Schafer v. State Farm Fire and Cas. Co.

• Decision Date: 22 August 2007
• Docket Number: Civil Action No. 06-8262.
• Citation: 507 F.Supp.2d 587
• Parties: Kathleen SCHAFER, et al. v. STATE FARM FIRE AND CASUALTY CO., et al.
• Court: U.S. District Court — Eastern District of Louisiana

507 F.Supp.2d 587

Kathleen SCHAFER, et al. v. STATE FARM FIRE AND CASUALTY CO., et al.

Civil Action No. 06-8262.

United States District Court, E.D. Louisiana.

August 22, 2007.

COPYRIGHT MATERIAL OMITTED

James A. Watkins, Thomas Carey Wicker, III, Capitelli & Wicker, Brian David Katz, Joseph Edward Cain, Russ M. Herman, Soren Erik Gisleson, Stephen J. Herman, Herman, Herman, Katz & Cotlar, LLP, New Orleans, LA, for Kathleen Schafer, et al.

Wayne J. Lee, James Dalton Courson, Mary L. Dumestre, Michael Q. Walshe, Jr., Stone Pigman Walther Wittmann, LLC, David George Radlauer, Mark Aaron Cunningham, Jones, Walker, Waechter, Poitevent, Carrere & Denegre, New Orleans, LA, Eric M. Whitaker, Jones Walker, The Woodlands, TX, for State Farm Fire and Casualty Co., et al.

ORDER AND REASONS

STANWOOD R. DUVAL, Jr., District Judge.

Before the Court are Motions to Dismiss Case, Strike Amended Complaint Class Allegations (Rec.Doc. No. 23) filed by Defendant State Farm Fire & Casualty Company ("State Farm") and to Dismiss Party, Strike Amended Complaint Class Action Allegations (Rec.Doc. No. 29) filed by Defendant Xactware, Inc. ("Xactware"). After reviewing the pleadings, memoranda, relevant law, and hearing oral argument of the parties on June 13, 2007, the Court grants the motions in part and denies the motions in part.

I. BACKGROUND

This lawsuit arises out of a property adjustment dispute between a homeowner's insurer and policyholders relating to damages sustained when Hurricane Katrina struck the city of New Orleans on August 29, 2005. Specifically, Plaintiffs' claims relate to the methodology employed by State Farm and/or its agents in adjusting Plaintiffs' property damage claims.

Prior to the storm, Plaintiffs Kathleen and Gordon Schafer ("Schafers") obtained an insurance policy from Defendant State Farm for their property located at 3128 State Street Drive, New Orleans, Louisiana. Like many others, Plaintiffs sustained substantial damage to their home because of Hurricane Katrina. Pursuant to the terms of their homeowner's policy, they presented their claim for damages and/or loss to State Farm. Subsequently, State Farm sent independent adjusters to the Plaintiffs' property to determine the extent of the loss.

It is alleged that State Farm and/or its agents used a computer software program called Xactimate in determining the value of the loss. Xactimate is a computer software program created and distributed by Defendant Xactware. It is designed to calculate the replacement value of damaged property at issue. Plaintiffs describe Xactimate as follows:

Xactimate is used by the insurance claims adjuster entering in the damaged immovable property component parts (e.g. drywall or siding) and the size of the damaged property (e.g. square feet or linear feet) and the program applies a pre-determined price for that damaged item and calculates that "line item's" replacement cost.

The "line item" prices purportedly include labor, materials and other necessary items for each repair (e.g. nails caulk, etc.).¹

Plaintiffs take issue with the use of the Xactimate program by State Farm claims adjusters for three reasons. First, Plaintiffs allege that State Farm pressures or requires claims adjusters to accept the pricing database prices in their adjustment calculations.² If the adjuster does not use the software,³ Plaintiffs offer that the adjuster "risk[s][his] submission being flagged by the insurance carrier's claim examiner and `kicked back' or rejected, thus, delaying the adjuster's payment."⁴ Second, Plaintiffs contend that State Farm receives their own unique pricing database prices that are below the market value,⁵ yet "Xactware purportedly determines the line item prices by surveying area contractors, surveying material costs from the area's major suppliers, and/or receiving settled claim amounts."⁶ Third, Plaintiffs submit that Defendant Xactware "closely works with many insurance companies"⁷ who also receive similar below market pricing database prices and have special "profiles"⁸ in the Xactimate program. It is this alleged scheme that. Plaintiffs suggest ultimately causes Plaintiffs to pay out-of-pocket for repairs or substantial delay in obtaining repairs.

