Title: Baldwin Mutual Ins. Co. v. McCain
Citation: N/A
Docket Number: 1131058
State: Alabama
Issuer: Alabama Supreme Court
Date: February 20, 2015

REL: 02/20/2015
Notice: This opinion is subject to formal revision before publication in the advance
sheets of Southern Reporter.  Readers are requested to notify the Reporter of Decisions,
Alabama Appellate Courts, 300 Dexter Avenue, Montgomery, Alabama 36104-3741 ((334) 229-
0649), of any typographical or other errors, in order that corrections may be made before
the opinion is printed in Southern Reporter.
SUPREME COURT OF ALABAMA
OCTOBER TERM, 2014-2015
____________________
1131058
____________________
Baldwin Mutual Insurance Company
v.
Gloria Mitchell McCain
Appeal from Montgomery Circuit Court
(CV-10-901266)
STUART, Justice.
Baldwin Mutual Insurance Company ("Baldwin Mutual")
appeals the order of the Montgomery Circuit Court certifying
the action filed against it by Gloria Mitchell McCain as a
1131058
class action under Rule 23, Ala. R. Civ. P., and § 6-5-641,
Ala. Code 1975.  We reverse and remand.
I.
At all relevant times, McCain owned a house in Montgomery
upon which she held a homeowner's insurance policy issued by
Baldwin Mutual.  That policy provided that any covered
property losses would be settled "at actual cash value at the
time of loss but not exceeding the amount necessary to repair
or replace the damaged property."  The policy further
explained "actual cash value" as follows:
"Actual cash value is calculated as the amount it
would cost to repair or replace covered property, at
the time of loss or damage, with material of like
kind and quality, subject to a deduction for
deterioration, 
depreciation 
and 
obsolescence. 
Actual cash value applies to valuation of covered
property regardless of whether that property has
sustained partial or total loss or damage.
"The actual cash value of the lost or damaged
property may be significantly less than its
replacement cost."
In July 2005, McCain's house was damaged as the result of
a windstorm.  She filed a claim with Baldwin Mutual, and
Baldwin Mutual thereafter retained an independent adjuster to
examine McCain's damaged property and to prepare an estimate
to repair the damage.  Baldwin Mutual paid McCain's claim in
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accordance with the estimate prepared by the adjuster. 
Pursuant to a work-authorization form signed by McCain,
Baldwin 
Mutual 
paid 
the 
funds 
directly 
to 
McCain's
contractor.   In June 2006, McCain filed another claim after
1
her house suffered damage as a result of a lightning strike. 
After the same adjuster prepared an estimate, Baldwin Mutual
paid the new claim in accordance with the adjuster's estimate. 
The record contains no allegation or evidence indicating that
McCain sought more money from Baldwin Mutual in connection
with those claims or that she was unhappy in any way with the
service provided by Baldwin Mutual on those claims before she
initiated this lawsuit.
On September 29, 2010, McCain filed a complaint against
Baldwin Mutual.  As subsequently amended, the 
complaint stated
one claim of breach of contract and another claim generally
asserting 
misrepresentation 
and 
suppression 
of 
material 
facts. 
The genesis of the claims is that Baldwin Mutual had
wrongfully been reducing the amount paid on claims made on
actual-cash-value polices inasmuch as its practice was to
Baldwin Mutual apparently paid McCain directly for
1
personal property that was damaged as a result of the
windstorm.
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deduct some amount for depreciation not only of the damaged
materials and the labor costs of initially installing those
damaged materials (based on their condition prior to the
covered damage and their expected life span), but also of the
labor costs associated with the removal of the damaged
materials.  It is improper and impossible to depreciate those
labor costs, McCain argues, because they had not previously
been incurred at some defined time in the past; rather, they
are being incurred at the time of the current repair.  For
example, with regard to McCain's July 2005 claim, Baldwin
Mutual recognized that the cost of removing damaged roof
shingles was $420; however, $63 in depreciation was deducted
from that amount, and Baldwin Mutual paid only $357 for that
job, what it considered to be the actual cash value.   See
2
generally Branch v. Farmers Ins. Co., 55 P.3d 1023, 1028
(Okla. 2002) (clarifying that under Oklahoma law "labor costs
to tear off an old roof are not included as a necessary part
of the replacement costs of installing a new roof" and that
McCain does not dispute that Baldwin Mutual was entitled
2
under her policy to deduct an amount for depreciation with
regard to the purchase and installation of new shingles, and,
in fact, Baldwin Mutual did so, calculating the cost of that
job to be $2,070 and paying $1,759.50 as the actual cash value
after deducting $310.50 for depreciation. 
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"the labor costs in debris removal may not be depreciated"). 
Noting that hundreds or thousands of Baldwin Mutual
policyholders were likely negatively affected by Baldwin
Mutual's practices in this regard, McCain also sought class-
action certification of her claims.  Specifically, she sought
to represent a class composed of:
"All holders of policies, issued by [Baldwin
Mutual], insuring properties within the State of
Alabama who have suffered a loss within six (6)
years of the filing of this complaint for which
[Baldwin Mutual] reduced the actual cash value of
the same by reduction for the loss of value of
undepreciable loss elements."
