Speculative Class Action Fails

Claim of Future Injury Not Basis For Declaratory Relief

When the Supreme Court of the state of Georgia decided State Farm Mutual Automobile Insurance Co. v. Mabry, 274 Ga. 498, 556 S.E.2d 114 (Ga. 11/28/2001) it opened the door to litigation against insurers who determined actual cash value losses by determining full replacement cost and then deducting physical depreciation without consideration for the diminished value of an automobile that had been in an accident and repaired.

Since Mabry courts in Georgia and across the country are faced with claims for both the cost of repair plus diminished value. In Brewton v. Liberty Mutual Holding Company, Inc., Slip Copy,  United States District Court, M.D. Georgia 2016 WL 224124 (01/19/2016) a homeowners insured attempted to create a class action out of future failure of her insurer to pay her for diminished value.

BACKGROUND

In this putative class action, Plaintiff Chandra H. Brewton seeks relief on behalf of herself and others similarly situated for the Defendants’ alleged refusal to assess and pay damages for diminution in value when claims are made under their homeowners insurance policies. Brewton’s home suffered water damage which allegedly resulted in the diminution of the fair market value of the home. Brewton alleges she “timely reported a claim for direct physical loss to her home resulting from water damage,” but “[i]n violation of Georgia law and in breach of their insurance contract” with Brewton, the Defendants failed to assess and pay damages for diminution in the value of Brewton’s property.

In Count 2, Brewton asks the Court to “issue a declaratory judgment that Liberty Mutual is obligated under the homeowners insurance policies to assess insured properties for and pay diminished value when policyholders present first-party physical damage claims arising from direct physical losses to their insured properties, which are covered events.”

Though Brewton has not yet moved for class certification, she envisions two classes: (1) the “Policyholder Class” comprised of “[a]ll persons currently insured under homeowners insurance policies issued by Liberty Mutual that provide coverage for property located in the State of Georgia,” and (2) the “Covered Loss Class” comprised of “[a]ll persons formerly or currently insured under homeowners insurance policies issued by First Liberty that provide coverage for property located in the State of Georgia” who presented claims within the past six years for loss resulting from water damage for which damages for diminution in value were not paid.

DISCUSSION

First Liberty raises three arguments in support of its motion to dismiss Count 2: (1) to the extent the claim is based on First Liberty’s prior denial of Brewton’s claim, it should be dismissed because Brewton has an adequate remedy at law; (2) to the extent the claim is based on her “ongoing relationship” with First Liberty, the claim should be dismissed because she has failed to allege an imminent threat of future harm; and (3) Brewton “may not rely on the alleged threat of harm to absent class members to sustain her declaratory judgment.

First Liberty’s first argument relies on the assumption that Brewton seeks declaratory relief regarding the denial of her claim for diminution in value. However, in her response brief, Brewton clarifies that she “seeks a declaration to define the parties’ future rights and obligations,” whereas the breach of contract claim seeks recovery of damages “incurred in the past.” Similarly, Brewton states that “she does not … rely on an alleged threat of harm to her fellow policyholder class members to confer standing.” The question is whether Brewton’s declaratory judgment claim presents an actual controversy.The Declaratory Judgment Act, “echoing the ‘case or controversy’ requirement of Article III of the Constitution, provides that a declaratory judgment may only be issued in the case of an ‘actual controversy.’

The controversy may not be conjectural, hypothetical, or contingent; it must be real and immediate, and create a definite, rather than speculative threat of future injury. There must be a substantial likelihood that the plaintiff will suffer future injury: a “perhaps” or “maybe” chance is not enough.

First Liberty contends Brewton “has not sufficiently pled that her alleged injury will continue or will be repeated in the future. On this point, Brewton alleges that “there exists an actual controversy as to the responsibilities of the parties under the homeowners insurance policies issued by Liberty Mutual to Plaintiff and the members of the Policyholder and Covered Loss Classes” and that she “and other current insureds have an ongoing relationship with Defendants.”

As stated by the Eleventh Circuit, “[t]he remote possibility that a future injury may happen is not sufficient to satisfy the “actual controversy” requirement for declaratory judgments. A plaintiff must allege facts to establish a reasonable expectation that the injury she has suffered will continue or will be repeated in the future. Because Brewton’s injury is contingent upon her home suffering damage, the practical likelihood that the contingency will occur and that the controversy is a real one is decisive in determining whether an actual controversy exists.”

Although it is possible that Brewton may experience damage to her home and thus a dispute with First Liberty over diminished value in the future, her allegations are insufficient to establish a reasonable expectation that her alleged injury will be repeated. A plaintiff seeking declaratory relief must allege a real and immediate — as opposed to a merely hypothetical or conjectural — threat of future injury.  The mere possibility that Brewton’s home may suffer damage in the future is simply too remote to satisfy the case-or-controversy requirement and permit adjudication by a federal court.

Accordingly, because Brewton has failed to allege any facts from which the Court could reasonably conclude that she will suffer future injury, the Court lacks jurisdiction to adjudicate her dispute. The federal courts are under an independent obligation to examine their own jurisdiction, and standing is perhaps the most important of the jurisdictional doctrines.

Because the Court lacks subject matter jurisdiction over Brewton’s claim for declaratory judgment, First Liberty’s motion to dismiss Count 2 was granted.

ZALMA OPINION

No court should honor a speculative, hypothetical or conjectural threat of future injury. It is difficult enough to deal with actual existing damages. Without H.G. Wells’ time machine there would be no way for a court to make a decision on the damages a plaintiff will suffer as a result of a future claim of future, indeterminable, damage. The Mabry case that is the subject of my book Diminution in Value Damages available from the American Bar Association at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at http://www.zalma.com/videoblog

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat www.nationalunderwriter.com/ZalmaLibrary  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at  http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972

Mr. Zalma’s new e-books  “Getting the Whole Truth,” “Random Thoughts on Insurance – Volume III,” a collection of posts on this blog; “Zalma on California SIU Regulations;”  “Zalma on California Claims Regulations – 2013″ explains in detail the reasons for the Regulations and how they are to be enforced; “Rescission of Insurance in California – 2013;”  “Zalma on Diminution in Value Damages – 2013; “Zalma on Insurance,” “Heads I Win, Tails You Lose,”  “Arson for Profit”  and others that are available at www.zalma.com/zalmabooks.htm

Mr. Zalma’s reports on World Risk and Insurance News’ web based television programing, http://wrin.tv  or at the bottom of the home page of his website at http://www.zalma.com on Tumbler at https://www.tumblr.com/search/zalma and Twitter at Follow me on Twitter at https://twitter.com/bzalma

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

Share

About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
This entry was posted in Zalma on Insurance. Bookmark the permalink.