Insurance Rating Class Action: Sixth Circuit Decision Highlights Several Lessons Broadly Applicable to Insurance Class Actions
A new Sixth Circuit opinion in two putative class actions involving rates for title insurance demonstrates several lessons generally applicable to insurance class actions. In Randleman v. Fidelity National Title Insurance Company, the plaintiffs claimed that title insurers failed to provide proper discounts for refinancing of mortgages. The applicable Ohio rate manual provided that “[w]hen a refinance loan is made to the same borrower on the same land, the following [discounted] rate will be charged . . . provided the Insurer is given a copy of the prior policy, or other information sufficient to enable the Insurer to identify such prior policy . . . .” (Emphasis added.) The named plaintiffs, when they refinanced their mortgages, did not ask for a discount or submit evidence to their title insurer of the existence of a prior policy. The district court in Randleman initially certified a class, on the theory that if Fidelity National was aware that the transaction was a refinancing, that would mean in nearly all instances that a prior title insurance policy had been issued (the court assumed that lenders would not finance a property without title insurance). After certification, Fidelity National was able to establish, by taking depositions of lenders, that Ohio lenders often rely on attorneys’ opinion letters or title guarantees in lieu of title insurance. Based on this new evidence, the district court decertified the class. In a companion case (Hickman), class certification was denied for similar reasons. The Sixth Circuit affirmed the denial of class treatment because: (a) the class proposed in Randleman was an improper “fail-safe” class; (b) determining whether defendants had notice of a prior title policy, which was necessary for class members to establish an entitlement to a discount, required an individualized analysis and thus predominance was not satisfied; and (c) a proposed subclassing plan would not solve the lack of predominance.
I see several key takeaways from this decision:
- Sometimes defendants need to take extensive discovery in a class action. Discovery in class actions is frequently one-sided, with the plaintiffs attempting to take extensive discovery from the defendant, and the defendant taking no affirmative discovery except for deposing the named plaintiffs. But there are times when defense counsel needs to think outside the box and consider taking discovery from third parties or from members of the proposed class. Here, the defendants apparently did not take discovery from the lenders until after the judge certified the class, but they were permitted to take this discovery later and were fortunate enough to convince the judge to change his mind about certification.
- Watch out for fail-safe class definitions. The Sixth Circuit explained that the class the district court initially certified was an improper “fail-safe class” because the class was defined as people who were entitled to receive a discount but did not receive one. The Sixth Circuit wrote that this is improper because “[e]ither the class members win or, by virtue of losing, they are not in the class and, therefore, not bound by the judgment.” It is not unusual for plaintiffs to propose a fail-safe class. Here, it appears this was overlooked in the district court.
- Whether subclassing can overcome a lack of predominance remains an open issue. This opinion describes a vague proposal for subclassing involving identifying which lenders required title insurance, followed by a trial on unidentified class-wide issues. The Sixth Circuit says this would not overcome predominance, although it does not provide a detailed explanation of its reasoning, and it declines to weigh in on a circuit split on whether a subclassing plan can overcome predominance.