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J.
Dylan
Edward Kerley (175695)
L. Schaffer (153 6 1 2)
Yasmeen Omidi (254962)
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Kerley Schaffer LLP
1939 Harrison Street, #500
Oakland, California 94612
Telephone: (5 10) 379-5801
Facsimile: (510) 228-0350
Attorneys for Plaintiffs
SUPERIOR COURT OF THE STATE OF CALIFORNIA
SAN MATEO COUNTY — UNLIMITED CIVIL JURISDICTION
10
11
DONNA MARIE MESCHI, an individual, Case N0. 16CIV02607
12 VINCENT MESCHI, an individual, 011
behalf of themselves and a class of similarly FIRST AMENDED CLASS ACTION
13 situated persons, and ROES 1-10. COMPLAINT AND DEMAND FOR
JURY TRIAL
14 Plaintiffs,
(1) Declaratory Relief
15
V. (2) Unfair Business Practices (Bus. & Prof.
16 Code §17200 et seq.)
MERCURY CASUALTY COMPANY, a (3) Breach 0f Contract
17 CALIFORNIA
corporation,
(4) Breach of Implied Covenant (“Bad
AUTOMOBILE INSURANCE Fait ”)
18 COMPANY, a corporation, MERCURY
INSURANCE SERVICES, LLC, a limited
19 liability corporation, and DOES 3 through 10,
20 Defendants.
21
22
23
24
25
26
27
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First Amended CLASS ACTION Complaint & Demand for Jury Trial
Plaintiffs Donna Meschi, Vincent Meschi, and ROES 1-10, on behalf of themselves and
all others similarly situated allege as follows?
PARTIES
1. Plaintiffs Donna and Vincent Meschi are residents of San Mateo, California
(“Meschi Plaintiffs”).
2. Defendant Mercury Casualty Company (“MCC”) is a corporation licensed to
conduct business in the state of California.
3. Defendant California Automobile Insurance Company (“CAIC”) is a corporation
licensed to conduct business in the state of California. Plaintiffs seek to substitute CAIC for DOE
10 1.
11 4. Defendant Mercury Insurance Services, LLC (“MIS”), is a limited liability
12 corporation licensed to conduct business in the state of California. Plaintiffs seek to substitute
13 CAIC for DOE 2.
14 5. Defendants are herein collectively referred to as “Mercury,” the brand name used
15 by defendants and each 0f them for marketing, advertising, and sales 0f property policies issued
16 by MCC and CAIC, and as t0 all claims under property policies issued by MCC and CAIC but
17 investigated and adjusted by MIS, a subsidiary of Mercury General Corporation, the Mercury
18 umbrella entity.
19 6. The true names 0f Plaintiffs ROES 1-10 are presently unknown and are therefore
20 suing by fictitious names. Each 0f the ROE Plaintiffs made a claim for repair or replacement of
21 contents under a property policy issued by CAIC, was harmed by Defendants’ conduct, and thus
22 is a proper plaintiff and representative 0f the class in this action.
23
24
25
1
A11 allegations made based upon information and belief, except those
in this complaint are
26 allegations which pertain t0 the Meschis, Which are based on personal knowledge. The
allegations 0f this Complaint stated 0n information and belief are likely t0 have evidentiary
27
support after a reasonable opportunity for further investigation and discovery.
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First Amended CLASS ACTION Complaint & Demand for Jury Trial
7. The true names and capacities of Defendants DOES 3 through 10 are unknown
and are therefore sued by fictitious names. Each of the DOE Defendants is, in some manner,
responsible for the damages alleged.
8. Plaintiffs seek to represent the following class (“Declarative Relief Class”):
A11 California residents insured under a Mercury property policy from
November 29, 2012 to the time of trial in this action.
9. Plaintiffs seek to represent subclasses (“Damages Classes”)
(a) The “ACV Claims Class,” defined as:
A11 California residents insured under a Mercury property policy Who made
10 an actual cash value claim for damage t0 property, Who accepted settlement 0f the
11 claim for less than the policy limit, as t0 Which Mercury paid at least $1, Which
12 claims were open between November 29, 2012, and the time 0f trial 0f this action;
13 and
14 (b) The “Replacement Cost Claims Class”, defined as:
15 A11 California residents insured under a Mercury property policy who made
16 an replacement cost value claim for damage t0 property actually replaced, who
17 accepted settlement of the claim for less than the policy limit, as to which Mercury
18 paid at least $ 1 , which claims were open between November 29, 2012, and the time
19 0f trial 0f this action.
20 VENUE AND JURISDICTION
21 10. The Meschi Plaintiffs were issued a policy of insurance by MCC, identified as
22 policy number HO 13 1 87051 (“Policy”), insuring all risks 0f loss t0 Plaintiffs’ dwelling and
23 property located at 247 Avalon Drive, Daly City, California (“Property”), and providing various
24 other coverages, from March 15, 2015, to March 15, 2016. The Policy is attached as Exhibit A
25 t0 this First Amended Complaint.
26 11. The ROE Plaintiffs were issued property policies by CAIC, insuring all risks of
27 their insured properties, each 0f Which is located in California.
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First Amended CLASS ACTION Complaint & Demand for Jury Trial
12. Venue is proper in the Superior Court of California for the County of San Mateo
as Defendants transact business in the County and Defendants derive substantial revenue from
their activities in the County.
MIS, MCC, and CAIC ARE MUTUAL ALTER-EGOS
13. The policies sold to the Meschis and ROE Plaintiffs misleadingly represent that
the insurer is a non-existent entity called “Mercury.”
14. In fact, there is no such entity as Mercury.
15. Rather, Mercury General Corporation, the parent organization, has two primary
insuring entities for property insurance in California—MCC and CAIC. The Meschis’ policy was
10 issued by MCC. The ROES’ policies were issued by CAIC.
11 16. MCC, CAIC, and MIS are mutual alter egos 0f each other because 0f a unity 0f
12 interest and ownership as follows:
13 0 MIS, Which like MCC and CAIC is a subsidiary 0f Mercury General Corporation,
14 contracts with MCC and CAIC to investigate and adjust property insurance
15 claims.
16 0 A11 investigation and adjusting 0f claims under MCC and CAIC policies is done
17 by employees of MIS.
18 o A11 supervision and management 0f claims investigation and adjusting 0f claim
19 under MCC and CAIC policies is done by employees 0f MIS.
20 o A11 decisions regarding training and guidelines as applies t0 the investigation and
21 adjusting 0f claims under MCC and CAIC policies are taken by employees 0f
22 MIS.
23 o A11 policy and insurer-wide decisions regarding claims investigation and claims
24 adjustment—including the application of depreciation to contents claims under
25 Mercury property policies, the payment of replacement cost claims for contents
26 under Mercury property policies, and compliance with 10 CCR §2695.9.(f)—are
27 made by employees of MIS 0n behalf 0f MCC and CAIC.
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First Amended CLASS ACTION Complaint & Demand for Jury Trial
MIS employees, supervisors, and managers were solely responsible for accepting,
investigating, and adjusting the Meschis’ and ROES’ claims.
MIS, MCC, and CAIC are wholly owned and controlled subsidiaries 0f Mercury
General Corporation.
MCC and CACI cannot functionally sell property insurance policies, 0r accept,
investigate, adjust, or deny claims under property insurance policies Without
MIS ’
s involvement.
MCC and CAIC are mere shells, conduits for the affairs of MIS and its parent,
Mercury General Corporation.
10 MCC and CAIC have n0 employees responsible for accepting, investigating,
11 adjusting, 0r denying insurance claims under their property policies.
12 Through a management agreement, MCC and CAIC grant MIS sole and complete
13 authority to accept, investigate, adjust, and deny claims under their property
14 insurance policies.
15 MIS is solely responsible for and has sole authority for accepting, investigating,
16 adjusting, and denying insurance claims under all property policies underwritten
17 by MCC and CAIC.
18 Employees of MIS manage and control litigation in Which MCC and CAIC are
19 involved.
20 Employees of MIS manage and control investigation, adjustment, and denial 0f
21 insurance claims under policies issued by MCC and CAIC.
