Opinion ID: 1542175
Heading Depth: 1
Heading Rank: 3

Heading: Generalized Versus Individualized Proof

Text: On appeal, The Hartford does not challenge the trial court's conclusion that generalized evidence may be used to prove deceptive acts and practices under the first prong of CUTPA [12] but, rather, its conclusion that the plaintiffs may rely on generalized evidence to prove causation and ascertainable loss under CUTPA's second prong. The Hartford specifically claims that the plaintiffs' methodology is based on assumptions and estimates and that causation and ascertainable loss may be proven only by examining evidence obtained from individual insureds and repair shops. The plaintiffs respond that the bulk of the evidence regarding steering and the suppression of labor rates is drawn from The Hartford's own records and the testimony of The Hartford's employees, thus rendering individualized proof unnecessary. The plaintiffs also contend that the methodology proposed by their expert witness demonstrates that generalized evidence may be used to prove causation and ascertainable loss. We agree with the plaintiffs. We begin by summarizing the proffered evidence, which consists of two affidavits from the plaintiffs' expert, Frederic B. Jennings, Jr., an economic consultant, and two affidavits from David A. Slossberg, the plaintiffs' counsel. Attached to three of the four affidavits are exhibits containing extensive documentation generated by The Hartford, including internal memoranda describing and evaluating its policies and programs, and several depositions by company employees. The exhibits contain evidence on steering intended to show that, when insureds require auto body repairs, employees of The Hartford known as customer care team specialists (specialists) are instructed to direct the insureds to the closest preferred shop through The Hartford's customer repair service program (repair service program). The specialists are trained to sell the repair service program aggressively by informing insureds that, if they utilize the recommended preferred shop, they will receive $100 off of their deductible and a lifetime guarantee for the repair. The Hartford gives the specialists scripts to follow so that they communicate with the insureds in a uniform manner. Moreover, there is considerable pressure placed on the specialists to perform. Supervisors regularly monitor customer calls and coach the specialists to sell the repair service program, and The Hartford offers cash bonuses and other incentives to specialists who obtain the best results. Results are measured by [repair service program] utilization numbers, which represent the number of insureds who utilize the repair service program as a percentage of the total number of calls fielded by a particular specialist. Repair service program utilization is an important factor in determining whether a specialist receives a bonus, a raise or discipline for deficient performance. The exhibits also contain evidence on the suppression of labor rates indicating that The Hartford has been eliminating the use of independent appraisers in recent years and increasing the number of its own automobile service representatives to perform appraisals so that the company can control their content, including labor rates. The Hartford reviews the work of the automobile service representatives for conformance with its expectations and has characterized shops that charge considerably more than its approved labor rate as militant. . . . (Internal quotation marks omitted.) When confronted with estimates that exceed what The Hartford views to be within the normal limits, it negotiates to reduce them or may refuse to honor them altogether. Although The Hartford claims that it pays the prevailing labor rate in Connecticut, there appears to be a growing disparity between the labor rate that it pays for auto body repairs and the market rate for comparable work by automobile mechanics, which may be double the labor rate for auto body repairs. In a letter addressed to the state department of insurance and the office of the attorney general in February, 2002, four automobile service representatives expressed concern that continuing to follow The Hartford's appraisal practices would place them and other representatives in jeopardy of violating their legal and ethical obligations to conduct independent appraisals but that, if they failed to comply with The Hartford's guidelines, they would risk losing their jobs. Jennings proposes a methodology to examine the effect, if any, of the foregoing policies and practices on nonpreferred shops in Connecticut. To measure the effect of steering, Jennings suggests a three step analysis pursuant to which the number of claims diverted to preferred shops initially is established by estimating the percentage of claims that would have flowed to preferred shops in the absence of any steering. Jennings uses the specialist with the lowest rate of success in referring insureds to preferred shops as the benchmark. The benchmark assumes that the specialist had no effect on the customer's decision and, therefore, represents a conservative approach because even the least effective specialist is attempting to steer claimants to preferred shops. Jennings notes, for purposes of the remaining analysis, that the referral rate for the least effective specialist in the month of February, 2003, was 19 percent. He then observes that the average rate of referral to preferred shops in 2003 was 47 percent. From this, he concludes that, if 19 percent is used as the benchmark for the number of insureds who would use preferred shops in the absence of steering, no more than 19/47, or approximately 40 percent, of all