This week the Eighth Circuit issued its long-awaited decision in a class action against State Farm involving the “labor depreciation” issue that I have covered extensively on this blog (see my August 14 post and others). State Farm prevailed on both the merits of whether its approach to determination of the actual cash value of property damage was proper under Missouri law, and on class certification. This important ruling will not end the labor depreciation class action litigation entirely, but it will be of substantial benefit to insurers litigating this issue in various jurisdictions across the country. It is part of a growing trend of decisions in favor of insurers, including decisions by the Tenth Circuit and Nebraska Supreme Court, and Minnesota Supreme Court.

The Eighth Circuit opinion is captioned as In re State Farm Fire and Casualty Company (in the district court the case was captioned as Labrier v. State Farm Fire & Cas. Co.).  The district court had denied State Farm’s motion to dismiss, finding depreciation of labor costs improper as a matter of law, and granted class certification. The Eighth Circuit granted discretionary appellate review under Rule 23(f) and reversed both the order on the motion to dismiss and the class certification ruling, remanding with direction to dismiss the complaint.  The Eighth Circuit also had accepted a mandamus petition with respect to certain discovery rulings that State Farm had challenged, but found it unnecessary to reach the discovery issues given its ruling on the merits and class certification.

The court of appeals held that, under Missouri law, actual cash value means “the difference between the reasonable value of the property immediately before and immediately after the loss.” (Slip op. at 6.) The court explained that the determination of the difference in fair market value, including the determination of depreciation in connection therewith, is generally a question of fact where there is a dispute over conflicting estimates. (Id. at 8.) The Eighth Circuit concluded that the Missouri Supreme Court would agree with the Minnesota Supreme Court’s decision that the application of depreciation to labor costs is a case-by-case factual question that “may only be determined based on all the facts surrounding a particular insured’s loss.” (Id. at 13.) The court thus concluded that “there are no predominant common facts at issue,” and thus certification under Rule 23(b)(3) was improper. (Id.)

In the interest of full disclosure, I represented the American Insurance Association and Property Casualty Insurers Association of America as amici curiae in this case.

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