7th Circuit Denies Class Certification in Action Against Automobile Insurer for Failure to Comply with Policy Clause

Per Pastor v. State Farm Mut. Auto. Ins. Co, 487 F.3d 1042 (7th Cir.(Ill.) May 23, 2007) (NO. 06-2384):

The obstacle to class certification in this case lies elsewhere. Questions of contract interpretation are only a small part of the overall dispute. Individual hearings would be necessary to determine whether a class member made a claim for his $10 a day, whether his car was unusable, and if so for how long. The plaintiff argues that whenever a car is damaged, it must be unusable, for no matter how short a time. But that is wrong, since some people don't bother to have a damaged car repaired, and many damaged cars are drivable. And if a damaged car can still be driven, a claim under the $10 a day clause requires proof that the car was in a repair shop. Not all damaged cars that are repaired are repaired in repair shops. Damage to windshields-the damage of which Pastor complains-is a type of automobile damage frequently repaired by mobile units, and even if these are "[repair] shop[s]" within the meaning of the insurance policy, a car sitting in the driver's driveway undergoing repair by a mobile repair unit for minor damages would still be drivable; in an emergency the driver could interrupt the mobile repair and whisk off.

The size of the class has not been determined. But it surely consists of many thousands of persons, considering that State Farm is the largest auto insurer in the country, with literally tens of millions of auto insurance customers (which makes it reasonably likely that the suit meets the Class Action Fairness Act's requirement of a $5 million minimum amount in controversy), and considering too the length of the period of limitations. The revision of the $10 a day clause will have diminished the size of the class somewhat, but we don't know by how much.

The picture of a federal district judge presiding over thousands of evidentiary hearings each involving a trivial amount of money is not a pretty one. In these circumstances the judge was right to deny class certification, Isaacs v. Sprint Corp., 261 F.3d 679, 681-82 (7th Cir.2001); Szabo v. Bridgeport Machines, Inc., 249 F.3d 672, 677-78 (7th Cir.2001), though not because class actions are poorly suited to aggregating small claims. Quite the contrary-if a class member has a large enough stake to be able to litigate on his own, the case for class-action treatment is weakened. Nagel v. ADM Investor Services, Inc., 217 F.3d 436, 443 (7th Cir.2000). "The policy at the very core of the class action mechanism is to overcome the problem that small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her rights." Mace v. Van Ru Credit Corp., 109 F.3d 338, 344 (7th Cir.1997), quoted in Amchem Products, Inc. v. Windsor, 521 U.S. 591, 617, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997). But when a separate evidentiary hearing is required for each class member's claim, the aggregate expense may, if each claim is very small, swamp the benefits of class-action treatment. And that is the case here.

Of course this means as a practical matter that no member of the class, except Pastor, will recover under the $10 a day clause in a court of general jurisdiction even if entitled to such relief, because even as augmented by interest and multiplied by the number of days that the car was in the shop the claim would be too slight to make a lawsuit worth bringing. (A further complication is that the question of prejudgment interest would be answered differently by the different states whose laws govern the claims of the various class members, because the $10 a day entitlement is not liquidated but instead depends on the length of time the insured's car was unusable. See Michael S. Knoll, " A Primer on Prejudgment Interest," 75 Tex. L.Rev. 293, 297-98 (1996); Anthony E. Rothschild, Comment, " Prejudgment Interest: Survey and Suggestion," 77 Nw. U.L.Rev. 192, 194-95 (1982).) Unlike a class action dominated by issues common to the entire class, there would be no significant economies from consolidating the class members' tiny claims, each requiring its own evidentiary hearing; the expense and burden to the parties and to the judiciary would exceed the value of the claims. This does not mean that the class members are remediless, but they will have to seek their remedies in small-claims courts.