Title Insurance Class Action: Denial of Certification Demonstrates Strategies for Avoiding and Defending Underwriting-Related Class Actions
Back in May of 2011, I wrote a blog post about a denial of class certification by the Western District of Washington in Boucher v. First American Title Insurance Company. The court denied certification but allowed the plaintiffs to conduct discovery and later file a renewed motion for class certification. The recent decision on the renewed motion for certification, Boucher v. First American Title Insurance Company, 2012 U.S. Dist. LEXIS 102904 (W.D. Wash. July 24, 2012), denies the second attempt to certify a class, and illustrates how district courts are approaching class certification post-Wal-Mart and how insurers are successfully defending against certification.
This is one of a series of putative class actions against title insurers alleging that they failed to charge properly-discounted premiums for policies issued in connection with refinancing of homes. (For other blog posts on this topic, skim through the Title Insurance page of my blog.) The allegation here was that First American was improperly charging a full rate rather than a discounted rate for policies issued when a property was refinanced. The key to the court's decision was that, with a deep dive into the facts after additional discovery had occurred, it became clear to the judge that there was much more nuance to the issue than had appeared at first blush. It was not a simple issue of providing a discount or failing to do so, but rather the court explained that "First American's rate manuals contain a variety of exceptions, surcharges, and convoluted provisos that will, in some circumstances, lead to a customer paying something other than the general schedule rate or the reorganization [i.e., discounted] rate." Id. at *5. After further discovery, the plaintiffs identified 74 class members that they claimed were overcharged. First American's underwriting counsel reviewed these files and demonstrated that some of these class members did not qualify for a discount and some were properly charged a special rate based on their circumstances. Some of the class members paid too much and others paid too little, but it was based on miscalculations not an improper failure to apply the reorganization discount. Id. at *19-20. The court ultimately concluded, without deciding the merits of any individual claim, that First American had good faith bases to contest many of the putative class members' claims, and that "instances of overcharging and undercharging were not systematic (as the Bouchers claimed), but rather the result of errors that are apt to occur in any set of hundreds of thousands of customer transactions." Id. at *22. The court further explained that "proving each class member's claim would require a time-consuming individual process," that "First American has a right to present similar evidence in response to every class member's claim," and that "[w]ere it necessary for the court to revisit its commonality finding, it might reach a different conclusion [than it had previously reached] in light of Dukes." Id. at *24-25 & n.5.
What are the lessons here for insurance companies and their defense counsel? First, if you are aiming to avoid class action exposure with respect to underwriting-related matters, try not to make your system of calculating rates too simple. The more exceptions there are to "general rules" and the more nuanced the rate-setting process is, the less likely it is that there will be an across-the-board mistake by front-line personnel or a compliance issue that leads to a class action being certified against your company. Of course this has to make business sense too, not just avoid litigation. But the more tailored the premium is to information that has direct impact on the risk, presumably the more accurate the premium is as well.
Second, when you are defending putative class actions, there is no substitute for doing your homework. The more deeply that in-house and outside counsel dive into the facts of claims of putative class members, often the better able you are to defend the case. Sometimes there is resistance to this because it's hard work to even identifiy the putative class members. Some people in the company may say it is impossible to identify them or it will take too long, or it is not worth the effort because the plaintiffs have the burden of proof and the defendant should not do their work for them (although much of this work clearly should be protected as work product if you decide not to use it). But very often this kind of hard work pays off because you discover all kinds of defenses to class certification that were not readily apparent when the case began. So challenge what the business people or the client at first say is impossible or not worth the effort, and see where it takes you.