In Halvorsen v. Auto-Owners Ins. Co., 718 F.3d 773 (8th Cir. July 3, 2013), an Eighth Circuit panel consisting of Judges Loken, Smith, and Benton reversed the District court’s certification of a class of North Dakota insureds asserting breach of contract and bad faith claims based on the denial of personal injury protection (“PIP”) claims though the insurer’s Reasonable & Customary (“R&C”) deductions. Under the R&C system, AOI would employ claim reviewers to review PIP claims and recommend denial of coverage for claims above the “80th percentile” – ie, the amount charged by eighty percent of the medical providers in the geographic area for comparable services. The District Court denied certification to a parallel group of Minnesota insureds because Minnesota law mandated that all no-fault insurance claims for less than $10,000.00 be arbitrated, hence causing profound numerosity and typicality problems. But the District Court certified a class consisting essentially of South Dakota policyholders who: 1) submitted PIP claims; 2) were paid less than the amount submitted due to the R&C review process; and 3) were paid less than the policy limits for their claims.
The Eighth Circuit panel, while recognizing that certain common issues did exist, reversed the certification decision because individual questions predominated the class claims. The panel specifically determined that the question of whether a contract was actually breached would require an analysis of what exactly were the usual and customary rates, which could not be resolved en masse where different members of the class were treated for different injuries, by different medical providers, at different prices. The Court also explained that the key question posed by Dukes – “why was I disfavored? – may differ for each class member, depending on whether that class member’s claims were in the 80th percentile or in the 95th percentile.
The Court was careful to distinguish its refusal to certify a class containing members who lack standing, such as this, from its affirmance of a consumer class in In re Zurn Pex Plumbing Prods. Liab. Litig., 644 F.3d 604, 630 (8th Cir. 2011). While in that case the alleged defect in the product had not manifested in all (even most) instances, the Court noted that Minnesota law provided legal standing to sue for all purchasers of a defective product – regardless of whether they incurred damages – so long as the product was in fact adjudged defective. Because no such statutory provision applied in this case to confer standing on all members irrespective of whether they were injured by the R&C analysis, the Court concluded that many members of the putative class – for instance, those whose medical providers accepted the 80th percentile as full payment – likely lacked standing.