Plaintiffs James and Roxanne Thomas (“Plaintiffs”), on behalf of themselves and all others similarly situated, brought suit against GEICO Casualty Company, GEICO Indemnity Company, and GEICO General Insurance Company (collectively “GEICO” or “Defendants”) for violating the Illinois Consumer Fraud and Deceptive Business Practices Act (“ICFA”).
Since 2013, Plaintiffs have been GEICO customers. Plaintiffs renewed their insurance policy with GEICO from January 22, 2020, to July 22, 2020. They asserted that GEICO had charged “excessive” premiums during the pandemic. Plaintiffs alleged that the premiums failed to account for the dramatic reduction in driving during that time. In other words, the premiums were not reflective of driving risks, which insurance companies assess when
determining policy holders’ premium rates.
GEICO instated a Giveback program, which offered a potential premium credit of 15% upon new and renewal of customers 6- or 12-month policies. Plaintiffs alleged that the discount inadequately accounted for the diminished insurance risk pool during the pandemic. According to Plaintiffs, GEICO provided no retroactive relief for consumers who had paid excessive premiums since the start of the pandemic and provided no additional premium relief as the pandemic continued.
In their FAQ section, GEICO explained the Giveback program was created because “shelter in place laws have reduced driving,” and they were “passing these savings on to [their] auto, motorcycle, and RV customers.” Plaintiffs found this description misleading because it implied that customers would receive all the savings, whereas in reality, customers only received a 15% discount, while GEICO received a windfall of revenue.
To determine what Plaintiffs’ refund should have been, or damages were, Plaintiffs relied on the testimony of Bernard “Birny” Birnbaum (“Birnbaum”). The parties disagreed on whether Birnbaum’s methodology was reliable, as required under Daubert, and whether it was admissible in this case. Plaintiffs also filed a motion for class certification.
Economics Expert Witness
Bernard Birnbaum is a consulting economist and former insurance regulator whose work focuses on insurance regulatory issues. Birny has served as an expert witness on a variety of economic and actuarial insurance issues in administrative and judicial proceedings.
Discussion by the Court
Plaintiffs sought GEICO to issue a refund for the “excessive” premiums, seeking monetary damages for the following:
- policies they entered or renewed with GEICO that had a start date of effectiveness before March 21, 2020, and before GEICO’s Giveback program, but continued past March 21, 2020
- policies they entered or renewed with GEICO after GEICO created its Giveback program
In his report, Birnbaum explained that the purpose of his methodology was to calculate what refunds/damages Plaintiffs should have received for paying “excessive” insurance rates since the 2020 pandemic.
Motion to Strike
The Court separated the methodology employed by Birnbaum into two points for clarity. First, Birnbaum calculated the rate GEICO should have charged for policies effective on or after March 21, 2020, using information available at the time. This included policies initiated before the pandemic and those renewed or initiated after GEICO’s Giveback program launch. Termed the reasonable rate, this initial step mirrored a standard calculation for a private passenger automobile (“PPA”) insurance rate. While PPA rates typically consider future risks, Birnbaum’s approach was retroactive, determining 2020 rates today. Nonetheless, both methods analyzed risk transfers. Birnbaum justified his reasonable rate calculation with references to actuarial principles and model laws rooted in PPA ratemaking.
Second, Birnbaum subtracted the reasonable rate from the rate GEICO charged Plaintiffs. The difference between the first and second steps was what GEICO would refund Plaintiffs. Birnbaum labeled this refund reasonable premium relief.
The end date of the calculation was uncertain, as Birnbaum needed to assess GEICO’s records at the merits stage. Birnbaum performed his methodology to correspond with the relevant class members’ policy dates of effectiveness. The relevant class members are divided in the Unfairness Class and the Deception Class.
Arguments Presented by Defendant
Defendants argued that Birnbaum’s methodology was unreliable and therefore could not satisfy Federal Rule of Evidence 702. According to Defendants, the reasonable premium relief the Plaintiffs sought was applied retroactively, unlike other insurance calculations that were applied prospectively. Defendants argued that such a method allowed Birnbaum to determine what he believed GEICO should have charged for insurance rates based on what he knew then, whereas insurers usually issued premiums by assessing future risks based on information they knew at that given time.
The Defendants supported their assertions by showing that Birnbaum failed to cite relevant examples, case law that found the method reliable, statutes, actuarial standards, model laws, or treatises that recognized reasonable premium relief.
Arguments Presented by Plaintiff
Plaintiffs explained that Birnbaum cited industry standard and actuarial principles as the roots of his methodology. They asserted that the standard Birnbaum used was the same methodology that GEICO had developed to create the Giveback program. Plaintiffs specified that the standards Birnbaum relied on explained that PPA rates might not be excessive and thus should reflect the cost of the transfer of risks. Plaintiffs further attempted to clarify that they applied the method prospectively, based on information GEICO knew at the time it decided the criteria and discount of the GEICO Giveback program, rather than retroactively.
Court’s Decision on the Motion to Strike
The Court deemed it imperative for Birnbaum’s methodology to be sound as a whole. The only time Plaintiffs cited a standard to support their arguments was when referring to ordinary PPA insurance ratemaking and/or determining what a reasonable rate would have been. The methodology before the Court at that time was not an ordinary PPA insurance rate. Instead, determining the PPA rate was only one part of the methodology, as Birnbaum first determined what the PPA rate or reasonable rate should have been and then subtracted that rate from the rate GEICO charged the Plaintiffs. Avoiding semantics, PPA rates determined future costs, while Birnbaum’s methodology sought to calculate returns. The Court concluded that Plaintiffs only attempted to support half of his methodology.
The Court held that the Plaintiffs failed to raise in their briefing and oral argument that Birnbaum’s report cited a recognized methodology that mirrored the reasonable premium relief methodology. It could not simply rely on Plaintiffs’ assertions that Birnbaum said his methodology was rooted in industry standards. As for the Plaintiffs’ damages methodology, the Court made it clear that it did not “recognize” the Plaintiffs’ damages theory as truth.
The Court denied the motion for class certification filed by the Plaintiffs, acknowledging commonalities with regard to the unfairness class but not the deception class, among other reasons.
Held
The Court granted Defendants’ motion to strike Birnbaum’s expert report and denied Plaintiffs’ motion for class certification.
The Court has not arrived on an outcome for this case since the remaining issues involved in this case still await resolution.
Key Takeaways:
Reliability: The Court stressed the importance of Birnbaum’s methodology being sound overall. It highlighted the complexity of the methodology, which involved determining reasonable rates and calculating what returns Plaintiffs should receive. The Court found that Plaintiffs failed to fully support their argument, particularly regarding recognized methodologies and damages theory.
Case Details:
| Case Caption: | Thomas Et Al V. Geico Casualty Company Et Al |
| Docket Number: | 1:20cv4306 |
| Court: | United States District Court, Illinois Northern |
| Citation: | 2024 U.S. Dist. LEXIS 42709 |
| Order Date: | March 12, 2024 |
