Johnson v. Am. Family Mut. Ins. Co.
| Decision Date | 31 March 2023 |
| Docket Number | 22-cv-214-jdp |
| Parties | HOLLY JOHNSON, SABRINA TIMMINS, CLYNELL MICKEY, and ELMIRA HOBBS, individually and on behalf of all others similarly situated, Plaintiffs, v. AMERICAN FAMILY INSURANCE COMPANY and AMERICAN FAMILY MUTUAL INSURANCE COMPANY, S.I., Defendants. |
| Court | U.S. District Court — Western District of Wisconsin |
Plaintiffs are residents of Kansas, Missouri, Minnesota, and Wisconsin who were involved in automobile accidents and insured under American Family automobile insurance policies issued in those states. They assert claims for breach of contract and breach of the implied covenant of good faith and fair dealing based on defendants' practice of applying a “typical negotiation adjustment” (TNA) to reduce the list price of comparable vehicles used to calculate the actual cash value (ACV) of totaled vehicles. Dkt. 22. Specifically plaintiffs allege that defendants systematically and fraudulently undervalue total-loss vehicles by using a baseless TNA that does not truly reflect current market conditions. Plaintiffs also seek a declaratory judgment that defendants' conduct is a breach of the insureds' insurance contract and a violation of state law.
Each plaintiff seeks to represent a state-specific class consisting of residents of their home state. This court has jurisdiction over plaintiffs' state law claims under the Class Action Fairness Act, 28 U.S.C. § 1332(d), because the amount in controversy exceeds $5,000,000 and at least one plaintiff is a citizen of a state other than Wisconsin, where defendants American Family Insurance Company and its subsidiary, American Family Mutual Insurance Company, S.I., are headquartered.
Defendants move to dismiss plaintiffs' third amended complaint under Federal Rule of Civil Procedure 12(b)(6),[1] contending that plaintiffs have failed to allege a valid breach or injury and even if they state valid contract claims, their claims should be dismissed as duplicative, subject to a mandatory appraisal clause, or untimely. Dkt. 24. Plaintiffs agree that plaintiff Mickey's claims (Counts 7-9) are time-barred under Minnesota law, so the court will dismiss those claims without further discussion.
For the reasons explained below, the court will grant defendants' motion in part and deny it in part. The court concludes that plaintiffs Timmins, Johnson, and Hobbs have stated plausible and non-duplicative claims for breach of contract and breach of the implied covenant of good faith and fair dealing, so the motion to dismiss will be denied on those grounds. But plaintiff Johnson's claim for breach of the implied covenant of good faith and fair dealing (Counts 5) is untimely under Missouri law, so that claim will be dismissed. The court also concludes that the appraisal clause in Hobbs's and Johnson's insurance policies is not unconscionable or cost prohibitive, as plaintiffs argue. But the appraisal process will not resolve plaintiffs' claims, so the court will deny defendants' motion to dismiss for plaintiffs' failure to comply with the appraisal clause. Nor is it necessary to delay resolution of plaintiffs' claims while the parties complete the appraisal process.
In considering a motion to dismiss under Rule 12(b)(6), the court accepts all factual allegations in the complaint as true and draws all reasonable inferences in favor of the plaintiff. Erickson v. Pardus, 551 U.S. 89, 93 (2007). The court draws the following facts from plaintiffs' third amended complaint, Dkt. 22; the policy and valuation reports attached to the second amended complaint, Dkts. 10-1 to 10-5; and the insurance policies attached to defendants' motion to dismiss, Dkts. 25-1 to 25-4.[2]
Plaintiffs purchased and were issued materially identical automobile insurance policies in their home state from one of the defendants: Sabrina Timmins in Kansas, Holly Johnson in Missouri, and Elmira Hobbs in Wisconsin. The policies require defendants to pay for loss due to direct and accidental physical damage of a covered car, less the deductible. Dkt 10-1, at §§ II.A.2 and B.[3] Defendants' liability for the loss is the lesser of: (a) the actual cash value (ACV) of the total-loss vehicle; or (b) the amount necessary to repair or replace the damaged vehicle. Id., at § II.E.1. Plaintiffs' policies do not define ACV.
Johnson's and Hobbs's policies, from Missouri and Wisconsin respectively, also set forth an appraisal process under which either American Family or the insured “may demand appraisal of the loss.” Dkt. 25-1, at 11 (§ II.F.2); Dkt. 25-4, at 24 (§ II.G.2) (emphasis in originals).
