Soseeah v. Sentry Insurance ( 2015 )

FILED
United States Court of Appeals
Tenth Circuit
December 18, 2015
PUBLISH Elisabeth A. Shumaker
Clerk of Court
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
DELBERT SOSEEAH, for himself and
others similarly situated; MAXINE
SOSEEAH, for herself and others
similarly situated; JOHN BORREGO,
for himself and other similarly
situated,
Plaintiffs-Appellees,
v. No. 14-2199
SENTRY INSURANCE, a Mutual
Company, and any other related
business entities including parent
companies, consolidated tax filers and
subsidiaries including, DAIRYLAND
INSURANCE COMPANY; PEAK
PROPERTY AND CASUALTY
INSURANCE CORPORATION; and
VIKING INSURANCE COMPANY
OF WISCONSIN,
Defendants-Appellants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO
(D.C. No. 1:12-CV-01091-RB-KK)
John R. Gerstein, of Troutman Sanders LLP, Washington, D.C. (Gabriela
Richeimer of Troutman Sanders LLP, Washington, D.C.; Jennifer A. Noya and
Alex C. Walker of Modrall, Sperling, Roehl, Harris & Sisk, P.A., Albuquerque,
New Mexico, with him on the briefs), for Defendants-Appellants.
John C. Bienvenu, of Rothstein, Donatelli, Hughes, Dahlstrom, Schoenburg &
Bienvenu LLP, Santa Fe, New Mexico (Kristina Martinez of Rothstein, Donatelli,
Hughes, Dahlstrom, Schoenburg & Bienvenu LLP, Santa Fe, New Mexico; Linda
G. Hemphill of The Hemphill Firm P.C., Santa Fe, New Mexico; and John
Howard, Attorney at Law, Santa Fe, New Mexico, with him on the brief), for
Plaintiffs-Appellees.
Before BRISCOE, McKAY and McHUGH, Circuit Judges.
BRISCOE, Circuit Judge.
Plaintiffs Delbert Soseeah, Maxine Soseeah and John Borrego filed this
action against defendants Sentry Insurance, Dairyland Insurance Company, Peak
Property and Casualty Insurance Company, and Viking Insurance Company of
Wisconsin (collectively Sentry) claiming, in part, that Sentry failed to timely and
properly notify them and other Sentry automobile insurance policyholders of the
impact of two New Mexico Supreme Court decisions regarding the availability of
uninsured and underinsured motorist coverage under their respective policies.
The district court granted plaintiffs’ motion for class certification. Sentry
subsequently sought and was granted permission to appeal the district court’s
class certification ruling. Exercising jurisdiction pursuant to 28 U.S.C. § 1292(e)
and Fed. R. Civ. P. 23(f), we reverse and remand for further consideration of
plaintiffs’ motion for class certification.
2
I
The Weed Warrior and Jordan decisions
On October 18, 2010, the Supreme Court of New Mexico issued two related
decisions addressing the provision of uninsured/underinsured motorist (UM/UIM)
coverage by insurers to New Mexico residents. In the first decision, Progressive
Northwestern Insurance Co. v. Weed Warrior Services, 245 P.3d 1209 (N.M.
2010), the New Mexico Supreme Court “consider[ed] the duty imposed on
insurers to offer uninsured/underinsured motorist (UM/UIM) coverage under
NMSA 1978, Section 66-5-301 (1983).” 245 P.3d at 1210. More specifically, the
New Mexico Supreme Court addressed the question, certified to it by this court,
“of whether the election by an insured to purchase UM/UIM coverage in an
amount less than the policy liability limits constitutes a rejection of the maximum
amount of UM/UIM coverage permitted under Section 66-5-301.” Id. After
reviewing the language of the statute and surveying its own case law interpreting
that statute, the New Mexico Supreme Court
conclude[d] that Section 66-5-301 requires an insurer to offer
UM/UIM coverage in an amount equal to the liability limits of the
policy and that the choice of the insured to purchase any lower
amount functions as a rejection of that maximum amount of coverage
statutorily possible.
Id. at 1214. Consequently, the New Mexico Supreme Court held that “the insurer
may not exclude the maximum possible level of UM/UIM coverage in an auto
liability policy unless it has offered it to the insured and the insured has exercised
3
the right to reject the coverage through some positive act.” Id. at 1213 (internal
quotation marks omitted).
The second case, Jordan v. Allstate Insurance Co., 245 P.3d 1214 (N.M.
