Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Johnson v. Hartford Casualty Insurance Co.

United States District Court, N.D. California

May 22, 2017

G. GRANT JOHNSON, Plaintiff,


          William H. Orrick United States District Judge


         A fire partially consumed plaintiff G. Grant Johnson's building in San Francisco, California. He alleges that defendant Hartford Casualty Insurance Company unlawfully underpaid him because it purposefully miscalculates “actual cost value” (“ACV”) pay-outs by “depreciating all components of Plaintiff's structural loss without regard to whether the components were normally subject to repair and replacement during the useful life of that structure.” Compl. (“Complaint”) (Dkt. No. 1-1) ¶13. He also contends that Hartford underpays ACV by decreasing the sales tax component of ACV by the percentage of physical depreciation taken on the claim. Compl. ¶ 14. He asserts that these practices violate California Insurance Code section 2051, which prohibits the depreciation of the value of any components that are not “normally subject to repair and replacement during the useful life of that structure.” Johnson also seeks to certify a class of similarly situated insureds.

         Hartford opposes certification and seeks summary judgment because it paid Johnson more than the cost of the repairs he made to his building. Accordingly, it argues that he has not been damaged, lacks standing, and is not an adequate class representative. Hartford also argues that Section 2051 does not prohibit the depreciation of any item across-the-board, but rather requires an investigation into each insured's claim on a case-by-case basis.

         This Order grants Johnson's motion for class certification and denies Hartford's motion for summary judgment for the most part. Fundamentally, the injury suffered by Johnson is determined by Hartford's alleged failure to calculate his ACV claim in accordance with Section 2051, not whether he spent less than Hartford paid him for his claim. There are common questions for the class, such as whether Hartford depreciates certain building components in violation of Section 2051 when making ACV payments for partial losses, and there are material facts in dispute over the answers to those questions.



         Johnson owns a commercial building at 321-329 Divisadero Street in San Francisco, California. Christopher Frost Declaration (“Frost Decl.”) at ¶¶ 2-3, Exs. 1, 14, 15. The building was originally constructed in 1900 but has had several systems added or repaired since the completion of its construction, such as plumbing and electrical systems. Frost Decl. at ¶ 4, Ex. 1, 2. It was insured under Hartford's Business Owners Insurance Policy No. 57 SBA DO0133. Compl. ¶ 8. On December 20, 2013, it suffered damage from a fire on the property, causing a partial loss of the structure. Compl. ¶ 8.

         Subsequent to the loss, Johnson submitted claims to Hartford. Compl. ¶ 12. His insurance policy describes two possible methods of payment: ACV and replacement cost value (“RCV”). Under the ACV option, Hartford would estimate the cost of repair and provide the insured with a payment in that amount, deducting a “fair and reasonable” amount “for the physical depreciation of the components of the building or structure that are normally subject to repair or replacement during its useful life.” Id. This is based upon “the condition of the property at the time of the loss.” Id. Under the RCV option (also called “replacement cost basis”) Hartford would pay the insured the cost of the actual repairs made to the extent required to return the building to its approximate previous condition. Frost Decl., Ex. 3 (“Policy”) at PLTF-JOHNSON004029.

         Johnson alleges that Hartford underpaid him by depreciating and deducting items that are not “normally subject to repair or replacement, ” such as baseboard/trim, cement, doors, drywall, electrical wiring, framing/rough carpentry, insulation, lath and plaster, marble, ornamental iron, plumbing, and stairs. Compl. ¶ 13. He also asserts that Hartford “depreciated” the value of the sales tax, meaning that in its policy pay-out, Hartford paid the amount of sales tax as applied to the estimated cost of lost, depreciated items rather than the amount of sales tax as applied to the estimated cost of replacement with new items. Compl. ¶ 14.

         Hartford made an ACV payment to Johnson of $731, 000, of which he spent $644, 000 on repairs. He asserts that he has yet to repair or reconstruct the third story of the property. Dkt. No. 45, Exh. P at 3.

         This Order addresses several motions. Hartford moves for summary judgment and to exclude the testimony of Johnson's expert, Eugene Peterson. Johnson moves to certify a class. He also seeks to strike portions of the Declaration of Christopher Frost, which was filed in support of Hartford's motion for summary judgment, and evidence filed in support of Hartford's reply memorandum for summary judgment.


         Hartford brings a motion to exclude the testimony of Eugene Peterson, Johnson's expert. Johnson brings two motions to strike, and objections to evidence, pertaining to the declaration of Christopher Frost filed in support of the motion for summary judgment and evidence filed in support of Hartford's reply memorandum. It makes sense to address these issues before addressing the merits of the motions for summary judgment and class certification.

