Mass. Appeals Court Takes Aim At “Retail Book Value” For Total Losses Under MA Auto Policy

On January 20, 2017, the Appeals Court reversed a Superior Court ruling that Massachusetts Homeland Insurance Company (Homeland) had violated G.L. c. 93A, by initially failing to consider “retail book value” in valuing the total loss of an insured’s vehicle as required by the commissioner of insurance’s regulations. The case, Anthony G. Morgan vs. Massachusetts Homeland Insurance Company, while favorably decided for Homeland before the Appeals Court, may not have resolved all issues regarding how Massachusetts insurers may have to value such losses.

Total loss regulations require insurer to consider “retail book value”

The standard Massachusetts automobile insurance policy provides, for its collision coverage, that the insurer, “will pay for each loss up to the actual cash value of the auto or any of its parts at the time of the collision.”[pullquote][I]nsurers would be well-advised to consider the retail book value of a vehicle early in the settlement process, and not to depend on insureds to bring such information to their attention.”—Footnote in decision[/pullquote]

The policy does not define “actual cash value,” however. That definition is left to judicial decisions, and, in the case of automobile insurance, to the regulations of the commissioner of insurance.

The commissioner’s regulations, 211 Code of Massachusetts Regulations (CMR) 133.00, entitled “Standards for the Repair of Damaged Motor Vehicles” (standard repair regulations) contains a provision requiring insurers to determine actual cash value:

Whenever the appraised cost of repair plus the probable salvage value may be reasonably expected to exceed the actual cash value of the vehicle, the insurer shall determine the vehicle’s actual cash value.”

The commissioner’s standard repair regulations require that in calculating the actual cash value of a total loss vehicle under an auto policy the insurer must consider the following four factors:

• the retail book value for a motor vehicle of like kind and quality, but for the damage incurred;”
• the price paid for the vehicle plus the value of prior improvements to the motor vehicle at the time of the accident, less appropriate depreciation;”
• the decrease in value of the motor vehicle resulting from prior unrelated damage which is detected by the appraiser;” and
• the actual cost of purchase of an available motor vehicle of like kind and quality but for the damage sustained.”

The Morgan lawsuit arose over the first factor: What was Mr. Morgan’s vehicle’s “retail book value for a motor vehicle of like kind and quality”?

Dispute over determining “retail book value”

On January 9, 2011, Mr. Morgan’s 2005 Chevrolet Colorado was accidentally damaged when Mr. Morgan lost control of the truck on an icy road surface and it struck a pole on a road in Westfield, Massachusetts. The accident was reported to the police and Homeland. The damage to the vehicle was significant and Homeland determined it to be a total loss.

On January 20, 2011, Homeland advised Mr. Morgan that it had determined the actual cash value of their vehicle to be $11,891.00.

Homeland reached this value using third-party software from Certified Collateral Corporation (CCC). The software, CCC’s Valuescope evaluation product, accessed CCC’s database of vehicles for sale from dealers and private parties in various markets that utilized:

• the vehicle’s description;
• the vehicle’s options;
• the vehicle’s history;
• the local market;
• the vehicle’s pre-accident condition;
• the value of comparable vehicles, and
• the vehicle’s mileage.

Additionally, the database maintained by CCC would ordinarily include, if available:

• vehicles for sale at dealerships that CCC has physically inspected, and
• dealer and private party advertised vehicle information from more than 1,700 publications.

Using Mr. Morgan’s vehicle’s identification number and the vehicle’s principal place of garaging’s zip code, CCC compiled a list from its database of twelve comparable vehicles available for sale in the local market. Three of the vehicles were listed for sale at local dealerships that CCC had physically inspected; nine were listed for sale on Autotrader, a publicly accessible online database of vehicles for sale from dealers and private parties listed by age, make, model, mileage, and city and State.

When Homeland offered Mr. Morgan $11,891, as the actual cash value of his vehicle, Mr. Morgan insisted that his vehicle was worth more than $14,000. Mr. Morgan supported his claim with a report by the National Automobile Dealers Association (NADA), a publicly accessible online database of used car values in each region of the country, from which reports on particular vehicles could be generated.

According to Mr. Morgan, the NADA database was the one that Homeland should use as that database showed a “clean retail” value of $14,500 for his vehicle. Additionally, as Mr. Morgan later claimed, CCC’s Valuescope software did not consider retail book value in its calculations.

Homeland pays $14,000 but is sued in class action and for unfair claim practices

After Mr. Morgan and Homeland reached an impasse on the retail book value of his vehicle, Mr. Morgan retained counsel.

After his counsel served a statutory demand letter under G.L. c. 93A upon Homeland with the NADA report, Homeland increased its valuation of the vehicle to $13,024.66. Homeland subsequently increased its valuation, on March 7, 2011, to $13,650, resulting in a settlement offer of $14,003.12, when the applicable sales tax minus the policy’s deductible were included.