2010), was intended by the New Mexico Supreme Court as a companion to Weed
Warrior in order “to provide guidance on the technical requirements for valid
offers and rejections of UM/UIM coverage.” 245 P.3d at 1219. The court held
that a rejection of UM/UIM coverage equal to the liability limits in
an automobile insurance policy must be made in writing and must be
made a part of the insurance policy that is delivered to the insured.
In order to honor these requirements effectively, insurers must
provide the insured with the premium charges corresponding to each
available option for UM/UIM coverage so that the insured can make
a knowing and intelligent decision to receive or reject the full
amount of coverage to which the insured is statutorily entitled. If an
insurer fails to obtain a valid rejection [for any reason], the policy
will be reformed to provide UM/UIM coverage equal to the limits of
liability.
Id. at 1217. The court also held that its decision applied retroactively and was not
limited to prospective application. Id. at 1222-23. And the court emphasized that
the cost of reforming existing policies would be borne solely by insurers. Id. at
1223 (“On balance, we deem it more equitable to let the financial detriments be
borne by insurers, who were in a better position to ensure meaningful compliance
with the law, than to let the burdens fall on non-expert insureds, who are the
Legislature’s intended beneficiaries.”).
The filing of this action
On September 18, 2012, plaintiffs Delbert and Maxine Soseeah filed a
4
purported class action complaint against Sentry in New Mexico state district
court. The complaint alleged that Delbert Soseeah, after being injured in a motor
vehicle accident, made a claim for UM/UIM benefits under two policies of
automobile insurance issued by Sentry to Mrs. Soseeah. According to the
complaint, Mrs. Soseeah “never executed a valid waiver of UM/UIM coverage
under the” two policies and, consequently, Mr. Soseeah “demanded that . . .
Sentry reform” the two policies “to provide stacked uninsured/underinsured
motorist coverage limits equal to the limits of the liability coverage on each of the
vehicles covered by the” policies “in accordance with the decisions in Jordan and
Weed Warrior.” Dist. Ct. Docket No. 1, Exh. A at 4. Sentry purportedly refused
to reform the policies and rejected Mr. Soseeah’s claim for UM/UIM benefits. Id.
The complaint alleged that Sentry, by doing so, violated New Mexico’s Unfair
Practices Act (UPA), N.M. Stat. Ann. § 57-12-1 et seq., violated a portion of New
Mexico’s Insurance Code known as the Trade Practices and Frauds Act (TPFA),
N.M. Stat. Ann. § 59A-16-1 et seq., breached the implied covenant of good faith
and fair dealing, and breached the terms of the two policies.
Notably, the complaint alleged that the Soseeahs’ claims were
representative of “all Sentry-insured New Mexico residents entitled to the benefits
of UM/UIM coverage who failed to receive notification from . . . Sentry that
UM/UIM coverage limits were, as a matter of law, reformed [by Weed Warrior
and Jordan] to provide coverage equal to liability limits.” Id. at 6-7. The
5
complaint in turn alleged that the “action should proceed as a class action” under
New Mexico state law. Id. at 8. Lastly, the complaint alleged that the named
plaintiffs and the class should “recover treble damages” and “attorney’s fees and
costs” in connection with their UPA claim, id. at 11, damages in connection with
their TPFA claim, id. at 13, reformation of their policies to provide “UM/UIM
coverage with limits in an amount equal to the limits of the liability coverage of
the policies at issue,” id. at 13, actual and punitive damages in connection with
their claim for breach of the implied covenant of good faith and fair dealing, id. at
14, actual damages in connection with their breach of contract claim, id.,
injunctive relief “requiring that . . . Sentry be enjoined from continuing practices
that violate the statutory duties as well as the contractual and legal obligations
owed to the [named] Plaintiffs and the Class,” id., a “declaratory judgment
establishing the respective rights and obligations of the parties with respect to the
claims set forth” in the complaint, id. at 15, and punitive damages, id.
Removal to federal court and amendment of the complaint
On October 22, 2012, Sentry removed the action to the United States
District Court for the District of New Mexico pursuant to 28 U.S.C. §§ 1441,
1446, and 1453. Soon thereafter, plaintiffs filed a first amended class action
complaint. That was later followed by a second, a third, and, ultimately, a fourth
amended class action complaint.
