Cody v. Allstate Fire and Casualty Insurance Company

RESPONSE

N.D. Tex.April 6, 2020

IN THE UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF TEXAS DALLAS DIVISION ANDREA CODY, TRAEVION LOVE, BRITTANY BURK, and DANA WHITFIELD individually and on behalf of all others similarly situated, Plaintiffs, v. ALLSTATE FIRE AND CASUALTY INSURANCE COMPANY and ALLSTATE COUNTY MUTUAL INSURANCE COMPANY, Defendants. ___________________________________ / CASE NO.:3:19-cv-1935 CLASS ACTION PLAINTIFFS’ RESPONSE TO COURT ORDER (DOC. 38) Comes now the Plaintiffs and hereby file this supplemental brief pursuant to this Court’s Order, Doc. 38, addressing the recent opinion issued by the Fifth Circuit Court of Appeals, Singleton v. Elephant Ins. Co., 2020 U.S. App. LEXIS 8541 (5th Cir. Mar. 18, 2020). I. THE SINGLETON OPINION The Singleton opinion, like this case, addressed the actual cash value (“ACV”) of total-loss vehicles, including whether, under the policy at issue in that case, whether sales tax and/or transfer fees are included in a vehicle’s ACV. Id. Without repeating previous briefing on Defendants’ Motion to Dismiss, quick background on ACV is helpful. In Texas, ACV is generally synonymous with market value. See Great Texas County Mutual Insurance Co. v. Lewis, 979 S.W.2d 72, 74 (Tex. App.—Austin 1998, no pet.). Market Case 3:19-cv-01935-K Document 40 Filed 04/06/20 Page 1 of 10 PageID 691 2 value, in turn, can be measured in one of three ways – income capitalization, comparable sales, or replacement cost less depreciation. See, e.g., Ghoman v. N.H. Ins. Co., 159 F. Supp. 928, 934 (N.D. Tex. 2001) (citing Religious of the Sacred Heart of Texas v. City of Houston, 836 S.W.2d 606, 615-16 (Tex. 1992). If replacement cost less depreciation is utilized, it includes costs reasonably necessary to replace the property. See Greenspoint Investors, Ltd. V. Travelers Lloyds Ins. Co., 2015 U.S. Dist. LEXIS 25301 at 12-13 (S.D.Tex. March 3, 2015) (“[T]he linchpin and calculation of replacement costs appears to be whether the challenged cost is reasonably likely to be incurred or not.”); Tolar v. Allstate Tex. Lloyds Co., 772 F.Supp.2d 825, 831 (N.D.Tex. 2011) (‘"Texas courts have defined the term ‘actual cash value’ as ‘repair or replacement costs less depreciation”’ and Texas law unambiguously...defines ‘replacement costs as ‘any cost that an insured is reasonably likely to occur in repairing or replacing a covered loss.’”). The question, then, is which methodology for calculating market value applies when the context is an ACV policy? The practice of most auto insureds in Texas is replacement cost less depreciation, and includes Sales Tax and (at least some) Transfer Fees, see Exh. A (Phillips Decl. at ¶¶4-5 and accompanying attachments), which is consistent with the Texas Department of Insurance’s guidance that ACV should generally be measured as replacement cost less depreciation.1 But what is required of course depends on specific policy language. Some policies specify how ACV or market value will be measured, while others do not. See, e.g., Triple S Props. v. St. Paul Surplus Lines Ins. Co., 2010 U.S. Dist. LEXIS 106653, at *17 (N.D. Tex. Oct. 5, 2010). Obviously, to the extent the Policy sets forth the way ACV will be measured, the policy controls. 1 http://www.helpinsure.com/auto/autoglossary.html (Glossary of Auto Insurance Terms) [last accessed April 3, 2020). Case 3:19-cv-01935-K Document 40 Filed 04/06/20 Page 2 of 10 PageID 692 3 The Texas Supreme Court addressed one common way policies define or explain ACV, and addressed how ACV should be measured under such formulation: “The limitation that ‘liability herein shall not exceed the actual cash value of the property at the time of loss, ascertained with proper deduction for depreciation’ may be construed as meaning the price of new property, as of the time of loss, of the same material and quality as the kind destroyed less the amount that the destroyed property would have depreciated over the period of time owned and used by the insured.” -Crisp v. Security Nat'l Ins. Co., 369 S.W.2d 326, 330 (Tex. 1963). This comports with the Texas Department of Insurance, which provides a standard form policy with a limitation of liability of the “actual cash value” of the property, Phillips Decl. at ¶6, and asserts that, consistent with Crisp, ACV in turn means “replacement cost less depreciation,” supra fn. 1. To the extent a policy defines ACV as set forth in Crisp, the Texas Supreme Court’s holding is binding. See, e.g., Aurelius Capital Master, Ltd. v. Acosta, 2014 U.S. Dist. LEXIS 151201, at *8 (N.D. Tex. Jan. 28, 2014) (“Pronouncements by a state’s highest court are binding on federal courts applying that state’s law.”) (citations omitted). The Elephant policy limited liability to ACV, and asserted that “[ACV] is determined by the market value, age and condition” of the vehicle at the