U.S. Seventh Circuit Judge Diane Sykes
A federal appeals panel has curbed a class action accusing Progressive of violating the rights of insurance policyholders by applying so-called “Projected Sold Adjustments” to discount the actual value paid when processing vehicle loss claims.
Heather Schroeder sued Progressive in federal court in Indiana seeking to represent a class of customers whose vehicles the company deemed total losses after collisions. According to the complaint, Progressive estimates actual value by looking at list prices of comparable cars and adjusting to account for typical seller-buyer negotiation.
U.S. District Judge Jane Magnus-Stinson certified the class on grounds each potential member could use common evidence to establish whether the insurer used an unacceptable method to determine actual cash value payment amounts. Progressive asked the U.S. Seventh Circuit Court of Appeals to review the certification. Judge Diane Sykes wrote the panel’s opinion, filed July 24; Judges Ilana Rovner and Amy St. Eve concurred.
Sykes detailed Progressive’s valuation systems, which Mitchell International designed with J.D. Power.
“Mitchell identifies list and sold prices of comparable cars from online marketplaces and dealer networks, applies adjustments to these prices, calculates the average adjusted price of selected comparable cars, then applies further adjustments based on characteristics specific to the totaled car to produce a valuation,” Sykes wrote. “Progressive takes this valuation and subtracts the applicable deductible to produce a settlement value for the insured’s claim.”
The panel noted the “Projected Sold Adjustments” when Mitchell’s system finds a list price for a comparable car that isn’t listed through what is considered a “no haggle” dealer. Until mid-2021, these adjustments never projected a car would sell for more than its list price by removing from the dataset any car that sold at or above list as an outlier. Since that time, J.D. Power just removes any records from “no haggle” dealers.
Schroeder said the system cost her $655 on the valuation of a 2018 Toyota Corolla. Another named plaintiff, Misty Tanner, alleged the value of her 2013 Chrysler 200 was short $549. Records show Schroeder accepted her valuation, but Tanner filed a dispute. After Progressive re-estimated the situation, it increased Tanner’s settlement by $500, which she accepted.
Sykes said the first issue is whether there were enough questions common to the entire class to allow certification to proceed, requiring a finding Progressive didn’t pay clients actual cash value for totaled vehicles, then considered a different legal theory: that Progressive failed in its obligation to calculate the actual cash value with a specific formula or method.
“We agree that whether cars sell for their list prices is amenable to proof by the common evidence (Schroeder) identifies: empirical data on car prices and expert testimony about the used car market and the validity of J.D. Power’s method for calculating Projected Sold Adjustments," Sykes wrote.
The primary concern was the way Progressive policies use the term “actual cash value.” Sykes noted policy language doesn’t supply an explicit definition, so the Indiana law concept of “fair market value” applies: “the price at which property would change hands between a willing buyer and seller, neither being under any compulsion to consummate the sale.”
Individual factors of each vehicle would “overwhelm the litigation,” Sykes wrote, including age of the car, mileage, model and features. That would mean a jury would have to consider many individualized questions to establish whether Progressive breached a contractual duty.
“We conclude that the policy does not preclude Progressive from applying Projected Sold Adjustments in calculating its settlement offers, so long as Progressive ultimately pays its insureds the actual cash value of their totaled cars as defined in the policy and by Indiana law,” Sykes wrote.
Based on the panel’s used of the fair market value definition — which doesn’t consist of a formula — and the failure of Schroeder’s complaint to spotlight any policy provisions or state insurance regulation dictating how a company is supposed to calculate actual cash value, Sykes concluded Progressive is making the full payments it calculates. The panel said it resolved the common question, found Judge Magnus-Stinson erred in concluding putative class members could succeed on their breach of contract theory and remanded the complaint for further proceedings.
The plaintiffs were represented by attorneys Jacob L. Phillips, of the firm of Jacobson Phillips, of Altamonte Springs, Florida; and Lee Lowther, of Carney Bates & Pulliam, of Little Rock, Arkansas.
Progressive was represented by attorney Jeffrey S. Cashdan and others from the firm of King & Spalding, of Atlanta, Georgia; Houston; Austin, Texas; and Washington, D.C.