6
The Fourth Amended Complaint
The fourth amended complaint continued to list Delbert and Maxine
Soseeah as the lead plaintiffs and included many of the same factual allegations
that were included in the original complaint. The fourth amended complaint,
however, expanded substantially upon the original complaint by discussing the
impact Weed Warrior and Jordan had upon the Soseeahs’ policies and Sentry’s
response or lack thereof to Weed Warrior and Jordan. To begin with, the
complaint alleged that the Soseeahs’ purported rejection of UM/UIM coverage on
their Sentry policies was, for several reasons, “legally insufficient” under Weed
Warrior and Jordan. Dist. Ct. Docket No. 131 at 5. The complaint further alleged
that in early 2011, Sentry “sent to every policyholder with a policy then in force
that had rejected UM/UIM coverage, including Plaintiff Maxine Soseeah, a form
letter [(referred to in this litigation as the “IMPORTANT NOTICE”)] and follow-
up form letter [(referred to in this litigation as the “FINAL NOTICE”)].” Id. at 6.
Both letters stated that “[i]n . . . 2010, the New Mexico Supreme Court issued a
ruling requiring new information to be provided with Uninsured Motorist . . .
coverage selection forms,” id., Att. 1, Exh. A at 1, and in turn advised
policyholders “that they had to sign a new waiver or ‘Your Premium Will Go
Up,’” id. at 6. The complaint also alleged that “[i]n January 2012, Defendants
sent another form letter to certain policyholders [(referred to in this litigation as
the “IMPORTANT NOTICE OF POTENTIAL COVERAGE”)], including [Mrs.]
7
Soseeah, advising them that they may have UM/UIM coverage.” Id. All of these
letters, the complaint alleged, were “misleading and inaccurate” in light of Weed
Warrior and Jordan. Id. at 6-7. The complaint further alleged that Sentry’s
“obligation of good faith and fair dealing to its insureds required it to reform
coverage and provide a clear simple notice of reformed coverage and a right to
make a claim in a timely fashion after the [two] decision[s].” Id. at 7. With
respect to the Soseeahs individually, the fourth amended complaint alleged that
“Sentry never notified the[m] . . . that their initial signed purported waiver of
UM/UIM coverage was invalid” or that they “in fact under New Mexico law had
UM/UIM coverage from the policies’ inception through and including the date of
their demand.” Id. at 8.
The fourth amended complaint included a third plaintiff named John
Borrego and added factual allegations relating to Borrego. According to the
fourth amended complaint, Borrego purchased a policy of insurance from Sentry
that provided coverage for two personal vehicles. The complaint alleged that
after Weed Warrior and Jordan were issued, “Sentry had an affirmative obligation
to notify . . . Borrego and all other similarly situated New Mexico policyholders
that their policies were reformed and that they had UM/UIM coverage in an
amount equal to the level of the bodily injury liability limits under their policies.”
Id. at 11-12. The complaint further alleged that in April 2006, Borrego was
seriously injured in a motor vehicle accident. “By letter of November 20, 2012,
8
after the class action complaint in this matter had been filed, . . . Borrego
requested that Sentry provide stacked UM/UIM coverage equal to the bodily
injury liability coverage on each vehicle.” Id. at 12. According to the complaint,
“Sentry subsequently agreed to provide stacked UM/UIM coverage to . . .
Borrego.” Id.The “Class Action Allegations” section of the fourth amended complaint
alleged that “all insurance policies issued by Defendant Sentry to New Mexico
policyholders [we]re uniform in all respects material to [the] claims” asserted by
the named plaintiffs, id., and that “all forms used by Defendant Sentry for
putative rejection of UM/UIM insurance coverage [we]re [also] uniform in all
respects material to [the] claims brought” by plaintiffs, id. at 13. The section in
turn defined the proposed class as “[a]ll insureds under policies issued in New
Mexico by Sentry and its related entities . . . from January 1, 1995 to April 1,
2011 in which UM/UIM coverage was purportedly rejected.” Id. The section
alleged that “[b]ecause no such rejections were in conformance with New Mexico
law as set forth in Jordan and Weed Warrior, all such insureds [we]re entitled to
reformation and proper and adequate notice.” Id. The section further alleged that
certification of the proposed class was “desirable and proper because there [we]re
questions of law and fact . . . common to all members of the Class,” including
whether Sentry’s “acts and practices” amounted to “a breach of its contractual
obligations with respect to its New Mexico policyholders,” “breached the implied
9
covenant of good faith and fair dealing with respect to the policies issued to New
Mexicans,” and “constitute[d] unfair or deceptive trade practices or
unconscionable trade practices.” Id. at 14-15.
