September 5, 2012 - The Sixth Circuit today affirmed a district court’s opinion creating ten subclasses (each comprising one Defendant company) in a case alleging various insurance carriers miscalculated taxes collected from insurers for premium payments. Although most of the defendants in this long running litigation have settled, five defendants – Nationwide Mutual Insurance Company, Kentucky Farm Bureau Mutual Insurance, State Farm Fire and Casualty Insurance Company, and travelers property casualty Insurance Company, decided to appeal.
The subclasses, as certified by the district court and affirmed on appeal are each defined as follows:
All persons in the Commonwealth of Kentucky who purchased insurance from or underwritten by [Defendant Insurer] during the Relevant Time Period and who wee charged local government taxes on their payment of premiums which were either not owed, or were at rates higher than permitted.
In an opinion written by Jane Stanch and joined by Judge Bernice Donald and Judge Richard Suhrheinrich, the Court of Appeals first found that the district court correctly recognized the need to conduct a “rigorous analysis” of the Rule 23 facts, and that its statement that is “must take the substantive allegations of the complaint as true” was erroneous but harmless error. The Court then went on to reject Defendants argument that the class definition was an impermissible “fail-safe” class, finding that the subclasses are defined by objective criteria. The Court found that the large size of the class was not an obstacle to certification, even if class membership ultimately required the review of tens of thousands of individual files:
“It is often the case that class action litigation grows out of systemic failures of administration, policy application, or records management that result in small monetary losses to large numbers of people. To allow that systemic failure to defeat class certification would undermine the very purpose of class action remedies. "
The Court went on to find that the district court did not abuse its discretion in finding that all of the elements of Rule 23(a) and Rule 23(b)(3) had been satisfied, noting, among other things, that it was within the Court’s discretion to infer an error rate of 1% when evaluating numerosity and that the alleged single course of conduct on the part of each Defendant was sufficient to show commonality and typicality., With respect to Rule 23(b)(3) the Court agreed that common issues predominated and that potential individual inquiries do not defeat the predominance of common questions. Finally, while the Kentucky office of Insurance has an administrative process by which policyholders can challenge a premium tax charge, given the small overcharges at stake in this case, it was unlikely that many policyholders would even discover, much less seek to vindicate their injury through the administration process.
The case is Young et al v Nationwide Mutual Insurance Company, et al, No. 2:06-cv-00146 (6th Cir., Sept. 5, 2012). The opinion is here: COA_Opinion.pdf.
The Plaintiffs are represented by Gary E. Mason and John C. Whitfield, Whitfield Bryson & Mason, Alexander F. Edmundson and Jason V. Reed, Edmondson & Associates, and Christopher S. Nordloh, Nordloh Law Office, P.C.. Mr. Mason argued for the Appellees.
The Defendants were represented by Drew H. Campbell, Bricker & Eckler LLP. Joseph L. Hamilton, Stites and Harbison, PLLC, Mark G. Arnzen, Arnzen Molloy & Storm PSC, Adams, Stepner, Wolterman & Dusing and Rand L. McClellan, Baker & Hostetler LLP. Mr. Campbell argued for the Appellants.