Wednesday, 23 February 2011 22:54

Class Action Judgments: GEICO Wins Appeal vs. Greenberger & Progressive Wins 2/6 vs. Blue Ash Inc.

Two collision-related class action lawsuits against major insurers have recently been decided in favor of the insurers. In the GEICO case on appeal partially due to lack of evidence (the vehicle). In the Progressive case a summary judgment was returned on two of six counts charged. The plaintiffs in the Progressive case have decided to drop the remaining existing charges to facilitate an appeal of the summary judgment.

Don’t Give Away the Evidence
The January 10, 2011 GEICO decision pertains to a Chicago law professor’s prospective class action suit accusing the insurance company of deliberately omitting repairs from its estimates. He lost the case in part because he gave away the car (the evidence) before the case was resolved.

On July 4, 2002, Greenberger, a professor and administrator at a Chicago law school, was involved in an automobile accident, and his 1994 Acura sustained damage to its bumper, steering box, suspension, and

lower body. The next day, a GEICO insurance adjuster inspected the car at Greenberger’s home and wrote him a check for $3,284.69 ($3,784.69 minus a $500 deductible).

Greenberger cashed the check but did not repair his car. Five months later, a stranger approached Green-berger in a parking lot and expressed interest in buying the car. Greenberger permitted this prospective buyer to take the Acura to a friend’s body shop for an estimate of what it would cost to repair it. The buyer’s technician, Sarkit Tokat of Lake Side Auto Rebuilders, delivered an estimate of $4,938.65, about $1,150 higher than GEICO’s estimate. The sale was not made, however, and in December 2002 Greenberger donated the car to charity without making any repairs.

Exactly three years after accepting GEICO’s payment on his claim, Greenberger filed a proposed class-action lawsuit in Cook County Circuit Court alleging breach of contract, violation of the Illinois Consumer Fraud and Deceptive Practices Act, and common-law fraud. He claimed that GEICO systematically underpays on its auto-accident claims by omitting necessary repairs from vehicle-damage estimates. This practice, he alleged, violates GEICO’s contractual promise to restore the insured’s vehicle to its preloss condition and constitutes statutory and common-law fraud. GEICO removed the case to federal court under the Class Action Fairness Act (“CAFA”).

The district court dismissed the statutory consumer-fraud claim without prejudice. Greenberger amended
his complaint and again the court dismissed the statutory claim, this time with prejudice (meaning it could not be refiled), and also denied Greenberger’s motion to file a third amended complaint. Greenberger’s other claims, however, were allowed to proceed. The court eventually granted GEICO’s motion for summary judgment on the breach-of-contract and common-law fraud claims, and accordingly did not address the issue of class certification. After an unsuccessful motion for reconsideration, Greenberger appealed.

Greenberger’s suit seeking class status alleged, in the court’s words, that GEICO “systematically underpays on its auto-accident claims by omitting necessary repairs from vehicle-damage estimates,” which Greenberger said “violates GEICO’s contractual promise to restore the insured’s vehicle to its preloss condition and constitutes statutory and common-law fraud.”

The court ruled that the fact that the one piece of physical evidence, Greenberger’s car, is long gone means that the suit cannot proceed.

“Greenberger gave away his car, and without it, he cannot prove that what GEICO paid him was inadequate to restore the car to its pre-loss condition,” the court wrote in its opinion.

The court cited Avery v. State Farm, a decision out of the Illinois Supreme Court, in ruling that Greenberger could not preclude on his claim. “Among other important holdings, Avery established the common-sense proposition that a policyholder’s suit against his insurer for breach of its promise to restore his collision-damaged car to its pre-loss condition cannot succeed without an examination of the car. Greenberger gave away his car, and without it, he cannot prove that what GEICO paid him was inadequate to restore the car to its preloss condition,” the court wrote.

Avery also made clear that fraud claims must contain something more than reformulated allegations of a contractual breach. Greenberger alleged that GEICO never intended to restore his car to its preloss condition and failed to disclose that it regularly breaches this contractual promise. These are breach-of-contract allegations dressed up in the language of fraud. They cannot support statutory or common-law fraud claims.

Among the repairs not included in GEICO’s original estimate were “masking openings to prevent overspray,” “covering the vehicle to prevent overspray onto glass,” “checking seatbelts to ensure they worked properly,” and “cleaning the car for delivery to customer.”