The specific claims alleged in the fourth amended complaint, and the forms
of relief sought in connection with those claims, were essentially identical to
those alleged in the original complaint.
Dismissal of the TPFA claim
On July 10, 2014, the district court, acting pursuant to Sentry’s motion,
dismissed without prejudice plaintiffs’ TPFA claim. In doing so, the district court
concluded that “[t]he plain language of the statute clearly limits recovery to
actual damages and only gives the [New Mexico] Superintendent of Insurance the
power to seek injunctions.” Dist. Ct. Docket No. 134 at 12-13. The district court
emphasized that “[p]laintiffs [we]re free to pursue their claims for injunctive and
declaratory relief under another cause of action.” Id. at 13.
Although Sentry also moved to dismiss the remainder of plaintiffs’ claims
on the grounds that there was no allegation of irreparable harm, the district court
disagreed and denied Sentry’s motion.
Class certification
Plaintiffs moved for certification of the class identified in the fourth
amended complaint. On September 26, 2014, the district court issued a
memorandum opinion and order granting plaintiffs’ motion as to the following
10
class:
All insureds under policies issued in New Mexico by Sentry and its
related entities . . . from May 20, 2004 to April 1, 2011 in which
UM/UIM coverage was purportedly rejected. . . . Included as
subclasses are: (1) insured[s] who received the “IMPORTANT
NOTICE” and “FINAL NOTICE” . . . ; and (2) insured[s] who
received the “IMPORTANT NOTICE OF POTENTIAL
COVERAGE.”
Dist. Ct. Docket No. 136 at 3. 1
In doing so, the district court determined that all four of the prerequisites
outlined in Fed. R. Civ. P. 23(a) were satisfied. More specifically, the district
court concluded:
1) that “the numerosity requirement [wa]s satisfied” because
“Defendant Sentry conceded in discovery that at least 36,000
potential claimants signed rejections and may be entitled to
reformation of their policies,” and “Sentry d[id] not contest that
joinder of so many individuals would be impracticable,” id. at 5;
2) that plaintiffs “met the commonality requirement” because “the
potential class members . . . experienced the same injury,” i.e., “the
lack of proper notice of the coverage available to the policy holders
after Jordan and Weed Warrior,” “in spite of the factual differences
between them,” id. at 7;
3) that plaintiffs “satisfied the typicality requirement,” id. at 9,
because “the proposed class consist[ed] of policyholders who
received inadequate notice from Defendant Sentry,” id. at 8, and thus
“the claims . . . ar[o]se from the same course of events and all
proposed class members were subjected to the same harmful
practices,” id. at 8-9; and
1
The record suggests that there are two general categories of insureds who
rejected UM/UIM coverage during this time period: (1) those who rejected it
without signing any type of rejection form; and (2) those who rejected it by
signing a pre-Jordan rejection form.
11
4) that the named plaintiffs were “adequate representatives of the
class,” id. at 11, and that “[p]laintiffs’ attorneys [we]re adequate to
represent the class,” id. at 13.
The district court in turn concluded that plaintiffs “met the requirements of
Rule 23(b)(2) for certification of the proposed class.” Id. at 15. In reaching this
conclusion, the district court noted that
[p]laintiffs requested the following remedies: (1) an injunction that
prohibits Defendant Sentry from continuing to engage in practices
that violate its duties and contractual and legal obligations owed to
Plaintiffs and the proposed class; and (2) an injunction requiring
Defendant Sentry to give notice to all class members that the Jordan
and Weed Warrior decisions mandate that they are entitled to
UM/UIM coverage equal to liability coverage, and of their right to
make a UM/UIM claims notwithstanding the fact that they had
previously rejected UM/UIM coverage, because the rejection was
invalid.
Id. at 14-15. In other words, the district court concluded that this requested
injunction was “sufficiently specific . . . to meet the requirements of Rule
23(b)(2).” Id. at 15.
In sum, the district court concluded that plaintiffs “established the
requirements for certification of the proposed class pursuant to Federal Rule of
Civil Procedure 23(b)(2)” and that “[a] class action [wa]s the fairest and most
efficient manner of litigating the injunctive claims at issue in the . . . case.” Id.Sentry’s appeal
Sentry sought and was granted permission by this court pursuant to Fed. R.
Civ. P. 23(f) to appeal the district court’s interlocutory order granting plaintiffs’
12
motion for certification of the class identified in the fourth amended complaint.
