United States District Court, N.D. California
G. GRANT JOHNSON, Plaintiff,
HARTFORD CASUALTY INSURANCE COMPANY, Defendant.
ORDER ON MOTIONS FOR SUMMARY JUDGMENT, CLASS
CERTIFICATION AND EVIDENCE RE: DKT. NOS. 36, 37, 38, 47,
William H. Orrick United States District Judge
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.
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.
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
I. FACTUAL BACKROUND
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.
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
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.
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.
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
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.
Motion to Exclude the Testimony of Eugene Peterson
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.
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.
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.
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.
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.
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
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
Motion to Strike Portions of the Declaration of Christopher
Frost in Support of the Defendant's Motion for Summary
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.
Motion to Strike and Objections to Evidence in Support of
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.
MOTION FOR SUMMARY JUDGMENT
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).
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).
MOTION TO CERTIFY CLASS
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.”
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.
MOTION FOR SUMMARY JUDGMENT
STANDING AND SECTION 2051
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.
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.
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).
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
We will not pay more for physical loss or physical
damage on a replacement cost basis than the least
(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).
portion of the policy quoted above is located in a section
discussing RCV, not ACV. It applies “on a replacement
cost basis.” Policy at ...