22 MCC and CAIC have n0 employees responsible for accepting, investigating, 0r
23 adjusting insurance claims under its California property policies.
24 MCC and CAIC have n0 employees responsible for providing training as required
25 by 10 CCR §§2695.6 et seq.
26 MIS is responsible for all training required by 10 CCR §§2695.6 et seq.
27
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First Amended CLASS ACTION Complaint & Demand for Jury Trial
o MCC and CAIC neither create nor issue t0 any claims handling personnel
guidelines for the investigation 0r adjusting 0f insurance claims in California.
o MIS, on behalf 0f its sister companies MCC and CAIC, creates and issues t0 its
claims handling personnel guidelines for the acceptance, investigation, adjusting,
and denial 0f insurance claims in California.
o MCC, CAIC, and MIS file consolidated federal tax returns.
o MCC, CAIC, and MIS use the same bank for all accounts.
0 A11 MCC and CAIC profits are passed through t0 MIS by way 0f a management
agreement and debt structuring.
10 o MCC, CAIC, and MIS have the same principle business address.
11 o MCC, CAIC, and MIS have overlapping officers and directors.
12 17. As there is a unity of interest among MCC, CAIC, and MIS, they are alter-egos 0f
13 each other; alternatively, they are a single entity, because if acts of the entities are treated
14 separately an inequitable result will obtain.
15 18. While all polices are sold by “Mercury,” and claims are investigated and adjusted
16 by MIS, property policies in California are issued by MCC and CAIC.
17 19. Beginning in 2016, during the class period at issue in this case, and without
18 alerting its policyholders, Mercury moved a maj ority of its California property policies from
19 MCC t0 CAIC. For example, in 2014, MCC had property policy premiums 0f about $372
20 million. In that year CAIC had property policy premiums 0f about $20 million. By 2018, MCC’S
21 premiums were down t0 $129 million, but CAIC’S premiums had increased t0 $398 million.
22 20. Likewise, the average number 0f covered contents claims t0 MCC for the period
23 2013 to 2016 was about 3,500 claims annually. In 2017 the number fell to 396; in 2018 it was
24 down to 243. The falloff in claims is due t0 Mercury’s renewal 0f MCC policies by CAIC in the
25 years 2017-2018, Which is likewise reflected in the shift in premium balance.
26
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First Amended CLASS ACTION Complaint & Demand for Jury Trial
21. The various law Violations set forth below are the result of decisions made and
applied by managing agents of MIS, 0n behalf 0f Mercury property policy holders, including
holders 0f MCC and CAIC policies.
22. A maj ority of Mercury policyholders in the classes described above would not
benefit from this lawsuit if Mercury is permitted t0 hide its business from the impact 0f ongoing
litigation by moving its policies from a sued entity (MCC) to a sister insuring entity. Rather,
given that MCC, CAIC, and the management entity MIS are alter egos, each of those entities is a
proper defendant here and all polices presently in effect, as well as all claims under policies
issued by MCC and CAIC during the class period, are the proper subj ect of the causes 0f action
10 set forth below.
11 23. Likewise, given that the law Violations set forth below are the result 0f conduct by
12 employees of MIS, an inequitable result would obtain if MIS, an alter ego 0f MCC and CAIC, is
13 excluded from liability here.
14 24. As holders 0f a Mercury policy, the Meschis are proper class representatives for
15 all class members under all property policies issued by MCC and CAIC and managed by MIS.
16 25. In the altemative, the ROE plaintiffs can represent class members With policies
17 issues by CAIC, and as to claims made under CAIC policies.
18 ALLEGATIONS RELATED TO
19 MERCURY'S VIOLATION OF INSURANCE CODE §2051 IN THE PAYMENT OF
20 ACTUAL CASH VALUE FOR PROPERTY
21 26. Plaintiffs and the Class are the holders of written policies 0f insurance issued by
22 Mercury wherein Mercury agreed t0 provide, inter alia, coverage for losses t0 property resulting
23 from sudden and accidental loss such as fire and other perils.
24 27. Under the 2004 Homeowners Bill of Rights, codified at California Insurance
25 Code §2051 et seq., Mercury was obligated in the case of a partial loss caused by any peril not
26 expressly excluded to first pay the actual cash value (“ACV”) of property up t0 the limits 0f the
27 policy. ACV is defined in Insurance Code §2051, Which provides in relevant part:
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First Amended CLASS ACTION Complaint & Demand for Jury Trial
(b) Under an open policy that requires payment of actual cash value,
the measure 0f the actual cash value recovery, in whole 0r partial
settlement 0f the claim shall be determined as follows: . . .
(2) In case 0f a partial loss t0 the structure, or loss to its contents,
the amount it would cost the insured to repair, rebuild, 0r replace the
thing lost or injured less a fair and reasonable deduction for physical
depreciation based upon its condition at the time 0f the injury 0r the
policy limit, whichever is less.
28. Section 2051 permits the insurer t0 take a “fair and reasonable” deduction for
10 “physical depreciation” based upon the actual condition 0f the item “at the time 0f the injury.”
11 29. Physical depreciation refers t0 the physical wearing-out 0f property; it is a
12 measure 0f actual wear and tear. Physical depreciation does not include the separate concept 0f
13 functional obsolescence—that is, loss 0f value due t0 external conditions. Physical depreciation
14 does not include spreading the cost 0f an obj ect over its useful life for accounting or tax
15 purposes.
16 30. Section 2051 ’s limitation 0f “depreciation” t0 physical depreciation is consistent
17 With claims adjusting practices throughout the United States which recognize that depreciation
18 for actual cash value purposes is limited t0 physical depreciation (wear and tear), and does not
19 include other concepts 0f depreciation that may be used for tax 0r accounting purposes.
20 3 1. T0 protect California insureds from arbitrary 0r improper deductions for
21 depreciation, California Code 0f Regulation 10 CCR §2695.9(f) states, in pertinent part “[W]hen
22 the amount claimed is adjusted for betterment, depreciation 0r salvage, all justification for the
23 adjustment shall be contained in the claim file . . .The basis for the adjustment shall be fully
24 explained t0 claimant in writing.”
25 32. By operation of law, Insurance Code §790.03(h) is made part of every property
26 insurance contract between Mercury and every member 0f the Class.
27
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First Amended CLASS ACTION Complaint & Demand for Jury Trial
33. Pursuant t0 operation of law, Insurance Code §2051 is made part of every
property insurance contract between Mercury and every member of the Class.
34. Pursuant t0 operation 0f law, 10 CCR §2695.4(a) is made part 0f every property
insurance contract between Mercury and every member of the Class.
35. Pursuant to operation of law, 10 CCR §2695.9(f) is made part 0f every property
insurance contract between Mercury and every member of the Class.
36. In Violation 0f Insurance Code §205 1 Mercury
,
calculates the ACV 0f damaged
contents by calculating depreciation according t0 a straight-line schedule based 0n the age 0f
each item, rather than by reference solely to the true physical condition and deterioration 0f the
10 item prior t0 the loss.
11 37. Alternatively, Mercury calculates depreciation based on a combination 0f age and
12 condition in Violation of §205 1.
13 38. Mercury uniformly applies the foregoing illegal claims adjusting methods t0 all 0f
14 its property claims in California in Violation of §205 1.
15 39. Mercury uses a standard depreciation method in California based upon criteria not
16 permitted by §2051 and does not independently justify the depreciation in the claim file as
17 required by 10 CCR §2695.9(f).
18 40. Mercury uses a depreciation guide, or relies 0n third party vendors to use such
19 depreciation guides, Which settle property claims contrary t0 the condition-only approach
20 mandated by §205 1 including by reference
,
to the age and type of property at issue. Mercury
21 neither provides its method 0f depreciation t0 insureds nor explains t0 them how it calculates
22 depreciation in Violation 0f 10 CCR §2965.9(D.