Mr. Morgan accepted Homeland’s March 7 offer for the collisions loss but still claimed that Homeland had violated c. 176D and c. 93A because it did not take into account the “retail book value” of his vehicle, as required by the commissioner’s standard repair regulations.

On March 8, 2011, Mr. Morgan sued Homeland in Hampden Superior Court under G.L. c. 93A, seeking multiple damages and attorney fees. In the suit, he also sought to represent the class of all Homeland insureds who had had vehicle total losses allegedly improperly calculated by Homeland for the four years prior to his suit being filed.

Class action status for Mr. Morgan to represent 4500 other Homeland insureds denied by Superior Court

In Mr. Morgan’s suit he sought to represent the 4,501 other Massachusetts consumers who had had total loss automobile claims with Homeland. Mr. Morgan alleged that Homeland had used with these claimants a valuation process, similar to his, that did not comply with Massachusetts law.

Mr. Morgan asserted that, if one estimated the loss based on his claim, these additional 4,500 other claimants would have been underpaid by Homeland, by at least, five million dollars.

Before the case went to trial, the Superior Court found that, “the facts underlying the claims of the purported class are too diverse” and the causal connection between Homeland’s allegedly unfair practice and any loss “is not just difficult to identify but appears to vary widely depending on the [insured].”

The Superior Court denied Mr. Morgan’s motion to certify a class.

Superior Court finds violation of the standard repair regulations but no harm to Mr. Morgan

After discovery, motion practice on class certification, and a failed attempt Mr. Morgan to have the Appeals Court reverse the class action status denial, the Superior Court judge conducted a four-day jury-waived trial.

After trial, the judge concluded that Homeland had violated c. 93A because its “initial valuation of $11,891 did not consider . . . retail book value” in determining the actual cash value of the plaintiff’s vehicle, as required by the commissioner’s standard repair regulations.

The judge found that Homeland had violated G.L. c. 93A, because under the commissioner’s standard repair regulations, a violation of “any provision of [the regulation] shall be considered to be an unfair or deceptive act or practice, in violation of G.L. c. 176D.” Since the regulation defined a violation of c. 176D, that becomes actionable under c. 93A because § 9, of that statute gives a right of action to anyone “…whose rights are affected by another person violating the provisions of clause (9) of section three of chapter one hundred and seventy-six D.”

However, in this case, the Superior Court judge determined that Mr. Morgan had not been t harmed by this c. 93A violation because Homeland’s March 7 offer, accepted by Mr. Morgan,  “took into account all the relevant factors” in the commissioners’ standard repair regulations.

Appeals Court affirms denial of class action status but reverses 93A finding against Homeland

As part of his appeal, Mr. Morgan sought for the Appeals Court to reverse the denial of class action status to his lawsuit.

The Appeals Court found that the evidence adduced by Mr. Morgan, however, provided little to no information regarding how other putative class members’ total loss claims were calculated, negotiated, and settled.

As a result, the Appeals Court concluded that the motion judge did not abuse his discretion in declining to certify the plaintiff’s class action, as the plaintiff failed to provide sufficient information to support a reasonable judgment that others were similarly situated and similarly injured.

The Appeals Court agreed with Mr. Morgan and the Superior Court that a violation of the commissioner’s standard repair regulations would be a violation of G.L. c. 93A, and thereby subject an insurer to multiple damages and attorney fee awards against it.

However, the Appeals Court justices’ found, after their review of the trial record, that Homeland had considered, at least implicitly, retail book value information from Autotrader (as part of the CCC evaluation) in formulating its initial settlement offer. Based on this conclusion, the Appeals Court ruled that the Superior Court judge’s finding that the initial offer violated c. 93A was incorrect.

Additionally, the court stated, apart from the Autotrader information reflected in the initial offer, Homeland’s final offer also incorporated retail book value from NADA, again reflecting Homeland’s “consideration” of retail book value, “albeit later in the settlement process.”

The Appeals Court does not rule on the CCC methodology but does give some advice to insurers.

In making its decision in favor of Homeland, the Appeals Court specifically stated:

[Since] we need not resolve the issue to decide the case, we decline to determine whether the CCC methodology itself constitutes a retail book value, or, as Homeland argues, a more sophisticated retail book value than those contained in NADA, Autotrader, or other such services. … we are not prepared to determine whether insurers must consult so-called “‘book’ providers,” which publish valuations online and in “books,”

Additionally, the Appeals Court in a footnote relating to the use of the NADA values for determining “retail book value” suggested:

…. insurers would be well-advised to consider the retail book value of a vehicle early in the settlement process, and not to depend on insureds to bring such information to their attention.