General Insurance Company (GEICO) insurance policies require payment of actual cash value (“ACV”) upon the total loss of a covered auto and define ACV as the “replacement cost” of the auto, less depreciation.
A consolidated class action was filed in the United States District Court, Northern District of California, against GEICO alleging that it breached the terms of private passenger auto insurance policies issued to Plaintiffs, and similarly situated insureds, by failing to properly include or calculate sales tax (as to leased vehicles) and regulatory fees (as to all vehicles).
Plaintiffs argue that (1) the insurance policies require Defendant to include sales tax on the cost to purchase a replacement vehicle when paying leased-vehicle claims; and (2) under Cal. Ins. Code § 2695.8(b)(1), registration fees for the “remaining term of the loss vehicle’s current registration” should be calculated on an end-of-month (rather than, as Defendant contends, a beginning-of-month) basis or, alternatively, on a daily (not monthly) basis.
Over the course of two years, the parties engaged in motion practice, extensive production and review of documents and class-wide data, and multiple depositions, including the depositions of corporate representatives, class representatives, and expert witnesses.
After multiple mediation sessions the parties reached a settlement. The Court granted preliminary approval of the settlement on July 28, 2022, and final approval on March 15, 2023.
Approval of a class settlement is appropriate when plaintiffs must overcome significant barriers to make their case. The Court found in this case that the amount offered in settlement is reasonable in light of the substantial risk that Plaintiffs would face in litigating the case. According to Plaintiffs, litigation of these claims through trial presents significant challenges to prevailing on the merits since no California court, state or federal, has held that insureds who leased a vehicle are entitled, upon a total-loss determination, to full payment of sales tax.
They cite to unfavorable decisions regarding Defendant’s policy language, including three federal courts of appeal that have considered similar claims and ruled in favor of the insurers.
Although the Court expressed concerns at the preliminary approval stage regarding the claims-made structure of this settlement, the actual monetary benefit to the class has turned out to be substantial, even if less than anticipated. Defendant has conducted a preliminary audit of submitted claims, and the actual estimated cash benefit for the class is $6,200,000.
The settlement recovery is particularly compelling for the Sales Tax Class, where each class member will receive 100% of the sales tax (and thus 100% of the potential recovery). On average, class members with valid claims will receive more than $2,000. Plaintiffs estimate a total payout to the Sales Tax Class of approximately $5,800,000.
For the Regulatory Fees class, each class member will receive $6.88, which represents 50% of the potential recovery. Plaintiffs estimate a total payout to the Regulatory Fees Class of approximately $402,824.
The amount offered in the settlement is another factor that weighs in favor of approval. Based on the facts in the record and the parties’ arguments at the final fairness hearing, the Court found that the settlement amount falls “within the range of reasonableness” in light of the risks and costs of litigation.