Annotate this Case

2010 OK CIV APP 12
229 P.3d 551
Case Number: 105295
Decided: 10/20/2009
Mandate Issued: 02/04/2010


LADONNA HOUCK, ROBERTA OLIVER, and TASHA SHERMAN-HARRIS, Individually and as Representatives of All Other Similarly Situated Insureds, Plaintiffs/Appellees,




Robert W. Nelson, Derrick L. Morton, NELSON, ROSELIUS, TERRY, O'HARA & MORTON, Oklahoma City, Oklahoma, Rick W. Bisher, RYAN BISHER RYAN, Oklahoma City, Oklahoma, Bryce Johnson, JOHNSON & CARSON, Oklahoma City, Oklahoma, Paul M. Kolker, PIGNATO & COOPER, P.C., Oklahoma City, Oklahoma, Gregg R. Renegar, KORNFELD, FRANKLIN, RENEGAR & RANDALL, Edmond, Oklahoma, Jeff F. Laird, FOSHEE & YAFFE, Oklahoma City, Oklahoma, for Plaintiffs/Appellees
Richard C. Ford, Brooke S. Murphy, Rustin J. Strubhar, CROWE & DUNLEVY, Oklahoma City, Oklahoma, for Defendants/Appellants


¶1 Defendants, Farmers Insurance Company and related entities (collectively, Farmers), appeal the trial court's certification of this case as a class action. We affirm.


¶2 Plaintiffs, Ladonna Houck, Roberta Oliver, and Tasha Sherman-Harris, are insurance policyholders of Farmers. Their policies all contain identical clauses providing what is known as no-fault "med-pay" coverage. These clauses provide that where an insured suffers bodily injury in an accident, Farmers will pay reasonable expenses for necessary medical services furnished within two years of the accident. The policies define "reasonable expenses" as "expenses which are usual and customary for necessary medical services in the county in which those services are provided." Each of the Plaintiffs sustained injuries arising from accidents covered by the policies, each submitted bills for necessary medical services furnished within two years of her accident, and each had bills denied by Farmers, in whole or in part, as "unreasonable."

¶3 At issue is the manner in which Farmers processed, reviewed, and denied Plaintiffs' med-pay claims. Beginning in late 2000, Farmers entered into a Managed Care Services Agreement to have all such claims reviewed by Zurich Services Corporation (ZSC), a claims management company owned by Farmers. ZSC maintains a large computerized database of charges billed by medical providers within federally established medical service areas called PSROs (Professional Standards Review Organization). ZSC compares each incoming Farmers' policyholder's medical bill against the database, and "flags" a charge as potentially unreasonable whenever it exceeds the 80th percentile of all charges in the database for the relevant PSRO service. According to Farmers, ZSC then individually reviews the flagged charge and, in some cases, finds it unreasonable, assigns it an "RC40 code, and notifies the medical provider or policyholder that it is reducing or denying payment. Farmers asserts this process identifies inappropriate or excessive medical charges, and benefits policyholders because the provider usually accepts the reduction as full payment, leaving the policyholder with more room before reaching his or her "cap" on coverage.

¶4 However, Plaintiffs filed suit alleging that Farmers systematically uses the ZSC 80th percentile audit/review process to wrongfully deny payment/reimbursement of policyholders' medical expenses in a predetermined manner, regardless of whether an expense is or is not unreasonable, primarily to reduce Farmers' costs. Although Plaintiffs have alleged causes of action for bad faith, unjust enrichment, fraud or deceit, and conspiracy to commit a tortious act,1 they only seek class certification for their breach of contract claims.

