Smith v. American Family Mut. Ins. Co.
| Decision Date | 05 May 2009 |
| Docket Number | No. WD 68610.,No. WD 68586.,WD 68586.,WD 68610. |
| Parties | Nicholas H. SMITH, et al., Appellant-Respondents, v. AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Respondent-Appellant. |
| Court | Missouri Court of Appeals |
Michael E. Waldeck, Esq., Overland Park, KS for appellant.
Edward D. Robertson, Esq., and Mary D. Winter, Esq., Jefferson City, Mo, for respondent.
Before DIV I: LOWENSTEIN, P.J., SMART and HOWARD, JJ.
The case at bar is a class action suit by auto insurance policyholders for breach of contract against their insurance company. Nicholas Smith and Amy and Bryce Johnson, on behalf of themselves and a class of Missouri plaintiffs (collectively "Plaintiffs" or "Class"), appeal the trial court's grant of defendant American Family Mutual Insurance Company's ("American Family") motion for judgment notwithstanding the verdict ("JNOV"). The trial court conditionally denied American Family's motion for a new trial pursuant to Rule 72.01(c). American Family cross-appeals, asserting evidentiary and instructional error as the basis for a new trial, and asking, in the alternative, that the class be decertified.
The background of this case was set forth in State ex rel. American Family Mutual Insurance Company v. Clark, 106 S.W.3d 483, 485 (Mo. banc 2003), in which the Supreme Court of Missouri certified the class of Missouri plaintiffs in this action:
American Family writes private passenger automobile property and casualty insurance in fourteen states. The policy promises to "pay loss in money or repair or replace damages or stolen property." In 1985, American Family established the current guidelines that adjusters follow when writing estimates for replacement parts. For vehicles in the latest three model years, adjusters are instructed to specify Original Equipment Manufacturer ("OEM") replacement parts for repairs. When writing estimates for vehicles of an earlier model year, adjusters are encouraged to specify the use of non-OEM crash parts or salvage OEM parts. OEM parts are those parts made by the original automobile manufacturers or suppliers; non-OEM parts are made by outside companies without access to the design specifications of the OEM parts. American Family now uses computer software to write the estimates. The software automatically specified non-OEM crash parts for automobiles of certain model years.
The same computer program identifies repairs the vehicle will require. The estimating software systematically excludes from estimates certain repairs deemed necessary by industry standards.1 Such repairs include seatbelt safety tests, wheel alignments, adjusting the aim of headlamps, and corrosion protection.
Plaintiffs claim that American Family breached its contracts with policyholders to restore their vehicles to pre-loss condition by devising and implementing a practice that results in payment of claims based on (1) the systematic specification of "inferior" non-OEM crash parts for repairs and (2) the systematic omission of specific "necessary" repairs from estimates. Plaintiffs brought the action on behalf of themselves and "all others nationwide, or in the alternative all others in the state of Missouri," who were insured by American Family, made a claim for vehicle repairs pursuant to their policy, and received payment based on an estimate prepared or approved by American Family that included non-OEM crash parts and/or did not include specified "necessary" repairs.
(Emphasis added.)
The Circuit Court of Jackson County had certified a class of nationwide plaintiffs. On American Family's application for a writ of prohibition, the Supreme Court certified the class only as to Missouri policy holders, granting the writ of prohibition as to American Family policy holders outside the State of Missouri. Id. at 489.
Plaintiffs' two count petition came to trial in February 2007. After a three-week trial, the jury returned a verdict for the Class on both counts. On Count I, the non-OEM, or aftermarket, parts breach of contract claim, the jury found damages in the amount of $13,118,325. On Count II, the omitted repairs breach of contract claim, the jury found damages in the amount of $4,274,112. Plaintiffs also sought declaratory and injunctive relief.
American Family moved for JNOV, or, in the alternative, a new trial. The trial court granted the motion for JNOV as to both counts and conditionally denied the motion for a new trial. The Class appealed and American Family cross-appealed.
