Kramer v. Fergus Farm Mut. Ins. Co.

• Decision Date: 13 October 2020
• Docket Number: DA 19-0682
• Citation: 401 Mont. 489,474 P.3d 310,2020 MT 258
• Parties: Jack KRAMER and Ken Kramer, individually and on behalf of all others similarly situated, Plaintiffs and Appellees, v. FERGUS FARM MUTUAL INSURANCE COMPANY, Defendant and Appellant.
• Court: Montana Supreme Court

401 Mont. 489

474 P.3d 310

2020 MT 258

Jack KRAMER and Ken Kramer, individually and on behalf of all others similarly situated, Plaintiffs and Appellees,

v.FERGUS FARM MUTUAL INSURANCE COMPANY, Defendant and Appellant.

DA 19-0682

Supreme Court of Montana.

Submitted on Briefs: July 22, 2020

Decided: October 13, 2020

For Appellant: Matthew B. Hayhurst, Christopher L. Decker, Boone Karlberg P.C., Missoula, Montana

For Appellees: Sean M. Morris, Jesse C. Kodadek, Martin Rogers, Worden Thane, P.C., Missoula, Montana

Justice Jim Rice delivered the Opinion of the Court.

¶1 Plaintiffs-Appellees, Jack and Ken Kramer (Kramers) brought this action against Defendant-Appellant, Fergus Farm Mutual Insurance Company (FFM), alleging breach of contract and violation of Montana's Unfair Trade Practices Act (UTPA), §§ 33-18-101, et. seq ., MCA. FFM appeals the order of the Thirteenth Judicial District Court, Yellowstone County, granting class certification. See M. R. Civ. P. 23(f) ; M. R. App. P 6(3)(d).

¶2 We restate the issues on appeal as follows:

1. Did the District Court abuse its discretion in its class certification by determining that common questions of law predominate under M. R. Civ. P. 23(b)(3) ?

2. Did the District Court abuse its discretion in its class certification by entering incorrect conclusions of law and clearly erroneous findings of fact?

¶3 We affirm in part, reverse in part, and remand for further proceedings.

FACTUAL AND PROCEDURAL BACKGROUND

¶4 On May 21, 2016, the Kramers’ house, detached garage, and small shed were damaged during a hailstorm. At that time, Kramers owned a homeowner's insurance policy insuring their property, issued by FFM. Under the policy, for covered losses Kramers were entitled to payment of "Actual Cash Value" (ACV),¹ less a deduction for depreciation, following an adjuster's determination of the amount needed for repairs or replacement value. Even if the insured chooses to forego repairs, FFM pays the ACV amount to the insured. FFM paid Kramers $35,966.63 in ACV payments, which did not include an amount for General Contractor Overhead and Profit (GCOP).²

¶5 Under the policy, if the insureds repair the property, they are entitled to payment of Replacement Cost Value (RCV),³ which is essentially the amount withheld for depreciation under the ACV payment. In a policy endorsement issued prior to Kramers’ loss, FFM expanded the definition of "Replacement Cost Terms" to state, "[t]he smaller of the following amounts is used in applying the ‘terms’ under Our Limit: 1) the cost to repair or replace the damage on the same premises using materials of like kind and quality, to the extent practical; or 2) the amount actually and necessarily spent to repair or replace the damage."

¶6 FFM follows an internal practice to pay GCOP if an adjuster determines a general contractor is "reasonably necessary" for repairs. The District Court found, "this ‘reasonably necessary’ standard is widely used in the insurance industry when calculating possible GCOP payments," but the standard or practice is not stated in FFM's insurance policy. The parties disputed whether FFM's "reasonably necessary" inquiry included consideration of the "three-trade rule." As used by the parties in the litigation, the "three-trade rule" is a practice of determining that a general contractor and, accordingly, payment of GCOP costs, is reasonably necessary when three trades are employed to complete the repairs.

¶7 Kramers hired Jon Hooley of Big Sky Contractors to complete the repairs to their property. Although FFM disputed Hooley's general contractor service as reasonably necessary for completion of the repairs, FFM agreed to include GCOP charges in the RCV payment, on the condition that Kramers submit subcontractor invoices and photos of the completed repairs. Kramers did not provide the requested documentation, and FFM refused to pay GCOP charges.

¶8 In March 2019, Kramers filed an action against FFM alleging breach of contract and violation of Montana's UTPA. The complaint alleged FFM breached the insurance contract with the Kramers and all other insureds by failing to include GCOP in the "cost to repair or replace" the Kramers’ property. Further, Kramers alleged FFM "systematically refus[ed] to pay its insureds the reasonable value of general contractor overhead and profit" in violation of the UTPA, which constituted actual fraud and actual malice. The complaint also sought certification of a class of insureds. FFM's answer denied the complaint's assertions about the policy, asserting the policy "speaks for itself," and denied it had refused to pay profit and overhead, asserting the documentation requested from subcontractors was "necessary to determine the amount, if any, owed under the terms of the policy."