II
Standards of review
“We review the district court’s decision to certify the class for an abuse of
discretion.” Tennille v. W. Union Co., 785 F.3d 422, 430 (10th Cir. 2015). “The
district court abuses its discretion when it misapplies the Rule 23 factors—either
through a clearly erroneous finding of fact or an erroneous conclusion of law—in
deciding whether class certification is appropriate.” CGC Holding Co. v. Broad
& Cassel, 773 F.3d 1076, 1085-86 (10th Cir. 2014). “Our review is only de novo
to the extent we must determine whether the district court applied the correct
standard.” Id. at 1086. “In the end, as long as the district court applies the
proper Rule 23 standard, we will defer to its class certification ruling provided
that decision falls within the bounds of rationally available choices given the facts
and law involved in the matter at hand.” Id. (internal quotation marks and
brackets omitted).
Class certification standards
“Class certification is governed by Federal Rule of Civil Procedure 23.”
Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2548 (2011). Rule 23(a)
requires the party seeking class certification to satisfy four prerequisites:
One or more members of a class may sue or be sued as
representatives on behalf of all members only if:
(1) the class is so numerous that joinder of all members is
13
impracticable;
(2) there are questions of law or fact common to the class;
(3) the claims or defenses of the representative parties are typical
of the claims or defenses of the class; and
(4) the representative parties will fairly and adequately protect the
interests of the class.
Fed. R. Civ. P. 23(a). In addition, “the proposed class must satisfy at least one of
the three requirements listed in Rule 23(b).” Wal-Mart, 131 S. Ct. at 2548. In
this case, the plaintiffs and the district court relied on Rule 23(b)(2), which states:
the party opposing the class has acted or refused to act on grounds
that apply generally to the class, so that final injunctive relief or
corresponding declaratory relief is appropriate respecting the class as
a whole.
Fed. R. Civ. P. 23(b)(2).
The district court’s commonality determination
Sentry’s arguments on appeal focus on the district court’s commonality
determination. As discussed in greater detail below, we agree with Sentry that the
district court abused its discretion in concluding that the general class it certified
satisfied Rule 23(a)(2)’s commonality requirement.
a) The meaning of Rule 23(a)(2)’s commonality requirement
In Wal-Mart, the Supreme Court expounded on the meaning of Rule
23(a)(2)’s commonality requirement:
Commonality requires the plaintiff to demonstrate that the class
members “have suffered the same injury.” [Gen. Tel. Co. of Sw. v.
Falcon, 457 U.S. 147, 157 (1982)]. This does not mean merely that
they have all suffered a violation of the same provision of law. Title
VII, for example, can be violated in many ways—by intentional
14
discrimination, or by hiring and promotion criteria that result in
disparate impact, and by the use of these practices on the part of
many different superiors in a single company. Quite obviously, the
mere claim by employees of the same company that they have
suffered a Title VII injury, or even a disparate-impact Title VII
injury, gives no cause to believe that all their claims can productively
be litigated at once. Their claims must depend upon a common
contention—for example, the assertion of discriminatory bias on the
part of the same supervisor. That common contention, moreover,
must be of such a nature that it is capable of classwide
resolution—which means that determination of its truth or falsity will
resolve an issue that is central to the validity of each one of the
claims in one stroke. * * *
Rule 23 does not set forth a mere pleading standard. A party
seeking class certification must affirmatively demonstrate his
compliance with the Rule—that is, he must be prepared to prove that
there are in fact sufficiently numerous parties, common questions of
law or fact, etc. We recognized in Falcon that “sometimes it may be
necessary for the court to probe behind the pleadings before coming
to rest on the certification question,” 457 U.S., at 160, 102 S. Ct.
2364, and that certification is proper only if “the trial court is
satisfied, after a rigorous analysis, that the prerequisites of Rule
23(a) have been satisfied,” id., at 161, 102 S. Ct. 2364; see id., at
160, 102 S. Ct. 2364 (“[A]ctual, not presumed, conformance with
Rule 23(a) remains . . . indispensable”). Frequently that “rigorous
analysis” will entail some overlap with the merits of the plaintiff’s
underlying claim. That cannot be helped. “‘[T]he class
determination generally involves considerations that are enmeshed in
the factual and legal issues comprising the plaintiff's cause of
action.’” Falcon, supra, at 160, 102 S. Ct. 2364 (quoting Coopers &
Lybrand v. Livesay, 437 U.S. 463, 469, 98 S. Ct. 2454, 57 L.Ed.2d
351 (1978); some internal quotation marks omitted). Nor is there
anything unusual about that consequence: The necessity of touching
aspects of the merits in order to resolve preliminary matters, e.g.,
jurisdiction and venue, is a familiar feature of litigation. See Szabo
v. Bridgeport Machines, Inc., 249 F.3d 672, 676–677 (C.A.7 2001)
(Easterbrook, J.).
