CBM » Areas of Expertise » Insurance Coverage » Selected Insurance Legislation »
Texas Court Finds That Contractual Ambiguities May Raise Individualized Issues Precluding Class Certification
Late yesterday, a Texas court of appeal granted interlocutory review to reverse a class certification order. Philadelphia America Life Ins. Co. v. Turner, No. 2-03-165-CV, 2004 WL 393155 (Tex. Ct. App. Mar. 4, 2004) (“PALIC”) (opinion attached below).
Relevant Facts
PALIC turned on the interpretation of group insurance policies. Plaintiff had authorized withdrawals from his bank account to pay his premium, but contended that, under the terms of his policy, his premium was $173.16. He alleged that the defendant insurer “breached the insurance contract by charging him and other … policyholders a monthly administrative fee not authorized by the insurance contract.” The insurer disagreed, contending that the term “premium” encompassed both the $173.16 amount and a $7.50 administrative fee.
Ambiguities in Contracts Preclude Class Certification
PALIC holds that “a determination regarding the contract’s ambiguity significantly impacts the class certification analysis … because it affects the admissibility of parol evidence, whether [plaintiff’s] claim can be managed efficiently, and even whether [plaintiff] has a claim at all.”
Where a contract is ambiguous, courts must consider extrinsic evidence of the contracting parties’ intent. The court noted that such evidence could be objective (e.g., advertising and non-contractual representations). But it also observed that subjective state-of-mind would also come into play; where a contract is ambiguous, plaintiff needs to offer “evidence of the other class members’ knowledge.” If the plaintiff “cannot show that other policyholders shared his view” of the contractual terms, he “cannot demonstrate that his claims are typical of the class.”
Court Reconfirms Other Developing Trends in Class Action Defense
PALIC also reconfirms the difficulty of certifying a multi-state class. The trial court had found that the claims of all putative class members could be governed by Texas law based “entirely on [defendant’s] physical location in Texas.” The court of appeal reversed: a court can “not apply the law of the state where a defendant is headquartered to every claim for economic damages that can be alleged against the defendant.” Instead, plaintiff has the burden of demonstrating, through a comprehensive choice-of-law analysis, that Texas law would apply.
PALIC also joins a growing list of decisions that reject the superiority of a class action simply because the dollar value of each individual claim is minimal -- “Certification … is not merely a vehicle to make sure no claim goes untried.”