¶5 After a hearing, the trial court entered a 30-page order which extensively analyzed the case pursuant to the prerequisites of 12 O.S.2001 § 2023, found that each prerequisite was met, and granted class certification with a class composed of:

All persons who made a covered claim pursuant to the Medical Payments Coverage of a private passenger automobile insurance policy written by [Farmers] where:
A. Zurich Services Corporation ("ZSC") was utilized to review medical expenses;
B. Farmers applied ZSC's RC 40 reduction to the medical expenses; and
C. The insurance policy was written in one of the following states:
1. Alabama;
2. California;
3. Idaho;
4. Illinois;
5. Indiana;
6. Iowa;
7. Montana;
8. Nebraska;
9. Nevada;
10. New Mexico;
11. Ohio;
12. Oklahoma;
13. South Dakota; and/or
14. Wyoming.2


¶7 A trial court's class certification order is reviewed for abuse of discretion. Shores v. First City Bank Corp.,

¶8 Section 2023(A) sets forth four requirements for maintaining a class action: numerosity of the class; commonality of the questions of law or fact; typicality of the class representatives' claims; and ability of the class representatives to fairly and adequately protect the interests of the class. Section 2023(B) provides that class members seeking certification must meet one of three additional requirements. In this case, Plaintiffs assert that there is a predominance of common questions of law or fact over individual questions, pursuant to § 2023(B)(3).

¶9 "To resolve whether the prerequisites for class-certification are met, we need not reach the merits of the claim." Harvell at ¶ 11, 164 P.3d at 1032. However, in order to determine whether the trial court applied the correct legal standards in assessing the § 2023 requirements, we must identify and review the core liability issues asserted by the class. Id., 164 P.3d at 1032-33.


1. Numerosity

¶10 Numerosity occurs when "[t]he class is so numerous that joinder of all members is impracticable."

¶11 Here, the trial court found a sufficient number of potential class members to meet this requirement, noting that, in Oklahoma alone, thousands of claims were adjusted annually using the 80th percentile method. Farmers does not dispute this finding.

2. Commonality

¶12 Commonality requires that there be questions of law or fact common to the class members.

¶13 Plaintiffs allege that all class members had similar Farmers' policies with identical med-pay provisions, that Farmers denied payment of necessary medical charges for covered injuries using a predetermined computerized audit/review process primarily to reduce Farmers' costs, and that Farmers' actions were in violation of its policy terms. Clearly, commonality was present.

3. Typicality

¶14 Typicality is satisfied "'[w]hen it is alleged that the same unlawful conduct was directed at or affected both the named plaintiff and the class sought to be represented . . . irrespective of varying fact patterns which underlie individual claims.'" Ammons v. Am. Family Mut. Ins. Co., 897 P.2d 860, 863 (Colo. Ct. App. 1995)(quoting 1 H. Newberg, Newberg on Class Actions § 3-13 at 3-77 (3d ed. 1992)).

¶15 In this case, the court found that the class representatives' claims were typical of the class since each class member was insured by Farmers under a policy with identical med-pay language, each sustained injury in an automobile accident covered by the policy, each submitted medical bills for necessary treatment, each had bills for such services reduced or denied by Farmers after a ZSC audit/review, and each claimed that this denial was arbitrary and a breach of their insurance contract. Clearly, "the same unlawful conduct was directed at or affected both the named plaintiff and the class sought to be represented," as required for a finding of typicality.

¶16 Nevertheless, Farmers asserts that none of the Plaintiffs' claims are typical, because Farmers denied payment of individual medical bills as not "reasonable" for a wide variety of reasons, thereby necessitating an individual inquiry into each claim. In Burgess v. Farmers Insurance Co., Inc.,

Insurer would have us reject class certification on the basis of a determination regarding the veracity of its defense on the merits--that Insurer in fact did not operate pursuant to an across-the-board pattern of underpayment of claims, but rather, made individual assessments as to the propriety of O & P payments on every claim. We express no opinion on the merits and our determination on class certification should not be taken as any indication of how a jury might properly decide these fact questions. . . .

Here, the acts or omissions of Insurer which constitute the alleged breaches of contract, bad faith and/or fraud . . . are the same or similar acts or omissions for each class member.