time of the accident. Singleton, 2020 U.S. App. LEXIS 8541, at *5. The Fifth Circuit apparently found this definition sufficient to distinguish Crisp and the Texas Department’s standard form policy, and held the carrier properly utilized comparable sales methodology, rather than replacement cost less depreciation, which would not include taxes and fees. See id. at fn. 1. If Allstate’s Policy is like the policy language addressed in Crisp, this Court is presumably bound by the Texas Supreme Court. If it is like the policy language addressed in Singleton, this Court is presumably bound by the Fifth Circuit’s interpretation. Thus, the question is whether Case 3:19-cv-01935-K Document 40 Filed 04/06/20 Page 3 of 10 PageID 693 4 Defendants’ limitation on liability is closer to “the [ACV] of the property at the time of loss, ascertained with proper deduction for depreciation”, in which case Crisp applies, or whether it is instead closer to “actual cash value[, which] is determined by the market value, age and condition”, in which case Singleton applies. II. APPLICATION TO THIS CASE As an initial matter, it is worth noting that, as set forth in Plaintiffs’ Motion to Amend (which will be subsequently filed), if this Court finds the answer to the aforementioned question is Singleton, such a finding would be more beneficial to Plaintiffs than the alternative. As the Motion to Amend explains, Defendants do not use comparable sales as the basis for calculating ACV – in Plaintiff Love’s case, for example, the “comparable sales” method would have resulted in an approximately $1100 increase.2 Plaintiffs submit that this Court should grant the Motion to Amend rather than ruling on the pending Motion to Dismiss. However, while the “comparable sales” interpretation would benefit Plaintiffs, in the interest of intellectual honesty, Plaintiffs did not seek application of such methodology precisely because they believe the proper interpretation of the Policy aligns with the policy language addressed in Crisp, which is why Plaintiffs’ Complaint alleged the lesser “costs less depreciation” method rather than the higher “comparable sales” method. To see why, below are the three limitations on liability: • Crisp policy: limitation on liability is “the [ACV] of the property at the time of loss, ascertained with proper deduction for depreciation”; 2 Under the proposed amended Complaint, then, Plaintiffs bring three claims: one claim for a declaratory judgment and two claims that depend on whether this Court interprets the Policy as aligned with the Singleton policy (comparable sales) or the Crisp policy (replacement less depreciation) or both. Case 3:19-cv-01935-K Document 40 Filed 04/06/20 Page 4 of 10 PageID 694 5 • Singleton policy: limitation on liability is the “[ACV] of…the property” which is “determined by market value, age and condition”; • ALLSTATE policy: “the [ACV] of the property at the time of loss” (Exhibit B, ALLSTATE Policy (000054-74) at 000069). It is also worth noting the policy at issue in Singleton is extremely rare in that the “Payment of Loss” provision made no promise to pay for loss at all, let alone to repair or replace the property or to pay in money the amount necessary to do so. Phillips Decl. at ¶¶7-8 (citing to Elephant Insurance Co.’s policy). Instead, the policy’s Payment of Loss provision asserted only what would happen if stolen property was returned and allowed Elephant Insurance Co. to pay a lienholder directly rather than paying the insured. Id. However, the overwhelming majority of auto policies, including Defendants’, and including the Texas standard policy (which the Texas Department of Insurance then asserts is measured as replacement cost less depreciation), have a “Payment for Loss” provision that promises to pay for loss by replacing the damaged property or paying the amount necessary to do so, which is then read in light of a limitation on liability. See, e.g., ALLSTATE Policy at 000062-63 (Payment of Loss provision). In the event of a total loss, then, Defendants promised to replace the vehicle or pay to do so in money (Payment of Loss), subject to the limitation of ACV (Limit on Liability provision). The Singleton policy had no such “Payment of Loss” provision promising to replace the vehicle or to pay to do so in money – it only included a limitation on liability of ACV, determined by market value, age, and condition. Plaintiff submits that the ALLSTATE policy is the same as Crisp, absent the second clause. However, read in conjunction with the Payment of Loss provision – promising to replace the property to pay to do so in money – and the second limitation on liability – which is repair or Case 3:19-cv-01935-K Document 40 Filed 04/06/20 Page 5 of 10 PageID 695 6 replacement clearly of like kind and quality (i.e., depreciation is irrelevant)3 – the ability to deduct depreciation in measuring ACV is