referrals to preferred shops would have gone to those shops without steering. Correspondingly, approximately 60 percent of all referrals to preferred shops would have gone to nonpreferred shops without steering. Jennings next applies these percentages to the 3693 repair service program jobs performed in 2003 by Connecticut shops and concludes that 60 percent, or approximately 2200 jobs, were diverted from nonpreferred shops and directed to preferred shops because of steering. The diverted claims are then valued to determine the impact of steering on revenue. This is accomplished by valuing the steered claims at the 2003 state industry average repair cost per claim and multiplying that cost by the number of jobs, which results in a figure representing revenues lost by nonpreferred shops due to steering. Steered claims are valued at the 2003 average cost of repairs for preferred shops, which, as expected, is lower than the cost of repairs performed by nonpreferred shops. According to Jennings, this methodology can be applied to any period as well as to commercial claims using data provided by The Hartford during the discovery process. The third step requires calculation of the profits generated by the shifted revenues to ascertain the respective gains and losses experienced by preferred shops and nonpreferred shops. Jennings assumes, on the basis of his knowledge of the industry, that the average net profit margin of Connecticut auto body repair shops is 5 percent. He then calculates the profits lost due to steering as 5 percent of lost revenues. Jennings explains that the foregoing methodology is generally accepted among economists and is appropriate in the present context because it produces a uniform result for the class as a whole. He adds that, as discovery proceeds and more information is gathered, other methods may be utilized to make a final assessment of damages. Jennings suggests a similar, multi-layered analysis to measure the effect of The Hartford's practices on labor rates. After determining the actual labor rates that The Hartford pays for repair work, which may be obtained from company records, Jennings estimates the prevailing labor rates in an uncontrolled market. He suggests that the prevailing rates may be calculated by examining comparable arm's-length transactions to derive a proxy for the labor rate in a freely competitive market (the comparability approach) or by performing a cost-based analysis to determine the minimum labor rate sufficient to keep pace with inflation and to support a sustainable level of profitability in the business. Both approaches would rely on data from public and industry sources and would yield a measure of economic loss to preferred shops and nonpreferred shops per repair hour of labor attributable to the suppression of labor rates, after adjusting for the impact of steering. Jennings then applies this methodology to estimate the effect of labor rate suppression on the revenue of preferred shops and nonpreferred shops in Connecticut. Rather than performing a comparability or cost-based economic analysis, which apparently would require additional evidence, Jennings relies, for purposes of his affidavit, on testimony from appraisers formerly employed by The Hartford that the prevailing labor rate for auto body repairs in an uncontrolled market would be approximately two times greater than the rate approved of by The Hartford. Multiplying the hourly shortfall by the repair hours reimbursed, and adjusting for steering, generates a measure of overall loss due to The Hartford's suppression of labor rates. Jennings distributes the aggregate losses to the putative class from The Hartford's practices on the basis of work performed by each class member. As he explains: The Hartford's claimants . . . have already made (steering-constrained) choices about which shops to use. The market has thereby distributed each of those [repair] jobs (both those flowing to non[preferred] shops, and those steered into [preferred] shops) on the basis of (steering-constrained) considerations expressed through market decisions. These market decisions, as adjusted . . . for their steering and labor-rate distortions, can be used to guide distribution of damages from both sources of harm. The losses set forth above are calculated and expressed in proportion to work performed on . . . claims with this purpose in mind. A reasonable way to allocate damages across the class as a whole is in accord with [the] claimants' choices, even if their decisions were encumbered through steering and other pressures (which this damage assessment seeks to offset). Allocating damages to each class member on the basis of work performed for The Hartford over the relevant period balances the allocation in a manner commensurate to incurred losses, and in accord with [the] claimants' choices. . . . In any event, none of these estimates or their proposed distribution among those harmfully affected thereby involves individual differences in any essential way. We conclude that the trial court was well within its discretion in finding that the plaintiffs satisfied their burden of demonstrating that generalized, class-wide evidence may be used to prove that The Hartford engaged in unfair or deceptive acts or practices that caused each of the putative class members to suffer an ascertainable loss. The plaintiffs rely on data from The Hartford's own records to describe these practices and to show that they were a substantial factor in steering insureds to preferred shops and in suppressing the labor rates charged for auto body repairs in Connecticut. Moreover, the proposed methodology was offered by a qualified expert with significant experience in the auto body