Robinson-Smith v. Government Employees Ins. Co.

• Citation: 590 F.3d 886
• Decision Date: 05 January 2010
• Docket Number: No. 08-7147.,No. 08-7146.,08-7146.,08-7147.
• Parties: Jerome ROBINSON-SMITH, Appellee v. GOVERNMENT EMPLOYEES INSURANCE COMPANY, Appellant. Christine Lindsay; Robert McGruder, Individually and on Behalf of all other Persons Similarly Situated, Appellee v. Government Employees Insurance Company, Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

590 F.3d 886

Jerome ROBINSON-SMITH, Appellee v. GOVERNMENT EMPLOYEES INSURANCE COMPANY, Appellant.

Christine Lindsay; Robert McGruder, Individually and on Behalf of all other Persons Similarly Situated, Appellee v. Government Employees Insurance Company, Appellant.

No. 08-7146.

No. 08-7147.

United States Court of Appeals, District of Columbia Circuit.

Argued October 15, 2009.

Decided January 5, 2010.

Appeals from the United States District Court for the District of Columbia (No. 1:01-cv-01340).

Eric Hemmendinger argued the cause for the appellant. Glen Donath and Bruce S. Harrison were on brief.

Charles E. Tompkins argued the cause for the appellees. Thomas V. Urmy Jr., Todd Heyman, Robert Ditzion, Joseph M. Sellers and Jenny R. Yang were on brief. Michael D. Hausfeld entered an appearance.

Before: GINSBURG and HENDERSON, Circuit Judges, and WILLIAMS, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge HENDERSON.

KAREN LeCRAFT HENDERSON, Circuit Judge:

Government Employees Insurance Corporation, better known as GEICO, underwrites, sells and services insurance policies covering automobiles and other property. Jerome Robinson-Smith, Christine Lindsay and Robert McGruder, the named plaintiffs in the two consolidated cases on appeal, worked for GEICO as "auto damage adjusters."¹ They sued GEICO for overtime benefits they claim they are owed under the Fair Labor Standards Act of 1938 (FLSA), 29 U.S.C. §§ 201 et seq., which ordinarily requires employers to pay employees time-and-one-half for hours worked beyond forty per week unless the employees are exempt. GEICO considers auto damage adjusters exempt "administrative" employees. On cross motions for summary judgment, the district court, applying the so-called "short test" used by the United States Department of Labor (Labor or DOL) to describe administrative employees, held that GEICO's auto damage adjusters do not exercise "sufficient" discretion and independent judgment to qualify for the exemption and granted the plaintiffs summary judgment.² GEICO appeals the judgment, arguing that the undisputed fact that the adjusters exercise "some discretion" means that they are exempt from overtime pay as administrative employees under the FLSA. For the following reasons, we agree with GEICO and reverse.

I.

GEICO employs at least three categories of personnel at varying levels of responsibility who may service a given automobile claim: the liability adjuster, the auto damage adjuster and the auto damage appraiser. At the higher end of the responsibility scale is the liability adjuster (a term used by the parties to also include a "claims service representative" and a "telephone adjuster"), who determines coverage and liability, sets reserves, works with lawyers and evaluates claims for lost wages, comparative negligence and personal injury. At the lower end is the auto damage appraiser, an entry-level employee who works under close supervision in GEICO drive-in locations inspecting damaged cars that remain in drivable condition. GEICO considers the former exempt as an administrative employee under the FLSA (and thus not entitled to overtime wages) but not the latter.

At a level of responsibility between the liability adjuster and the auto damage appraiser are the appellees: the auto damage adjusters. As the district court observed, auto damage adjusters (also known as "field adjusters") "assess, negotiate and settle automobile damage claims." See Robinson-Smith v. Gov't Employees Ins. Co., 323 F.Supp.2d 12, 15 (D.D.C.2004). They spend a majority of their time appraising damaged vehicles and estimating repair costs but also negotiate and settle claims with body shops over repair costs and with insureds over total loss vehicles. A newly-hired GEICO employee typically works as an auto damage appraiser for a probationary period before being promoted, with sufficient experience, to auto damage adjuster. Once promoted, he takes on additional responsibility and autonomy. For example, he begins to handle total loss claims, which involve vehicles GEICO deems too damaged to repair. An auto damage adjuster also works in the field³ (typically one or two days per week at a GEICO drive-in location but otherwise in the field) and under less direct supervision (usually on his own but with a ride-along supervisor about once a month). The average auto damage adjuster handles more than 1,000 claims per year, totaling over $2.5 million.