131 S. Ct. at 2551-52 (footnote omitted).
15
b) Did the district court err in finding any class-wide injury?
Sentry argues that the district court’s “most glaring error was finding a
common injury where the vast majority of class members suffered no legally
cognizable injury at all.” Aplt. Br. at 37 (emphasis in original). More
specifically, Sentry asserts that “Plaintiffs have no right in contract, tort or any
other law to a purely inchoate ‘notice’ from the insurance company—without ever
tendering a claim for benefits—that their automobile insurance policies were
being reformed retroactively to provide UM coverage where it had been rejected
without the required Jordan disclosures.” Id. at 39. “And,” Sentry argues,
“Plaintiffs neither claim, nor is it so, that the New Mexico Department of
Insurance has required any such notice.” Id. In short, Sentry argues that
“[p]urported lack of notice of the change in UM law after Jordan and Weed
Warrior . . . is not a common injury or, indeed, any injury at all.” Id. at 42
(emphasis in original).
To determine whether the certified class of plaintiffs suffered a common
and legally cognizable injury, we focus our attention on whether the plaintiffs
have alleged the violation of any recognized legal duty on the part of Sentry. As
the Seventh Circuit recognized in a somewhat similar proposed class action case,
“a claim of injury is not cognizable unless it results from the breach of a
recognized legal duty owed to the plaintiff.” Kartman v. State Farm Mut. Auto.
Ins. Co., 634 F.3d 883, 889 (7th Cir. 2011). Any such recognized legal duty on
16
the part of Sentry in this case would have to arise under one of three sources
identified in the claims that remain pending before the district court: (1) the UPA,
(2) New Mexico contract law, which provides the basis for plaintiffs’ breach of
contract claim against Sentry, or (3) New Mexico tort law, which provides the
basis for plaintiffs’ bad faith claim against Sentry.
The UPA prohibits certain types of acts that occur “in connection with the
sale, lease, rental or loan of goods or services or in the extension of credit or in
the collection of debts by a person in the regular course of the person’s trade or
commerce.” N.M. Stat. Ann. § 57-12-2(D) (defining the phrase “unfair or
deceptive trade practice”). The bulk of plaintiffs’ UPA allegations, and the ones
that the district court specifically focused upon in granting plaintiffs’ motion for
class certification, concern the steps that Sentry took, or allegedly failed to take,
in notifying existing policyholders of the impact of Weed Warrior and Jordan.
Because that alleged conduct occurred after, rather than in connection with, the
sale of the policies at issue, we conclude it falls outside of the scope of the plain
language of the UPA. Consequently, we conclude that the UPA did not impose
any duty on Sentry with respect to notifying existing policyholders of the impact
of Weed Warrior and Jordan. 2
2
To be sure, the fourth amended complaint alleges that Sentry violated the
UPA, in part, by “using rejection forms for UM/UIM coverage that failed to
inform consumers of their choices adequately.” Dist. Ct. Docket No. 131 at 17.
Presumably, this language was intended to focus on Sentry’s acts at the time it
(continued...)
17
Plaintiffs also allege in the fourth amended complaint that Sentry breached
the terms of the various policies of insurance that are encompassed by the
certified class. But plaintiffs have not identified a single contractual provision in
any of the policies at issue, let alone one that is contained in all of the policies at
issue, that would have imposed a duty on Sentry to inform the certified class of
the impact of Weed Warrior and Jordan. 3 Consequently, we conclude that the
plaintiffs’ breach of contract claim cannot give rise to the common injury
required by Fed. R. Civ. P. 23(a)(2) for class certification.
2
(...continued)
issued the respective policies of insurance to the members of the certified class.
Further, in their motion for class certification, plaintiffs suggested that Sentry
continued using improper rejection forms for UM/UIM coverage after the
issuance of Weed Warrior and Jordan. Because the UPA’s definition of the
phrase “unfair or deceptive trade practice” appears to us to encompass the sale or
issuance by an insurer of a policy of insurance to an insured, we conclude that
this portion of plaintiffs’ UPA claim identified a legally cognizable duty that
Sentry allegedly violated.
