Key Decisions

January 2013 – Defendant Recovers Cost Of Notice To Potential Class Members

(filed under: Key Decisions Archive | January 16, 2013)

Defendant Recovers Cost Of Notice To Potential Class Members

In Re Insurance Installment Fee Cases
(Cal. Ct. of App., 4th Dist.), filed December 13, 2012

KEY FACTS

A number of State Farm policyholders who paid for their insurance in monthly installments brought a class action against State Farm. They alleged that by collecting a fee to cover the cost of processing the monthly payments, State Farm was charging an additional premium that was not specified on the policy’s declaration page as required by the Insurance Code. They alleged that by doing this, State Farm breached the contract and engaged in unfair business practices.

The policyholders sought to discover the identities of other potential class members. They did this by propounding discovery asking State Farm for the identities of other policyholders who made monthly premium payments. State Farm objected to this discovery as it called for the disclosure of confidential information about its other policyholders.

The trial court ordered State Farm to send letters to its policyholders who made monthly premium payments advising of the litigation and that in the absence of an objection, their identities would be revealed.

The trial court sustained State Farm’s demurrer. It found, among other things, that the fee for making installment payments was not an illegal premium. It therefore dismissed the case against State Farm.

As the prevailing party, State Farm filed a cost bill in which it sought $713,463.72 that it incurred providing notice to putative class members that the plaintiffs sought discovery of their contact information. The trial plaintiffs moved to tax costs. The trial court granted the motion and disallowed the cost item.

HOLDING & REASONING

The Court of Appeal affirmed the dismissal of the action, but reversed the order taxing costs.

The court found that the fee was not an illegal premium and that the policy did not authorize policyholders to pay their premiums piecemeal. Thus, State Farm had not breached any contract provision nor engaged in unfair business practices.

As to the cost of notice, the court found that this was a cost that the trial court and law had compelled State Farm to incur. In particular, State Farm could not have disclosed contact information on policyholders without first giving them notice and the opportunity to object. As such, the cost of giving notice was something State Farm was entitled to recover.

ANALYSIS

Forcing a defendant to notify potential class members where a plaintiff is seeking contact information can represent a powerful weapon to a class action plaintiff. First, giving notice can be an expensive process. Second, it can lead to many additional lawsuits. However, as this case demonstrates, forcing a defendant to give notice entails a degree of risk to a plaintiff in the event the defendant prevails.