Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES NEWS: Allstate seeks Supreme Court review of Montana class certification, (Feb 6, 2014)

By Peter Reap, J.D., LL.M.

Allstate Insurance Company has asked the U.S. Supreme Court to review the Montana Supreme Court’s approval (as modified) of a certified class of all unrepresented (by counsel) individuals who had claims against Allstate whose claims were adjusted by Allstate in Montana using its Claim Core Process Redesign (CCPR) program to determine by class trial whether the application of the CCPR to the class violated the Montana Unfair Trade Practices Act (UTPA). Allstate’s petition, filed January 30, 2014, challenges the Montana Supreme Court ruling on class action due process grounds (Allstate Insurance Co. v. Jacobsen, Dkt. 13-916).

Background. The class action claim arose out injuries and property damage Robert Jacobsen suffered in an automobile accident caused by Allstate’s insured in 2001. Allstate admitted liability and negotiated a settlement with Jacobsen while he was unrepresented by counsel. Allstate’s adjuster used Allstate’s CCPR program to process Jacobsen’s claim. The CCPR is a system of claims adjusting guidelines that Allstate implemented in 1995 to fast track settlements and reduce the amount paid out on claims. The program facilitated a quick, unrepresented settlement six days after the accident for $3,500 and 45 days of “open” medical payment. As part of the settlement, Jacobsen signed a release.

Roughly three weeks later, Jacobsen began experiencing significant pain. Jacobsen contacted his adjuster and asked him to reconsider the release and provide additional assistance. The adjuster refused. Jacobsen retained counsel, who successfully persuaded Allstate to rescind the release and re-open Jacobsen’s claim. Due to the efforts of Jacobsen’s newly-hired attorney, Allstate settled Jacobsen’s claim for $200,000 on November 27, 2002, roughly 18 months after his initial, unrepresented settlement for $3,500.

Thereafter, Jacobsen retained new counsel and filed a complaint against Allstate seeking compensatory damages for various violations of the Montana UTPA, common law claims, and also seeking punitive damages.

The jury returned a verdict in favor of Jacobsen on October 19, 2006, finding Allstate liable for common law and statutory bad faith and awarding Jacobsen $68,372.38 in compensatory damages. The jury specifically found that Allstate violated the UTPA by misrepresenting pertinent facts regarding the claim and neglecting to attempt in good faith to promptly, fairly, and equitably settle a claim in which liability was reasonably clear. The jury also awarded Jacobsen $350,000 in punitive damages based on its finding that Allstate acted with actual malice.

One issue under consideration in the case concerned the discovery of what were termed the “McKinsey documents.” The McKinsey documents consist of around 12,500 PowerPoint slides produced by McKinsey & Company (McKinsey), a management consulting firm, for Allstate. The CCPR program is a distillation of the studies and recommendations contained in the McKinsey documents. However, Jacobsen was unaware of the existence of the McKinsey documents at the time of his initial discovery request or motion to compel production of the CCPR. When he became aware of them, Jacobsen sought leave of the trial court to assert new individual and class action claims against Allstate and to pursue additional discovery. The trial court denied these requests, finding that they would “cause substantial prejudice and undue delay, burden, and expense[.]”

Following the jury verdict, both parties appealed and the Montana Supreme Court reversed the trial court’s decision to deny further discovery and remanded the case for a new trial. On remand, Jacobsen filed a motion for class certification, proposing a class definition encompassing “all unrepresented individuals who had either third-party claims or first-party claims against Allstate whose claims were adjusted by Allstate in Montana using its CCPR program.”

The state trial court certified a Rule 23(b)(2) class in its June 30, 2012, Order. On appeal, the Montana Supreme Court concluded in its August 29, 2013, opinion that the trial court did not abuse its discretion by certifying a Rule 23(b)(2) class action. It also concluded that the certification of class-wide punitive damages was inappropriate in the context of a Rule 23(b)(2) class and remanded for a class trial to determine whether the application of the CCPR to the class violated the UTPA, and, if so, to determine what, if any, notice was required to class members. The trier of fact in the class trial would also make a determination as to whether Allstate’s implementation of the CCPR program involved actual fraud or actual malice, such as could justify the entry of punitive damages following a finding of actual damages in the ensuing individual cases, the Montana Supreme Court ruled.

Petition for Review

The petition argues that the Montana Supreme Court’s August 29, 2013, opinion “represents a radical abridgement of the parties’ due process rights. The petition attacks the ruling on three separate due process grounds.

Typicality. As certified, the class is represented by a plaintiff who is ineligible to receive, and cannot benefit from, the equitable relief he seeks on behalf of the class, because he has already received what he claims class members are due: a reopening and readjustment of his claim, according to Allstate. Because Jacobsen is ineligible for the relief he is seeking on behalf of the class, he lacks the same interest and same injury as the class members.

No right to opt-out. Members of the mandatory class will necessarily have essential elements of their damages claims litigated to a binding adjudication in a no-opt out trial, contrary to the dictates of due process, Allstate contends. For example, an individual plaintiff’s claim for emotional distress damages would require proof of the nature and circumstances of the wrong, facts that would be determined on a class-wide basis if the class certification should stand. That determination would bind absent class members who have no right to opt-out of the class.

Individualized defenses. The Montana Supreme Court ruling deprived Allstate of its due process right to present every available defense to disputed questions of liability for punitive damages, it asserts. Under the scheme mandated by the Montanan Supreme Court, the class trier of fact will determine whether Allstate’s claim adjustment procedures constituted actual fraud or malice with respect to a class spanning nearly 20 years. Allstate’s procedures varied over time and necessarily varied in individual applications, it argues. Allstate is entitled to challenge each plaintiff’s ability to show actual fraud or malice at the time each claim was submitted and Montana’s “one-size-fits-all” approach violates Allstate’s due process rights by not allowing it to offer individualized defenses, it contends.

Attorneys: Miguel A. Estrada (Gibson, Dunn & Crutcher LLP) for Allstate Insurance Co. John Vail for Robert Jacobsen.

Companies: Allstate Insurance Co.

News: StateUnfairTradePractices