It does not appear to us, however, that the district court took these
particular allegations into consideration in concluding that the general certified
class satisfied Rule 23(a)(2)’s commonality requirement. And, in any event, we
conclude that this alleged violation does not give rise to an injury common to
either the general certified class or either of the two subclasses identified by the
district court.
Of course, the district court is free on remand to take these particular
allegations into consideration in deciding whether to certify a new and separate
class (i.e., a class distinct from the general class and subclasses that it previously
certified).
3
Under Wal-Mart, it is not enough for plaintiffs to merely allege that some
policy provision imposes this duty. Instead, plaintiffs must identify with
specificity a common policy provision that imposes this duty. See 131 S. Ct. at
2551. Notably, plaintiffs have failed to do so.
18
That leaves only plaintiffs’ bad faith tort claim. Under New Mexico law,
each insurance contract includes “an implied covenant of good faith and fair
dealing that the insurer will not injure its policyholder’s right to receive the full
benefits of the contract.” 4 Dairyland Ins. Co. v. Herman, 954 P.2d 56, 60 (N.M.
1997). “[T]his means that an insurer cannot be partial to its own interests, but
must give its interests and the interests of its insured equal consideration.” Id. at
61 (internal quotation marks omitted). “[T]he implied covenant of good faith and
fair dealing protects against only bad faith or wrongful and intentional conduct
that injures the other party’s rights under the contract . . .” Azar v. Prudential
Ins. Co. of Am., 68 P.3d 909, 927 (N.M. Ct. App. 2003).
Even if we were to assume that Sentry acted in bad faith with respect to all
of the policyholders identified in the general certified class by failing to inform
them of the impact of Weed Warrior and Jordan on their respective policies, we
are not persuaded that plaintiffs have alleged, let alone made any attempt to
establish, that such conduct injured every policyholder’s rights under their
respective policies. Indeed, we fail to see how the purported lack of notice and
information could have injured a policyholder in the absence of a viable claim
against Sentry for UM/UIM benefits. And there appears to be little dispute that
4
The class certified by the district court is not limited to Sentry
policyholders, and instead includes anyone that could be insured under any Sentry
policy issued during the relevant time period. As Sentry aptly notes, however, it
“has no duty to send any notice to unknown insureds with unknown—let alone
no—UM claims.” Aplt. Br. at 42 (emphasis in original).
19
many, if not most, of the certified class members do not have any such claim at
all. As a result, there is simply no common injury among the general certified
class that would satisfy the requirements of Fed. R. Civ. P. 23(a)(2) for purposes
of the plaintiffs’ bad faith claim. 5
To be sure, plaintiffs suggest that the New Mexico Supreme Court’s
decision in Salas v. Mountain States Mut. Cas. Co., 202 P.3d 801 (N.M. 2009),
supports their bad faith claim and indicates that an insurer’s failure to disclose
necessarily gives rise to a valid bad faith claim under New Mexico state law. In
other words, plaintiffs suggest that, under Salas, an insurer injures an insured
merely by failing to disclose to the insured relevant information about the policy
at issue. We disagree.
Salas dealt primarily with a breach of contract claim brought by an injured
5
Relatedly, the injunction sought by plaintiffs in connection with their bad
faith claim would not “be a final remedy.” Kartman, 634 F.3d at 886. To the
contrary, the requested injunctive relief, i.e., “compel[ling] . . . Sentry to give
notice to all class members of the effect of the Jordan and Weed Warrior
decisions on their UM/UIM coverage,” Dist. Ct. Docket No. 131 at 26 (Fourth
Amended Complaint), would, at best, “only lay an evidentiary foundation for
subsequent individual determinations of [UM/UIM] liability and damages,”
Kartman, 634 F.3d at 886. And “the class-action device is not appropriate for
resolving such highly individualized questions of fact” (not to mention that such
questions are not alleged at all in the Fourth Amended Complaint). Id. at 891; see
also Jamie S. v. Milwaukee Pub. Sch., 668 F.3d 481, 499 (7th Cir. 2012) (“[A]
claim for class-wide injunctive and declaratory relief does not satisfy Rule
23(b)(2) if as a substantive matter the relief sought would merely initiate a
process through which highly individualized determinations of liability and
remedy are made; this kind of relief would be class-wide in name only, and it
would certainly not be final.”).