repair industry who attested that, on the basis of his professional experience as an economist, such an analysis is a generally accepted and appropriate methodology for this type of application. . . . Accordingly, Jennings' methodology satisfies the standards for proving causation and ascertainable loss when plaintiffs in a CUTPA action seek monetary damages and equitable relief. The Hartford nonetheless claims that the plaintiffs cannot rely on generalized evidence to prove that, as a direct and proximate consequence of its conduct, every class member suffered an ascertainable loss of money or property. The Hartford specifically contends that the plaintiffs cannot rely on generalized evidence to prove that it steered individual insureds to preferred shops because individual insureds ultimately make auto body repair decisions on the basis of factors beyond the insurer's control. These include recommendations from friends and colleagues, advertising, the customer's prior experience with the shop and, finally, the shop's location, reputation, specialty and curb appeal. The Hartford also claims that generalized evidence is insufficient to establish a causal link between its practices and the suppression of labor rates because individual shops charge different rates on the basis of shop specific considerations. The Hartford likens the present case to Collins v. Anthem Health Plans, Inc., supra, 275 Conn. at 336, 880 A.2d 106, and Macomber v. Travelers Property & Casualty Corp., 277 Conn. 617, 643-44, 894 A.2d 240 (2006), in which this court concluded that the predominance requirement had not been met. We disagree. The plaintiffs in Collins, eight orthopedic surgeons and four groups of orthopedic surgeons, alleged breach of contract, tortious interference with business expectancies, breach of the implied covenant of good faith and fair dealing and a violation of CUTPA. Collins v. Anthem Health Plans, Inc., supra, 275 Conn. at 315-16, 880 A.2d 106. In their motion for class certification, the plaintiffs sought to serve as representative parties for all physicians and physician groups who had entered into contracts with the defendant, Anthem Health Plans, Inc. (Anthem), from 1993 to 2001 to provide medical services to persons enrolled in Anthem's health insurance plans. Id., at 316, 880 A.2d 106. The trial court ultimately granted class certification with respect to subparagraphs 20(b), (g), (j) and (m) of the plaintiffs' complaint. [13] Id., at 320, 880 A.2d 106. On appeal, we reversed the trial court's class certification order on the ground that the predominance requirement had not been satisfied, explaining that generalized evidence would not obviate the need to examine each class member's individual position to determine whether he or she suffered an injury in fact and whether the challenged business policies were the cause of that injury. Id., at 336, 880 A.2d 106. We conclude that Collins is distinguishable from the present case because the relationship between Anthem and the individual members of the putative class in Collins was determined by the particular services rendered by each class member, the circumstances surrounding the denial of authorization, which depended on the type of coverage provided under the patient's benefit plan, and the motivation of Anthem, its employees and the primary care provider. Thus, with respect to subparagraph 20(b), we observed that the allegation that Anthem's employees and participating primary care providers had denied authorization for covered medical services because of their desire to receive a bonus would require review of each medical procedure for which Anthem had denied authorization to determine that authorization actually had been denied, that the primary care provider or employee who denied authorization was eligible to receive a bonus or incentive, that the denial was not attributable to another cause, and that the individual class member had suffered a loss as a result of the denial. Id., at 337, 880 A.2d 106. We further observed that proving that a particular procedure was covered by a patient's benefit plan would be a daunting task because Anthem had thousands of different benefit plans, and the availability of benefits to particular members depended on multiple factors, including varying and tiered copayments, annual or lifetime benefit limits or maximums and medical necessity review. Id., at 337-38, 880 A.2d 106. We also concluded that substantial, individual fact-finding was required to determine the merits of the allegations in subparagraph 20(g) that class members received incorrect payments due to Anthem's failure to provide a complete list of codes because claim codes varied by specialty, and class members who performed a wide array of procedures would likely have suffered greater harm than members who performed a more limited range of procedures. Id., at 339-40, 880 A.2d 106. In addition, payment differences could have arisen because of clerical errors or reasonable differences of opinion as to how a particular procedure should be coded. Id., at 340, 880 A.2d 106. With respect to subparagraph 20(j), we determined that the effect of Anthem's alleged practice of profiling class members for the purpose of permitting or disallowing payment on the basis of statistical averages also required individualized proof to establish that each class member was threatened by the profiling policy and suffered an ascertainable loss as a result of that policy. Id., at 345, 880 A.2d 106. In this regard, we noted the deposition testimony of one of the plaintiff physicians that, after comparing his utilization statistics with those of other physicians in his specialty, he had concluded that his profile was