Sitton v. State Farm Mut. Auto. Ins. Co.

• Decision Date: 18 February 2003
• Docket Number: No. 49923-8-I.,49923-8-I.
• Citation: 116 Wn. App. 245,63 P.3d 198,116 Wash. App. 245
• Parties: Mindy SITTON, Jesus Bancaco, Iris Salter, Joanne Roose, Virgie Harris, individually, and on behalf of all others similarly situated in the State of Washington, Respondents, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a foreign insurer, Petitioner.
• Court: Washington Court of Appeals

63 P.3d 198

116 Wn. App. 245

116 Wash. App. 245

Mindy SITTON, Jesus Bancaco, Iris Salter, Joanne Roose, Virgie Harris, individually, and on behalf of all others similarly situated in the State of Washington, Respondents, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a foreign insurer, Petitioner.

No. 49923-8-I.

Court of Appeals of Washington, Division 1.

February 18, 2003.

Peter Anthony Danelo, Daniel J. Dunne, Robin E. Wechkin, Kevin James Craig, Heller, Ehrman, White & McAuliffe, Seattle, for Appellant.

Patrick H. Lepley, Karen Kathryn Koehler, Lepley & Greig, PLLC, Bellevue; Bradley Jerome Moore, Michael E. Withey, Kessler, Stritmatter, Kessler, Whelan, Seattle; Keith Leon Kessler, Stritmatter, Kessler, Whelan, Withey & Coluccio, Hoquiam; Richard Friedman, Bremerton, for Respondents.

ELLINGTON, J.

This is a class action by State Farm insureds, who allege State Farm acted in bad faith to deny coverage for medical expenses. We granted discretionary review to determine whether the trial court erred in refusing to decertify the class, particularly in light of its adopted trial plan. We conclude the court did not abuse its discretion in granting class certification under CR 23(b)(3), but that certification under CR 23(b)(1) and (b)(2) was improper. We also vacate the trial plan, because it contemplates an award of damages without proof of causation and without an opportunity for State Farm to show it had a reasonable justification for denying individual claims.

FACTS

The individual plaintiffs made claims for medical treatment under the personal injury protection (PIP) provisions of their State Farm automobile insurance policies. As permitted by the policies, State Farm referred their claims for medical utilization reviews as to whether treatment was reasonable, necessary, and undertaken for injury caused by a covered accident. Following the reviews, all the claims were denied, at least in part.

Plaintiffs filed this class action lawsuit contending State Farm uses the review process in bad faith for the sole purpose of denying or limiting benefits, as part of a secret cost containment policy. Plaintiffs allege breach of contract, breach of fiduciary duty, breach of the duty of good faith and fair dealing, violation of the Consumer Protection Act, and unjust enrichment. They seek damages, and injunctive and declaratory relief.

The class consists of:

All persons in the State of Washington who, within the last six years, were insured by State Farm for personal injury protection (PIP) and who sustained injuries in a covered occurrence (motor vehicle accident) and who submitted a PIP claim to State Farm for medical expenses which was referred to an external medical utilization review, and who were denied or limited in the PIP benefits by State Farm based on such review.¹

Initially, the court certified the class under CR 23(b)(1)(A) and (b)(2), but not CR 23(b)(3). The trial court then entered an additional order certifying the class under CR 23(b)(3).

Thereafter, the court granted plaintiffs' motion to bifurcate the trial, and adopted a plan for two trial phases. In trial Phase I, the jury is to determine whether State Farm implemented a program designed to deny, limit, or terminate PIP claims, and whether the plan was implemented in bad faith. If so, the jury will determine the amount of "aggregate damages." Trial Phase II, which is still largely inchoate, will address issues of individual damages.

Following adoption of the trial plan, State Farm sought decertification of the class. The trial court denied the motion. We granted discretionary review.

DISCUSSION

I. Class Certification

A. Generally. "Washington courts favor a liberal interpretation of CR 23 as the rule avoids multiplicity of litigation, `saves members of the class the cost and trouble of filing individual suits[,] and ... also frees the defendant from the harassment of identical future litigation.'"² A trial court's decision regarding class certification is reviewed for a manifest abuse of discretion.³ Ordinarily, we will not disturb a certification decision if the record indicates consideration of the CR 23 criteria and the decision is based on tenable grounds.⁴ We resolve close cases in favor of allowing or maintaining the class.⁵

The four prerequisites to a class action under CR 23(a)⁶ (numerosity, commonality, typicality, and adequacy of representation) are not challenged here. Rather, State Farm contends the requirements of CR 23(b)⁷ are not satisfied. B. CR 23(b)(1)(A) & (b)(2). State Farm argues that certification is inappropriate under either (b)(1) or (b)(2), because the primary objective of the suit is monetary damages. State Farm is correct.

