Written By Attorneys Craig A. Cohen and Robert S. Stickley

Note: This article is an interpretation of current law and is offered for informational purposes only.
This material is not legal advice and should not be construed or used as a substitute for the advice of an attorney.

The Supreme Court of Connecticut has affirmed a 2006 trial court decision granting class certification to a group of auto repair shops in a steering and unfair trade practices case against The Hartford Fire Insurance Company. The action (Artie's Auto Body, Inc. v. The Hartford Fire Ins. Co.) was filed in July 2003 on behalf of The Auto Body Association of Connecticut and three body shops who allege that The Hartford illegally steered thousands of insureds and claimants to direct repair program shops and engaged in an unfair and deceptive scheme to suppress auto repair labor rates throughout the state.

The Plaintiffs' claims are largely premised upon Connecticut's Unfair Trade Practices Act (CUTPA). To prevail on a CUTPA claim, the Plaintiffs must prove that The Hartford engaged in unfair or deceptive acts or practices in the conduct of any trade or commerce and that each Plaintiff suffered an ascertainable loss as a result of The Hartford's practices. Plaintiffs allege that The Hartford improperly steered insureds to the company's closed network of preferred repair shops that charged labor rates which were as much as 50% below fair market value. The suit is critical of The Hartford's internal incentive practices, which provide cash bonuses and other incentives to employees who obtain the best results in having insureds utilize the company's direct repair program. The Hartford offered its insured a $100 reduction of the insured's deductible and a lifetime guarantee if they utilized the company's direct repair program.

In August 2006, the trial court granted Plaintiffs' motion to certify the class of approximately 750 licensed auto body repair shops. The class was defined to consist of "Connecticut licensed auto body repair shops, or licensed individuals, that have performed physical auto body repairs paid for directly or indirectly, partially or in full, by The Hartford as a result of automobile insurance policies issued by The Hartford." At issue before the Connecticut Supreme Court was whether the trial court correctly determined that Plaintiffs satisfied the "predominance" element necessary to approve class status. In order to prevail under the predominance prong, Plaintiffs had to demonstrate that the economics of class action certification could be achieved without sacrificing procedural fairness. To meet this burden, Plaintiffs needed to convince the Court that damages could be established through a generalized method of proof, without the need to resort to individualized proof of issues unique to each class member's claim.

In support of their efforts to certify the class, Plaintiffs offered an affidavit from an economic expert. The expert offered a multi-layered method of computing generalized damages that clearly impressed the Court. First, he measured the success rate of the claims handlers with the lowest rate of success in referring insureds into the network shops. He set this conversion rate at 19%. Next, the expert found that the average rate of referral was 47%, and from this he concluded that no more than 19/47, or about 40 percent, of all referrals to network shops would have selected independent shops if they had not been steered to the network shops. Correspondingly, approximately 60 percent of all referrals to network shops would have utilized independent shops had they not been steered to the network shops. The final step required calculations of the profits generated by the shifting revenues. Plaintiffs' expert also applied a multi-part analysis to measure the effect of The Hartford's business practices upon labor rates. Relying on internal Hartford documents and the testimony of their employees, the expert concluded that the prevailing labor rate for repair shops would be two times greater in an uncontrolled market.

While declining to challenge that the trial court's holding that deceptive acts and practices could be proven on a classwide basis, The Hartford argued on appeal that the same was not true for the elements of causation and ascertainable loss. The insurer contended that Plaintiffs cannot be permitted to rely upon generalized evidence to prove that they steered individuals to network shops, because individual insureds ultimately make auto repair decisions on the basis of factors beyond the control of the insurer. These include recommendations from friends and colleagues, advertising, the customer's prior experience with the shop and the shop's location, reputation, specialty and curb appeal. The Hartford also challenged the findings of Plaintiffs' expert on the basis that the expert assumed, without proving, that active steering was taking place and that incentives by The Hartford, rather than other factors, caused the claims handlers to guide insureds toward preferred shops.

In rejecting these arguments on appeal, the Connecticut Supreme Court held that it was proper for Plaintiffs' expert to assume the possibility of a causal relationship between The Hartford's steering efforts and the alleged results. The Court also emphasized that the model presented by Plaintiffs' expert took into account the individual factors that The Hartford argued were fatal to class certification. The Court also noted that The Hartford failed to set forth any facts to challenge Plaintiffs' expert, and that The Hartford essentially conceded at oral argument that the expert's methodology was proper (while contending that the methodology could not be used to establish why individual policyholders selected a particular shop). The Court was also persuaded by the fact that Plaintiffs used The Hartford's own documents and testimony to satisfy their burden.

The Connecticut Supreme Court's decision suggests that the presence of individual issues of law and fact unique to class members will not serve as an obstacle to class certification so long as these factors are addressed in a statistical model. However, as The Hartford correctly points out, no model can accurately predict why an individual selected a particular repair shop. While a statistical model may be of some assistance in a class action, it should never be used as a means to simply "assume away" individualized factors that would otherwise predominate.

A copy of the Court's opinion may be found at:

http://www.jud.ct.gov/external/supapp/Cases/AROcr/CR287/287CR94.pdf