Class Action Defense Attorneys Prevail on Demurrer Challenging Class Action Allegations – California Court Holds Plaintiffs’ Lawyer Could not Establish “Community of Interest” (Commonality)
California homeowners filed a putative class action against their homeowners’ insurance carriers, Farmers Insurance Exchange and Mid-Century Insurance Exchange (collectively “Farmers”) and State Farm General Insurance, asserting claims for declaratory relief, breach of contract, bad faith, and unfair competition (UCL) based on the allegation that they “were wrongfully denied policy benefits for damage caused to their homes by the Northridge earthquake.” Newell v. State Farm Gen. Ins. Co., 118 Cal.App.4th 1094, 1098 (Cal.App. 2004). The homeowners asserted the insurers had engaged in a “pervasive scheme … to limit liability on earthquake claims and [of] widespread use of bad faith practices,” id., at 1103. The insurers demurred to the class action allegations on the grounds that, as a matter of law, the insureds could not establish commonality or that a class action was a superior means for resolution of the disputes. The trial court agreed with the insurers and sustained the demurrer without leave to amend; plaintiffs appealed. Id., at 1099.
The appellate court affirmed. As a preliminary matter, the Court held that the plaintiffs bore the burden of proving “‘a well-defined community of interest among the class members.’” Newell, at 1100 (citation omitted). The Court found that the plaintiffs had failed to meet this burden. With respect to the breach of contract and breach of the implied covenant of good faith and fair dealing claims, the Court held:
Common questions of law and fact do not predominate … . Even if [the insurers] adopted improper claims practices to adjust Northridge earthquake claims, each putative class member still could recover for breach of contract and bad faith only by proving his or her individual claim was wrongfully denied, in whole or in part, and the insurer’s action in doing so was unreasonable… . Thus, each putative class member’s potential recovery would involve an individual assessment of his or her property, the damage sustained and the actual claims practices employed… . In such cases, class treatment is unwarranted.
Newell, at 1103 (citation omitted) (italics in original). The appellate court then explained that the declaratory relief and UCL claims “fare no better,” id.
The Court also agreed that a class action would not be the “superior means” of resolving the disputes between the insurers and the members of the putative class, particularly in light of the fact that each class member will “have a strong interest in controlling their own case” and that “thousands of individuals have pursued their own claims.” Newell, at 1104. It also bears noting that the appellate court believed the class had been defined so broadly – including “numerous types of alleged wrongdoing” – that it would not be manageable as a class action. Id.
NOTE: While the demurrer to the class action allegations did not result in a final judgment, under California law “denial of certification to an entire class is an appealable order.” Linder v. Thrifty Oil Co., 23 Cal.4th 429, 435 (Cal. 2000).
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