23 41. Accordingly, during the relevant time period, Mercury violated its contracts,
24 Insurance Code §205 1, and 10 CCR §2695.9(f) by improperly calculating “depreciation” and
25 refusing to pay for such depreciation through use of arbitrary and illegal depreciation
26 calculations that were not based solely upon the actual condition 0f each damaged item, and by
27 failing t0 justify in writing the depreciation amounts it claims. Mercury has n0 written 0r
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First Amended CLASS ACTION Complaint & Demand for Jury Trial
systematic communication With its policyholders about their rights to an appropriate calculation
under California law and the policy based solely upon actual physical condition. Mercury has no
written 0r systematic communication with its policyholders about the physical condition 0f items
at the time of loss. Mercury has n0 written 0r systematic communication With its policyholders
about the manner of its depreciation of property, all in Violation 0f 10 CCR §2695.9(f).
42. Plaintiffs and the Class are informed and believe that through use of the foregoing
illegal depreciation methods, Mercury substantially reduces its claim liabilities and increases its
profits, by applying high levels of depreciation When adjusting contents claims.
43. Plaintiffs and the Class first became aware of the Violations only in or about
10 November 2012, because Mercury hid from Plaintiffs and the Class its illegal practices relating
11 t0 calculation 0f depreciation.
12 44. Plaintiffs and the Class had no right t0 seek appraisal once they learned 0f
13 Mercury’s illegal practices because the illegal practices at issue were beyond the scope of
14 appraisal under the insurance policies and relate t0 a loss settlement practice rather than
15 valuation issue. Likewise, an appraisal panel would have n0 authority to decide Whether
16 Mercury’s conduct violates the UCL, merits declaratory relief, 0r amounts t0 a breach of its
17 policies with thousands of holders of Mercury property policies in California. Thus, it would be
18 entirely futile for Plaintiffs and the Class t0 submit any 0f their claims 0r following causes 0f
19 action for appraisal as t0 the correct actual cash value.
20 MERCURY'S VIOLATION OF INSURANCE CODE §2051.5 IN THE PAYMENT OF
21 REPLACEMENT COST FOR PROPERTY
22 45. Under the 2004 Homeowners Bill 0f Rights, codified at California Insurance
23 Code §205 1 .5, Mercury was obligated in the case of partial losses caused by perils not expressly
24 excluded t0 first pay actual cash value. If a policyholder With a replacement cost value policy
25 then makes a replacement cost claim after replacing or repairing the damaged item, §2051.5
26 requires Mercury to pay the difference between the initial actual cash value payment for the item,
27 and the amount reasonably paid by the insured t0 replace the property, up t0 the policy limits.
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First Amended CLASS ACTION Complaint & Demand for Jury Trial
46. Insurance Code §2051.5(a) provides:
Under an open policy that requires payment of the
replacement cost for a loss, the measure 0f indemnity is the amount
that it would cost the insured to repair, rebuild, 0r replace the thing
lost 0r injured, Without a deduction for physical depreciation, or the
policy limit, whichever is less.
If the policy requires the insured t0 repair, rebuild, or replace
the damaged property in order to collect the full replacement cost,
the insurer shall pay the actual cash value of the damaged property,
10 as defined in Section 2051, until the damaged property is repaired,
11 rebuilt, 0r replaced. Once the property is repaired, rebuilt, or
12 replaced, the insurer Shall pay the difi’erence between the actual
13 cash value payment made and thefull replacement cost reasonably
14 paid t0 replace the damagedproperly, up t0 the limits stated in the
15 policy.
16 47. Mercury's insurance policies Violate Insurance Code §205 1 .5 by providing for a
17 contrary method of loss settlement.
18 48. Mercury's policies state in relevant part that it will pay replacement cost as
19 follows:
20 4. Loss Settlement. Covered property losses are settled as follows: . . .
21 b. Full Value. Personal Property under Coverage C, unless listed under 4.c.
22 below, and awnings, carpeting, domestic appliances, outdoor antennas and
23 outdoor equipment, whether 0r not attached t0 buildings, at replacement cost at
24 the time 0f loss subject t0 the following:
25 (1) We will pay the full cost of repair or replacement, but not exceeding the
26 smallest 0f the following amounts:
27
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First Amended CLASS ACTION Complaint & Demand for Jury Trial
(a) the limit of liability of this policy applicable to damaged, destroyed or
stolen property;
(b) the replacement cost 0f the property or any part;
(c) the full amount actually and necessarily spent by the insured in
repairing 0r replacing the property 0r any part;
(d) the direct financial loss you incur; or
(e) our pro-rata share 0f any loss when divided with any other valid and
collectible insurance applying to the covered property at the time 0f loss.
49. The Mercury policy defines replacement cost as:
10 18. “Replacement cost”
11 b. In case 0f loss t0 personal property, replacement cost means the
12 cost, at the time of loss, of a new article identical t0 the one damaged,
13 destroyed 0r stolen. When the identical article is n0 longer manufactured
14 0r is not available, replacement cost shall mean the cost 0f a new article
15 similar to the one damaged or destroyed and which is of comparable
16 quality and usefulness, Without deduction for depreciation.
17 50. Pursuant t0 operation of law, §205 1 .5 is made part of every property insurance
18 contract between Mercury and every member 0f the Class.
19 5 1. In Violation 0f §205 1 .5, in the event of replacement 0f contents covered under a
20 replacement cost policy, Mercury does not pay policy holders the amount actually paid by them
21 t0 replace the property. Instead, pursuant to the terms of Mercury's policy, Mercury pays the
22 lesser 0f the amount reasonably expended by the insured t0 replace or repair the items, and
23 Mercury’s own calculation 0f the “cost, at the time 0f loss, 0f a new article identical t0 the one
24 damaged, destroyed 0r stolen.”
25 52. Here is an example of how Mercury uses its policy to increase its profits in
26 Violation 0f Insurance Code §205 1 .5: Mercury arrives at a hypothetical replacement cost value 0f
27 a lamp. If, in replacing the lamp, the insured pays less than that replacement cost, Mercury pays
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First Amended CLASS ACTION Complaint & Demand for Jury Trial
the amount the policyholder actually spends. But if, in replacing the lamp, the policyholder
reasonably spends more than Mercury’s hypothetical replacement cost, Mercury limits its
liability t0 that lower amount, paying less than is required by §205 1 .5.
53. Mercury uniformly applies the foregoing illegal claims adjusting methods to all of
its property claims in California in Violation 0f §2051.5.
54. Through use of the foregoing illegal depreciation methods, Mercury substantially
reduces its claim liabilities and increases its profits.
55. Plaintiffs and the Class first became aware of the Violations only in 0r about
November 2012, because Mercury hid from Plaintiffs and the Class its illegal practices relating
10 to payment 0f replacement cost claims. Mercury likewise misrepresented and concealed from its
11 insureds their rights under §205 1 .5, in Violation 0f Insurance Code §790.03(h) and 10 CCR
12 §2695.4.
13 56. Plaintiffs and the Class had n0 right to seek appraisal once they learned of
14 Mercury’s illegal practices because the illegal practices at issue were beyond the scope 0f
15 appraisal under the insurance policies and relate to a loss settlement practice rather than
16 valuation issue. Likewise, an appraisal panel would have n0 authority t0 decide Whether
17 Mercury’s conduct violates the UCL, merits declaratory relief, or amounts to a breach of its
18 property policies with thousands of California insureds. Thus, it would be entirely futile for
19 Plaintiffs and the Class t0 submit any 0f their claims or following causes of action for appraisal
20 as to the correct replacement cost value.
21 CLASS ACTION ALLEGATIONS
22 57. As a result 0f these related Violations 0f California insurance law, Mercury has
23 deprived Plaintiffs and the Class of millions of dollars by (a) wrongfully calculating depreciation
24 and thus reducing ACV payments, (b) wrongfully calculating replacement cost value as required
25 by §205 1 .5, and (c) Violating its obligations under the Fair Claims Settlement Practices Act,
26 including 10 CCR §§2695.4(a) and 2695.9(3
27
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First Amended CLASS ACTION Complaint & Demand for Jury Trial
58. Plaintiffs bring this action as a class action pursuant t0 California Code of Civil
Procedure §382.
