Plaintiffs counter that they “do not challenge that policy
limits should rise when material changes are made to a home and do not advocate for
any reduction in policy limits associated with such changes[]” (Doc. 40 at 15 (emphasis
added)). But Plaintiffs response begs the question, and it is same one associated with the
discussions regarding ascertainability, commonality and predominance. Whether
“material” or “significant” changes have been made to a home is not susceptible to an
objective measurement. Nor is there an objective metric to decide “appropriate” (versus
“inflated”) coverage limits, even assuming that the absence of any such changes could be
established. Here the claims at issue are inherently individualized. Accordingly, the
Court finds that the typicality prerequisite of Rule 23(a) cannot be met.
IV.

CONCLUSION

Wherefore, for the reasons stated, the Court finds that the proposed class is not
ascertainable, and it cannot satisfy the commonality and typicality prerequisites of Rule
23(a), nor the predominance and superiority requirements of Rule 23(b). Therefore,

15

Defendants’ Motion to Strike Class Allegations in the Second Amended Complaint
(Doc. 34) is GRANTED.
IT IS SO ORDERED.
Dated: 2/2/15

s/ Timothy S. Black
Timothy S. Black
United States District Judge

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