Insurers or their vendors generally use software to perform valuations of vehicles for total losses on auto insurance claims. This software will typically use databases of recent sales or prices offered for comparable vehicles in the area to estimate a vehicle’s value, and enable adjustments to be made for equipment, mileage, condition and other factors. A Louisiana federal judge recently certified a class in a case against Progressive involving the use of this software. The judge concluded that if the software used by Progressive undervalued vehicles across-the-board, the putative class claims could be resolved by the computer system. The decision did not discuss some of the issues that would appear to be central to deciding class certification on this kind of issue. This ruling might not upheld on appeal (if there is one) or be followed by other courts. But if it is, that has the potential to increase insurers’ exposure in this area. It could also potentially impact other lines of business (including property) where insurers use software as an aid in claim adjustment.
Slade v. Progressive Ins. Co., 2014 U.S. Dist. LEXIS 154713 (W.D. La. Oct. 31, 2014) involved Progressive’s use of Work Center Total Loss software that Progressive licensed from Mitchell International, Inc. and used to determine the actual cash value of total loss vehicles. According to the opinion, the software used the vehicle identification number to identify the year, make, model, and configuration of the vehicle. The adjuster would enter the mileage and evaluate the condition of the vehicle on a 1 to 5 scale for thirteen characteristics. The software then generates an overall condition score between 1 and 5. It identifies comparable vehicles offered for sale in the local area, but does not have any information about the condition of those vehicles. The value generated by the software is then adjusted based on the condition score, with the majority of adjustments being downward. According to the opinion, the adjuster would not have discretion to depart from the value generated by the software.
The insurance policy provided for the vehicle’s value to be determined based on “market value, age, and condition of the vehicle at the time the loss occurs,” and specifically provided for the use of computer software and databases.
A computer expert for the plaintiffs testified that he could use Progressive’s data to calculate the difference between prices generated by the Work Center Total Loss software and the NADA or blue book value. A Progressive representative testified that claimants can negotiate the value, but less than 1% of putative class members did.
The court concluded that common issues predominated over individual issues because it concluded that all that would be necessary to resolve the case, if plaintiffs prevailed, would be a computerized calculation:
If it is shown that NADA is a generally recognized used motor vehicle industry source, and WCTL is not, then the determination of each individual class member’s entitlement will be a matter of comparing the NADA value (either already contained in Progressive’s data or derived from Progressive’s data) to the WCTL valuation and finding the difference. If it is shown that Progressive misused its condition evaluations, then adjustments can be made to the valuations in accordance with those findings. The dispute is how a computerized system applied objective claims data–not the data that was entered into the system. Resolution can be achieved by revising the computerized system to apply the data properly.
. . .
As it is conceded that the plaintiff and proposed putative plaintiffs have no quarrel with the conditioning determinations of Progressive’s adjusters, the Court will not be required to review the individual subjective condition evaluations of Progressive’s adjusters. Rather, the dispute is with the manner in which the automated WCTL system used those condition determinations in reaching its valuations.
Id. at *22-23. The court distinguished property insurance cases in which courts in the Fifth Circuit have repeatedly denied class certification because “unlike the storm damage cases, the claim is that Progressive used an unacceptable computer system” and “[d]etermination of undervaluation is a matter of re-running existing data through a different computer system.” Id. at *23.
From my perspective as a lawyer who defends these types of cases, the court seems to be missing a few key points. First, even if NADA or some other data source were found to be a more appropriate general guideline, how could the court determine that the true value of a particular damaged car would be that value? Adjustments would seem to have to be made on a case-by-case basis by the factfinder based on condition, etc., to determine the correct value under the policy. Second, if condition evaluations were found to be misused by the software, wouldn’t that require readjusting each individual claim to determine the true value? Wouldn’t the insurer be able to take the position that on some claims the condition was incorrectly evaluated to its detriment? Third, Plaintiffs or their lawyers might be willing to concede that they would not challenge the condition determinations by the adjusters, but what right would they have to make that concession on behalf of all of the putative class members, many of whom would want to challenge that if they were litigating their individual case? Some putative class members would probably lose more from this concession than they would stand to gain otherwise. There are lots of questions that seem unanswered here.