         A. Motion to Exclude the Testimony of Eugene Peterson

         Hartford alleges that the testimony of Eugene Peterson on the use of the software Xactimate to depreciate building components should be excluded under Federal Rule of Evidence 702, Federal Rule of Civil Procedure 26(a)(2), and Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). It argues that: (1) Peterson is not qualified as an insurance adjuster and has no experience in the relevant area under California law; (2) Peterson's methodology is flawed because Xactimate does not “calculate” depreciation; and (3) Peterson's disclosure is deficient under the Federal Rules of Civil Procedure.

         For expert testimony to be “relevant” under Federal Rule of Evidence 702, the expert must offer “specialized knowledge” that will “help the trier of fact to understand the evidence or to determine a fact in issue.” Fed.R.Evid. 702; see Primiano v. Cook, 598 F.3d 558, 565 (9th Cir. 2010). Peterson's testimony does this. As Johnson points out: “Because Xactimate is a complex software used in Hartford's California claims, Plaintiff retained Xactimate expert Eugene Peterson to help explain how the software works in the context of this case.” Oppo. to Mot. to Excl. 1. Johnson looks to Xactimate as a means of establishing his claims regarding depreciation; Peterson's knowledge how Xactimate functions is therefore relevant.

         Hartford insists that Peterson is not qualified to offer an expert opinion about Xactimate because he is not an insurance adjuster. See id. at 4-5. I disagree. An expert is considered reliable where he has “a reliable basis in the knowledge and experience of the relevant discipline.” Daubert, 509 U.S. at 593. As Johnson points out, Peterson's testimony is aimed at explaining the function of Xactimate. Peterson's testimony is not offered to readjust property losses. Oppo. to Mot. to Excl. 1. As a result, whether Peterson is an insurance adjuster is irrelevant.

         Next, Hartford objects that Peterson's proposed methodology to determine classwide damages is flawed and should be struck. As an initial matter, “damage calculations alone cannot defeat certification.” Blackie v. Barrack, 524 F.2d 891, 905 (9th Cir. 1975). Hartford's concern would be relevant if the offered methodology impugned Peterson's reliability as an expert witness, but it does not. Hartford argues that the information needed to determine the depreciation applied to an insured's adjustment is not contained in Xactimate but instead in an individual claim file. As a result, it suggests, Peterson's proposed methodology is flawed and reflects a lack of understanding of Xactimate. But in his Expert Report, Peterson explained that “[u]sing Xactimate and the Hartford database, it is feasible to efficiently determine where depreciation was taken and calculate and prove what damages, if any, specific insureds or groups of insureds are entitled to.” Veroff Dec. ¶ 12, Ex. L at 10. Peterson's deposition confirms this: “I can tell from [Xactimate] . . . whether the adjuster put depreciation in it or not. You have to look at the claims folder to determine whether [the depreciation] was actually paid or not.” Mot. to Excl. Reply Decl. ¶ 11, Ex. 3 at 13.[1]

         Finally, Hartford complains that Peterson's expert report is deficient under Federal Rule of Civil Procedure 26(a)(2). That rule requires experts to file a report which contains “a list of all other cases in which, during the previous 4 years, the witness testified as an expert at trial or by deposition.” Fed.R.Civ.P. 26(a)(2)(B)(v). Its purpose is to give opposing counsel “a reasonable opportunity to prepare for effective cross examination.” Fed.R.Civ.P. 26, 1993 Advisory Committee Notes. Hartford raises two objections: Peterson has omitted cases in which he has testified as an expert; and his list of cases is too vague.

         Hartford's first concern is that Peterson's disclosure does not include any cases subsequent to December 2015. Mot. to Excl. 7-8. Based on that, Hartford concludes that Peterson's disclosure is deficient. Id. But Johnson explains that Peterson has not testified as an expert since that date, so Peterson's disclosure is not deficient for that reason.

         Hartford's second objection is equally unpersuasive: although there is room for improvement in Peterson's list of cases, it is not so deficient as to warrant exclusion. Peterson provided, and later supplemented, sufficient information to allow Hartford to identify the cases in which he testified as an expert. A court may exercise its discretion to admit expert testimony where the disclosure is deficient, provided that it does not prejudice any party. See Yeti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101, 1106 (9th Cir. 2001). Hartford will not be prejudiced by including the expert testimony of Peterson. Its motion to exclude is DENIED.

         B. Motion to Strike Portions of the Declaration of Christopher Frost in Support of the Defendant's Motion for Summary Judgment

         Johnson moves to strike portions of the Declaration of Christopher Frost in Support of the Defendant's Motion for Summary Judgment that opine on the proper interpretation of the insurance policy. That is a legal matter reserved for the court. See In re Bubble Up Delaware, Inc., 684 F.2d 1259, 1264 (9th Cir. 1982) (“The question of interpretation of a contract is a question of law[.]”). This motion is GRANTED.

