Perry ex rel. All Other Ohio Residents Similarly Situated v. Allstate Indem. Co.

ANDREA PERRY, individuallyand on behalf of all other Ohio residents similarly situated, Plaintiff, v. ALLSTATE INDEMNITY COMPANY, ET AL., Defendants.

CASE NO.1:16CV01522

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF OHIO EASTERN DIVISION

November 26, 2018

JUDGE CHRISTOPHER A. BOYKO

OPINION AND ORDER

CHRISTOPHER A. BOYKO, J:

This matter comes before the Court following Defendants Allstate Indemnity Company and eight affiliated companies' ("Allstate") Motion to Dismiss (ECF DKT # 16) Plaintiff Andrea Perry's class action lawsuit. (ECF DKT # 1, Ex. 1). For the following reasons, the Court grants this motion.

Procedural Background

On May 16, 2016, Perry filed a class action lawsuit alleging one count of Breach of Contract against Allstate with the Cuyahoga County Court of Common Pleas. (ECF DKT # 1, Ex. 1). Allstate gave notice of removal to the Northern District of Ohio. (ECF DKT # 1). Allstate then moved to dismiss the case and all defendants other than Allstate Indemnity Company pursuant to Federal Rules of Civil Procedure 12(b)(6) and 12(b)(1). (ECF DKT # 16). Perry opposed the Motion to Dismiss (ECF DKT # 18) and Allstate replied. (ECF DKT # 19). On December 8, 2016, this Court ordered the certification of a question to the Supreme Court of Ohio and dismissed the case. (ECF DKT # 25; ECF DKT # 26). The question requested clarification on whether Ohio law requires insurers to exclude labor costs from depreciation calculations when determining the actual cash value ("ACV") of damaged property. (ECF DKT # 25 at 2). On February 22, 2017, the Supreme Court of Ohio declined to certify the question (ECF DKT # 29, Ex. 1), and Perry motioned to reopen the case in federal court. (ECF DKT # 29).

Factual Background

Perry's home suffered water damage on June 28, 2015 and she submitted a claim to Allstate requesting coverage. (ECF DKT # 1, Ex. 1 at 51). An adjuster inspected the damage and an estimate for repair was sent to Perry. (ECF DKT # 1, Ex. 1 at 51). The total estimated cost to repair the damage, the replacement cost value, was $32,965.09. (ECF DKT # 1, Ex. 1 at 51). Allstate calculated the depreciation amount at issue in this case to be $4,570.35. (ECF DKT # 1, Ex. 1 at 52). It subtracted this amount and Perry's deductible from the replacement cost value to arrive at a net ACV payment to Perry of $28,394.74. (ECF DKT # 1, Ex. 1 at 52).

Perry's policy had a two-step loss settlement provision which provided that Allstate would pay the ACV at the time of loss. (ECF DKT # 16, Ex.2 at 22) ("(b) Actual Cash Value. If you do not repair or replace the damaged, destroyed or stolen property, payment will be on anactual cash value basis. This means there may be a deduction for depreciation.") (emphasis in original). Once the repair was completed, Allstate would pay the additional amount that the policy owner actually spent. (ECF DKT # 16, Ex. 2 at 22 ) ("[W]e will make additional payment to reimburse you for cost in excess of actual cash value if you repair, rebuild or replace damaged, destroyed or stolen covered property within 180 days of the actual cash value payment.") (emphasis in original).

Perry takes issue with the manner in which Allstate calculated ACV. (ECF DKT # 1, Ex. 1 at 52-53). She claims that its inclusion of labor and contractor overhead and profit ("CO&P") in the depreciation calculation resulted in an ACV payment that was less than she was contractually entitled. (ECF DKT # 1, Ex. 1 at 53).

Law and Analysis

1. Legal Standard

a. Motion to Dismiss

A complaint may be dismissed if the plaintiff fails to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). If the complaint contains insufficient, speculative factual allegations, or states a claim that is implausible on its face, it should be dismissed. Bell Atl. Corp. v. Twombly, 550 U.S. 554, 570 (2007); Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The Court must accept the factual allegations in the complaint as true, and construe the complaint in the light most favorable to the plaintiff. Erickson v. Pardus, 551 U.S. 89, 94 (2007); Hill v. Blue Cross and Blue Shield of Mich., 409 F.3d 710, 716 (6th Cir. 2005).

A complaint may also be dismissed if the court lacks subject matter jurisdiction. Fed. R. Civ. P. 12(b)(1); Cartwright v. Garner, 751 F.3d 752, 759 (6th Cir. 2014). Motions to dismissfor lack of subject matter jurisdiction can be facial or factual. United States v. Ritchie, 15 F.3d 592, 598 (6th Cir. 1994), cert. denied, 513 U.S. 868 (1994). A facial attack challenges the sufficiency of the pleading, while a factual attack challenges the factual existence of subject matter jurisdiction. Wuliger v. Gilbert, 261 F. Supp. 2d 946, 948 (N.D. Ohio 2003).

b. Application of Ohio Law

When federal jurisdiction is based upon diversity, courts apply the law of the forum state. Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938); Ala. Farmers Co-op. v. Jordan, 440 F. App'x 463, 465 (6th Cir. 2011). When the state's highest court has not weighed in on an issue, lower court decisions are persuasive, but not controlling. King v. Order of United Commercial Travelers of America, 333 U.S. 153, 160-61 (1948); Honeywell Int'l, Inc. v. Lutz Roofing Co., 433 F. App'x 399, 405 (6th Cir. 2011).

