466 F.3d 853 (9th Cir. 2006), 05-35080, In re Farmers Ins. Exchange

Docket Nº:05-35080, 05-35145, 05-35082, 05-35146, 05-35509, 05-35501.
Citation:466 F.3d 853
Party Name:In re FARMERS INSURANCE EXCHANGE, Claims Representatives' Overtime Pay Litigation, Dave Miller, on behalf of himself and the class members in MDL Case No. 1439, Plaintiffs-Appellants, v. Farmers Insurance Exchange, Defendant-Appellee, and Farmers Group, Inc.; Plan Administrator of the Farmers Group, Inc. Profit Sharing Savings Plan Trust; Plan Admi
Case Date:October 26, 2006
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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466 F.3d 853 (9th Cir. 2006)

In re FARMERS INSURANCE EXCHANGE, Claims Representatives' Overtime Pay Litigation,

Dave Miller, on behalf of himself and the class members in MDL Case No. 1439, Plaintiffs-Appellants,

v.

Farmers Insurance Exchange, Defendant-Appellee,

and

Farmers Group, Inc.; Plan Administrator of the Farmers Group, Inc. Profit Sharing Savings Plan Trust; Plan Administrator of the Farmers Group, Inc. Employees' Pension Plan, Defendants.

In re Farmers Insurance Exchange, Claims Representatives' Overtime Pay Litigation,

Dave Miller, on behalf of himself and the class members in MDL Case No. 1439, Plaintiffs-Appellees,

v.

FARMERS INSURANCE EXCHANGE, Defendant-Appellant,

and

Farmers Group, Inc.; Plan Administrator of the Farmers Group, Inc. Profit Sharing Savings Plan Trust; Plan Administrator of the Farmers Group, Inc. Employees' Pension Plan, Defendants.

In re Farmers Insurance Exchange, Claims Representatives' Overtime Pay Litigation,

Jesse Corralez, on behalf of himself and the class members in MDL Case No. 1439, Plaintiffs-Appellants,

v.

Farmers Insurance Exchange, Defendant-Appellee,

and

Farmers Group, Inc.; Plan Administrator of the Farmers Group, Inc. Profit Sharing Savings Plan Trust; Plan Administrator of the Farmers Group, Inc. Employees' Pension Plan, Defendants.

In re Farmers Insurance Exchange, Claims Representatives' Overtime Pay Litigation,

Jesse Corralez, on behalf of himself and the class members in MDL Case No. 1439, Plaintiffs-Appellees,

v.

Farmers Insurance Exchange, Defendant-Appellant,

and

Farmers Group, Inc.; Plan Administrator of the Farmers Group, Inc. Profit Sharing Savings Plan Trust; Plan Administrator of the Farmers Group, Inc. Employees' Pension Plan, Defendants.

Nos. 05-35080, 05-35145, 05-35082, 05-35146, 05-35509, 05-35501.

United States Court of Appeals, Ninth Circuit.

Oct. 26, 2006

Argued and Submitted Sept. 14, 2006.

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[Copyrighted Material Omitted]

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Steven G. Zieff, Kenneth J. Sugarman, Rudy, Exelrod & Zieff, LLP, San Francisco, CA; James M. Finberg, Eve H. Cervantez, Lieff Cabraser Heimann & Bernstein, LLP, San Francisco, CA; and Michael Rubin, Peder J.V. Thoreen, Altshuler, Berzon, Nussbaum, Rubin & Demain, San Francisco, CA, for plaintiffs Jesse Corralez, et al., and David Miller, et al.

Theodore J. Boutrous, Jr., Deborah J. Clarke, Elisabeth C. Watson, Gibson, Dunn & Crutcher LLP, Los Angeles, CA, and Barnes H. Ellis, James N. Westwood, Stoel Rives LLP, Portland, OR, for defendants Farmers Insurance Exchange, et al.

Appeal from the United States District Court for the District of Oregon; Robert E. Jones, District Judge, Presiding. D.C. No. CV-02-01439-JO.

Before SILVERMAN and GOULD, Circuit Judges, and JOHN S. RHOADES, SR., [*] District Judge.

SILVERMAN, Circuit Judge.

For more than 50 years, the Department of Labor has considered claims adjusters exempt from the Fair Labor Standard Act's overtime requirement. In 2004, the DOL promulgated 29 C.F.R. § 541.203, which it viewed as "consistent with" existing law. Section 541.203 exempts claims adjusters if they perform activities such as

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interviewing witnesses, making recommendations regarding coverage and value of claims, determining fault and negotiating settlements.

In this case, the plaintiffs are nearly 2,000 former and current claims adjusters who handle, respectively, automobile damage claims, non-automobile property damage claims, personal injury claims and various combinations of these. They assert that their employer improperly classified them as exempt from the FLSA. The district court ruled that some of them are exempt, and some of them are not. In doing so, the district court promulgated a "$3,000 in claims paid per month" rule, a rule that all parties to this appeal agree is neither workable nor supported by the evidence.