good and that he therefore had no problem with this policy. (Internal quotation marks omitted.) Id. We finally concluded that subparagraph 20(m), which alleged that Anthem had failed to provide the resources necessary for preauthorization on nights and weekends, required individualized proof because, in order to show causation and harm, each class member would have needed to establish that he or she had performed a procedure on a weekend or an evening between 1993 and 1996, when the challenged practice was in effect, that the procedure was a bona fide emergency that could not be delayed until preauthorization had been obtained, and that payment was denied due to a lack of preauthorization. Id., at 343, 880 A.2d 106. In contrast to Collins, the relationship between The Hartford and the individual class members in the present case is not complicated by numerous distinctions among class members that require individualized proof, such as the particular services that class members provide. To the extent that The Hartford argues that proof of steering and the suppression of labor rates requires evidence as to the reasons why individual insureds patronized certain shops, or why individual shops charged certain hourly labor rates, it fails to recognize that, under Jennings' methodology, this information is incorporated in the benchmarks themselves. Thus, the benchmarks represent the equilibrium that would have existed if all of the independent variables and forces to which The Hartford refers, including recommendations from friends, advertising, shop reputation, the cost to different shops of doing business and normal, unfettered competition among the shops, were left to operate freely in an uncontrolled market. Having quantified normal market conditions in this manner, Jennings concludes that any deviation from the benchmarks is due to The Hartford's practices of steering and labor rate suppression, and not to other factors. This conclusion is based on The Hartford's extensive records and the testimony of its employees indicating that The Hartford had the expressed intention of directing business to preferred shops and of suppressing the labor rates charged by both preferred and nonpreferred shops in Connecticut. The allegations in Collins did not lend themselves to a similar kind of benchmark analysis because, although Anthem's general policies may have been applicable to all members of the class, its relationships with individual class members were defined by so many separate conditions and variables that they could not be quantified for the purpose of making a before and after comparison to demonstrate the effect of Anthem's policies and practices. In sum, The Hartford has presented this court with no good reason to dismiss Jennings' methodology at this point in the proceedings as inadequate for purposes of class certification. [14] Macomber also is inapposite. In that case, the plaintiff, Lisa Macomber, moved for certification of a class comprised of individuals like herself throughout the country who, since 1982, had entered into structured settlements with the defendant insurance companies in personal injury actions that were funded with annuities whose cost and true value allegedly were misrepresented by rebating and shortchanging schemes. Macomber v. Travelers Property & Casualty Corp., supra, 277 Conn. at 620-21, 623-24, 894 A.2d 240. We determined that the trial court had abused its discretion in certifying the case as a class action because it [had] not undertake[n] the requisite analysis to determine whether individual issues of law predominated. . . . Id., at 638, 894 A.2d 240. The trial court had allowed the plaintiff to demonstrate predominance through an analysis of approximately thirty out of tens of thousands of possible files from jurisdictions throughout the nation; see id., at 641, 643, 894 A.2d 240; rather than through an analysis of whether the various differing state laws [that governed the putative class members' claims] shared a commonality that predominated over any differences in such laws. . . . Id., at 640, 894 A.2d 240. We also agreed with the defendant insurance companies that the predominance inquiry must focus, not only on whether the [defendant insurance companies] failed to disclose the costs and values of the annuities . . . but also on whether they made the critical representations outlined in that case, namely, representations of the costs of the annuities, and representations that the values equaled the costs. These are necessarily individualized inquiries, the presence and predominance of which simply cannot be properly gauged on the basis of thirty files out of thousands. Id., at 643-44, 894 A.2d 240. We acknowledged that these concerns might cause us to rule that the case was inappropriate for class certification because it did not contain the requisite predominance of common factual issues. Id., at 644, 894 A.2d 240. We nevertheless reversed the trial court's class certification order and remanded the case for further proceedings to give the plaintiff an opportunity to establish the predominance of common legal and factual issues on the basis of an adequate record. Id. Although we recognized the challenge posed by the large number of jurisdictions and potential class members in Macomber; see id., at 638-40, 894 A.2d 240; we did not conclude that the predominance requirement could not be satisfied but, rather, that discovery had been limited, and, therefore, the record was inadequate to decide the issue. See id., at 644, 894 A.2d 240. Furthermore, even though we acknowledged that individualized inquiries might be needed to determine whether the defendant insurance companies had made misrepresentations to the