59. Numerosily. Plaintiffs are informed and believe, and thereupon allege, that the
Class contains at least ten thousand members and that joinder of the claims of the Class in a
single action is therefore impracticable.
60. Common questions. There exist questions of law and fact common to all members
0f the Class. Common legal and factual questions include, but are not limited to the following:
(a) Whether Mercury violates Insurance Code §§2051 and 205 1 .5 by calculating
ACV for damaged contents by relying on the age of the property, rather than
10 solely on the physical condition of the contents at the time of the injury;
11 (b) Whether Mercury violates Insurance Code §205 1 .5 by uniformly paying
12 replacement cost claims for damaged contents based 0n the lesser of its contents
13 replacement estimate and the amount reasonably spent by insureds t0 replace the
14 contents;
15 (c) Whether Mercury violates 10 CCR §2695.4(a) and Insurance Code §790.03 by
16 misrepresenting and concealing insureds’ rights under §2051 and §205 1 .5;
17 (d) Whether Mercury violates 10 CCR §2695.9(f) when, after calculating
18 depreciation on contents claims, it: (a) fails t0 document its justification for such
19 depreciation in its claim files; and (b) fails t0 explain in writing t0 its insureds its
20 justification for such depreciation.
21 61. Typicality. Plaintiffs’ claims are typical of the claims 0f the Class in that their
22 claims arise out 0f the improper denial 0f payment for property under property insurance
23 policies issued in California in Violation 0f Insurance Code §§2051 and 205 1 .5, and Violation 0f
24 Insurance Code §790.03, 10 CCR §§2695.4(a), and 10 CCR §2695.9(f). Plaintiffs and the Class
25 have suffered a common injury—deprivation of money owed for property damaged as a result of
26 covered perils under property policies. That injury arises in all cases out of Mercury’s common
27 course 0f conduct—that is: (a) its uniform calculation 0f ACV for damaged contents by relying
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First Amended CLASS ACTION Complaint & Demand for Jury Trial
on the age 0f the property, rather than solely on the physical condition of the contents at the time
of the injury; (b) its uniform payment 0f replacement cost claims for damaged contents based on
the lesser 0f its replacement cost estimate and the amount reasonably spent by insureds t0 replace
the contents; and (c) its Violation 0f Insurance Code §§790.03(h), 205 1, and 2051.5; and 10 CCR
§§2695.4(a) and 10 CCR §2695.9(f). The relevant provisions 0f Mercury’s policies issued during
the applicable time period are substantially the same for each member of the Class.
62. Adequacy ofRepresentation. Plaintiffs Will fairly and adequately protect the
interests of the Class. Plaintiffs have n0 interest Which conflicts With the Class and have retained
lawyers who are experienced plaintiff—side insurance litigators.
10 63. Community oflnterest: Questions 0f law 01‘ fact common to the Class predominate
11 over any question affecting only individual members. The issues raised in this action involve: (a)
12 substantially identical insurance policies; (b) uniform statutes governing the payment of claims
13 under property insurance policies issued in California; (c) categorical claims adjusting
14 techniques applied uniformly by Mercury to pay claims for damaged property, and (d) uniform
15 underpayment of claims.
16 64. Superiority 0fthe Class Action Procedure. Class treatment of the claims asserted
17 by Plaintiffs is superior to other methods of adjudicating the claims of the Class in that:
18 (a) The prosecution 0f separate actions by individual members of the Class would
19 create a foreseeable risk 0f inconsistent 0r varying adjudications Which would
20 establish incompatible results and standards of conduct for Mercury.
21 (b) Class action treatment avoids the waste and duplication inherent in potentially
22 thousands of individual actions and conserves the resources 0f the courts.
23 (c) The cost of litigating individual claims relating to property is so great that, in the
24 absence 0f a class action, members of the Class have no effective remedy.
25 Because of the relatively small size of the claims and the high cost of litigation, in
26 the absence of a class action it is likely that few members 0f the Class would seek
27
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First Amended CLASS ACTION Complaint & Demand for Jury Trial
legal redress for the particular claims as t0 Which Plaintiffs seek class treatment
herein.
(d) Class members are unlikely t0 be interested in the control 0f their individual
claims because while damage estimates will vary, the claims are essentially
identical and, if a particular member 0f the Class has a compelling reason to
control his or her claim, he or she may opt out of the Class.
(e) There are no difficulties which arise from the concentration of the claims asserted
herein in a single forum and there are considerable economies in such
concentration.
10 (f) There are no difficulties in managing this action because of the Virtual identicality
11 0f legal and factual issues required t0 be resolved for Plaintiffs and the Class as t0
12 the issues for which Plaintiffs seek class treatment. Accordingly, this case should
13 be maintained as a class action.
14 (g) Mercury’s conduct in underpaying claims for property and its Violation 0f the
15 Insurance Code and Fair Claims Settlement Practices Regulations (10 CCR
16 §2695.1 et seq.) applies generally t0 the Class and therefore final injunctive relief
17 and/or declaratory relief sought is appropriate as applied t0 the Class as a whole.
18 INDIVIDUAL ALLEGATIONS
19 65. Donna Meschi has been a Mercury customer since 1997. On 0r about March
20 2007, Mercury sold Meschi the Policy, and renewed the Policy annually thereafter.
21 66. Vincent Meschi is an insured under the Policy.
22 67. On or about June 25, 2015, the Property and its contents were damaged by fire.
23 Plaintiffs promptly made a claim to Mercury. Shortly thereafter, Mercury assigned the claim
24 number 1Y008345-55 (the “Claim”). Fire is a covered peril under Donna Meschi’s all-risk Policy
25 and the Meschis satisfied all conditions under the Policy for payment of the Claim.
26 68. Mercury settled the Meschis’ property claim in accordance with the illegal
27 practices set forth above:
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First Amended CLASS ACTION Complaint & Demand for Jury Trial
(a) it calculated and deducted depreciation from its actual cash payments to Plaintiffs
based not solely 0n the condition of the contents, but rather entirely or in part
based 0n the age 0f the contents and employing its (0r its vendors’) depreciation
guidelines, in Violation of §205 1;
(b) it paid Plaintiffs’ replacement cost claim based 0n the lesser 0f its RCV estimate
or the actual cost of repair, in Violation of §205 1 .5;
(C) it misrepresented and concealed Plaintiffs’ rights under in Violation 0f Insurance
Code §2051, 2051.5, and §790.03(h); and 10 CCR §2695.4; and
(d) it failed to justify its deprecation calculations and failed to communicate its
10 justification for its depreciation calculations to Plaintiffs, in Violation of 10 CCR
11 §2695.9(f).
12 STATUTE OF LIMITATIONS
13 69. The allegations in this first amended complaint, including as against CAIC and
14 MIS, relate back t0 the time 0f the filing 0f the original complaint 0n September 27, 2016
15 because:
16 (a) A11 allegations are based 0n the same general set of facts set forth in the original
17 complaint;
18 (b) Recovery is sought against the same defendants as the defendants are alter-egos;
19 (C) The allegations refer t0 the same type of injury resulting from the same law
20 Violations;
21 (d) Plaintiffs recently became aware 0f the liability of CAIC and MIS as relates to the
22 causes 0f action set forth below; and
23 (e) No particular prejudice Will result as a result of the DOE substitution as Mercury
24 was aware in September 2016 of the allegations against it relating to illegal
25 depreciation, replacement cost claims, and file documentation.
26
27
28 __17__
First Amended CLASS ACTION Complaint & Demand for Jury Trial
FIRST CAUSE OF ACTION FOR DECLARATORY RELIEF
(AGAINST MCC, CAIC, MIS AND DOES 3-10)
(ON BEHALF OF PLAINTIFFS AND THE CLASS)
70. Plaintiffs incorporate by reference the preceding paragraphs as though fully set
forth in this First Cause 0f Action against Mercury and DOES 3-10.
