7th Cir / Class Actionshoke2013
Replacement Vehicle Taxes and Fees Not Compulsory in a Total-Loss Claim
The Seveth Circuit Court of Appeals, in an opinion written by Chief Justice Sykes, applying Illinois law, affirmed the District Court’s dismissal of a proposed class action suit against Geico Casualty Company (“Geico”) for breach of contract finding that neither the underlying policy nor the Illinois Insurance Code requires payment of replacement vehicle tax and fees for a total-loss claim.
Plaintiff, Nathan Sigler, totaled his car in an accident and subsequently filed a claim with his car insurance company, Geico, for the loss. Geico’s adjuster determined the car to be a total loss and determined the base value of the car to be $3,151.95. Geico paid Sigler the base value less Sigler’s $500 deductible. Sigler contended that he was also entitled to sales tax and title and transfer fees for a replacement vehicle, even though he had not incurred those costs. He claimed that such costs are “always” part of “replacement cost” in a total-loss claim. Sigler filed suit in the Central District of Illinois proposing to represent a class of policyholders on a breach-of-contract claim against Geico for “systematically underpaying its insureds.”
Geico moved to dismiss for failure to state a claim. According to Geico, the “policy’s coverage provisions could [not] reasonably be interpreted as a promise to reimburse Sigler for vehicle-replacement costs that he had not incurred.” Geico also argued that the Illinois Insurance Code, incorporated into the policy as a matter of law, required reimbursement “only if the insured ha[d] purchased or leased a replacement vehicle and can document that he paid taxes and transfer fees.” Sigler failed to prove that he leased or purchased another vehicle, thereby obviating any possible need for Geico to pay tax-related expenses and fees.
Judge Mihm of the District Court granted Geico’s motion to dismiss and gave Sigler the opportunity to file a second amended complaint, provided there was a “good faith basis.” When the deadline passed without a filing, Judge Mihm entered final judgment in favor of Geico. Sigler appealed.
The Seventh Circuit affirmed the District Court’s ruling. The Seventh Circuit agreed with Geico that the insurance policy could not be reasonably interpreted as requiring it to reimburse Sigler for vehicle-replacement costs that he had not incurred. “[T]he coverage-granting language says only that [Geico] will pay for the ‘collision loss to the owned or non-owned auto,’ with ‘loss’ defined as ‘direct and accidental loss of or damage to’ an insured vehicle or ‘[o]ther insured property.’”
Geico’s “Limit of Liability” places a ceiling on its payment obligation: “The limit of our liability for loss … [i]s the actual cash value of the property at the time of the loss. ‘Actual cash value’ is defined as ‘the replacement cost of the auto or property less depreciation or betterment.’” The policy did not define “replacement cost.” The Seventh Circuit was unpersuaded by Sigler’s argument that because one cannot replace their car without paying sales tax, Geico must pay him for the necessary expense even if he had not purchased a new car.
The Seventh Circuit categorically rejected Sigler’s assertion, noting that his argument “misconstrues a limitation on liability as a promise to pay…. Sigler mistakes a liability ceiling for a floor. The ‘Limit of Liability’ section of the policy doesn’t promise to pay these costs regardless of whether the insured incurs them; it simply describes the most that [Geico] will pay in the event of a covered loss.”
The Seventh Circuit likewise rejected Sigler’s argument that because Geico cannot point to unambiguous language that excludes coverage for these costs, the policy should be interpreted in favor of coverage. Justice Sykes wrote: “That gets things backward. Analysis of exclusions does not come into play unless these costs are encompassed within [Geico]’s basic coverage grant in the first instance; an insurance policy does not need to exclude coverage for something that it does not cover to begin with.”
Finally, the Seventh Circuit found that even if Siegler had submitted proof of loss related to taxes and fees, under the Illinois Insurance Code, for a total-loss claim, an insurer may pay sales tax and title and tag transfer fees, but it is not required to do so. A “straightforward reading of Geico’s policy and the incorporated regulation defeats Sigler’s claim[.]” Sigler v. Geico Casualty Co., No. 19-2272 (7th Cir. July 24, 2020).