Wilkerson v. Am. Family Ins. Co.

• Decision Date: 13 May 2021
• Docket Number: No. 20-4113,20-4113
• Citation: 997 F.3d 666
• Parties: Nanika WILKERSON, individually and on behalf of all others similarly situated, Plaintiff-Appellant, v. AMERICAN FAMILY INSURANCE COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

997 F.3d 666

Nanika WILKERSON, individually and on behalf of all others similarly situated, Plaintiff-Appellant,

v.AMERICAN FAMILY INSURANCE COMPANY, Defendant-Appellee.

No. 20-4113

United States Court of Appeals, Sixth Circuit.

Decided and Filed: May 13, 2021

MURPHY, Circuit Judge.

When an insured motorist gets into a car accident, American Family Insurance Company caps the amount it will pay for damage to the car. American Family's standard insurance policy indicates that it will pay no more than the lesser of the car's "actual cash value" or "the amount necessary to repair or replace" it. If the car is a total loss, the insured typically must pay various taxes and fees when buying a replacement. This appeal addresses how these expenses fit within American Family's payment obligations. Should the taxes and fees be included in the estimate of the damaged car's "actual cash value" if American Family opts to pay that amount? Or are they included only if American Family decides to pay the "amount necessary to ... replace" the car? After Nanika Wilkerson got into a car accident, American Family took the latter position and refused to add these taxes and fees to its estimate of the "actual cash value" of Wilkerson's damaged car. Wilkerson brought this breach-of-contract suit on behalf of a class of individuals who also were not paid these expenses. The district court dismissed her complaint, reasoning that the "actual cash value" of a damaged car under American Family's policy unambiguously excludes the taxes and fees necessary to buy a replacement. We agree and affirm.

I

American Family insured Wilkerson's Chevrolet Impala. Wilkerson was in a car accident. She filed a claim.

American Family's insurance policy notes that it will pay for "loss of or damage to your insured car and its equipment, less the deductible[.]" Policy, R.1-1, PageID#25. But the policy does not cover all losses in unlimited amounts. In a "Limits of Liability" section, it adds that American Family will pay no more than the lesser of "the actual cash value of the stolen or damaged property" or "the amount necessary to repair or replace the property." Id. , PageID#26.

In Wilkerson's case, American Family concluded that the cost to "repair or replace" her Impala exceeded its pre-accident "actual cash value." It thus found the Impala to be a "total loss." American Family contracted with a third party, AudaExplore North America, to calculate the Impala's value. AudaExplore estimated the Impala's market value based on its location (northeast Ohio), its mileage (45,683), its condition (minor wear), and the recent advertised prices of other 2010 Impalas in the area (ranging from $8,218 to $10,033). AudaExplore ultimately valued Wilkerson's car at $9,979. American Family subtracted Wilkerson's $500 deductible and paid her $9,479.

Wilkerson brought suit under the Class Action Fairness Act. See 28 U.S.C. § 1332(d). She interpreted the phrase "actual cash value" in American Family's insurance policy to include various sales taxes and fees that a party typically must incur when buying a replacement car (whether or not a party actually incurs those expenses in a given case). And she claimed that American Family breached the contract because AudaExplore's valuation, and American Family's payout, did not include these taxes and fees. She sought $673.58 for the taxes (an amount representing the state and local sales taxes that would have been imposed for a car priced at the Impala's value). She also sought $19.50 for the fees charged in Ohio to transfer a car's title and registration. She sued on behalf of herself and a class of individuals who likewise did not receive payment for these taxes and fees.

The district court dismissed her complaint. We review its decision de novo. See Nixon v. Wilmington Tr. Co. , 543 F.3d 354, 356 (6th Cir. 2008).

II

A

Both parties agree that Ohio contract law applies to Wilkerson's claim. See Masco Corp. v. Wojcik , 795 F. App'x 424, 427 (6th Cir. 2019). "Under Ohio law, ‘[i]f a contract is clear and unambiguous, then its interpretation is a matter of law’ " for the court. Id. (quoting Nationwide Mut. Fire Ins. Co. v. Guman Bros. Farm , 73 Ohio St.3d 107, 652 N.E.2d 684, 686 (1995) ). If, however, the contract is facially ambiguous, the court may resort to evidence outside the contract to determine its meaning. See Westfield Ins. Co. v. Galatis , 100 Ohio St.3d 216, 797 N.E.2d 1256, 1261 (2003). And if the reading favoring the insured is a reasonable way to resolve any ambiguity, the court generally must adopt that reading because insurance contracts are construed against their drafters (normally, the insurers). See id. at 1262 ; Perry v. Allstate Indem. Co. , 953 F.3d 417, 421 (6th Cir. 2020).

