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The Georgia Supreme Court’s automobile insurance ruling against State Farm relied on reasoning from a nearly century-old case about whiskey, says plaintiffs’ lawyer C. Neal Pope. He says the court’s decision establishing that insurance companies must reimburse policyholders for the value, rather than the condition, of a car after a wreck has its roots in a 1910 case about whiskey lost in an Iowa fire. Whiskey, which takes eight to 12 years to mature properly, can’t be replaced by new whiskey, Pope says. In other words, a policyholder must be compensated for the lost value of an automobile after a collision, even if the insurance company paid for repairs. “You can’t just give somebody some wheat and barley and water and then say ‘Now, go make whiskey,’ ” says Pope. His clients sued State Farm because the insurance company didn’t compensate them for their automobile’s lost market value following accidents. While the insurance company may have paid to repair cars, plaintiffs said even a car returned to its pre-accident condition still has lost market value. In the whiskey case that Pope cites, Mechanics’ Ins. Co. of Philadelphia v. C.A. Hoover Distilling, 182 F. 590 (S.D. Iowa, 1910), the court noted that when an insurance policy specifies that the company won’t be liable beyond the actual cash value of the property lost, the measure of the owner’s loss is “not the cost of the raw material of which a like product may be made and of the labor required to make it, but is the cost of immediately replacing the article by a like product by purchase or otherwise.” Likewise, a car repaired after a wreck still has a lower value than it did before the accident. The court adopted some of the language from that case in its 1926 decision in U.S. Fidelity v. Corbett, 35 Ga. App. 606 (1) (134 SE 336) (1926), when it set out the measure for compensation as “the value of the property immediately before the injury and its value immediately afterwards.” Following the line of cases that stemmed from that decision, Georgia Supreme Court Justice Robert Benham wrote for a unanimous court that “value, not condition, is the baseline for the measure of damages in a claim under an automobile insurance policy in which the insurer undertakes to pay for the insured’s loss from a covered event.” Mabry v. State Farm Auto Insurance, No. S01A0982 (Sup. Ct. Ga. Nov. 29, 2001). The decision came in a Muscogee County, Ga., case in which a group of State Farm auto insurance policyholders sought to compel the company to pay their claims for their cars’ loss of value after being repaired following a wreck. They claimed that although State Farm knew it had an obligation to cover those claims it did not do so. Muscogee Superior Court Judge Douglas C. Pullen agreed with the plaintiffs and issued an order certifying a class for declaratory and injunctive relief comprising all current State Farm car insurance policyholders in Georgia. After another hearing in December 2000, Pullen also ordered State Farm to assess whether a car has lost value after a wreck and subsequent repair. If there is loss, the order said, State Farm must reimburse its policyholders for that loss. If the company maintains there was no such loss, it must state that in writing. State Farm appealed from the order, alleging, among other things, that the court improperly had certified the class, that the plaintiffs hadn’t exhausted their available administrative remedies through the state insurance commissioner, and that assessing any “loss of value” on the market is difficult to do without an actual sale. State Farm lawyers John A. Chandler of Sutherland Asbill & Brennan and E.A. “Bud” Simpson Jr. of Powell Goldstein Frazer & Murphy in Atlanta declined to comment on the case. Pope, of Pope, McGlamry, Kilpatrick & Morrison in Columbus, Ga., who represented the plaintiffs in the case, says the decision gives him much more leverage in dealing with the defendants in eight similar suits against auto insurance companies. “This isn’t even close,” he says. “It never was close. The law on this issue is crystal clear.” “That opinion doesn’t leave them much place to run,” he says. Attorneys for both sides are due back in Muscogee County Superior Court today to determine just how much value was lost to the class. State Farm already has paid $60 million into an account for distribution to the class, Pope says. However, he adds that that $60 million is not enough to cover all the loss-of-value claims. The class extends to cover all people who have made claims since 1993 on State Farm policies. The statute sets out a six-year time limit on these claims, but Pope filed the suit in 1999. Pope says most of these claims involved amounts too small to be worth litigating. “But you slap ‘em all together and you’ve got clout,” he says. QUESTION OF CLASS STATUS In addressing State Farm’s contentions on appeal, the court found that the plaintiffs shared concern for at least two issues: whether Georgia law requires insurers to assess loss of value and pay it, if warranted, and whether State Farm tried to avoid complying with that requirement. “Thus, contrary to State Farm’s assertion on appeal, there are issues for trial common to the members of the class, and those issues predominate over any individual issues,” Benham wrote. “By certifying a class of plaintiffs only for declaratory and injunctive relief, the trial court ensured that the class would possess the qualifications of a proper plaintiff class.” Also, the court found that the plaintiffs didn’t have to exhaust their administrative remedies, because their claims stemmed from a contractual dispute, not from any claim that the company violated the state Insurance Code, over which the insurance commissioner has jurisdiction. “[T]he trial court’s order did not mandate any certain claims handling procedure, only that State Farm start actually handling its claims in accord with its contract, without refusing to consider some elements of loss,” he wrote. The court also found that requiring State Farm to assess a vehicle’s loss of value following a wreck and its repair is not onerous for the company. The insurer, Benham wrote, already collects the information it needs to make those assessments for other purposes — for example, deciding whether a car is a “total loss” and deciding whether any repairs actually made improvements to a car, for which the insured would have to pay. The basic issue, Benham wrote, was the company’s contractual promise to compensate its policyholders for their losses. “The physical damage coverage in its policies provides that State Farm will ‘pay for loss to your car’ minus any deductibles,” he wrote. “The element of loss they alleged was covered by their policies, and that State Farm did not tell them about or pay, was the diminution in value of their vehicles caused by the fact of their physical damage.” Pope says the standard of value, rather than condition, as the measure of what an insurer owes its policyholders on a claim should apply to other claims as well, as it did to the lost stock of whiskey in Iowa almost 100 years ago. “It already applies to other things. It’s only common sense,” he says.

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