Trzeciak v. Allstate Prop. & Cas. Ins. Co., 21-10737

CourtUnited States District Courts. 6th Circuit. United States District Court (Eastern District of Michigan)
Writing for the CourtDAVID M. LAWSON United States District Judge.
Decision Date29 October 2021
Docket Number21-10737



No. 21-10737

United States District Court, E.D. Michigan, Southern Division

October 29, 2021


DAVID M. LAWSON United States District Judge.

Plaintiffs Mark Trzeciak and Julie Trzeciak have filed an amended complaint on behalf of a putative class suggesting that they do not believe that they are at all in good hands with their insurer, Allstate. They contend that Allstate breached their insurance contract and committed silent fraud by overcharging premiums based on non-risk factors that actually disadvantage long-term policy holders. Allstate does not deny that, but it alleges in its motion to dismiss that even when accepting all the allegations in the amended complaint, the plaintiffs have not stated a cognizable claim. The Court agrees and will grant the motion and dismiss the case.


Mark and Julie Trzeciak have been Allstate automobile insurance policyholders since 2010. Beginning in 2014, Allstate changed the way it calculated auto insurance policy premiums in Michigan by launching a system known as price optimization. Price optimization appears to be a method of assessing an existing policyholder's tolerance for premium increases; it works to maximize how much an insurer may charge a policyholder before that policyholder leaves for another insurer. Allstate implemented price optimization, the plaintiffs allege, by assigning policyholders to one of thousands of “microsegments, ” then applying a Complimentary Group


Rating (CGR) factor that increases or decreases the premium a policyholder otherwise would pay based on the other risk-related factors used to calculate premiums.

The plaintiffs allege that, to assign microsegments and CGRs, Allstate applies a secret algorithm that determines how much of a premium increase a policyholder will accept before refusing to renew. More often than not, the result is higher premiums based on criteria that are not disclosed to policyholders and have nothing to do with risk. The plaintiffs also allege that price optimization is the last step in the process of calculating premiums, that it is undiscernible to policyholders, that it results in few if any policyholders being grouped into the same microsegment, and that commonly it results in two similarly-situated policyholders - at least from a risk-factor standpoint - paying substantially different rates. It is especially common, the plaintiffs allege, for longtime policyholders like themselves to pay more, because they are less price elastic than newer customers even though they in general are less risky to insure.

The plaintiffs allege that they paid higher premiums as a result of Allstate's price optimization process. They say that Allstate secretly assigned them a microsegment with a positive CGR factor indicating their relatively low sensitivity to premium price changes. And they allege that Allstate did not disclose to them that it uses factors other than risk to determine their premiums and that they would have no way of finding out what microsegment and CGR Allstate has assigned them.

Unlike other states, Michigan does not bar price optimization outright. Regulators have scrutinized the practice, however. The Michigan Department of Insurance and Financial Services recently sent an objection letter to Allstate asking about its pricing practices, including whether policyholders with the same risk profile could end up paying different rates. It also asked Allstate in 2014 whether it was using price optimization in order to “raise[] rates for policyholders it retains


and reduce[] premiums for new business.” Amend. Compl. at ¶ 74, ECF No. 20, PageID.514. In response, Allstate admitted to assigning microsegments and CGRs “based on the following: Expected loss; Policyholder disruption, ” although, as the plaintiffs point out, Allstate did not also reveal how it determines a policyholder's elasticity to higher premiums. Id. at ¶ 75, PageID.515. Allstate's 2014 Michigan rate filing memo disclosed that it had implemented Complementary Group Rating plans, and that policyholders are “assigned to a Complimentary Group based on . . . Policy disruption (quantified using a proprietary retention model).” Rate Memo, ECF No. 22-6, PageID.798, 805. The memo further acknowledges that Allstate uses this proprietary retention model “to quantify policyholder disruption and, as a result, aid in factor selection, ” id. at PageID.801, and that the retention model includes variables like “Historical premium change” and “Premium percentage change, ” id. at PageID.815.

Although Allstate's public filings regarding price optimization in Michigan are limited, the insurer has revealed information about the model in other states. Data filed in Maryland show that Allstate applied vastly different CGRs to customers with identical risk profiles; this led Maryland to block Allstate's attempts to use CGRs. Florida and Georgia also rejected Allstate's price optimization system, and Allstate withdrew proposals to implement it in Louisiana and Rhode Island after regulators raised questions about the practice. The plaintiffs allege that Allstate uses the same system in Michigan as in Maryland but has obscured the details here.