4. Adequacy of representation

¶17 Adequacy of representation is satisfied when "[t]he representative parties will fairly and adequately protect the interests of the class."

¶18 The fact that a class representative has not personally incurred all the damages suffered by other class members does not necessarily preclude the representative's ability to adequately represent the class. Even a potential conflict between the representatives and some class members does not preclude the use of a class action if the parties appear to be united in interest against the defendant. 7A C. Wright, A. Miller & M. Kane, Federal Practice and Procedure Civil, 3rd ed., § 1768 (2009).

5. Predominance

¶19 Predominance involves two components. The court must find that: 1) "questions of law or fact common to the members of the class predominate over any questions affecting only individual members"; and 2) "a class action is superior to other available methods for the fair and efficient adjudication of the controversy."

A. Common Issues of Fact and Law Predominate

¶20 The trial court found evidence that Farmers had essentially abandoned an individualized approach to assessment of med-pay claims,

¶21 First, as noted above, Farmers asserts that common factual issues do not predominate because it denied every medical charge as unreasonable for a different reason, and, therefore, each Plaintiff's claim will involve an inquiry into each of those reasons. We disagree. As we noted earlier in our discussion of the typicality requirement, all Plaintiffs and putative class members assert the same claim and will use similar proof. Farmers would have us reject class certification on the basis of a determination regarding the veracity of its defense on the merits. This is an argument that the Supreme Court rejected in Burgess,

¶22 Second, Farmers asserts that common legal issues do not predominate because the laws of 14 different states must be applied. For this argument, it relies upon Harvell v. Goodyear Tire and Rubber Co.,

¶23 In Harvell, the plaintiff filed a class action lawsuit against Goodyear Tire and Rubber Co., seeking certification of a national class action of consumers from 37 states who had paid Goodyear a "shop supply fee" since 1998. The plaintiff alleged that Goodyear set the fee at 7 percent of the labor charge with a maximum of $20, regardless of whether shop supplies were used. Although Goodyear initiated the policy, the individual stores purchased their own supplies, and the brand, supplier, and cost of the supplies varied from store to store. On appeal from a certification order, the Supreme Court reaffirmed that Oklahoma applies the doctrine of lex loci contractus, codified at

¶24 In the present case, it appears that the policy was made in Kansas and that Kansas law applies. The Declarations Page of the Farmers' policy states: "The policy shall not be effective unless countersigned on the Declarations Page by a duly authorized representative of the Company named on the Declarations Page." The page contains a signature of an "authorized representative" which is different than the named Farmers' agent, and also indicates that the policy was issued out of Shawnee Mission, Kansas. Accordingly, we find that this policy was made in Kansas, and that Kansas law applies. Therefore, Farmers' argument that the law of 14 states applies is not supported by the record.

¶25 Even if this were not true as to the policies of all putative class members, we would reach the same result. In Harvell, the Supreme Court denied certification because each class member had a different contract with each service center and "[t]hese individualized determinations, coupled with the application of the law of 37 states, precludes a finding of predominance and defeats the purpose of certifying a class." Id. at ¶ 16. Here, on the other hand, each putative class member has a policy with identical med-pay language, each class member will claim that Farmers breached the policy provision for the same reasons, and all 14 states with putative class members apply essentially the same legal rules on these core liability issues.

¶26 Farmers correctly observes that there are other relevant legal issues on which state laws differ. Specifically, it notes the states have differing laws on statutes of limitation,

¶27 The Oklahoma Supreme Court has held that mere differences in limitations periods is usually not an impediment to class certification. Shores v. First City Bank Corp.,

¶28 As noted above, the Court in Harvell held that the "individualized determinations, coupled with the application of the law of 37 states, precludes a finding of predominance and defeats the purpose of certifying a class."