71. An actual controversy has arisen and now exists between the parties concerning
whether Mercury and DOES 3-10 are Violating California law (California Insurance Code
§§790.03(h), 2051, 2070, 2071, 10 CCR §§2695.1(f), and 2695.4(a), and Bu
Preview
Electrunlully J. Dylan Edward Kerley (175695) L. Schaffer (153 6 1 2) Yasmeen Omidi (254962) MW— brfiuplnur Cour! flfialiflnllflaunfil afiln Malia U" 10/1/2019 Kerley Schaffer LLP 1939 Harrison Street, #500 Oakland, California 94612 Telephone: (5 10) 379-5801 Facsimile: (510) 228-0350 Attorneys for Plaintiffs SUPERIOR COURT OF THE STATE OF CALIFORNIA SAN MATEO COUNTY — UNLIMITED CIVIL JURISDICTION 10 11 DONNA MARIE MESCHI, an individual, Case N0. 16CIV02607 12 VINCENT MESCHI, an individual, 011 behalf of themselves and a class of similarly FIRST AMENDED CLASS ACTION 13 situated persons, and ROES 1-10. COMPLAINT AND DEMAND FOR JURY TRIAL 14 Plaintiffs, (1) Declaratory Relief 15 V. (2) Unfair Business Practices (Bus. & Prof. 16 Code §17200 et seq.) MERCURY CASUALTY COMPANY, a (3) Breach 0f Contract 17 CALIFORNIA corporation, (4) Breach of Implied Covenant (“Bad AUTOMOBILE INSURANCE Fait ”) 18 COMPANY, a corporation, MERCURY INSURANCE SERVICES, LLC, a limited 19 liability corporation, and DOES 3 through 10, 20 Defendants. 21 22 23 24 25 26 27 __1__ 28 First Amended CLASS ACTION Complaint & Demand for Jury Trial Plaintiffs Donna Meschi, Vincent Meschi, and ROES 1-10, on behalf of themselves and all others similarly situated allege as follows? PARTIES 1. Plaintiffs Donna and Vincent Meschi are residents of San Mateo, California (“Meschi Plaintiffs”). 2. Defendant Mercury Casualty Company (“MCC”) is a corporation licensed to conduct business in the state of California. 3. Defendant California Automobile Insurance Company (“CAIC”) is a corporation licensed to conduct business in the state of California. Plaintiffs seek to substitute CAIC for DOE 10 1. 11 4. Defendant Mercury Insurance Services, LLC (“MIS”), is a limited liability 12 corporation licensed to conduct business in the state of California. Plaintiffs seek to substitute 13 CAIC for DOE 2. 14 5. Defendants are herein collectively referred to as “Mercury,” the brand name used 15 by defendants and each 0f them for marketing, advertising, and sales 0f property policies issued 16 by MCC and CAIC, and as t0 all claims under property policies issued by MCC and CAIC but 17 investigated and adjusted by MIS, a subsidiary of Mercury General Corporation, the Mercury 18 umbrella entity. 19 6. The true names 0f Plaintiffs ROES 1-10 are presently unknown and are therefore 20 suing by fictitious names. Each 0f the ROE Plaintiffs made a claim for repair or replacement of 21 contents under a property policy issued by CAIC, was harmed by Defendants’ conduct, and thus 22 is a proper plaintiff and representative 0f the class in this action. 23 24 25 1 A11 allegations made based upon information and belief, except those in this complaint are 26 allegations which pertain t0 the Meschis, Which are based on personal knowledge. The allegations 0f this Complaint stated 0n information and belief are likely t0 have evidentiary 27 support after a reasonable opportunity for further investigation and discovery. 28 __2__ First Amended CLASS ACTION Complaint & Demand for Jury Trial 7. The true names and capacities of Defendants DOES 3 through 10 are unknown and are therefore sued by fictitious names. Each of the DOE Defendants is, in some manner, responsible for the damages alleged. 8. Plaintiffs seek to represent the following class (“Declarative Relief Class”): A11 California residents insured under a Mercury property policy from November 29, 2012 to the time of trial in this action. 9. Plaintiffs seek to represent subclasses (“Damages Classes”) (a) The “ACV Claims Class,” defined as: A11 California residents insured under a Mercury property policy Who made 10 an actual cash value claim for damage t0 property, Who accepted settlement 0f the 11 claim for less than the policy limit, as t0 Which Mercury paid at least $1, Which 12 claims were open between November 29, 2012, and the time 0f trial 0f this action; 13 and 14 (b) The “Replacement Cost Claims Class”, defined as: 15 A11 California residents insured under a Mercury property policy who made 16 an replacement cost value claim for damage t0 property actually replaced, who 17 accepted settlement of the claim for less than the policy limit, as to which Mercury 18 paid at least $ 1 , which claims were open between November 29, 2012, and the time 19 0f trial 0f this action. 20 VENUE AND JURISDICTION 21 10. The Meschi Plaintiffs were issued a policy of insurance by MCC, identified as 22 policy number HO 13 1 87051 (“Policy”), insuring all risks 0f loss t0 Plaintiffs’ dwelling and 23 property located at 247 Avalon Drive, Daly City, California (“Property”), and providing various 24 other coverages, from March 15, 2015, to March 15, 2016. The Policy is attached as Exhibit A 25 t0 this First Amended Complaint. 26 11. The ROE Plaintiffs were issued property policies by CAIC, insuring all risks of 27 their insured properties, each 0f Which is located in California. 28 __3__ First Amended CLASS ACTION Complaint & Demand for Jury Trial 12. Venue is proper in the Superior Court of California for the County of San Mateo as Defendants transact business in the County and Defendants derive substantial revenue from their activities in the County. MIS, MCC, and CAIC ARE MUTUAL ALTER-EGOS 13. The policies sold to the Meschis and ROE Plaintiffs misleadingly represent that the insurer is a non-existent entity called “Mercury.” 14. In fact, there is no such entity as Mercury. 15. Rather, Mercury General Corporation, the parent organization, has two primary insuring entities for property insurance in California—MCC and CAIC. The Meschis’ policy was 10 issued by MCC. The ROES’ policies were issued by CAIC. 11 16. MCC, CAIC, and MIS are mutual alter egos 0f each other because 0f a unity 0f 12 interest and ownership as follows: 13 0 MIS, Which like MCC and CAIC is a subsidiary 0f Mercury General Corporation, 14 contracts with MCC and CAIC to investigate and adjust property insurance 15 claims. 16 0 A11 investigation and adjusting 0f claims under MCC and CAIC policies is done 17 by employees of MIS. 18 o A11 supervision and management 0f claims investigation and adjusting 0f claim 19 under MCC and CAIC policies is done by employees 0f MIS. 20 o A11 decisions regarding training and guidelines as applies t0 the investigation and 21 adjusting 0f claims under MCC and CAIC policies are taken by employees 0f 22 MIS. 23 o A11 policy and insurer-wide decisions regarding claims investigation and claims 24 adjustment—including the application of depreciation to contents claims under 25 Mercury property policies, the payment of replacement cost claims for contents 26 under Mercury property policies, and compliance with 10 CCR §2695.9.(f)—are 27 made by employees of MIS 0n behalf 0f MCC and CAIC. 28 __4__ First Amended CLASS ACTION Complaint & Demand for Jury Trial MIS employees, supervisors, and managers were solely responsible for accepting, investigating, and adjusting the Meschis’ and ROES’ claims. MIS, MCC, and CAIC are wholly owned and controlled subsidiaries 0f Mercury General Corporation. MCC and CACI cannot functionally sell property insurance policies, 0r accept, investigate, adjust, or deny claims under property insurance policies Without MIS ’ s involvement. MCC and CAIC are mere shells, conduits for the affairs of MIS and its parent, Mercury General Corporation. 10 MCC and CAIC have n0 employees responsible for accepting, investigating, 11 adjusting, 0r denying insurance claims under their property policies. 12 Through a management agreement, MCC and CAIC grant MIS sole and complete 13 authority to accept, investigate, adjust, and deny claims under their property 14 insurance policies. 15 MIS is solely responsible for and has sole authority for accepting, investigating, 16 adjusting, and denying insurance claims under all property policies underwritten 17 by MCC and CAIC. 18 Employees of MIS manage and control litigation in Which MCC and CAIC are 19 involved. 20 Employees of MIS manage and control investigation, adjustment, and denial 0f 21 insurance claims under policies issued by MCC and CAIC. 22 MCC and CAIC have n0 employees responsible for accepting, investigating, 0r 23 adjusting insurance claims under its California property policies. 