This appeal thus turns on whether the phrase "actual cash value of the stolen or damaged property" in American Family's insurance policy unambiguously excludes the taxes and fees typically incurred to buy replacement property. Policy, R.1-1, PageID#26. When deciding whether a contract is unambiguous, Ohio courts presume that its language takes its ordinary meaning. Ohio N. Univ. v. Charles Constr. Servs., Inc. , 155 Ohio St.3d 197, 120 N.E.3d 762, 766 (2018) ; Nationwide , 652 N.E.2d at 686. If answered from this perspective, the question in this case would be easy. The ordinary insured motorist (and ordinary speaker of the English language) would not say that the taxes and fees incurred to buy a replacement car are part of the "actual cash value" of the damaged car. The word "value" has a plain meaning: "The material or monetary worth of something; the amount at which something may be estimated in terms of a medium of exchange, as money or goods, or some other similar standard." Oxford English Dictionary (online ed.) (last visited May 3, 2021). The modifiers ("actual cash") next suggest that the policy picks dollars as the standard of measurement. And the ensuing prepositional phrase ("of the ... damaged property") identifies the item whose worth is being measured. Putting these phrases together, the clause directs the parties to estimate the damaged car's monetary worth. And its "worth" does not include these taxes and fees.

But things are not so simple. Ohio courts only presume that a contract's words bear their ordinary meaning. The context sometimes shows that the parties instead intended for a special meaning, such as when a phrase has developed a technical usage over time. See Laboy v. Grange Indem. Ins. Co. , 144 Ohio St.3d 234, 41 N.E.3d 1224, 1227 (2015) ; Gomolka v. State Auto. Mut. Ins. Co. , 70 Ohio St.2d 166, 436 N.E.2d 1347, 1351 (1982). And here, the phrase "actual cash value" has become a legal term of art in this insurance context. See Black's Law Dictionary 1784 (10th ed. 2014); J.A. Tyler, Annotation, Test or Criterion of "Actual Cash Value" under Insurance Policy Insuring to Extent of Actual Cash Value at Time of Loss , 61 A.L.R.2d 711, Westlaw (database updated 2021).

Analyzing the question from this special-meaning perspective adds some complexity to our answer. On the one hand, the phrase "actual cash value" still largely tracks its ordinary meaning even in this insurance setting. As one authority notes: "Ordinarily, the measure of damages for the loss or destruction of personal property is its market value, if it has a market value[.]" Tyler, supra , 61 A.L.R.2d 711 § 3. As another says: "In physical damage coverage ... the phrase is generally considered to be the fair market value[.]" 6 Andrew Janquitto, New Appleman on Insurance Law Library Edition § 62.08[1][b][i], Lexis (database updated 2020). Many state courts (such as Texas) thus view fair market value as the default definition of "actual cash value." See, e.g. , Singleton v. Elephant Ins. Co. , 953 F.3d 334, 337–38 (5th Cir. 2020) (per curiam); Clark v. Clarendon Ins. Co. , 841 So. 2d 1039, 1046 (La. Ct. App. 2003). And definitions of "fair market value" or "market value" generally resemble the definition of value: "The price that a seller is willing to accept and a buyer is willing to pay on the open market and in an arm's length transaction." Black's Law Dictionary , supra , at 1785. So if "actual cash value" in American Family's policy adopted this definition, it would again unambiguously exclude the taxes and fees required to buy a replacement car. See Williams-Diggins v. Permanent Gen. Assurance Corp. , 157 N.E.3d 220, 225 (Ohio Ct. App. 2020) (citing cases). As we ourselves have reasoned, "negotiating parties may consider taxes and fees when agreeing on a price, but that is because they are factors that influence market value, not because they ‘should be added to the price when calculating market value.’ " Pieczonka v. Progressive Select Ins. Co. , 840 F. App'x 856, 858 (6th Cir. 2021) (quoting Singleton , 953 F.3d at 338 ).

On the other hand, the phrase "actual cash value" in this insurance setting also can mean "[r]eplacement cost minus normal depreciation" for the damaged car. Black's Law Dictionary , supra , at 1784. Some state courts (such as Florida) have adopted this replacement-cost-minus-depreciation definition as their default rule. See Janquitto, supra , § 62.08[1][b][i]; Tyler, supra , 61 A.L.R.2d 711 § 4 ; Singleton , 953 F.3d at 337 n.3. And if "actual cash value" in American Family's policy adopted this idiosyncratic definition, the policy might well include the taxes and fees that Wilkerson seeks because those expenses are likely part of the typical "replacement costs." See, e.g. , Ostendorf v. Grange Indem. Ins. Co. , 2020 WL 134169, at *3 (S.D. Ohio Jan. 13, 2020) ; Sos v. State Farm Mut. Auto. Ins. Co. , 396 F. Supp. 3d 1074, 1080–81 (M.D. Fla. 2019).

The choice between these dueling definitions is thus critical to resolving this case. Although many state courts have chosen one of the definitions as their "background rule," Singleton , 953 F.3d at 337 n.3, the Ohio Supreme Court has yet to identify a default definition that parties...