Baldwin Mutual filed an answer denying that it had improperly
calculated what was owed McCain or any other policyholder
under the terms of its actual-cash-value policies, and it
subsequently moved for a summary judgment on the same basis;
however, that summary-judgment motion was ultimately denied. 
On April 16, 2014, the trial court held the class-
certification hearing contemplated by § 6-5-641(d).  Baldwin
Mutual filed a brief 
that morning opposing 
class 
certification
and arguing that McCain could not meet the requirements for
class certification under Rule 23, and, at the close of the
hearing, the trial court granted McCain 30 days in which to
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file a brief in response.  McCain filed her brief in support
of class certification on May 13, 2014.  In that brief, McCain
proposed a new definition of the class she desired to
represent, arguing that the class should be defined as
follows:
"(1)
All current and former Baldwin Mutual
insureds;
"(2)
who are citizens of the State of Alabama;
"(3)
who in the six years preceding the
complaint suffered a covered loss to
property situated within the State of
Alabama;
"(4)
where the damage estimate for such loss
prepared by Baldwin Mutual or their
adjusters did not include as a separate
item cost for 'removal' of damaged building
components, and then depreciated the cost
of labor for removal down to a lesser
amount;
"(5)
where calculation of the loss was based on
either replacement cost or actual case
value; and
"(6)
where the payment for such loss was made to
the insured or directly to a contractor."
On May 19, 2014, Baldwin Mutual filed a response to McCain's
brief, supplementing its previous arguments and responding to
arguments made by McCain at the hearing and in her post-
hearing brief; Baldwin Mutual also argued that it was improper
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for McCain to seek to expand the proposed class after the
class-certification hearing. 
On June 3, 2014, the trial court entered an order
certifying this action as a class action and defining the
class in accordance with the definition proposed by McCain in
her May 13 brief.  On June 16, 2014, Baldwin Mutual appealed
that order to this Court pursuant to § 6-5-642, Ala. Code
1975.
II.
This Court explained the standard of review applicable to
a class-certification order in U-Haul Co. of Alabama v.
Johnson, 893 So. 2d 307, 310-11 (Ala. 2004):
"This 
Court 
reviews 
a 
trial 
court's
class-certification order to determine whether the
court exceeded its discretion in entering the order,
but we review de novo the question whether the trial
court applied the correct legal standard in reaching
its decision to certify a class.  Compass Bank v.
Snow, 823 So. 2d 667 (Ala. 2001).  We will not
disturb a trial court's class-certification order
without a showing that in entering the order the
court exceeded the permissible limits of its
discretion.  General Motors Acceptance Corp. v.
Dubose, 834 So. 2d 67, 70 (Ala. 2002).
"If [the named plaintiff] failed to meet his
evidentiary burden as required by Rule 23, Ala. R.
Civ. P., then the trial court exceeded its
discretion in certifying the class.  Compass Bank,
823 So. 2d at 672. [The named plaintiff] must
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establish all of the criteria set forth in Rule
23(a) and one of the criteria set forth in Rule
23(b).  Ex parte Gold Kist, Inc., 646 So. 2d 1339,
1341 (Ala. 1994)."
We further emphasize that a trial court exceeds its discretion
in certifying a class, without regard to whether the named
plaintiff might have met the requirements of Rule 23, if the
procedural requirements of § 6-5-641 are not followed.  See §
6-5-641(a) ("No class of civil litigants shall be certified or
recognized by any court of the State of Alabama unless there
shall 
have 
been 
compliance 
with 
the 
procedures 
for
certification of the class set forth in this article."). 
Those requirements include the mandate that the trial court,
upon the request of any party, "hold a full evidentiary
hearing on class certification," § 6-5-641(d), and that the
trial court subject the named plaintiff's request for class
certification to "a rigorous analysis," § 6-5-641(e).  See,
e.g., Disch v. Hicks, 900 So. 2d 399, 409 (Ala. 2004)
(reversing order entered by trial court, stating that, "[o]n
remand, the trial court shall schedule a hearing pursuant to
§ 6-5-541(d), Ala. Code 1975, and shall comply with the
requirements of § 6-5-641(e), Ala. Code 1975").
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III.
In this case, Baldwin Mutual argues that the trial court
exceeded its discretion in certifying the requested class
because, it alleges, McCain failed to meet her evidentiary
burden under Rule 23 and the trial court failed to comply with
§ 6-5-641.  Because it is evident that the trial court did not
comply with the procedural requirements of § 6-5-641, as those
requirements have been explained in Baldwin Mutual Insurance
Co. v. Edwards, 63 So. 3d 1268 (Ala. 2010), we pretermit
consideration of the Rule 23 issues raised by Baldwin Mutual
and reverse the order entered by the trial court so the
identified errors can be corrected on remand.