Classes certified under CR 23(b)(1) are designed to avoid prejudice to the defendant or absent class members.⁸ Certification under subsection (b)(2) is appropriate when injunctive or declaratory relief is requested, and when the defendant has acted or refused to act or failed to perform a legal duty on grounds generally applicable to the class.⁹ Classes certified under subsections (b)(1) and (b)(2) are "mandatory" classes; that is, the results are binding on all class members, who may not choose to opt out of the class.¹⁰ Notice to class members under these subsections is left to the trial court's discretion.¹¹ Mandatory class members thus may be deprived of their rights to notice and an opportunity to control their own litigation.¹² For these reasons, when plaintiffs are seeking monetary damages, certification under (b)(1) or (b)(2) violates due process unless the monetary damages sought are merely "incidental to the primary claim for injunctive or declaratory relief."¹³

Incidental damages are those "`that flow directly from liability to the class as a whole on the claims forming the basis of the injunctive or declaratory relief.'"¹⁴ Such damages are really a group remedy, rather than an individual one:

Ideally, incidental damages should be only those to which class members automatically would be entitled once liability to the class (or subclass) as a whole is established.... Moreover, such damages should at least be capable of computation by means of objective standards and not dependent in any significant way on the intangible, subjective differences of each class member's circumstances. Liability for incidental damages should not require additional hearings to resolve the disparate merits of each individual's case; it should neither introduce new and substantial legal or factual issues, nor entail complex individualized determinations.¹⁵

Here, plaintiffs seek group remedies in the form of an order enjoining State Farm to pay valid PIP claims, and various declarations of the rights of policy holders. But these remedies follow only if their contract and tort theories succeed, and on those theories they seek individual monetary damages, which will require individualized determinations about each class member's circumstances. These damages are not incidental. The class members are thus not afforded sufficient due process protections by CR 23(b)(1) and (b)(2), and class certification under these subsections was improper.

This error is not alleviated by later certification under CR 23(b)(3), with its full panoply of due process protections, because the court certified all claims under all three subsections. As a result, a class member who elects to opt out under CR 23(b)(3) remains bound by the CR 23(b)(1) and (b)(2) certification, but the parameters of the CR 23(b)(1) and (b)(2) certifications are unclear. It is not impossible that an action merits certification under all three sections of the rule, but it is surely rare, and such occasions require a more definite and clear order than that entered here. And ordinarily, these bases for certification should not be combined.¹⁶

C. CR 23(b)(3). Class certification is appropriate under CR 23(b)(3), the most comprehensive type of class, if common questions of fact or law predominate over individual ones and a class action is superior to other available methods of adjudication.¹⁷ State Farm argues that common questions do not predominate, and that a class action is unmanageable.

Predominance. State Farm contends the claims of each class member will necessarily require litigation regarding the facts of each accident, the medical condition of each insured, the specific action taken by each review panel, individual causation, and individual damages. In essence, State Farm contends that the presence of individual issues regarding causation, reliance, or damages precludes certification.¹⁸ Plaintiffs respond that the predominance requirement is satisfied, because the overriding common issue is whether State Farm had a practice of implementing utilization reviews in bad faith.

The predominance requirement is not a rigid test, but rather contemplates a review of many factors, the central question being whether "adjudication of the common issues in the particular suit has important and desirable advantages of judicial economy compared to all other issues, or when viewed by themselves."¹⁹ The predominance requirement is not a demand that common issues be dispositive, or even determinative; it is not a comparison of court time needed to adjudicate common issues versus individual issues; nor is it a balancing of the number of issues suitable for either common or individual treatment.²⁰ Rather, "[a] single common issue may be the overriding one in the litigation, despite the fact that the suit also entails numerous remaining individual questions."²¹ The presence of individual issues may pose management problems for the judge, but as the chief commentator has observed, courts have a variety of procedural options to reduce the burden of resolving individual damage issues, including bifurcated trials, use of subclasses or masters, pilot or test cases with selected class members, or even class decertification after liability is determined.²² Divi...