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Arnold v. State Farm Fire and Casualty Co.

United States District Court, S.D. Alabama, Northern Division

November 14, 2017

ANNIE ARNOLD, etc., Plaintiff,



         This matter is before the Court on the defendant's motion for Section 1292(b) findings, certification of question, and reconsideration. (Doc. 32). The parties have filed briefs in support of their respective positions, (Docs. 33, 37, 38-1, 47, 52), [1] and the motion is ripe for resolution. After careful consideration, the Court concludes the motion is due to be denied in its entirety.


         This action was filed in state court and timely removed by the defendant. According to the class action complaint, (Doc. 1-2 at 1-14), the plaintiff's house was insured by the defendant under a policy (“the Policy”) providing replacement cost value (“RCV”) coverage. Payment on covered losses under such policies proceeds in two stages. Initially, the defendant pays actual cash value (“ACV”), which it calculates as the estimated cost of materials and labor required to complete the removal of damaged materials and subsequent repairs, less depreciation. The defendant pays the difference between ACV and RCV only if the insured accomplishes the repairs, rebuilding or replacement of the damaged property within a specific time frame and submits proof of same to the defendant. The insured therefore must front repair/replacement costs exceeding the ACV payment. In the plaintiff's case, and as a rule, in calculating ACV the defendant depreciates both materials and labor. The single claim presented is that the defendant breached its contractual duty to pay ACV by unlawfully depreciating labor costs.

         The defendant moved to dismiss for lack of standing and for failure to state a claim on which relief can be granted. (Doc. 10). As to standing, the defendant argued generally that, because it had paid the plaintiff RCV, including her undepreciated labor costs, before she filed suit, she had been made whole and thus had no injury that this action could redress. Although the plaintiff seeks prejudgment contractual interest on the amount of the withheld labor depreciation, as provided by statute, the defendant argued the plaintiff could not satisfy the elements for recovery of such interest. The Court ruled that the defendant's argument went not to standing but to the merits of the dispute and accordingly held the plaintiff possesses standing. (Doc. 31 at 2-8).

         As to failure to state a claim, the defendant argued on several grounds that the undefined policy term “actual cash value” unambiguously encompasses depreciation of labor. The Court addressed each of these grounds and determined that, viewing the issue through the lens required by Alabama law, the defendant had failed to demonstrate the correctness of its position. (Doc. 31 at 8-23).

         I. Interlocutory Appeal.

When a district judge, in making in a civil action an order not otherwise appealable under this section, shall be of the opinion that such order involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation, he shall so state in writing in such order.

28 U.S.C. § 1292(b). “[Section] 1292(b) certification is wholly discretionary with both the district court and this Court.” OFS Fitel, LLC v. Epstein, Becker and Green, P.C., 549 F.3d 1344, 1358 (11th Cir. 2008). “Furthermore, §1292(b) sets a high threshold for certification to prevent piecemeal appeals, ” and “[m]ost interlocutory orders do not meet this test.” Id. at 1359.

         A. Standing.

         All agree that the first element of constitutional standing is “injury in fact, ” which requires the “invasion of a legally protected interest.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992). Such an interest may be legally protected by statute[2] or by contract.[3] Alabama law provides that [a]ll contracts … for the payment of money … bear interest from the day such money … should have been paid.” Ala. Code § 8-8-8. This term “is read into and becomes a part of the insurance contract” and is thus “a contractual right.” Thomas v. Liberty National Life Insurance Co., 368 So.2d 254, 258 (Ala. 1979). The Court ruled that the plaintiff thus had a legally protected interest, by statute and by contract, in prejudgment interest. (Doc. 31 at 4-5).

         The defendant argued (and argues) the plaintiff has no legally protected interest in prejudgment interest because she cannot show that the day she “should have been paid” undepreciated labor ever arrived. This argument proceeds along the following lines. First, that the Policy provides that payment is due 60 days after presentation of proof of loss and that the plaintiff never presented proof of loss. Second, that even though the defendant's actual payment of ACV (with labor depreciated) would usually work a waiver of the proof-of-loss requirement, no waiver occurred because (a) the Policy contains a no-waiver provision and (b) the defendant did not realize its payment would work a waiver. (Doc. 31 at 5).

         The defendant insisted (and insists) that its argument goes to standing and not the merits, but the Court remains unpersuaded. As noted, the plaintiff's right to prejudgment interest is by law embedded in the parties' contract; what the defendant argues is that, though the contract by law provides for prejudgment interest, the plaintiff cannot recover such interest in this case because she did not satisfy the contractual requirements for its recovery. The situation is thus no different than that of any other insurer arguing that it owes its insured nothing because she did not comply with conditions (such as presenting proof of loss) expressed in the Policy. The insurer may be correct, but its assertion goes to the merits of the parties' dispute, not to whether the insured has any legally protected interest.

         As the Court noted in its order, (Doc. 31 at 6), “[s]tanding is a threshold jurisdictional question which must be addressed prior to and independent of the merits of a party's claims.” Interface Kanner, LLC v. JP Morgan Chase Bank, 704 F.3d 927, 932 (11th Cir. 2013) (internal quotes omitted). The defendant responds that, when “an element of standing overlap[s] with at least one essential element of a plaintiff's substantive claim, ” a court can look at the factual underpinnings of standing without running afoul of this rule. (Doc. 33 at 15). This is correct but inapposite. The defendant's insurmountable problem is that its challenge goes exclusively to the merits and does not impact the predicate issue of standing.

         The defendant disagrees and cites Interface Kanner and Avenue CLO Fund Ltd. v. Bank of America, 709 F.3d 1072 (11th Cir. 2013), as demonstrating, by some unidentified “analog[y], ” that its argument goes to standing. (Doc. 33 at 16). In both these cases, the question was whether the plaintiff was a third party beneficiary of the contract under which it sued. As noted, a legally protected interest must flow from some source such as contract. A plaintiff that is neither a party to the contract, a successor in interest to a party to the contract, nor a third party beneficiary of the contract is in law a stranger to the contract and so can have no legally protected interest in the contract.[4] These cases are thus not analogous to the instant case but rather highlight the chasm lying between them. The plaintiff here is a party to the contract and thus has standing to pursue a claim for its breach; whether she succeeds or fails depends on the merits of the dispute.

         The defendant concludes that it “has demonstrated substantial ground for disagreement with this Court's conclusion that it should not reach [the defendant's] evidence and argument for its Rule 12(b)(1) motion.” (Doc. 33 at 16). The defendant's argument and authorities, however, actually confirm the Court's previous ruling. Because the Court perceives no “substantial ground for difference of opinion” as to its ruling on standing, the defendant's motion for interlocutory appeal of the standing issue is denied.

         B. Failure ...

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