2. No Ambiguity Exists in the Contract

Generally, courts examine insurance contracts as a whole and presume that the parties' intent can be construed based on the language that they used. Westfield Ins. Co. v. Galatis, 797 N.E.2d 1256, 1261 (Ohio 2003); Kelly v. Med. Life Ins. Co., 509 N.E.2d 411, 413 (Ohio 1987). However, when confronted with allegations of ambiguity, courts should objectively and thoroughly examine contracts to attempt to determine their meaning. State v. Porterfield, 829 N.E.2d 690, 692 (Ohio 2005). The absence of definitions does not necessarily make terms ambiguous. Nationwide Mut. Fire Ins. Co. v. Guman Bros. Farm, 652 N.E.2d 684, 686 (Ohio 1995). Instead, courts must give undefined terms their plain and ordinary meaning unless it results in absurdity, or unless another meaning is "'clearly evidenced from the face or overall contents' of the agreement." Sunoco, Inc. v. Toledo Edison Co., 953 N.E.2d 285, 292-93 (Ohio2011) (quoting Alexander v. Buckeye Pipe Line Co., 374 N.E.2d 146 (Ohio 1978) (paragraph two of the syllabus)); Miller v. Marrocco, 504 N.E.2d 67, 69 (Ohio 1986). Courts also examine Ohio case law involving undefined terms. Auto-Owners Ins. Co. v. Merillat, 854 N.E.2d 513, 517 (Ohio Ct. App. 2006).

Ambiguity exists when a term is subject to more than one reasonable interpretation. King v. Nationwide Ins. Co., 519 N.E.2d 1380, 1383 (Ohio 1988); Buckeye Union Ins. Co. v. Price 313 N.E.2d 844, 846 (Ohio 1974). Ambiguous provisions "will be construed strictly against the insurer and liberally in favor of the insured." King, 519 N.E.2d at 1383. However, courts cannot create ambiguity if none exists. Lager v. Miller-Gonzalez, 896 N.E.2d 666, 669 (Ohio 2008); Alexander v. Buckeye Pipe Line Co., 374 N.E.2d 146, 150 (Ohio 1978).

a. Plain Meaning Analysis of ACV

To determine whether Allstate's depreciation calculation breached the contract, the Court examines the term ACV, which is undefined within the policy. (ECF DKT # 1, Ex. 1 at 52). Giving the wording in the policy its natural and reasonable construction, ACV is not ambiguous. "ACV" has been defined as "[r]eplacement cost minus normal depreciation" or fair market value. Black's Law Dictionary (10th ed. 2014). Either of these definitions could fit within the contract clause without resulting in absurdity. In fact, the policy states that an actual cash value payment may include a depreciation deduction. (ECF DKT # 16, Ex. 2 at 22).

Perry seeks to limit the definition of ACV to exclude labor and CO&P from depreciation. However, there is nothing within the text of the contract to indicate that this was the intent of the parties at the time that the contract was formed. Further, the plain meaning of depreciation is inclusive of labor and CO&P. The ordinary meaning of "depreciation" has been defined as "[a]reduction in the value or price of something; specif., a decline in an asset's value because of use, wear, obsolescence, or age." Black's Law Dictionary (10th ed. 2014). A "depreciation method" is "[a] set formula used in estimating an asset's use, wear, or obsolescence over the asset's useful life or some portion thereof." Id. As evidenced by Black's Law Dictionary, depreciation commonly focuses on the value of the whole product, rather than the component parts. Graves v. Am. Family Mut. Ins. Co., 686 F. App'x 536, 540 (10th Cir. 2017) (noting that Black's Law Dictionary outlines ten depreciation methods that all "focus on the asset itself and various approaches to determining its value as a whole."). Therefore, as used in the policy, ACV cannot reasonably be interpreted to exclude labor and CO&P from a depreciation calculation.

Ambiguity is also determined by "reference to the language itself, the specific context in which that language is used, and the broader context of the [contract] as a whole." Robinson v. Shell Oil Co., 519 U.S. 337, 341 (1997); McCarthy v. Bronson, 500 U.S. 136, 139 (1991). Placing the term depreciation within the definition of ACV as used in the contract at issue, it is clear that depreciation is intended to include labor and CO&P as well as materials. The property that the contract insures is Perry's home. The policy does not separately insure the labor, CO&P and building materials, but the sum total of these parts. See, e.g., Redcorn v. State Farm Fire & Cas. Co., 55 P.3d 1017, 1021 (Okla. 2002) ("[The Plaintiff] insured a roof surface, not two components, material and labor. He did not pay for a hybrid policy of actual cash value for roofing materials and replacement costs for labor."). Because the Court cannot create an ambiguity when none exists, the Court finds that the term ACV is unambiguous and Allstate's inclusion of labor and CO&P in depreciation did not...