         C. Motion to Strike and Objections to Evidence in Support of Hartford's Reply

         Johnson also moves to strike the report of Adrian Frank in support of Hartford's reply to Johnson's opposition to Hartford's motion to dismiss. This report does not rebut any expert of Johnson's; it simply attempts to augment Hartford's reply by attacking a legal argument from Johnson's counsel. It is improper. Under Federal Rule of Civil Procedure 26(a)(2)(D)(ii), a rebuttal expert is appropriate only if the testimony is “intended solely to contradict or rebut evidence on the same subject matter identified by another party.” As Johnson did not even offer an expert witness in his opposition, there is nothing to “rebut” and the motion to strike Frank's rebuttal report is GRANTED.[2]



         Summary judgment on a claim or defense is appropriate “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). In order to prevail, a party moving for summary judgment must show the absence of a genuine issue of material fact with respect to an essential element of the non-moving party's claim, or to a defense on which the non-moving party will bear the burden of persuasion at trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the movant has made this showing, the burden then shifts to the party opposing summary judgment to identify “specific facts showing there is a genuine issue for trial.” Id. The party opposing summary judgment must then present affirmative evidence from which a jury could return a verdict in that party's favor. Anderson v. Liberty Lobby, 477 U.S. 242, 257 (1986).

         On summary judgment, the court draws all reasonable factual inferences in favor of the non-movant. Id. at 255. In deciding a motion for summary judgment, “[c]redibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge.” Id. However, conclusory and speculative testimony does not raise genuine issues of fact and is insufficient to defeat summary judgment. See Thornhill Publ'g Co., Inc. v. GTE Corp., 594 F.2d 730, 738 (9th Cir.1979).


         “Before certifying a class, the trial court must conduct a ‘rigorous analysis' to determine whether the party seeking certification has met the prerequisites of Rule 23.” Mazza v. Am. Honda Motor Co., Inc., 666 F.3d 581, 588 (9th Cir. 2012). The party seeking certification bears the burden of showing that Rule 23 has been met. Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541, 2551 (2011); Conn. Ret. Plans & Trust Funds v. Amgen Inc., 660 F.3d 1170, 1175 (9th Cir. 2011), aff'd, 133 S.Ct. 1184 (2013). Rule 23(a) requires that plaintiffs demonstrate numerosity, commonality, typicality and adequacy of representation in order to maintain a class action. Mazza, 666 F.3d at 588. A Rule 23(b)(3) class action may be maintained if “the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.”


         The crux of Hartford's arguments in both substantive motions is that Johnson cannot show that he has been injured: Hartford paid him more for ACV than he spent to repair his building. I analyze the policy and Section 2051 in the standing section below to show that Johnson has alleged an injury in fact. This disposes of the bulk of Hartford's arguments on summary judgment. After briefly discussing the remaining issues, I move on to Johnson's class certification motion, find that common questions predominate, and grant certification.



         In order to meet the standing requirements of Article III of the Constitution, a plaintiff must be able show (1) “injury in fact, ” (2) a “causal connection between the injury and the conduct complained of, ” and (3) it must be “likely” that the injury will be “redressed by a favorable decision.” Lujan v. Defs. of Wildlife, 504 U.S. 555, 560-61 (1992). Hartford contests only whether Johnson has established an “injury in fact, ” which is “an invasion of a legally protected interest” that is “concrete and particularized” and “actual or imminent, not ‘conjectural' or ‘hypothetical.'” Id. at 560. The party claiming jurisdiction bears the burden of establishing standing. Id.

         1. The Policy

         Hartford's contention that Johnson cannot establish an “injury in fact” because it has paid him more than it owed him under the policy assumes its own conclusion. The question of how much Hartford owed Johnson is why this suit has been brought. Johnson argues that he has suffered damages because Hartford violated Section 2051 and paid him less than it should have paid him.

         Accordingly, the existence of injury in fact turns in part upon the substantive merits of the case. If Johnson's ACV payment was less than the amount he should have received pursuant to the contract, then he has suffered an injury in fact regardless of whether he was paid more than he spent on repairs. “Economic harm based on the ‘benefit of the bargain' theory” is sufficient for the purposes of standing.” See, e.g., Thomas v. Costco Wholesale Corp., No. 5:12-CV-02908 EJD, 2013 WL 1435292, at *4 (N.D. Cal. Apr. 9, 2013).

         Both Hartford and Johnson insist that the language of the contract favors them. Hartford argues that Johnson's ACV pay-out is limited to the actual cost of repairs to the building. In support of this, Hartford cites to Section 5(c) of the Property Loss Conditions portion of its Special Property Coverage Form:

We will not pay more for physical loss or physical damage on a replacement cost basis than the least of:
(i) The cost to replace, on the same premises, the physically lost or physically damaged property with property of comparable material and quality and which is used for the same purpose; or
(ii)The amount you actually spend that is necessary to repair or replace the physically lost or physically damaged property.

Mot. 5 (citing to Policy at 3992) (emphasis in original).

         The portion of the policy quoted above is located in a section discussing RCV, not ACV. It applies “on a replacement cost basis.” Policy at ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.