The determination of what an insurance company should pay as the actual cash value (“ACV”) for the total loss of an insured vehicle has resulted in various suits concerning the terms of the standard automobile policy and the Division of Insurance regulation found at 212 Code Mass. Regs (“CMR”) 133.05, entitled “Standards for The Repair of Damaged Motor Vehicles.”
Source One Financial Corporation (“Source One”), a specialized finance company that purchases automobile finance contracts primarily from used car dealers, sued GEICO seeking a declaratory judgment that GEICO’s valuations resulting from reports compiled by Certified Collateral Corporation (“CCC”) did not comply with the DOI’s regulation.
Source One claimed that because of GEICO’s failure to comply with the regulation’s provisions by using inaccurate data, GEICO had made incorrect ACV determinations and unfairly low claim settlement payments to Source One as a loss payee.
The regulation Source One claimed GEICO violated in calculating total loss payments
Under the Division’s regulation, when calculating the actual cash value of a total loss vehicle, an insurer must consider four factors:
a. the retail book value for a motor vehicle of like kind and quality, but for the damage incurred.
b. 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.
c. the decrease in value of the motor vehicle resulting from prior unrelated damage which is detected by the appraiser; and
d. the actual cost of purchase of an available motor vehicle of like kind and quality but for the damage sustained.
Under the penalty provision of the regulation, “A violation of any provision of 211 CMR 133.00 shall be considered to be an unfair or deceptive act or practice, in violation of M.G.L. c. 176D.”
Massachusetts General Laws Chapter 176D grants the Commissioner of Insurance broad jurisdiction over the violations by insurers and other insurance-related entities. However, a violation of General Laws Chapter 176D does not grant anyone a private right of action.
The regulation does, however, state that “Nothing herein shall be deemed to preclude the claimant or policyholder, the Commissioner, the Attorney General or the Director of the Division of Standards from pursuing any other remedy or penalty provided by law including any remedy provided under M.G.L. c. 93A or M.G.L. c. 100A.”
The allowance under the regulation for property damage claimants or insureds to use a violation of 211 CMR 133.00 to bring a claim under M.G.L. c. 93A, the General Business Unfair and Deceptive Practices Act, however, would not apply to Source One, which was neither a claimant nor an insured under any of the insurance policies in question.
Instead, Source One’s rights arose as a secured lienholder under the standard Massachusetts auto policy’s General Provisions and Exclusions, Paragraph 13 which states in pertinent part titled “Secured Lenders that:
When your Coverage Selections Page shows that a lender has a secured interest in your auto, we will make payments under Collision, Limited Collision, and Comprehensive (Parts 7, 8, and 9) according to the legal interests of each party.
Source One and GEICO had two-hundred and twenty-nine total losses at issue
GEICO and Source One were no strangers to adjusting total losses on vehicles that Source One financed.
Per an affidavit filed by GEICO’s claim manager, in the year before Source One sued GEICO over its protocol for calculating the actual cash value of total losses, GEICO adjusted eighty-four Massachusetts total loss insurance claims where Source One held the title to the vehicle as a secured party and the policy’s loss payee. In the six years prior to the filing of Source One’s Complaint that would encompass the statute of limitations for a breach of contract suit, GEICO adjusted 229 total loss insurance claims where Source One was the lienholder in Massachusetts.
At some point, Source One began to question the accuracy of GEICO’s total loss payments and accepted GEICO’s payments under protest and with a reservation of rights stating:
Upon the receipt of the amount of [GEICO’s ACV payment], the lienholder of record Source One Financial Corporation will release the title on the above referenced vehicle and forward it to Geico… [Source One] does not waive and hereby expressly reserves its rights and remedies at law and in equity with respect to the CCC One Report provided by Geico in connection with its adjustment and settlement of the insurance claim. We do not feel that the valuation requirements detailed in section 211 133:05 of the CMR are adhered to, specifically but not limited to the fact that CCC One uses vehicles that may not be available.