24 MCC and CAIC have n0 employees responsible for providing training as required 25 by 10 CCR §§2695.6 et seq. 26 MIS is responsible for all training required by 10 CCR §§2695.6 et seq. 27 28 __5__ First Amended CLASS ACTION Complaint & Demand for Jury Trial o MCC and CAIC neither create nor issue t0 any claims handling personnel guidelines for the investigation 0r adjusting 0f insurance claims in California. o MIS, on behalf 0f its sister companies MCC and CAIC, creates and issues t0 its claims handling personnel guidelines for the acceptance, investigation, adjusting, and denial 0f insurance claims in California. o MCC, CAIC, and MIS file consolidated federal tax returns. o MCC, CAIC, and MIS use the same bank for all accounts. 0 A11 MCC and CAIC profits are passed through t0 MIS by way 0f a management agreement and debt structuring. 10 o MCC, CAIC, and MIS have the same principle business address. 11 o MCC, CAIC, and MIS have overlapping officers and directors. 12 17. As there is a unity of interest among MCC, CAIC, and MIS, they are alter-egos 0f 13 each other; alternatively, they are a single entity, because if acts of the entities are treated 14 separately an inequitable result will obtain. 15 18. While all polices are sold by “Mercury,” and claims are investigated and adjusted 16 by MIS, property policies in California are issued by MCC and CAIC. 17 19. Beginning in 2016, during the class period at issue in this case, and without 18 alerting its policyholders, Mercury moved a maj ority of its California property policies from 19 MCC t0 CAIC. For example, in 2014, MCC had property policy premiums 0f about $372 20 million. In that year CAIC had property policy premiums 0f about $20 million. By 2018, MCC’S 21 premiums were down t0 $129 million, but CAIC’S premiums had increased t0 $398 million. 22 20. Likewise, the average number 0f covered contents claims t0 MCC for the period 23 2013 to 2016 was about 3,500 claims annually. In 2017 the number fell to 396; in 2018 it was 24 down to 243. The falloff in claims is due t0 Mercury’s renewal 0f MCC policies by CAIC in the 25 years 2017-2018, Which is likewise reflected in the shift in premium balance. 26 27 28 __6__ First Amended CLASS ACTION Complaint & Demand for Jury Trial 21. The various law Violations set forth below are the result of decisions made and applied by managing agents of MIS, 0n behalf 0f Mercury property policy holders, including holders 0f MCC and CAIC policies. 22. A maj ority of Mercury policyholders in the classes described above would not benefit from this lawsuit if Mercury is permitted t0 hide its business from the impact 0f ongoing litigation by moving its policies from a sued entity (MCC) to a sister insuring entity. Rather, given that MCC, CAIC, and the management entity MIS are alter egos, each of those entities is a proper defendant here and all polices presently in effect, as well as all claims under policies issued by MCC and CAIC during the class period, are the proper subj ect of the causes 0f action 10 set forth below. 11 23. Likewise, given that the law Violations set forth below are the result 0f conduct by 12 employees of MIS, an inequitable result would obtain if MIS, an alter ego 0f MCC and CAIC, is 13 excluded from liability here. 14 24. As holders 0f a Mercury policy, the Meschis are proper class representatives for 15 all class members under all property policies issued by MCC and CAIC and managed by MIS. 16 25. In the altemative, the ROE plaintiffs can represent class members With policies 17 issues by CAIC, and as to claims made under CAIC policies. 18 ALLEGATIONS RELATED TO 19 MERCURY'S VIOLATION OF INSURANCE CODE §2051 IN THE PAYMENT OF 20 ACTUAL CASH VALUE FOR PROPERTY 21 26. Plaintiffs and the Class are the holders of written policies 0f insurance issued by 22 Mercury wherein Mercury agreed t0 provide, inter alia, coverage for losses t0 property resulting 23 from sudden and accidental loss such as fire and other perils. 24 27. Under the 2004 Homeowners Bill of Rights, codified at California Insurance 25 Code §2051 et seq., Mercury was obligated in the case of a partial loss caused by any peril not 26 expressly excluded to first pay the actual cash value (“ACV”) of property up t0 the limits 0f the 27 policy. ACV is defined in Insurance Code §2051, Which provides in relevant part: 28 __7__ First Amended CLASS ACTION Complaint & Demand for Jury Trial (b) Under an open policy that requires payment of actual cash value, the measure 0f the actual cash value recovery, in whole 0r partial settlement 0f the claim shall be determined as follows: . . . (2) In case 0f a partial loss t0 the structure, or loss to its contents, the amount it would cost the insured to repair, rebuild, 0r replace the thing lost or injured less a fair and reasonable deduction for physical depreciation based upon its condition at the time 0f the injury 0r the policy limit, whichever is less. 28. Section 2051 permits the insurer t0 take a “fair and reasonable” deduction for 10 “physical depreciation” based upon the actual condition 0f the item “at the time 0f the injury.” 11 29. Physical depreciation refers t0 the physical wearing-out 0f property; it is a 12 measure 0f actual wear and tear. Physical depreciation does not include the separate concept 0f 13 functional obsolescence—that is, loss 0f value due t0 external conditions. Physical depreciation 14 does not include spreading the cost 0f an obj ect over its useful life for accounting or tax 15 purposes. 16 30. Section 2051 ’s limitation 0f “depreciation” t0 physical depreciation is consistent 17 With claims adjusting practices throughout the United States which recognize that depreciation 18 for actual cash value purposes is limited t0 physical depreciation (wear and tear), and does not 19 include other concepts 0f depreciation that may be used for tax 0r accounting purposes. 20 3 1. T0 protect California insureds from arbitrary 0r improper deductions for 21 depreciation, California Code 0f Regulation 10 CCR §2695.9(f) states, in pertinent part “[W]hen 22 the amount claimed is adjusted for betterment, depreciation 0r salvage, all justification for the 23 adjustment shall be contained in the claim file . . .The basis for the adjustment shall be fully 24 explained t0 claimant in writing.” 25 32. By operation of law, Insurance Code §790.03(h) is made part of every property 26 insurance contract between Mercury and every member 0f the Class. 27 28 __8__ First Amended CLASS ACTION Complaint & Demand for Jury Trial 33. Pursuant t0 operation of law, Insurance Code §2051 is made part of every property insurance contract between Mercury and every member of the Class. 34. Pursuant t0 operation 0f law, 10 CCR §2695.4(a) is made part 0f every property insurance contract between Mercury and every member of the Class. 35. Pursuant to operation of law, 10 CCR §2695.9(f) is made part 0f every property insurance contract between Mercury and every member of the Class. 36. In Violation 0f Insurance Code §205 1 Mercury , calculates the ACV 0f damaged contents by calculating depreciation according t0 a straight-line schedule based 0n the age 0f each item, rather than by reference solely to the true physical condition and deterioration 0f the 10 item prior t0 the loss. 11 37. Alternatively, Mercury calculates depreciation based on a combination 0f age and 12 condition in Violation of §205 1. 13 38. Mercury uniformly applies the foregoing illegal claims adjusting methods t0 all 0f 14 its property claims in California in Violation of §205 1. 15 39. Mercury uses a standard depreciation method in California based upon criteria not 16 permitted by §2051 and does not independently justify the depreciation in the claim file as 17 required by 10 CCR §2695.9(f). 18 40. Mercury uses a depreciation guide, or relies 0n third party vendors to use such 19 depreciation guides, Which settle property claims contrary t0 the condition-only approach 20 mandated by §205 1 including by reference , to the age and type of property at issue. Mercury 21 neither provides its method 0f depreciation t0 insureds nor explains t0 them how it calculates 22 depreciation in Violation 0f 10 CCR §2965.9(D. 23 41. Accordingly, during the relevant time period, Mercury violated its contracts, 24 Insurance Code §205 1, and 10 CCR §2695.9(f) by improperly calculating “depreciation” and 25 refusing to pay for such depreciation through use of arbitrary and illegal depreciation 26 calculations that were not based solely upon the actual condition 0f each damaged item, and by 27 failing t0 justify in writing the depreciation amounts it claims. Mercury has n0 written 0r 28 __9__ First Amended CLASS ACTION Complaint & Demand for Jury Trial systematic communication With its policyholders about their rights to an appropriate calculation under California law and the policy based solely upon actual physical condition. Mercury has no written 0r systematic communication with its policyholders about the physical condition 0f items at the time of loss. Mercury has n0 written 0r systematic communication With its policyholders about the manner of its depreciation of property, all in Violation 0f 10 CCR §2695.9(f). 