plaintiff and putative class members regarding the proposed settlements; see id., at 643-44, 894 A.2d 240; we afforded the plaintiff additional time to develop a proper record in support of her claim. See id., at 644, 894 A.2d 240. We thus remained open to the possibility that the plaintiff might be able to meet the predominance requirement. See id. The Hartford also claims that the present case bears a striking resemblance to Klay v. Humana, Inc., 382 F.3d 1241 (11th Cir.2004), cert. denied sub nom. UnitedHealth Group, Inc. v. Klay, 543 U.S. 1081, 125 S.Ct. 877, 160 L.Ed.2d 825 (2005). In that case, the plaintiff physicians sought to represent physicians in all fifty states who had submitted at least one claim to the defendant health maintenance organizations (HMOs) between 1990 and 2002 alleging that the HMOs had conspired to program their computer systems to systematically underpay physicians for their services. Id., at 1246. On appeal, the Eleventh Circuit Court of Appeals reversed the District Court's order granting class certification as to the plaintiffs' state breach of contract claims because, although the claims were based on contract questions common to the entire class, individualized issues of fact were likely to predominate. Id., at 1261-67. The court observed that the case involved the actions of many HMOs over a significant period of time and that each HMO, during the specified time, had used many different contract forms. Id., at 1263. In addition, each HMO had contracted with multiple care-providing entities, and each contract involved the use of different contract forms. Id. Moreover, the fact that the HMOs allegedly had conspired to underpay physicians by programming the HMO computers in certain ways did not establish that any individual physician had been underpaid on any particular occasion. Id., at 1264. The court concluded that each physician would have been required to prove, for each alleged breach of contract, that the request for reimbursement had been submitted, that the physician submitting the request was entitled to a specified amount, that the physician actually had received a lesser amount, and that the HMO's reasons for denying full payment were insufficient. Id. The court further concluded that the plaintiffs' claims regarding the improper procedures that the HMOs allegedly had used to determine entitlement to reimbursement required individualized proof due to their complexity and uniqueness. Id., at 1264-66. We disagree with The Hartford that the facts in Klay bear any resemblance to the facts in the present case. Rather, we view Klay as similar to Collins, which we decline to follow because members of the putative class in that case did not stand in the same relationship to the defendant insurer, Anthem, and, therefore, common issues of fact did not predominate. See Collins v. Anthem Health Plans, Inc., supra, 275 Conn. at 335-36, 880 A.2d 106. Like the plaintiffs in Collins, the plaintiffs in Klay had contractual relationships with the defendant HMOs that were highly differentiated and dependent on a multiplicity of contract forms. See Klay v. Humana, Inc., supra, 382 F.3d at 1263-64. Accordingly, the plaintiffs in Klay, unlike the plaintiffs in the present case, could not rely on generalized evidence to prove their claims. [15] The Hartford finally contends that Jennings' methodology improperly relies on assumptions and estimates. These assumptions and estimates, insofar as they pertain to steering, are that (1) active steering occurs, (2) incentives by The Hartford, rather than other factors, causes the specialists to direct insureds to preferred shops, and (3) the specialist's recommendations are the only reason that insureds choose preferred shops. The Hartford also claims that Jennings made several improper assumptions pertaining to labor rate suppression, including that (1) the average net profit margin on sales by auto body repair shops in Connecticut is 5 percent, (2) the auto body repair market does not operate freely in Connecticut because of The Hartford's significant market share, (3) The Hartford's dominant position in the market allows it to exercise undue influence over labor rates, and (4) in the absence of The Hartford's influence, auto body repair shops would be paid the same hourly labor rate as automotive mechanics, whose labor rate is approximately two times greater. In response to this claim, we begin by observing that any methodology constructed to measure whether an identified action has had a predicted effect must allow for the possibility that a causal relationship exists, without assuming that such a relationship does, in fact, exist. Insofar as The Hartford claims that Jennings' other assumptions are improper, it provides no facts demonstrating that they are incorrect. Furthermore, The Hartford does not question Jennings' qualifications or the analytical steps that he proposes to measure the effect of its practices on the auto body repair industry. Indeed, in oral argument before this court, The Hartford conceded, in responding to a question as to whether it was attacking the persuasiveness or validity of Jennings' methodology, that it had no problem with Jennings' methodology as a whole but merely was arguing that generalized proof could not answer the question of why individual insureds had chosen to patronize selected shops. This type of circular reasoning, namely, that generalized evidence cannot be used to prove the plaintiffs' claims because they can be proven only by individualized evidence, begs the question and reflects The Hartford's misunderstanding of the theoretical principles underlying Jennings' methodology. We therefore conclude that The Hartford's claims lack merit.