Seventh Circuit Decertifies Class Seeking Injunctive Relief in Insurance Case

The Seventh Circuit Court of Appeals has reiterated that plaintiffs must satisfy a high burden in seeking to certify a class requesting injunctive relief under Federal Rule of Civil Procedure 23(b)(2). The decision in Kartman v. State Farm Mutual Automobile Insurance Co. may provide helpful guidance for businesses opposing certification of a Rule 23(b)(2) class.

The plaintiffs’ claims in Kartman stemmed from a hail storm that struck central Indiana in 2006. The plaintiffs, who sought to represent a class of State Farm policyholders, alleged that the insurer used arbitrary and inconsistent methods of assessing the damages to their roofs following the storm, leading to inadequate compensation in violation of state law. The district court rejected the plaintiffs’ request to certify a money-damages class under Rule 23(b)(3), but certified an injunctive-relief class under Rule 23(b)(2) to address whether State Farm should be required to reassess the plaintiffs’ roofs under a “uniform and objective standard.”

The Seventh Circuit reversed, holding that certification under Rule 23(b)(2) was improper. The court explained that the sole “cognizable injury” was for alleged underpayment of the policyholders’ claims and that such claims amounted “simply” to “an action for damages” that must be certified under Rule 23(b)(3), if at all.

Recognizing that plaintiffs had also “included a separate request for injunctive relief,” the court of appeals explained that “[t]his technique of recasting a straightforward claim for damages as a claim for damages and injunctive relief” failed because the only actionable claims were for underpayment; the insurer did not have “an independently actionable duty to examine all hail-damaged roofs pursuant to a uniform and objective standard.” The court also clarified that the injunctive relief would not be “final”—as required by Rule 23(b)(2)—because “thousands of individualized proceedings would still be necessary to determine whether particular plaintiffs were entitled to any monetary relief. As the court explained, “Rule 23(b)(2) … is not appropriately invoked for adjudicating common issues in an action for damages.”

Kartman marks a step back from the Seventh Circuit’s decision in Pella Corp. v. Saltzman, 606 F.3d 391 (7th Cir. 2010), cert. denied, 562 U.S. ---, 2011 WL 134286 (Jan. 18, 2011). In Pella, the Seventh Circuit affirmed the certification of a class under Rule 23(b)(2) seeking a declaration that a product had an inherent design defect. (For a more detailed discussion of Pella, please see our earlier alert on the case and an amicus brief that Mayer Brown lawyers filed in support of the company’s petition for Supreme Court review.) The declaratory relief sought in Pella—as in Kartman—would not result in final judgments; rather, subsequent individualized proceedings would ultimately be necessary to adjudicate class members’ claims. Although the court in Kartman briefly distinguished Pella, the two decisions are in tension with one another, and Kartman accordingly provides defendants with a basis for arguing that Pella is a narrower decision than it otherwise appears to be.