42. Plaintiffs and the Class are informed and believe that through use of the foregoing illegal depreciation methods, Mercury substantially reduces its claim liabilities and increases its profits, by applying high levels of depreciation When adjusting contents claims. 43. Plaintiffs and the Class first became aware of the Violations only in or about 10 November 2012, because Mercury hid from Plaintiffs and the Class its illegal practices relating 11 t0 calculation 0f depreciation. 12 44. Plaintiffs and the Class had no right t0 seek appraisal once they learned 0f 13 Mercury’s illegal practices because the illegal practices at issue were beyond the scope of 14 appraisal under the insurance policies and relate t0 a loss settlement practice rather than 15 valuation issue. Likewise, an appraisal panel would have n0 authority to decide Whether 16 Mercury’s conduct violates the UCL, merits declaratory relief, 0r amounts t0 a breach of its 17 policies with thousands of holders of Mercury property policies in California. Thus, it would be 18 entirely futile for Plaintiffs and the Class t0 submit any 0f their claims 0r following causes 0f 19 action for appraisal as t0 the correct actual cash value. 20 MERCURY'S VIOLATION OF INSURANCE CODE §2051.5 IN THE PAYMENT OF 21 REPLACEMENT COST FOR PROPERTY 22 45. Under the 2004 Homeowners Bill 0f Rights, codified at California Insurance 23 Code §205 1 .5, Mercury was obligated in the case of partial losses caused by perils not expressly 24 excluded t0 first pay actual cash value. If a policyholder With a replacement cost value policy 25 then makes a replacement cost claim after replacing or repairing the damaged item, §2051.5 26 requires Mercury to pay the difference between the initial actual cash value payment for the item, 27 and the amount reasonably paid by the insured t0 replace the property, up t0 the policy limits. 28 __10__ First Amended CLASS ACTION Complaint & Demand for Jury Trial 46. Insurance Code §2051.5(a) provides: Under an open policy that requires payment of the replacement cost for a loss, the measure 0f indemnity is the amount that it would cost the insured to repair, rebuild, 0r replace the thing lost 0r injured, Without a deduction for physical depreciation, or the policy limit, whichever is less. If the policy requires the insured t0 repair, rebuild, or replace the damaged property in order to collect the full replacement cost, the insurer shall pay the actual cash value of the damaged property, 10 as defined in Section 2051, until the damaged property is repaired, 11 rebuilt, 0r replaced. Once the property is repaired, rebuilt, or 12 replaced, the insurer Shall pay the difi’erence between the actual 13 cash value payment made and thefull replacement cost reasonably 14 paid t0 replace the damagedproperly, up t0 the limits stated in the 15 policy. 16 47. Mercury's insurance policies Violate Insurance Code §205 1 .5 by providing for a 17 contrary method of loss settlement. 18 48. Mercury's policies state in relevant part that it will pay replacement cost as 19 follows: 20 4. Loss Settlement. Covered property losses are settled as follows: . . . 21 b. Full Value. Personal Property under Coverage C, unless listed under 4.c. 22 below, and awnings, carpeting, domestic appliances, outdoor antennas and 23 outdoor equipment, whether 0r not attached t0 buildings, at replacement cost at 24 the time 0f loss subject t0 the following: 25 (1) We will pay the full cost of repair or replacement, but not exceeding the 26 smallest 0f the following amounts: 27 28 __11__ First Amended CLASS ACTION Complaint & Demand for Jury Trial (a) the limit of liability of this policy applicable to damaged, destroyed or stolen property; (b) the replacement cost 0f the property or any part; (c) the full amount actually and necessarily spent by the insured in repairing 0r replacing the property 0r any part; (d) the direct financial loss you incur; or (e) our pro-rata share 0f any loss when divided with any other valid and collectible insurance applying to the covered property at the time 0f loss. 49. The Mercury policy defines replacement cost as: 10 18. “Replacement cost” 11 b. In case 0f loss t0 personal property, replacement cost means the 12 cost, at the time of loss, of a new article identical t0 the one damaged, 13 destroyed 0r stolen. When the identical article is n0 longer manufactured 14 0r is not available, replacement cost shall mean the cost 0f a new article 15 similar to the one damaged or destroyed and which is of comparable 16 quality and usefulness, Without deduction for depreciation. 17 50. Pursuant t0 operation of law, §205 1 .5 is made part of every property insurance 18 contract between Mercury and every member 0f the Class. 19 5 1. In Violation 0f §205 1 .5, in the event of replacement 0f contents covered under a 20 replacement cost policy, Mercury does not pay policy holders the amount actually paid by them 21 t0 replace the property. Instead, pursuant to the terms of Mercury's policy, Mercury pays the 22 lesser 0f the amount reasonably expended by the insured t0 replace or repair the items, and 23 Mercury’s own calculation 0f the “cost, at the time 0f loss, 0f a new article identical t0 the one 24 damaged, destroyed 0r stolen.” 25 52. Here is an example of how Mercury uses its policy to increase its profits in 26 Violation 0f Insurance Code §205 1 .5: Mercury arrives at a hypothetical replacement cost value 0f 27 a lamp. If, in replacing the lamp, the insured pays less than that replacement cost, Mercury pays 28 __12__ First Amended CLASS ACTION Complaint & Demand for Jury Trial the amount the policyholder actually spends. But if, in replacing the lamp, the policyholder reasonably spends more than Mercury’s hypothetical replacement cost, Mercury limits its liability t0 that lower amount, paying less than is required by §205 1 .5. 53. Mercury uniformly applies the foregoing illegal claims adjusting methods to all of its property claims in California in Violation 0f §2051.5. 54. Through use of the foregoing illegal depreciation methods, Mercury substantially reduces its claim liabilities and increases its profits. 55. Plaintiffs and the Class first became aware of the Violations only in 0r about November 2012, because Mercury hid from Plaintiffs and the Class its illegal practices relating 10 to payment 0f replacement cost claims. Mercury likewise misrepresented and concealed from its 11 insureds their rights under §205 1 .5, in Violation 0f Insurance Code §790.03(h) and 10 CCR 12 §2695.4. 13 56. Plaintiffs and the Class had n0 right to seek appraisal once they learned of 14 Mercury’s illegal practices because the illegal practices at issue were beyond the scope 0f 15 appraisal under the insurance policies and relate to a loss settlement practice rather than 16 valuation issue. Likewise, an appraisal panel would have n0 authority t0 decide Whether 17 Mercury’s conduct violates the UCL, merits declaratory relief, or amounts to a breach of its 18 property policies with thousands of California insureds. Thus, it would be entirely futile for 19 Plaintiffs and the Class t0 submit any 0f their claims or following causes of action for appraisal 20 as to the correct replacement cost value. 21 CLASS ACTION ALLEGATIONS 22 57. As a result 0f these related Violations 0f California insurance law, Mercury has 23 deprived Plaintiffs and the Class of millions of dollars by (a) wrongfully calculating depreciation 24 and thus reducing ACV payments, (b) wrongfully calculating replacement cost value as required 25 by §205 1 .5, and (c) Violating its obligations under the Fair Claims Settlement Practices Act, 26 including 10 CCR §§2695.4(a) and 2695.9(3 27 _ _ 13 _ _ 28 First Amended CLASS ACTION Complaint & Demand for Jury Trial 58. Plaintiffs bring this action as a class action pursuant t0 California Code of Civil Procedure §382. 