For most claims, the adjuster's main task is to determine how much GEICO should pay to restore a vehicle to its "pre-loss condition," using the most economical parts available unless safety is a consideration. In assessing vehicle damage and estimating repair costs, the adjuster relies on software that walks him through the appraisal process. He enters a vehicle identification number, or VIN, into a laptop computer with software that provides extensive information about the car. He then inspects the damaged vehicle and enters a description of the damage into the computer, which gives him information like the cheapest generic parts available or standard refinish times and material prices. An adjuster also makes decisions that are not dictated by the software, however, such as interviewing insureds about pre-existing damage, determining whether damage was caused by a covered event and recommending that payment be withheld on a claim if the damage did not result from a covered loss. (He is not authorized to decide whether GEICO is liable for a given claim or to deny liability, however, tasks performed by the liability adjuster.) An adjuster also spends some time negotiating with shops over repair times for body work. The extent of such negotiations is disputed: One witness testified that "every job has ... to be negotiated" but several others made clear that negotiating does not occupy a significant portion of an adjuster's time, no more than fifteen or twenty minutes per day. Other adjuster tasks include checking for indicia of fraudulent claims, determining whether to repair or replace a part, choosing which type of replacement part to use and adjusting the base value of a total loss vehicle to compensate for preexisting damage. GEICO supervisors initial each estimate and review some claims but not until the estimate is written and the claim paid.

Some claims involve vehicles that are so damaged they are declared a total loss. As a general rule, a vehicle is a total loss if the repair cost exceeds 75% of the vehicle value. While the software flags a vehicle as a potential total loss when its repair cost approaches 75% of the vehicle's value, it is the adjuster's task to decide whether it is economically feasible to repair a damaged vehicle or instead to pay the owner its value, which is sometimes based on adjuster estimates of repairing probable hidden damage in addition to visible damage. Adjuster determinations of whether to declare a vehicle a total loss can involve thousands of dollars in additional liability for GEICO. Approximately 20% of the claims the typical adjuster handles involve total loss vehicles, although plaintiff Lindsay testified that her proportion is about 30%. While fewer in number, total loss claims are more time consuming than partial loss claims because they involve several steps. After determining that a vehicle is a total loss, the adjuster first obtains the base valuation from the computer database. Depending on the similarity of comparable vehicles in the database, the adjuster then chooses that valuation or an alternative one from, for example, dealer quotes, internet listings, classified advertisements or dealer invoices, making sure to adjust that valuation for any preexisting damage. He then prepares an estimate and presents it to the vehicle owner, who may accept the offer or request more money.

About 70% of total loss claims are settled on the first offer with no subsequent negotiation. For the remaining 30%, the adjuster initiates settlement negotiations over amounts ranging from nominal to thousands of dollars. In some regions of the country the adjuster can transfer a particular total loss claim to one of GEICO's "total loss" units after the initial offer, but in all regions the adjuster can pursue settlement beyond the initial offer under at least some circumstances. For example, the adjuster generally has full authority to settle a claim within his limits ($10,000 for a Level I adjuster or $15,000 for a Level II adjuster) if he can justify his decision within GEICO guidelines and based on his experience. Most claims are settled within the adjuster's limits but he may also recommend a larger settlement to his supervisor. Adjustments used to reach settlements include using an alternative base valuation, waiving prior damage or making a "customer service concession," although some of the adjustments are made only with supervisor approval. GEICO has no policy or set dollar amount in dispute that requires the adjuster to consult his supervisor about adjustments. Rather, an adjuster's decision to consult with his supervisor is made on a case-by-case basis and he typically makes minor concessions without supervisor approval. Nevertheless, some adjusters routinely call their supervisors in situations involving adjustments or concessions and at least one adjuster testified that she was required to do so.

Although the parties agree that the adjuster negotiates with insureds on total loss claims, they disagree on how often that occurs. At the high end, the parties agree that approximately 20% of the 1,000 yearly claims (or 200) involve total losses and approximately 70% of the total loss claims (or 140) involve no negotiation at all. Based on these rough estimates, an adjuster probably handles about 60 claims per year involving customer negotiation over total losses. See Appellees' Br. 10 n.5 ("[A]t most only 6% of the claims handled by [auto damage adjusters] involve discussions with customers...