We hold today that all of the adjusters in this case are exempt. The district court's factual findings establish that, regardless of the type (personal injury v. property) or size (large v. small) of the claims they handle, the adjusters are required to do virtually all of the very things that § 541.203 contemplates: use discretion to determine whether the loss is covered, set reserves, decide who is to blame for the loss and negotiate with the insured or his lawyer. If the DOL should choose to distinguish between adjusters based on the type or value of the claims they handle, it is free to amend the regulations and tell employers how to do that. Unless and until that happens, we are obligated to follow § 541.203. We affirm in part and reverse in part.

BACKGROUND

A. Farmers' business and the role of adjusters

Farmers Insurance Exchange ("FIE") is a reciprocal or inter-insurance exchange providing insurance throughout the country. 1 As a reciprocal exchange company, FIE is owned by its policyholders, or "subscribers," who exchange contracts with one another and, by pooling their resources, insure one another against certain losses. FIE, whether on its own or through its related companies, performs all the functions of a typical insurance company, including selling policies, contracting with individual agents who sell and service policies, procuring reinsurance and adjusting claims made on its policies. 2

Around 50 percent of FIE's 10,000 employees are claims adjusters. Most claims adjusters work out of their homes, and FIE provides them with company cars, phone lines, computer support, printers and fax machines. Claims adjusters spend significant time on the road, driving to locations where a loss or accident occurred. Branch managers in FIE's 120 to 160 branch offices nationwide supervise the claims adjusters. Claims adjusters do not supervise other employees.

FIE employs five types of claims adjusters in its personal lines business: those who handle automobile property damage

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claims ("automobile damage adjusters"), those who handle homeowners' claims for property and contents damage ("property adjusters"), those who handle personal injury claims ("liability adjusters"), those who handle unique physical damage claims (e.g., RVs, mobile homes) and personal injury claims ("Foremost adjusters") and another sort of hybrid claims adjuster who handles two or more types of claims ("multi-line adjusters").

FIE puts significant emphasis on paying exactly what it owes under the policy, "nothing more, nothing less." To that end, FIE provides each adjuster with written guidelines and training materials to aid them in the claims handling process. Some procedures are mandatory, while others are merely recommendations. Adjusters are subject to quality assurance audits at any time, but most are performed after the claim is closed. The primary goal of the audits is to determine "lost economic opportunity," a subjective assessment of the difference between what was paid and what could have been paid if the adjuster had correctly handled the claim. The audits ensure that adjusters are following FIE's "best practices," which are any actions that can be implemented to prevent lost economic opportunity. FIE's goal is to limit overpayment to two percent for automobile damage and liability claims, and slightly more than two percent for other property losses.

Claims adjusters use computer software to help them estimate the damage or loss; indeed, FIE expects its adjusters to use estimating software "whenever possible or appropriate." Estimating software "acts as a price database," much like parts catalogs, vendor quotes, and jury verdicts, and its usefulness largely is dependent, in many cases, on the quality of the information the adjuster develops before turning to the estimating software.

FIE's claims adjusters are classified at one of three levels, depending on experience and performance: claims adjuster, senior claims adjuster and special claims adjuster. Within any particular line of insurance, the duties of all three are mostly the same. One difference, however, is their settlement authority. The branch manager has discretion to set each adjuster's settlement authority, and generally, less experienced adjusters have lower authority levels. On any given claim, an adjuster's settlement authority can be raised with supervisor approval. On average, each adjuster pays approximately $1 million in claims per year, ranging from $2,800 to $8,000 per claim.

During all times relevant to this appeal, FIE paid its claims adjusters on a salary basis, not an hourly basis. 3 Many adjusters worked more than 40 hours per week during the class period, but FIE did not pay them overtime.

B. The lawsuits

In late 2001 and early 2002, a group of current and former claims adjusters filed a series of FLSA actions against FIE on behalf of themselves and similarly-situated adjusters, seeking overtime pay for the weeks in which they worked more than 40 hours. In March 2002, the Panel on Multidistrict Litigation transferred the various actions to the district court below for consolidated pretrial proceedings. The district court certified a FLSA collective action, which, under the Act, required any unnamed former or current claims adjusters to formally "opt-in" if they wanted to

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participate. See 29 U.S.C. § 216(b). Of the 6,100 notices sent to current and former claims adjusters, approximately 1,170 opted in.

The parties later stipulated to certification of seven state law classes, comprised of individuals from Colorado, Illinois, Michigan, Minnesota, New Mexico, Oregon and Washington. In addressing whether "common questions predominate," as required by Fed.R.Civ.P. 23(b)(3), the district court concluded that "the administrative exemption test under the laws...

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