59. Numerosily. Plaintiffs are informed and believe, and thereupon allege, that the Class contains at least ten thousand members and that joinder of the claims of the Class in a single action is therefore impracticable. 60. Common questions. There exist questions of law and fact common to all members 0f the Class. Common legal and factual questions include, but are not limited to the following: (a) Whether Mercury violates Insurance Code §§2051 and 205 1 .5 by calculating ACV for damaged contents by relying on the age of the property, rather than 10 solely on the physical condition of the contents at the time of the injury; 11 (b) Whether Mercury violates Insurance Code §205 1 .5 by uniformly paying 12 replacement cost claims for damaged contents based 0n the lesser of its contents 13 replacement estimate and the amount reasonably spent by insureds t0 replace the 14 contents; 15 (c) Whether Mercury violates 10 CCR §2695.4(a) and Insurance Code §790.03 by 16 misrepresenting and concealing insureds’ rights under §2051 and §205 1 .5; 17 (d) Whether Mercury violates 10 CCR §2695.9(f) when, after calculating 18 depreciation on contents claims, it: (a) fails t0 document its justification for such 19 depreciation in its claim files; and (b) fails t0 explain in writing t0 its insureds its 20 justification for such depreciation. 21 61. Typicality. Plaintiffs’ claims are typical of the claims 0f the Class in that their 22 claims arise out 0f the improper denial 0f payment for property under property insurance 23 policies issued in California in Violation 0f Insurance Code §§2051 and 205 1 .5, and Violation 0f 24 Insurance Code §790.03, 10 CCR §§2695.4(a), and 10 CCR §2695.9(f). Plaintiffs and the Class 25 have suffered a common injury—deprivation of money owed for property damaged as a result of 26 covered perils under property policies. That injury arises in all cases out of Mercury’s common 27 course 0f conduct—that is: (a) its uniform calculation 0f ACV for damaged contents by relying 28 __14__ First Amended CLASS ACTION Complaint & Demand for Jury Trial on the age 0f the property, rather than solely on the physical condition of the contents at the time of the injury; (b) its uniform payment 0f replacement cost claims for damaged contents based on the lesser 0f its replacement cost estimate and the amount reasonably spent by insureds t0 replace the contents; and (c) its Violation 0f Insurance Code §§790.03(h), 205 1, and 2051.5; and 10 CCR §§2695.4(a) and 10 CCR §2695.9(f). The relevant provisions 0f Mercury’s policies issued during the applicable time period are substantially the same for each member of the Class. 62. Adequacy ofRepresentation. Plaintiffs Will fairly and adequately protect the interests of the Class. Plaintiffs have n0 interest Which conflicts With the Class and have retained lawyers who are experienced plaintiff—side insurance litigators. 10 63. Community oflnterest: Questions 0f law 01‘ fact common to the Class predominate 11 over any question affecting only individual members. The issues raised in this action involve: (a) 12 substantially identical insurance policies; (b) uniform statutes governing the payment of claims 13 under property insurance policies issued in California; (c) categorical claims adjusting 14 techniques applied uniformly by Mercury to pay claims for damaged property, and (d) uniform 15 underpayment of claims. 16 64. Superiority 0fthe Class Action Procedure. Class treatment of the claims asserted 17 by Plaintiffs is superior to other methods of adjudicating the claims of the Class in that: 18 (a) The prosecution 0f separate actions by individual members of the Class would 19 create a foreseeable risk 0f inconsistent 0r varying adjudications Which would 20 establish incompatible results and standards of conduct for Mercury. 21 (b) Class action treatment avoids the waste and duplication inherent in potentially 22 thousands of individual actions and conserves the resources 0f the courts. 23 (c) The cost of litigating individual claims relating to property is so great that, in the 24 absence 0f a class action, members of the Class have no effective remedy. 25 Because of the relatively small size of the claims and the high cost of litigation, in 26 the absence of a class action it is likely that few members 0f the Class would seek 27 28 __15__ First Amended CLASS ACTION Complaint & Demand for Jury Trial legal redress for the particular claims as t0 Which Plaintiffs seek class treatment herein. (d) Class members are unlikely t0 be interested in the control 0f their individual claims because while damage estimates will vary, the claims are essentially identical and, if a particular member 0f the Class has a compelling reason to control his or her claim, he or she may opt out of the Class. (e) There are no difficulties which arise from the concentration of the claims asserted herein in a single forum and there are considerable economies in such concentration. 10 (f) There are no difficulties in managing this action because of the Virtual identicality 11 0f legal and factual issues required t0 be resolved for Plaintiffs and the Class as t0 12 the issues for which Plaintiffs seek class treatment. Accordingly, this case should 13 be maintained as a class action. 14 (g) Mercury’s conduct in underpaying claims for property and its Violation 0f the 15 Insurance Code and Fair Claims Settlement Practices Regulations (10 CCR 16 §2695.1 et seq.) applies generally t0 the Class and therefore final injunctive relief 17 and/or declaratory relief sought is appropriate as applied t0 the Class as a whole. 18 INDIVIDUAL ALLEGATIONS 19 65. Donna Meschi has been a Mercury customer since 1997. On 0r about March 20 2007, Mercury sold Meschi the Policy, and renewed the Policy annually thereafter. 21 66. Vincent Meschi is an insured under the Policy. 22 67. On or about June 25, 2015, the Property and its contents were damaged by fire. 23 Plaintiffs promptly made a claim to Mercury. Shortly thereafter, Mercury assigned the claim 24 number 1Y008345-55 (the “Claim”). Fire is a covered peril under Donna Meschi’s all-risk Policy 25 and the Meschis satisfied all conditions under the Policy for payment of the Claim. 26 68. Mercury settled the Meschis’ property claim in accordance with the illegal 27 practices set forth above: 28 __16__ First Amended CLASS ACTION Complaint & Demand for Jury Trial (a) it calculated and deducted depreciation from its actual cash payments to Plaintiffs based not solely 0n the condition of the contents, but rather entirely or in part based 0n the age 0f the contents and employing its (0r its vendors’) depreciation guidelines, in Violation of §205 1; (b) it paid Plaintiffs’ replacement cost claim based 0n the lesser 0f its RCV estimate or the actual cost of repair, in Violation of §205 1 .5; (C) it misrepresented and concealed Plaintiffs’ rights under in Violation 0f Insurance Code §2051, 2051.5, and §790.03(h); and 10 CCR §2695.4; and (d) it failed to justify its deprecation calculations and failed to communicate its 10 justification for its depreciation calculations to Plaintiffs, in Violation of 10 CCR 11 §2695.9(f). 12 STATUTE OF LIMITATIONS 13 69. The allegations in this first amended complaint, including as against CAIC and 14 MIS, relate back t0 the time 0f the filing 0f the original complaint 0n September 27, 2016 15 because: 16 (a) A11 allegations are based 0n the same general set of facts set forth in the original 17 complaint; 18 (b) Recovery is sought against the same defendants as the defendants are alter-egos; 19 (C) The allegations refer t0 the same type of injury resulting from the same law 20 Violations; 21 (d) Plaintiffs recently became aware 0f the liability of CAIC and MIS as relates to the 22 causes 0f action set forth below; and 23 (e) No particular prejudice Will result as a result of the DOE substitution as Mercury 24 was aware in September 2016 of the allegations against it relating to illegal 25 depreciation, replacement cost claims, and file documentation. 26 27 28 __17__ First Amended CLASS ACTION Complaint & Demand for Jury Trial FIRST CAUSE OF ACTION FOR DECLARATORY RELIEF (AGAINST MCC, CAIC, MIS AND DOES 3-10) (ON BEHALF OF PLAINTIFFS AND THE CLASS) 70. Plaintiffs incorporate by reference the preceding paragraphs as though fully set forth in this First Cause 0f Action against Mercury and DOES 3-10. 71. An actual controversy has arisen and now exists between the parties concerning whether Mercury and DOES 3-10 are Violating California law (California Insurance Code §§790.03(h), 2051, 2070, 2071, 10 CCR §§2695.1(f), and 2695.4(a), and Bu