Nothing in this letter, or any delay on [Source One’s] part in exercising any such rights or remedies, should be construed as a waiver of any such rights or remedies.
Massachusetts courts have not ruled on the issue Source One alleged about CCC using vehicles that are not actually available for sale. The only appellate case decision on the regulation concerns that part of the regulation dealing with total loss payments using book values. See Agency Checklists’ article of January 24, 2017, “Mass. Appeals Court Takes Aim At “Retail Book Value” For Total Losses Under MA Auto Policy.”
The summary judgment suit by Source One as a loss payee over the alleged underpayments of total losses
On June 17, 2020, Source One filed a declaratory judgment action against GEICO in the Massachusetts Superior Court Business Litigation Session for Suffolk County.
The complaint sought a declaratory judgment that GEICO’s use of market valuation reports compiled by CCC to calculate the actual cash value on twenty motor vehicle total loss insurance claims where Source One was the loss payee on the GEICO policies violated 211 CMR 133.05 and M.G.L. c. 176D.
Specifically, Source One sought the Court to declare that pursuant to 211 CMR 133.05:
(1) GEICO may not consider the value of unavailable motor vehicles (vehicles not available for purchase) in determining the actual cash value of loss vehicles implicated by the Complaint.
(2) GEICO’s failure to consider the purchase price of any of the loss motor vehicles implicated in the total loss claims at issue in Source One’s complaint, in determining the vehicle’s actual cash value, does not comply with the provisions of 211 CMR 133.05; and
(3) GEICO must strictly adhere to the provisions of 211 CMR 133.05 in determining actual cash value for the purpose of settling the total loss insurance claims identified in the Complaint.
In support of its declaratory judgment request, Source One alleged that based on its research of records concerning actual vehicles for which GEICO had used CCC reports, there were material inaccuracies that resulted in GEICO underestimating the actual ACV of the vehicles involved.
GEICO moves to summarily dismiss Source One’s suit.
GEICO’s initial response was to remove Source One’s suit to federal court based upon diversity of citizenship.
Almost immediately after removing the case to the United States District Court and after successfully countering Source One’s motion to remand the case to the Massachusetts Superior Court, GEICO moved to dismiss.
In its motion to dismiss, GEICO argued that its use of CCC One Market Valuation Reports in evaluating the value of a total loss vehicle did not violate 211 CMR § 133.05. More importantly, as argued by GEICO, Source One had no legal standing to bring a declaratory judgment claim against GEICO concerning the application of 211 CMR 133:05, and that the declaratory judgment could not proceed in any case because Source One had failed to join all parties in interest as required by the declaratory judgment statute. In particular, GEICO argued:
- The regulation, 211 CMR 133:05 does not prohibit the use of CCC One reports, and, in fact, a Massachusetts Appeals Court had upheld another Massachusetts automobile insurer’s use of a CCC report for determining the ACV of a total loss. (See Agency Checklists article above).
- Source One fails to state a claim for declaratory judgment because no actual controversy exists between Source One and GEICO, and therefore, Source One lacks standing because its only relation to GEICO was as a lienholder; and
- Source One has not joined all persons who have or claim any interest which would be affected by the declaration because it had not joined the insureds involved in the losses in question.
The Judge allows GEICO’s motion to dismiss for lack of standing and necessary parties
In ruling on GEICO’s motion to dismiss and Source One’s opposition, the Federal Judge did not focus on the merits of the allegations of whether, as an abstract legal question, GEICO was following the regulation on total losses. Instead, she focused upon Source One’s legal standing to bring the action and whether the suit had all necessary parties joined.
Straightaway, the Judge ruled that Source One had neither standing nor had joined all the necessary parties.