strongly implied. Reading ACV to be measured as the replacement cost less depreciation, then, is consistent with Crisp and with the Texas Department of Insurance. This is particularly important given the ALLSTATE policy language in the Payment of Loss provision and the Limit on Liability provision is precisely the same as the Texas Department of Insurance’s standard form policy, Phillips Decl. at ¶6, which the Department in turn asserts should be measured as replacement cost less depreciation, see supra, fn. 1. The policy in Singleton, by contrast, significantly changed the Texas standard form policy by eliminating the relevant “Payment of Loss” language entirely, while also changing the applicable ACV language. Thus, Plaintiffs submit that the Singleton opinion is inapplicable here. Had Defendants chosen to eliminate the Payment of Loss language promising to replace damaged property or pay the money equivalent to do so, and had Defendants changed the standard ACV language, then perhaps Crisp and the Texas Department of Insurance’s prescriptions would be irrelevant, as the Fifth Circuit determined in Singleton. Unlike the carrier in Singleton, however, Defendants chose not to do so, and thus it incontrovertibly remains reasonable to interpret Defendants’ policy in 3 “Like kind and quality” refers to functionality, not value, and generally applies in the context of partial losses (including replacement of component parts, i.e. doors/bumpers/etc.) and not total losses. See, e.g., New Appelman On Insurance Law Library Edition, Vol. 6 § 62.08[1][c] (“Rather than pay [ACV], an insurer has the option of paying the amount necessary to repair the damage or replace the damaged parts with property of like kind and quality” and applies “when the vehicle is not a total loss.”); Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 158-59 (Tex. 2003) (collecting cases and explaining that “repair or replace…with like kind and quality” limitations on liability refer to functionality and use and are unrelated to conception of value). Thus, the limitation on liability, read in conjunction, means that if a loss occurs, ALLSTATE repairs the vehicle itself – or pays the cost to do so, which the insured presumably then passes along to the repair facility – unless the cost to do so exceeds the pre-loss value of the vehicle, in which case it is cheaper (and more sensible) for ALLSTATE to replace the vehicle (or pay in money the cost to do so), Policy at 000062-63, subject to the limitation of ACV, which would allow ALLSTATE to deduct for depreciation. Case 3:19-cv-01935-K Document 40 Filed 04/06/20 Page 6 of 10 PageID 696 7 precisely the way it was interpreted in Crisp and in precisely the way prescribed by the Texas Department of Insurance, neither of which can be said to be unreasonable. Case 3:19-cv-01935-K Document 40 Filed 04/06/20 Page 7 of 10 PageID 697 8 Dated this 6th day of April, 2020. Respectfully submitted, By: /s/ Jacob Phillips Jacob L. Phillips (admitted pro hac vice) Edmund A. Normand (admitted pro hac vice) Normand PLLC Post Office Box 1400036 Orlando, FL 32814-0036 T: (407) 603-6031 F: (888) 974-2175 ed@normandpllc.com jacob.phillips@normandpllc.com service@normandpllc.com _________________ Thomas Hamrick TBN 08879025 Law Office of Thomas Hamrick 5665 Arapaho, Bldg. 1123 Dallas, TX 75248 Tel: (214) 396-7676 Fax: (214) 785-2959 hamricklaw@gmail.com Richard D. Daly TBN 00796429 John Scott Black TBN 24012292 Daly & Black, P.C. 2211 Norfolk Street, Suite 800 Houston, TX 77098 T: (713) 655-1405 F: (713) 655-1587 ecfs@dalyblack.com rdaly@dalyblack.com jblack@dalyblack.com /s/ Thomas Hamrick Case 3:19-cv-01935-K Document 40 Filed 04/06/20 Page 8 of 10 PageID 698 9 Christopher J. Lynch (admitted pro hac vice) Christopher J. Lynch, P.A. 6915 Red Road, Suite 208 Coral Gables, Florida 33143 T: (305) 443-6200 F: (305) 443-6204 Clynch@hunterlynchlaw.com Lmartinez@hunterlynchlaw.com Angelica Gentile TBN 24112322 Shamis & Gentile P.A. 14 NE 1st Avenue, Suite 400 Miami, FL 33132 Tel: (305) 479-2299 Fax: (786) 623-0915 agentile@shamisgentile.com CERTIFICATE OF SERVICE This is to certify that on this 6th day of April, 2020, a true and correct copy of the foregoing was delivered via electronic service to all parties on the attached Service List. /s/ Jacob Phillips Jacob L. Phillips Case 3:19-cv-01935-K Document 40 Filed 04/06/20 Page 9 of 10 PageID 699 10 SERVICE LIST Roger D. Higgins, Esq. Mark J. Jung, Esq. Elizabeth Lee Thompson, Esq. Ashley B. Pedigo, Esq. Thompson, Coe, Cousins & Irons, LLP 700 N. Pearl Street, 25th Floor Dallas, Texas 75201-2832 E-mail: rhiggins@thompsoncoe.com E-mail: mjung@thompsoncoe.com E-mail: lthompson@thompsoncoe.com E-mail: apedigo@thompsoncoe.com Counsel for Defendants Allstate Fire & Casualty Company and Allstate County Mutual Insurance Company Case 3:19-cv-01935-K Document 40 Filed 04/06/20 Page 10 of 10 PageID 700