Though legally distinct, Greenberger’s contract and fraud claims are all premised on the same basic factual allegation: that GEICO systematically omits necessary repairs from its collision-damage estimates in violation of the promise to restore the policyholders vehicle to its preloss condition. The district court sidestepped the class-certification question, dismissed the statutory consumer-fraud claim, and then entered summary judgment for GEICO on the breach-of-contract and common-law fraud counts.

Perhaps the most puzzling aspect of the case from the plaintiff’s perspective, is that he should have known better. Greenberger graduated from Yale Law School and currently works as an Associate Professor, and Associate Dean, at DePaul Law School in Chicago. In addition, Greenberger once worked as a clerk for the Seventh Circuit, the court that eventually threw out his case.

Progressive vs. Blue Ash et. al. Prepped for Appeal
The Progressive vs. Blue Ash case has resulted in a summary judgment on two of the six counts filed against it by a group of independent body shops in Ohio. The shops have also agreed to dismiss the remaining four claims against Progressive, but the suit will continue.

In 2009, Blue Ash Auto Body, Finney Automotive, and Valley Paint and Body filed suit against Progressive claiming that independent repairers (those not part of the insurer’s DRP program) are injured by Progressive’s claims handling practices. The shops charged that Progressive’s actions include illegally steering consumers to its network shops, illegal suppression of price, interfering with professional collision repair judgment, misusing estimating database information (including the use of a special version of the Mitchell estimating system created by Mitchell specifically for Progressive’s use), and the refusal to pay for necessary repairs on behalf of consumers.

The case is currently in the hands of Attorneys Bill Markovits and Terry R. Coates of Waite, Schneider, Bayless & Chesley. Markovits told Autobody News that the gist of the claims was Progressive’s failure to pay for standard procedures as taught in any auto body tech program or textbook. Essentially Progressive was saying “we’ll pay for steps one, two, and five, but not for three and four.”

When the case was originally filed, plaintiff’s attorney Stan Chesley of Waite, Schneider, Bayless & Chesley, said, “This case is corporate arrogance at its worst. Progressive just walks all over these independent shops, and is trying to prevent them from performing the repairs that any reasonable consumer would expect.”

On January 19, Hamilton County Judge Steven E. Martin entered a summary judgment in favor of the insurer on two of the six counts claimed in the suit. Those two counts, claiming breach of contract and unjust enrichment, primarily claimed that Progressive increases its profits at the expense of repairers by refusing to pay, or severely underpaying, for specific repair procedures that are commonly required to repair collision damaged vehicles.

The judgment will be appealed by the shops however, and according to attorney Erica Eversman, some legal maneuvering was necessary in preparation for an appeal, including dropping the remaining four counts against Progressive.

Eversman explained, “We wanted the decision to be immediately appealable. A judge can put that language in an order, that it is immediately appealable, but the appellate court doesn’t have to accept that. Sometimes they don’t and send it back down to the trial court and tell the appealing party to wait until the entire case is over. So in order to make those two claims immediately appealable, we agreed with Progressive that we would “voluntarily dismiss the remaining claims without prejudice” which means we can refile them later, depending on the outcome of the appeal.

The four claims that were dismissed include: Count 1: Deceptive Trade Practice (primarily involving tactics used to steer customers); Count 4: Tortious Interference; Count 5: Civil Conspiracy, Use of Unregistered Body Shops; and Count 6: Civil Conspiracy, Unlawful Conduct with DRP Shops.

About the Avery vs. State Farm Case
Avery was a nationwide class action against State Farm challenging the company’s practice of not using OEM parts to repair vehicles. The plaintiffs claimed that using aftermarket parts breached State Farm’s promise to restore vehicles to their preloss condition. The Illinois Supreme Court reversed a lower court ruling in favor of the plaintiffs, holding that in order to establish a breach of contract, the plaintiffs would have to show that the parts specified or used by State Farm did not restore the vehicle to its preloss condition.

That case was watched very closely by the collision industry at the time, because the initial Avery verdict seemed to vindicate repairer concerns about aftermarket parts quality and would have established a more stringent standard for insurance companies relative to returning a vehicle to its preloss condition.

In the GEICO case, the final Avery verdict was used to refute all of Greenberger’s claims, particularly since his vehicle was no longer available for examination. “Among other important holdings, Avery established the common-sense proposition that a policyholder’s suit against his insurer for breach of its promise to restore his collision-damaged car to its preloss condition cannot succeed without an examination of the car,” said the 7th Circuit ruling in the Greenberger case.

The court also noted that the higher estimate issued by the body shop did not establish a breach of contract, although it would be admissible as supporting evidence.

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