The plaintiffs filed their complaint pleading claims of breach of contract and fraudulent concealment and seeking to certify a class. They also pleaded a claim for unjust enrichment, which they subsequently withdrew. The defendant responded in June with a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). The plaintiffs filed an amended complaint that makes additional allegations regarding the defendant's price optimization model, and the defendant


responded with a motion to dismiss the amended complaint. The Court heard oral argument on the motion on October 26, 2021.


The purpose of a motion under Rule 12(b)(6) is to allow a defendant to test whether, as a matter of law, the plaintiff is entitled to legal relief if all the factual allegations in the complaint are taken as true. Rippy ex rel. Rippy v. Hattaway, 270 F.3d 416, 419 (6th Cir. 2001) (citing Mayer v. Mylod, 988 F.2d 635, 638 (6th Cir. 1993)). The complaint is viewed in the light most favorable to the plaintiff, the factual allegations in the complaint are accepted as true, and all reasonable inferences are drawn in favor of the plaintiff. Bassett v. Nat'l Collegiate Athletic Ass'n, 528 F.3d 426, 430 (6th Cir. 2008). To survive the motion, the plaintiff “must plead ‘enough factual matter' that, when taken as true, ‘state[s] a claim to relief that is plausible on its face.'” Fabian v. Fulmer Helmets, Inc., 628 F.3d 278, 280 (6th Cir. 2010) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556, 570 (2007)). Unsupported conclusions will not suffice. “Plausibility requires showing more than the ‘sheer possibility' of relief but less than a ‘probab[le]' entitlement to relief.” Ibid. (quoting Ashcroft v. Iqbal, [556 U.S. 662, 678] (2009)).

When deciding a motion under Rule 12(b)(6), the Court looks only to the pleadings. Jones v. City of Cincinnati, 521 F.3d 555, 562 (6th Cir. 2008). But the Court also may consider the documents attached to them, Commercial Money Ctr., Inc. v. Illinois Union Ins. Co., 508 F.3d 327, 335 (6th Cir. 2007) (citing Fed.R.Civ.P. 10(c)), documents referenced in the pleadings that are “integral to the claims, ” id. at 335-36, documents that are not mentioned specifically but which govern the plaintiff's rights and are necessarily incorporated by reference, Weiner v. Klais & Co., Inc., 108 F.3d 86, 89 (6th Cir. 1997), abrogated on other grounds by Swierkiewicz v. Sorema, N.A., 534 U.S. 506 (2002), and matters of public record, Northville Downs v. Granholm, 622 F.3d 579, 586 (6th Cir. 2010).


However, beyond that, assessment of the facial sufficiency of the complaint ordinarily must be undertaken without resort to matters outside the pleadings. Wysocki v. Int'l Bus. Mach. Corp., 607 F.3d 1102, 1104 (6th Cir. 2010).

Subject matter jurisdiction in this case is based on the minimal diversity requirements of the Class Action Fairness Act. 28 U.S.C. § 1332(d)(2). Because this is a diversity action, the Court must follow state substantive law, as prescribed by the forum state's highest court. Erie R.R. v. Tompkins, 304 U.S. 64 (1938). If the state supreme court has not addressed a determinative point of law, this Court “must predict how it would resolve the issue from ‘all relevant data.'” Kingsley Associates, Inc. v. Moll PlastiCrafters, Inc., 65 F.3d 498, 507 (6th Cir. 1995) (citing Bailey v. V & O Press Co., Inc., 770 F.2d 601, 604 (6th Cir. 1985)). “Relevant data include decisions of the state appellate courts, and those decisions should not be disregarded unless we are presented with persuasive data that the [state's highest court] would decide otherwise.” Ibid. (citing FL Aerospace v. Aetna Casualty and Surety Co., 897 F.2d 214, 218-19 (6th Cir. 1990)). The parties agree that Michigan law governs.


Count I of the amended complaint is labeled breach of contract, but the plaintiffs do not point to a specific contract term that Allstate failed to honor. Instead, the plaintiffs base this count of their amended complaint on a breach of an implied covenant of good faith and fair dealing.

Michigan courts have observed that this covenant “is an implied promise contained in every contract that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.” Bank of America, NA v. Fidelity National Title Ins. Co., 316 Mich.App. 480, 501, 892 N.W.2d 467, 479 (2016) (quoting Hammond v. United of Oakland, Inc., 193 Mich.App. 146, 151-52, 483 N.W.2d 652, 655 (1992)). However,


“Michigan does not recognize an independent...

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