20
class-two insured who had been denied UIM benefits by the defendant insurer,
and the key question before the New Mexico Supreme Court was whether the
insurer could defend against that claim on the basis of an exclusionary provision
that it failed to disclose to the insured. The New Mexico Supreme Court, after
outlining the circumstances under which an insurer must disclose policy
information to a class-two insured, concluded that the defendant insurer had
violated this duty of disclosure to the plaintiff insured and was therefore estopped
from enforcing against the insured an undisclosed exclusionary provision to limit
or deny the insured’s entitlement to UIM benefits under the policy. 202 P.3d at
807-09.
In our view, there are at least two reasons why Salas fails to support the
bad faith theory urged by the plaintiffs in this case. First, nothing in Salas states
that an insurer’s failure to disclose, standing alone, gives rise to a bad faith claim.
Indeed, although the plaintiff in Salas asserted a bad faith claim in addition to her
breach of contract claim, the New Mexico Supreme Court did not address the bad
faith claim at all (because the New Mexico Court of Appeals failed to address that
claim in the first instance). Thus, the holding in Salas must necessarily be read as
limited to breach of contract claims brought by an insured against an insurer.
Second, to the extent that the New Mexico Supreme Court in Salas touched
upon an insurer’s duty of good faith to its insured (and, again, it did so only in the
context of addressing the plaintiff’s breach of contract claim), it simply repeated
21
the principles that we have already recognized, i.e., that the implied covenant of
good faith and fair dealing requires “that the insurer will not injure its [insured]’s
right to receive the full benefits of the contract.” 202 P.3d. at 805 (quoting
Dairyland Ins. Co. v. Herman, 954 P.2d 56, 60 (N.M. 1997)). Nothing in this
language supports the plaintiffs’ theory that an insurer’s failure to give notice,
without any resulting infringement upon an insured’s rights under the contract,
can give rise to a valid bad faith claim.
Because plaintiffs have failed to establish that all members of the general
certified class suffered the common injury required by Rule 23(a)(2), we conclude
that the district court abused its discretion in certifying the general class. 6
The subclasses identified by the district court
The district court, in addition to certifying the general class, identified the
following two subclasses: “(1) insured[s] who received the ‘IMPORTANT
NOTICE’ and ‘FINAL NOTICE’ . . . ; and (2) insured[s] who received the
‘IMPORTANT NOTICE OF POTENTIAL COVERAGE.’” Dist. Ct. Docket No.
136 at 3.
The members of the first subclass were Sentry policyholders who, in early
2011, received from Sentry the form letters entitled “IMPORTANT NOTICE” and
“FINAL NOTICE.” Neither of these letters informed the recipient policyholders
6
Having reached this conclusion, we find it unnecessary to address
Sentry’s other challenges to the district court’s commonality determination
regarding the general class.
22
that their policies had been automatically reformed, without any additional
premium, to include UM/UIM coverage equal to the liability limits of the
policies. Instead, the letters stated that (a) the policyholders had to return the
enclosed UM Coverage Selection Form, (b) Sentry could keep the UM/UIM limits
below the liability limits of the policies if the policyholders so chose, and (c)
Sentry could charge the policyholders an additional premium for UM/UIM
coverage in an amount equal to liability coverage.
The members of the second subclass were Sentry policyholders who, in
2012, received from Sentry a form letter entitled “IMPORTANT NOTICE OF
POTENTIAL COVERAGE.” Each member of this subclass was purportedly
involved in some type of accident that potentially implicated UM/UIM coverage
under their respective Sentry policies. The letter mentioned Weed Warrior and
Jordan by name and purported to outline the potential effects of these decisions.
Notably, Federal Rule of Civil Procedure 23(c)(5) states that “[w]hen
appropriate, a class action may be divided into subclasses that are each treated as
a class under this rule.” Fed. R. Civ. P. 23(c)(5). Thus, notwithstanding our
conclusion that the general class certified by the district court fails to meet the
commonality requirements of Rule 23(a)(2), the question remains whether either
or both of the subclasses identified by the district court can independently satisfy
the requirements of Rule 23 and be allowed to proceed.
Because the district court’s certification ruling did not expressly address
23
the Rule 23 factors as they applied to each of the identified subclasses, we do not
have enough information to determine whether the district court abused its
discretion in certifying the two subclasses. Consequently, we direct the district
court on remand to address these issues.
III
The district court’s order is REVERSED and the case is REMANDED to
the district court for further consideration of plaintiffs’ motion for class
certification. Sentry’s unopposed motion for leave to file exhibit under seal is
GRANTED.
24