In connection with these allegations, Plaintiffs seek to bring a class action against State Farm and Xactware on the belief that "thousands of other insureds across the state of Louisiana on or about August 29, 2005, had in full force and effect homeowner's insurance contracts with State Farm" and were affected by the arrangement between Xactware and State Farm and between Xactware and other homeowner's insurance companies.⁹

In addition to these class allegations, Plaintiffs bring claims against both Defendants for horizontal price fixing, negligence, and intentional misrepresentation and/or fraud, and breach of contract.¹⁰

Defendant State Farm here seeks dismissal of the claims for horizontal price fixing, negligence, violations of Louisiana insurance law, and fraud. Moreover, State Farm seeks dismissal of the class action allegations arguing that individualized issues predominate over class-wide issues.¹¹ Defendant Xactware brings their motion to dismiss also seeking dismissal of the substantive claims as well as the class action allegations.¹²

II. LEGAL STANDARD

Rule 12(b)(6) of the Federal Rule of Civil Procedure provides that in response "to a claim for relief in any pleading, whether a claim, counterclaim, cross-claim, or third-party claim" the pleader may raise by motion the defense of "failure to state a claim upon which relief may be granted." Fed.R.Civ.P. 12(b)(6). In considering a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6), the "court accepts `all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff.'" Martin K. Eby Constr. Co. v. Dallas Area Rapid Transit, 369 F.3d 464 (5th Cir.2004) quoting Jones v. Greninger, 188 F.3d 322, 324 (5th Cir.1999). "[T]he plaintiff must plead enough facts to state a claim to relief that is plausible on its face" in order to survive a Rule 12(b)(6) motion to dismiss. Bell Atl. Corp. v. Twombly, ___ U.S. ___, 127 S.Ct. 1955, 1974, 167 L.Ed.2d 929 (2007).¹³ "Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Id. at 1965 (quotation marks, citations, and footnote omitted).

III. ANALYSIS

A. Class Action Allegations

Defendant State Farm argues that the class action allegations should be dismissed because the individualized issues predominate over class-wide issues. Specifically, Defendant State Farm submits that such individualized issues include the following:

i. the damage to each putative class member's home;

ii. the home repairs needed;

iii. whether payments made by State Farm were sufficient to repair the home;

iv. whether any repair estimates provided by State Farm included "below market" line items;

v. whether payment to the homeowner was based in whole or in part on such "below market" line items rather than payment of costs actually incurred;

vi. the communication between State Farm and the proposed class member regarding their homeowner's insurance claim;

vii. reliance by the claimant;

viii. the timeliness of State Farm's payments; and

ix. whether delays or errors were arbitrary, capricious, or without reasonable cause.¹⁴

Defendant Xactware joins in State Farm's argument and also adds that the Amended Complaint contains no allegations that "the preconditions for replacement cost coverage under the State Farm policy have been met and, therefore, lack standing as individuals and prospective class (sic) representive to seek damages based on the alleged failure of State Farm to reimburse them on a replacement cost basis."¹⁵

Plaintiff opposes the Defendants' Motions to Strike arguing that a class certification hearing is set for December 26, 2007, and the Court's consideration of issues pertaining to the certification would be premature at this time. Notwithstanding the prematurity of examining class issues, Plaintiffs further maintain that they "adequately allege a basis for maintaining class allegations."¹⁶

The Court finds that consideration of these issues are premature at this time considering that there are pending motions to dismiss to determine which parties and claims will remain in the litigation, and ultimately "because a hearing and proper record will be necessary to decide certification issues." In re Enron Corp. Securities, Derivative & ERISA Litigation, 2004 WL 405886, at *24 (S.D.Tex. Feb.25, 2004).

B. Horizontal Price Fixing

i. Applicable Law

Plaintiffs state their horizontal price fixing claim as follows:

An agreement, combination or conspiracy between defendants, and other competing companies, existed, at all material times herein, to fix the prices utilized in calculating the amount(s) to be paid under the terms of Plaintiffs/Insureds' insurance contracts with State Farm for covered damage to immovable property.

The Defendant State Farm acted conscious of other competing insurance companies' actions in using the Xactimate program, and its attendant below market prices, and intentionally acted in parallel, and in combination, to fix the prices utilized in calculating the amount to be paid under the terms of Plaintiffs/Insured' and class members' insurance contracts with Defendant State Farm for covered damage to immovable property.

The reduction in the amount paid out thereby reduced the payout and increased the profits of the Defendant State Farm, despite the losses caused by Hurricane Katrina and Rita.

Setting the payout amount lower than it would be if market prices were paid out would be detrimental to an insurance company's competitiveness if it were not for the combined use of the same prices. Additionally, insurance companies have actively coordinated their...