¶30 Third, Farmers asserts that common issues cannot predominate since many class members have never experienced any damage and have no basis for a claim. Farmers notes that actual damage is a required element in proving a breach of contract action. Digital Design Group, Inc. v. Information Builders, Inc.,

¶31 As we have previously noted, it is inappropriate to inquire into the merits of a class action dispute in deciding whether a class should be certified. Furthermore, [f]actual variations in the individual claims will not normally preclude class certification if the claim arises from the same event or course of conduct as the class claims, and gives rise to the same legal or remedial theory." Ysbrand,

B. A Class Action is Superior to Other Methods of Adjudication

¶32 Having found that common factual and legal issues related to the core liability issue predominate, we must still determine whether a class action is superior to other available methods for the fair and efficient adjudication of the controversy.

¶33 Nevertheless, Farmers asserts that a class action is not superior to individual claims because Plaintiffs and putative class members have filed additional claims that are not part of the present class action and there will still be "hundreds of thousands" of trials. Even if this were true, a class action may dispose of at least one claim common to all the parties in a more consistent and efficient manner. This is precisely why

¶34 Having considered all the facts and circumstances, we find that the core issues of the case present common factual and legal questions, and also find that a class action is superior to other forms of adjudication. Thus, predominance exists.


¶35 Because each of the §2023 prerequisites exist, we conclude that the trial court did not abuse its discretion. Accordingly, the class certification order is affirmed.


FISCHER, J., and GOODMAN, J., sitting by designation, concur.


1 This is the description given by the Oklahoma Supreme Court in Appeal No. 100,829, wherein the Court appointed Judge Edward Cunningham as coordinating judge to preside over the individual "Farmers Med-Pay Litigation" cases.

2 These are the states in which Farmers wrote policies with the identical med-pay language at issue.

3 This appeal is authorized by 12 O.S.2001§ 993(A)(6). We have captioned our Opinion in accordance with the trial court's order, but have included the names of the parties pursuant to Sup. Ct. R. 1.25.

4 Title 12 O.S.2001 § 2023 states, in relevant part:

A. PREREQUISITES TO A CLASS ACTION. One or more members of a class may sue or be sued as representative parties on behalf of all only if:
1. The class is so numerous that joinder of all members is impracticable;
2. There are questions of law or fact common to that class;
3. The claims or defenses of the representative parties are typical of the claims or defenses of the class;
4. The representative parties will fairly and adequately protect the interests of the class.
B. CLASS ACTIONS MAINTAINABLE. An action may be maintained as a class action if the prerequisites of subsection A of this section are satisfied and in addition:
. . .
2. The party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole; or
3. The court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. The matters pertinent to the findings include:
a. the interest of members of the class in individually controlling the prosecution or defense of separate actions,
b. the extent and nature of any litigation concerning the controversy already commenced by or against members of the class,
c. the desirability or undesirability of concentrating the litigation of the claims in the particular forum, and
d. the difficulties likely to be encountered in the management of a class action.

5 Moreover, if certain insureds in the class decide they were benefitted by Farmers' conduct, the class action statute allows them to opt out of the lawsuit. 12 O.S.2001 § 2023(C).

6 The trial court erred in making this particular finding because it constitutes a improper determination of the merits.

7 Title 15 O.S.2001 § 162 provides: "A contract is to be interpreted according to the law and usage of the place where it is to be performed, or, if it does not indicate a place of performance, according to the law and usage of the place where it is made."

8 This rule was first applied to insurance contracts in Bohannan v. Allstate Ins. Co., 1991 OK 64, 820 P.2d 787; see also Bernal v. Charter County Mut. Ins. Co., 2009 OK 28, 209 P.3d 309. However, the Supreme Court has continued to apply the most significant relationship test to class actions that include breach of warranty theories. See Cuesta v. Ford Motor Co., 2009 OK 24, 209 P.3d 278, and Masquat v. DaimlerChrysler Corp., 2008 OK 67, 195 P.3d 48. However, neither exception appears to apply in this case.