State Farm Life Insurance Company v. Michael G. Vogt

This is one of a series of class actions against life insurance companies arising from “cost of insurance” provisions in Universal Life policies. Plaintiff here alleged that State Farm breached the relevant policy on a classwide basis by considering impermissible factors in developing its underlying “cost of insurance” rate structure. Building on this liability theory, Plaintiff’s damages expert created alternative rate models using only “mortality” factors as inputs. But the models create winners and losers: Some class members benefit from, while others are harmed by, the alternative rates relative to the rates they were actually charged. Relatedly, some class members received no net damages at trial, even though they suffered the same alleged breach. To remedy the latter problem, the district court carved those members out from the class and thus from the judgment, a result that would allow them to sue State Farm again later using a different damages model. The questions presented are:

1. Whether Rule 23 allows class certification where the damages models offered by the class representative would harm a substantial number of class members and leave many class members unable to prove damages as an element of their claims, thus creating an intraclass conflict.

2. Whether a district court faced with an inherent intraclass conflict may cure that conflict by defining out of the class—and thus excluding from the judgment—members with no net damages who cannot succeed on the merits of their claims, thereby creating a “fail-safe class” that leaves the defendant exposed to future litigation by excluded class members.