In the first instance, the condition precedent in the Judge’s opinion was that Source One had to allege an injury “within the area of concern of the regulatory scheme under which the violation occurred has affected them. In this case, Source One had claimed that GEICO improperly calculated the actual cash value of total losses in violation of the Massachusetts regulation, 211 CMR 133.00, and therefore, had underpaid Source One on total loss claims.
The material legal issue to the Judge was that Source One’s allegation that it suffered an economic loss by an act or omission of GEICO under the regulation was insufficient to state a legal claim unless GEICO violated a legal duty owed to Source One.
The only legal duty that flows from 211 CMR 133.05, the Judge noted, is that a violation of that regulation is a violation of M.G.L. c. 176D. However, that statute does not grant anyone a private right of action to sue but only allows for the filing of a complaint concerning the regulation’s violation with the Commissioner of Insurance.
The regulation does, as the Judge further noted, state that a claimant or an insured can bring an action under M.G.L. 93A for unfair and deceptive business practices. However, Source One’s amended complaint did not seek to allege any violation of Chapter 93A by GEICO. Instead, in opposition to GEICO’s motion to dismiss, Source One argued it did not have to bring an action under 93A to have a declaratory judgment.
The Judge ruled, however, referencing a prior Massachusetts court decision, that to validly bring a declaratory judgment action seeking the determination of rights or duties under a statute or regulation, that statute or regulation must have a private right of action available to the plaintiff.
In this case, the Judge ruled that, since Source One’s amended complaint did not allege or demonstrate that Source One had the legal standing to bring the action by being a party that could exercise a private right of action under 211 CMR, 133.05 or under Chapter 93A, the declaratory judgment filed by Source One did not state a claim upon which any relief could be granted.
In addition to the Judge finding that Source One lacked legal standing, the court noted that under the declaratory judgment statute in Massachusetts, the plaintiff had to join as necessary parties in the suit any person who had a claim or interest relating to the subject matter of the action.
In this case, the original complaint of Source One referenced twenty vehicles that Source One claimed were allegedly evaluated for total losses incorrectly by GEICO. In its amended complaint, Source One reduced the total losses to ten. However, the defect the Judge saw in Source One proceeding on this case without the ten insureds who owned these vehicles being joined as parties was that they had independent rights of action against GEICO for the same claims involved in the declaratory judgment sought by Source One.
Thus, the Judge reached a conclusion that
“Because the vehicle owners would therefore be able to institute their own subsequent actions seeking declarations and money damages from [GEICO], the Massachusetts Declaratory Judgment Statute requires them to be joined as plaintiffs in this action.”
Since Source One had neither joined any insureds nor properly established that it had a right of action under 211 CMR 133.05 or G.L. c. 93A, the case brought by Source One against GEICO had to be dismissed.
GEICO’s motion to dismiss allowed and Source One has thirty days to appeal until August 2, 2021
The Judge’s decision ended with, “For the foregoing reasons, the motion of defendants to dismiss plaintiff’s complaint…is ALLOWED.”
Under the Federal Rules of Appellate Procedure, Source One will have thirty days to appeal the dismissal of its complaint to the First Circuit Court of Appeals.
Based on the formal judgment of dismissal being entered on the federal court’s docket on July 1, 2021, Source One will have until Monday, August 2, 2021, because the thirtieth day for filing its notice of appeal falls on Saturday, July 31, and under the Federal Rules for Appellate Procedure (Rule 26(1)(C), the appeal period “include[s] the last day of the period, but if the last day is a Saturday, Sunday, or legal holiday, the period continues to run until the end of the next day that is not a Saturday, Sunday, or legal holiday.”
Agency Checklists will keep its readers posted on future developments.
Owen Gallagher
Insurance Coverage Legal Expert/Co-Founder & Publisher of Agency Checklists
Over the course of my legal career, I have argued a number of cases in the Massachusetts Supreme Judicial Court as well as helped agents, insurance companies, and lawmakers alike with the complexities and idiosyncrasies of insurance law in the Commonwealth.
To get in touch with me, schedule a call via the link below:
