In its recent decision in Clippinger v. State Farm, the Sixth Circuit addressed the certification of a class in a breach-of-contract dispute over insurance valuation claims, in which the defendant contended that individualized evidence would be needed to determine whether the alleged breach caused actual monetary injury to class members.  Similar class certification issues have been addressed by several other circuits, including by the Ninth Circuit just last month. In its decision, however, the Sixth Circuit went its own way: (1) the court found that an alleged breach of contract was alone sufficient to create Article III standing, and (2) the court split from five other circuits in affirming certification of the class.

Standing

The Sixth Circuit joined an existing circuit split regarding whether, under the Supreme Court’s 2021 TransUnion decision, a class that contains uninjured class members may permissibly be certified. 

The Sixth Circuit held that private contract rights are “the kind of rights that have traditionally been cognizable in American courts,” and that a purported breach of contract is therefore a concrete injury for standing purposes. The court reasoned that the determination of a breach of contract is a question on the merits of the case, not on standing, and that if standing depended on those merits, courts would be required to evaluate every potential argument for breach to ensure proper subject matter jurisdiction. The court acknowledged that the circuits are divided on the question.

Rule 23 Class Certification

The Sixth Circuit then went on to create a circuit split regarding the Rule 23(b)(3) predominance requirement, as it affirmed the certification of a class related to insurance valuation, even though recognizing that some class members suffered no actual monetary injury from the challenged valuation practice. The court found that the need for individualized damages inquiries did not defeat predominance because they all flow from the same theory of liability.

The court acknowledged that similar classes have recently been denied certification on predominance grounds in the Ninth, Third, Fourth, Fifth, and Seventh Circuits. However, it declined to reach the same result, holding that the individualized issues were quantification of damages issues only, not merits issues, and differing damages would not defeat predominance.  The Sixth Circuit recognized that its decision departed from that reached in similar cases in other circuits, but it concluded that at least some of those other cases had failed to appreciate the distinction between liability and quantification of damages.  It also suggested that the Ninth Circuit’s leading decision in Lara v. First National Insurance Company of America, 25 F.4th 1134 (9th Cir. 2022), which the other circuits had followed, should be read narrowly as not applying in a situation in which the challenged valuation methodology was applied to all class members. 

Ultimately, the court endorsed a consumer protection angle in rejecting State Farm’s predominance theory, as it saw the potential for insurers to continue an “endless bait and switch” in choosing then trying their valuation methods. The court also reasoned that, by reserving the individual issues for the damages stage, State Farm would have to defend its actual practices, rather than hypothetical ones.

In dissent, Judge Murphy disagreed with his colleagues, finding that the individual question of the actual cash value of each class member’s vehicle would likely be the predominant question, as a jury would have to identify the fair market value for each class member before it could address the question of whether State Farm’s valuation artificially decreased that value. Judge Murphy disagreed with the creation of this circuit split and the certification of this “unwieldy class action.”

The Sixth Circuit’s attempts to discount the existence of an actual split with other circuits and its reliance on the principle that individualized issues bearing only on quantification of damages should not defeat certification ultimately required it to conflate its holding that a mere breach of contract is sufficient to establish Article III standing with the separate question of whether a breach that imposes no monetary harm is an “injury” for purposes of a breach of contract claim.  The other circuits that have addressed this question – as well as Judge Murphy in dissent in this case – concluded that liability under contract law requires proof of actual monetary harm to each class member, and that a need to prove such harm, as an element of liability, through individualized evidence precludes a finding of predominance.