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Progressive Insurance will not have to face two class actions by Pennsylvania insureds alleging that the insurer systematically underestimated the actual cash value (ACV) of their totaled vehicles and thus breached its insurance agreements with them under state law.

The U.S. Court of Appeals for the Third Circuit has reversed rulings by a federal district court in Pennsylvania that certified the two lawsuits as class actions. The Third Circuit appeals court ruled that proving whether Progressive underpaid each class member is an individual issue incapable of proof on a class-wide basis. Because that individual issue is the dispositive question of Progressive’s liability for breach of contract, the appeals court held that both classes failed to meet the requirement for class actions that common issues predominate over individual ones.

The district court had “abused its discretion in certifying the classes,” the Third Circuit court stated in reversing.

Leon Drummond was the lead plaintiff in one of the class actions; Lee Williams and Yeshonda Driggins were the named representatives for the second class.

The plaintiffs in the putative classes each filed a claim with Progressive after a car accident between 2018 and 2022. In each instance, Progressive declared the vehicle a total loss, triggering the insurer’s obligation to pay them the “actual cash value” (ACV) of their totaled vehicle. Progressive’s Pennsylvania auto policy states the ACV is “determined by the market value, age, and condition of the vehicle at the time the loss occurs.”

The plaintiffs maintain that Progressive’s method of calculating each insured’s ACV “systematically underestimated” that value. Specifically, they complained that one component of Progressive’s settlement valuation methodology, the “projected sold adjustment” (PSA)—which accounts for the fact that used cars often sell for less than dealers’ listed prices—is improper and should be omitted from the ACV calculation. The plaintiffs, all of whom reside in Pennsylvania, sued on a state-law breach-of-contract theory.

The plaintiffs took issue with Progressive’s use of third party software— Mitchell International, Inc.’s WorkCenter Total Loss — that applies a PSA in settling total-loss claims. By using the Mitchell valuation, and applying the PSA, Progressive “thumbs the scale” when calculating the ACV, according to the plaintiffs.

The district court had characterized the plaintiffs’ claims as challenging “the application of PSAs altogether.” That is, the putative class comprised insureds awarded improper total loss amounts that deviated from ACV because Mitchell factored projected sale prices of the totaled vehicles into one component of the ACV formula, the lower court reasoned.

The lower court continued, “Progressive maintains that PSAs are legitimate. The putative plaintiffs maintain they are inaccurate because they misrepresent current market behavior. It is this dispute, not the individual projected sale price of each vehicle, that is at the center of this action.”

The district court also rejected Progressive’s argument that the possibility that a minority of the putative classes might have benefited from the PSAs posed a fundamental intraclass conflict that thwarted class action adequacy

The appeals court noted that the ACV settlement value process actually includes three types of adjustments: the PSA applied to the Mitchell base value; adjustments based on the National Automobile Dealers Association (NADA) used car guide; and Progressive’s final adjustments to the dual source base value. The final settlement value also subtracts any non-waived deductible specific to the insured’s policy. The class actions only complained about the Mitchell PSA step.

The Third Circuit court criticized the district court’s “erroneous framing” of the predominance inquiry. According to the appeals court, the district court wrongly focused merely on the “legitimacy” of the PSAs. The lower court just stopped its predominance inquiry after reasoning that proving whether PSAs were applied to the class’s vehicle valuations was easily supported by common evidence.

However, according to the Third Circuit, under the proper framing, the district court should have analyzed whether common issues predominate over individual issues with respect to proving the elements of breach of contract. The appeals court noted that with respect to proving a breach of contract, Progressive could meet its contractual obligation to pay the ACV in several ways including by scrapping the PSA, averaging the NADA and Mitchell values, applying just the NADA value, and others. But contrary to the plaintiffs’ contention that only by not using the PSA could Progressive preclude a breach-of-contract claim, any of these approaches would allow Progressive to meet its contractual obligation to pay ACV, the appeals court reasoned.

“Just because Progressive applies PSAs to the Mitchell list prices to arrive at the Mitchell value does not mean insureds are not being paid ACV. Progressive could have properly compensated class members while employing the PSAs,” the appeals court stated.

Rather, what matters is whether the decrease in the Mitchell value led to the final settlement value dropping below the true ACV of the totaled vehicle— because that is what Progressive is obliged to pay insureds.

The Third Circuit court concluded that identifying whether each class member was actually paid less than true ACV is an individual question. Class action law requires that plaintiffs prove this core issue of underpayment—on which both breach and damages in the plaintiffs’ breach-of-contract claim turn—with class-wide proof. But the court found that the plaintiffs cannot not meet that burden.

Plaintiffs cannot prove breach without first proving Progressive’s final settlement value in a class member’s vehicle valuation report was lower than true ACV. Accordingly, each class would have to bring in necessarily individual proof, plaintiff-by-plaintiff, to determine which were undercompensated.

The appeals court said “individualized evidence” of whether each class member’s vehicle’s ACV was greater than the final settlement value would “overwhelm the case.”

“We do not know whether each insured whose Mitchell value was reduced by a PSA received an ‘actual payout that was more, less, or equal to what Progressive could lawfully have paid’ if it had omitted PSAs,” the appeals ruling explains. “There is therefore no way to know without individualized inquiry whether such a class member received less than their car’s actual cash value and therefore suffered any injury.”

In sum, the appeals court said that just because Progressive’s final settlement value could have been higher but for the use of the PSA does not mean that a given insured was actually underpaid. And if an insured was not underpaid, then Progressive did not breach its contract with that insured. Since the district court’s conclusion “rested upon an errant conclusion of law,” the classes must be decertified.

The appeals court cited a pair of amici briefs that made the winning argument directly, one by the U.S. Chamber of Commerce and the other by the American Property Casualty Insurance Association. They wrote that for every class member, the determination of whether Progressive breached the contract would “require an individualized analysis of whether the amount of money the class member received is lower than ACV.”

Progressive to Pay $48M to New York Drivers Over Underpaid Total Loss Claims

The outcome in this Pennsylvania case is in contrast to a similar case in New York. This past March, a federal district court judge in Manhattan approved a $48 million settlement between Progressive and class members who argued that the same ACV practice represented a breach of New York automobile insurance policies and a violation of that state’s General Business Law.

Lead plaintiffs Dominick Volino and John Plotts filed their proposed class action in New York in July 2021. On March 16, 2023, U.S. District Judge Lorna Schofield certified two litigation classes: a breach of contract class and a General Business Law class. On June 11, 2024, with less than a month before the start of trial, the parties began mediation. The proposed settlement was filed on July 1, 2024.

Although it agreed to settle the New York case, Progressive denied any wrongdoing and insisted it had complied with all auto insurance policies and all insurance laws. It argued that the Mitchell software was approved by the state’s insurance department.

Topics Lawsuits