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Sheahan v. State Farm General Insurance Co.

United States District Court, N.D. California

July 2, 2019

BRIAN SHEAHAN, et al., Plaintiffs,


          EDWARD M. CHEN, United States District Judge.

         Plaintiffs are Brian and Alison Sheahan (collectively, the “Sheahans”), Douglas Pope, and Neil and Sandra Wylie (collectively, the “Wylies”). They have filed a class action against State Farm General Insurance Company (“State Farm”) as well as three additional companies that are affiliated with one another, namely, Verisk Analytics, Inc.; Insurance Services Office, Inc.; and Xactware Solutions, Inc. (collectively, the “Verisk Defendants”).[1] The gist of the operative class action complaint is that (1) Plaintiffs and others similarly situated purchased homeowners insurance policies from State Farm and that (2) State Farm, using software developed by the Verisk Defendants, undervalued the replacement cost of Plaintiffs' homes when issuing the policies. After Plaintiffs' homes were destroyed during the October 2017 Northern California wildfires, they did not have enough money from the policies to rebuild their homes. Currently pending before the Court are two motions to dismiss: one filed by State Farm and the other filed by the Verisk Defendants.

         Having considered the parties' briefs and accompanying submissions, as well as the oral argument of counsel, the Court hereby GRANTS both State Farm and the Verisk Defendants' motions to dismiss; however, Plaintiffs have leave to amend as to certain claims, as discussed below.


         In the operative second amended complaint (“SAC”), Plaintiffs allege as follows.

         “State Farm is the largest property and casualty insurance provider in the United States.” SAC ¶ 28. Plaintiffs all purchased homeowners insurance policies from State Farm. See SAC ¶¶ 43-44. State Farm uses software provided by the Verisk Defendants in conjunction with its homeowners insurance policies. See SAC ¶ 23. More specifically, the Verisk Defendants provide two software products to State Farm:

(1) 360 Value, which is a zip code calculator used to determine the initial insurance policy value, and
(2) Xactimate, which is used to determine the cost to rebuild or repair property after a loss.

See SAC ¶¶ 23, 45.

         According to Plaintiffs, “with detailed inventory and input, including a site visit to document the insured property . . ., 360 Value can deliver an accurate result, ” but, “without detailed input[, ] it gives [only] a generic, tract-home type cost valuation.” SAC ¶ 49. The latter generally leads to an underinsured home. See SAC ¶ 49.

         Xactimate is used after a loss to calculate the cost of rebuilding or repairing a home. Similar to above, Xactimate “may be used . . . to arrive at a valuation within a 10% margin of error for construction estimation.” SAC ¶ 52. However, “Xactimate is based on manufactured home data, such as trailers and prefabricated homes, to price houses like a kit of parts”; therefore, unless used correctly, Xactimate “does not represent the true cost to rebuild homes in Northern California.” SAC ¶ 50.

         Plaintiffs allege that State Farm used 360 Value to determine their initial insurance policy limits. See SAC ¶ 57. But because Plaintiffs “were never specifically interviewed about the qualities of their [homes], ” 360 Value did not yield an accurate result; accordingly, Plaintiffs' homes were underinsured and, after the wildfires, the policies did not give Plaintiffs enough money to rebuild their homes. SAC ¶ 84. “By underinsuring homeowners [such as Plaintiffs], State Farm has been able to lower the rates on their policy premiums [and] attract a greater volume of business . . . .” SAC ¶ 21; see also SAC ¶ 27.

         According to Plaintiffs, State Farm represents that 360 Value is a tool that can accurately and reliably be used in setting insurance policy value. For example:

• In its website, State Farm states: “The most appropriate way to estimate the replacement cost of your home is to hire a building contractor or other building professional to produce a detailed replacement cost estimate. Or your State Farm agent can utilize an estimating tool from Xactware Solutions [i.e., a Verisk Defendant] to assist you with an estimate.” SAC ¶ 55. Plaintiffs suggest that the second sentence above indicates that the 360 Value estimate is just as reliable as an estimate provided by a building contractor.
• Plaintiffs also assert that the “behavior” of State Farm agents indicates that 360 Value “is accurate and can be relied upon to determine policy limits.” SAC ¶ 58. No specifics, however, are given on what this alleged “behavior” is.

         Based on, inter alia, the above allegations, Plaintiffs have asserted the following claims for relief (against both State Farm and the Verisk Defendants, unless otherwise noted):

(1) Breach of the implied covenant of good faith and fair dealing (State Farm only).
(2) Fraud - intentional misrepresentation.
(3) Fraud - false promise.
(4) Negligent misrepresentation.
(5) Negligence.
(6) Reformation of insurance policies (State Farm only).
(7) Violation of California Business & Professions Code § 17200.
(8) Violation of the California Cartwright Act.
(9) Violation of California Insurance Code § 790.03.
(10) Violation of the federal Sherman Act - “Cartel.”
(11) Violation of the federal Sherman Act - “Monopoly.”
(12) Violation of the federal Sherman Act - “Conspiracy.”
(13) Violation of California Products Liability Act.


         A. Legal Standard

         To survive a [12(b)(6)] motion to dismiss for failure to state a claim after the Supreme Court's decisions in Ashcroft v. Iqbal, 556 U.S. 662 (2009) and Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), [a plaintiff's] factual allegations [in the complaint] “must . . . suggest that the claim has at least a plausible chance of success.” In other words, [the] complaint “must allege ‘factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.'” . . . . [The Ninth Circuit has] settled on a two-step process for evaluating pleadings:

First, to be entitled to the presumption of truth, allegations in a complaint or counterclaim may not simply recite the elements of a cause of action, but must contain sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively. Second, the factual allegations that are taken as true must plausibly suggest an entitlement to relief, such that it is not unfair to require the opposing party to be subjected to the expense of discovery and continued litigation.

Levitt v. Yelp! Inc., 765 F.3d 1123, 1134-35 (9th Cir. 2014).


[t]he plausibility standard is not akin to a “probability requirement, ” but it asks for more than a sheer possibility that a defendant has acted unlawfully. Where a complaint pleads facts that are “merely consistent with” a defendant's liability, it “stops short of the line between ...

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