Appellant Class raises four points. In their first point, the Class contends the trial court erred in granting American Family's motion for JNOV, asserting that the Class had made a submissible case as to both of its claims. In their second point, the Class claims the trial court incorrectly interpreted Missouri's Aftermarket Rule, 20 100-1.050 ("the Rule"), as applied to their claims, and in their third point, assert that they made a submissible case under a correct interpretation of the Rule. In their final point, the Class asks that if this court reinstate the jury's verdict, the case be remanded to the trial court with directions that the court hear Plaintiffs motions for attorneys fees and costs, declaratory and injunctive relief, and prejudgment interest.
A. GRANT OF JNOV
Plaintiffs first contend that the trial court erred in granting American Family's motion for JNOV on both the aftermarket parts claim and the omitted repairs claim, contending that the Class made a submissible case for both counts. This court reviews the trial court's grant of a defendant's motion for JNOV to determine whether the plaintiff made a submissible case. Payne v. Cornhusker Motor Lines, Inc., 177 S.W.3d 820, 832 (Mo.App. 2005). Whether a submissible case was made is a question of law to be reviewed de novo. Id. This court views the evidence and all reasonable inferences to be drawn therefrom in the light most favorable to the plaintiffs. Id. "There is a presumption that favors reversal of a JNOV granted to a defendant, unless the favorable evidence and inferences are so strongly against the plaintiff as to leave no room for reasonable minds to differ as to the result." Leo Journagan Constr. Co. v. City Utils. of Springfield, 116 S.W.3d 711, 723 (Mo.App. 2003).
Plaintiffs' first count alleged that "American Family breached its contracts with each prospective class member when it made payment on policyholders' claims based upon estimates ... specifying the use of non-OEM crash parts." Clark, 106 S.W.3d at 488. Accordingly, to make a submissible claim of breach against American Family, Plaintiffs were required to show that: (1) American Family paid class members the cost of aftermarket parts and that these aftermarket parts were inferior in like, kind, and quality to the OEM parts; (2) by doing so, American Family breached its insurance contracts with class members; and (3) as a result, class members were damaged.
In granting American Family's motion for JNOV, the trial court concluded that Plaintiffs failed to establish that American Family had breached its contracts or that Plaintiffs were damaged. The trial court found, as to both elements, a failure of proof.
American Family's contractual obligation to its policyholders arises from two sources: (1) the American Family insurance contract; and (2) the regulations of the Missouri Department of Insurance, here, specifically the Missouri Aftermarket Parts Rule, 20 CSR 100-1.050(2) ("the Rule"). Under American Family's standard policy, the insurer is obligated to repair or replace the policyholder's damaged vehicle. American Family's practice is to satisfy this contractual duty by cutting the insured a check based on an estimate of damage written by its adjustors. American Family's contractual duty is met when the insured receives the check.
The Rule requires that where insurers elect to pay for non-OEM replacement parts, the parts must be "at least like kind, and quality in terms of fit, quality, and performance to the original manufacturer parts they are replacing." 20 SCR 1004(2)(D) 2.A. In resolving an apparent ambiguity in the meaning of the term "original" in the Rule, the trial court noted that the Missouri Department of Insurance ("the MDI") has interpreted the Rule as creating a legal obligation that insurers "pay the cost necessary to return an insured vehicle to its condition before the damage; that is, to it's pre-loss condition." The trial court concluded that "pre-loss condition" referred to "the part on the vehicle when the damage giving rise to the need for repair occurred."
In granting American Family's motion for JNOV as to Count I, the trial court found that the Plaintiffs failed to prove that American Family breached its duty to pay and that the class members were thereby damaged. The trial court held that "[t]o show class-wide breach and damages, Plaintiffs were ... required to compare the aftermarket parts to the pre-loss condition of parts the aftermarket parts were replacing on the class vehicle" and that "Plaintiffs' evidence failed to show that any aftermarket part was inferior to any part it actually replaced on any class vehicle or was inferior to any part on any class vehicle for which an aftermarket part was specified as part of the repair estimate." The court concluded that the Plaintiffs failed to present sufficient evidence from which a reasonable juror could find that American Family breached its contracts with all members of the class.
The trial court's requirement that Plaintiffs "compare the aftermarket parts to the pre-loss condition of the parts" to be replaced is at odds with the Supreme Court's analysis of the predominant issue in Clark. In Clark, American Family claimed that, to show...
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