¶9 After briefing and hearing, the District Court granted Plaintiffs’ motion for class certification, stating that "[a]ll class members’ insurance policies contain similar loss settlement provisions making these questions applicable as the policies do not directly address the question of GCOP." The District Court certified two classes, the "ACV Class" and the "RCV Class," as submitted by Plaintiffs. The ACV Class was defined as:

All Fergus Farm Mutual policy holders a) who made an actual cash value claim for residential and associated structural loss under a farm owner or homeowner policy; b) from March 28, 2009 to the present; c) where Fergus Farm Mutual accepted liability, and its own records show that at least three subcontractors would be required to complete the repairs; but d) where the actual cash value payment did not include an additional 20% payment for general contractor overhead and profit, unless the insured was paid that full amount as part of the replacement cost value payment.

The RCV Class was defined as:

All members of the ACV Class a) who have replacement cost value policies; b) received an initial actual cash value payment; c) went on to complete the identified repairs and were paid the previously held back replacement cost value payment; but d) who were not paid an additional 20% for general contractor overhead and profit as part of their replacement cost value payment.

The District Court reasoned that two questions predominate in the action:

1) whether the Defendant's policy language regarding the insurer's duty to tender GCOP payments at both the ACV and RCV stages is so ambiguous as to be unfair; and 2) whether the Defendant's claim settlement practices with regard to GCOP fees are or are not in conformance with those practices of other Montana insurers as to be in violation of Montana's Unfair Trade Practices Act.

¶10 FFM appeals.

STANDARD OF REVIEW

¶11 This Court reviews a district court order granting class certification for an abuse of discretion. Knudsen v. Univ. of Mont. , 2019 MT 175, ¶ 6, 396 Mont. 443, 445 P.3d 834 (citing Sangwin v. Montana , 2013 MT 373, ¶ 10, 373 Mont. 131, 315 P.3d 279 ). "The question is not whether this Court would have reached the same decision, but whether the district court acted arbitrarily without conscientious judgment or exceeded the bounds of reason." Sangwin , ¶ 10 (citing Chipman v. N.W. Healthcare Corp. , 2012 MT 242, ¶ 17, 366 Mont. 450, 288 P.3d 193 ). When reviewing a decision on class certification, this Court affords the trial court the broadest discretion because it "is in the best position to consider the most fair and efficient procedure for conducting any given litigation." Sangwin , ¶ 10 (citing Jacobsen v. Allstate Ins. Co. , 2013 MT 244, ¶ 25, 371 Mont. 393, 310 P.3d 452 ).

¶12 A district court abuses its discretion if its certification order is premised on legal error. Mattson v. Mont. Power Co. , 2012 MT 318, ¶ 17, 368 Mont. 1, 291 P.3d 1209 (internal citation and quotation marks omitted). Likewise, when a district court's decision is not supported by findings as to the applicability of Rule 23 criteria, it is not entitled to the traditional deference given to determinations of class status. Mattson , ¶ 17 (internal citation and quotation marks omitted). To the extent that the ruling on a Rule 23 requirement is supported by a finding of fact, that finding, like any other finding of fact, is reviewed under the clearly erroneous standard; and to the extent that the ruling involves an issue of law, review is de novo . Jacobsen , ¶ 25 (internal citation and quotation marks omitted).

¶13 This Court is reluctant to interfere with discretionary orders in the early stages of litigation. Diaz v. State , 2013 MT 219, ¶ 20, 371 Mont. 214, 308 P.3d 38. The trial court has flexibility to modify its certification orders, which are made at an early stage in the case, when the facts are disputed and discovery incomplete. M. R. Civ. P. 23(c)(1)(C) ; Diaz , ¶ 20.

DISCUSSION

¶14 Class action lawsuits are an exception to the "usual rule that litigation is conducted by and on behalf of the individual named parties only." Mattson , ¶ 18 (citing Califano v. Yamasaki , 442 U.S. 682, 700 –01, 99 S. Ct. 2545, 2557, 61 L.Ed.2d 176 (1979) ). Class actions seek to conserve resources and further economy—both judicially and that of similarly-situated parties—by allowing the single litigation of common issues of fact and law. Knudsen , ¶ 7 (citing Roose v. Lincoln Cty. Emp. Grp. Health Plan , 2015 MT 324, ¶ 14, 381 Mont. 409, 362 P.3d 40 ). Class actions must meet four preliminary requirements of M. R. Civ. P 23(a) —numerosity, commonality, typicality, and adequate representation—and satisfy any subsection of M. R. Civ. P 23(b) to be certified. Knudsen , ¶ 7 (citing Roose , ¶ 14 ).

¶15 The four requirements of M. R. Civ. P. 23(a) ensure the "named plaintiffs are appropriate representatives of the class whose claim they wish to litigate and effectively limit the class claims to those fairly encompassed by the named plaintiff's claims." Mattson , ¶ 18 (citing Wal-Mart Stores, Inc. v. Dukes , 564 U.S. 338, 349, 131 S. Ct. 2541, 2550, 180 L.Ed.2d 374 (2011) ) (internal quotations omitted)....