The Court of Appeals of Indiana recently decided an interlocutory appeal on class certification from the Allen County Circuit Court, applying portions of Indiana Trial Rule 23 that track the federal rule.  

The Court of Appeals of Indiana recently decided an interlocutory appeal on class certification from the Allen County Circuit Court, applying portions of Indiana Trial Rule 23 that track the federal rule.  The plaintiff in Lincoln National Life Insurance Co. v. Bezich, Court of Appeals Cause No. 02A04-1407-PL-319 (June 2, 2015) filed a motion to certify a class of policyholders on the three counts of a breach of contract case regarding variable life insurance.  The trial court held that a single-issue class could be certified as to one court for liability purposes, but denied class certification as to the other counts.  The defendant appealed, and the plaintiff cross-appealed.  

 The Court of Appeals noted that a trial court’s ruling on class certification is reviewed under the abuse of discretion standard, citing Associated Med. Networks, Ltd. v. Lewis., 824 N. E. 2d 679, 682 (Ind. 2005).  Because the case involves interpretation of insurance contracts, the court cited Justice v. Am. Family Mut. Ins. Co., 4 N.E.3d 1171, 1175 (Ind. 2014) for the proposition that this interpretation is a question of law under a de novo standard of review. Then the Court proceeded to apply these standards to decide the case, focusing particularly on the typicality, predominance and adequacy of representation requirements for class certification.

In Count 1, the plaintiff claimed the insurer breached its contract by using factors other than mortality in computing a “cost of insurance” rate charged under the policy.  The trial court found the provision ambiguous, and determined that issues of extrinsic evidence and choice of law involved an individualized inquiry and examination.  Thus common questions of law and fact did not predominate over questions affecting individual class members, and class certification was denied.

 In Count 2, the breach claimed pertained to administrative fees and expenses loaded into the cost of insurance rate.  The trial court found an unambiguous cap on administrative expenses.  However the trial court still determined that individualized issues of extrinsic evidence and choice of law prevented finding that common questions of law and fact predominated.  The trial court stated in this regard that deciding Count 2 was “‘inevitably . . .  intertwined’ with Count 1 and . . . ‘there is no way to avoid inquiries into extrinsic evidence for Count I but not Count II.’”  Bezich, supra, at 6 citing trial court decision at 31.

Finally, in Count 3, the plaintiff claimed breach in the failure to reduce the cost of insurance rate in response to improving mortality rates.  The trial court found that because the cost of insurance rate provision was unambiguous in that connection, there was no concern about individualized extrinsic evidence.  Although there were still individualized statute of limitations issues, preventing the required predominance and commonality findings, the trial court certified a class on the issue of liability only under Trial Rule 23(C)(4) regarding certification regarding particular issues. 

The Court of Appeals, however, found that class certification was appropriate for Count 1, as the controlling provision language was not ambiguous and there was no need for extrinsic evidence.  Questions of law or fact common to the class members did in fact predominate over questions affecting individual members.  The Court of Appeals rejected the argument of the defendant-appellant that five of the thirty class states allowed or required the use of extrinsic evidence, holding that such extrinsic evidence would not be admissible even under the law of those few states, with respect to either Count 1 or Count 2. In addition with respect to Count 2, since the trial court concluded (and appellant agreed) that the resolution of the two counts was “inevitably intertwined,” and since the Court of Appeals found no ambiguity pertinent to Count 1, any such interrelation did not prevent the certification for Count 2.

With respect to Count 3, the appellant argued that a class should not have been certified, citing an absence of the required adequacy, typicality and predominance.  The appellant’s predominance and typicality arguments relied on the necessity of using individualized extrinsic evidence.  However, the Court of Appeals found individualized consideration of extrinsic evidence would not be proper, even with respect to the few minority states. Extrinsic evidence would not change the outcome of the count, and class certification should not be denied on the basis of the extrinsic evidence argument.  Moreover, the Court of Appeals observed in footnote 8, page 23: “Even if material extrinsic evidence did exist that must be dealt with based on the law followed by minority-rule states, the answer would be to exclude those states from the putative class, not outright denial of class certification.”

As to the adequacy argument, it was conceded that the plaintiff had sufficient interest to ensure vigorous advocacy and that his counsel was qualified to vigorously litigate. Furthermore, the Court of Appeals rejected the appellant’s argument that the plaintiff posed a risk of conflict with other proposed class members.  The Court of Appeals was not persuaded that the trial court abused discretion in determining that assertions of speculative harm did not preclude a finding that the plaintiff was an adequate representative.  The Court of Appeals also stated that “competing options for establishing damages should not preclude class certification.  Any conflict as to the method of establishing damages is outweighed by the class members’ overall interest in established Lincoln’s liability class-wide.”  There was no abuse of discretion on the part of the trial court.  Thus the Court of Appeals determined that class certification for the purpose of determining liability for each of the three counts.