If appraisal is demanded, each party will appoint and pay an appraiser, who “will state separately the actual cash value and the amount of loss.” Id. “An award in writing by any two appraisers will determine the amount payable.” Id. But the “appraisers, or a judge of a court having jurisdiction, will select an umpire to decide any differences.” Id. Although defendants' standard Kansas policy contains the same appraisal provision, see Dkt. 25-2, Timmins's specific policy excludes the standard appraisal clause, see Dkt. 25-2, at 18, Kansas Changes § A.3.c.
Between May 27, 2016, and November 3, 2018, plaintiffs each sustained damage to their covered vehicles in automobile accidents. Defendants declared plaintiffs' vehicles to be total losses and offered to pay the ACV. Defendants determined the ACV for plaintiffs' vehicles using third-party companies (Audatex or AudaExplore) with databases of vast numbers of comparable vehicles. These companies use a system called Autosource Market-Driven Valuation to identify the price of comparable vehicles sold or listed for sale online in the relevant market. At defendants' directive, Autosource applies a reduction to the base values of comparable vehicles for typical negotiation, referred to as the TNA.
The valuation reports that plaintiffs received state that the selling price of comparable vehicles “may be substantially less than the asking price,” so a “selling price adjustment has been applied to the typical price.” Dkts. 10-2 to 10-5, at 3. The TNA applied to the comparable vehicles listed in plaintiffs' valuation reports ranged between 4 and 11%. But the reports do not explain how Audatex or AudaExplaore determined the appropriate TNA to be applied to each comparable vehicle. Id.
Plaintiffs do not contest the comparable vehicles chosen or the listed prices of those vehicles. They challenge only the TNA adjustment, alleging that it does not accurately reflect market conditions and artificially reduces the ACV of the totaled vehicle. According to plaintiffs, defendants purportedly apply the TNA to represent the average difference between the dealer's list price of the comparable vehicle and the amount that the dealer actually would accept. But defendants and their vendor do not communicate with the dealers of the comparable vehicles. And defendants' TNA fails to consider any instances in which a car is sold at a price equal to or greater than the list price.
Plaintiffs allege that given the ubiquity of internet advertising and shopping and the development of sophisticated pricing tools, dealers now price the vehicles to market and do not negotiate off the advertised price. In addition, plaintiffs say that the COVID-19 pandemic and the related supply chain problems have resulted in used cars selling for a premium, typically at sales prices higher than the listed prices.
After plaintiffs filed this lawsuit, defendants invoked their appraisal rights under Johnson's and Hobbs's policies. Neither Johnson nor Hobbs has named an appraiser or otherwise complied with the appraisal clause in their policy.
Plaintiffs assert two claims regarding defendants' systematic use of a TNA to reduce the ACV of total-loss vehicles: (1) defendants breached the insurance policy by failing to pay plaintiffs the promised ACV of their total-loss vehicles; and (2) defendants breached the implied covenant of good faith and fair dealing by unreasonably and arbitrarily reducing the amount of their total-loss payments to insureds.[4] Defendants seek dismissal of these claims with prejudice on four grounds: (1) plaintiffs have failed to allege that defendants breached an obligation under the contract and that plaintiffs were paid less than owed for their total-loss vehicle; and even if plaintiffs do state a claim, (2) Johnson's claims are untimely under Missouri's statute of limitations; (3) plaintiffs' claims for breach of the implied covenant of good faith and fair dealing, and their requests for declaratory relief, are duplicative of the breach of contract claims; and (4) Johnson's Missouri claims and Hobbs's Wisconsin claims are subject to a mandatory appraisal clause.[5] Plaintiffs dispute these contentions and affirmatively assert that the appraisal clauses in the Missouri and Wisconsin policies do not apply to disagreements over the ACV. Plaintiffs also argue that even if the appraisal provision applies, requiring appraisal would be pointless, violate the prohibitive cost doctrine, and be unconscionable. In the alternative, plaintiffs ask the court to stay this action until Johnson and Hobbs complete the appraisal process.
On a motion to dismiss, the question is whether plaintiffs provided defendants with fair notice of their claims and alleged facts plausibly suggesting that they are entitled to relief. McCray v. Wilkie, 966 F.3d 616, 620 (7th Cir. 2020). The court concludes that plaintiffs have met this standard, but it will dismiss Johnson's claim for breach of the implied covenant of good faith and fair dealing as untimely.
CAFA jurisdiction is a type of diversity jurisdiction, and a court sitting in...
To continue reading
Request your trial