The facts in Edwards were substantially similar to the
facts in the instant case: A plaintiff sued Baldwin Mutual
alleging that Baldwin Mutual had been paying too little on
claims filed pursuant to homeowners' insurance policies
providing for reimbursement based on the actual cash value of
the damaged property, and the plaintiff sought to have his
action certified for class-action treatment based 
on 
the 
large
number of policyholders alleged to have been treated
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similarly.   63 So. 3d at 1269.  Subsequently, the trial court
3
conducted 
a 
class-certification 
hearing 
pursuant 
to 
§ 
6-5-641,
after which it allowed the parties to file briefs further
explaining their positions on the issue.  63 So. 3d at 1269-
70.  In his brief, the plaintiff expanded the proposed class,
broadening the definition that had previously been set forth
in his complaint; Baldwin Mutual thereafter objected to the
expanded definition; and the trial court ultimately certified
the class, defining it in accordance with the expanded
definition put forth by the plaintiff in his post-class-
certification-hearing brief.  63 So. 3d at 1270-71.  Baldwin
Mutual appealed.  
This Court ultimately ruled in favor of Baldwin Mutual,
stating:
"Baldwin Mutual argues on appeal that the trial
court erred in certifying the revised class defined
in Edwards's November 6, 2009, brief.  Specifically,
Baldwin Mutual argues that Edwards impermissibly
expanded the original class definition and that, in
certifying the revised class, the trial court failed
to comply with the requirements of § 6–5–641 in that
it did not hold a hearing on the class it certified
The plaintiff in Edwards alleged that Baldwin Mutual had
3
improperly paid less than the full value of claims based on
its practice of not adding a sum equal to 20% of the
underlying cost of repair to compensate for a general
contractor's overhead and profit.  63 So. 3d at 1269.
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and it could not have conducted a rigorous analysis
of that class.  We agree.
"Edwards's 
proposed 
redefinition 
of 
the 
class 
in
his November 6, 2009, brief materially changed the
class in a manner not contemplated at the October
15, 2009, hearing.  Baldwin Mutual objected to that
change and argued that, if the trial court accepted
the change, Baldwin Mutual would be denied a
meaningful hearing on the redefined class as
required by § 6–5–641(d).  As stated above, §
6–5–641(d) requires the trial court to 'conduct an
evidentiary hearing on class-certification issues'
at the request of any party.  Disch [v. Hicks], 900
So. 2d [399,] 406 [(Ala. 2004)].  Because the
definition of the class materially changed in a
manner not contemplated at the October 15, 2009,
hearing, the trial court exceeded its discretion in
certifying 
the 
newly 
defined 
class 
without
conducting a new hearing.  See § 6–5–641(d). 
Moreover, because it did not conduct such a hearing,
the trial court could not have conducted a rigorous
analysis of evidence regarding the newly defined
class as required by § 6–5–641(e).  See Ex parte
Caremark RX, Inc., 956 So. 2d 1117 (Ala. 2006),
citing with approval the plurality opinion in Bill
Heard Chevrolet Co. v. Thomas, 819 So. 2d 34, 41
(Ala. 2001) ('[W]e conclude that the trial court
could not have conducted a "rigorous analysis" of
the evidence to determine whether the Rule 23
prerequisites were met, because it did not allow the
defendants an adequate opportunity to oppose the
plaintiffs' proposed certification order.').
"Based on the foregoing, we conclude that the
trial court exceeded its discretion in certifying
the class as redefined in Edwards's November 6,
2009, 
brief. 
 
This 
finding 
precludes 
our
consideration of the other issues presented by the
parties on appeal."
Edwards, 63 So. 3d at 1271-72.  
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As was the case in Edwards, the class definition proposed
by McCain in her brief submitted after 
the 
class-certification
hearing was materially different from the class definition
offered by McCain in her original complaint –– both McCain's
and Edwards's initial proposed classes were limited to those
Baldwin Mutual customers who held actual-cash-value policies,
but the class definitions proposed following the class-
certification hearing, which were accepted by the 
trial 
court,
also included those Baldwin Mutual customers who held
replacement-cost policies.  See Edwards, 63 So. 3d at 1270
(stating that the class defined by Edwards in his post-hearing
brief "omits from the [originally proposed] class definition
the requirement that class members' losses have been paid 'on
an actual cash value basis'").  Accordingly, as explained in
Edwards, the trial court here exceeded its discretion in
certifying the class in accordance with a definition proposed
by McCain without giving Baldwin Mutual the opportunity to
oppose the certification of the proposed class at a hearing
conducted for that purpose pursuant to § 6-5-641, and the
class-certification order must therefore be reversed.
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IV.
Baldwin 
Mutual 
appealed 
the 
trial 
court's 
order
certifying McCain's action against it as a class action, and,
for the reasons explained above, that order is now reversed
and the cause remanded for further proceedings 
consistent 
with
this opinion.
REVERSED AND REMANDED.
Parker, Shaw, and Wise, JJ., concur.
Moore, C.J., concurs in the result.
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