Marcial v. Coronet Ins. Co.

Citation880 F.2d 954
Decision Date26 July 1989
Docket NumberNo. 88-3127,88-3127
PartiesRICO Bus.Disp.Guide 7275 Francisco MARCIAL, Odessa Graham, Jolanta Nytko, Witold Nytko, Carretha Williams, Thomas Triplett, James Young, and Linda Young, Individually and in a representative capacity on behalf of a class of persons similarly situated, Plaintiffs-Appellants, v. CORONET INSURANCE COMPANY and Elston Claims Service, Defendants-Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)

Mark D. DeBofsky, Debofsky & Debofsky, Ronald S. Fishman, Fishman & Fishman, Chicago, Ill., for plaintiffs-appellants.

Alvin R. Becker, Timothy M. Kelly, Beermann, Swerdlove, Woloshin, Barezky & Berkson, Chicago, Ill., for defendants-appellees.

Before WOOD, Jr., MANION, and KANNE, Circuit Judges.

WOOD, Jr., Circuit Judge.

Plaintiffs claim that defendants Coronet Insurance Company (Coronet) and Elston Claims Service (Elston) violated the Racketeering Influenced and Corrupt Organization (RICO) statutes, 18 U.S.C. Secs. 1961-1965, by using polygraph tests as a means for denying insurance claims. Plaintiffs contend that Coronet and Elston defrauded policyholders when they indicated that polygraph tests were required to receive payment on automobile theft and vandalism claims and denied a high percentage of claims based on reported failures or refusals to take the tests. The district court denied plaintiffs' motion for class certification and granted summary judgment in favor of the defendants Coronet and Elston. The plaintiffs appeal. We affirm.

I. FACTS

We rely on the plaintiffs' version of the facts as we must defer to the nonmoving party when reviewing a grant of summary judgment. Spring v. Sheboygan Area School Dist., 865 F.2d 883, 886 (7th Cir.1989). Coronet sells insurance coverage for automobile vandalism, theft, and larceny. Elston, an insurance adjusting company that receives 95% of its business from Coronet, processes the automobile theft or vandalism claims of Coronet's insured.

Prior to 1981, when notified that a claimant's car had been stolen or vandalized, Elston would obtain an initial report of the loss from the claimant, review the police report, and inspect damage to the auto if it was recovered. If there were discrepancies in the information it obtained, Elston would request that the claimant make a statement under oath. In 1981 that procedure changed. Coronet instructed Elston to ask all claimants to undergo polygraph examinations, even before Elston received a police report regarding the automobile theft or damage. Plaintiffs testified in deposition that Elston representatives told them over the telephone that they must take the polygraph tests if they wanted to be paid.

Within forty-eight hours of a reported theft or vandalism claim, Elston would also mail to the claimant a letter that stated:

In order to expedite settlement of your claim we request that you submit to a polygraph test. Please contact this office to set up a time convenient for you. Your cooperation in this matter would be most appreciated.

The letter later read:

In order to speed up investigation and settlement of your claim, we request that you submit to a polygraph test.

If you do not submit to a polygraph test, you will be required to appear and give a statement under oath, in the presence of a court reporter.

The above is authorized and required under the terms of your policy.

The polygraph examiner testified that it was his practice to obtain a signed consent form from each claimant before he administered a polygraph test. Of the 867 claimants who agreed to take the polygraph tests from 1983 to 1987, Coronet's records indicate that 440 passed the exam, 422 were told that they failed the test, and 5 had inconclusive results. According to the plaintiffs, immediately after the polygraph examiner reported that a claimant failed the test, Coronet would deny the claim based solely on the test results.

Approximately half of the claimants refused to take a polygraph test. An Elston claims adjuster testified in deposition that Coronet paid only 25-40% of the claims of those who refused to take the polygraph test. This testimony contradicts Coronet's computer records, which show that, from 1983 to 1987, 2,630 claimants reported stolen vehicles. Of those claims, the records show that 613 persons were not paid. 1 Based on these records, Coronet contends that it paid 77% of the claims submitted from 1983 to 1987.

