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The Summit County Court of Common Pleas recently approved a $31 million class action settlement between State Farm Mutual Automobile Insurance Company and its policyholders in Ohio. The case was filed in 1995 and was litigated by David M. Paris and Kathleen J. St. John for 11 years with multiple appeals, 35 depositions, and the production of over 13,000 pages of documents before the parties were able to reach a resolution.
The claim of the policyholders arose from a 1994 Ohio Supreme Court decision, Martin v. Midwestern, which declared the “other owned vehicle” exclusion to be invalid. Before that decision, this exclusion required that State Farm policyholders buy uninsured motorist coverage (U coverage) on all household vehicles in order for the policyholder and resident relatives to be fully protected. After the Martin decision, the continued purchase of U coverage on household cars beyond the first car provided no additional benefits to policyholders or their resident relatives and, essentially, became coverage for “guests” who occupied a policyholder’s household car.
Our client lost his son in a motor vehicle collision and attempted to stack the uninsured motorist coverage on all five of his household policies. He was prevented from doing so because State Farm had a valid “anti-stacking” clause in the policy. It became apparent that no additional benefit was provided to our client or his resident relatives for paying U coverage premiums on the rest of the household cars. Our client had not been informed by State Farm either orally or in writing how the Martin decision had changed his policy. He further expressed the view that he didn’t want to insure any and all guests who rode in his cars but was only interested in insuring himself and his family members who lived under his roof.
The effects of Martin lasted approximately 35 months, until the Ohio Legislature passed a law that reversed that decision. For that 35-month period (1994-1997), the U coverage that State Farm sold its policyholders on household cars beyond the first car was really “guest coverage,” which was different in nature, scope, and application after the Martin decision than before. And, because it was different, the policyholders claimed that State Farm had a duty to inform its policyholders of this fact so that they had the opportunity to make an informed choice about whether to buy “guest coverage” on household cars. The opportunity to make an informed choice was important because some people wanted to purchase “guest coverage” in order to afford anyone and everyone who rode in their cars this protection, not just resident relatives of the household. Thus, the primary goal of the litigation was to require that State Farm return to its policyholders the opportunity to make that choice.
The policyholders also claimed that State Farm made active misrepresentations to its policyholders in renewal notices by failing to indicate that U coverage on household cars beyond the first was different in nature, scope, and application after Martin than before Martin. In addition, the policyholders advanced the novel theory that State Farm owed its policyholders a fiduciary duty in the sale of auto insurance and that duty included providing written disclosures about how Martin changed their policies. State Farm denied these allegations, claiming that it did not owe any fiduciary duties to policyholders in this context and that, in any event, its 770 agents across Ohio did provide verbal disclosures to its policyholders about the effects of the Martin decision.
Initially, State Farm asked the trial court to dismiss the case, claiming that it was under no legal duty to provide this kind of notification and disclosure to its policyholders. The Trial Court overruled that request in 1998. In addition, in 1996, the policyholders asked the court to certify this matter as a class action because State Farm had uniformly failed to make the written disclosures to all of its Ohio policyholders. The court agreed and explained that the most efficient way to deal with all of these claims on a uniform basis was to certify it as a class since common questions of fact and law existed amongst all of the policyholders. State Farm appealed that decision, but in May 2000, the Ohio Supreme Court ruled in favor of the policyholders and agreed that this matter should be certified as a class action. Following that ruling, discovery began in earnest, during which State Farm produced over 13,000 pages of documents regarding its practices and procedures in marketing automobile insurance, etc.
Depositions of 35 State Farm executives, agents, informational technology specialists, and plaintiffs took place throughout Ohio, as well as California, Illinois, Colorado, and Louisiana. Policyholders in over 660,000 households throughout the state of Ohio were identified, and State Farm created an electronic database to help determine the probable composition of policyholders and resident relatives living within a given household from October 1994 through September 1997, as well as the means to perform the calculation of any alleged household overpayment of premiums for the U coverage in dispute.
In 2003, State Farm again requested the trial court to dismiss the case, and this time the court did so. The policyholders appealed that decision, and on December 30, 2005, the Ninth District Court of Appeals reinstated the case, ruling that a jury should make the determination whether or not State Farm owed its policyholders a fiduciary duty to provide a written disclosure about the Martin decision, and if so, whether the failure to do so was a breach of that duty. The court also agreed with the policyholders that a jury should be permitted to decide whether State Farm had actively misrepresented the nature of the “guest coverage” to its policyholders after the Martin decision. State Farm appealed that decision. During the appeal, the class representatives and State Farm agreed to a settlement, after which the Ohio Supreme Court accepted the appeal.
The attorneys at NPHM are very proud that, after 11 years of litigation, State Farm agreed to the initial demand of the class representatives—to return to them and the other similarly situated policyholders the opportunity to tell State Farm whether they wanted “guest coverage” during that 35-month period or not, and if not, to obtain a partial refund of that premium.