The plaintiffs include four individuals and two couples from whom Coronet withheld indemnity because they refused to take a polygraph test or because they allegedly failed the test. Francisco Marcial and Carretha Williams reported that their cars were stolen and were informed that they must take a polygraph test to receive indemnity. Both refused and both were not paid. Odessa Graham, Thomas Triplett, and James and Linda Young notified Coronet that their cars were stolen or vandalized, were told that they would not be paid unless they took a polygraph test, and were subsequently denied their claims because they allegedly failed the test. One couple, Jolanta and Witold Nytko, stated that when they reported their lost vehicle to Coronet, they were told that their claim would be "speeded up" if they took a polygraph test. They were denied indemnity because Witold reportedly failed the examination.

Plaintiffs sought certification as a class action. Coronet and Elston moved for summary judgment. On October 25, 1988, the district court denied plaintiffs' motion for class certification and granted Coronet's and Elston's motion for summary judgment. Plaintiffs filed notice of appeal on October 31, 1988.

II. ANALYSIS
A. Class Certification

The plaintiffs first challenge the district court's denial of their motion for class certification. They argue that the class consists of all persons who purchased automobile insurance from Coronet, made claims under the theft or vandalism provisions of their policy, were "compelled" to take polygraph examinations "as a precondition to payment of the loss," were reported to have failed the examination or refused to take the examination, and had their claims denied "without any further investigation or other basis for denial." The district court refused to certify this class because it held that the plaintiffs had not satisfied the numerosity requirement of Rule 23 of the Federal Rules of Civil Procedure and that issues specific to individual plaintiffs would predominate over class issues.

We will not reverse a district court's refusal to certify a class unless the district court abused its discretion. See First Interstate Bank, N.A. v. Chapman & Cutler, 837 F.2d 775, 781 (7th Cir.1988). Rule 23(a)(1) of the Federal Rules of Civil Procedure permits certification if the class is "so numerous that joinder of all members is impracticable." As the district court acknowledged, plaintiffs are not required to specify the exact number of persons in the class, Vergara v. Hampton, 581 F.2d 1281, 1284 (7th Cir.1978), cert. denied, 441 U.S. 905, 99 S.Ct. 1993, 60 L.Ed.2d 373 (1979), but cannot rely on conclusory allegations that joinder is impractical or on speculation as to the size of the class in order to prove numerosity, Valentino v. Howlett, 528 F.2d 975, 978 (7th Cir.1976).

Plaintiffs contend that the class consists of approximately 400-600 persons but have failed to establish that 400-600 persons would have legitimate claims. They derive this class size by taking the number of persons who were denied indemnity and reportedly failed the polygraph tests (422) as the minimum number of class members and the total number of claimants that Coronet's computer records indicate were denied claims from 1983 to 1987 (613) as the maximum number in the class. Plaintiffs assume, however, that Elston representatives told all policyholders that they must take the polygraph examination to receive payment. Plaintiffs also assume that every person who failed the test and was told that Coronet had denied their claim was rejected by Coronet solely on the basis of the test results. We cannot tell from the record whether those assumptions are correct. Furthermore, plaintiffs themselves have questioned the reliability of Coronet's computer records by pointing out the discrepancy between the figures in the computer records and the testimony of Frank Gomez, the claims adjuster who testified that 60-75% of the claimants who refused to take polygraph tests were denied indemnity. In short, plaintiffs have only speculated as to the number of persons who may have legitimate claims against Coronet. The district court did not abuse its discretion in finding that plaintiffs failed to prove numerosity.

Acknowledging, however, that a numerosity problem can be resolved later in a suit, see Vergara, 581 F.2d at 1284, the district court also found that factual issues regarding representations made to the plaintiffs would supersede issues that the potential class shared. See Fed.R.Civ.Proc. 23(b)(3) (class may be certified if "the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members"); Travis v. City of Chicago, No. 86 C 1133, slip op. at 3-4, 1987 WL 8175 (N.D.Ill. Mar. 16, 1987) (court refuses to certify because individual issues dominate class issues). To prove that Coronet "compelled" claimants to take the polygraph test, the district court held that plaintiffs would have to explain what Elston representatives told them about the tests. Plaintiffs, on the other hand, argue that letters from Elston uniformly informed plaintiffs that polygraph tests were required.

We agree with the district court that, in order to determine whether plaintiffs were compelled to take the tests, we need to know what Elston said to each claimant. As we will discuss in greater detail later, Elston's letters to the plaintiffs regarding the polygraph tests may have...

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